10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

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

For the quarterly period ended September 30, 2008

OR

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 001-31616

INTERNATIONAL LEASE FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

California	22-3059110
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10250 Constellation Blvd., Suite 3400
Los Angeles, California	90067
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (310) 788-1999

     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 þ       No o

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 o  Accelerated filer o  Non-accelerated filer   þ
(Do not check if a smaller reporting company) Smaller reporting company o 

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

Yes o      No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     As of October 31, 2008, there were 45,267,723 shares of Common Stock, no par value, outstanding.

     Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited except for December 31, 2007)
Condensed Consolidated Balance Sheets September 30, 2008 and December 31, 2007		2
Condensed Consolidated Statements of Income Three months ended September 30, 2008 and 2007		3
Condensed Consolidated Statements of Income Nine months ended September 30, 2008 and 2007		3
Condensed Consolidated Statements of Comprehensive Income Three months ended September 30, 2008 and 2007		4
Condensed Consolidated Statements of Comprehensive Income Nine months ended September 30, 2008 and 2007		4
Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2008 and 2007		5
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of the Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures about Market Risk		32
Item 4T. Controls and Procedures		33
Part II. Other Information
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 6. Exhibits		36
Signatures		38
EX-3.1
EX-3.2
EX-12
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

	September 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Cash and cash equivalents, including interest bearing accounts of $4,467,954 (2008) and $171,609 (2007)	$	5,106,189		$	182,772
Current income taxes		146,863			138,405
Notes receivable, net of allowance, and net investment in finance and sales-type leases		431,290			418,510
Flight equipment under operating leases		55,064,674			52,174,479
Less accumulated depreciation		11,681,633			10,376,819
		43,383,041			41,797,660
Deposits on flight equipment purchases		557,295			794,239
Lease receivables and other assets		427,003			428,836
Derivative assets, net		524,036			863,719
Variable interest entities assets		100,960			112,059
Deferred debt issue costs, less accumulated amortization of $122,782 (2008) and $110,017 (2007)		91,895			94,390
	$	50,768,572		$	44,830,590
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accrued interest and other payables	$	519,553		$	448,185
Tax benefit sharing payable to AIG		85,000			85,000
Loan from AIG		1,671,268			—
Debt financing, net of deferred debt discount of $20,077 (2008) and $32,570 (2007)		33,051,135			29,451,279
Subordinated debt		1,000,000			1,000,000
Foreign currency adjustment related to foreign currency denominated debt		715,460			968,600
Security deposits on aircraft, overhauls and other		1,543,541			1,455,181
Rentals received in advance		252,968			251,381
Deferred income taxes		4,421,804			4,135,137
Variable interest entities liabilities		9,074			7,048
SHAREHOLDERS’ EQUITY
Market Auction Preferred Stock, $100,000 per share liquidation value; Series A and B, each having 500 shares issued and outstanding		100,000			100,000
Common stock — no par value; 100,000,000 authorized shares, 45,267,723 issued and outstanding		1,053,582			1,053,582
Paid-in capital		594,238			593,455
Accumulated other comprehensive income (loss)		(187,573	)		(106,219	)
Retained earnings		5,938,522			5,387,961
Total shareholders’ equity		7,498,769			7,028,779
	$	50,768,572		$	44,830,590

See notes to condensed consolidated financial statements.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Dollars in thousands)

	2008			2007
	(Unaudited)
REVENUES
Rental of flight equipment	$	1,267,459		$	1,195,054
Flight equipment marketing		5,841			16,450
Interest and other		25,653			44,003
		1,298,953			1,255,507
EXPENSES
Interest		394,353			417,570
Effect from derivatives, net of change in hedged items due to changes in foreign exchange rates		(82	)		(3,989	)
Effect from credit and market valuation adjustments on derivatives		(51,238	)		—
Depreciation of flight equipment		475,110			447,782
Provision for overhauls		75,343			81,795
Flight equipment rent		4,500			4,500
Selling, general and administrative		51,701			33,281
		949,687			980,939
INCOME BEFORE INCOME TAXES		349,266			274,568
Provision for income taxes		124,660			90,149
NET INCOME	$	224,606		$	184,419

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Dollars in thousands)

	2008		2007
	(Unaudited)
REVENUES
Rental of flight equipment	$	3,712,849	$	3,397,566
Flight equipment marketing		44,988		21,268
Interest and other		69,444		84,619
		3,827,281		3,503,453
EXPENSES
Interest		1,140,886		1,210,398
Effect from derivatives, net of change in hedged items due to changes in foreign exchange rates		7,449		8,588
Depreciation of flight equipment		1,389,348		1,287,483
Provision for overhauls		226,068		210,205
Flight equipment rent		13,500		13,500
Selling, general and administrative		136,569		116,656
		2,913,820		2,846,830
INCOME BEFORE INCOME TAXES		913,461		656,623
Provision for income taxes		325,290		227,668
NET INCOME	$	588,171	$	428,955

See notes to condensed consolidated financial statements.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Dollars in thousands)

	2008			2007
	(Unaudited)
NET INCOME	$	224,606		$	184,419
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Net changes in cash flow hedges, net of taxes of $40,398 (2008) and $31,631 (2007)		(75,025	)		(58,744	)
Change in unrealized appreciation on securities available for sale, net of taxes of $91 (2008) and $142 (2007)		(169	)		263
		(75,194	)		(58,481	)
COMPREHENSIVE INCOME	$	149,412		$	125,938

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Dollars in thousands)

	2008			2007
	(Unaudited)
NET INCOME	$	588,171		$	428,955
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Net changes in cash flow hedges, net of taxes of $43,558 (2008) and $25,755 (2007)		(80,894	)		(47,831	)
Change in unrealized appreciation on securities available for sale, net of taxes of $248 (2008) and $106 (2007)		(460	)		198
		(81,354	)		(47,633	)
COMPREHENSIVE INCOME	$	506,817		$	381,322

See notes to condensed consolidated financial statements.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

(Dollars in thousands)

	2008			2007
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	588,171		$	428,955
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of flight equipment		1,389,348			1,287,483
Deferred income taxes		330,473			336,988
Change in fair value of derivative instruments		215,231			(441,291	)
Foreign currency adjustment of non-US$ denominated debt		(253,140	)		371,145
Amortization of deferred debt issue costs		22,580			23,247
Other, including foreign exchange adjustments on foreign currency denominated cash		(12,892	)		(6,577	)
Changes in operating assets and liabilities:
Decrease in lease receivables and other assets		33,562			74,262
Increase in accrued interest and other payables		73,715			156,662
Change in current income taxes		(8,458	)		(143,179	)
Increase in rentals received in advance		1,587			12,476
Change in unamortized debt discount		12,493			3,919
Net cash provided by operating activities		2,392,670			2,104,090
INVESTING ACTIVITIES
Acquisition of flight equipment for operating leases		(2,951,729	)		(3,943,322	)
Payments for deposits and progress payments		(248,397	)		(408,267	)
Proceeds from disposal of flight equipment — net of gain		390,868			87,103
Advance on notes receivable		(43,854	)		—
Collections on notes receivable and finance and sales-type leases — net of income amortized		23,380			28,577
Other		—			1,729
Net cash used in investing activities		(2,829,732	)		(4,234,180	)
FINANCING ACTIVITIES
Net change in commercial paper		(2,932,870	)		1,074,978
Loan from AIG		1,671,268			—
Proceeds from debt financing		9,311,223			3,748,168
Payments in reduction of debt financing		(2,790,991	)		(2,811,244	)
Debt issue costs		(20,085	)		(22,307	)
Payment of common and preferred dividends		(41,869	)		(29,045	)
Increase in customer and other deposits		166,192			185,588
Net cash provided by financing activities		5,362,868			2,146,138
Net increase in cash		4,925,806			16,048
Effect of exchange rate changes on cash		(2,389	)		9,379
Cash at beginning of period		182,772			157,120
Cash at end of period	$	5,106,189		$	182,547

(Table continued on following page)

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Dollars in thousands)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

	2008		2007
	(Unaudited)
Cash paid during the period for:
Interest, excluding interest capitalized of $20,681 (2008) and $27,672 (2007)	$	1,023,533	$	1,135,790
Income taxes, net		3,275		33,859

Non-Cash Investing and Financing Activities

2008:

$431,142 of Deposits on flight equipment purchases was applied to Acquisition of flight equipment under operating leases.

$53,788 was reclassified from Security deposits on aircraft, overhauls and other to Deposits on flight equipment purchases for concessions received from manufacturers.

Certain credits from aircraft and engine manufacturers in the amount of $9,301 reduced the basis of Flight equipment under operating leases and increased Lease receivables and other assets.

2007:

$591,913 of Deposits on flight equipment purchases was applied to Acquisition of flight equipment under operating leases.

$119,890 was reclassified from Security deposits on aircraft, overhauls and other to Deposits on flight equipment purchases for concessions received from manufacturers.

Certain credits from aircraft and engine manufacturers in the amount of $35,862 reduced the basis of Flight equipment under operating leases and increased Lease receivables and other assets.

$9,120 of Notes receivable and $5,529 of Lease receivables and other assets were exchanged for flight equipment of $14,649.

See notes to condensed consolidated financial statements.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

(Unaudited)

A. Basis of Preparation

     International Lease Finance Corporation (“the Company,” “ILFC,” “management,” “we,” “our,” “us”) is an indirect wholly owned subsidiary of American International Group, Inc. (“AIG”). AIG is a holding company, which through its subsidiaries is primarily engaged in a broad range of insurance and insurance-related activities in the United States and abroad. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with 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 GAAP for complete financial statements.

     The accompanying unaudited condensed consolidated financial statements include our accounts, accounts of all other entities in which we have a controlling financial interest, as well as accounts of variable interest entities in which we are the primary beneficiary as defined by Financial Accounting Standards Board Interpretation (“FIN”) No. 46R “Consolidation of Variable Interest Entities.” All material intercompany accounts have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods presented have been included. Certain reclassifications have been made to the 2007 unaudited condensed consolidated financial statements to conform to the 2008 presentation. Operating results for the nine months ended September 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Effect of Out-of-Period Adjustment

     In the third quarter of 2008, we recorded an out-of-period adjustment which increased pretax income by $51.2 million. The out-of-period adjustment resulted from the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) as of January 1, 2008. During the first and second quarters of 2008, we recorded charges to pre-tax income of $40.0 million and $11.2 million respectively for Credit Valuation Adjustment (“CVA”) and Market Valuation Adjustment (“MVA”) on our cash flow hedges. In the third quarter, we concluded that the CVA and MVA on our cash flow hedges should have been recorded in Other comprehensive income (“OCI”) in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended (“SFAS 133”). The charges had previously been presented separately on our March 31 and June 30, 2008 Condensed Consolidated Income Statements. See Note D — Fair Value Measurements for more information on SFAS 157. The Board of Directors was informed of this out-of-period adjustment. We do not believe the effect of the out-of-period adjustment is material to any period affected.

B. Recent Accounting Pronouncements

SFAS 157

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures regarding fair value measurement but does not change existing guidance about whether an asset or liability is carried at fair value. The most significant effect of us adopting SFAS 157 was a change in the valuation methodologies for derivative instruments historically carried at fair value. The change primarily was to incorporate counterparties’ credit risk and market liquidity risk factors in the fair value measurement. We adopted the standard on January 1, 2008, its required effective date. Our derivative instruments are designated as cash flow hedges in accordance with SFAS 133. With respect to the implementation, adjustments to the market values of derivatives were applied prospectively in accordance with SFAS 157. The changes resulted in an incremental reduction of the fair value of the derivative assets of $90.8 million and $142.0 million for the three and nine months ended September 30, 2008, respectively. The adjustments were recorded in OCI and include an out-of-period adjustment of $51.2 million related to the six months ended June 30, 2008, which was credited to income in the three-month period ended September 30, 2008. See “Effect of Out-of-Period Adjustment” under Note A — Basis of Preparation.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

     The fair value measurement and related disclosure guidance in SFAS 157 do not apply to fair value measurements associated with share-based awards accounted for in accordance with SFAS No. 123(R), “Share-Based Payment.” In addition, on February 14, 2008, the FASB issued FASB Staff Position 157-1, “Application of FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13,” which amends the scope of SFAS 157 to exclude SFAS No. 13 “Accounting for Leases” and its related interpreted accounting pronouncements.

SFAS 159

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value.

     Subsequent changes in fair value for designated items will be required to be reported in income. SFAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. SFAS 159 permits the fair value option election on an instrument-by-instrument basis for eligible items existing at the adoption date and at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. We adopted this standard at January 1, 2008, its required effective date. The adoption of this standard did not have any effect on our consolidated financial condition, results of operations or cash flows, since we did not elect to fair value any financial instruments or other items not currently measured at fair value.

SFAS 160

     In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 requires non-controlling (formally known as minority) interests in partially owned consolidated subsidiaries to be classified on the Consolidated Balance Sheet as a separate component of consolidated shareholders’ equity. SFAS 160 also establishes accounting rules for subsequent acquisitions and sales of non-controlling interests and how non-controlling interests should be presented in the Consolidated Statement of Income. The non-controlling interests’ share of subsidiary income should be reported as a part of consolidated net income with disclosure of the attribution of consolidated net income to the controlling and non-controlling interests on the face of the Consolidated Statement of Income. SFAS 160 is effective for us beginning with financial statements issued in the first quarter of 2009 and earlier application is prohibited. SFAS 160 must be adopted prospectively, except that non-controlling interests should be reclassified from liabilities to a separate component of shareholders’ equity and consolidated net income should be recast to include net income attributable to both the controlling and non-controlling interests retrospectively. We are currently assessing the impact of SFAS 160 on a prospective basis, as well as equity classification of controlling and non-controlling interests.

SFAS 161

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced disclosures about (i) how and why we use derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS 133; and (iii) how derivative instruments and related hedged items affect our financial position, results of operations, and cash flows. SFAS 161 is effective for us beginning with financial statements issued in the first quarter of 2009. Because SFAS 161 only requires additional disclosures about derivatives, it will have no effect on our consolidated financial position, results of operations or cash flows.

FIN 39-1

     In April 2007, the FASB directed the FASB Staff to issue FASB Staff Position (“FSP”) No. FIN 39-1, “Amendment of FIN No. 39” (“FSP FIN 39-1”). FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash collateral receivables or payables against derivative instruments under certain circumstances. FSP FIN 39-1 became effective on January 1, 2008 for us.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

At September 30, 2008, we did not have any cash collateral receivables or payables to offset against derivative instruments.

SFAS 162

     In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements presented in conformity with GAAP, but does not change current practices. This statement will become effective on the 60th day following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to remove GAAP hierarchy from the auditing standards. SFAS 162 will have no effect on our consolidated financial position, results of operations or cash flows.

FSP FAS 133-1 and FIN 45-4

     In September 2008, the FASB issued FASB Staff Position No. FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An amendment of FASB Statement No. 133 and FASB Interpretation No. 45” (“FSP FAS 133-1 and FIN 45-4”). FSP FAS 133-1 and FIN 45-4 amends SFAS 133, to require additional disclosures by sellers of credit derivatives, including derivatives embedded in a hybrid instrument and FIN No. 45, “Guarantor’s Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. In addition, FSP FAS 133-1 and FIN 45-4 clarifies the Board’s intent about the effective date of SFAS 161. FSP FAS 133-1 and FIN 45-4 is effective for us beginning with the year-end 2008 financial statements. Because FSP FAS 133-1 and FIN 45-4 only requires additional disclosures about credit derivatives and guarantees, it will have no effect on our consolidated financial position, results of operations or cash flows.

FSP FAS 157-3

     In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 provides guidance clarifying certain aspects of SFAS 157 with respect to the fair value measurements of a security when the market for that security is inactive. We adopted this guidance prospectively in the third quarter of 2008. The adoption of FSP FAS 157-3 did not have any impact on our consolidated financial position or results of operations.

C. Cash and Cash Equivalents

     We consider cash and cash equivalents to be cash on hand and highly liquid investments with maturity dates of 90 days or less. At September 30, 2008, Cash and cash equivalents consist of cash on hand, time deposits, deposits in funds that purchase United States government securities and overnight interest bearing sweep accounts.

D. Fair Value Measurements

     In September 2006, the FASB issued SFAS 157, which is effective for fiscal years beginning after November 15, 2007. We adopted the standard on January 1, 2008. SFAS 157:

• Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a frame work for measuring fair value;

• Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date; and

• Expands disclosures about instruments measured at fair value.

Fair Value Measurements on a Recurring Basis

     The fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions. We measure the fair value of derivative assets and liabilities and marketable securities on a recurring basis.

Derivative Contracts

     We enter into derivatives to hedge our risk exposure to currency fluctuations and interest rate fluctuations related to our debt and foreign denominated contractual lease payment receipts. (See Note E — Derivative Activities.) Our derivatives are not traded on an exchange and are inherently more difficult to value. AIG provides us the recurring valuations of our derivative instruments. AIG has established and documented a process for determining fair values. AIG’s valuation model includes a variety of observable inputs, including contractual terms, interest rates curves, foreign exchange rates, yield curves, credit curves, measure of volatility, and correlations of such inputs. Valuation adjustments may be made in the determination of fair value. These adjustments include amounts to reflect counterparty credit quality and liquidity risk.

The following adjustments were added to the model as a result of the adoption of SFAS 157:

•	Credit Valuation Adjustment (“CVA”) — The CVA adjusts the valuation of derivatives to account for nonperformance risk of our counterparty with respect to all net derivative assets positions.
	The CVA also accounts for our own credit risk, in the fair value measurement of all net derivative liabilities positions, when appropriate. The CVA is accounted for as a decrease to the net derivative position with the corresponding increase or decrease reflected in OCI for derivatives designated as cash flow hedges.
•	Market Valuation Adjustment (“MVA”) — The MVA adjusts the valuation of derivatives to reflect the fact that we are an “end-user” of derivative products. As such the valuation is adjusted to take into account the bid-offer spread (the liquidity risk), as we are not a dealer of derivative products. The MVA is accounted for as a decrease to the net derivative position with the corresponding increase or decrease reflected in OCI for derivatives designated as cash flow hedges.

     The CVA and the MVA are included in the fair value measurement of our derivative instrument portfolio at September 30, 2008. The inclusion of the CVA and the MVA resulted in incremental reductions of the fair value of derivative assets of $90.8 million and $142.0 million for the three and nine months ended September 30, 2008, respectively. We recorded a decrease in OCI of $142.0 million for the three months and nine months ended September 30, 2008 related to the CVA and MVA. The adjustments for the three months ended September 30, 2008, include an out-of-period adjustment of $51.2 million related to the six months ended June 30, 2008, which was credited to current period income. See “Effect of Out-of-Period Adjustment” under Note A — Basis of Preparation. At January 1, 2008, when we adopted SFAS 157, the changes resulted in an incremental reduction and a decrease in OCI in the amount of $13.5 million which is included in the $142.0 million adjustment for the nine months ended September 30, 2008. The majority of the amount recorded is related to the CVA. Our counterparty is AIG Financial Products Corp. (“AIGFP”), a wholly owned subsidiary of AIG with an express guarantee from AIG.

Marketable Securities

     Our marketable securities are included in our Lease receivables and other assets and consist of an investment in common stock of an airline and AIG common stock held in connection with our deferred compensation program. We value marketable securities using quoted market prices. The marketable securities are immaterial to our financial position and, therefore, are not separately disclosed.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

Fair Value Measurements on a Non-Recurring Basis

     We also measure the fair value of certain assets and liabilities on a non-recurring basis, when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include aircraft and notes receivable. Liabilities include asset value guarantees, loan guarantees and put options, all related to aircraft (“AVGs”). We principally use the income approach to measure the fair value of these assets and liabilities when appropriate, as described below:

• Aircraft: We record aircraft at fair value when we determine the carrying value may not be recoverable, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and other accounting pronouncements requiring remeasurements at fair value. The fair value is measured using an income approach based on the present value of cash flows from contractual lease agreements and projected future lease payments, including contingent rentals, net of expenses, which extend to the end of the aircraft’s economic life in its highest and best use configuration, as well as a disposition value, based on expectations of market participants.

• Notes Receivable & Finance Lease Receivables: We evaluate the fair value of our secured notes and finance lease receivables using an income approach, which is based upon the present value of the expected cash flows of the underlying aircraft measured using the methodology described above. With regard to unsecured notes receivable, we also measure the fair value using an income approach based upon the net present value of expected cash flows of the underlying loan agreement.

• AVGs: We measure the fair value of AVGs in accordance with FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others” (“FIN 45”) as permitted under SFAS 157. In accordance with FIN 45, we measure the fair value of AVGs at the inception of the agreement based upon the proceeds received. Subsequent non-recurring fair value measurements are based upon the differential between the contractual strike price and the fair value of the underlying aircraft, measured using the methodology described above.

Fair Value Hierarchy

     SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

• Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets. Market price data generally is obtained from exchange markets. Our actively traded listed common stocks are measured at fair value on a recurring basis and classified as level 1 inputs.

• Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Our derivative assets and liabilities are measured on a recurring basis and classified as level 2.

• Level 3: Fair value measurement based on valuation techniques that use significant inputs that are unobservable. These measurements include circumstances in which there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. In making the assessment, we consider factors specific to the asset or liability. Assets and liabilities measured at fair value on a non-recurring basis and classified as level 3 include aircraft, notes receivable, net investment in finance leases, and AVGs.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     The following table presents information about assets and liabilities measured at fair value on a recurring basis at September 30, 2008, and indicates the level of the valuation inputs used to determine such fair value:

											Total
								Counterparty			September 30,
	Level 1		Level 2			Level 3		Netting (a)			2008
	(Dollars in thousands)
Derivative assets	$	—	$	569,572	(b)	$	—	$	(45,536	)	$	524,036
Derivative liabilities		—		(45,536	)		—		45,536			—
Total derivative assets, net	$	—	$	524,036		$	—	$	—		$	524,036

(a)	As permitted under FIN 39 “Offsetting Amounts Related to Certain Contracts” we have elected to offset derivative assets and derivative liabilities under our master netting agreement.
(b)	The balance includes CVA and MVA adjustments of $142.0 million.

     The following table presents changes during the nine months ended September 30, 2008, in derivative assets and liabilities measured at fair value on a recurring basis, together with the balances of such assets and liabilities at December 31, 2007, January 1, 2008 and September 30, 2008:

Derivatives:	(Dollars in thousands)
Total fair value at December 31, 2007	$	863,719
Credit value and market value adjustment of fair value recorded in OCI		(13,485	)
Total fair value at January 1, 2008	$	850,234
Change in fair value subsequent to January 1, 2008:
Effective portion recorded in OCI		(235,020	)
Ineffective portion recorded in income		(8,030	)
Credit value and market value adjustments recorded in OCI for the nine months ended September 30, 2008 (a)		(128,467	)
Change in accrued interest		45,319
Total fair value at September 30, 2008	$	524,036

(a) A portion of the adjustments relate to a foreign currency swap with a notional amount of €500 million that settled on October 9, 2008. The CVA and MVA adjustment calculation as of September 30, 2008, excluding the settled position, resulted in a decrease of $27.7 million in the aggregate adjustment.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

     During the nine months ended September 30, 2008, based on information received and other factors, we recorded a $4.5 million charge to write down a secured note to fair value. The fair value of a secured note is classified as a Level 3 valuation. The unobservable inputs utilized in the calculation are described in our policy above.

E. Derivative Activities

     We use derivatives to manage exposures to interest rate and foreign currency risks and we account for derivatives in accordance with SFAS 133. At September 30, 2008, we have interest rate and currency swap agreements entered into with a related counterparty. The derivatives are subject to a master netting agreement, which would allow the netting of derivative assets and liabilities in the case of default under any one contract. Our derivative portfolio is recorded at fair value on our balance sheet on a net basis (see Note D — Fair Value Measurements).

     We record the changes in fair value of derivatives in income or OCI depending on the designation of the hedge. Where hedge accounting is not achieved pursuant to SFAS 133, the change in fair value of the derivative is recorded in income. In the second quarter of 2007, we re-designated all our derivatives as cashflow hedges. Each balance remaining in Accumulated other comprehensive income (“AOCI”) at the time of re-designation is amortized over the remaining life of the underlying derivative in accordance with SFAS

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

133. During the three and nine months ended September 30, 2008 and 2007, we recorded the following in OCI related to derivative instruments:

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
(Increase) decrease	2008			2007			2008			2007
				(Dollars in thousands)
Effective portion of change in fair market value of derivatives	$	235,020		$	(262,837	)	$	512,182		$	(154,515	)
Credit value and market value adjustments		141,952			—			141,952			—
Amortization of balances of de-designated hedges and other adjustments		620			2,990			194			(682	)
Foreign exchange component of cross currency swaps (credited) charged to income		(253,140	)		333,433			(538,905	)		245,572
Income tax effect		(43,558	)		(25,755	)		(40,398	)		(31,631	)
Net changes in cash flow hedges, net of taxes	$	80,894		$	47,831		$	75,025		$	58,744

     During the three and nine months ended September 30, 2008, $13.0 million (net) and $23.1 million (net), respectively, were reclassified from AOCI to income when interest was paid or received on our qualifying SFAS 133 cash flow hedges. For the three and nine months ended September 30, 2007, the reclassifications were $5.7 million (net) and $53.7 million (net), respectively. We estimate that within the next twelve months, we will amortize into earnings approximately $40.6 million of the pre-tax balance in AOCI under cash flow hedge accounting in connection with our program to convert debt from floating to fixed interest rates. All components of each derivative’s gain or loss were included in the assessment of ineffectiveness.

     We recorded the following in income for the three and nine months ended September 30, 2008 and 2007:

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(Dollars in thousands)
(Income) loss related to derivative instruments:
Changes in fair value of derivative instruments with no hedge accounting treatment under SFAS 133 (a)	$	—		$	(17,546	)	$	—		$	—
Offsetting changes in fair value of foreign denominated debt related to contracts with no hedge accounting treatment under SFAS 133		—			33,572			—			—
Ineffectiveness of cash flow hedges		8,030			(4,249	)		111			(4,547	)
Reclassification of AOCI related to derivative instruments de-designated from hedges		(581	)		(3,189	)		(193	)		558
Loss (income) related to derivative instruments and related economically hedged items	$	7,449		$	8,588		$	(82	)	$	(3,989	)

(a) In the second quarter of 2007, we re-designated four swaps for hedge accounting under SFAS 133 that were previously outstanding but did not qualify for hedge accounting treatment under SFAS 133. Subsequent to the re-designation, all derivatives qualified as hedges under SFAS 133.

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

     In addition, $(538.9) million and $(253.1) million of foreign currency adjustments related to foreign denominated hedged items were reclassified to OCI for the three and nine months ended September 30, 2008, respectively, with $245.6 million and $333.4 million reclassified for the same periods ended September 30, 2007.

     We recorded decreases (increases) in lease revenue related to derivatives for the following periods:

	Nine Months Ended					Three Months Ended
Income:	September 30,					September 30,
	2008		2007			2008		2007
			(Dollars in thousands)
	$	7,751	$	(2,182	)	$	2,334	$	(90	)

F. Related Party Transactions

     We are party to cost sharing agreements with AIG. Generally, these agreements provide for the allocation of corporate costs based upon a proportional allocation of costs to all subsidiaries. We also pay AIG a fee related to management services provided for certain of our foreign subsidiaries. We earned management fees from two trusts consolidated by AIG for the management of aircraft we have sold to the trusts.

     We borrowed approximately $1.67 billion from AIG Funding, Inc. (“AIG Funding”), an affiliate of our parent, in September 2008 in order to pay our commercial paper and other obligations as they became due. We entered into an unsecured revolving credit agreement with AIG Funding to evidence these loans. Pursuant to this agreement, we may borrow up to $1.68 billion from time to time from AIG Funding. Interest on the loan varies monthly based on AIG Funding’s cost of funds. For September 2008, the interest rate on the loan was approximately 3.62%. AIG Funding may demand repayment of the loans under this facility at any time upon three business days’ prior written notice to us. AIG Funding, however, has agreed not to demand repayment of any loans outstanding under this facility if such demand would conflict with any of our other debt agreements. We can voluntarily prepay the loan in whole or in part at any time without penalty or premium subject to restrictions in our other debt agreements. The revolving credit agreement has a term of twelve months, but automatically renews each year unless terminated by both parties. Subsequent to September 30, 2008, the amount outstanding under the loan was paid in full. See Note H — Subsequent Events.

     All of our derivative contracts are with AIGFP, a related party. The fair market value is disclosed separately on our Condensed Consolidated Balance Sheets. See Note E - Derivative Activities for amounts included in our Condensed Consolidated Statements of Income.

Our financial statements include the following amounts involving related parties:

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(Dollars in thousands)
Income Statement
Expense (income):
Allocation of corporate costs from AIG	$	10,328		$	9,574		$	3,715		$	2,838
Management fees paid to subsidiaries of AIG		638			531			215			168
Management fees received		(7,332	)		(7,334	)		(2,430	)		(2,496	)
Accrued interest payable to AIG		2,896			—			2,896			—

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

	September 30,			December 31,
	2008			2007
	(Dollars in thousands)
Balance Sheet
Asset (liability):
Taxes benefit sharing payable to AIG	$	(85,000	)	$	(85,000	)
Accrued corporate costs payable to AIG		(5,517	)		(1,495	)
Loan from AIG (a)		(1,671,268	)		—
Accrued dividend payable to AIG		—			(4,260	)
Accrued interest payable to AIG		(2,896	)		—
Income taxes receivable from AIG		146,863			138,405
Medium term notes, held by AIG (b)		(200,000	)		(200,000	)
Net (payable) receivable for management fees and other		(1,375	)		(577	)

(a)	The amount outstanding under the loan was paid in full subsequent to September 30, 2008. See Note H — Subsequent Events.
(b)	$180.0 million of the $200 million outstanding was paid subsequent to September 30, 2008.

G. Debt Financing

     Our debt financing (excluding our revolving credit agreement with AIG (see Note F - Related Party Transactions) was comprised of the following at the following dates:

	September 30,			December 31,
	2008			2007
	(Dollars in thousands)
Public bonds and medium-term notes	$	21,448,257		$	21,360,020
Bank debt and other term debt		10,057,270			3,625,274
Subordinated debt		1,000,000			1,000,000
Total public debt, bank debt and subordinated debt		32,505,527			25,985,294
Commercial paper		1,565,685			4,498,555
Less: Deferred debt discount		(20,077	)		(32,570	)
Total debt financing and subordinated debt	$	34,051,135		$	30,451,279

     The following describes changes in our debt financing programs since our Annual Report on Form 10-K for the year ended December 31, 2007:

Commercial Paper

     We have a $6.0 billion Commercial Paper Program. Under this program, we may borrow in minimum increments of $100,000 for periods from one day to 270 days. The weighted average interest rate of our commercial paper outstanding was 3.18% at September 30, 2008, and 4.63% at December 31, 2007.

     We became unable to issue new commercial paper in September 2008 as a result of the recent liquidity issues of our parent, AIG, which led to the downgrading of our short-term debt ratings by Moody’s Investor Service, Inc. (“Moody’s”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) (S&P subsequently upgraded our short-term rating) and the overall economic conditions in the U.S. and global credit markets. Since September 12, 2008, except as discussed in Note H — Subsequent Events, we have not issued new commercial paper and we cannot determine when the commercial paper markets may be available to us again.

Bank Credit Facilities

     Revolving Credit Facilities: We have entered into three unsecured revolving credit facilities with an original group of 35 banks for an aggregate amount of $6.5 billion, consisting of a $2.0 billion tranche that expires in October 2009, a $2.0 billion tranche that expires in October 2010, and a $2.5 billion tranche that expires in October 2011. These revolving credit facilities provide for interest rates that vary according to the pricing option selected at the time of borrowing. Pricing options include a base rate, a range from 0.25% over

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2008
(Unaudited)

LIBOR to 1.85% over LIBOR based upon utilization, or a rate determined by a competitive bid process with the banks. The credit facilities are subject to facility fees, currently 0.15% of amounts available. The fees are based on our current credit ratings and will change in the event of changes to our ratings. As of September 30, 2008, we had drawn the maximum amount available of $6.5 billion under our revolving credit facilities and interest was accruing on the outstanding loans at a fluctuating interest rate equal to the base rate. At September 30, 2008, the interest rate was 5.0%.

     Also see Note F — Related Party Transactions for information on Loan from AIG and Note H - Subsequent Events for information on the Commercial Paper Funding Facility.

H. Subsequent Events

Export Credit Facilities

     We entered into two Export Credit Agency (“ECA”) facilities in 1999 (“ECA 1999”) and 2004 (“ECA 2004”). The ECA 2004 is currently used to fund purchases of Airbus aircraft, while funds are no longer available to us under the ECA 1999. The loans made under the ECA facilities are used to fund 85% of each aircraft’s purchase price.

     Under our ECA facilities, we may be required to segregate security deposits and maintenance reserves for particular aircraft into separate accounts in connection with certain credit rating downgrades. As a result of Moody’s October 3, 2008 downgrading of our long-term debt rating to Baa1, on October 17, 2008, we received notice from the security trustee of the ECA 2004 facility requiring us to segregate into separate accounts our security deposits and maintenance reserves, aggregating $148.8 million, relating to the aircraft funded under the facility. We have 90 days from the notice to comply. Further ratings declines could impose additional restrictions under the ECA facilities. These may include a requirement to post letters of credit and may restrict additional borrowings under the ECA 2004 facility.

Commercial Paper Funding Facility

     On October 27, 2008, we were approved to participate in the Federal Reserve Bank of New York’s Commercial Paper Funding Facility (the “CPFF”) to issue up to $5.7 billion of commercial paper. Under the CPFF, the Federal Reserve Bank of New York, through a special purpose vehicle (the “SPV”), will purchase eligible three-month unsecured and asset-backed U.S. dollar denominated commercial paper from eligible issuers. The maximum amount of commercial paper an issuer can sell to the SPV is equal to the greatest amount of U.S. dollar denominated commercial paper the issuer had outstanding during any day between January 1, 2008 and August 31, 2008. Unsecured commercial paper purchased by the CPFF will be discounted based on a rate equal to a spread over the three-month overnight index swap rate on the day of purchase. The CPFF program expires on April 30, 2009, with remaining funds outstanding at that date maturing through July 2009, unless extended by the Federal Reserve Board.

     As of October 31, 2008, we had issued approximately $1.7 billion under the CPFF. The proceeds were used to repay the amount outstanding under our loan from AIG Funding. See Note F - Related Party Transactions. The commercial paper issued will be due January 28, 2009 and we will pay a lending rate of 2.78%. We expect to refinance the commercial paper when it matures, subject to the terms and conditions of the CPFF.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Forward-Looking Statements

     This quarterly report on Form 10-Q contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters, the state of the airline industry, our access to the capital markets, our ability to restructure leases and repossess aircraft, the structure of our leases, regulatory matters pertaining to compliance with governmental regulations and other factors affecting our financial condition or results of operations. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and “should” and variations of these words and similar expressions, are used in many cases to identify these forward-looking statements. Any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of us or industry to vary materially from our future results, performance or achievements, or those of our industry, expressed or implied in such forward-looking statements. Such factors include, among others, the risk factors described and referred to in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview and Industry Condition,” “Quantitative and Qualitative Disclosures about Market Risk” and “Part II — Item 1A. Risk Factors,” in this Form 10-Q and in the section titled “Part I — Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, and general industry economic and business conditions, which will, among other things, affect demand for aircraft, availability and creditworthiness of current and prospective lessees, lease rates, availability and cost of financing and operating expenses, governmental actions and initiatives, and environmental and safety requirements. We undertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking information to reflect actual results or changes in the factors affecting the forward-looking information.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Overview

     International Lease Finance Corporation (the “Company,” “ILFC,” “we,” “our,” “us”) primarily acquires new commercial jet aircraft from The Boeing Company (“Boeing”) and Airbus S.A.S. (“Airbus”) and leases these aircraft to airlines throughout the world. In addition to our leasing activity, we sell aircraft from our leased aircraft fleet to other leasing companies, financial services companies and airlines. In some cases, we provide fleet management services to investors and/or owners of aircraft portfolios for a management fee. We have also provided asset value guarantees and a limited number of loan guarantees to buyers of aircraft or to financial institutions for a fee. Additionally, we remarket and sell aircraft owned or managed by others for a fee.

     As of September 30, 2008, we owned 950 aircraft, had eight additional aircraft in the fleet classified as finance and sales-type leases, and provided fleet management services for 99 aircraft. We have contracted with Airbus and Boeing to buy 174 new aircraft for delivery through 2019 with an estimated purchase price of $16.9 billion, 13 of which were scheduled to deliver during the remainder of 2008.

     Of these 174 aircraft, 74 are 787s from Boeing with the first aircraft currently scheduled to deliver in November 2011. The original contracted deliveries were scheduled from January 2010 through 2017, but Boeing has made several announcements concerning delays in the deliveries of the 787s. Boeing has informed us that our 787 deliveries will be delayed by approximately 19 to 30 months with an average delay of 27 months per aircraft that will span across our entire order. Additionally, a labor strike that began on September 6, 2008 at Boeing’s production center in Washington was settled in the beginning of November 2008 and may cause further delays to our future Boeing deliveries. We had nine Boeing aircraft originally scheduled for delivery during the remainder of 2008, five of which are now likely to be delayed until 2009.

     We have generally financed our aircraft purchases through available cash balances, internally generated funds and debt financings, and anticipate doing so in the future. Proceeds from borrowings increased for the nine months ended September 30, 2008 compared to the same period in 2007 primarily due to a lack of liquidity in the commercial paper market. To fulfill our short-term liquidity needs, we borrowed through a revolving credit agreement with AIG Funding, an affiliate of our parent, American International Group, Inc. (“AIG”), approximately $1.67 billion to repay our maturing commercial paper obligations and other obligations as they became due. Subsequently we drew down the maximum available on our revolving credit facilities of $6.5 billion. We paid off the outstanding amount owed to AIG Funding in October 2008 with the proceeds received from issuing commercial paper under the Federal Reserve Bank of New York’s (“NY Fed”) Commercial Paper Funding Facility (“CPFF”). Borrowing under the revolving credit agreement with AIG Funding will remain available to us until at least September 2009. See “Recent Developments” below.

Recent Developments

     During the third quarter of 2008, worldwide economic conditions significantly deteriorated. The decline in economic conditions has resulted in highly volatile markets, a steep decline in equity markets, less liquidity, widening of credit spreads, and the collapse of several prominent financial institutions. We entered the third quarter of 2008 with $109 million of cash and cash equivalents and had the following financing facilities available to us:

• Commercial Paper: We had $4.6 billion commercial paper outstanding and had access to borrow an additional $1.4 billion under our commercial paper program.

• Revolving Credit Agreement: The commercial paper program was backed up by $6.5 billion in revolving credit facilities, of which we had the maximum amount available to us.

• Automatic Shelf Registration: We had $900 million available under our retail note program, of which we issued $130.8 million during the third quarter, and $3.3 billion available under our medium-term note program.

• Euro Medium-term Note Programme: We had approximately $3.2 billion available.

• Export Credit Agency(“ECA”) Facility: We had approximately $900 million available.

- 18 -

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Liquidity Pressure on AIG

     By the beginning of September 2008, AIG experienced increasing stress on its liquidity caused by collateral calls on AIG Financial Product Corp.’s super senior multi-sector credit default swap portfolio and AIG’s securities lending requirements. Due to the combination of AIG’s liquidity issues and the decrease in liquidity in the commercial paper market, we became unable to issue commercial paper under our existing commercial paper program and had to borrow, through a revolving credit agreement with AIG Funding, an affiliate of AIG, approximately $1.67 billion to pay off maturing commercial paper and other obligations. As a result of AIG’s liquidity issues, on September 15, 2008, Moody’s and S&P downgraded our short-term debt ratings and long-term debt ratings (S&P subsequently upgraded our short-term rating).

Revolving Credit Facilities Draw Down

     As a result of our ratings downgrades and the liquidity crisis in the commercial paper market, we drew down the maximum amount available under our revolving credit agreements of $6.5 billion to pay maturing commercial paper and other obligations as they become due. We had cash and cash equivalents in the amount of $5.1 billion at September 30, 2008.

Downgrade Trigger of ECA facility

     On October 3, 2008 Moody’s further downgraded our long-term debt rating to Baa1, and on October 17, 2008 we were notified by the trustee of our 2004 ECA facility to segregate into separate accounts security deposits and maintenance reserves, aggregating $148.8 million, related to aircraft funded under the facility. We have 90 days from the notice to comply with the request.

AIG Loan from the Federal Reserve Bank of New York

     In September 2008, AIG experienced a severe strain on its liquidity that resulted in AIG on September 22, 2008, entering into an $85 billion revolving credit facility and a guarantee and pledge agreement (the “Pledge Agreement”) with the Federal Reserve Bank of New York (“NY Fed”). Under the credit facility agreement (the “Fed Credit Agreement”), AIG has agreed to issue a new series of perpetual, non-redeemable Convertible Participating Serial Preferred Stock (the “Preferred Stock”) to a trust that will hold the Preferred Stock for the benefit of the United States Treasury. The Preferred Stock will from issuance (i) be entitled to participate in any dividends paid on AIG’s common stock with the payments attributable to the Preferred Stock being approximately, but not in excess of, 79.9% of the aggregate dividends paid on AIG’s common stock, treating the Preferred Stock as if converted; and (ii) vote with AIG’s common stock on all matters submitted to AIG shareholders, and will hold approximately, but not in excess of, 79.9% of the aggregate voting power of the common stock, treating the Preferred Stock as if converted.

     The credit facility will be secured by a pledge of the capital stock and assets of certain of AIG subsidiaries, subject to exclusions for certain property the pledge of which is not permitted by AIG debt instruments, as well as exclusions of assets of regulated subsidiaries, assets of foreign subsidiaries and assets of special purpose vehicles. We do not guarantee AIG’s obligations under the credit facility and none of our assets were pledged to secure AIG’s obligations under the credit facility. We are, however, as a subsidiary of AIG, subject to the restrictive covenants under the facility, including covenants which may limit our ability to incur debt, encumber our assets, make equity or debt investments in other parties and impose restrictions on payments of distributions and dividends to our equity holders. AIG is required to repay the credit facility primarily from proceeds on sales of assets, including businesses. On October 3, 2008 AIG indicated its intent to refocus on its core property and casualty insurance businesses, generate sufficient liquidity to repay the outstanding balance of its loan from the NY Fed and address its capital structure. AIG intends to retain the majority of its U.S. property and casualty and foreign general insurance businesses, and to retain an ownership interest in certain of its foreign life insurance operations. AIG is exploring divestiture opportunities for its remaining businesses. As of October 31, 2008, AIG has not specifically announced its intentions relating to ILFC.

AIG Going Concern Consideration

     In connection with the preparation of its quarterly report on Form 10-Q for the quarterly period ended September 30, 2008, AIG assessed its ability to continue as a going concern. After considering several factors as outlined in AIG’s Form 10-Q, AIG believes that it will have adequate liquidity to finance and operate its businesses and continue as a going concern for at least the next twelve months. However, it is possible that the actual outcome of one or more of AIG’s plans could be materially different or that one or more of its significant judgments or estimates could prove to be materially incorrect, which could raise substantial doubt about AIG’s ability to continue as a going concern. If AIG is not able to continue as a going concern, it could have a significant impact on our operations, including limiting our ability to issue new debt.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Future Liquidity

     We have been accepted into the NY Fed’s CPFF and are authorized to borrow up to $5.7 billion. The CPFF program expires on April 30, 2009, with remaining funds outstanding at that date maturing through July 2009, unless extended by the Federal Reserve Board. On October 30, 2008, we borrowed approximately $1.7 billion under the CPFF. The commercial paper issued will be due on January 28, 2009. We used the proceeds to pay off the approximately $1.67 billion borrowed from an affiliate of AIG under a $1.68 billion revolving credit agreement, which will remain available for us to draw upon until at least September 2009.

     In addition, we are seeking financings which may be secured by existing or new aircraft. We currently have capacity under our existing debt agreements to enter into secured financings up to an amount equal to 12.5% of Consolidated Tangible Net Assets, as defined in the debt agreements, currently an amount in excess of $4.0 billion. We anticipate that these secured financings together with internally generated funds, which may include aircraft sales, will be sufficient to meet our liquidity needs through September 30, 2009.

     It is difficult to predict how long the current credit market conditions will exist or to what extent they will continue to adversely affect our credit spreads, resulting in more expensive term borrowings and increasing difficulties to access financial markets. Although our composite interest rate at September 30, 2008 decreased compared to September 30, 2007, driven primarily by a decrease in short-term interest rates, we experienced an increase in our composite interest rate at September 30, 2008 compared to June 30, 2008. Further deterioration of the credit markets or continued turmoil in the airline industry or political environment could further limit our ability to borrow funds from our current funding sources. If we were unable to obtain sufficient funding, we could negotiate with manufacturers to defer deliveries of certain aircraft.

Industry Condition and Sources of Revenue

     Our revenues are principally from scheduled and charter airlines and companies associated with the airline industry. The airline industry is cyclical, economically sensitive, and highly competitive. Airlines and related companies may be affected by fuel prices and shortages, political or economic instability, terrorist activities, changes in national policy, competitive pressures, labor actions, pilot shortages, insurance costs, recessions, and other political or economic events adversely affecting world or regional trading markets. Our customers’ ability to react to and cope with the volatile competitive environment in which they operate, as well as our own competitive environment, will affect our revenues and income.

     Improvements seen in worldwide airline industry performance over the past few years and the resulting increase in demand for our aircraft are having a positive effect on our financial results. However, we are currently seeing financial stress to varying degrees across the airline industry largely precipitated by recent record-high fuel costs, tightening of the credit markets, and generally worsening economic conditions. We have seen airlines cancel routes, eliminate jobs, and retire aircraft in an attempt to reduce capacity. This financial stress is causing a slow-down in the airline industry which will likely have a negative impact on future lease rates and could begin to influence our future results.

     Eight of our customers, five of them in the United States, have filed for bankruptcy protection as of October 31, 2008: ATA Airlines (“ATA”) (ten owned and two managed aircraft), Frontier Airlines (“Frontier”) (five owned aircraft), XL Leisure Group (“XL”) (four owned and one managed aircraft), Zoom Airlines Limited (“Zoom”) (three owned and two managed aircraft), Eos Airlines (“Eos”) (three owned aircraft), Alitalia Linee Aeree Italiane S.p.A. (“Alitalia”) (three owned aircraft), Aloha Airlines (“Aloha”) (one owned aircraft) and TradeWinds Airlines, Inc. (“TradeWinds”), an all cargo carrier (one owned aircraft). As of September 30, 2008, Frontier continues to operate and Alitalia has received approval to emerge as a new airline. TradeWinds rejected our lease and ATA, XL, Zoom, Eos and Aloha ceased operations during the nine-

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

month period ended September 30, 2008. As a result, of the 30 owned and five managed aircraft with these airlines, eight owned aircraft continue in operations with Frontier and Alitalia. Two owned aircraft are operating under subleases and will be returned to us in November 2008, and the remaining 20 owned and five managed aircraft have been returned to us. As of October 31, 2008, we have sold one and leased 21 of the returning aircraft with other airlines.

     Subsequent to September 30, 2008, two additional operators, Sun Country Airlines (“Sun Country”) (four owned and one managed aircraft) and Sterling Airlines A/S (“Sterling”) (one owned and two managed aircraft), filed for bankruptcy protection. Sun Country continues to operate and at October 31, 2008, we had not been notified of any potential early returns of the five aircraft. Sterling ceased operations on October 29, 2008, and we are in the process of negotiating returns of the three aircraft.

     We recorded a charge for $13.1 million for rent adjustments related to ATA for the nine-month period ended September 30, 2008 and we did not earn $15.6 million of lease revenue related to the 21 owned aircraft that were previously operated by ATA, Eos, Aloha, XL, and Zoom.

     We derive approximately 90% of our revenues from airlines outside of the United States. A key factor in our success has been a concentrated effort to maximize our lease placements in regions where the airline industry is performing better on a relative scale, such as in the Middle East, parts of Asia and Western Europe, and to minimize placements in regions that are under stress. At October 31, 2008, we have signed leases for all but three of our new aircraft deliveries through the end of 2010. Furthermore, our contractual purchase commitments for future new aircraft deliveries from 2010 to 2019 are at historic lows. For these reasons, we believe we are well positioned not only for an industry downturn, but to reap benefits from any opportunities a down market may present.

Critical Accounting Policies and Estimates

     Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on- going basis, we evaluate the estimates and judgments, including those related to revenue, depreciation, overhaul reserves, and contingencies. The estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

     We believe that the following critical accounting policies can have a significant impact on our results of operations, financial position and financial statement disclosures, and may require subjective and complex estimates and judgments.

Fair Value Measurements: We measure the fair value of financial instruments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), on a recurring basis. Based on SFAS 157, fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions. We measure the fair value of derivative assets and liabilities on a recurring basis. Our derivatives are not traded on an exchange and are inherently more difficult to value. AIG provides us the recurring

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

valuations of our derivative instruments. AIG has established and documented a process for determining fair values. AIG’s valuation model includes a variety of observable inputs, including contractual terms, interest rate curves, foreign exchange rates, yield curves, credit curves, measures of volatility, and correlations of such inputs. Valuation adjustments may be made in the determination of fair value. These adjustments include amounts to reflect counterparty credit quality and liquidity risk and are recorded in income.

     We also measure the fair value of certain assets and liabilities on a non-recurring basis, when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. These assets include aircraft and notes receivable. Liabilities include asset value guarantees, loan guarantees and put options, all related to aircraft (“AVGs”). We principally use the income approach to measure the fair value of these assets and liabilities, when appropriate. The income approach is based on the present value of cash flows from contractual lease agreements and projected future lease payments, including contingent rentals, net of expenses, which extend to the end of the aircraft’s economic life in its highest and best use configuration, as well as a disposition value based on expectations of market participants.

     When we adopted SFAS 157 on January 1, 2008, we changed the methodology used to calculate the fair value of our derivative instruments. As few classes of derivative contracts are listed on an exchange, all of our derivative positions were valued using internally developed models that use as their basis observable market parameters. The major change in our methodology to measure fair value of derivatives was the incorporation of a credit valuation adjustment (“CVA”) and a market valuation adjustment (“MVA”). The CVA adjusts the valuation to account for nonperformance risk of our counterparty and the MVA takes into account the bid-offer spread (liquidity risk). Prior to January 1, 2008, no CVA or MVA was included in the fair market value of our derivatives. At September 30, 2008, we were in a net derivative asset position and the CVA and MVA reduced the value of the derivative assets. The adjustments resulted in a decrease in Other comprehensive income (“OCI”) from the widening of our counterparty’s credit default spreads in the amount of $142.0 million for the nine-month period ended September 30, 2008. In the past nine months financial markets and credit default swap spreads, which were used to calculate the credit risk, have behaved erratically. Other types of models or analysis could result in materially different estimates. For example, a third-party analysis provided to us, which uses different credit and market value inputs, estimated the potential total CVA and MVA adjustments for the nine months ended September 30, 2008 at approximately $30.4 million.

     Included in our derivative portfolio are derivative instruments hedging €2.85 billion and £300 million of debt financings previously issued, of which €1.25 billion will mature in the fourth quarter of 2008, €500 million of which settled on October 9, 2008. We do not anticipate exiting these derivatives prior to maturity. In addition, these derivatives are with a non-subsidiary affiliate whose long-term debt ratings are A-1 by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P), and P-1 by Moody’s Investors Service, Inc. (“Moody’s”), due to credit support from AIG, its parent. See Notes D and E of Notes to Condensed Consolidated Financial Statements for more information on derivative activities.

     For a detailed discussion on the application of the following additional accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2007.

• Lease Revenue

• Flight Equipment Marketing

• Flight Equipment

• Provision for Overhauls

• Income Taxes

• Derivative Financial Instruments

Financial Condition

     We generally fund our operations, including aircraft purchases, through available cash balances, internally generated funds, and debt financings. We borrow funds to purchase new and used flight equipment, make progress payments during aircraft construction and pay off maturing debt obligations. These funds are borrowed principally on an unsecured basis from various sources, and include both public debt and bank

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

facilities. At September 30, 2008, we were in compliance in all material respects with the covenants in our debt agreements.

     During the nine months ended September 30, 2008, we borrowed $9.3 billion (excluding commercial paper and loan from AIG) and $2.4 billion was provided by operating activities. In addition, as discussed above in “Recent Developments,” in September 2008 we borrowed through a revolving credit agreement with AIG Funding, an affiliate of AIG, approximately $1.67 billion. The $9.3 billion borrowed includes the $6.5 billion borrowed under our unsecured revolving credit facilities to provide liquidity to repay our maturing commercial paper and other obligations as they become due. We have invested most of the unused borrowed cash in liquid investments, such as time deposits held at major banks, deposits in funds that purchase United States government securities and over night sweep accounts with original maturities of 60 days or less.

     As of September 30, 2008, we had committed to purchase 174 new aircraft from Airbus and Boeing for delivery through 2019 at an estimated aggregate purchase price of $16.9 billion.

     Our debt financing was comprised of the following at the following dates:

	September 30,			December 31,
	2008			2007
	(Dollars in thousands)
Public bonds and medium-term notes	$	21,448,257		$	21,360,020
Bank debt and other term debt		10,057,270			3,625,274
Subordinated debt		1,000,000			1,000,000
Total public debt, bank debt and subordinated debt		32,505,527			25,985,294
Commercial paper		1,565,685			4,498,555
Less: Deferred debt discount		(20,077	)		(32,570	)
Total debt financing and subordinated debt	$	34,051,135		$	30,451,279
Selected interest rates and ratios which include the economic effect of derivative instruments:
Composite interest rate		5.01	%		5.16	%
Percentage of total debt at fixed rates		66.25	%		73.84	%
Composite interest rate on fixed rate debt		5.35	%		5.17	%
Bank prime rate		5.00	%		7.25	%

     The above amounts represent the anticipated settlement of our currently outstanding debt obligations and exclude the approximately $1.67 billion outstanding as of September 30, 2008 under our revolving credit agreement with AIG Funding. Certain adjustments required to present currently outstanding hedged debt obligations have been recorded and presented separately on the balance sheet, including adjustments related to foreign currency hedging and interest rate hedging activities. We have eliminated the currency exposure arising from foreign currency denominated notes by hedging the notes through swaps. Foreign currency denominated debt is translated into US dollars using exchange rates as of each balance sheet date. The foreign exchange adjustment for the foreign currency denominated debt hedged with derivative contracts was $715 million at September 30, 2008, and $1.0 billion at December 31, 2007. Composite interest rates and percentages of total debt at fixed rates reflect the effect of derivative instruments and excludes interest payable on loan commitments to AIG. Our lower composite interest rate at September 30, 2008, compared to December 31, 2007, is driven by a decrease in short-term interest rates.

Public Bonds and Medium-Term Notes

     We have issued debt under various public debt financing arrangements in the past. The interest rate on most of our public debt currently outstanding is effectively fixed for the terms of the notes. We currently have the ability to issue notes under an automatic shelf registration statement, which includes a $10.0 billion medium-term note program and a $1.0 billion retail medium-term note program. In addition, we have a $7.0 billion Euro medium-term note programme, as described in the table below:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

	Maximum		Sold as of		Sold as of		Sold as of
	Offering		December 31, 2007		September 30, 2008		October 31, 2008
	(Dollars in millions)
Registration statement dated August 16, 2006 (including $10.0 billion Medium-Term Note Program and $1.0 billion Retail Medium-Term Note Program)	Unlimited(a)		$	4,650	$	6,927	$	6,927
Euro Medium-Term Note Programme dated September 2008 (b)(c)		7,000		3,832		3,832		3,247

(a)	Includes $645 million, which was incorporated into the registration statement from a prior registration statement. As a result of the Company’s Well Known Seasoned Issuer (“WKSI”) status, we have an unlimited amount of debt securities registered for sale.
(b)	We have economically hedged the foreign currency risk of the notes through derivatives.
(c)	This is a perpetual program. As a bond matures, the principal amount becomes available for new issuances under the program.

Bank Credit Facilities

     Revolving Credit Facilities: We have entered into three unsecured revolving credit facilities with an original group of 35 banks for an aggregate amount of $6.5 billion, consisting of a $2.0 billion tranche that expires in October 2009, a $2.0 billion tranche that expires in October 2010, and a $2.5 billion tranche that expires in October 2011. These revolving credit facilities provide for interest rates that vary according to the pricing option selected at the time of borrowing. Pricing options include a base rate, a range from 0.25% over LIBOR to 1.85% over LIBOR based upon utilization, or a rate determined by a competitive bid process with the banks. The credit facilities are subject to facility fees, currently 0.15% of amounts available. The fees are based on our current credit ratings and will change in the event of changes to our ratings. As of September 30, 2008, we had drawn the maximum amount available of $6.5 billion under our revolving credit facilities and interest was accruing on the outstanding loans at a fluctuating interest rate equal to the base rate. At September 30, 2008, the interest rate was 5.0%.

     Export Credit Facilities: We also entered into two ECA facilities in 1999 (“ECA 1999”) and 2004 (“ECA 2004”). The ECA 2004 is currently used to fund purchases of Airbus aircraft, while funds are no longer available to us under the ECA 1999. The loans made under the ECA facilities are used to fund 85% of each aircraft’s purchase price.

     In January 1999, we entered into ECA 1999 for up to a maximum of $4.3 billion for aircraft delivered through 2001. We used $2.8 billion of the amount available under this facility to finance purchases of 62 aircraft. Each aircraft purchased was financed by a ten-year fully amortizing loan with interest rates ranging from 5.753% to 5.898%. The loans are guaranteed by various European Export Credit Agencies. We have collateralized the debt by a pledge of the shares of a wholly-owned subsidiary that holds title to the aircraft financed under the facility. At September 30, 2008, $445 million was outstanding under the facility and the net book value of the related aircraft was $2.4 billion.

     In May 2004, we entered into ECA 2004 for up to a maximum of $3.64 billion, which can be used to purchase aircraft delivered through May 31, 2009. Funds become available under this facility when the various European Export Credit Agencies provide guarantees for aircraft based on a forward-looking calendar. The financing is for a ten-year fully amortizing loan per aircraft at an interest rate determined through a bid process. We have collateralized the debt by a pledge of the shares of a wholly-owned subsidiary that holds title to the aircraft financed under this facility. As of September 30, 2008, we had financed 40 aircraft using $2.75 billion under this facility and $2.0 billion was outstanding. The interest rates are either LIBOR based with spreads ranging from -0.04% to 0.02% or fixed rates ranging from 4.2% to 4.7%. The net book value of the related

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

aircraft was $2.9 billion at September 30, 2008. At September 30, 2008, the interest rates of the outstanding loans ranged from 2.83% to 4.71%.

     Under our ECA facilities, we may be required to segregate security deposits and maintenance reserves for particular aircraft into separate accounts in connection with certain credit rating downgrades. As a result of Moody’s October 3, 2008 downgrading of our long-term debt rating to Baa1, on October 17, 2008, we received notice from the security trustee of the ECA 2004 requiring us to segregate into separate accounts our security deposits and maintenance reserves, aggregating $148.8 million, relating to the aircraft funded under the facility. We have 90 days from the date of the notice to comply. Further ratings declines could impose additional restrictions under the ECA facilities. These may include a requirement to post letters of credit and may restrict additional borrowings under the ECA 2004.

     Term Loans: From time to time, we enter into funded bank financing arrangements. As of September 30, 2008, $1.1 billion was outstanding under these term loan agreements, which have varying maturities through February 2012. The interest rates are LIBOR-based with spreads ranging from 0.330% to 1.625%. At September 30, 2008, the interest rates ranged from 3.113% to 5.375%.

Subordinated Debt

     In December 2005, we entered into two tranches of subordinated debt totaling $1.0 billion. Both tranches mature on December 21, 2065, but each tranche has a different call option. The $600 million tranche has a call date of December 21, 2010, and the $400 million tranche has a call date of December 21, 2015. The tranche with the 2010 call date has a fixed interest rate of 5.90% for the first five years, and the tranche with the 2015 call date has a fixed interest rate of 6.25% for the first ten years. Each tranche has an interest rate adjustment if the call option for that tranche is not exercised. The new interest rate would be a floating rate, reset quarterly, based on the initial credit spread of 1.55% and 1.80%, respectively, plus the highest of (i) 3 month LIBOR; (ii) 10-year constant maturity treasury; and (iii) 30-year constant maturity treasury.

Loan from AIG

     As discussed above in “Recent Developments,” we borrowed approximately $1.67 billion from AIG Funding in September 2008 in order to pay our commercial paper and other obligations as they became due. We entered into an unsecured revolving credit agreement with AIG Funding to evidence these loans. Pursuant to this agreement, we may borrow up to $1.68 billion from time to time from AIG Funding. Interest on the loan varies monthly based on AIG Funding’s cost of funds. For September 2008, the interest rate on the loan was approximately 3.62%. AIG Funding may demand repayment of the loans under this facility at any time upon three business days’ prior written notice to us. AIG Funding, however, has agreed not to demand repayment of any loans outstanding under this facility if such demand would conflict with any of our other debt agreements. We can voluntarily prepay the loan in whole or in part at any time without penalty or premium subject to restrictions in our other debt agreements. The revolving credit agreement has a term of twelve months, but automatically renews each year unless terminated by both parties. Subsequent to September 30, 2008, the amount outstanding under the loan was paid in full.

Commercial Paper

     We have a $6.0 billion Commercial Paper Program. Under this program, we may borrow in minimum increments of $100,000 for periods from one day to 270 days. The weighted average interest rate of our commercial paper outstanding was 3.18% at September 30, 2008, and 4.63% at December 31, 2007.

     As previously discussed in “Recent Developments,” we became unable to issue new commercial paper in September 2008 as a result of the recent liquidity issues of our parent, AIG, the downgrading of our short-term debt ratings by Moody’s and S&P (S&P subsequently upgraded our short-term debt rating) and the overall economic conditions in the U.S. and global credit markets. As a result, in September 2008 we had to borrow approximately $1.67 billion from AIG Funding and subsequently draw down the maximum amount available on our unsecured revolving credit facilities of $6.5 billion. Since September 12, 2008, except as discussed below, we have not issued new commercial paper and we cannot determine when the commercial paper markets may be available to us again.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Commercial Paper Funding Facility

     On October 27, 2008, we were approved to participate in the CPFF to issue up to $5.7 billion of commercial paper. Under the CPFF, the NY Fed, through a special purpose vehicle (the “SPV”), will purchase eligible three-month unsecured and asset-backed U.S. dollar denominated commercial paper from eligible issuers. The maximum amount of commercial paper an issuer can sell to the SPV is equal to the greatest amount of U.S. dollar denominated commercial paper the issuer had outstanding during any day between January 1, 2008 and August 31, 2008. Unsecured commercial paper purchased by the CPFF will be discounted based on a rate equal to a spread over the three-month overnight index swap rate on the day of purchase. The CPFF program expires on April 30, 2009, with remaining funds outstanding at that date maturing through July 2009, unless extended by the Federal Reserve Board. Downgrades from S&P and Moody’s would adversely affect our ability to issue commercial paper under the CPFF.

     As of October 30, 2008, the Company has issued approximately $1.7 billion under the CPFF. The proceeds were used to repay the amount outstanding under our loan from AIG Funding. The commercial paper issued will be due January 28, 2009 and we will pay a lending rate of 2.78%. We expect to refinance the commercial paper when it matures, subject to the terms and conditions of the CPFF.

Derivatives

     In the normal course of business, we employ a variety of derivative products to manage our exposure to interest rates risks and foreign currency risks. We enter into derivative transactions only to economically hedge interest rate risk and currency risk and not to speculate on interest rates or currency fluctuations. These derivative products include interest rate swap agreements and currency swap agreements. At September 30, 2008, we had interest rate derivative contracts and foreign exchange derivative contracts that we accounted for as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted (“SFAS 133”). We had four foreign exchange derivative contracts that did not qualify for hedge accounting under SFAS 133 at March 31, 2007. At the beginning of the second quarter of 2007, we redesignated those contracts and at September 30, 2008, all our derivative contracts were accounted for as cash flow hedges, as defined by SFAS 133.

     When interest rate and foreign currency swaps are effective as cash flow hedges under the technical requirements of SFAS 133, they offset the variability of expected future cash flows, both economically and for financial reporting purposes. We have historically used such instruments to effectively mitigate foreign currency and interest rate risks. The effect of our ability to apply hedge accounting for the swaps is that changes in their fair values are recorded in OCI instead of in earnings for each reporting period. As a result, reported net income was not directly influenced by changes in fair value adjustments related to interest rates and currency rates for the three and nine month periods ended September 30, 2008.

     The counterparty to our derivative instruments is AIG Financial Products Corp. (“AIGFP”), a non-subsidiary affiliate. The derivatives are subject to a bilateral security agreement and a master netting agreement, which would allow the netting of derivative assets and liabilities in the case of default under any one contract. Failure of the instruments or counterparty to perform under the derivative contracts would have a material impact on our results of operations. As a result of adopting SFAS 157, we recorded in OCI adjustments related to our counterparty’s credit risk and liquidity risk aggregating $90.8 million and $142.0 million for the three and nine months ended September 30, 2008, respectively. In addition, we recorded an out-of-period adjustment of $51.2 million in earnings for the three months ended September 30, 2008. See “Effect of Out-of-Period Adjustment” under Note A of Notes to Condensed Consolidated Financial Statements.

Credit Ratings

     While neither AIG, nor any of its subsidiaries, is a co-obligor or guarantor of our debt securities, circumstances affecting AIG can have an impact on us, including our credit ratings. Our credit ratings have been downgraded concurrent with recent ratings actions taken on AIG by S&P, Moody’s, and Fitch Ratings, Inc (“Fitch”), most recently in September and October 2008.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

     The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies as of October 31, 2008.

				Date of Last Action
Rating Agency	Short-term Debt	Long-term Debt	Credit Watch/Review	to These Ratings
Fitch	F1	A	Evolving	September 17, 2008
Moody’s	P-2	Baa1	Direction Uncertain	October 3, 2008
S&P	A-1	A-	Developing	September 17, 2008

     These credit ratings are the current opinions of the rating agencies. As such, they may be changed, suspended or withdrawn at any time by the rating agencies as a result of various circumstances including changes in, or unavailability of, information.

     While a ratings downgrade does not result in a default under any of our debt agreements, it could impose restrictions on our ability to borrow under the ECA 2004 facility. Additionally, a downgrade in our credit ratings could further adversely affect our ability to issue public debt, including commercial paper and medium term notes, obtain new financing arrangements or renew existing arrangements, and could increase the cost of such financing arrangements.

     The following summarizes our contractual obligations at September 30, 2008:

     Existing Commitments

	Commitments Due by Fiscal Year
	Total		2008		2009		2010		2011		2012		Thereafter
	(Dollars in thousands)
Public, Bank and Term Debt	$	31,505,527	$	1,859,081	$	6,142,856	$	6,497,975	$	7,344,491	$	4,172,315	$	5,488,809
Commercial Paper		1,565,685		1,500,585		65,100		—		—		—		—
Subordinated Debt		1,000,000		—		—		—		—		—		1,000,000
Loan From AIG (a)		1,671,268		1,671,268		—		—		—		—		—
Interest Payments on Debt Outstanding (b)(c)(d)		7,803,433		455,702		1,472,084		1,144,562		789,796		438,725		3,502,564
Operating Leases (e)(f)		77,317		2,351		10,150		10,845		11,286		11,745		30,940
Pension Obligations (g)		3,065		432		467		507		547		553		559
Tax Benefit Sharing Agreement Due to AIG		85,000		—		85,000		—		—		—		—
Purchase Commitments (h)		16,902,500		735,300		2,602,900		242,700		309,000		977,800		12,034,800
Total	$	60,613,795	$	6,224,719	$	10,378,557	$	7,896,589	$	8,455,120	$	5,601,138	$	22,057,672

Contingent Commitments

	Contingency Expiration by Fiscal Year
	Total		2008		2009		2010		2011		2012		Thereafter
	(Dollars in thousands)
AVGs (i)	$	558,723	$	—	$	—	$	—	$	27,841	$	78,950	$	451,932
Lines of Credit		50,000		—		—		—		50,000		—		—
Total (j)	$	608,723	$	—	$	—	$	—	$	77,841	$	78,950	$	451,932

(Table continued on following page)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

(a)	The loan was paid in full subsequent to September 30, 2008. See Note H of Notes to Condensed Consolidated Financial Statements.
(b)	Future interest payments on floating rate debt are estimated using floating interest rate in effect at September 30, 2008.
(c)	Includes the effect of interest rate and foreign currency derivative instruments.
(d)	Does not include interest on Loan From AIG or Commercial Paper.
(e)	Excludes fully defeased aircraft sale-lease back transactions.
(f)	Amounts shown net of subleased office space.
(g)	Our pension obligations are part of intercompany expenses, which AIG allocates to us on an annual basis. The amount is an estimate of such allocation. The column “2008” consists of total estimated allocations for 2008 and the column “Thereafter” consists of the 2013 estimated allocation. The amount allocated has not been material to date.
(h)	Due to the Boeing strike the 2008 commitments will likely move to 2009.
(i)	From time to time, we participate with airlines, banks and other financial institutions to assist in financing aircraft by providing asset guarantees, put options, or loan guarantees collateralized by aircraft. As a result, should we be called upon to fulfill our obligations, we would have recourse to the value of the underlying aircraft.
(j)	Excluded from total contingent commitments are $105.6 million of uncertain tax liabilities. The amounts are included in Current taxes on our 2008 Condensed Consolidated Balance Sheet. The future cash flows to these liabilities are uncertain and we are unable to make reasonable estimates of the outflows.

Other Variable Interest Entities

     We have sold aircraft to entities owned by third parties, and from time to time we have issued asset value guarantees or loan guarantees related to the aircraft sold. We have determined that ten such entities, each owning one aircraft, are Variable Interest Entities (“VIEs”) in which we are deemed the primary beneficiary, as defined by Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities,” (“FIN 46R”). In accordance with FIN 46R, we consolidate these entities. The assets and liabilities of these entities are presented separately on our Condensed Consolidated Balance Sheets. We do not have legal control over and we do not own the assets, nor are we directly obligated for the liabilities of these entities.

     We have not established any other unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries, entered into joint ventures or created other partnership arrangements with the limited purpose of leasing aircraft or facilitating borrowing arrangements.

Results of Operations

Three months ended September 30, 2008 versus 2007

     Revenues from rentals of flight equipment increased 6.1% to $1,267.5 million in 2008 from $1,195.1 million in 2007. The number of aircraft in our fleet increased to 950 at September 30, 2008, compared to 894 at September 30, 2007. Revenues from rentals of flight equipment increased (i) $99.7 million due to the addition of aircraft to our fleet that earned revenue during all or part of the three-month period ended September 30, 2008 compared to no or partial earned revenue for the same period in 2007; and (ii) $2.6 million due to higher lease rates for certain aircraft that were in our fleet during both periods.

     The increases were partially offset by (i) a $6.1 million decrease in lease revenue related to aircraft returned early by airlines that filed for bankruptcy protection during 2008 which earned revenue for only part of the three-month period ended September 30, 2008; (ii) a $11.7 million decrease related to aircraft in service during the three months ended September 30, 2007, and sold prior to September 30, 2008; and (iii) $12.1 million due to a decrease in the aggregate number of hours flown on which we collect overhaul revenue.

     Three aircraft in our fleet were not subject to a signed lease agreement or a signed letter of intent at September 30, 2008.

     In addition to leasing operations, we engage in the marketing of our flight equipment throughout the lease term, as well as the sale of third party owned flight equipment on a principal and commission basis. Revenues

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

from flight equipment marketing decreased to $5.8 million in 2008 compared to $16.5 million in 2007. We sold two aircraft during the three months ended September 30, 2008, compared to two aircraft and one engine sold during the same period in 2007.

     Interest and other revenue decreased to $25.7 million in 2008 compared to $44.0 million in 2007 due to (i) $21.9 million decrease in bankruptcy settlements related to lessees who had previously filed for bankruptcy protection; (ii) an $8.4 million decrease in foreign exchange gains, net of losses; and (iii) other minor fluctuations aggregating a decrease of $1.7 million. The decreases were offset by (i) $11.3 million increase in forfeitures of customer deposits due to non-performance; and (ii) $2.4 million increase in interest income.

     Interest expense decreased to $394.3 million in 2008 compared to $417.6 million in 2007 as a result of a decrease in our composite interest rate. This savings was partially offset by an increase in average debt outstanding (excluding the effect of debt discount and foreign exchange adjustments), primarily borrowed to finance aircraft acquisitions, to $32.7 billion in 2008 compared to $31.2 billion in 2007.

     Our composite borrowing rates in the third quarters of 2008 and 2007, which include the effect of derivatives, were as follows:

	2008			2007			Decrease
Beginning of Quarter		4.74	%		5.27	%		0.53	%
End of Quarter		5.01	%		5.28	%		0.27	%
Average		4.88	%		5.28	%		0.40	%

     We recorded gains of $0.1 million and $4.0 million primarily related to ineffectiveness of derivatives designated as cash flow hedges for the three months ended September 30, 2008 and 2007, respectively.

     Depreciation of flight equipment increased 6.1% to $475.1 million in 2008 compared to $447.8 million in 2007 due to the increased cost of the fleet.

     Provision for overhauls decreased to $75.3 million in 2008 compared to $81.8 million in 2007 due to an decrease in the aggregate number of hours flown, on which we collect overhaul revenue, which results in a decrease in the estimated future reimbursements.

     Flight equipment rent expense relates to two sale-leaseback transactions.

     Selling, general and administrative expenses increased to $51.7 million in 2008 compared to $33.3 million in 2007 due to (i) increased salary and employee related expenses of $9.8 million; (ii) increased operating expenses to support our growing fleet of $6.5 million; and (iii) other minor fluctuations aggregating an increase of $2.1 million.

     We typically contract to re-lease aircraft before the end of the existing lease term. For aircraft returned before the end of the lease term, we have generally been able to re-lease aircraft within two to six months of their return. We have not recognized any impairment charges related to our fleet, as we have been able to re-lease aircraft without diminution in lease rates to an extent that would warrant an impairment write-down.

     Our effective tax rate for the quarter ended September 30, 2008 increased to 35.7% from 32.8% for the same period in 2007 due to Internal Revenue Service (“IRS”) audit and interest adjustments related to the 2007 tax year recorded in 2008. Our effective tax rate continues to be impacted by minor permanent items and interest accrued on uncertain tax positions and prior period audit adjustments. Our reserve for uncertain tax positions increased by $18.4 million due to the continued uncertainty of tax benefits related to the Foreign Sales Corporation and Extraterritorial Income regimes, the benefits of which, if realized, would have a significant impact on our effective tax rate.

     On January 1, 2008, we adopted SFAS 157. As a result, we recorded a $142.0 million decrease in OCI relating to incorporation of counterparty credit risk and liquidity risk in the calculation of fair value of our derivative instruments for the three month period ended September 30, 2008. The adjustments include an out-of-period adjustment in the amount of $51.2 million which was credited to current period income and relates to the six months ended June 30, 2008. See Notes A, B and D of Notes to Condensed Consolidated Financial Statements. A portion of the adjustments relate to a foreign currency swap with a notional amount of €500

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

million that settled on October 9, 2008. The CVA and MVA adjustment calculation as of September 30, 2008, excluding the settled position, resulted in a decrease of $27.7 million in the aggregate adjustment. Other comprehensive loss increased to $75.2 million in 2008 compared to $58.5 million in 2007. The increase was primarily due to changes in the market value on derivatives qualifying for and designated as cash flow hedges under SFAS 133, including an out-of-period adjustment of $51.2 million, net of the reclassification of the foreign exchange component of cross currency swaps charged to income.

Nine months ended September 30, 2008 versus 2007

     Revenues from rentals of flight equipment increased 9.3% to $3,712.8 million in 2008 from $3,397.6 million in 2007. The number of aircraft in our fleet increased to 950 at September 30, 2008, compared to 894 at September 30, 2007. Revenues from rentals of flight equipment increased (i) $321.4 million due to the addition of aircraft to our fleet that earned revenue during all or part of the nine-month period ended September 30, 2008, compared to no or partial earned revenue for the same period in 2007; (ii) $29.2 million due to an increase in the number of aggregate number of hours flown on which we collect overhaul revenue; and (iii) $24.7 million due to higher lease rates for certain aircraft that were in our fleet during both periods.

     The increases were partially offset by (i) a $13.1 million charge related to the early termination of ten ATA lease agreements; (ii) a $15.6 million decrease in lease revenue related to aircraft returned early by airlines that filed for bankruptcy protection during the nine-month period ended September 30, 2008, which earned revenue for only part of the period; and (iii) a $31.4 million decrease related to aircraft in service during the period ended September 30, 2007, and sold prior to September 30, 2008.

     Three aircraft in our fleet were not subject to a signed lease agreement or a signed letter of intent at September 30, 2008.

     In addition to leasing operations, we engage in the marketing of our flight equipment throughout the lease term, as well as the sale of third party owned flight equipment on a principal and commission basis. Revenues from flight equipment marketing increased to $45.0 million in 2008 compared to $21.3 million in 2007. We sold ten aircraft and one engine during the nine months ended September 30, 2008, compared to three aircraft and one engine during the same period in 2007.

     Interest and other revenue decreased to $69.4 million in 2008 compared to $84.6 million in 2007 due to (i) a $14.1 million decrease in bankruptcy settlements related to lessees who had previously filed for bankruptcy protection; (ii) a $9.7 million decrease in foreign exchange gains; (iii) a $3.0 million decrease in transaction fees received; and (iv) other minor fluctuations aggregating a decrease of $2.0 million. These decreases were partially offset by a $13.6 million increase in forfeitures of customer deposits due to non-performance.

     Interest expense decreased to $1,140.9 million in 2008 compared to $1,210.4 million in 2007 as a result of a decrease in interest rates. This savings was partially offset by an increase in average debt outstanding (excluding the effect of debt discount and foreign exchange adjustments), primarily borrowed to finance aircraft acquisitions, to $32.3 billion in 2008 compared to $29.9 billion in 2007.

     Our composite borrowing rates for the nine months ended September 30, 2008 and 2007, which include the effect of derivatives, were as follows:

	2008			2007			Decrease
Beginning of Nine months		5.16	%		5.24	%		0.08	%
End of Nine months		5.01	%		5.28	%		0.27	%
Average		5.08	%		5.26	%		0.18	%

     We recorded charges of $7.4 million and $8.6 million primarily related to ineffectiveness of derivatives designated as cash flow hedges for the nine months ended September 30, 2008 and 2007, respectively.

     Depreciation of flight equipment increased 7.9% to $1,389.3 million in 2008 compared to $1,287.5 million in 2007 due to the increased cost of the fleet.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

     Provision for overhauls increased to $226.1 million in 2008 compared to $210.2 million in 2007 due to an increase in the aggregate number of hours flown, on which we collect overhaul revenue, which results in an increase in the estimated future reimbursements.

     Flight equipment rent expense relates to two sale-leaseback transactions.

     Selling, general and administrative expenses increased to $136.6 million in 2008 compared to $116.7 million in 2007 due to (i) an increase in salaries and employee related expenses of $14.5 million; (ii) a write-down of a note receivable in the amount of $4.5 million; and (iii) a $6.6 million increase in operating expenses to support our growing fleet. These increases were offset by other fluctuations aggregating a decrease of $5.7 million.

     We typically contract to re-lease aircraft before the end of the existing lease term. For aircraft returned before the end of the lease term, we have generally been able to re-lease aircraft within two to nine months of their return. We have not recognized any impairment charges related to our fleet, as we have been able to re-lease aircraft without diminution in lease rates to an extent that would warrant an impairment write-down.

     Our effective tax rate for the nine months ended September 30, 2008 increased slightly to 35.6% from 34.7% in 2007 due to IRS audit and interest adjustments related to the 2007 tax year recorded in 2008. Our effective tax rate continues to be impacted by minor permanent items and interest accrued on uncertain tax positions and prior period audit adjustments. Our reserve for uncertain tax positions increased by $45.5 million due to the continued uncertainty of tax benefits related to the Foreign Sales Corporation and Extraterritorial Income regimes, the benefits of which, if realized, would have a significant impact on our effective tax rate.

     On January 1, 2008, we adopted SFAS 157. As a result, we recorded a $142.0 million decrease in OCI relating to incorporation of counterparty credit risk and liquidity risk in the calculation of fair value of our derivative instruments for the nine months ended September 30, 2008 (see Notes D and E of Notes to Condensed Consolidated Financial Statements). The adjustments resulted from the increase of our counterparty’s credit default spreads in the amount of $13.5 million at January 1, 2008 and an additional adjustment of $128.5 million during the nine month period ended September 30, 2008. A portion of the adjustments relate to a foreign currency swap with a notional amount of €500 million that settled on October 9, 2008. The CVA and MVA adjustment calculation as of September 30, 2008, excluding the settled position, resulted in a decrease of $27.7 million in the aggregate adjustment. Other comprehensive loss increased to $81.4 million in 2008 compared to $47.6 million in 2007. The change was primarily due to the inclusion of the CVA adjustment of $142.0 million for the nine months ended September 30, 2008.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Value at Risk

     Measuring potential losses in fair values is performed through the application of various statistical techniques. One such technique is Value at Risk (“VaR”), a summary statistical measure that uses historical interest rates, foreign currency exchange rates and equity prices and which estimates the volatility and correlation of these rates and prices to calculate the maximum loss that could occur over a defined period of time given a certain probability.

     Management believes that statistical models alone do not provide a reliable method of monitoring and controlling market risk. While VaR models are relatively sophisticated, the quantitative market risk information generated is limited by the assumptions and parameters established in creating the related models. Therefore, such models are tools and do not substitute for the experience or judgment of senior management.

     We are exposed to market risk and the risk of loss of fair value and possible liquidity strain resulting from adverse fluctuations in interest rates and foreign exchange prices. We statistically measure the loss of fair value through the application of a VaR model on a quarterly basis. In this analysis, our net fair value is determined using the financial instrument and other assets. This includes tax adjusted future flight equipment lease revenues and financial instrument liabilities, which includes future servicing of current debt. The estimated impact of current derivative positions is also taken into account.

     We calculate the VaR with respect to the net fair value by using historical scenarios. This methodology entails re-pricing all assets and liabilities under explicit changes in market rates within a specific historical time period. In this case, the most recent three years of historical information for interest rates and foreign exchange rates were used to construct the historical scenarios at September 30, 2008, and December 31, 2007. For each scenario, each financial instrument is re-priced. Scenario values for us are then calculated by netting the values of all the underlying assets and liabilities. The final VaR number represents the maximum adverse deviation in net fair value incurred under these scenarios with 95% confidence (i.e. only 5% of historical scenarios show losses greater than the VaR figure). A one month holding period is assumed in computing the VaR figure. The table below presents the average, high and low VaRs on a combined basis and of each component of market risk for us for the periods ended September 30, 2008 and December 31, 2007. The decrease in the VaR is due to an increase in lease revenue and a decrease in the U.S. Dollar yields and yield volatilities.

	ILFC Market Risk
	Nine months Ended						Year Ended
	September 30, 2008						December 31, 2007
	(Dollars in millions)
	Average		High		Low		Average		High		Low
Combined	$	56.1	$	96.2	$	36.1	$	70.0	$	102.3	$	38.5
Interest Rate		56.7		97.6		36.5		69.9		102.2		38.8
Currency		1.0		1.6		0.7		0.9		1.2		0.7

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ITEM 4T. CONTROLS AND PROCEDURES

(A)	Evaluation of Disclosure Controls and Procedures
	We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including the Chairman of the Board and Chief Executive Officer and the Vice Chairman and Chief Financial Officer (collectively the “Certifying Officers”), as appropriate, to allow timely decisions regarding required disclosure. Our management, including the Certifying Officers, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
	We have evaluated, under the supervision and with the participation of management, including the Certifying Officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) of the Securities Exchange Act of 1934 as of September 30, 2008. Based on that evaluation, our Certifying Officers have concluded that our disclosure controls and procedures were effective at the reasonable assurance level at September 30, 2008.
	Variable Interest Entities
	At September 30, 2008, our Condensed Consolidated Balance Sheet included assets and liabilities of $101.0 million and $9.1 million, respectively, related to Variable Interest Entities (“VIEs”). At December 31, 2007, the balances were $112.1 million and $7.0 million. In addition, we recorded a net loss of $3.2 million and $2.7 million for the nine months ended September 30, 2008 and 2007, respectively, related to those VIEs. Our assessment of disclosure controls and procedures, as described above, includes the Variable Interest Entities. Each of the VIEs has a discrete number of assets and we, as lender and guarantor to the VIEs, have been provided sufficient information to conclude that our procedures with respect to these VIEs are effective in providing reasonable assurance that the information required to be disclosed by us relating to these entities is reconciled, processed, summarized and reported within the periods specified by the Securities and Exchange Commission. However, management has been unable to assess the effectiveness of internal controls at those entities due to our inability to dictate or modify the control over financial reporting of those entities, or to assess those controls.
(B)	Changes in Internal Control Over Financial Reporting
	There have been no changes in our internal control over financial reporting during the nine months ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In connection with the January 3, 2004 crash of our 737-300 aircraft on lease to Flash Airlines in Egypt, lawsuits were initially filed by the families of 122 of the 148 victims on the flight against us, Boeing, Honeywell International, Inc., and Parker-Hannifin Corporation in U.S. federal court in California and by the families of 2 of the victims against ILFC in U.S. federal court in Arkansas. Both cases in the U.S. were dismissed on the basis of forum non conveniens and refiled in the Courts of First Instance in France. These plaintiffs also sued Flash Airlines and its insurer in the same French court. As to the French case against the U.S. defendants involving 122 of the victims, on March 6, 2008, the Paris Appellate Court found that the particular Court of First Instance in France did not have jurisdiction over the U.S. defendants. This Paris appellate court decision is being appealed by the defendants to the French supreme court. In the meantime, however, the cases may be refiled against the U.S. defendants in California. We believe we are adequately covered in all these cases by the liability insurance policies carried by Flash Airlines and we have substantial defenses to the actions. We do not believe the outcome of these lawsuits will have a material effect on our consolidated financial condition, results of operations, or cash flows.

ITEM 1A. RISK FACTORS

Our business is subject to numerous risks and uncertainties, as described below and under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007 and in the sections above titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview and Industry Condition” and “Quantitative and Qualitative Disclosures about Market Risk.”

We operate as a supplier and financier to airlines. The risks affecting our airline customers are generally out of our control and impact our customers to varying degrees. As a result, we are indirectly impacted by all the risks facing airlines today. Our customers’ ability to compete effectively in the market place and manage these risks has a direct impact on us and our operating results.

The following risk factors update certain significant factors that may affect our business and operations described in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2007 for recent developments:

•

Borrowing Risks

Liquidity Risk – We are dependent on our ability to borrow the funds needed to finance the purchase of aircraft and repay our existing debt obligations. Our liquidity is dependent on having continued access to debt markets and maintaining our credit ratings. We have historically fulfilled our short-term borrowing requirements through the issuance of commercial paper. In September 2008, due to a decrease in liquidity in the commercial paper market and the recent liquidity issues of AIG which led to downgrades of our short-term debt rating by Moody’s Investor Service, Inc. (“Moody’s”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) (S&P subsequently upgraded our short-term debt rating), we became unable to issue commercial paper under our commercial paper program. We cannot determine when the commercial paper markets may be available to us again. When commercial paper became unavailable to us, we borrowed approximately $1.67 billion from AIG Funding, an affiliate of American International Group, Inc. (“AIG”), to repay maturing commercial paper and other maturing obligations. Subsequently we drew down the maximum amount available on our unsecured revolving credit facilities of $6.5 billion. In October 2008, we

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PART II. OTHER INFORMATION (CONTINUED)

repaid the amount outstanding under the loan from AIG Funding with the proceeds received from the issuance of commercial paper under the Federal Reserve Bank of New York’s (“NY Fed”) Commercial Paper Funding Facility (“CPFF”). We are looking at other ways to fund our purchase commitments of aircraft and future maturing obligations including secured financings. Under our existing debt agreements, we currently are permitted to enter into secured financings totaling up to 12.5% of Consolidated Tangible Net Assets, as defined in the debt agreements, currently an amount in excess of $4.0 billion. We anticipate that these secured financings together with internally generated funds will be sufficient to meet our liquidity needs through September 30, 2009. With insufficient liquidity we could potentially experience:

§	An inability to acquire aircraft, for which we have signed contracts, resulting in lower growth, lost revenue, and strained manufacturer and customer relationships; and
§	An inability to meet our debt maturities as they become due, resulting in payment defaults, non-compliance with debt covenants, further reduced credit ratings and an inability to access certain debt markets.

• Other Risks

Credit Ratings – As a result of Moody’s October 3, 2008 downgrade of our long-term debt ratings, on October 17, 2008 we received notice from the security trustee of the 2004 ECA facility requiring us to segregate into separate accounts the 2004 security deposits and maintenance reserves, aggregating $148.8 million, relating to the aircraft funded under the 2004 facility. We have 90 days from the date of the notice to comply. Further ratings downgrades could:

§	increase our borrowing costs; and
§	Potentially prevent us from accessing certain capital markets, including imposing additional restrictions under our ECAs and making it more difficult for us to borrow under the 2004 ECA facility.

Key Personnel – We rely upon the knowledge and talent of our employees to successfully conduct business. The reduction in AIG’s common stock price has dramatically reduced the value of equity awards previously made to our key employees. A loss of key personnel could hurt our business.

Relationship with AIG – While neither AIG nor any of its subsidiaries is a co-obligor or guarantor of our debt securities, circumstances affecting AIG can have an impact on us. For example, concurrent with ratings actions recently taken on AIG by S&P, Moody’s and Fitch Ratings, Inc (“Fitch”), actions were taken, or statements were made, with respect to our ratings by Moody’s and S&P. As a result, we were no longer able to borrow under our commercial paper program and borrowed approximately $1.67 billion from an affiliate of AIG in September 2008 to repay maturing commercial paper and other general maturing obligations. Subsequent to September 30, 2008 we paid the amount outstanding under the loan in full when we were granted access to the CPFF. See Note H of Notes to Condensed Consolidated Financial Statements. We can give no assurance how further changes in circumstances related to AIG would impact us.

AIG Going Concern Consideration – In connection with the preparation of its quarterly report on Form 10-Q for the quarterly period ended September 30, 2008, AIG assessed its ability to continue as a going concern. After considering several factors as outlined in AIG’s Form 10-Q, AIG believes that it will have adequate liquidity to finance and operate its businesses and continue as a going concern for at least the next twelve months. However, it is possible that the actual outcome of one or more of AIG’s plans could be materially different or that one or more of its significant judgments or estimates could prove to be materially incorrect, which could raise substantial doubt about AIG’s ability to continue as a going concern. If AIG is not able to continue as a going concern, it could have a significant impact on our operations, including limiting our ability to issue new debt.

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PART II. OTHER INFORMATION (CONTINUED)

Restrictive Covenants on our Operations – AIG recently experienced serious liquidity issues and on September 22, 2008 entered into an $85 billion revolving credit facility and a guarantee and pledge agreement with the Federal Reserve Bank of New York. We do not guarantee AIG’s obligations under the credit facility and none of our assets were pledged to secure AIG’s obligations under the credit facility.

We are, however, as a subsidiary of AIG, subject to the restrictive covenants under the facility. These covenants, among other things, restrict our ability to:

§	incur debt;
§	encumber our assets;
§	make equity or debt investments in other parties; and
§	impose restrictions on our ability to pay dividends and distributions to our equity holders.

These covenants may affect our ability to operate and finance our business as we deem appropriate. In addition, AIG is required to repay the credit facility primarily from proceeds on sales of assets, including businesses. On October 3, 2008 AIG indicated its intent to refocus on its core property and casualty insurance businesses, generate sufficient liquidity to repay the outstanding balance of its loan from the NY Fed and address its capital structure. AIG intends to retain the majority of its U.S. property and casualty and foreign general insurance businesses, and to retain an ownership interest in certain of its foreign life insurance operations. AIG is exploring divestiture opportunities for its remaining businesses. As of October 31, 2008, AIG has not specifically announced its intentions relating to ILFC.

For a detailed discussion of risk factors affecting us, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007.

ITEM 6. EXHIBITS

          a) Exhibits

3.1*	Restated Articles of Incorporation of the Company.
3.2*	Amended and Restated By-Laws of the Company.
4.1	Supplemental Agency Agreement, dated September 5, 2008, among the Company, Citibank, N.A. and Dexia Banque Internationale à Luxembourg, société anonyme (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 8, 2008).

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PART II. OTHER INFORMATION (CONTINUED)

4.2	The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
12*	Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.
31.1*	Certification of Chairman of the Board and Chief Executive Officer.
31.2*	Certification of Vice Chairman and Chief Financial Officer.
32.1*	Certification under 18 U.S.C., Section 1350.

* Filed herewith

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SIGNATURES

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

INTERNATIONAL LEASE FINANCE CORPORATION
November 11, 2008	/s/ Steven F. Udvar-Hazy
	STEVEN F. UDVAR-HAZY
	Chairman of the Board and
	Chief Executive Officer
	(Principal Executive Officer)
November 11, 2008	/s/ Alan H. Lund
	ALAN H. LUND
	Vice Chairman and
	Chief Financial Officer
	(Principal Financial Officer)
November 11, 2008	/s/ Kurt H. Schwarz
	KURT H. SCHWARZ
	Senior Vice President,
	Chief Accounting Officer and Controller
	(Principal Accounting Officer)

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INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES

INDEX TO EXHIBITS

Exhibit No.
3.1*	Restated Articles of Incorporation of the Company.
3.2*	Amended and Restated By-Laws of the Company.
4.1	Supplemental Agency Agreement, dated September 5, 2008, among the Company, Citibank, N.A. and Dexia Banque Internationale à Luxembourg, société anonyme (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 8, 2008).
4.2	The Company agrees to furnish to the Commission upon request a copy of each instrument with respect to issues of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
12*	Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividends.
31.1*	Certification of Chairman of the Board and Chief Executive Officer.
31.2*	Certification of Vice Chairman and Chief Financial Officer.
32.1*	Certification under 18 U.S.C., Section 1350.

* Filed herewith

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EX-3.1

Exhibit 3.1

RESTATED ARTICLES OF INCORPORATION OF
INTERNATIONAL LEASE FINANCE CORPORATION,
a California corporation

     The undersigned, Alan H. Lund and Pamela S. Hendry, hereby certify that they are the Vice Chairman and Chief Financial Officer and Senior Vice President and Treasurer, respectively, of International Lease Finance Corporation (the “Company”), a California corporation, and do further certify that:

     1. On November 5, 1992, the Company filed with the Secretary of State of the State of California (“California Secretary of State”) its Restated Articles of Incorporation;

     2. On December 9, 1992, the Company filed with the California Secretary of State its Certificate of Determination of Preferences of Preferred Stock (the “Certificate of Determination”) for Market Auction Preferred Stock, Series A (“Series A MAPS”) and its Certificate of Determination for Market Auction Preferred Stock, Series B (“Series B MAPS”);

     3. On November 18, 1993, the Company filed with the California Secretary of State its Certificates of Determination for Market Auction Preferred Stock, Series C (“Series C MAPS”) and Market Auction Preferred Stock, Series D (“Series D MAPS”);

     4. On January 26, 1995, the Company filed with the California Secretary of State its Certificates of Determination for Market Auction Preferred Stock, Series E (“Series E MAPS”) and Market Auction Preferred Stock, Series F (“Series F MAPS”);

     5. On November 30, 1995, the Company filed with the California Secretary of State its Certificates of Determination for Market Auction Preferred Stock, Series G (“Series G MAPS”) and Market Auction Preferred Stock, Series H (“Series H MAPS”);

     6. On December 18, 2001, the Company filed with the California Secretary of State its Certificate of Determination for Series A Preferred Stock (the “Series A Preferred Stock”);

     7. On October 22, 2008, the Company filed with the California Secretary of State Certificates of Amendment to its Certificates of Determination for Series C MAPS, Series D MAPS, Series E MAPS, Series F MAPS, Series G MAPS, Series H MAPS and Series A Preferred Stock reducing the number of authorized shares of each such series to zero (0) shares and as a result, pursuant to Section 401(f) of the California Corporations Code, such series are no longer in force and are no longer authorized series of the Company;

     8. The Articles of Incorporation of the Company, as amended to the date of the filing of this certificate are restated as follows:

          FIRST: The name of the corporation is: INTERNATIONAL LEASE FINANCE CORPORATION.

          SECOND: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.

          THIRD: The corporation is authorized to issue two classes of shares designated respectively “Common Stock” and “Preferred Stock.” The authorized number of shares of Common Stock is 100,000,000 and the authorized number of shares of Preferred Stock is 20,000,000.

          The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such series. The Board of Directors is also authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.

          FOURTH: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. No amendment, modification or repeal of this Article FOURTH shall adversely affect any right or protection that exists at the time of such amendment, modification or repeal.

          FIFTH: The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders.

          SIXTH: The Certificate of Determination of Preferences of Preferred Stock, Market Auction Preferred Stock, Series A which is attached hereto as Exhibit A is hereby incorporated by reference as Article SIXTH of these Articles of Incorporation.

          SEVENTH: The Certificate of Determination of Preferences of Preferred Stock, Market Auction Preferred Stock, Series B which is attached hereto as Exhibit B is hereby incorporated by reference as Article SEVENTH of these Articles of Incorporation.

     9. The foregoing Restated Articles of Incorporation of the Company do not themselves alter or amend the Articles of Incorporation of the Company in any respect and have been approved by the Company’s Board of Directors.

          We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

          Executed at Los Angeles, California on October 22, 2008

/s/ Alan H. Lund  

ALAN H. LUND 

Vice Chairman and Chief Financial Officer 

/s/ Pamela S. Hendry  

PAMELA S. HENDRY 

Senior Vice President and Treasurer 

EXHIBIT A

CERTIFICATE OF DETERMINATION OF
PREFERENCES OF PREFERRED STOCK OF
INTERNATIONAL LEASE FINANCE CORPORATION,
a California Corporation

     The undersigned, Steven F. Udvar-Hazy and Louis L. Gonda hereby certify that:

     1. They are the duly elected and acting President and Secretary, respectively, of International Lease Finance Corporation (the “Company”).

     2. Pursuant to authority given by the Company’s Restated Articles of Incorporation, a duly appointed committee (the “Special Committee”) of the Board of Directors of the Company (such committee having been previously authorized to exercise the powers of the Board of Directors as to the subject matter), has duly adopted the following recitals and resolutions:

     WHEREAS, the Restated Articles of Incorporation of the Company provide for a class of shares known as Preferred Stock, issuable from time to time in one or more series; and

     WHEREAS, the Board of Directors of the Company is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, to fix the number of shares constituting any such series, and to determine the designation thereof, or any of them; and

     WHEREAS, the Company desires, pursuant to its authority as aforesaid, to determine and fix the rights, preferences, privileges, and restrictions relating to a series of said Preferred Stock and the number of shares constituting and the designation of said series;

     NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the designation of, the number of shares constituting, and the rights, preferences, privileges, and restrictions relating to, said series of Preferred Stock as follows:

ARTICLE ONE

DESIGNATION

Section 1. Designation.

     A series of Preferred Stock shall be designated “Market Auction Preferred Stock, Series A ” (the “Series A MAPS”).

Section 2. Amount.

     The number of shares constituting Series A MAPS shall be 500.

ARTICLE TWO

SERIES A MAPS—GENERAL PROVISIONS.

Section 1. Definitions.

     As used herein, the following terms have the following meanings:

     (a) “Additional Directors” has the meaning specified in Section 6(a) of this ARTICLE TWO.

     (b) “Agent Member” means the member of the Securities Depositary that will act on behalf of an Existing Holder or a Potential Holder and that is identified as such in such Existing Holder’s or Potential Holder’s Master Purchaser’s Letter.

     (c) “Applicable ‘AA’ Composite Commercial Paper Rate,” on any date, shall mean in the case of any Standard Dividend Period or Short Dividend Period of (1) 49 days or more but less than 70 days, the interest equivalent of the 60-day rate, (2) 70 days or more but less than 85 days, the arithmetic average of the interest equivalent of the 60-day and 90-day rates, (3) 85 days or more but less than 120 days, the interest equivalent of the 90-day rate, (4) 120 days or more but less than 148 days, the arithmetic average of the interest equivalent of the 90-day and 180-day rates, and (5) 148 days or more but less than 184 days, the interest equivalent of the 180-day rate, in each case, on commercial paper placed on behalf of issuers whose corporate bonds are rated “AA” by S&P or “Aa” by Moody’s, or the equivalent of such rating by another rating agency, as made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day immediately preceding such date. In the event that the Federal Reserve Bank of New York does not make available any of the foregoing rates, then such rates shall be the 60-day rate or arithmetic average of such rates, as the case may be, as quoted on a discount basis or otherwise, by Commercial Paper Dealers to the Auction Agent as of the close of business on the Business Day next preceding such date. If any Commercial Paper Dealer docs not quote a rate required to determine the Applicable “AA” Composite Commercial Paper Rate, the Applicable “AA” Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer (if any) and any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the Company to provide such rate or rates or, if the Company does not select any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealers. “Substitute Commercial Paper Dealer” means Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated or Salomon Brothers Inc or their respective affiliates or successors or, if no such dealer furnishes such quotations, a leading dealer in the commercial paper market selected by the Company in good faith. For purposes of this definition, the “interest equivalent” means the equivalent yield on a 360-day basis of a discount-basis security to an interest-bearing security.

     (d) “Applicable Rate” means the rate per annum, resulting from the next preceding Auction, at which dividends are payable on the shares of Series A MAPS for any Dividend Period.

     (e) “Applicable Treasury Bill Rate” for any Short Dividend Period in excess of 180 days and “Applicable Treasury Note Rate” for any Long Dividend Period, on any date, shall mean the interest equivalent of the rate for direct obligations of the United States Treasury having an original maturity which is equal to, or next lower than, the length of such Short Dividend Period or Long Dividend Period, as the case may be, as published weekly by the Board of Governors of the Federal Reserve System (the “Board”) in “Federal Reserve Statistical Release H.l5(5l9)-Selected Interest Rates,” or any successor publication by the Board, within five Business Days preceding such date. In the event that the Board does not publish such rate, or if such release is not available, the Applicable Treasury Bill Rate or Applicable Treasury Note Rate will be the arithmetic mean of the secondary market bid rate as of approximately 3:30 P.M., New York City time, on the Business Day next preceding such date of the U.S. Government Securities Dealers furnished to

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the Auction Agent for the issue of direct obligations of the United States Treasury, in an aggregate principal amount of at least $1,000,000 with a remaining maturity equal to, or next lower than, the length of such Short Dividend Period or Long Dividend Period, as the case may be. If any U.S. Government Securities Dealer does not quote a rate required to determine the Applicable Treasury Bill Rate or Applicable Treasury Note Rate, the Applicable Treasury Bill Rate or Applicable Treasury Note Rate shall be determined on the basis of the quotation or quotations furnished by any Substitute U.S. Government Securities Dealer or Dealers selected by the Company to provide such rate or rates or, if the Company does not select any such Substitute U.S. Government Securities Dealer or Dealers, by the remaining U.S. Government Securities Dealer (if any); provided that, if the Company is unable to cause such quotations to be furnished to the Auction Agent by such sources, the Company may cause such rates to be furnished to the Auction Agent by such alternative source as the Company in good faith deems to be reliable. “Substitute U.S. Government Securities Dealers” means Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated or Salomon Brothers Inc or their respective affiliates or successors or, if no such dealer provides such quotes, a leading dealer in the government securities market selected by the Company in good faith. For purposes of this definition, the “interest equivalent” of a rate stated on a discount basis shall be equal to the quotient of (A) the discount rate divided by (B) the difference between 1.00 and the discount rate.

     (f) “Auction Agent” means Chemical Bank, or its successors, or any other bank or trust company appointed by a resolution of the Board of Directors of the Company, or its Special Committee, which enters into an agreement with the Company to follow the Auction Procedures set forth in ARTICLE THREE hereof.

     (g) “Auction Date” means the first Business Day preceding the first day of a Dividend Period other than the Initial Dividend Period.

     (h) “Broker-Dealer” means any broker-dealer, or other entity permitted by law to perform the functions required of a Broker-Dealer in ARTICLE THREE, that has been selected by the Company and has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective.

     (i) “Broker-Dealer Agreement” means an agreement between the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in ARTICLE THREE.

     (j) “Business Day” means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in New York City are authorized or obligated by law to close.

     (k) “Capital Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person’s capital stock, whether outstanding on the Date of Original Issue or thereafter.

     (l) “Code” means the Internal Revenue Code of 1986, as amended.

     (m) “Commercial Paper Dealers” means Morgan Stanley & Co. Incorporated and Shearson Lehman Brothers Inc. or, in lieu of either thereof, their respective affiliates or successors.

     (n) “Common Stock” means all shares now or hereafter authorized of the class of Common Stock of the Company presently authorized and any other shares into which such shares may hereafter be changed from time to time.

     (o) “Date of Original Issue” means the date on which the Company initially issues shares of Series A MAPS.

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     (p) “Default Period” has the meaning specified in Section 6(a) of this ARTICLE TWO.

     (q) “Default Rate” means the Applicable Determining Rate multiplied by the percentage, as it may be adjusted from time to time, shown opposite the lowest Credit Ratings category in the definition of Maximum Applicable Rate, determined as of the Business Day preceding a Failure to Deposit.

     (r) “Dividend Payment Date” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (s) “Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (t) “Dividend Quarter” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (u) “Dividends-Received Deduction” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (v) “Existing Holder,” means a Person who has signed a Master Purchaser’s Letter and is listed as the beneficial owner of shares of Series A MAPS in the records of the Auction Agent.

     (w) “Failure to Deposit” has the meaning specified in Section 2(e) of this ARTICLE TWO.

     (x) “Initial Dividend Payment Date” means February 2, 1993.

     (y) “Initial Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (z) “Initial Dividend Rate” has the meaning specified in Section 2(a) of this ARTICLE TWO.

     (aa) “Junior Capital Stock” means, with respect to the Company, any and all Capital Stock of the Company ranking junior to the Series A MAPS with respect to the payment of dividends or the distribution of assets upon liquidation.

     (ab) “Long Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (ac) “MAPS” means all shares of each series of the Company’s Market Auction Preferred Stock now or hereafter authorized.

     (ad) “Maximum Applicable Rate,” on any Auction Date, shall mean the rate per annum obtained by multiplying the Applicable Determining Rate on such Auction Date by a percentage (as it may be adjusted from time to time by the Company) determined as set forth below based on the lower of the credit ratings assigned to the Series A MAPS by Moody’s and S&P (or if Moody’s or S&P or both shall not make such rating available, the equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies, as the case may be, or in the event that only one such rating shall be available, the percentage shall be based on such rating).

			Applicable Percentage
Credit Ratings			of Applicable
Moody’s	S&P		Determining Rate
“aa3” or Above		AA– or Above		150	%
“a3” to “a1”		A– to A+		200	%
“baa3” to “baa1”		BBB– to BBB+		225	%
Below “baa3”		Below BBB–		275	%

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     (ae) “Master Purchaser’s Letter” means a letter addressed to the Company, the Auction Agent and a Broker-Dealer in which a Person agrees, among other things, to offer to purchase, purchase, offer to sell or sell shares of Series A MAPS as set forth in ARTICLE THREE.

     (af) “Minimum Holding Period” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (ag) “Moody’s” means Moody’s Investors Service, Inc.

     (ah) “Normal Dividend Payment Date” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (ai) “Notice” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (aj) “Notice of Long Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (ak) “Notice of Revocation” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (al) “Notice of Short Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (am) “Outstanding” means, as of any date, shares of Series A MAPS theretofore issued by the Company except, without duplication, (i) any shares of Series A MAPS theretofore cancelled, delivered to the Company for cancellation or redeemed and (ii) as of any Auction Date, any shares of Series A MAPS subject to redemption on the next following Business Day.

     (an) “Parity Capital Stock” means any and all shares of Capital Stock of the Company ranking on a parity with or equal to the Series A MAPS as to the payment of dividends and distribution of assets.

     (ao) “Parity Securities” has the meaning specified in Section 6(a) of this ARTICLE TWO.

     (ap) “Person” means and includes an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.

     (aq) “Potential Holder” means any Person, including any Existing Holder, (i) who has executed a Master Purchaser’s Letter and (ii) who may be interested in acquiring shares of Series A MAPS (or, in the case of an Existing Holder, additional shares of Series A MAPS).

     (ar) “Preferred Stock” means all shares now or hereafter authorized of the class of Preferred Stock, without par value, of the Company, including the shares of Series A MAPS of any series.

     (as) “S&P” means Standard & Poor’s Corporation.

     (at) “Securities Depositary” means The Depository Trust Company and its successors and assigns or any other securities depository selected by the Company which agrees to follow the procedures required to be followed by such Securities Depositary in connection with shares of Series A MAPS.

     (au) “Short Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (av) “Standard Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (aw) “Subsequent Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

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     (ax) “Subsequent Dividend Period Days” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (ay) “Substitute Rating Agency” shall mean a nationally recognized statistical rating organization (as that term is used in the rules and regulations of the Securities Exchange Act of 1934) selected by the Company, subject to the approval by Morgan Stanley and Lehman Brothers, such approval not to be unreasonably withheld.

     (az) “Sufficient Clearing Bids” has the meaning specified in Section 4(a) of ARTICLE THREE.

     (ba) “U.S. Government Securities Dealers” shall mean Morgan Stanley & Co. Incorporated and Shearson Lehman Brothers Inc. or, in lieu of either thereof, their respective affiliates or successors.

Section 2. Dividends.

     (a) Holders of Series A MAPS shall be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds available therefor under applicable law and the Company’s Articles of Incorporation, cumulative cash dividends at the Applicable Rate, determined as set forth below, payable on the respective dates set forth below that may be applicable with respect to such Series A MAPS. For the Initial Dividend Period, dividends will accumulate at a rate per annum of 3-5/8% (the “Initial Dividend Rate”). For each subsequent Dividend Period, the dividend rate for the Series A MAPS will be the Applicable Rate, determined as set forth herein, and will be payable on the respective dates set forth below.

     (b) Dividends on the Series A MAPS will accumulate (whether or not declared) from the Date of Original Issue. Except for the Initial Dividend Payment Date, dividends on the Series A MAPS with a Standard Dividend Period will be payable, except as provided below, on each seventh Tuesday following the preceding Dividend Payment Date. Dividends on the Series A MAPS with a Short Dividend Period will be payable, except as provided below, on the day following the last day of such Short Dividend Period and will also be payable on such other dates as are established at the time such Short Dividend Period is determined. Dividends on the Series A MAPS with a Long Dividend Period will be payable, except as provided below, on the day following the last day of such Long Dividend Period and on the first day of the fourth calendar month after the commencement of such Long Dividend Period and quarterly thereafter on the first day of each applicable month. Each day on which dividends on Series A MAPS would be payable as determined as set forth in this paragraph but for the adjustments set forth below is referred to herein as a “Normal Dividend Payment Date.”

     (i) In the case of dividends payable on Series A MAPS with a Standard Dividend Period or a Short Dividend Period, if:

          (A)(1) the Securities Depositary shall continue to make available to Agent Members the amounts due as dividends on the Series A MAPS in next-day funds on the dates on which such dividends are payable and (2) a Normal Dividend Payment Date is not a Business Day, or the day next succeeding such Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day preceding such Normal Dividend Payment Date that is next succeeded by a Business Day; or

          (B)(1) the Securities Depositary shall make available to Agent Members the amounts due as dividends on Series A MAPS in immediately available funds on the dates on which such dividends are payable (and the Securities Depositary shall have so advised the Auction Agent) and (2) a Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day following such Normal Dividend Payment Date.

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     (ii) In the case of dividends payable on Series A MAPS with a Long Dividend Period, if:

          (A)(1) the Securities Depositary shall continue to make available to its members and participants the amounts due as dividends on the Series A MAPS in next-day funds on the dates on which such dividends are payable and (2) a Normal Dividend Payment Date is not a Business Day, or the day next succeeding such Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day following such Normal Dividend Payment Date that is next succeeded by a Business Day; or

          (B)(1) the Securities Depositary shall make available to its members and participants the amounts due as dividends on the Series A MAPS in immediately available funds on the dates on which such dividends are payable (and the Securities Depositary shall have so advised the Auction Agent) and (2) a Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day following such Normal Dividend Payment Date.

     Notwithstanding the foregoing, in case of payment in next-day funds, if the date on which dividends on Series A MAPS would be payable as determined as set forth in the preceding paragraphs is a day that would result in the number of days between successive Auction Dates (determined by excluding the first Auction Date and including the second Auction Date) not being at least equal to the then-current minimum holding period (currently set forth in Section 246(c) of the Code) (the “Minimum Holding Period”) required for corporate taxpayers to be entitled to the dividends-received deduction on preferred stock held by nonaffiliated corporations (currently set forth in Section 243(a) of the Code) (the “Dividends-Received Deduction”), then dividends on the Series A MAPS shall be payable on the first Business Day following such date on which dividends would be so payable that is next succeeded by a Business Day that results in the number of days between such successive Auction Dates (determined as set forth above) being at least equal to the then-current Minimum Holding Period.

     Each date on which dividends on Series A MAPS shall bepayable as determined as set forth above is referred to herein as a “Dividend Payment Date”. If applicable, the period from the preceding Dividend Payment Date to the next Dividend Payment Date for Series A MAPS with a Long Dividend Period is hereby referred to as a “Dividend Quarter.” Although any particular Dividend Payment Date may not occur on the originally scheduled Normal Dividend Payment Date because of the adjustments set forth above, each succeeding Dividend Payment Date will be, subject to such adjustments, the date determined as set forth above as if each preceding Dividend Payment Date had occurred on the respective originally scheduled Normal Dividend Payment Date.

     In addition, notwithstanding the foregoing, in the event of a change in law altering the Minimum Holding Period, the period of time between Dividend Payment Dates shall automatically be adjusted so that there shall be a uniform number of days in subsequent Dividend Periods (such number of days without giving effect to the adjustment referred to above being referred to herein as the “Subsequent Dividend Period Days”) commencing after the date of such change in law equal to or to the extent necessary, in excess of the then-current Minimum Holding Period, provided that the number of Subsequent Dividend Period Days shall not exceed by more than nine days the length of such then-current Minimum Holding Period and shall be evenly divisible by seven, and the maximum number of Subsequent Dividend Period Days, as adjusted pursuant to this provision, in no event shall exceed 119 days.

     (c) After the Initial Dividend Period for the Series A MAPS, each subsequent Dividend Period will (except for the adjustments for non-Business Days described above) be 49 days (each such 49-day period, subject to any adjustment as a result of a change in law altering the Minimum Holding Period as described above, being herein referred to as a “Standard Dividend Period”), unless the Company specifies that any such subsequent Dividend Period will be a Dividend Period of 50 to 364 days and consisting of a whole number of weeks (a “Short Dividend Period”) or a Dividend Period of one year or longer (a “Long Dividend Period”).

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Each such Standard Dividend Period, Short Dividend Period and Long Dividend Period (together with the period commencing on the Date of Original Issue and ending on the Initial Dividend Payment Date for the Series A MAPS (the “Initial Dividend Period”)) being referred to herein as a “Dividend Period.” After the Initial Dividend Period for the Series A MAPS, each successive Dividend Period will commence on the Dividend Payment Date for the preceding Dividend Period for such Series and will end (i) in the case of a Standard Dividend Period, on the day preceding the next Dividend Payment Date and (ii) in the case of a Short Dividend Period or a Long Dividend Period, on the last day of the Short Dividend Period or the Long Dividend Period specified by the Company in the related Notice.

     The Company may give telephonic and written notice, not less than ten and not more than 30 days prior to an Auction Date, to the Auction Agent and the Securities Depositary that the next succeeding Dividend Period will be a Short Dividend Period (the “Notice of Short Dividend Period”) or a Long Dividend Period (the “Notice of Long Dividend Period” and, together with the Notice of Short Dividend Period, a “Notice”). Each such Notice will specify (i) the next succeeding Dividend Period as a Short Dividend Period or a Long Dividend Period, (ii) the term thereof, (iii) in the case of any Long Dividend Period, any additional redemption provisions or restrictions on redemption, if any, and (iv) the Dividend Payment Dates; provided that, for any Auction occurring after the initial Auction, the Company may not give a Notice of a Short Dividend Period or a Notice of a Long Dividend Period (and any such Notice shall be null and void) unless Sufficient Clearing Bids were made in the last occurring Auction of any series of MAPS (or all shares of such Series were subject to Submitted Hold Orders) and full cumulative dividends, if any, for all series of MAPS payable prior to such date have been paid in full. The Board of Directors of the Company may establish a Short Dividend Period or a Long Dividend Period for the Series A MAPS. Notice may be revoked by the Company on or prior to the Business Day prior to the related Auction Date by telephonic and written notice (a “Notice of Revocation”) to the Auction Agent and the Securities Depositary.

     If the Company does not give a Notice with respect to the next succeeding Dividend Period or gives a Notice of Revocation with respect thereto, such next succeeding Dividend Period will be a Standard Dividend Period. In addition, if the Company has given Notice with respect to the next succeeding Dividend Period and has not given Notice of Revocation with respect thereto, but Sufficient Clearing Bids are not made (other than because all shares of such Series were subject to Submitted Hold Orders) in the related Auction or such Auction is not held for any reason, such next succeeding Dividend Period will, notwithstanding such Notice, be a Standard Dividend Period and the Company may not again give a Notice (and such Notice shall be null and void) until Sufficient Clearing Bids have been made in an Auction or an Auction has been held in which all shares of a series were subject to Submitted Hold Orders.

     (d) Prior to each Dividend Payment Date for the Series A MAPS, the Company shall deposit with the Auction Agent sufficient funds for the payment of declared dividends.

     Each dividend will be payable to the holder or holders of record of Series A MAPS as they appear on the stock books of the Company on the Business Day next preceding the applicable Dividend Payment Date. Dividends in arrears for any past Dividend Period (and for any past Dividend Quarter during a Long Dividend Period) may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the holder or holders of record of the Series A MAPS. Any dividend payment made shall first be credited against the dividends accumulated with respect to the earliest Dividend Period (or, if applicable, the earliest Dividend Quarter) for which dividends have not been paid. So long as the Series A MAPS are held of record by the nominee of the Securities Depositary, dividends will be paid to the nominee of the Securities Depositary on each Dividend Payment Date. The Securities Depositary will credit the accounts of the Agent Members of Existing Holders in accordance with the Securities Depositary’s normal procedures, which now provide for payments in next-day funds settled through the New York Clearing House. The Agent Member of an Existing Holder will be responsible for holding or disbursing such payments to Existing Holders in accordance with the instructions of such Existing Holders.

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     Holders of shares of the Series A MAPS shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends. No dividends will be declared or paid or set apart for payment on the Series A MAPS for any period unless full cumulative dividends have been or contemporaneously are declared and paid on all MAPS through the most recent applicable Dividend Payment Date for any series of MAPS. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A MAPS which may be in arrears.

     So long as any MAPS are Outstanding, the Company shall not declare, pay or set aside for payment any dividend or other distribution in respect of Junior Capital Stock or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of Junior Capital Stock unless (i) full cumulative dividends for all past Dividend Periods (and, if applicable, for all past Dividend Quarters) and all Dividend Payment Dates occurring on or prior to the date of the transaction shall have been declared and paid (or declared and a sum sufficient for payment of the dividends set apart for payment) on all such MAPS Outstanding and (ii) the Company has redeemed (or set apart for payment a sum sufficient for redemption) the full number of MAPS required to be redeemed after giving any notice of an optional redemption.

     The amount of dividends per share on Series A MAPS payable for each Dividend Period (or for each Dividend Quarter) shall be computed by multiplying the Applicable Rate for each Dividend Period (or Dividend Quarter) by a fraction, the numerator of which shall be the number of days in the Dividend Period (or Dividend Quarter) (calculated by counting both the last day and the first day thereof) such share was Outstanding, and the denominator of which shall be 360 and multiplying the amount so obtained by $100,000.

     (e) The dividend rate for each Dividend Period subsequent to the Initial Dividend Period for the Series A MAPS will be, except as provided below, the Applicable Rate.

     Notwithstanding the results of any Auction or any other provision herein, the dividend rate on the Series A MAPS shall not exceed the Maximum Applicable Rate for any Dividend Period; provided, however, that the Board of Directors of the Company may increase the percentages used to calculate the Maximum Applicable Rate at any time by giving notice to the Auction Agent and the Securities Depositary. Any such notice of increase in the percentage used to calculate the Maximum Applicable Rate must be given to the Auction Agent not later than 10:00 A.M. on an Auction Date. Such increases may be made by the Board of Directors of the Company from percentages referred to in the definition of Maximum Applicable Rate as follows: from the 150% to up to 175%, from the 200% to up to 225% and from the 225% to up to 250%, with no change to the 275% figure. The Board of Directors of the Company may also designate higher percentages than those referred to in the preceding sentence (including the 275%) upon receipt of an opinion of counsel to the Company to the effect that the use of such higher percentages will not adversely affect the tax treatment of the Series A MAPS. The provisions of the first sentence of this paragraph notwithstanding, at any time that the application of the provisions of the next paragraph would result in a dividend rate on the Series A MAPS being in excess of the Maximum Applicable Rate, the maximum dividend rate applicable to such Series A MAPS shall be such higher dividend rate as provided below.

     In the event of the failure by the Company to pay to the Auction Agent by 12:00 noon, New York City time, (i) on the Business Day next preceding any Dividend Payment Date, the full amount of any dividend (whether or not earned or declared) to be paid on such Dividend Payment Date on the Series A MAPS or (ii) on the Business Day next preceding any redemption date, the full redemption price (including accumulated and unpaid dividends) to be paid on such redemption date for any share of the Series A MAPS (in each case referred to as a “Failure to Deposit”), then, until the full amount due shall have been paid to the Auction Agent, Auctions will be suspended and the Applicable Rate for such Series shall be the Default Rate as determined as of the Business Day preceding the Failure to Deposit. If such Failure to Deposit is cured within three Business Days as provided below, the Applicable Rate for the Dividend Period commencing on the second Business Day following such cure will be based upon the results of an Auction to be held on the Business Day next succeeding such cure. Unless such a cure is effected, the Default Rate

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shall continue in effect until there shall occur a Dividend Payment Date at least two Business Days prior to which the full amount of any dividends (whether or not earned or declared) payable on each Dividend Payment Date prior to and including such Dividend Payment Date, and the full amount of any redemption price (including accumulated and unpaid dividends) then due, shall have been paid to the Auction Agent, and thereupon Auctions shall resume on the terms stated herein for Dividend Periods commencing with such Dividend Payment Date. If an Auction is not held on an Auction Date for any reason (other than the suspension of Auctions due to a Failure to Deposit), the dividend rate for the applicable Dividend Period shall be the Maximum Applicable Rate determined as of such Auction Date.

     Any Failure to Deposit with respect to the Series A MAPS shall be deemed to be cured if, within three Business Days of such Failure to Deposit, with respect to a Failure to Deposit relating to (a) the payment of dividends, the Company deposits with the Auction Agent by 12:00 noon, New York City time, all accumulated and unpaid dividends on the Series A MAPS, including the full amount of any dividends to be paid with respect to the Dividend Period with respect to which the Failure to Deposit occurred, plus an amount computed by multiplying the Default Rate by a fraction, the numerator of which shall be the number of days during the period from the Dividend Payment Date in respect of which such Failure to Deposit occurred through the day preceding the Business Day next succeeding the Auction held following such cure and the denominator of which shall be 360, and applying the rate obtained against the aggregate liquidation preference of such Series of MAPS and (b) the redemption of shares of Series A MAPS, the deposit by the Company with the Auction Agent, by 12:00 noon, New York City time, of funds sufficient for the redemption of such shares (including accumulated and unpaid dividends), plus an amount computed by multiplying the Default Rate by a fraction, the numerator of which shall be the number of days for which such Failure to Deposit is not cured in accordance with this paragraph (including the day such Failure to Deposit occurs and excluding the day such Failure to Deposit is cured) and the denominator of which shall be 360, and applying the rate obtained against the aggregate liquidation preference of the shares of Series A MAPS to be redeemed, and the giving of irrevocable instructions by the Company to apply such funds and, if applicable, the income and proceeds therefrom, to the payment of the redemption price (including accumulated and unpaid dividends) for such shares of the Series A MAPS. If the Company shall have cured such Failure to Deposit by making timely payment to the Auction Agent, the Auction Agent shall give telephonic and written notice of such cure to each Existing Holder of MAPS at the telephone number and address specified in such Existing Holder’s Master Purchaser’s Letter and to each Broker-Dealer as promptly as practicable after such cure is effected and schedule an Auction for such Series for the next Business Day.

     (f) The Company may give telephonic and written notice, not later than 10:00 A.M. on an Auction Date, to the Auction Agent and the Securities Depositary of an increase in the percentage used to calculate the Maximum Applicable Rate for the Series A MAPS. Such notice shall specify the new percentages to be used to calculate the Maximum Applicable Rate. The Board of Directors of the Company may establish an increase in such percentages. The Company may not revoke any notice of an increase in the percentages used to calculate the Maximum Applicable Rate and such percentages, once increased, may not thereafter be decreased.

Section 3. Redemption.

     The Series A MAPS shall be redeemable by the Company as provided below:

     (a) At the option of the Company, the Series A MAPS may be redeemed, in whole or from time to time in part, out of funds legally available therefor, on any Dividend Payment Date for such Series A MAPS, upon at least fifteen but not more than 45 days’ notice, at a redemption price per share equal to the sum of $100,000 plus an amount equal to accumulated and unpaid dividends thereon (whether or not earned or declared) to the date that the Company pays the full amount payable upon redemption of the shares of such Series. The Company may only redeem Series A MAPS in whole shares. Pursuant to such right of optional

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redemption, the Company may elect to redeem some or all of the shares of Series A MAPS without redeeming shares of any other series of MAPS or redeem some or all of the shares of any other series of MAPS without redeeming shares of Series A MAPS.

     Upon any date fixed for redemption (unless a Failure to Deposit occurs), all rights of the holders of shares of Series A MAPS called for redemption will cease and terminate, except the right of such holders to receive the amounts payable in respect of such redemption therefor, but without interest, and such shares of the Series A MAPS will be deemed no longer Outstanding.

     So long as all of the Series A MAPS to be redeemed are held of record by a nominee of the Securities Depositary, the redemption price (including accumulated and unpaid dividends) for such shares of the Series A MAPS will be paid by the Company to the Securities Depositary on the redemption date for distribution to Agent Members in accordance with its normal procedures.

     (b) Any shares of Series A MAPS which shall at any time have been redeemed or purchased by the Company shall, after such redemption or purchase, be cancelled in the manner provided by the laws of the State of California.

Section 4. Conversion or Exchange.

     The holders of shares of Series A MAPS shall not have any rights to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of the Capital Stock of the Company or into any other securities of the Company.

Section 5. Liquidation Rights.

     In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of the Series A MAPS will be entitled to receive, out of the assets of the Company available for distribution to shareholders after satisfying claims of creditors but before any payment or distribution of assets is made to holders of Junior Capital Stock upon liquidation, a preferential liquidation distribution in the amount of $100,000 per share plus an amount equal to accumulated and unpaid dividends on each such share (whether or not declared) to and including the date of such distribution. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to pay the holders of the Series A MAPS the full amount of the preferential liquidation distributions to which they are entitled, holders of the Series A MAPS will share ratably in any such distribution of such assets with holders of Parity Capital Stock. Unless and until payment in full has been made to holders of the Series A MAPS of the liquidation distributions to which they are entitled as described in this paragraph, no dividends or distributions will be made to holders of the Company’s Junior Capital Stock, and no purchase, redemption or other acquisition for any consideration by the Company will be made in respect of the Company’s Junior Capital Stock. After the payment to the holders of the Series A MAPS of the full amount of the preferential liquidation distributions to which they are entitled pursuant to this paragraph, such holders (in their capacity as such holders) will have no right or claim to any of the remaining assets of the Company. Neither the consolidation nor the merger of the Company with or into any other corporation or corporations, nor the sale or transfer by the Company of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of this Section 5.

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Section 6. Voting Rights.

     (a) Holders of the Series A MAPS will have no voting rights except as hereinafter described, or as expressly required by law.

     During any period when dividends on the Series A MAPS or any other Parity Capital Stock of the Company which has voting rights comparable to the Series A MAPS which are then exercisable (the Series A MAPS and all such other securities being referred to as the “Parity Securities”) shall be in arrears for at least 180 consecutive days and shall not have been paid in full (a “Default Period”), the holders of record of the Parity Securities voting as described below will be entitled to elect two directors to the Board of Directors (the “Additional Directors”) whether or not the Board of Directors of the Company has taken appropriate action to increase the established number of directors of the Company by two, and the holders of the Common Stock as a class, shall be entitled to elect the remaining number of directors.

     As soon as practicable after the beginning of a Default Period (or a reinstatement of the voting rights of holders of Parity Securities as provided herein), the Board of Directors of the Company will call or cause to be called a special meeting of the holders of Parity Securities by mailing or causing to be mailed to such holders a notice of such special meeting to be held not less than ten and not more than 45 days after the date such notice is given. If the Board of Directors of the Company does not call or cause to be called such a special meeting, it may be called by any of such holders on like notice. The record date for determining the holders of the Parity Securities entitled to notice of and to vote at such special meeting will be the close of business on the Business Day preceding the day on which such notice is mailed. At any such special meeting, such holders, by plurality vote, voting together as a single class without regard to series (to the exclusion of the holders of Junior Capital Stock) will be entitled to elect two directors on the basis of one vote per $100,000 liquidation preference (excluding amounts in respect of accumulated and unpaid dividends). The holder or holders of one-third of the Parity Securities then outstanding, present in person or by proxy, will constitute a quorum for the election of the Additional Directors except as otherwise provided by law. Notice of all meetings at which holders of the Series A MAPS shall be entitled to vote will be given to such holders at their addresses as they appear on the register of the Company. If a Default Period shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Company shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Parity Securities that would have been entitled to vote at such special meeting.

     So long as a Default Period continues, (i) any vacancy in the office of an Additional Director may be filled (except as provided in the following clause (ii)) by the person appointed in an instrument in writing signed by the remaining Additional Director and filed with the Secretary of the Company or, in the event there is no remaining Additional Director, by vote of the holders of the outstanding Parity Securities, voting together as a single class without regard to series, in a meeting of shareholders or at a meeting of holders of Parity Securities called for such purpose, and (ii) in the case of the removal of any Additional Director, the vacancy may be filled by appointment by the person elected by the vote of the holders of the outstanding Parity Securities, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted upon or any subsequent meeting. Each director who shall be elected or appointed by the remaining Additional Director as aforesaid shall be an Additional Director.

     At such time as a Default Period shall terminate, (i) the term of office of the Additional Directors shall terminate and (ii) the voting rights of the holders of the Parity Securities to elect directors shall cease (subject to the occurrence of a subsequent Default Period).

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     (b) Except as provided below, so long as any Series A MAPS remain Outstanding, the Company shall not, without the consent of the holders of at least two-thirds of all of the MAPS then outstanding (taken together as a single class), given in person or by proxy, either in writing or at a meeting (voting separately as a single class), (i) authorize, create or issue, or increase the authorized amount of, any Capital Stock of the Company of any class ranking, as to dividends or upon the liquidation, dissolution or winding up of the Company, prior to the Series A MAPS, or reclassify any authorized Capital Stock of the Company into any such Capital Stock, or authorize, create or issue any obligation or security convertible into or evidencing the right to purchase any such Capital Stock, or (ii) amend, alter or repeal the provisions of the Company’s Articles of Incorporation, whether by merger, consolidation, share exchange, division or otherwise, so as to adversely affect any preference, limitation or special right of the Series A MAPS.

     Except as provided by law, the consent of the holders of the Series A MAPS is not required and such holders are not entitled to vote upon (i) the authorization, creation, issuance or increase in the authorized amount of the Common Stock, additional series of MAPS or any Capital Stock of the Company of any class ranking, as to dividends and upon the liquidation, dissolution or winding up of the Company, on a parity with or junior to the MAPS or (ii) any merger, consolidation, share exchange or division of the Company (or any successor corporation) with or into another corporation the result of which is that the Series A MAPS that may be Outstanding from time to time may be junior to any preferred shares of such corporation as to dividends and upon the liquidation, dissolution or winding up of the surviving corporation if on or prior to the date of effectiveness of such merger or consolidation, the Company shall have given Moody’s and S&P written notice of such merger or consolidation and Moody’s and S&P shall have confirmed in writing that the transaction will not adversely affect the then existing rating for the MAPS. If either Moody’s or S&P shall change its rating categories for preferred stock, then the determination of whether the transaction will not adversely affect the then existing rating for the MAPS shall be made based upon the substantially equivalent new rating categories for preferred stock of such rating agency. If either Moody’s or S&P, or both, shall not make a rating available for the Series A MAPS necessary to make such a determination, such determination will be made based upon the substantial equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event that only one such rating shall be available, based upon such available rating. If an alternative nationally recognized securities rating agency or agencies are not available, then for purposes of such determination the rating for the Series A MAPS shall be deemed to be the highest relevant rating last published by Moody’s, S&P or any such Substitute Rating Agency.

Section 7. Sinking Fund.

     Shares of Series A MAPS are not subject or entitled to the benefit of a sinking fund.

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ARTICLE THREE

AUCTION PROCEDURES

Section 1. Definitions.

     Capitalized terms not defined in this Section 1 shall have the respective meanings specified in Section 1 of ARTICLE TWO. As used in this ARTICLE THREE, the following terms have the following meanings:

     (a) “Affiliate” means any Person controlled by, in control of or under common control with the Company.

     (b) “Applicable Determining Rate” means, (i) for any Standard Dividend Period or Short Dividend Period of 183 days or less, the Applicable “AA” Composite Commercial Paper Rate, (ii) for any Short Dividend Period of 184 to 364 days, the Applicable Treasury Bill Rate and (iii) for any Long Dividend Period, the Applicable Treasury Note Rate.

     (c) “Available Shares of Series A MAPS” has the meaning specified in Section 4(a) of this ARTICLE THREE.

     (d) “Bid” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (e) “Bidder” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (f) “Hold Order” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (g) “Order” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (h) “Sell Order” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (i) “Submission Deadline” means 1:00 P.M., New York City time, on any Auction Date or such other time on any Auction Date as may be specified from time to time by the Auction Agent as the time prior to which each Broker-Dealer must submit to the Auction Agent in writing all Orders obtained by it for the Auction to be conducted on such Auction Date.

     (j) “Submitted Bid” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (k) “Submitted Hold Order” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (1) “Submitted Order” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (m) “Submitted Sell Order” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (n) “Winning Bid Rate” has the meaning specified in Section 4(a) of this ARTICLE THREE.

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Section 2. Orders by Existing Holders and Potential Holders.

     (a) Prior to the Submission Deadline on each Auction Date for Series A MAPS:

     (i) each Existing Holder may submit to a Broker-Dealer information as to:

          (A) the number of Outstanding shares of Series A MAPS, if any, held by such Existing Holder that such Existing Holder desires to continue to hold without regard to the Applicable Rate for the next succeeding Dividend Period;

          (B) the number of Outstanding shares of Series A MAPS, if any, held by such Existing Holder that such Existing Holder desires to sell, provided that the Applicable Rate for the next succeeding Dividend Period is less than the rate per annum specified by such Existing Holder; and/or

          (C) the number of Outstanding shares of Series A MAPS, if any, held by such Existing Holder that such Existing Holder desires to sell without regard to the Applicable Rate for the next succeeding Dividend Period; and

     (ii) each Broker-Dealer, using a list of Potential Holders that shall be maintained in accordance with the provisions set forth in the Broker-Dealer Agreement for the purpose of conducting a competitive Auction, shall contact both Existing Holders and Potential Holders, including Existing Holders with respect to an offer by any such Existing Holder to purchase additional shares of Series A MAPS, on such list to notify such Existing Holders and Potential Holders as to the length of the next Dividend Period and (A) with respect to any Short Dividend Period or Long Dividend Period, the Dividend Payment Date(s) and (B) with respect to any Long Dividend Period, any dates before which shares of Series A MAPS may not be redeemed and any redemption premium applicable in an optional redemption and to determine the number of Outstanding shares of Series A MAPS, if any, with respect to which each such Existing Holder desires to submit an Order and each such Potential Holder desires to submit a Bid.

     For the purposes hereof, the communication to a Broker-Dealer of information referred to in clause (i) or (ii) of this Subsection (a) is hereinafter referred to as an “Order” and each Existing Holder and each Potential Holder placing an Order is hereinafter referred to as a “Bidder,” an Order containing the information referred to in clause (i)(A) of this Subsection (a) is hereinafter referred to as a “Hold Order,” an Order containing the information referred to in clause (i)(B) or (ii) of this Subsection (a) is hereinafter referred to as a “Bid;” and an Order containing the information referred to in clause (i)(C) of this Subsection (a) is hereinafter referred to as a “Sell Order.”

     (b) (i) A Bid by an Existing Holder shall constitute an irrevocable offer to sell:

          (A) the number of Outstanding shares of Series A MAPS specified in such Bid if the Applicable Rate determined on such Auction Date shall be less than the rate per annum specified in such Bid; or

          (B) such number or a lesser number of Outstanding shares of Series A MAPS to be determined as set forth in Subsections (a)(iv) and (c) of Section 5 of this ARTICLE THREE if the Applicable Rate determined on such Auction Date shall be equal to the rate per annum specified therein; or

          (C) a lesser number of Outstanding shares of Series A MAPS to be determined as set forth in Subsections (b)(iii) and (c) of Section 5 of this ARTICLE THREE if such specified rate per annum shall be higher than the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.

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     (ii) A Sell Order by an Existing Holder shall constitute an irrevocable offer to sell:

          (A) the number of Outstanding shares of Series A MAPS specified in such Sell Order; or

          (B) such number or a lesser number of Outstanding shares of Series A MAPS to be determined as set forth in Subsections (b)(iii) and (c) of Section 5 of this ARTICLE THREE if Sufficient Clearing Bids do not exist.

     (iii) A Bid by a Potential Holder shall constitute an irrevocable offer to purchase:

          (A) the number of Outstanding shares of Series A MAPS specified in such Bid if the Applicable Rate determined on such Auction Date shall be higher than the rate per annum specified in such Bid; or

          (B) such number or a lesser number of Outstanding shares of Series A MAPS to be determined as set forth in Subsections (a)(v) and (d) of Section 5 of this ARTICLE THREE if the Applicable Rate determined on such Auction Date shall be equal to the rate per annum specified therein.

(c) Orders may be submitted for whole shares of MAPS only. Orders submitted for fractional shares of MAPS shall not be valid.

Section 3. Submission of Orders by Broker-Dealers to Auction Agent.

     (a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date for the Series A MAPS all Orders obtained by such Broker-Dealer, specifying with respect to each Order:

     (i) the name of the Bidder placing such Order;

     (ii) the aggregate number of Outstanding shares of Series A MAPS that are the subject of such Order;

     (iii) to the extent that such Bidder is an Existing Holder;

          (A) the number of Outstanding shares of Series A MAPS, if any, subject to any Hold Order placed by such Existing Holder;

          (B) the number of Outstanding shares of Series A MAPS, if any, subject to any Bid placed by such Existing Holder and the rate per annum specified in such Bid; and

          (C) the number of Outstanding shares of Series A MAPS, if any, subject to any Sell Order placed by such Existing Holder; and

     (iv) to the extent such Bidder is a Potential Holder, the rate per annum specified in such Potential Holder’s Bid.

     (Each “Hold Order,” “Bid” or “Sell Order” as submitted or deemed submitted by a Broker-Dealer is hereinafter referred to individually as a “Submitted Hold Order,” a “Submitted Bid” or a “Submitted Sell Order,” as the case may be, or as a “Submitted Order.”)

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     (b) If any rate per annum specified in any Submitted Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one-thousandth (.001) of 1%.

     (c) If one or more Orders covering in the aggregate all of the Outstanding shares of Series A MAPS held by an Existing Holder are not submitted to the Auction Agent prior to the Submission Deadline for any reason (including the failure of a Broker-Dealer to contact such Existing Holder or to submit such Existing Holder’s Order or Orders), such Existing Holder shall be deemed to have submitted a Hold Order covering the number of Outstanding shares of Series A MAPS held by such Existing Holder that are not subject to Orders submitted to the Auction Agent.

     (d) A Submitted Order or Submitted Orders of an Existing Holder that cover in the aggregate more than the number of Outstanding shares of Series A MAPS held by such Existing Holder will be considered valid in the following order of priority:

     (i) any Submitted Hold Order of such Existing Holder will be considered valid up to and including the number of Outstanding shares of Series A MAPS held by such Existing Holder, provided that, if there is more than one such Submitted Hold Order and the aggregate number of shares of Series A MAPS subject to such Submitted Hold Orders exceeds the number of Outstanding shares of Series A MAPS held by such Existing Holder, the number of shares of Series A MAPS subject to each of such Submitted Hold Orders will be reduced pro rata so that such Submitted Hold Orders in the aggregate will cover exactly the number of Outstanding shares of Series A MAPS held by such Existing Holder;

     (ii) any Submitted Bids of such Existing Holder will be considered valid (in the ascending order of their respective rates per annum if there is more than one Submitted Bid of such Existing Holder) for the number of Outstanding shares of Series A MAPS held by such Existing Holder equal to the difference between (A) the number of Outstanding shares of Series A MAPS held by such Existing Holder and (B) the number of Outstanding shares of Series A MAPS subject to any Submitted Hold Order of such Existing Holder referred to in clause (d)(i) above (and, if more than one Submitted Bid of such Existing Holder specifies the same rate per annum and together they cover more than the remaining number of shares of Series A MAPS that can be the subject of valid Submitted Bids of such Existing Holder after application of clause (d)(i) above and of the foregoing portion of this clause (d)(ii) to any Submitted Bid or Submitted Bids of such Existing Holder specifying a lower rate or rates per annum, the number of shares of Series A MAPS subject to each of such Submitted Bids specifying the same rate per annum will be reduced pro rata so that such Submitted Bids, in the aggregate, cover exactly such remaining number of Outstanding shares of Series A MAPS of such Existing Holder);

     (iii) any Submitted Sell Order of an Existing Holder will be considered valid up to and including the excess of the number of Outstanding shares of Series A MAPS held by such Existing Holder over the sum of (A) the number of shares of Series A MAPS subject to Submitted Hold Orders by such Existing Holder referred to in clause (d)(i) above and (B) the number of shares of Series A MAPS subject to valid Submitted Bids by such Existing Holder referred to in clause (d)(ii) above; provided that, if there is more than one Submitted Sell Order of such Existing Holder and the number of shares of Series A MAPS subject to such Submitted Sell Orders is greater than such excess, the number of shares of Series A MAPS subject to each of such Submitted Sell Orders will be reduced pro rata so that such Submitted Sell Orders, in the aggregate, will cover exactly the number of shares of Series A MAPS equal to such excess.

The number of Outstanding shares of Series A MAPS, if any, subject to Submitted Bids of such Existing Holder not valid under clause (d)(ii) above shall be treated as the subject of a Submitted Bid by a Potential Holder at the rate per annum specified in such Submitted Bids.

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     (e) If there is more than one Submitted Bid by any Potential Holder in any Auction, each such Submitted Bid shall be considered a separate Submitted Bid with respect to the rate per annum and number of shares of Series A MAPS specified therein.

Section 4. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate.

     (a) Not earlier than the Submission Deadline on each Auction Date for the Series A MAPS, the Auction Agent shall assemble all Orders submitted or deemed submitted to it by the Broker-Dealers and shall determine:

     (i) the excess of the total number of Outstanding shares of Series A MAPS over the number of shares of Series A MAPS that are the subject of Submitted Hold Orders (such excess being hereinafter referred to as the “Available Shares of Series A MAPS”);

     (ii) from the Submitted Orders, whether the number of Outstanding shares of Series A MAPS that are the subject of Submitted Bids by Potential Holders specifying one or more rates per annum equal to or lower than the Maximum Applicable Rate exceeds or is equal to the sum of:

          (A) the number of Outstanding shares of Series A MAPS that are the subject of Submitted Bids by Existing Holders specifying one or more rates per annum higher than the Maximum Applicable Rate, and

          (B) the number of Outstanding shares of Series A MAPS that are subject to Submitted Sell Orders.

(if such excess or such equality exists (other than because the number of Outstanding shares of Series A MAPS in clauses (A) and (B) above are each zero because all of the Outstanding shares of Series A MAPS are the subject of Submitted Hold Orders), there shall exist “Sufficient Clearing Bids” and such Submitted Bids by Potential Holders shall be hereinafter referred to collectively as “Sufficient Clearing Bids”); and

     (iii) if Sufficient Clearing Bids exist, the winning bid rate (the “Winning Bid Rate”), which shall be the lowest rate per annum specified in the Submitted Bids that if:

          (A) each Submitted Bid from Existing Holders specifying the Winning Bid Rate and all other Submitted Bids from Existing Holders specifying lower rates per annum were accepted, thus entitling such Existing Holders to continue to hold the shares of Series A MAPS that are the subject of such Submitted Bids, and

          (B) each Submitted Bid from Potential Holders specifying the Winning Bid Rate and all other Submitted Bids from Potential Holders specifying lower rates per annum were accepted, thus entitling such Potential Holders to purchase the shares of Series A MAPS that are the subject of such Submitted Bids,

would result in such Existing Holders described in subclause (iii)(A) continuing to hold an aggregate number of Outstanding shares of Series A MAPS that, when added to the number of Outstanding shares of Series A MAPS to be purchased by such Potential Holders described in subclause (iii)(B), would equal or exceed the number of Available Shares of Series A MAPS.

     (b) In connection with any Auction and promptly after the Auction Agent has made the determinations pursuant to Subsection (a), the Auction Agent shall advise the Company of the Maximum

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Applicable Rate and, based on such determinations, the Applicable Rate for the next succeeding Dividend Period as follows:

     (i) if Sufficient Clearing Bids exist, that the Applicable Rate for the next succeeding Dividend Period shall be equal to the Winning Bid Rate;

     (ii) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding shares of Series A MAPS are the subject of Submitted Hold Orders), that the next succeeding Dividend Period will be a Standard Dividend Period and the Applicable Rate for the next succeeding Dividend Period shall be equal to the Maximum Applicable Rate for a Standard Dividend Period determined as of the Business Day immediately preceding such Auction; or

     (iii) if all of the Outstanding shares of Series A MAPS are the subject of Submitted Hold Orders, that the Applicable Rate for the next succeeding Dividend Period shall be equal to 59% of the Applicable “AA” Composite Commercial Paper Rate, in the case of Series A MAPS with a Standard Dividend Period or a Short Dividend Period of 183 days or less, 59% of the Applicable Treasury Bill Rate in the case of Series A MAPS with a Short Dividend Period of 184 to 364 days, or 59% of the Applicable Treasury Note Rate in the case of Series A MAPS with a Long Dividend Period, in effect on the Auction Date.

Section 5. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares of Series A MAPS.

     Based on the determinations made pursuant to Subsection (a) of Section 4, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below:

     (a) If Sufficient Clearing Bids have been made, subject to the provisions of Subsections (c) and (d), Submitted Bids and Submitted Sell Orders shall be accepted or rejected in the following order of priority and all other Submitted Bids shall be rejected:

     (i) the Submitted Sell Orders of Existing Holders shall be accepted and the Submitted Bid of each of the Existing Holders specifying any rate per annum that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Holder to sell the Outstanding shares of Series A MAPS that are the subject of such Submitted Sell Order or Submitted Bid;

     (ii) the Submitted Bid of each of the Existing Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Outstanding shares of Series A MAPS that are the subject of such Submitted Bid;

     (iii) the Submitted Bid of each of the Potential Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be accepted;

     (iv) the Submitted Bid of each of the Existing Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Outstanding shares of Series A MAPS that are the subject of such Submitted Bid, unless the number of Outstanding shares of Series A MAPS subject to all such Submitted Bids shall be greater than the number of Outstanding shares of Series A MAPS (“Remaining Shares of Series A MAPS”) equal to the excess of the Available Shares of Series A MAPS over the number of Outstanding shares of Series A MAPS subject to Submitted Bids described in Subsections (a)(ii) and (a)(iii), in which event the Submitted Bids of each such Existing Holder shall be rejected, and each such Existing Holder

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shall be required to sell Outstanding shares of Series A MAPS, but only in an amount equal to the difference between (A) the number of Outstanding shares of Series A MAPS then held by such Existing Holder subject to such Submitted Bid and (B) the number of shares of Series A MAPS obtained by multiplying (x) the number of Remaining Shares of Series A MAPS by (y) a fraction, the numerator of which shall be the number of Outstanding shares of Series A MAPS held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of Series A MAPS subject to such Submitted Bids made by all such Existing Holders that specified a rate per annum equal to the Winning Bid Rate; and

     (v) the Submitted Bid of each of the Potential Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be accepted, but only in an amount equal to the number of Outstanding shares of Series A MAPS obtained by multiplying (x) the difference between the Available Shares of Series A MAPS and the number of Outstanding shares of Series A MAPS subject to Submitted Bids described in Subsections (a)(ii), (a)(iii) and (a)(iv) by (y) a fraction, the numerator of which shall be the number of Outstanding shares of Series A MAPS subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of Series A MAPS subject to such Submitted Bids made by all such Potential Holders that specified rates per annum equal to the Winning Bid Rate.

     (b) If Sufficient Clearing Bids have not been made (other than because all of the Outstanding shares of Series A MAPS are subject to Submitted Hold Orders), subject to the provisions of Subsection (c), Submitted Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids of Potential Holders shall be rejected:

     (i) the Submitted Bid of each Existing Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be accepted, thus entitling such Existing Holder to continue to hold the Outstanding shares of Series A MAPS that are the subject of such Submitted Bid;

     (ii) the Submitted Bid of each Potential Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be accepted, thus requiring such Potential Holder to purchase the Outstanding shares of Series A MAPS that are the subject of such Submitted Bid; and

     (iii) the Submitted Bids of each Existing Holder specifying any rate per annum that is higher than the Maximum Applicable Rate shall be rejected, thus requiring each such Existing Holder to sell the Outstanding shares of Series A MAPS that are the subject of such Submitted Bid, and the Submitted Sell Orders of each Existing Holder shall be accepted, in both cases only in an amount equal to the difference between (A) the number of Outstanding shares of Series A MAPS then held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and (B) the number of shares of Series A MAPS obtained by multiplying (x) the difference between the Available Shares of Series A MAPS and the aggregate number of Outstanding shares of Series A MAPS subject to Submitted Bids described in Subsections (b)(i) and (b)(ii) by (y) a fraction, the numerator of which shall be the number of Outstanding shares of Series A MAPS held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of Series A MAPS subject to all such Submitted Bids and Submitted Sell Orders.

     (c) If, as a result of the procedures described in Subsections (a) or (b), any Existing Holder would be entitled or required to sell or any Potential Holder would be entitled or required to purchase, a fraction of a share of Series A MAPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, round up or down the number of shares of Series A MAPS to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date so that only whole shares of Series A MAPS will be entitled or required to be sold or purchased.

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     (d) If, as a result of the procedures described in Subsection (a), any Potential Holder would be entitled or required to purchase less than a whole share of Series A MAPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, allocate shares of Series A MAPS for purchase among Potential Holders so that only whole shares of Series A MAPS are purchased on such Auction Date by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing any shares of Series A MAPS on such Auction Date.

     (e) Based on the results of each Auction, the Auction Agent shall determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders on behalf of Existing Holders or Potential Holders, the aggregate number of Outstanding shares of Series A MAPS to be purchased and the aggregate number of Outstanding shares of Series A MAPS to be sold by such Potential Holders and Existing Holders and, to the extent that such aggregate number of Outstanding shares of Series A MAPS to be purchased and such aggregate number of Outstanding shares of Series A MAPS to be sold differ, the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers acting for one or more purchasers such Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or more sellers such Broker-Dealer shall receive, as the case may be, Outstanding shares of Series A MAPS.

Section 6. Participation in Auctions

     The Company and its Affiliates shall not submit any Order in any Auction except as set forth in the next sentence. Any Broker-Dealer that is an Affiliate of the Company may submit Orders in Auctions but only if such Orders are not for its own account, except that if such affiliated Broker-Dealer holds shares of Series A MAPS for its own account, it must submit a Sell Order in the next Auction with respect to such shares of Series A MAPS.

Section 7. Miscellaneous.

     An Existing Holder (a) may sell, transfer or otherwise dispose of shares of Series A MAPS only pursuant to a Bid or Sell Order in accordance with the procedures described in these Auction Procedures or to or through a Broker-Dealer or to a Person that has delivered a signed copy of a Master Purchaser’s Letter to a Broker-Dealer, provided that in the case of all transfers other than pursuant to Auctions such Existing Holder, its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (b) unless otherwise required by law, shall have the beneficial ownership of the shares of Series A MAPS held by it maintained in book-entry form by the Securities Depositary in the account of its Agent Member, which in turn will maintain records of such Existing Holder’s beneficial ownership. All of the Outstanding shares of Series A MAPS of each Series shall be represented by a single certificate for each Series registered in the name of the nominee of the Securities Depositary unless otherwise required by law or unless there is no Securities Depositary. If there is no Securities Depositary, shares of Series A MAPS shall be registered in the register of the Company in the name of the Existing Holder thereof and such Existing Holder thereupon will be entitled to receive a certificate therefor and be required to deliver a certificate therefor upon transfer or exchange thereof.

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     RESOLVED FURTHER, that the Chairman of the Board, the President or any Vice President, and the Secretary, the Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant Treasurer of this Company are each authorized to execute, verify, and file a certificate of determination of preferences in accordance with California law.

     3. The authorized number of shares of Preferred Stock of the Company is 20,000,000, and the number of shares constituting Series A MAPS, none of which has been issued, is 500.

     IN WITNESS WHEREOF, the undersigned have executed this certificate on December 8, 1992.

/s/ Steven F. Udvar-Hazy  

STEVEN F. UDVAR-HAZY, President 

/s/ Louis L. Gonda  

LOUIS L. GONDA, Secretary 

     The undersigned, STEVEN F. UDVAR-HAZY and LOUIS L. GONDA, the President and Secretary, respectively, of INTERNATIONAL LEASE FINANCE CORPORATION, each declares under penalty of perjury that the matters set forth in the foregoing Certificate are true of his own knowledge.

     Executed at Los Angeles, California on December 8, 1992.

/s/ Steven F. Udvar-Hazy  

STEVEN F. UDVAR-HAZY 

/s/ Louis L. Gonda  

LOUIS L. GONDA 

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EXHIBIT B

CERTIFICATE OF DETERMINATION OF
PREFERENCES OF PREFERRED STOCK OF
INTERNATIONAL LEASE FINANCE CORPORATION,
a California Corporation

     The undersigned, Steven F. Udvar-Hazy and Louis L. Gonda hereby certify that:

     1. They are the duly elected and acting President and Secretary, respectively, of International Lease Finance Corporation (the “Company”).

     2. Pursuant to authority given by the Company’s Restated Articles of Incorporation, a duly appointed committee (the “Special Committee”) of the Board of Directors of the Company (such committee having been previously authorized to exercise the powers of the Board of Directors as to the subject matter), has duly adopted the following recitals and resolutions:

     WHEREAS, the Restated Articles of Incorporation of the Company provide for a class of shares known as Preferred Stock, issuable from time to time in one or more series; and

     WHEREAS, the Board of Directors of the Company is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, to fix the number of shares constituting any such series, and to determine the designation thereof, or any of them; and

     WHEREAS, the Company desires, pursuant to its authority as aforesaid, to determine and fix the rights, preferences, privileges, and restrictions relating to a series of said Preferred Stock and the number of shares constituting and the designation of said series;

     NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the designation of, the number of shares constituting, and the rights, preferences, privileges, and restrictions relating to, said series of Preferred Stock as follows:

ARTICLE ONE

DESIGNATION

Section 1. Designation.

     A series of Preferred Stock shall be designated “Market Auction Preferred Stock, Series B” (the “Series B MAPS”).

Section 2. Amount.

     The number of shares constituting Series B MAPS shall be 500.

ARTICLE TWO

Series B MAPS—GENERAL PROVISIONS.

Section 1. Definitions.

     As used herein, the following terms have the following meanings:

     (a) “Additional Directors” has the meaning specified in Section 6(a) of this ARTICLE TWO.

     (b) “Agent Member” means the member of the Securities Depositary that will act on behalf of an Existing Holder or a Potential Holder and that is identified as such in such Existing Holder’s or Potential Holder’s Master Purchaser’s Letter.

     (c) “Applicable ‘AA’ Composite Commercial Paper Rate,” on any date, shall mean in the case of any Standard Dividend Period or Short Dividend Period of (1) 49 days or more but less than 70 days, the interest equivalent of the 60-day rate, (2) 70 days or more but less than 85 days, the arithmetic average of the interest equivalent of the 60-day and 90-day rates, (3) 85 days or more but less than 120 days, the interest equivalent of the 90-day rate, (4) 120 days or more but less than 148 days, the arithmetic average of the interest equivalent of the 90-day and 180-day rates, and (5) 148 days or more but less than 184 days, the interest equivalent of the 180-day rate, in each case, on commercial paper placed on behalf of issuers whose corporate bonds are rated “AA” by S&P or “Aa” by Moody’s, or the equivalent of such rating by another rating agency, as made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day immediately preceding such date. In the event that the Federal Reserve Bank of New York does not make available any of the foregoing rates, then such rates shall be the 60-day rate or arithmetic average of such rates, as the case may be, as quoted on a discount basis or otherwise, by Commercial Paper Dealers to the Auction Agent as of the close of business on the Business Day next preceding such date. If any Commercial Paper Dealer docs not quote a rate required to determine the Applicable “AA” Composite Commercial Paper Rate, the Applicable “AA” Composite Commercial Paper Rate shall be determined on the basis of the quotation or quotations furnished by the remaining Commercial Paper Dealer (if any) and any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the Company to provide such rate or rates or, if the Company does not select any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealers. “Substitute Commercial Paper Dealer” means Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated or Salomon Brothers Inc or their respective affiliates or successors or, if no such dealer furnishes such quotations, a leading dealer in the commercial paper market selected by the Company in good faith. For purposes of this definition, the “interest equivalent” means the equivalent yield on a 360-day basis of a discount-basis security to an interest-bearing security.

     (d) “Applicable Rate” means the rate per annum, resulting from the next preceding Auction, at which dividends are payable on the shares of Series B MAPS for any Dividend Period.

     (e) “Applicable Treasury Bill Rate” for any Short Dividend Period in excess of 183 days and “Applicable Treasury Note Rate” for any Long Dividend Period, on any date, shall mean the interest equivalent of the rate for direct obligations of the United States Treasury having an original maturity which is equal to, or next lower than, the length of such Short Dividend Period or Long Dividend Period, as the case may be, as published weekly by the Board of Governors of the Federal Reserve System (the “Board”) in “Federal Reserve Statistical Release H.l5(519)-Selected Interest Rates,” or any successor publication by the Board, within five Business Days preceding such date. In the event that the Board does not publish such rate, or if such release is not available, the Applicable Treasury Bill Rate or Applicable Treasury Note Rate will be the arithmetic mean of the secondary market bid rate as of approximately 3:30 P.M., New York City time, on the Business Day next preceding such date of the U.S. Government Securities Dealers furnished to

2

the Auction Agent for the issue of direct obligations of the United States Treasury, in an aggregate principal amount of at least $1,000,000 with a remaining maturity equal to, or next lower than, the length of such Short Dividend Period or Long Dividend Period, as the case may be. If any U.S. Government Securities Dealer does not quote a rate required to determine the Applicable Treasury Bill Rate or Applicable Treasury Note Rate, the Applicable Treasury Bill Rate or Applicable Treasury Note Rate shall be determined on the basis of the quotation or quotations furnished by any Substitute U.S. Government Securities Dealer or Dealers selected by the Company to provide such rate or rates or, if the Company does not select any such Substitute U.S. Government Securities Dealer or Dealers, by the remaining U.S. Government Securities Dealer (if any); provided that, if the Company is unable to cause such quotations to be furnished to the Auction Agent by such sources, the Company may cause such rates to be furnished to the Auction Agent by such alternative source as the Company in good faith deems to be reliable. “Substitute U.S. Government Securities Dealers” means Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated or Salomon Brothers Inc or their respective affiliates or successors or, if no such dealer provides such quotes, a leading dealer in the government securities market selected by the Company in good faith. For purposes of this definition, the “interest equivalent” of a rate stated on a discount basis shall be equal to the quotient of (A) the discount rate divided by (B) the difference between 1.00 and the discount rate.

     (f) “Auction Agent” means Chemical Bank, or its successors, or any other bank or trust company appointed by a resolution of the Board of Directors of the Company, or its Special Committee, which enters into an agreement with the Company to follow the Auction Procedures set forth in ARTICLE THREE hereof.

     (g) “Auction Date” means the first Business Day preceding the first day of a Dividend Period other than the Initial Dividend Period.

     (h) “Broker-Dealer” means any broker-dealer, or other entity permitted by law to perform the functions required of a Broker-Dealer in ARTICLE THREE, that has been selected by the Company and has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective.

     (i) “Broker-Dealer Agreement” means an agreement between the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in ARTICLE THREE.

     (j) “Business Day” means a day on which the New York Stock Exchange is open for trading and which is not a Saturday, Sunday or other day on which banks in New York City are authorized or obligated by law to close.

     (k) “Capital Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person’s capital stock, whether outstanding on the Date of Original Issue or thereafter.

     (l) “Code” means the Internal Revenue Code of 1986, as amended.

     (m) “Commercial Paper Dealers” means Morgan Stanley & Co. Incorporated and Shearson Lehman Brothers Inc. or, in lieu of either thereof, their respective affiliates or successors.

     (n) “Common Stock” means all shares now or hereafter authorized of the class of Common Stock of the Company presently authorized and any other shares into which such shares may hereafter be changed from time to time.

     (o) “Date of Original Issue” means the date on which the Company initially issues shares of Series B MAPS.

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     (p) “Default Period” has the meaning specified in Section 6(a) of this ARTICLE TWO.

     (q) “Default Rate” means the Applicable Determining Rate multiplied by the percentage, as it may be adjusted from time to time, shown opposite the lowest Credit Ratings category in the definition of Maximum Applicable Rate, determined as of the Business Day preceding a Failure to Deposit.

     (r) “Dividend Payment Date” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (s) “Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (t) “Dividend Quarter” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (u) “Dividends-Received Deduction” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (v) “Existing Holder,” means a Person who has signed a Master Purchaser’s Letter and is listed as the beneficial owner of shares of Series B MAPS in the records of the Auction Agent.

     (w) “Failure to Deposit” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (x) “Initial Dividend Payment Date” means February 9, 1993.

     (y) “Initial Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (z) “Initial Dividend Rate” has the meaning specified in Section 2(a) of this ARTICLE TWO.

     (aa) “Junior Capital Stock” means, with respect to the Company, any and all Capital Stock of the Company ranking junior to the Series B MAPS with respect to the payment of dividends or the distribution of assets upon liquidation.

     (ab) “Long Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (ac) “MAPS” means all shares of each series of the Company’s Market Auction Preferred Stock now or hereafter authorized.

     (ad) “Maximum Applicable Rate,” on any Auction Date, shall mean the rate per annum obtained by multiplying the Applicable Determining Rate on such Auction Date by a percentage (as it may be adjusted from time to time by the Company) determined as set forth below based on the lower of the credit ratings assigned to the Series B MAPS by Moody’s and S&P (or if Moody’s or S&P or both shall not make such rating available, the equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies, as the case may be, or in the event that only one such rating shall be available, the percentage shall be based on such rating).

			Applicable Percentage
Credit Ratings			of Applicable
Moody’s	S&P		Determining Rate
“aa3” or Above		AA– or Above		150	%
“a3” to “a1”		A– to A+		200	%
“baa3” to “baa1”		BBB– to BBB+		225	%
Below “baa3”		Below BBB–		275	%

     (ae) “Master Purchaser’s Letter” means a letter addressed to the Company, the Auction Agent and a Broker-Dealer in which a Person agrees, among other things, to offer to purchase, purchase, offer to sell or sell shares of Series B MAPS as set forth in ARTICLE THREE.

     (af) “Minimum Holding Period” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (ag) “Moody’s” means Moody’s Investors Service, Inc.

     (ah) “Normal Dividend Payment Date” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (ai) “Notice” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (aj) “Notice of Long Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (ak) “Notice of Revocation” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (al) “Notice of Short Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (am) “Outstanding” means, as of any date, shares of Series B MAPS theretofore issued by the Company except, without duplication, (i) any shares of Series B MAPS theretofore cancelled, delivered to the Company for cancellation or redeemed and (ii) as of any Auction Date, any shares of Series B MAPS subject to redemption on the next following Business Day.

     (an) “Parity Capital Stock” means any and all shares of Capital Stock of the Company ranking on a parity with or equal to the Series B MAPS as to the payment of dividends and distribution of assets.

     (ao) “Parity Securities” has the meaning specified in Section 6(a) of this ARTICLE TWO.

     (ap) “Person” means and includes an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof.

     (aq) “Potential Holder” means any Person, including any Existing Holder, (i) who has executed a Master Purchaser’s Letter and (ii) who may be interested in acquiring shares of Series B MAPS (or, in the case of an Existing Holder, additional shares of Series B MAPS).

     (ar) “Preferred Stock” means all shares now or hereafter authorized of the class of Preferred Stock, without par value, of the Company, including the shares of Series B MAPS of any series.

     (as) “S&P” means Standard & Poor’s Corporation.

     (at) “Securities Depositary” means The Depository Trust Company and its successors and assigns or any other securities depository selected by the Company which agrees to follow the procedures required to be followed by such Securities Depositary in connection with shares of Series B MAPS.

     (au) “Short Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (av) “Standard Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

     (aw) “Subsequent Dividend Period” has the meaning specified in Section 2(c) of this ARTICLE TWO.

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     (ax) “Subsequent Dividend Period Days” has the meaning specified in Section 2(b) of this ARTICLE TWO.

     (ay) “Substitute Rating Agency” shall mean a nationally recognized statistical rating organization (as that term is used in the rules and regulations of the Securities Exchange Act of 1934) selected by the Company, subject to the approval by Morgan Stanley and Lehman Brothers, such approval not to be unreasonably withheld.

     (az) “Sufficient Clearing Bids” has the meaning specified in Section 4(a) of ARTICLE THREE.

     (ba) “U.S. Government Securities Dealers” shall mean Morgan Stanley & Co. Incorporated and Shearson Lehman Brothers Inc. or, in lieu of either thereof, their respective affiliates or successors.

Section 2. Dividends.

     (a) Holders of Series B MAPS shall be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds available therefor under applicable law and the Company’s Articles of Incorporation, cumulative cash dividends at the Applicable Rate, determined as set forth below, payable on the respective dates set forth below that may be applicable with respect to such Series B MAPS. For the Initial Dividend Period, dividends will accumulate at a rate per annum of 3-5/8% (the “Initial Dividend Rate”). For each subsequent Dividend Period, the dividend rate for the Series B MAPS will be the Applicable Rate, determined as set forth herein, and will be payable on the respective dates set forth below.

     (b) Dividends on the Series B MAPS will accumulate (whether or not declared) from the Date of Original Issue. Except for the Initial Dividend Payment Date, dividends on the Series B MAPS with a Standard Dividend Period will be payable, except as provided below, on each seventh Tuesday following the preceding Dividend Payment Date. Dividends on the Series B MAPS with a Short Dividend Period will be payable, except as provided below, on the day following the last day of such Short Dividend Period and will also be payable on such other dates as are established at the time such Short Dividend Period is determined. Dividends on the Series B MAPS with a Long Dividend Period will be payable, except as provided below, on the day following the last day of such Long Dividend Period and on the first day of the fourth calendar month after the commencement of such Long Dividend Period and quarterly thereafter on the first day of each applicable month. Each day on which dividends on Series B MAPS would be payable as determined as set forth in this paragraph but for the adjustments set forth below is referred to herein as a “Normal Dividend Payment Date.”

     (i) In the case of dividends payable on Series B MAPS with a Standard Dividend Period or a Short Dividend Period, if:

          (A)(1) the Securities Depositary shall continue to make available to Agent Members the amounts due as dividends on the Series B MAPS in next-day funds on the dates on which such dividends are payable and (2) a Normal Dividend Payment Date is not a Business Day, or the day next succeeding such Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day preceding such Normal Dividend Payment Date that is next succeeded by a Business Day; or

          (B)(1) the Securities Depositary shall make available to Agent Members the amounts due as dividends on Series B MAPS in immediately available funds on the dates on which such dividends are payable (and the Securities Depositary shall have so advised the Auction Agent) and (2) a Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day following such Normal Dividend Payment Date.

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     (ii) In the case of dividends payable on Series B MAPS with a Long Dividend Period, if:

          (A)(1) the Securities Depositary shall continue to make available to its members and participants the amounts due as dividends on the Series B MAPS in next-day funds on the dates on which such dividends are payable and (2) a Normal Dividend Payment Date is not a Business Day, or the day next succeeding such Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day following such Normal Dividend Payment Date that is next succeeded by a Business Day; or

          (B)(1) the Securities Depositary shall make available to its members and participants the amounts due as dividends on the Series B MAPS in immediately available funds on the dates on which such dividends are payable (and the Securities Depositary shall have so advised the Auction Agent) and (2) a Normal Dividend Payment Date is not a Business Day, then dividends shall be payable on the first Business Day following such Normal Dividend Payment Date.

     Notwithstanding the foregoing, in case of payment in next-day funds, if the date on which dividends on Series B MAPS would be payable as determined as set forth in the preceding paragraphs is a day that would result in the number of days between successive Auction Dates (determined by excluding the first Auction Date and including the second Auction Date) not being at least equal to the then-current minimum holding period (currently set forth in Section 246(c) of the Code) (the “Minimum Holding Period”) required for corporate taxpayers to be entitled to the dividends-received deduction on preferred stock held by nonaffiliated corporations (currently set forth in Section 243(a) of the Code) (the “Dividends-Received Deduction”), then dividends on the Series B MAPS shall be payable on the first Business Day following such date on which dividends would be so payable that is next succeeded by a Business Day that results in the number of days between such successive Auction Dates (determined as set forth above) being at least equal to the then-current Minimum Holding Period.

     Each date on which dividends on Series B MAPS shall bepayable as determined as set forth above is referred to herein as a “Dividend Payment Date”. If applicable, the period from the preceding Dividend Payment Date to the next Dividend Payment Date for Series B MAPS with a Long Dividend Period is hereby referred to as a “Dividend Quarter.” Although any particular Dividend Payment Date may not occur on the originally scheduled Normal Dividend Payment Date because of the adjustments set forth above, each succeeding Dividend Payment Date will be, subject to such adjustments, the date determined as set forth above as if each preceding Dividend Payment Date had occurred on the respective originally scheduled Normal Dividend Payment Date.

     In addition, notwithstanding the foregoing, in the event of a change in law altering the Minimum Holding Period, the period of time between Dividend Payment Dates shall automatically be adjusted so that there shall be a uniform number of days in subsequent Dividend Periods (such number of days without giving effect to the adjustment referred to above being referred to herein as the “Subsequent Dividend Period Days”) commencing after the date of such change in law equal to or to the extent necessary, in excess of the then-current Minimum Holding Period, provided that the number of Subsequent Dividend Period Days shall not exceed by more than nine days the length of such then-current Minimum Holding Period and shall be evenly divisible by seven, and the maximum number of Subsequent Dividend Period Days, as adjusted pursuant to this provision, in no event shall exceed 119 days.

     (c) After the Initial Dividend Period for the Series B MAPS, each subsequent Dividend Period will (except for the adjustments for non-Business Days described above) be 49 days (each such 49-day period, subject to any adjustment as a result of a change in law altering the Minimum Holding Period as described above, being herein referred to as a “Standard Dividend Period”), unless the Company specifies that any such subsequent Dividend Period will be a Dividend Period of 50 to 364 days and consisting of a whole number of weeks (a “Short Dividend Period”) or a Dividend Period of one year or longer (a “Long Dividend Period”).

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Each such Standard Dividend Period, Short Dividend Period and Long Dividend Period (together with the period commencing on the Date of Original Issue and ending on the Initial Dividend Payment Date for the Series B MAPS (the “Initial Dividend Period”)) being referred to herein as a “Dividend Period.” After the Initial Dividend Period for the Series B MAPS, each successive Dividend Period will commence on the Dividend Payment Date for the preceding Dividend Period for such Series and will end (i) in the case of a Standard Dividend Period, on the day preceding the next Dividend Payment Date and (ii) in the case of a Short Dividend Period or a Long Dividend Period, on the last day of the Short Dividend Period or the Long Dividend Period specified by the Company in the related Notice.

     The Company may give telephonic and written notice, not less than ten and not more than 30 days prior to an Auction Date, to the Auction Agent and the Securities Depositary that the next succeeding Dividend Period will be a Short Dividend Period (the “Notice of Short Dividend Period”) or a Long Dividend Period (the “Notice of Long Dividend Period” and, together with the Notice of Short Dividend Period, a “Notice”). Each such Notice will specify (i) the next succeeding Dividend Period as a Short Dividend Period or a Long Dividend Period, (ii) the term thereof, (iii) in the case of any Long Dividend Period, any additional redemption provisions or restrictions on redemption, if any, and (iv) the Dividend Payment Dates; provided that, for any Auction occurring after the initial Auction, the Company may not give a Notice of a Short Dividend Period or a Notice of a Long Dividend Period (and any such Notice shall be null and void) unless Sufficient Clearing Bids were made in the last occurring Auction of any series of MAPS (or all shares of such Series were subject to Submitted Hold Orders) and full cumulative dividends, if any, for all series of MAPS payable prior to such date have been paid in full. The Board of Directors of the Company may establish a Short Dividend Period or a Long Dividend Period for the Series B MAPS. Notice may be revoked by the Company on or prior to the Business Day prior to the related Auction Date by telephonic and written notice (a “Notice of Revocation”) to the Auction Agent and the Securities Depositary.

     If the Company does not give a Notice with respect to the next succeeding Dividend Period or gives a Notice of Revocation with respect thereto, such next succeeding Dividend Period will be a Standard Dividend Period. In addition, if the Company has given Notice with respect to the next succeeding Dividend Period and has not given Notice of Revocation with respect thereto, but Sufficient Clearing Bids are not made (other than because all shares of such Series were subject to Submitted Hold Orders) in the related Auction or such Auction is not held for any reason, such next succeeding Dividend Period will, notwithstanding such Notice, be a Standard Dividend Period and the Company may not again give a Notice (and such Notice shall be null and void) until Sufficient Clearing Bids have been made in an Auction or an Auction has been held in which all shares of a Series were subject to Submitted Hold Orders.

     (d) Prior to each Dividend Payment Date for the Series B MAPS, the Company shall deposit with the Auction Agent sufficient funds for the payment of declared dividends.

     Each dividend will be payable to the holder or holders of record of Series B MAPS as they appear on the stock books of the Company on the Business Day next preceding the applicable Dividend Payment Date. Dividends in arrears for any past Dividend Period (and for any past Dividend Quarter during a Long Dividend Period) may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the holder or holders of record of the Series B MAPS. Any dividend payment made shall first be credited against the dividends accumulated with respect to the earliest Dividend Period (or, if applicable, the earliest Dividend Quarter) for which dividends have not been paid. So long as the Series B MAPS are held of record by the nominee of the Securities Depositary, dividends will be paid to the nominee of the Securities Depositary on each Dividend Payment Date. The Securities Depositary will credit the accounts of the Agent Members of Existing Holders in accordance with the Securities Depositary’s normal procedures, which now provide for payments in next-day funds settled through the New York Clearing House. The Agent Member of an Existing Holder will be responsible for holding or disbursing such payments to Existing Holders in accordance with the instructions of such Existing Holders.

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     Holders of shares of the Series B MAPS shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends. No dividends will be declared or paid or set apart for payment on the Series B MAPS for any period unless full cumulative dividends have been or contemporaneously are declared and paid on all MAPS through the most recent applicable Dividend Payment Date for any series of MAPS. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series B MAPS which may be in arrears.

     So long as any MAPS are Outstanding, the Company shall not declare, pay or set aside for payment any dividend or other distribution in respect of Junior Capital Stock or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of Junior Capital Stock unless (i) full cumulative dividends for all past Dividend Periods (and, if applicable, for all past Dividend Quarters) and all Dividend Payment Dates occurring on or prior to the date of the transaction shall have been declared and paid (or declared and a sum sufficient for payment of the dividends set apart for payment) on all such MAPS Outstanding and (ii) the Company has redeemed (or set apart for payment a sum sufficient for redemption) the full number of MAPS required to be redeemed after giving any notice of an optional redemption.

     The amount of dividends per share on Series B MAPS payable for each Dividend Period (or for each Dividend Quarter) shall be computed by multiplying the Applicable Rate for each Dividend Period (or Dividend Quarter) by a fraction, the numerator of which shall be the number of days in the Dividend Period (or Dividend Quarter) (calculated by counting both the last day and the first day thereof) such share was Outstanding, and the denominator of which shall be 360 and multiplying the amount so obtained by $100,000.

     (e) The dividend rate for each Dividend Period subsequent to the Initial Dividend Period for the Series B MAPS will be, except as provided below, the Applicable Rate.

     Notwithstanding the results of any Auction or any other provision herein, the dividend rate on the Series B MAPS shall not exceed the Maximum Applicable Rate for any Dividend Period; provided, however, that the Board of Directors of the Company may increase the percentages used to calculate the Maximum Applicable Rate at any time by giving notice to the Auction Agent and the Securities Depositary. Any such notice of increase in the percentage used to calculate the Maximum Applicable Rate must be given to the Auction Agent not later than 10:00 A.M. on an Auction Date. Such increases may be made by the Board of Directors of the Company from percentages referred to in the definition of Maximum Applicable Rate as follows: from the 150% to up to 175%, from the 200% to up to 225% and from the 225% to up to 250%, with no change to the 275% figure. The Board of Directors of the Company may also designate higher percentages than those referred to in the preceding sentence (including the 275%) upon receipt of an opinion of counsel to the Company to the effect that the use of such higher percentages will not adversely affect the tax treatment of the Series B MAPS. The provisions of the first sentence of this paragraph notwithstanding, at any time that the application of the provisions of the next paragraph would result in a dividend rate on the Series B MAPS being in excess of the Maximum Applicable Rate, the maximum dividend rate applicable to such Series B MAPS shall be such higher dividend rate as provided below.

     In the event of the failure by the Company to pay to the Auction Agent by 12:00 noon, New York City time, (i) on the Business Day next preceding any Dividend Payment Date, the full amount of any dividend (whether or not earned or declared) to be paid on such Dividend Payment Date on the Series B MAPS or (ii) on the Business Day next preceding any redemption date, the full redemption price (including accumulated and unpaid dividends) to be paid on such redemption date for any share of the Series B MAPS (in each case referred to as a “Failure to Deposit”), then, until the full amount due shall have been paid to the Auction Agent, Auctions will be suspended and the Applicable Rate for such Series shall be the Default Rate as determined as of the Business Day preceding the Failure to Deposit. If such Failure to Deposit is cured within three Business Days as provided below, the Applicable Rate for the Dividend Period commencing on the second Business Day following such cure will be based upon the results of an Auction to be held on the Business Day next succeeding such cure. Unless such a cure is effected, the Default Rate

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shall continue in effect until there shall occur a Dividend Payment Date at least two Business Days prior to which the full amount of any dividends (whether or not earned or declared) payable on each Dividend Payment Date prior to and including such Dividend Payment Date, and the full amount of any redemption price (including accumulated and unpaid dividends) then due, shall have been paid to the Auction Agent, and thereupon Auctions shall resume on the terms stated herein for Dividend Periods commencing with such Dividend Payment Date. If an Auction is not held on an Auction Date for any reason (other than the suspension of Auctions due to a Failure to Deposit), the dividend rate for the applicable Dividend Period shall be the Maximum Applicable Rate determined as of such Auction Date.

     Any Failure to Deposit with respect to the Series B MAPS shall be deemed to be cured if, within three Business Days of such Failure to Deposit, with respect to a Failure to Deposit relating to (a) the payment of dividends, the Company deposits with the Auction Agent by 12:00 noon, New York City time, all accumulated and unpaid dividends on the Series B MAPS, including the full amount of any dividends to be paid with respect to the Dividend Period with respect to which the Failure to Deposit occurred, plus an amount computed by multiplying the Default Rate by a fraction, the numerator of which shall be the number of days during the period from the Dividend Payment Date in respect of which such Failure to Deposit occurred through the day preceding the Business Day next succeeding the Auction held following such cure and the denominator of which shall be 360, and applying the rate obtained against the aggregate liquidation preference of such Series of MAPS and (b) the redemption of shares of Series B MAPS, the deposit by the Company with the Auction Agent, by 12:00 noon, New York City time, of funds sufficient for the redemption of such shares (including accumulated and unpaid dividends), plus an amount computed by multiplying the Default Rate by a fraction, the numerator of which shall be the number of days for which such Failure to Deposit is not cured in accordance with this paragraph (including the day such Failure to Deposit occurs and excluding the day such Failure to Deposit is cured) and the denominator of which shall be 360, and applying the rate obtained against the aggregate liquidation preference of the shares of Series B MAPS to be redeemed, and the giving of irrevocable instructions by the Company to apply such funds and, if applicable, the income and proceeds therefrom, to the payment of the redemption price (including accumulated and unpaid dividends) for such shares of the Series B MAPS. If the Company shall have cured such Failure to Deposit by making timely payment to the Auction Agent, the Auction Agent shall give telephonic and written notice of such cure to each Existing Holder of MAPS at the telephone number and address specified in such Existing Holder’s Master Purchaser’s Letter and to each Broker-Dealer as promptly as practicable after such cure is effected and schedule an Auction for such Series for the next Business Day.

     (f) The Company may give telephonic and written notice, not later than 10:00 A.M. on an Auction Date, to the Auction Agent and the Securities Depositary of an increase in the percentage used to calculate the Maximum Applicable Rate for the Series B MAPS. Such notice shall specify the new percentages to be used to calculate the Maximum Applicable Rate. The Board of Directors of the Company may establish an increase in such percentages. The Company may not revoke any notice of an increase in the percentages used to calculate the Maximum Applicable Rate and such percentages, once increased, may not thereafter be decreased.

Section 3. Redemption.

     The Series B MAPS shall be redeemable by the Company as provided below:

     (a) At the option of the Company, the Series B MAPS may be redeemed, in whole or from time to time in part, out of funds legally available therefor, on any Dividend Payment Date for such Series B MAPS, upon at least fifteen but not more than 45 days’ notice, at a redemption price per share equal to the sum of $100,000 plus an amount equal to accumulated and unpaid dividends thereon (whether or not earned or declared) to the date that the Company pays the full amount payable upon redemption of the shares of such Series. The Company may only redeem Series B MAPS in whole shares. Pursuant to such right of optional

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redemption, the Company may elect to redeem some or all of the shares of Series B MAPS without redeeming shares of any other series of MAPS or redeem some or all of the shares of any other series of MAPS without redeeming shares of Series B MAPS.

     Upon any date fixed for redemption (unless a Failure to Deposit occurs), all rights of the holders of shares of Series B MAPS called for redemption will cease and terminate, except the right of such holders to receive the amounts payable in respect of such redemption therefor, but without interest, and such shares of the Series B MAPS will be deemed no longer Outstanding.

     So long as all of the Series B MAPS to be redeemed are held of record by a nominee of the Securities Depositary, the redemption price (including accumulated and unpaid dividends) for such shares of the Series B MAPS will be paid by the Company to the Securities Depositary on the redemption date for distribution to Agent Members in accordance with its normal procedures.

     (b) Any shares of Series B MAPS which shall at any time have been redeemed or purchased by the Company shall, after such redemption or purchase, be cancelled in the manner provided by the laws of the State of California.

Section 4. Conversion or Exchange.

     The holders of shares of Series B MAPS shall not have any rights to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of the Capital Stock of the Company or into any other securities of the Company.

Section 5. Liquidation Rights.

     In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, holders of the Series B MAPS will be entitled to receive, out of the assets of the Company available for distribution to shareholders after satisfying claims of creditors but before any payment or distribution of assets is made to holders of Junior Capital Stock upon liquidation, a preferential liquidation distribution in the amount of $100,000 per share plus an amount equal to accumulated and unpaid dividends on each such share (whether or not declared) to and including the date of such distribution. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets of the Company are insufficient to pay the holders of the Series B MAPS the full amount of the preferential liquidation distributions to which they are entitled, holders of the Series B MAPS will share ratably in any such distribution of such assets with holders of Parity Capital Stock. Unless and until payment in full has been made to holders of the Series B MAPS of the liquidation distributions to which they are entitled as described in this paragraph, no dividends or distributions will be made to holders of the Company’s Junior Capital Stock, and no purchase, redemption or other acquisition for any consideration by the Company will be made in respect of the Company’s Junior Capital Stock. After the payment to the holders of the Series B MAPS of the full amount of the preferential liquidation distributions to which they are entitled pursuant to this paragraph, such holders (in their capacity as such holders) will have no right or claim to any of the remaining assets of the Company. Neither the consolidation nor the merger of the Company with or into any other corporation or corporations, nor the sale or transfer by the Company of all or any part of its assets, shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of this Section 5.

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Section 6. Voting Rights.

     (a) Holders of the Series B MAPS will have no voting rights except as hereinafter described, or as expressly required by law.

     During any period when dividends on the Series B MAPS or any other Parity Capital Stock of the Company which has voting rights comparable to the Series B MAPS which are then exercisable (the Series B MAPS and all such other securities being referred to as the “Parity Securities”) shall be in arrears for at least 180 consecutive days and shall not have been paid in full (a “Default Period”), the holders of record of the Parity Securities voting as described below will be entitled to elect two directors to the Board of Directors (the “Additional Directors”) whether or not the Board of Directors of the Company has taken appropriate action to increase the established number of directors by two, and the holders of the Common Stock as a class, shall be entitled to elect the remaining number of directors.

     As soon as practicable after the beginning of a Default Period (or a reinstatement of the voting rights of holders of Parity Securities as provided herein), the Board of Directors of the Company will call or cause to be called a special meeting of the holders of Parity Securities by mailing or causing to be mailed to such holders a notice of such special meeting to be held not less than ten and not more than 45 days after the date such notice is given. If the Board of Directors of the Company does not call or cause to be called such a special meeting, it may be called by any of such holders on like notice. The record date for determining the holders of the Parity Securities entitled to notice of and to vote at such special meeting will be the close of business on the Business Day preceding the day on which such notice is mailed. At any such special meeting, such holders, by plurality vote, voting together as a single class without regard to series (to the exclusion of the holders of Junior Capital Stock) will be entitled to elect two directors on the basis of one vote per $100,000 liquidation preference (excluding amounts in respect of accumulated and unpaid dividends). The holder or holders of one-third of the Parity Securities then outstanding, present in person or by proxy, will constitute a quorum for the election of the Additional Directors except as otherwise provided by law. Notice of all meetings at which holders of the Series B MAPS shall be entitled to vote will be given to such holders at their addresses as they appear on the register of the Company. If a Default Period shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Company shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Parity Securities that would have been entitled to vote at such special meeting.

     So long as a Default Period continues, (i) any vacancy in the office of an Additional Director may be filled (except as provided in the following clause (ii)) by the person appointed in an instrument in writing signed by the remaining Additional Director and filed with the Secretary of the Company or, in the event there is no remaining Additional Director, by vote of the holders of the outstanding Parity Securities, voting together as a single class without regard to series, in a meeting of shareholders or at a meeting of holders of Parity Securities called for such purpose, and (ii) in the case of the removal of any Additional Director, the vacancy may be filled by appointment by the person elected by the vote of the holders of the outstanding Parity Securities, voting together as a single class without regard to series, at the same meeting at which such removal shall be voted upon or any subsequent meeting. Each director who shall be elected or appointed by the remaining Additional Director as aforesaid shall be an Additional Director.

     At such time as a Default Period shall terminate, (i) the term of office of the Additional Directors shall terminate and (ii) the voting rights of the holders of the Parity Securities to elect directors shall cease (subject to the occurrence of a subsequent Default Period).

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     (b) Except as provided below, so long as any Series B MAPS remain Outstanding, the Company shall not, without the consent of the holders of at least two-thirds of all of the MAPS then outstanding (taken together as a single class), given in person or by proxy, either in writing or at a meeting (voting separately as a single class), (i) authorize, create or issue, or increase the authorized amount of, any Capital Stock of the Company of any class ranking, as to dividends or upon the liquidation, dissolution or winding up of the Company, prior to the Series B MAPS, or reclassify any authorized Capital Stock of the Company into any such Capital Stock, or authorize, create or issue any obligation or security convertible into or evidencing the right to purchase any such Capital Stock, or (ii) amend, alter or repeal the provisions of the Company’s Articles of Incorporation, whether by merger, consolidation, share exchange, division or otherwise, so as to adversely affect any preference, limitation or special right of the Series B MAPS.

     Except as provided by law, the consent of the holders of the Series B MAPS is not required and such holders are not entitled to vote upon (i) the authorization, creation, issuance or increase in the authorized amount of the Common Stock, additional Series of MAPS or any Capital Stock of the Company of any class ranking, as to dividends and upon the liquidation, dissolution or winding up of the Company, on a parity with or junior to the MAPS or (ii) any merger, consolidation, share exchange or division of the Company (or any successor corporation) with or into another corporation the result of which is that the Series B MAPS that may be Outstanding from time to time may be junior to any preferred shares of such corporation as to dividends and upon the liquidation, dissolution or winding up of the surviving corporation if on or prior to the date of effectiveness of such merger or consolidation, the Company shall have given Moody’s and S&P written notice of such merger or consolidation and Moody’s and S&P shall have confirmed in writing that the transaction will not adversely affect the then existing rating for the MAPS. If either Moody’s or S&P shall change its rating categories for preferred stock, then the determination of whether the transaction will not adversely affect the existing rating for the MAPS shall be made based upon the substantially equivalent new rating categories for preferred stock of such rating agency. If either Moody’s or S&P, or both, shall not make a rating available for the Series B MAPS necessary to make such a determination, such determination will be made based upon the substantial equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event that only one such rating shall be available, based upon such available rating. If an alternative nationally recognized securities rating agency or agencies are not available, then for purposes of such determination the rating for the Series B MAPS shall be deemed to be the highest relevant rating last published by Moody’s, S&P or any such Substitute Rating Agency.

Section 7. Sinking Fund.

     Shares of Series B MAPS are not subject or entitled to the benefit of a sinking fund.

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ARTICLE THREE

AUCTION PROCEDURES

Section 1. Definitions.

     Capitalized terms not defined in this Section 1 shall have the respective meanings specified in Section 1 of ARTICLE TWO. As used in this ARTICLE THREE, the following terms have the following meanings:

     (a) “Affiliate” means any Person controlled by, in control of or under common control with the Company.

     (b) “Applicable Determining Rate” means, (i) for any Standard Dividend Period or Short Dividend Period of 183 days or less, the Applicable “AA” Composite Commercial Paper Rate, (ii) for any Short Dividend Period of 184 to 364 days, the Applicable Treasury Bill Rate and (iii) for any Long Dividend Period, the Applicable Treasury Note Rate.

     (c) “Available Shares of Series B MAPS” has the meaning specified in Section 4(a) of this ARTICLE THREE.

     (d) “Bid” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (e) “Bidder” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (f) “Hold Order” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (g) “Order” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (h) “Sell Order” has the meaning specified in Section 2(a) of this ARTICLE THREE.

     (i) “Submission Deadline” means 1:00 P.M., New York City time, on any Auction Date or such other time on any Auction Date as may be specified from time to time by the Auction Agent as the time prior to which each Broker-Dealer must submit to the Auction Agent in writing all Orders obtained by it for the Auction to be conducted on such Auction Date.

     (j) “Submitted Bid” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (k) “Submitted Hold Order” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (l) “Submitted Order” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (m) “Submitted Sell Order” has the meaning specified in Section 3(a) of this ARTICLE THREE.

     (n) “Winning Bid Rate” has the meaning specified in Section 4(a) of this ARTICLE THREE.

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Section 2. Orders by Existing Holders and Potential Holders.

     (a) Prior to the Submission Deadline on each Auction Date for Series B MAPS:

     (i) each Existing Holder may submit to a Broker-Dealer information as to:

          (A) the number of Outstanding shares of Series B MAPS, if any, held by such Existing Holder that such Existing Holder desires to continue to hold without regard to the Applicable Rate for the next succeeding Dividend Period;

          (B) the number of Outstanding shares of Series B MAPS, if any, held by such Existing Holder that such Existing Holder desires to sell, provided that the Applicable Rate for the next succeeding Dividend Period is less than the rate per annum specified by such Existing Holder; and/or

          (C) the number of Outstanding shares of Series B MAPS, if any, held by such Existing Holder that such Existing Holder desires to sell without regard to the Applicable Rate for the next succeeding Dividend Period; and

     (ii) each Broker-Dealer, using a list of Potential Holders that shall be maintained in accordance with the provisions set forth in the Broker-Dealer Agreement for the purpose of conducting a competitive Auction, shall contact both Existing Holders and Potential Holders, including Existing Holders with respect to an offer by any such Existing Holder to purchase additional shares of Series B MAPS, on such list to notify such Existing Holders and Potential Holders as to the length of the next Dividend Period and (A) with respect to any Short Dividend Period or Long Dividend Period, the Dividend Payment Date(s) and (B) with respect to any Long Dividend Period, any dates before which shares of Series B MAPS may not be redeemed and any redemption premium applicable in an optional redemption and to determine the number of Outstanding shares of Series B MAPS, if any, with respect to which each such Existing Holder desires to submit an Order and each such Potential Holder desires to submit a Bid.

     For the purposes hereof, the communication to a Broker-Dealer of information referred to in clause (i) or (ii) of this Subsection (a) is hereinafter referred to as an “Order” and each Existing Holder and each Potential Holder placing an Order is hereinafter referred to as a “Bidder,” an Order containing the information referred to in clause (i)(A) of this Subsection (a) is hereinafter referred to as a “Hold Order,” an Order containing the information referred to in clause (i)(B) or (ii) of this Subsection (a) is hereinafter referred to as a “Bid;” and an Order containing the information referred to in clause (i)(C) of this Subsection (a) is hereinafter referred to as a “Sell Order.”

     (b) (i) A Bid by an Existing Holder shall constitute an irrevocable offer to sell:

          (A) the number of Outstanding shares of Series B MAPS specified in such Bid if the Applicable Rate determined on such Auction Date shall be less than the rate per annum specified in such Bid; or

          (B) such number or a lesser number of Outstanding shares of Series B MAPS to be determined as set forth in Subsections (a)(iv) and (c) of Section 5 of this ARTICLE THREE if the Applicable Rate determined on such Auction Date shall be equal to the rate per annum specified therein; or

          (C) a lesser number of Outstanding shares of Series B MAPS to be determined as set forth in Subsections (b)(iii) and (c) of Section 5 of this ARTICLE THREE if such specified rate per annum shall be higher than the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.

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          (ii) A Sell Order by an Existing Holder shall constitute an irrevocable offer to sell:

          (A) the number of Outstanding shares of Series B MAPS specified in such Sell Order; or

          (B) such number or a lesser number of Outstanding shares of Series B MAPS to be determined as set forth in Subsections (b)(iii) and (c) of Section 5 of this ARTICLE THREE if Sufficient Clearing Bids do not exist.

          (iii) A Bid by a Potential Holder shall constitute an irrevocable offer to purchase:

          (A) the number of Outstanding shares of Series B MAPS specified in such Bid if the Applicable Rate determined on such Auction Date shall be higher than the rate per annum specified in such Bid; or

          (B) such number or a lesser number of Outstanding shares of Series B MAPS to be determined as set forth in Subsections (a)(v) and (d) of Section 5 of this ARTICLE THREE if the Applicable Rate determined on such Auction Date shall be equal to the rate per annum specified therein.

(c) Orders may be submitted for whole shares of MAPS only. Orders submitted for fractional shares of MAPS shall not be valid.

Section 3. Submission of Orders by Broker-Dealers to Auction Agent.

     (a) Each Broker-Dealer shall submit in writing to the Auction Agent prior to the Submission Deadline on each Auction Date for the Series B MAPS all Orders obtained by such Broker-Dealer, specifying with respect to each Order:

     (i) the name of the Bidder placing such Order;

     (ii) the aggregate number of Outstanding shares of Series B MAPS that are the subject of such Order;

     (iii) to the extent that such Bidder is an Existing Holder;

          (A) the number of Outstanding shares of Series B MAPS, if any, subject to any Hold Order placed by such Existing Holder;

          (B) the number of Outstanding shares of Series B MAPS, if any, subject to any Bid placed by such Existing Holder and the rate per annum specified in such Bid; and

          (C) the number of Outstanding shares of Series B MAPS, if any, subject to any Sell Order placed by such Existing Holder; and

     (iv) to the extent such Bidder is a Potential Holder, the rate per annum specified in such Potential Holder’s Bid.

     (Each “Hold Order,” “Bid” or “Sell Order” as submitted or deemed submitted by a Broker-Dealer is hereinafter referred to individually as a “Submitted Hold Order,” a “Submitted Bid” or a “Submitted Sell Order,” as the case may be, or as a “Submitted Order.”)

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     (b) If any rate per annum specified in any Submitted Bid contains more than three figures to the right of the decimal point, the Auction Agent shall round such rate up to the next highest one-thousandth (.001) of 1%.

     (c) If one or more Orders covering in the aggregate all of the Outstanding shares of Series B MAPS held by an Existing Holder are not submitted to the Auction Agent prior to the Submission Deadline for any reason (including the failure of a Broker-Dealer to contact such Existing Holder or to submit such Existing Holder’s Order or Orders), such Existing Holder shall be deemed to have submitted a Hold Order covering the number of Outstanding shares of Series B MAPS held by such Existing Holder that are not subject to Orders submitted to the Auction Agent.

     (d) A Submitted Order or Submitted Orders of an Existing Holder that cover in the aggregate more than the number of Outstanding shares of Series B MAPS held by such Existing Holder will be considered valid in the following order of priority:

     (i) any Submitted Hold Order of such Existing Holder will be considered valid up to and including the number of Outstanding shares of Series B MAPS held by such Existing Holder, provided that, if there is more than one such Submitted Hold Order and the aggregate number of shares of Series B MAPS subject to such Submitted Hold Orders exceeds the number of Outstanding shares of Series B MAPS held by such Existing Holder, the number of shares of Series B MAPS subject to each of such Submitted Hold Orders will be reduced pro rata so that such Submitted Hold Orders in the aggregate will cover exactly the number of Outstanding shares of Series B MAPS held by such Existing Holder;

     (ii) any Submitted Bids of such Existing Holder will be considered valid (in the ascending order of their respective rates per annum if there is more than one Submitted Bid of such Existing Holder) for the number of Outstanding shares of Series B MAPS held by such Existing Holder equal to the difference between (A) the number of Outstanding shares of Series A MAPS held by such Existing Holder and (B) the number of Outstanding shares of Series B MAPS subject to any Submitted Hold Order of such Existing Holder referred to in clause (d)(i) above (and, if more than one Submitted Bid of such Existing Holder specifics the same rate per annum and together they cover more than the remaining number of shares of Series B MAPS that can be the subject of valid Submitted Bids of such Existing Holder after application of clause (d)(i) above and of the foregoing portion of this clause (d)(ii) to any Submitted Bid or Submitted Bids of such Existing Holder specifying a lower rate or rates per annum, the number of shares of Series B MAPS subject to each of such Submitted Bids specifying the same rate per annum will be reduced pro rata so that such Submitted Bids, in the aggregate, cover exactly such remaining number of Outstanding shares of Series B MAPS of such Existing Holder);

     (iii) any Submitted Sell Order of an Existing Holder will be considered valid up to and including the excess of the number of Outstanding shares of Series B MAPS held by such Existing Holder over the sum of (A) the number of shares of Series B MAPS subject to Submitted Hold Orders by such Existing Holder referred to in clause (d)(i) above and (B) the number of shares of Series B MAPS subject to valid Submitted Bids by such Existing Holder referred to in clause (d)(ii) above; provided that, if there is more than one Submitted Sell Order of such Existing Holder and the number of shares of Series B MAPS subject to such Submitted Sell Orders is greater than such excess, the number of shares of Series B MAPS subject to each of such Submitted Sell Orders will be reduced pro rata so that such Submitted Sell Orders, in the aggregate, will cover exactly the number of shares of Series B MAPS equal to such excess.

The number of Outstanding shares of Series B MAPS, if any, subject to Submitted Bids of such Existing Holder not valid under clause (d)(ii) above shall be treated as the subject of a Submitted Bid by a Potential Holder at the rate per annum specified in such Submitted Bids.

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     (e) If there is more than one Submitted Bid by any Potential Holder in any Auction, each such Submitted Bid shall be considered a separate Submitted Bid with respect to the rate per annum and number of shares of Series B MAPS specified therein.

Section 4. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate.

     (a) Not earlier than the Submission Deadline on each Auction Date for the Series B MAPS, the Auction Agent shall assemble all Orders submitted or deemed submitted to it by the Broker-Dealers and shall determine:

     (i) the excess of the total number of Outstanding shares of Series B MAPS over the number of shares of Series B MAPS that are the subject of Submitted Hold Orders (such excess being hereinafter referred to as the “Available Shares of Series B MAPS”);

     (ii) from the Submitted Orders, whether the number of Outstanding shares of Series B MAPS that are the subject of Submitted Bids by Potential Holders specifying one or more rates per annum equal to or lower than the Maximum Applicable Rate exceeds or is equal to the sum of:

          (A) the number of Outstanding shares of Series B MAPS that are the subject of Submitted Bids by Existing Holders specifying one or more rates per annum higher than the Maximum Applicable Rate, and

          (B) the number of Outstanding shares of Series B MAPS that are subject to Submitted Sell Orders.

(if such excess or such equality exists (other than because the number of Outstanding shares of Series B MAPS in clauses (A) and (B) above are each zero because all of the Outstanding shares of Series B MAPS are the subject of Submitted Hold Orders), there shall exist “Sufficient Clearing Bids” and such Submitted Bids by Potential Holders shall be hereinafter referred to collectively as “Sufficient Clearing Bids”); and

     (iii) if Sufficient Clearing Bids exist, the winning bid rate (the “Winning Bid Rate”), which shall be the lowest rate per annum specified in the Submitted Bids that if:

          (A) each Submitted Bid from Existing Holders specifying the Winning Bid Rate and all other Submitted Bids from Existing Holders specifying lower rates per annum were accepted, thus entitling such Existing Holders to continue to hold the shares of Series B MAPS that are the subject of such Submitted Bids, and

          (B) each Submitted Bid from Potential Holders specifying the Winning Bid Rate and all other Submitted Bids from Potential Holders specifying lower rates per annum were accepted, thus entitling such Potential Holders to purchase the shares of Series B MAPS that are the subject of such Submitted Bids,

would result in such Existing Holders described in subclause (iii)(A) continuing to hold an aggregate number of Outstanding shares of Series B MAPS that, when added to the number of Outstanding shares of Series B MAPS to be purchased by such Potential Holders described in subclause (iii)(B), would equal or exceed the number of Available Shares of Series B MAPS.

     (b) In connection with any Auction and promptly after the Auction Agent has made the determinations pursuant to Subsection (a), the Auction Agent shall advise the Company of the Maximum

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Applicable Rate and, based on such determinations, the Applicable Rate for the next succeeding Dividend Period as follows:

     (i) if Sufficient Clearing Bids exist, that the Applicable Rate for the next succeeding Dividend Period shall be equal to the Winning Bid Rate;

     (ii) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding shares of Series B MAPS are the subject of Submitted Hold Orders), that the next succeeding Dividend Period will be a Standard Dividend Period and the Applicable Rate for the next succeeding Dividend Period shall be equal to the Maximum Applicable Rate for a Standard Dividend Period determined as of the Business Day immediately preceding such Auction; or

     (iii) if all of the Outstanding shares of Series B MAPS are the subject of Submitted Hold Orders, that the Applicable Rate for the next succeeding Dividend Period shall be equal to 59% of the Applicable “AA” Composite Commercial Paper Rate, in the case of Series B MAPS with a Standard Dividend Period or a Short Dividend Period of 183 days or less, 59% of the Applicable Treasury Bill Rate in the case of Series B MAPS with a Short Dividend Period of 184 to 364 days, or 59% of the Applicable Treasury Note Rate in the case of Series B MAPS with a Long Dividend Period, in effect on the Auction Date.

Section 5. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares of Series B MAPS.

     Based on the determinations made pursuant to Subsection (a) of Section 4, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below:

     (a) If Sufficient Clearing Bids have been made, subject to the provisions of Subsections (c) and (d), Submitted Bids and Submitted Sell Orders shall be accepted or rejected in the following order of priority and all other Submitted Bids shall be rejected:

     (i) the Submitted Sell Orders of Existing Holders shall be accepted and the Submitted Bid of each of the Existing Holders specifying any rate per annum that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Holder to sell the Outstanding shares of Series B MAPS that are the subject of such Submitted Sell Order or Submitted Bid;

     (ii) the Submitted Bid of each of the Existing Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Outstanding shares of Series B MAPS that are the subject of such Submitted Bid;

     (iii) the Submitted Bid of each of the Potential Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be accepted;

     (iv) the Submitted Bid of each of the Existing Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Outstanding shares of Series B MAPS that are the subject of such Submitted Bid, unless the number of Outstanding shares of Series B MAPS subject to all such Submitted Bids shall be greater than the number of Outstanding shares of Series B MAPS (“Remaining Shares of Series B MAPS”) equal to the excess of the Available Shares of Series B MAPS over the number of Outstanding shares of Series B MAPS subject to Submitted Bids described in Subsections (a)(ii) and (a)(iii), in which event the Submitted Bids of each such Existing Holder shall be rejected, and each such Existing Holder

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shall be required to sell Outstanding shares of Series B MAPS, but only in an amount equal to the difference between (A) the number of Outstanding shares of Series B MAPS then held by such Existing Holder subject to such Submitted Bid and (B) the number of shares of Series B MAPS obtained by multiplying (x) the number of Remaining Shares of Series B MAPS by (y) a fraction, the numerator of which shall be the number of Outstanding shares of Series B MAPS held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of Series B MAPS subject to such Submitted Bids made by all such Existing Holders that specified a rate per annum equal to the Winning Bid Rate; and

     (v) the Submitted Bid of each of the Potential Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be accepted, but only in an amount equal to the number of Outstanding shares of Series B MAPS obtained by multiplying (x) the difference between the Available Shares of Series B MAPS and the number of Outstanding shares of Series B MAPS subject to Submitted Bids described in Subsections (a)(ii), (a)(iii) and (a)(iv) by (y) a fraction, the numerator of which shall be the number of Outstanding shares of Series B MAPS subject to such Submitted Bid and the denominator of which shall be the aggregate number of Outstanding shares of Series B MAPS subject to such Submitted Bids made by all such Potential Holders that specified rates per annum equal to the Winning Bid Rate.

     (b) If Sufficient Clearing Bids have not been made (other than because all of the Outstanding shares of Series B MAPS are subject to Submitted Hold Orders), subject to the provisions of Subsection (c), Submitted Orders shall be accepted or rejected as follows in the following order of priority and all other Submitted Bids of Potential Holders shall be rejected:

     (i) the Submitted Bid of each Existing Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be accepted, thus entitling such Existing Holder to continue to hold the Outstanding shares of Series B MAPS that are the subject of such Submitted Bid;

     (ii) the Submitted Bid of each Potential Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be accepted, thus requiring such Potential Holder to purchase the Outstanding shares of Series B MAPS that are the subject of such Submitted Bid; and

     (iii) the Submitted Bids of each Existing Holder specifying any rate per annum that is higher than the Maximum Applicable Rate shall be rejected, thus requiring each such Existing Holder to sell the Outstanding shares of Series B MAPS that are the subject of such Submitted Bid, and the Submitted Sell Orders of each Existing Holder shall be accepted, in both cases only in an amount equal to the difference between (A) the number of Outstanding shares of Series B MAPS then held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and (B) the number of shares of Series B MAPS obtained by multiplying (x) the difference between the Available Shares of Series B MAPS and the aggregate number of Outstanding shares of Series B MAPS subject to Submitted Bids described in Subsections (b)(i) and (b)(ii) by (y) a fraction, the numerator of which shall be the number of Outstanding shares of Series B MAPS held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the aggregate number of Outstanding shares of Series B MAPS subject to all such Submitted Bids and Submitted Sell Orders.

     (c) If, as a result of the procedures described in Subsections (a) or (b), any Existing Holder would be entitled or required to sell or any Potential Holder would be entitled or required to purchase, a fraction of a share of Series B MAPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, round up or down the number of shares of Series B MAPS to be purchased or sold by any Existing Holder or Potential Holder on such Auction Date so that only whole shares of Series B MAPS will be entitled or required to be sold or purchased.

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     (d) If, as a result of the procedures described in Subsection (a), any Potential Holder would be entitled or required to purchase less than a whole share of Series B MAPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, allocate shares of Series B MAPS for purchase among Potential Holders so that only whole shares of Series B MAPS are purchased on such Auction Date by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing any shares of Series B MAPS on such Auction Date.

     (e) Based on the results of each Auction, the Auction Agent shall determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders on behalf of Existing Holders or Potential Holders, the aggregate number of Outstanding shares of Series B MAPS to be purchased and the aggregate number of Outstanding shares of Series B MAPS to be sold by such Potential Holders and Existing Holders and, to the extent that such aggregate number of Outstanding shares of Series B MAPS to be purchased and such aggregate number of Outstanding shares of Series B MAPS to be sold differ, the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers acting for one or more purchasers such Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or more sellers such Broker-Dealer shall receive, as the case may be, Outstanding shares of Series B MAPS.

Section 6. Participation in Auctions

     The Company and its Affiliates shall not submit any Order in any Auction except as set forth in the next sentence. Any Broker-Dealer that is an Affiliate of the Company may submit Orders in Auctions but only if such Orders are not for its own account, except that if such affiliated Broker-Dealer holds shares of Series B MAPS for its own account, it must submit a Sell Order in the next Auction with respect to such shares of Series B MAPS.

Section 7. Miscellaneous.

     An Existing Holder (a) may sell, transfer or otherwise dispose of shares of Series B MAPS only pursuant to a Bid or Sell Order in accordance with the procedures described in these Auction Procedures or to or through a Broker-Dealer or to a Person that has delivered a signed copy of a Master Purchaser’s Letter to a Broker-Dealer, provided that in the case of all transfers other than pursuant to Auctions such Existing Holder, its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (b) unless otherwise required by law, shall have the beneficial ownership of the shares of Series B MAPS held by it maintained in book-entry form by the Securities Depositary in the account of its Agent Member, which in turn will maintain records of such Existing Holder’s beneficial ownership. All of the Outstanding shares of Series B MAPS of each Series shall be represented by a single certificate for each Series registered in the name of the nominee of the Securities Depositary unless otherwise required by law or unless there is no Securities Depositary. If there is no Securities Depositary, shares of Series B MAPS shall be registered in the register of the Company in the name of the Existing Holder thereof and such Existing Holder thereupon will be entitled to receive a certificate therefor and be required to deliver a certificate therefor upon transfer or exchange thereof.

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     RESOLVED FURTHER, that the Chairman of the Board, the President or any Vice President, and the Secretary, the Chief Financial Officer, the Treasurer, or any Assistant Secretary or Assistant Treasurer of this Company are each authorized to execute, verify, and file a certificate of determination of preferences in accordance with California law.

     3. The authorized number of shares of Preferred Stock of the Company is 20,000,000 and the number of shares constituting Series B MAPS, none of which has been issued, is 500.

     IN WITNESS WHEREOF, the undersigned have executed this certificate on December 8, 1992.

/s/ Steven F. Udvar-Hazy  

STEVEN F. UDVAR-HAZY, President 

/s/ Louis L. Gonda  

LOUIS L. GONDA, Secretary 

     The undersigned, STEVEN F. UDVAR-HAZY and LOUIS L. GONDA, the President and Secretary, respectively, of INTERNATIONAL LEASE FINANCE CORPORATION, each declares under penalty of perjury that the matters set forth in the foregoing Certificate are true of his own knowledge.

     Executed at Los Angeles, California on December 8, 1992.

/s/ Steven F. Udvar-Hazy  

STEVEN F. UDVAR-HAZY 

/s/ Louis L. Gonda  

LOUIS L. GONDA 

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

OF

INTERNATIONAL LEASE FINANCE CORPORATION

ARTICLE I

Shareholders

     Section 1.1 Annual Meetings. An annual meeting of shareholders shall be held for the election of directors at such date, time and place either within or without the State of California designated by the Board of Directors. Any other proper business may be transacted at the annual meeting.

     Section 1.2 Special Meetings. Special meetings of shareholders may be called at any time by the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the President or the Board of Directors, or by shareholders who together own of record ten percent or more of the shares entitled to vote at that meeting, such meeting to be held at such date, time and place either within or without the State of California as may be stated in the notice of the meeting.

     Section 1.3 Notice of Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and (i) in the case of a special meeting, the purpose or purposes for which the meeting is called or (ii) in the case of the annual meeting, those matters which the Board, at the time notice is given, intends to present for action, including, for any meeting at which directors are to be elected, a list of those nominees intended, at the time of notice, to be presented by the Board for election.

     The notice shall also include the general nature of any proposal to approve:

          (i) A transaction in which a director has a material financial interest under Section 310 of the California Corporations Code (the “Code”);

          (ii) An amendment to the articles of incorporation under Section 902 of the Code;

          (iii) A reorganization under Section 1201 of the Code;

          (iv) A voluntary dissolution under Section 1900 of the Code; or

          (v) A distribution requiring shareholder approval under Section 2007 of the Code.

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     Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each shareholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the shareholder at such shareholder’s address as it appears on the books of the corporation, or if no such address appears or is given, at the place where the principal executive office of the corporation is located, or by publication at least once in a newspaper of general circulation in the county in which the principal executive office of the corporation is located.

     Section 1.4 Adjournments. Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.

     Section 1.5 Quorum. At each meeting of shareholders, except where otherwise provided by law or the articles of incorporation or these by-laws, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. For purposes of the foregoing, two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, provided that any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum the shareholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 1.4 of these by-laws until a quorum shall attend.

     Section 1.6 Organization. Meetings of shareholders shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in the absence of the President by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary, an Assistant Secretary, shall act as secretary of the meeting, or in their absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

     Section 1.7 Voting; Proxies. Unless otherwise provided in the articles of incorporation, each shareholder entitled to vote at any meeting of shareholders shall be entitled to one vote for each share of stock held by such shareholder which has voting power upon the matter in question. Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such shareholder by proxy, but no such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period. A duly executed

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proxy shall be irrevocable if it states that it is irrevocable, subject to the provisions of Sections 705(e) and 705(f) of the California Corporations Code. A shareholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering an instrument in writing revoking the proxy or by delivering another duly executed proxy bearing a later date with the Secretary of the Corporation.

     Directors shall, except as otherwise required by law or by the articles of incorporation, be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. With respect to other matters, unless otherwise provided by law or by the articles of incorporation or these by-laws, the affirmative vote of the holders of a majority of the shares of all classes of stock present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, provided that (except as otherwise required by law or by the articles of incorporation) the Board of Directors may require a larger vote upon any such matter. Where a separate vote by class is required, the affirmative vote of the holders of a majority of the shares of each class present in person or represented by proxy at the meeting shall be the act of such class, except as otherwise provided by law or by the articles of incorporation or these by-laws.

     Section 1.8 Inspectors. Voting at meetings of shareholders need not be conducted by inspectors unless a shareholder present in person or by proxy and entitled to vote at such meeting so requests. The Board of Directors, in advance of any shareholders’ meeting, may appoint inspectors to act at the meeting or any adjournment thereof. The number of inspectors shall either be one or three. If inspectors are not so appointed or if any persons so appointed fail to appear or refuse to act, the chairman of any shareholders’ meeting may, and on the request of any shareholder or shareholder’s proxy entitled to vote thereat shall, appoint inspectors of election at the meeting.

     If appointed at a meeting on the request of one or more shareholders or proxies, the majority of the shares entitled to vote at that meeting shall determine whether one or three inspectors are to be appointed. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.

     The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them.

     Section 1.9 Fixing Date for Determination of Shareholders of Record. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or

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allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining shareholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting. However, the Board shall fix a new record date if the adjournment is to a date more than 45 days after the date set for the original meeting.

     Section 1.10 List of Shareholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any shareholder who is present.

     Section 1.11 Consent of Shareholders in Lieu of Meeting. Unless otherwise provided in the articles of incorporation, any action required by law to be taken at any annual or special meeting of shareholders of the Corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Notice of any shareholder approval pursuant to Sections 310, 317, 1201 or 2007 of the California Corporations Code without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by such approval. Prompt notice in the form prescribed in Section 1.3 of this Article I shall be given of the taking of any other corporate action without a meeting by less than unanimous written consent to those shareholders who have not consented in writing.

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ARTICLE II

Board of Directors

     Section 2.1 Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as otherwise provided in these by-laws or in the articles of incorporation. The Board shall consist of eleven members. The number of directors may be changed only by a duly adopted amendment to the articles of incorporation or by an amendment to this by-law approved by a majority of the outstanding shares entitled to vote. Directors need not be shareholders.

     Section 2.2 Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until the annual meeting of shareholders next succeeding his or her election and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board of Directors may be removed without cause by the holders of a majority of the shares then entitled to vote at an election of directors; except that, no director may be removed without cause if the votes cast against his or her removal or not consenting in writing to such removal would be sufficient to elect such director if voted cumulatively at an election of the entire Board at which the same total number of votes were cast (or if action is taken by written consent, all shares entitled to vote were voted). Directors may also be removed pursuant to or by court order under Sections 302 or 304 of the California Corporations Code.

     A vacancy in the Board of Directors shall be deemed to exist (a) if a director dies, resigns, or is removed by the shareholders or an appropriate court, as provided in Sections 303 or 304 of the California Corporations Code; (b) if the Board of Directors declares vacant the office of a director who has been convicted of a felony or declared of unsound mind by an order of court; (c) if the authorized number of directors is increased; or (d) if at any shareholders’ meeting at which one or more directors are elected the shareholders fail to elect the full authorized number of directors to be voted for at that meeting. Unless otherwise provided in the articles of incorporation or these by-laws and except for a vacancy caused by the removal of a director, vacancies may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director.

     A vacancy on the Board caused by the removal of a director may be filled only by the shareholders, except that a vacancy created when the Board declares the office of a director vacant as provided in clause (b) of the first paragraph of this section may be filled by the Board of Directors.

     The shareholders may elect a director at any time to fill a vacancy not filled by the Board of Directors.

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     The term of office of a director elected to fill a vacancy shall run until the next annual meeting of the shareholders, and such a director shall hold office until a successor is elected and qualified.

     Section 2.3 Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of California and at such times as the Board may from time to time determine, and if so determined, notice thereof need not be given.

     Section 2.4 Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of California whenever called by the Chairman of the Board, if any, by the Vice Chairman of the Board, if any, by the President or by any two directors. Special meetings shall be held on four days’ notice by mail or 48 hours’ notice delivered personally or by telephone or telegraph. Notice delivered personally or by telephone may be transmitted to a person at the director’s office who can reasonably be expected to deliver such notice promptly to the director.

     Section 2.5 Participation in Meetings by Conference Telephone Permitted. Unless otherwise restricted by the articles of incorporation or these by-laws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment so long as all persons participating in the meeting can hear one another, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.

     Section 2.6 Quorum; Vote Required for Action. At all meetings of the Board of Directors, a majority of the entire Board shall constitute a quorum for the transaction of business. Subject to the provisions of Sections 310 and 317(e) of the California Corporations Code, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the articles of incorporation or these by-laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall attend.

     Section 2.7 Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in their absence by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting.

     Section 2.8 Action by Directors Without a Meeting. Unless otherwise restricted by the articles of incorporation or these by-laws, any action required or permitted to be taken by the Board of Directors, or any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

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     Section 2.9 Compensation of Directors. The Board of Directors shall have the authority to fix the compensation of directors for services in any capacity.

ARTICLE III

Executive and Other Committees

     Section 3.1 Executive and Other Committees of Directors. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members an executive committee and other committees, each consisting of two or more directors, and each of which, to the extent provided in the resolution, shall have all the authority of the Board, except that no such committee shall have authority as to the following matters:

          (1) The approval of any action for which the California Corporations Code also requires the approval of the shareholders or of the outstanding shares;

          (2) The filling of vacancies in the Board or in any committee thereof;

          (3) The fixing of compensation of the directors for serving on the Board or on any committee thereof;

          (4) The amendment or repeal of the by-laws, or the adoption of new by-laws;

          (5) The amendment or repeal of any resolution of the Board which, by its terms, shall not be so amendable or repealable;

          (6) The making of distributions to shareholders, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; or

          (7) The appointment of other committees of the Board or of their members.

     The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee.

     Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board of Directors or a provision in the rules of such committee to the contrary, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these by-laws.

     Each such committee shall serve at the pleasure of the Board of Directors.

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ARTICLE IV

Officers

     Section 4.1 Officers; Election. As soon as practicable after the annual meeting of shareholders in each year, the Board of Directors shall elect a President, a Secretary and a Chief Financial Officer, and it may, if it so determines, elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considered desirable. Any number of offices may be held by the same person.

     Section 4.2 Term of Office; Resignation; Removal; Vacancies. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until the first meeting of the Board after the annual meeting of shareholders next succeeding his or her election, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board at any regular or special meeting.

     Section 4.3 Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Secretary shall have the duty to record the proceedings of the meetings of the shareholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties.

ARTICLE V

Forms of Certificates; Loss and Transfer of Shares

     Section 5.1 Forms of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by (1) either the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and (2) by the Chief Financial Officer or a Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such holder in the Corporation. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate

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may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

     Section 5.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

ARTICLE VI

Records and Reports

     Section 6.1 Shareholder Records. The Corporation shall keep at its principal executive office or at the office of its transfer agent or registrar, as determined by resolution of the Board of Directors, a record of the names and addresses of all shareholders and the number and class of shares held by each shareholder.

     A shareholder or shareholders holding at least five percent in the aggregate of the outstanding voting shares of the Corporation may:

     (a) Inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours, on five days’ prior written demand on the corporation, or (b) obtain from the Corporation’s transfer agent, on written demand and tender of the transfer agent’s usual charges for this service, a list of the names and addresses of shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which a list has been compiled or as of a specified date later than the date of demand. This list shall be made available within five days after (i) the date of demand, or (ii) the specified later date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or holder of a voting trust certificate. Any inspection and copying under this section may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.

     Section 6.2 By-laws. The Corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the Corporation is outside the State of California and the Corporation has no principal business office in this state, the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the bylaws as amended to date.

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     Section 6.3 Minutes and Accounting Records. The minutes of proceedings of the shareholders, the Board of Directors, and committees of the Board, and the accounting books and records shall be kept at the principal executive office of the Corporation, or at such other place or places as designated by the Board of Directors. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in a form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection on the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary of the corporation.

     Section 6.4 Inspection by Directors. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.

     Section 6.5 Annual Report to Shareholders. Inasmuch as, and for as long as, there are fewer than 100 shareholders, the requirement of an annual report to shareholders referred to in Section 1501 of the California Corporations Code is expressly waived. However, nothing in this provision shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders, as the Board considers appropriate.

     If at any time and for as long as, the number of shareholders shall exceed 100 the Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year adopted by the Corporation. This report shall be sent at least 15 days (if third class mail is used, 35 days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified for giving notice to shareholders in these bylaws. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and a statement of changes in financial position for the fiscal year prepared in accordance with generally accepted accounting principles applied on a consistent basis and accompanied by any report of independent accountants, or, if there is no such report, the certificate of an authorized officer of the Corporation that the statements were prepared without audit from the Corporation’s books and records.

     Section 6.6 Financial Statements. The Corporation shall keep a copy of each annual financial statement, quarterly or other periodic income statement, and accompanying balance sheets prepared by the Corporation on file in the corporation’s principal executive office for 12 months; these documents shall be exhibited at all reasonable times, or copies provided, to any shareholder on demand.

     If no annual report for the last fiscal year has been sent to shareholders, on written request of any shareholder made more than 120 days after the close of the fiscal year the Corporation shall deliver or mail to the shareholder, within 30 days after receipt of the request, a

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balance sheet as of the end of that fiscal year and an income statement and statement of changes in financial condition for that fiscal year.

     A shareholder or shareholders holding five percent or more of the outstanding shares of any class of stock of the Corporation may request in writing an income statement for the most recent three-month, six-month, or nine-month period (ending more than 30 days before the date of the request) of the current fiscal year, and a balance sheet of the corporation as of the end of that period. If such documents are not already prepared, the Chief Financial Officer shall cause them to be prepared and shall deliver the documents personally or mail them to the requesting shareholders within 30 days after receipt of the request. A balance sheet, income statement, and statement of changes in financial position for the last fiscal year shall also be included, unless the Corporation has sent the shareholders an annual report for the last fiscal year.

     Quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of independent accountants engaged by the Corporation or the certificate of an authorized corporate officer stating that the financial statements were prepared without audit from the Corporation’s records.

     Section 6.7 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.

ARTICLE VII

Miscellaneous

     Section 7.1 Principal Executive or Business Offices. The Board of Directors shall fix the location of the principal executive office of the Corporation at any place either within or without the State of California. If the principal executive office is located outside California and the Corporation has one or more business offices in California, the Board shall designate one of these offices as the Corporation’s principal business office in California.

     Section 7.2 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.

     Section 7.3 Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

     Section 7.4 Waiver of Notice of Meetings of Shareholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the articles of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.

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Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the sole and express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders, the Board of Directors, or members of a committee of the Board need be specified in any written waiver of notice unless so required by the articles of incorporation or these by-laws.

     Section 7.5 Indemnification of Directors, Officers and Employees. Any person made or threatened to be made a party to any action or proceeding, whether civil or criminal, by reason of the fact that he, his testator or intestate is or was a director, an officer or an employee of the Corporation or serves or served any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity at the request of the Corporation shall be indemnified by the Corporation, and the Corporation may advance his related expenses, to the full extent permitted by law.

     Section 7.6 Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes, approves or ratifies the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, provided that the contract or transaction is just and reasonable as to the Corporation at the time it was authorized, approved or ratified; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders with the shares owned by the interested director or officer not being entitled to vote thereon; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

     Section 7.7 Amendment of By-Laws. To the extent permitted by law these by-laws may be amended or repealed, and new by-laws adopted, by the Board of Directors. The shareholders entitled to vote, however, retain the right to adopt additional by-laws and may amend or repeal any by-law whether or not adopted by them.

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EX-12

EXHIBIT 12

INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Dollars in thousands)

	2008			2007
	(Unaudited)
Earnings:
Net Income	$	588,171		$	428,955
Add:
Provision for income taxes		325,290			227,668
Fixed charges		1,164,082			1,240,449
Less:
Capitalized interest		(20,681	)		(27,672	)
Earnings as adjusted (A)	$	2,056,862		$	1,869,400
Fixed charges and preferred stock dividends:
Preferred dividend requirements	$	3,909		$	4,045
Ratio of income before provision for income taxes to net income		155	%		153	%
Preferred dividend factor on pretax basis		6,059			6,189
Fixed Charges:
Interest expense		1,140,886			1,210,398
Capitalized interest		20,681			27,672
Interest factors of rents		2,515			2,379
Fixed charges as adjusted (B)		1,164,082			1,240,449
Fixed charges and preferred stock dividends (C)	$	1,170,141		$	1,246,638
Ratio of earnings to fixed charges ((A) divided by (B))		1.77	x		1.51	x
Ratio of earnings to fixed charges and preferred stock dividends ((A) divided by (C))		1.76	x		1.50	x

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Steven F. Udvar-Hazy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of International Lease Finance Corporation;

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 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 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 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: November 11, 2008

/s/ Steven F. Udvar-Hazy
STEVEN F. UDVAR-HAZY
Chairman of the Board and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Alan H. Lund, certify that:

1. I have reviewed this quarterly report on Form 10-Q of International Lease Finance Corporation;

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 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 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 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: November 11, 2008

/s/ Alan H. Lund
ALAN H. LUND
Vice Chairman and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

WRITTEN STATEMENT
PURSUANT TO
18 U.S.C. SECTION 1350

     Each of the undersigned, STEVEN F. UDVAR-HAZY, the CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, and ALAN H. LUND, the VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER of INTERNATIONAL LEASE FINANCE CORPORATION (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that to the best of their knowledge:

(i)	the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (the “Report”) fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 11, 2008	/s/ Steven F. Udvar-Hazy STEVEN F. UDVAR-HAZY
Dated: November 11, 2008	/s/ Alan H. Lund
	ALAN H. LUND