Turbine Aviation Inc (TURA)

[4u2nv2]

Maybe. But it is a risky bet on our end to buy more at .30c PPS in anticipation. There is probably more public info available (in Australia) on that 100M bond. The biggest thing is Victor did the leg work setting up Integrity Aviation for this specific bond. They do own TURA but we have not way to know that they will merge the two entities together and there is a third entity Turbine. The bond is clearly to buy Turbine from Matt. So, the early rumors of a 3 way merger could be true.

One theory that I have is if one wants to raise 100 million dollars based on a solid business it would be stupid to mention that an OTC company would be involved. Investors would not buy bonds knowing it was going to ultimately fund an OTC company. OTC is the sewer. BBB rated bonds do not fund this trash market of companies. May explain their silence in the matter of TURA.

I do not think that TURA is a scam. I am still not happy in the fact that management left us completely in the dark in regards to what was really their plan. But that is the tough thing for us on pink sheets companies. Disclosure. They are not legally obligated to disclose much at all to OTC Markets filings as opposed to fully reporting company. And they have not filed anything in over a year. Which is about normal for pink sheets companies.

But the 100 million bond?? That required a lot of disclosure. It says confidential but google found this link. So, I call it public info if anyone can see it online.

http://media.wix.com/ugd/64b08f_bc164e826ff046b486ec2ade048006fb.pdf


PRIVATE PLACEMENT MEMORANDUM
CONFIDENTIAL
INTEGRITY AVIATION & LEASING, LLC.
PRIVATE PLACEMENT MEMORANDUM
$100 MILLION OFFERING
8.00% 30-Month Secured Promissory Notes (quarterly interest payments)
Integrity Aviation & Leasing, LLC
2 Spencer Road,
Suite 103
Boerne, TX. 78015
Telephone: [phone]
This document is the Regulation D, Rule 506 Private Placement Memorandum for Integrity
Aviation & Leasing, LLC (“Integrity Aviation”) offered to a limited number of individuals and
entities who are "Accredited Investors."
INVESTORS SHOULD MAKE THEIR OWN DECISION WHETHER THIS OFFERING MEETS
THEIR INVESTMENT OBJECTIVES AND RISK TOLERANCE LEVEL. NO FEDERAL OR
STATE SECURITIES COMMISSION HAS APPROVED, DISAPPROVED, ENDORSED, OR
RECOMMENDED THIS OFFERING. NO INDEPENDENT PERSON HAS CONFIRMED THE
ACCURACY OR TRUTHFULNESS OF THE DISCLOSURES IN THIS MEMORANDUM, NOR
WHETHER THEY ARE COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
ILLEGAL. NO STATE ADMINISTRATOR HAS REVIEWED THIS DOCUMENT. THE ISSUER
IS RELYING ON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION.
INVESTORS WILL BE REQUIRED TO HOLD THEIR INVESTMENT UNTIL THE NOTES
BEING OFFERED HEREBY ARE FULLY SATISFIED BY THE ISSUER. OTHER
IMPORTANT RISK FACTORS ARE EXPLAINED IN DETAIL IN THIS DOCUMENT. THE
NATURE OF THE RISKS OF THIS OFFERING REQUIRES THAT INVESTORS MEET
MINIMUM ASSET/INCOME CONDITIONS.
The date of this Memorandum is January 2, 2016
OFFEREE NAME PPM No. 00101
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IMPORTANT NOTICE ABOUT THIS MEMORANDUM
The information contained in this Private Placement Memorandum (this "Memorandum") is
confidential and is furnished for use only by potential investors. Each potential investor agrees that
he/she will not transmit, reproduce, or make available this Memorandum or any related exhibits or
documents to any other person or entity. Any action to the contrary may place the potential investor
in violation of various state and/or federal securities laws.
CONTENTS
SECURITIES DISCLOSURES...................................................................................................... 1
SUMMARY OF SECURED PROMISSORY NOTES PRIVATE OFFERING............................ 6
THE OFFERING ............................................................................................................................ 9
PURPOSES AND OBJECTIVES................................................................................................. 14
AFFILIATE FEES AND TRANSACTIONS............................................................................... 17
CERTAIN RISK FACTORS ........................................................................................................ 18
CONFLICTS OF INTEREST....................................................................................................... 37
CAUTIONARY STATEMENTS CONCERNING TAX CONSEQUENCES ............................ 39
{23647535;4} 2
SECURITIES DISCLOSURES
PROSPECTIVE PURCHASERS OF THE SECURED PROMISSORY NOTES
DESCRIBED HEREIN ("SECURITIES" OR "NOTES") BEING OFFERED HEREBY
BY INTEGRITY AVIATION & LEASING, LLC (HERINAFTER KNOWN AS
“INTEGRITY AVIATION” OR THE "COMPANY") ARE NOT TO RELY ON THE
CONTENTS OF THIS MEMORANDUM AS LEGAL OR TAX ADVICE. EACH
PROSPECTIVE PURCHASER SHOULD CONSULT HIS/HER OWN PROFESSIONAL
ADVISORS AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING THESE
SECURITIES.
THE INFORMATION CONTAINED IN THIS MEMORANDUM HAS BEEN
PRESENTED AND IS ACCEPTED WITH THE EXPRESS AGREEMENT AND
UNDERSTANDING THAT IT IS CONFIDENTIAL AND THAT IT WILL NOT BE
REPRODUCED IN WHOLE OR IN PART, NOR WILL IT BE DISTRIBUTED OR
DISCLOSED TO ANY OTHER PERSON, FIRM OR CORPORATION WITHOUT THE
COMPANY'S PRIOR WRITTEN PERMISSION. ANY PERSON ACTING CONTRARY
TO THE FOREGOING RESTRICTIONS MAY PLACE HIMSELF/HERSELF AND THE
COMPANY IN VIOLATION OF FEDERAL OR STATE SECURITIES LAWS.
THIS MEMORANDUM SPEAKS AS OF THE DATE SET FORTH ON THE COVER
PAGE HEREOF AND NEITHER THE DELIVERY HEREOF NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO SUCH DATE.
THIS MEMORANDUM CONTAINS A SUMMARY OF THE MATERIAL PROVISIONS
OF DOCUMENTS REFERRED TO HEREIN. STATEMENTS MADE WITH RESPECT
TO THE PROVISIONS OF SUCH DOCUMENTS ARE NOT NECESSARILY COMPLETE
AND REFERENCE IS MADE TO THE ACTUAL DOCUMENTS FOR COMPLETE
INFORMATION AS TO THE RIGHTS AND OBLIGATIONS OF THE PARTIES
THERETO.
BY ACCEPTING DELIVERY OF THIS MEMORANDUM, THE OFFEREE NAMED ON
THE COVER PAGE HEREOF AGREES TO RETURN THIS MEMORANDUM AND ALL
ACCOMPANYING DOCUMENTS TO THE COMPANY IF HE/SHE DOES NOT AGREE
TO PURCHASE ANY OF THE SECURITIES OFFERED HEREBY.
THE PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
THESE SECURITIES ARE BEING OFFERED ONLY TO ACCREDITED INVESTORS
WHO HAVE NO NEED FOR LIQUIDITY AND CAN AFFORD TO LOSE ALL OF THE
CASH TENDERED IN EXCHANGE FOR THESE SECURITIES.
NO OFFERING LITERATURE OR ADVERTISING IN WHATEVER FORM MAY BE
EMPLOYED IN THE OFFERING OF THESE SECURITIES EXCEPT FOR THIS
MEMORANDUM. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATIONS ON BEHALF OF THE COMPANY WITH RESPECT TO THE
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COMPANY OR THESE SECURITIES OTHER THAN THE REPRESENTATIONS
CONTAINED HEREIN. ACCORDINGLY, ANY REPRESENTATIONS, OTHER THAN
THOSE SET FORTH IN THIS MEMORANDUM, AND ANY INFORMATION OTHER
THAN THAT CONTAINED IN DOCUMENTS AND RECORDS FURNISHED BY THE
COMPANY UPON REQUEST, MUST NOT BE RELIED UPON. NEITHER THE
DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE MATTERS SET FORTH HEREIN SINCE THE
DATE OF THIS MEMORANDUM.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
IN MAKING A DECISION TO PURCHASE THESE SECURITIES, INVESTORS MUST
RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY OFFERING
THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY AUTHORITY. FURTHERMORE, GOVERNMENTAL
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS MEMORANDUM CONSTITUTES AN OFFER ONLY IF A NAME APPEARS IN
THE APPROPRIATE SPACE PROVIDED ON THE COVER PAGE HEREOF. OFFERS
MAY BE MADE ONLY TO PERSONS DEEMED ELIGIBLE FOR PARTICIPATION IN
THE OFFERING UNDER THE CRITERIA SET FORTH IN THIS MEMORANDUM AND
RELEVANT FEDERAL AND STATE SECURITIES LAWS. THE COMPANY RESERVES
THE RIGHT, NOTWITHSTANDING ANY SUCH OFFER, TO WITHDRAW OR
MODIFY THIS OFFERING AND TO REJECT ANY SUBSCRIPTIONS FOR THESE
SECURITIES, IN WHOLE OR IN PART.
THE OBLIGATIONS OF THE PARTIES TO THE TRANSACTIONS
CONTEMPLATED HEREIN ARE SET FORTH IN AND WILL BE GOVERNED BY
THE DOCUMENTS ATTACHED AS EXHIBITS HERETO. ALL OF THE STATEMENTS
AND INFORMATION CONTAINED IN THIS MEMORANDUM ARE QUALIFIED IN
THEIR ENTIRETY BY SUCH DOCUMENTS. CONSEQUENTLY, EACH
PROSPECTIVE INVESTOR IS URGED TO CAREFULLY READ THE DOCUMENTS
ATTACHED HERETO BECAUSE SUCH DOCUMENTS FORM AN INTEGRAL PART
OF THIS MEMORANDUM AND ARE HEREBY INCORPORATED HEREIN BY
REFERENCE FOR ALL INTENTS AND PURPOSES. IN ADDITION, EACH
PROSPECTIVE INVESTOR IS URGED TO AVAIL HIMSELF/HERSELF OF THE
OPPORTUNITY TO INSPECT AND OBTAIN COPIES OF OTHER DOCUMENTS
DESCRIBED HEREIN, BUT NOT ATTACHED HERETO, EXCEPT FOR
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PROPRIETARY DOCUMENTS. SUCH NON-PROPRIETARY DOCUMENTS WILL BE
MADE AVAILABLE UPON REQUEST TO THE MANAGING MEMBER OF THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS. EACH PROSPECTIVE
INVESTOR IS ALSO URGED TO ASK QUESTIONS OF THE COMPANY
CONCERNING THIS OFFERING AND TO SEEK ADDITIONAL INFORMATION THAT
THE PROSPECTIVE INVESTOR DEEMS NECESSARY TO VERIFY THE ACCURACY
OF THE INFORMATION CONTAINED HEREIN. EACH PROSPECTIVE INVESTOR
SHOULD CONSULT HIS/HER OWN PROFESSIONAL ADVISORS AS TO LEGAL, TAX
AND RELATED MATTERS CONCERNING HIS/HER PURCHASE OF THESE
SECURITIES.
TO COMPLY WITH TREASURY DEPARTMENT CIRCULAR 230, INVESTORS ARE
HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES
CONTAINED OR REFERRED TO IN THIS MEMORANDUM AND RELATED
MATERIALS IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED
BY INVESTORS, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE
IMPOSED ON INVESTORS UNDER THE INTERNAL REVENUE CODE; (B) ANY SUCH
DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR
MARKETING BY THE COMPANY OF THE MATTERS DESCRIBED HEREIN; AND (C)
INVESTORS CONSIDERING AN INVESTMENT IN THE COMPANY SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF
THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS
WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE FEDERAL ESTATE OR
GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
BLUE SKY LEGENDS
For Residents of All States:
NASAA UNIFORM LEGEND: IN MAKING AN INVESTMENT DECISION,
PROSPECTIVE PURCHASERS OF THE NOTES MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING OF
THE NOTES, INCLUDING THE MERITS AND RISKS INVOLVED. THE NOTES
HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THESE OFFERING DOCUMENTS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE NOTES ARE SUBJECT TO RESTRICTIONS ON THEIR TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE
SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
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THE NOTES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OR ANY STATE SECURITIES LAWS OR THE LAWS OF ANY
OTHER NATION OR JURISDICTION AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS THE SAME HAVE BEEN INCLUDED IN AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE MANAGING MEMBER OF THE COMPANY HAS
BEEN RENDERED TO THE COMPANY THAT AN EXEMPTION FROM
REGISTRATION UNDER APPLICABLE SECURITIES LAWS IS AVAILABLE. IN
ADDITION, TRANSFER OR OTHER DISPOSITION OF THE NOTES IS
RESTRICTED AS PROVIDED IN THE NOTES AND THE NOTE PURCHASE
AGREEMENT.
NOTICE TO TEXAS RESIDENTS:
PURSUANT TO THIS AGREEMENT, TEXAS RESIDENTS HAVE A THREE DAY
RIGHT OF RESCISSION. IF A TEXAS RESIDENT HAS EXECUTED A NOTE
PURCHASE AGREEMENT, HE MAY ELECT, WITHIN THREE BUSINESS DAYS
AFTER SIGNING THE NOTE PURCHASE AGREEMENT, TO WITHDRAW FROM THE
NOTE PURCHASE AGREEMENT AND RECEIVE A FULL REFUND AND RETURN
(WITHOUT INTEREST) OF ANY MONEY PAID BY HIM. A TEXAS RESIDENT'S
WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON.
TO ACCOMPLISH SUCH WITHDRAWAL, A TEXAS RESIDENT NEED ONLY SEND A
LETTER OR FACSIMILE TO THE COMPANY AT THE ADDRESS OR FACSIMILE
NUMBER SET FORTH IN THIS MEMORANDUM INDICATING HIS INTENTION TO
WITHDRAW. SUCH LETTER OR FACSIMILE MUST BE SENT AND (IF A
LETTER) POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THIRD
BUSINESS DAY. IF A TEXAS RESIDENT SENDS A LETTER, IT IS PRUDENT TO SEND
IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS
RECEIVED AND ALSO TO EVIDENCE THE TIME AND DATE WHEN IT IS MAILED.
SHOULD A TEXAS RESIDENT MAKE THIS REQUEST ORALLY, HE SHOULD ASK
FOR A WRITTEN CONFIRMATION THAT HIS REQUEST HAS BEEN RECEIVED.
FORWARD-LOOKING STATEMENTS:
THIS MEMORANDUM CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS ARE GENERALLY ACCOMPANIED BY
WORDS SUCH AS "INTENDS," "PROJECTS," "BELIEVES," "ANTICIPATES,"
"CONTEMPLATES," "PLANS," "EXPECTS," "SEEKS," "WILL" AND SIMILAR
TERMS THAT CONVEY THE UNCERTAINTY OF FUTURE EVENTS OR OUTCOMES.
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, DEPENDENCE ON THE
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SERVICES OF THE CURRENT OFFICERS, MANAGERS OR MANAGING
MEMBERS OF THE MANAGING MEMBER OF THE COMPANY, THE
COMPETITIVENESS OF THE INDUSTRY, THE REGULATORY CLIMATE OF THE
INDUSTRY, AND THE GENERAL ECONOMIC CLIMATE, ALL OF WHICH MAY
AFFECT FUTURE RESULTS OF THE COMPANY. PROSPECTIVE INVESTORS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD- LOOKING
STATEMENTS, WHICH REFLECT THE MANAGING MEMBER'S ANALYSIS ONLY
AS OF THE DATE HEREOF AND ARE IN ALL CASES SUBJECT TO THE
COMPANY'S ABILITY TO RAISE SUFFICIENT CAPITAL FROM THE SALE OF
THE NOTES. THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES
THAT ARISE AFTER THE DATE HEREOF.
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INTEGRITY AVIATION & LEASING, LLC
SUMMARY OF SECURED PROMISSORY NOTES (THE "NOTES") PRIVATE
OFFERING
The following summary is qualified in its entirety by reference to more detailed information
appearing elsewhere herein. Each prospective Noteholder is urged to read this Memorandum in
its entirety, including without limitation the risks identified in the "Certain Risk Factors" section
and the conflicts identified in the "Conflicts of Interest" section. The Company undertakes no
obligation to revise this Memorandum to reflect events or circumstances that arise after the date
hereof.
The Company: Integrity Aviation & Leasing, LLC, a Texas limited liability
company (the "Company"), was organized in August 2013. The
Company is managed by its Managing Member, Victor Farias (the
"Managing Member").
Purpose and Objectives: The Company has been formed for the primary purpose of
acquiring and selling, opportunistically, aircraft engines,
airframes, and related parts and assets (“Aviation Assets”).
The secondary purpose of the Company is to buy, rebuild, and
lease used aircraft engines to commercial air carriers.
The tertiary purpose of the company is to purchase equity and/or
debt instruments of entities that will provide the company with a
strategic or market advantage enhancing its ability to attract
capital or acquire Aviation Assets.
The aforementioned business in which the Company engages is
referred to herein as the “Business.”
No assurances can be given that the net revenues derived from
the Business will be sufficient to satisfy the Notes. See "Certain
Risk Factors."
The Offering: The Company is offering up to $100,000,000 of Secured
Promissory Notes (the "Notes") to individuals and entities that
qualify as "Accredited Investors" within the meaning of
Regulation D under the Securities Act of 1933, as amended (the
"Securities Act"). The minimum offering amount is $1,000,000.
The minimum subscription requirement per investor is $50,000,
subject to waiver in the Managing Member's discretion.
The Notes:
The Notes will bear simple interest at a rate of eight percent
{23647535;4} 8
(8.00%) per annum unless the investor elects to take a one time,
lump-sum payment at maturity, in which case the interest will be
ten percent (10.00%)per annum (for a twenty-five percent (25%)
total return).
The Notes will mature thirty (30) monthsfrom the date of issuance,
but may be extended for up to two (2) additional periods of
ninety (90) days each at the Managing Member's discretion.
Outstanding principal is payable upon maturity and accrued
interest, initially calculated on a pro-rata basis, is payable
quarterly in cash in arrears commencing by the fifth day of the
fourth month after the end of the calendar quarter of issuance (the
“Initial Payment”) and ending on the date of maturity. Following
the Initial Payment, accrued interest is payable in cash in
arrears by the fifth business day of the first month after the end of
each subsequent calendar quarter.
The Notes will be secured by the Company's assets pursuant to the
Security Agreement in the form attached hereto as Exhibit
"C" and will be subject to a Collateral Agency Agreement
in the form attached hereto as Exhibit "D".
The Notes by their terms provide that, if the Company utilizes
leverage (in addition to the Notes) for purposes of achieving its
objectives, the Notes will be subordinated in both right of payment
and lien to any leverage facility obtained by the Company. See
"Certain Risk Factors."
Notwithstanding that the Notes may be issued at different times
during the Offering Period (as herein defined), and may
therefore have different issuance and maturity dates, they will all
be treated on a pari passu basis with respect to priority of
repayment in the event of default (but not with respect to
prepayment prior to default) and priority of lien on the
Company's assets serving as collateral.
The Notes are prepayable by the Company at any time without
penalty or premium. See "The Offering."
Company Contact
Information:
Integrity Aviation & Leasing, LLC
2 Spencer Road
Suite 103
Boerne, Tx, 78006
Telephone: [phone]
Attention: Victor Farias
Managing Member: Victor Farias, Managing Member of Integrity Aviation & Leasing, a
{23647535;4} 9
Texas limited liability company, is the managing member of the
Company and has the exclusive authority to manage the
Company's business and operations and make all decisions with
respect thereto.
Management Personnel: For the biography of Victor Farias, the Managing Member, see
"Management."
Capitalization: 100% of the Company's limited liability company interests are
currently owned by the Managing Member. The Managing
Member will make a nominal capital contribution to the Company
in respect of its limited liability company interest. The capital
structure of the Company will be comprised almost entirely of the
principal amount of the Notes. See "Certain Risk Factors."
Risk Factors and
Conflicts of Interest:
An investment in the Notes entails substantial risks. Please see
the sections entitled "Certain Risk Factors" and "Conflicts of
Interest" for greater detail of these risks.
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THE OFFERING
Securities: If fully subscribed, the Company will issue $50,000,000 in Secured
Promissory Notes. See "Description of Securities."
Minimum
Subscription:
Each subscriber must purchase $50,000 or more in principal amount of a
Note, subject to the Managing Member's right to accept subscriptions for
lesser amounts (in increments of any amount) in its discretion.
Offering
Amount:
The Company is offering for purchase up to $100,000,000 in principal
amount of Notes. On the date of purchase, the subscription funds from the
purchase of each Note will be deposited in the Company's bank account and
the Note will be promptly issued to the Noteholder (the date on which the
Note is issued is referred to herein as the "Date of Issuance"). The minimum
amount that the Company is required to sell before conducting an initial
closing is $1,000,000 in principal amount of Notes. Affiliates of the Managing
Member may purchase Notes to achieve the minimum offering amount.
After the initial closing, the Company may have additional closings in its
discretion during the Offering Period. If the minimum offering amount is not
achieved, subscription funds will be returned to subscribers without interest
or deduction.
Offering
Period:
The Offering Period begins on the date of this Memorandum and will
terminate on the earlier of: (i) the date upon which the Company shall have
accepted subscriptions for $100,000,000 in principal amount of Notes; or
(ii) the first anniversary of the date of this Memorandum (subject to
extension in the Managing Member's sole discretion for up to an additional
three periods of 30 days each). The Company reserves the right to terminate
this offering at any time.
Eligibility of
Investors:
The Company may sell Notes to a limited number of individuals and
entities that qualify as "Accredited Investors", as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended.
Please refer to Exhibit "F" for the definition of "Accredited Investor."
How to
Subscribe:
Persons interested in purchasing Notes need to complete and execute the Note
Purchase Agreement attached as Exhibit "A," the Collateral Agency
Agreement attached as Exhibit "D," the Noteholder Questionnaire attached as
Exhibit "F" and IRS Form W-9 attached as Exhibit "G" and submit such
completed and executed documents together with a check made payable to
"Integrity Aviation & Leasing, LLC" in the principal amount of the Notes
desired to be subscribed for. If paying by wire transfer, then wire transfer
instructions will be provided by the Managing Member upon request. The
Company will be reviewing subscriptions as they are received. If the
Company accepts your subscription, the Company will then countersign the
Note Purchase Agreement and execute the Note(s) indicating the principal
amount that the Company has agreed to accept from you.
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Description of
Securities:
The following summary is subject to and qualified in its entirety by
reference to the provisions of the form of Secured Promissory Note,
attached hereto as Exhibit "B" and made a part hereof.
The Notes will bear a face value of $1 for every $1 loaned to the Company,
and will obligate the Company to pay the holder of the Note cash equal to
the face value of the Note upon maturity. The Notes will bear interest at a rate
of eight percent (8.00%) per annum. Outstanding principal is payable upon
maturity and accrued interest, initially calculated on a pro-rata basis, is
payable quarterly in cash in arrears commencing by the fifth day of the fourth
month after the end of the calendar quarter of issuance (the “Initial Payment”)
and ending on the date of maturity. Following the Initial Payment, accrued
interest is payable in cash in arrears by the fifth business day of the first month
after the end of each subsequent calendar quarter. If elected, the interest of
ten percent (10.00%) per annum will be paid with the initial principal on
date of maturity.
Maturity: Each Note will mature thirty (30) months after its Date of Issuance, although
the maturity date may be extended for up to two (2) additional periods of
ninety (90) days each at the Managing Member's discretion.
Possible Interest
Reserve:
The Company may, but is not required to, establish an interest reserve to
cover all or a portion of the interest payable on the Notes as it becomes due
(the "Interest Reserve"). If established, the Interest Reserve will be held by
the Company. If an Interest Reserve is established, the Company may use a
portion of the net proceeds from the sale of the Notes in this offering to
fund the Interest Reserve, which will reduce the amount otherwise available
to the Company to invest in aviation assets.
Prepayment: The Company has the right to prepay all or a portion of the amounts due
under the Notes at any time, without any prepayment penalty or premium.
Notes will be prepaid (if at all) in the order of priority that corresponds to
the order of their issuance by the Company, such that the Notes that have an
earlier Date of Issuance (and thus an earlier maturity date) will be entitled to
priority of any prepayment. Notwithstanding the foregoing, the Company
reserves the right on a case-by-case basis to prepay all or any portion of a
Note (without making any prepayment on any other Note) in the Managing
Member's discretion if the Managing Member determines that such
prepayment is necessary or appropriate to avoid an adverse legal, operational,
economic, tax, regulatory or securities law effect upon the Company or the
Managing Member or its members including, without limitation, to avoid or
resolve litigation or claims against the Company or the Managing Member
or its members.
Security: The Notes will be secured by the assets of the Company. See "Certain Risk
Factors." The Notes will be treated on a pari passu basis with respect to
priority of repayment in the event of default and priority of lien on the
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Collateral
Agent:
Company's assets serving as collateral.
The Company has entered into a Collateral Agency Agreement, in the form
attached hereto as Exhibit "D," with Integrity Aviation & Leasing, LLC,
whereby Integrity Aviation & Leasing, LLC or any successor collateral agent
(who may be a Noteholder or otherwise have a relationship with the
Company) will serve as collateral agent on behalf of all Noteholders (the
"Collateral Agent"). See "Certain Risk Factors." The Company will execute
a Security Agreement with the Collateral Agent on behalf of the
Noteholders whereby the Company will grant a security interest in all of the
assets of the Company as more fully described in the Security Agreement
attached hereto as Exhibit "C," as security for the Notes. The security
interest will be managed by the Collateral Agent, which will take direction
from the Noteholders in accordance with the Collateral Agency Agreement.
The Noteholders will each irrevocably authorize the Collateral Agent to
take such action on behalf of each Noteholder, and to exercise such rights and
powers and to perform such duties, as are specifically delegated to or required
of the Collateral Agent by the terms of the Collateral Agency Agreement and
the Security Agreement. The rights and remedies to be exercised by the
Collateral Agent in the Event of Default (as defined in the Collateral Agency
Agreement) by the Company shall be exercisable only by the Collateral Agent
on behalf of all the Noteholders in accordance with the terms of the Collateral
Agency Agreement. The Collateral Agency Agreement provides, among
other things, that no Noteholder may alter the terms of the Notes or enforce
the Notes against the Company individually. All such actions and similar
actions are reserved for voting among the Noteholders and/or delegated to the
Collateral Agent. The Notes and the Security Agreement contain crossdefault
provisions providing that a default by the Company under any
Note will constitute a default by the Company under all other Notes and
under the Security Agreement, subject to applicable cure periods.
The Collateral Agent will receive a fee in consideration of its services under
the Collateral Agency Agreement. Collateral Agent fees are $50 per
Noteholder, regardless of the amount of each Note. The Collateral Agent is
also entitled to an enforcement and administrative fee of $125 per hour for
services it provides in enforcing the Company's obligations pursuant to the
Notes, to the extent required, and for reimbursement of expenses. Collateral
Agent fees and expense reimbursement will be paid by the Company. The
Collateral Agent is also entitled to indemnification from the Company for
the acts or omissions of the Collateral Agent pursuant to the Collateral Agency
Agreement except to the extent due to its gross negligence or willful
misconduct. See Collateral Agency Agreement, Exhibit "D."
{23647535;4} 13
Use of
Proceeds:
The Company will use the net proceeds from the sale of the Notes offered
hereby, after payment of any organizational and offering expenses incurred
(exclusive of applicable federal and state blue sky filing fees and costs),
Collateral Agent fees and after deducting amounts to fund the Interest Reserve
if established by the Managing Member, to invest in assets in accordance with
its investment objectives.
Restrictions on
Resale:
The Notes have not been registered under the Securities Act or any state
securities laws and may not be offered or sold unless registered or pursuant
to an exemption from the registration requirements of the Securities Act and
applicable state securities laws. The Company has no intention to seek
registration. Further, the transfer of the Notes is restricted pursuant to their
terms.
No
Participation in
Equity
Distributions:
As the sole member of the Company, the Managing Member is entitled to
receive 100% of the total distributions (and profit and loss allocations) of
the Company after payment or provision has been made for the Company's
expenses and obligations including, without limitation, satisfaction of the
Notes and payment of all fees to affiliates and third parties. As a
Noteholder, the purchasers of the Notes will only be entitled to receive
payments on their Notes and will not be entitled to receive or otherwise
participate in distributions from (and profit and loss allocations of) the
Company.
Company
Expenses:
The Company will bear all costs and expenses relating to its organization,
the offering of the Notes, and the operation of the Company and/or
management of its business, and will reimburse the Managing Member and
its principals for all such costs and expenses incurred or advanced by them.
These expenses include, without limitation, the following: (i) all expenses
associated with acquiring, holding, managing, owning, selling, transferring,
conveying, assigning, encumbering or otherwise disposing of assets
including, without limitation, expenses of travel, marketing, counsel,
independent accountants and others; (ii) all expenses related to the evaluation,
due diligence investigation, closing or monitoring of leases, assets and
investments, and all expenses relating to transactions that are not
consummated; (iii) all normal operating expenses incidental to the provision
of the day-to-day administrative services to the Company; (iv) all expenses
related to legal, audit, accounting and tax preparation services; (v) taxes,
other governmental charges, fees of auditors and counsel, insurance, litigation
expenses, and license fees; (vi) organizational and offering expenses; (vii) the
fees and reimbursable expenses of the Collateral Agent; (viii) all costs related
to any indemnification or contribution obligations including, without
limitation, indemnification of the Managing Member and its principals,
members, managing members, managers and officers; (ix) salaries of
officers and employees; and (xi) all expenses of liquidating the Company,
(collectively, "Expenses"). The Company may establish and maintain
reserves from time to time sufficient to pay its Expenses, in such
{23647535;4} 14
amounts, at such times and from such sources as the Managing Member
may determine in their sole and absolute discretion, including from offering
proceeds and revenues derived from operations and assets. The principal of
the Managing Member, Victor Farias, will not receive compensation from the
Company for his services in managing the Company's business but will
receive distributions from the Managing Member in respect of his equity
interests in the Managing Member, which will receive distributions from the
Company in respect of its equity interest in the Company as discussed
above.
{23647535;4} 15
PURPOSES AND OBJECTIVES
Purposes and Objectives
The Company has been formed for the primary purpose of acquiring and selling, opportunistically,
aircraft engines, airframes, and related parts and assets.
The secondary purpose of the Company is to buy, rebuild, and lease used aircraft engines to
commercial air carriers.
The tertiary purpose of the company is to purchase equity and/or debt instruments of entities that
will provide the company with a strategic or market advantage enhancing its ability to attract
capital or acquire Aviation Assets.
The business in which the Company engages is referred to herein as the "Business."
Overview of Commercial Aviation Industry
The commercial air travel and air freight markets have traditionally been long-term growth sectors,
broadly correlated with world economic activity and growing at a rate of one to two times
global GDP growth. Source: Boeing Market Outlook 2011-2030. This growth in air travel and air
cargo activity has driven a continuous increase in the world aircraft fleet despite cycles of downturn
between peak growth periods.
Since 2010, the sector has been emerging from the most recent cyclical low point in air travel
demand with strong growth in both passenger and cargo markets. Overall global passenger and
air cargo traffic levels exceed pre-recession levels. Source: Boeing Market Outlook 2011-2030.
We believe these favorable trends will continue.
The global GDP is projected to grow at an average of 3.3% per year over the next 20 years. Source:
Boeing Market Outlook 2011-2030. Worldwide passenger air travel is projected to grow at an
average of 5.1% per year and air cargo traffic is projected to grow at an average of 5.6% per
year over the next 20 years. Source: Boeing Market Outlook 2011-2030.
During the recession of 2008-2009, global air travel dropped dramatically forcing most commercial
aircraft operators to downsize, de-leverage, and outsource (IT, catering, reservation systems,
aircraft and aircraft engines). Commercial aircraft operators lightened their balance sheets by
moving away from fixed costs and increasing variable costs tied to sales.
The effort to achieve operating efficiencies has resulted in a growing trend for aircraft operators
to outsource aircrafts and aircraft engines through operating leases and spare aircraft engine leases,
rather than through acquisitions and ownership of the assets. With increased operating efficiencies
and refined business models, the commercial airline industry appears to be well- positioned for
growth, albeit amidst ongoing consolidation and uncertainty around fuel prices. To meet this
projected increase in air travel, it is projected that the number of airplanes in the worldwide fleet
will grow at an annual rate of 3.6%, nearly doubling from around 19,400 airplanes in 2010 to more
than 39,500 airplanes by 2030. Source: Boeing Market Outlook 2011-
2030. Airplane deliveries, for fleet growth and replacement of aging airplanes, are projected to
{23647535;4} 16
total 33,500 over the next 20 years, with a projected value of $4 trillion. Source: Boeing Market
Outlook 2011-2030.
The demand for aircraft engines and aircraft engine leasing is highly correlated to the demand for
aircrafts. Therefore, the anticipated growth in the worldwide aircraft fleet bodes well for the aircraft
engine leasing industry.
Leased Aircraft Engines
Historically, commercial aircraft operators owned rather than leased their aircraft engines.
However, as aircraft engines have become more powerful and technically sophisticated, they
have also become more expensive to acquire and maintain. Increased costs for new aircraft engines,
coupled with cash constraints experienced by commercial aircraft operators, have led the industry
to lease more aircraft engines as a percentage of their aircraft fleet.
The trend away from aircraft engine ownership and toward leasing has grown substantially over
the past 12 years. In 1990, less than 100 aircraft engines were leased. By 2005, commercial aircraft
operators leased more than 1,300 aircraft engines. Today, it is estimated that there are between
4,700 and 7,100 spare aircraft engines in the market. Source: JMP Securities 1/18/2012. Aircraft
engine leasing is a specialized business that has become its own sector within the commercial
aviation market. Participants in this sector need access to capital and highly specialized technical
knowledge (governed and overseen by the FAA or equivalent foreign entities) in order to compete
successfully.
The value of particular used aircraft engines varies greatly depending upon their condition, the
maintenance services performed during the lease term, and the number of hours or cycles
remaining until the next major maintenance is required.
Aircraft engines are considered attractive aviation assets because they commonly have long
economic lives (approximately 40 years), their unit price is much lower than aircrafts, cash flows
generated from aircraft engine leasing are reasonably predictable, aircraft engine values are
historically more stable than aircraft values, and their end of life value tends to be higher than
aircraft values as well.
We believe that the main drivers of the aircraft engine leasing business will remain strong over the
term of the Notes and that we will be able to benefit from the industry's growth.
Integrity Aviation & Leasing, LLC and its Affiliates
Integrity Aviation & Leasing, LLC (“Integrity Aviation”) is a recently-formed Texas Limited
Liability Company. The company is controlled by Victor Farias who controls 100% of the
company.
{23647535;4} 17
Integrity Aviation sourcing for potential Aviation Asset acquisitions and dispositions and serving
as Servicing Agent for any assets leased.
Integrity Aviation Business Strategy
Integrity Aviation primary business strategy is to acquire, opportunistically, Aviation Assets with
the intention of rebuilding in order to sell for a potential profit.
The Company’s objective is to generate sufficient revenue from the sale of Aviation Assets to make
quarterly interest payments and to repay the principal due by maturity.
The Company may also generate revenue from the lease of certain Aviation Assets.
The Company believes that Integrity Aviation & Leasing, LLC and its affiliates have the
infrastructure, expertise, and management team necessary to identify attractive acquisition
opportunities of Aviation Assets for the Company. See "Certain Risk Factors."
Leverage
The Company may utilize leverage (in addition to the Notes) for purposes of achieving its
objectives. The Notes will be subordinated to any leverage facility obtained by the Company.
Short-Term Investments
The Company may invest cash on hand (including cash set aside for reserves) in short-term
securities or money market accounts.
No assurances can be given that the net revenues derived from the Business will be sufficient to
satisfy the Notes. See "Certain Risk Factors."
{23647535;4} 18
AFFILIATE FEES AND TRANSACTIONS
The following payments may be made, and the following transactions may be entered into,
among affiliates of the Managing Member in connection with the Business:
• Equity Distributions. The principal of the Managing Member, Victor Farias, will
receive distributions from the Managing Member in respect of his equity interest in the
Managing Member, which will receive distributions from the Company in respect of its equity
interest in the Company.
• Servicing and Management Fees. The Company will pay Integrity Aviation servicing and
management fees to oversee the acquisition, sale, leasing, maintenance, management, and
disposition of the Aviation Asset and Lease portfolios acquired by the Company.
• Purchase and Sale Commissions. Affiliates of the Managing Member may receive from
the Company commissions, fees, and revenue or profit sharing payments in connection with
brokering the purchase or sale of Aviation Assets or sourcing deals on behalf of the Company. For
example, Integrity Aviation or other affiliates of the Managing Member may source an Aviation
Asset for the Company to purchase, and in consideration for such service the Company may pay
Integrity Aviation or such other affiliates of the Managing Member a fee or agree to share revenues
or profits from the eventual sale of such asset.
• Closing and Other Transaction Fees. Affiliates of the Managing Member may receive
closing or other transaction fees related to the purchase, sale, lease, or maintenance of any Aviation
Assets. These closing or transaction fees will be paid by the counter-party to the transaction. For
example, Integrity Aviation or other affiliates of the Managing Member may broker the purchase
by the Company of an Aviation Asset, in consideration for which closing and other transaction
fees may be paid by the seller to Integrity Aviation or such other affiliates of the Managing
Member.
• Compensation and Expense Reimbursement. Affiliates of the Managing Member which
manage, or provide services to, Integrity Aviation or the Company may receive compensation
and expense reimbursements in connection with their activities related to Integrity Aviation or
the Company.
• Note Servicing Fees. The Company may engage an affiliate of the Managing Member to
service the Notes and pay such affiliate a fee at market rates.
• Purchase and Sale Transactions. The Company may buy Aviation Assets from, and sell
Aviation Assets to, affiliates of the Managing Member. Any such transactions will be at prices
based on third party appraisals or bona fide offers.
• Affiliate Loans. The Company may borrow money from affiliates of the Managing
Member (other than pursuant to the Notes), but only if necessary to avoid a default on the Notes,
to pay unforeseen liabilities, or to fund temporary cash shortfalls, and not to fund the acquisition
of Aviation Assets.
{23647535;4} 19
CERTAIN RISK FACTORS
The securities being offered hereby involve a high degree of risk. Prospective Noteholders should
carefully consider the following risks and speculative factors inherent in and affecting the
Business and this offering, and should consult independent qualified sources of investment and tax
advice. This investment is intended only for persons who can afford to lose all of their investment.
This Memorandum contains forward-looking statements. Such forward-looking statements are
generally accompanied by words such as "intends," "projects," "believes," "anticipates,"
"contemplates," "plans," "expects," "seeks," "will," and similar terms that convey the uncertainty
of future events or outcomes. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. As used herein, the term "Lessor" means any Integrity
affiliate in its capacity as a lessor under Leases or, to the extent the Company leases Aviation
Assets, the Company in its capacity as a lessor under Leases. The risks involved include, but are
not limited to, the following:
No assurances can be given that the Notes will be satisfied.
The Company's ability to satisfy the Notes is subject to the success of the Business in which
Integrity Aviation and the Company will engage. Due to the numerous risks described herein,
there can be no assurance that the Company will be able to pay any or all of the accrued interest
on the principal amount of the Notes, or any or all of the principal amount of the Notes.
During the term of the Notes, our operating results may fluctuate.
Our operating results may fluctuate due to a number of factors, including the risks described in this
Memorandum. These fluctuations may also be caused by:
? the timing and number of purchases and sales of aircraft engines;
? the timing and amount of maintenance reserve revenues recorded resulting from the
termination of long term leases, for which significant amount of maintenance reserves may
have accumulated;
? the termination or announced termination of production of particular aircraft and aircraft
engine types;
? the retirement or announced retirement of particular aircraft models by aircraft
operators;
? the operating history of any particular aircraft engine or aircraft engine model;
? the length of our leases; and
? the timing of necessary overhauls of aircraft engines.
These risks may reduce our aircraft engine utilization rates, lease margins, maintenance reserve
revenues, proceeds from aircraft engine sales, and result in higher legal, technical, maintenance,
storage and insurance costs related to repossession and costs of aircraft engines being off-lease. As
{23647535;4} 20
a result of the foregoing and other factors, the availability of aircraft engines for lease or sale
periodically experiences cycles of oversupply and undersupply of given aircraft engine models.
The incidence of an oversupply of aircraft engines may produce substantial decreases in aircraft
engine lease rates, the appraised and resale value of aircraft engines and increase the time and costs
incurred to lease or sell aircraft engines.
We anticipate that fluctuations from period to period during the term of the Notes will occur. As
a result, we believe that comparisons of future results for different periods may not be
meaningful and that results of prior periods should not be relied upon as an indication of our future
performance.
The Lessor's financial performance is dependent, in part, on the financial strength of the
Lessees; Lessee defaults and other credit problems could adversely affect the Lessor's
financial results and, in turn, the Company's ability to satisfy the Notes.
The Lessor's financial performance and the Company's ability to satisfy the Notes depend on the
financial strength of the Lessees, the Lessor's ability to appropriately assess the credit risk of the
Lessees, and the ability of Lessees to perform under their Leases. It is anticipated that Lessees
will include the airline industry, and as a result, the Company is affected by all the risks facing
airlines. The ability of the Lessees to perform their obligations under their Leases will depend
primarily on the Lessee's financial condition and cash flow, which may be affected by factors
outside Integrity's and the Company's control, including: competition; fare levels; passenger and
air cargo rates; passenger and air cargo demand; geopolitical and other events, including war,
acts of terrorism, outbreaks of epidemic diseases, and natural disasters; increases in operating
costs, including the price and availability of jet fuel and labor costs; labor difficulties; economic
conditions and currency fluctuations in the countries and regions in which the Lessee operates;
and governmental regulation and associated fees affecting the air transportation business.
Generally, aircraft operators with high debt leverage are more likely than aircraft operators with
stronger balance sheets to seek operating leases. As a result, most of the Lessees will not be
rated investment grade by the principal U.S. rating agencies and may suffer liquidity problems,
and may experience Lease payment difficulties or be significantly in arrears in their obligations
under their Leases. Some Lessees encountering financial difficulties may seek a reduction in
their Lease rates or other concessions, such as a decrease in their contribution toward maintenance
obligations. Any future downturns in the airline industry could greatly exacerbate the weakened
financial condition and liquidity problems of some of the Lessees and further increase the risk of
delayed, missed, or reduced rental payments. The Lessor may not correctly assess the credit risk
of each Lessee or charge lease rates which correctly reflect the related risks and the Lessees may
not be able to continue to meet their financial and other obligations under their Leases in the
future. A delayed, missed, or reduced rental payment from a Lessee decreases the Lessor's
revenues and cash flow. Lessee default levels may increase over time if economic conditions
deteriorate.
If Lessees of a significant portion of the Aviation Assets default on their Leases, the Lessor's
financial results and growth prospects will be adversely affected, which will adversely affect the
Company's ability to satisfy the Notes.
The Business depends on the re-leasing of Aviation Assets when current Leases expire, and
such re-leasing may not be able to occur on favorable terms, if at all.
{23647535;4} 21
The Business depends on the re-leasing of Aviation Assets when current Leases expire in order to
generate sufficient revenues to fund the Lessor's business and for the Company to satisfy the
Notes. The Lessor's ability to re-lease its Aviation Assets will depend on general market and
competitive conditions at the time the Leases expire. The general market and competitive
conditions may be affected by many factors which are outside of Integrity's and the Company's
control. If the Lessor is unable to re-lease Aviation Assets on acceptable terms, the Lessor's
revenues may decline and the Lessor may need to sell the Aviation Assets at unfavorable prices
to provide adequate funds to finance its business, which may materially and adversely affect the
Company's ability to satisfy the Notes.
Dependence Upon Integrity Aviation and an affiliated MRO
The Company will rely upon the skill, expertise, facilities, and resources of Integrity Aviation and
our MRO affiliate in connection with the operation and management of the Business to ensure that
it generates sufficient revenues in order to enable the Company to satisfy the Notes. Any adverse
changes in the operations or financial condition of any of Integrity Aviation or our MRO affiliate,
or any termination of their business relationship or disputes among them, would have a material
adverse effect on the Company and its ability to satisfy the Notes.
Any oversupply of Aviation Assets could materially and adversely affect the Lessor's
financial results and, in turn, the Company's ability to satisfy the Notes.
The oversupply of a specific type of Aviation Asset could depress the lease rates for and the value
of that type of Aviation Asset. The supply and demand for Aviation Assets are affected by various
cyclical and non-cyclical factors that are outside of Integrity's and the Company's control,
including: passenger and air cargo demand; fuel costs and general economic conditions;
geopolitical events, including war, prolonged armed conflict and acts of terrorism; outbreaks of
communicable diseases and natural disasters; governmental regulation; interest rates; the
availability of credit; airline restructurings and bankruptcies; manufacturer production levels
and technological innovation; manufacturers merging or exiting the industry or ceasing to produce
aircraft types; retirement and obsolescence of aircraft models; reintroduction into service of
aircraft previously in storage; and airport and air traffic control infrastructure constraints. These
factors may produce sharp and prolonged decreases in Aviation Asset lease rates and values, and
have a material adverse effect on the Lessor's ability to lease and re-lease the Aviation Assets
and/or sell its Aviation Assets at acceptable prices, and, in turn, on the Company's ability to satisfy
the Notes.
The value and lease rates of Aviation Assets could decline, which would have a material
adverse effect on the Lessor's financial results and, in turn, the Company's ability to satisfy
the Notes.
Aviation Asset values and lease rates have historically experienced sharp decreases due to a
number of factors including, but not limited to, decreases in passenger and air cargo demand,
increases in fuel costs, government regulation, and increases in interest rates. In addition to factors
linked to the aviation industry generally, many other factors may affect the value and lease
rates of Aviation Assets, including: the particular maintenance, operating history, and
documentary records of the Aviation Assets; the number of operators using that type of Aviation
Asset; the regulatory authority under which the Aviation Asset is operated; whether the Lease
terms are favorable to the Lessor; any renegotiation of a Lease on less favorable terms; the
negotiability of clear title free from mechanics liens and encumbrances; any regulatory and legal
requirements that must be satisfied before the Aviation Asset can be leased or re-leased;
{23647535;4} 22
compatibility of the Lessor's Aviation Asset configurations or specifications with other Aviation
Assets owned by operators of that type; comparative value based on newly manufactured
competitive Aviation Assets; and the availability of spare parts. Any decrease in the value and
lease rates of Aviation Assets which may result from the above factors or other unanticipated
factors may have a material adverse effect on the Lessor's financial results and, in turn, the
Company's ability to satisfy the Notes.
The concentration of specific Aviation Assets in the Lessor's portfolio of Leases could
adversely affect the Lessor's business and financial results if any problems specific to these
particular models occur.
Due to the high concentration of certain models in the Lessor's portfolio of Leases, the Lessor's
financial results and growth prospects and, in turn, the Company's ability to satisfy the Notes may
be adversely affected if the demand for these Aviation Asset models declines, if they are
redesigned or replaced by their manufacturer, or if these models experience design or technical
problems. If any of these Aviation Asset types encounter technical or other problems, the value
and lease rates of those Aviation Assets will likely decline, and such Aviation Assets may be
unable to be leased on favorable terms, if at all. Any significant technical problems with any
such Aviation Asset models could result in the grounding of the Aviation Asset. Any decrease
in the value and lease rates of the Lessor's Aviation Assets may have a material adverse effect
on the Lessor's financial results and growth prospects and, in turn, the Company's ability to satisfy
the Notes.
If Lessees encounter financial difficulties and the Lessor decides to restructure its Leases, the
restructuring would likely result in less favorable Leases which could adversely affect the
Lessor's financial results and growth prospects and, in turn, the Company's ability to satisfy
the Notes.
If a Lessee is late in making payments, fails to make payments in full or in part under a Lease,
or has advised the Lessor that it will fail to make payments in full or in part under a Lease in the
future, the Lessor may elect or be required to restructure the Lease, which could result in less
favorable terms or termination of a Lease without receiving all or any of the past due amounts.
The Lessor may be unable to agree upon acceptable terms for some or all of the requested
restructurings and as a result may be forced to exercise its remedies under those Leases. If the
Lessor, in the exercise of its remedies, repossesses an Aviation Asset, the Lessor may not be
able to re-lease the Aviation Asset promptly at favorable rates, if at all. Prospective Noteholders
should expect that restructurings and/or repossessions with some Lessees will occur in the
future. The terms and conditions of possible Lease restructurings may result in a significant
reduction of Lease revenue, which may adversely affect the Lessor's financial results and
growth prospects and, in turn, the Company's ability to satisfy the Notes.
The failure to maintain the Aviation Assets that are the subject of the Leases may cause
their value to decline and the Lessor may not be able to lease or re-lease Aviation Assets at
favorable rates, if at all, which would adversely affect the Lessor's financial results and
growth prospects and, in turn, the Company's ability to satisfy the Notes.
The Lessor may be exposed to increased maintenance costs for its leased Aviation Assets
{23647535;4} 23
associated with a Lessee's failure to properly maintain the Aviation Assets or pay supplemental
maintenance rent. If an Aviation Asset is not properly maintained, its market value may decline
which would result in lower revenues from its lease or sale. Under the terms of the Leases, the
Lessees are primarily responsible for maintaining the Aviation Assets and complying with all
governmental requirements applicable to the Lessee and the Aviation Assets. Although the Lessor
may require Lessees to pay a supplemental maintenance rent, failure of a Lessee to perform
required maintenance during the term of a Lease could result in a decrease in value of an Aviation
Asset, an inability to re-lease an Aviation Asset at favorable rates, if at all, or a potential
grounding of an Aviation Asset. Maintenance failures would also likely require the Lessor to
incur maintenance and modification costs upon the termination of the applicable Lease, which
could be substantial and exceed the maintenance reserve, to restore the Aviation Asset to an
acceptable condition prior to re-leasing or sale. Supplemental maintenance rent paid by Lessees
may not be sufficient to fund the Lessor's maintenance costs. The failure of Lessees to meet their
obligations to pay supplemental maintenance rent or perform required scheduled maintenance or
the Lessor's inability to maintain its Aviation Assets may materially and adversely affect the
Lessor's financial results and growth prospects and, in turn, the Company's ability to satisfy the
Notes.
Competition from other Aviation Asset lessors with greater resources or a lower cost of
capital than the Lessor could adversely affect the Lessor's financial results and growth
prospects and, in turn, the Company's ability to satisfy the Notes.
The Aviation Asset leasing industry is highly competitive. This competition is comprised of major
Aviation Asset leasing companies. Many of these competitors are significantly larger and have
greater resources or lower cost of capital than the Lessor; accordingly, they may be able to
compete more effectively in one or more of the Lessor's markets. In addition, the Lessor may
encounter competition from other entities such as: airlines; aircraft manufacturers and MRO
organizations; financial institutions, including those seeking to dispose of re-possessed Aviation
Assets at distressed prices; Aviation Asset brokers; public and private partnerships, investors,
and funds with more capital to invest in Aviation Assets; and other Aviation Asset leasing
companies and MRO organizations. Many of these competitors have greater operating and
financial resources and access to lower capital costs than the Lessor. The Lessor may not always
be able to compete successfully with such competitors and other entities, which could materially
and adversely affect the Lessor's financial results and growth prospects and, in turn, the Company's
ability to satisfy the Notes.
Changes in interest rates may adversely affect the Lessor's financial results and growth
prospects and, in turn, the Company's ability to satisfy the Notes.
Changes in interest rates may adversely affect revenues generated from Leases with lease rates
tied to floating interest rates. To the extent Leases are tied to floating interest rates, if interest rates
were to decrease, Lease revenues would decrease. In addition, because fixed rate Leases are
based, in part, on prevailing interest rates at the time a Lease is entered into, if interest rates
decrease, new Leases entered into will be at lower lease rates and Lease revenues will be adversely
affected. Any decrease in Lease revenues could adversely affect the Company's ability to satisfy
the Notes.
{23647535;4} 24
The Lessor could be exposed to significant regional political and economic risks due to the
concentration of Lessees in certain geographical regions which could adversely affect the
Lessor's financial results and growth prospects and, in turn, the Company's ability to
satisfy the Notes.
Through the Lessees, the Lessor could be exposed to local economic and political conditions. Such
adverse economic and political conditions include additional regulation. The effect of these
conditions on payments under the Leases will be more or less pronounced, depending on the
concentration of Lessees in the region with adverse conditions. The airline industry is highly
sensitive to general economic conditions. A recession or other worsening of economic conditions
or a terrorist attack, particularly if combined with high fuel prices or a weak local currency, may
have a material adverse effect on the ability of Lessees to meet their financial and other obligations
under the Leases. This would have a material adverse effect on the Lessor's financial results and
growth prospects and, in turn, the Company's ability to satisfy the Notes.
Aviation Assets have limited economically useful lives and depreciate over time, which can
adversely affect the Lessor's financial results and growth prospects and, in turn, the
Company's ability to satisfy the Notes.
As the Lessor's Aviation Assets age, they will depreciate and generally they will generate lower
revenues and cash flows. If the Lessor does not replace its older depreciated Aviation Assets
with newer Aviation Assets, the Leases of such older assets will generate less revenues and,
accordingly, the Lessor's ability to maintain or increase its revenues and cash flows derived
from Leases will decline, which could adversely affect the Lessor's financial results and growth
prospects and, in turn, the Company's ability to satisfy the Notes.
The advanced age of some of the Lessor's Aviation Assets may cause it to incur higher than
anticipated maintenance expenses, which could adversely affect the Lessor's financial
results and growth prospects and, in turn, the Company's ability to satisfy the Notes.
In general, the costs of operating an Aviation Asset, including maintenance expenditures, increase
as the Aviation Asset ages. In addition, older Aviation Assets are typically less fuel- efficient,
noisier, and produce higher levels of emissions, than newer Aviation Assets and may be more
difficult to lease or re-lease or sell. In a depressed market, the value and lease rates of older
Aviation Assets may decline more rapidly than the value and lease rates of newer Aviation Assets.
Increased variable expenses like fuel, maintenance, and increased governmental regulation could
make the operation of older Aviation Assets less profitable and may result in increased Lessee
defaults.
Incurring higher than anticipated maintenance expenses associated with the advanced age of some
of the Lessor's Aviation Assets or the Lessor's inability to lease or re-lease or sell such older
Aviation Assets would materially and adversely affect the Lessor's financial results and growth
prospects and, in turn, the Company's ability to satisfy the Notes.
The advent of superior Aviation Asset technology could cause the Lessor's existing Aviation
Asset portfolio to become outdated and therefore less desirable, which could adversely
affect the Lessor's financial results and growth prospects and, in turn, the Company's ability
to satisfy the Notes.
As manufacturers introduce technological innovations and new types of Aviation Assets, some
{23647535;4} 25
of the Aviation Assets in the Lessor's portfolio may become less desirable to potential Lessees.
In addition, the imposition of increased regulation regarding stringent noise or emissions
restrictions may make some of the Lessor's Aviation Assets less desirable in the marketplace. Any
of these risks may adversely affect the Lessor's ability to lease or sell its Aviation Assets on
favorable terms, if at all, which would have a material adverse effect on the Lessor's financial
results and growth prospects and, in turn, the Company's ability to satisfy the Notes.
If Lessees' insurance coverage is insufficient, it could adversely affect the Lessor's financial
results and growth prospects and, in turn, the Company's ability to satisfy the Notes.
While the Lessor does not directly control the operation of any of its leased Aviation Assets, by
virtue of holding title to Aviation Assets, directly or indirectly, in certain jurisdictions around
the world, the Lessor could be held strictly liable for losses resulting from the operation of its
Aviation Assets, or may be held liable for those losses on other legal theories. The Lessor requires
its Lessees to obtain specified levels of insurance and indemnify it for, and insure against,
liabilities arising out of their use and operation of the Aviation Assets that are the subject
of the Leases. However, following the terrorist attacks of September 11, 2001, aviation insurers
significantly reduced the amount of insurance coverage available to airlines for liability to persons
other than employees or passengers for claims resulting from acts of terrorism, war, or similar
events. At the same time, aviation insurers significantly increased the premiums for third-party
war risk and terrorism liability insurance and coverage in general. As a result, the amount of
third-party war risk and terrorism liability insurance that is commercially available at any time
may be below the amount stipulated in the Leases. The Lessees' insurance or other coverage
may not be sufficient to cover all claims that may be asserted against the Lessor arising
from the operation of its Aviation Assets by the Lessees. Inadequate insurance coverage or default
by Lessees in fulfilling their indemnification or insurance obligations will reduce the proceeds
that would be received by the Lessor in the event the Lessor is sued and is required to make
payments to claimants. This could materially and adversely affect the Lessor's financial results
and growth prospects and, in turn, the Company's ability to satisfy the Notes.
If the Lessor incurs significant costs resulting from Lease defaults, it could adversely affect
the Lessor's financial results and growth prospects and, in turn, the Company's ability to
satisfy the Notes.
If the Lessor is required to repossess an Aviation Asset after a Lessee default, it may be required
to incur significant unexpected costs. Such costs include legal and other expenses of court or
other governmental proceedings, including the cost of posting surety bonds or letters of credit
necessary to effect repossession of the Aviation Asset, particularly if the Lessee is contesting the
proceedings or is in bankruptcy. In addition, during these proceedings the relevant Aviation
Asset is not generating revenue. The Lessor may also incur substantial maintenance,
refurbishment, or repair costs that a defaulting Lessee has failed to pay and that are necessary to
put the Aviation Asset in suitable condition for re-lease or sale. It may also be necessary to pay
off liens, taxes, and other governmental charges on the Aviation Asset to obtain clear possession
and to remarket the Aviation Asset effectively, including, in some cases, liens that the Lessee may
have incurred in connection with the operation of its other Aviation Assets. The Lessor may
also incur other costs in connection with the physical possession of the Aviation Asset.
The Lessor may also suffer other adverse consequences as a result of a Lessee default and the
related termination of the Lease and the repossession of the related Aviation Asset. The Lessor's
{23647535;4} 26
rights upon a Lessee default vary significantly depending upon the jurisdiction and the
applicable law, including the need to obtain a court order for repossession of the Aviation Asset
and/or consents for de-registration or re-export of the Aviation Asset. When a defaulting Lessee
is in bankruptcy, insolvency, or similar proceedings, additional limitations may apply. Certain
jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the
Lease or to assign it to a third party, or entitle the Lessee or another third party to retain possession
of the Aviation Asset without paying Lease rentals or performing all or some of the obligations
under the relevant Lease. In addition, certain Lessees are owned in whole, or in part, by
government-related entities, which could complicate efforts to repossess Aviation Assets in that
government's jurisdiction. Accordingly, the Lessor may be delayed in, or prevented from,
enforcing certain of its rights under a Lease and in re-leasing the affected Aviation Asset.
If the Lessor repossesses an Aviation Asset, it will not necessarily be able to export or de- register
and profitably redeploy the Aviation Asset. For instance, where a Lessee or other operator flies
only domestic routes in the jurisdiction in which the Aviation Asset is registered, repossession
may be more difficult, especially if the jurisdiction permits the Lessee or the other operator to
resist de-registration. The Lessor may also incur significant costs in retrieving or recreating
Aviation Asset records required for registration of the Aviation Asset, and in obtaining the
certificate of airworthiness for an Aviation Asset. If the Lessor incurs significant costs
repossessing Aviation Assets, or is delayed in repossessing Aviation Assets or unable to obtain
possession of Aviation Assets as a result of Lessee defaults and thus is delayed in re- leasing
them, the Lessor's financial results and growth prospects and, in turn, the Company's ability to
satisfy the Notes may be materially and adversely affected.
If Lessees fail to appropriately discharge Aviation Asset liens, the Lessor may be obligated to
pay the liens, which could adversely affect the Lessor's financial results and growth prospects
and, in turn, the Company's ability to satisfy the Notes.
In the normal course of their business, the Lessees are likely to incur Aviation Asset liens that
secure the payment of airport fees and taxes, customs duties, air navigation charges, landing
charges, crew wages, repairer's charges, salvage, or other liens that may attach to the Aviation
Assets that are the subject of the Leases. These liens may secure substantial sums that may, in
certain jurisdictions or for certain types of liens, particularly liens on entire fleets of aircraft,
exceed the value of the particular Aviation Asset to which the liens have attached. Aviation Assets
may also be subject to mechanical liens as a result of routine maintenance performed by third
parties on behalf of the Lessees. Although the financial obligations relating to these liens are the
responsibility of the Lessees, if they fail to fulfill their obligations, the liens may attach to the
Aviation Assets under lease and ultimately become the Lessor's responsibility. In some
jurisdictions, Aviation Asset liens may give the holder thereof the right to detain or, in limited
cases, sell or cause the forfeiture of the Aviation Asset. Until they are discharged, these liens
could impair the Lessor's ability to repossess, re-lease, or sell its Aviation Assets. Lessees may
not comply with their obligations under their Leases to discharge liens arising during the terms
of their Leases. If they do not, the Lessor may find it necessary to pay the claims secured by
such liens in order to repossess the Aviation Asset. Such payments would materially and adversely
affect the Lessor's financial results and growth prospects and, in turn, the Company's ability to
satisfy the Notes.
{23647535;4} 27
Failure to obtain certain required licenses, certificates, and approvals could adversely
affect the Lessor's ability to lease or sell Aviation Assets, which would materially and
adversely affect the Lessor's financial results and growth prospects and, in turn, the
Company's ability to satisfy the Notes.
Under its Leases, the Lessor may be required in some instances to obtain specific licenses,
consents, or approvals for different aspects of the Leases. These required items include consents
from governmental or regulatory authorities for certain payments under the Leases and for the
import, re-export, or deregistration of the Aviation Assets. Subsequent changes in applicable
law or administrative practice may increase such requirements. In addition, a governmental
consent, once given, might be withdrawn. Furthermore, consents needed in connection with future
re-leasing or sale of an Aviation Asset may not be forthcoming. A failure to maintain these
licenses or certificates or obtain any required license or certificate, consent, or approval, or the
occurrence of any of the foregoing events, could adversely affect the Lessor's ability to lease or
re-lease or sell its Aviation Assets, which would materially and adversely affect the Lessor's
financial results and growth prospects and, in turn, the Company's ability to satisfy the Notes.
The failure of the suppliers of Aviation Assets to meet their Aviation Asset delivery
obligations to the Lessor could adversely affect the Lessor's financial results and growth
prospects and, in turn, the Company's ability to satisfy the Notes.
The Company is dependent on the success of the suppliers of Aviation Assets to the Lessor in
remaining financially stable, providing Aviation Assets that meet the airline operators' demands,
and fulfilling their contractual obligations to the Lessor. If any such supplier fails to respond
appropriately to changes in the market environment or fails to fulfill its contractual obligations,
the Lessor may experience: (a) missed or late delivery of Aviation Assets ordered by the Lessor
and an inability to meet the Lessor's contractual obligations to Lessees, resulting in lost or delayed
revenues, lower growth rates, and strained customer relationships; (b) an inability to acquire
Aviation Assets and related components on terms that will allow the Lessor to lease those
Aviation Assets to customers at a profit, resulting in lower growth rates or a contraction in the
Lessor's Aviation Asset portfolio; (c) a market environment with too many Aviation Assets
available, creating downward pressure on demand for the Aviation Assets in the Lessor's portfolio
and reduced market lease rates and sale prices; (d) poor customer support from the manufacturers
of Aviation Assets and components resulting in reduced demand for a particular manufacturer's
product, creating downward pressure on demand for those Aviation Assets in the Lessor's
portfolio, and reduced market lease rates and sale prices for those Aviation Assets; and (e)
reduction in the Lessor's competitiveness due to deep discounting by the manufacturers, which
may lead to reduced market lease rates and sale prices for the Lessor's Aviation Assets and may
affect the Lessor's ability to remarket or sell some of the Aviation Assets in its portfolio,
which could materially and adversely affect the Lessor's financial results and growth prospects
and, in turn, the Company's ability to satisfy the Notes.
The Lessor is subject to various environmental regulations that may have an adverse
impact on the Lessor's financial results and growth prospects and, in turn, the Company's
ability to satisfy the Notes.
Governmental regulations regarding Aviation Asset noise and emissions levels apply based on
where the relevant airframe is registered, and where the aircraft is operated. For example,
jurisdictions throughout the world have adopted noise regulations which require all aircraft to
comply with noise level standards. These regulations could limit the economic life of the
{23647535;4} 28
Lessor's Aviation Assets, reduce their value, limit the Lessor's ability to lease or sell the noncompliant
Aviation Assets or, if engine modifications are permitted, require the Lessor to make
significant additional investments in the Aviation Assets to make them compliant. In addition to
more stringent noise restrictions, the United States and other jurisdictions are beginning to impose
more stringent limits on the emission of nitrogen oxide, carbon monoxide, and carbon dioxide
emissions from engines. Though current emissions control laws generally apply to newer
engines, new laws could be passed in the future that also impose limits on older engines, and
therefore any new engines that the Lessor purchases, as well as its older engines, could be subject
to existing or new emissions limitations. Limitations on emissions could favor the use of larger
wide-body aircraft since they generally produce lower levels of emissions per passenger, which
could adversely affect the Lessor's ability to re-lease or otherwise dispose of its narrow- body
aircraft on a timely basis, at favorable terms, or at all. This is an area of law that is rapidly
changing, and while it is unknown at this time whether new emission control laws will be
passed, and if passed what impact such laws might have on the Business, any future emissions
limitations could adversely affect Integrity Aviation and the Company.
The Business operations are subject to various federal, state, and local environmental, health,
and safety laws and regulations in the United States, including those relating to the discharge of
materials into the air, water, and ground, the generation, storage, handling, use, transportation, and
disposal of hazardous materials, and the health and safety of employees. A violation of these
laws and regulations or permit conditions can result in substantial fines, permit revocation, or other
damages. Many of these laws impose liability for clean-up of contamination that may exist at the
Lessor's facilities (even if the Lessor did not know of or was not responsible for the contamination)
or related personal injuries or natural resource damages or costs relating to contamination at third
party waste disposal sites where the Lessor has sent or may send waste. No assurance can be
given that Integrity Aviation or the Company will be at all times in complete compliance
with these laws, regulations, or permits. Integrity or the Company may have liability under
environmental laws or be subject to legal actions brought by governmental authorities or other
parties for actual or alleged violations of, or liability under, environmental, health, and safety laws,
regulations, or permits.
In certain jurisdictions, an engine affixed to an aircraft may become an accession to the
aircraft and the Lessor may not be able to exercise its ownership rights over the engine.
In some jurisdictions, an engine affixed to an aircraft may become an accession to the aircraft,
so that the ownership rights of the owner of the aircraft supersede the ownership rights of the
owner of the engine. If an aircraft is security for the owner's obligations to a third party, the
security interest in the aircraft may supersede the Lessor's rights as owner of the engine. This
legal principle could limit the Lessor's ability to repossess an engine in the event of a Lease
default while the aircraft with the Lessor's engine installed remains in such jurisdiction. The Lessor
would suffer a substantial loss if it were not able to repossess engines leased to Lessees in these
jurisdictions, which would materially and adversely affect the Lessor's financial results and growth
prospects and, in turn, the Company's ability to satisfy the Notes.
Integrity Aviation and/or the Company will need sufficient capital to finance its growth,
and may not be able to obtain it on acceptable terms, if at all, which may limit its ability to
grow and compete in the Aviation Asset leasing and trading markets.
Integrity Aviation and/or the Company will need sufficient capital to continue to expand its
business by acquiring additional Aviation Assets, and financing may not be available or may be
{23647535;4} 29
available only on terms that are not favorable. If Integrity Aviation and/or the Company is
unable to raise sufficient funds or obtain capital on acceptable terms, it may have to delay, modify,
or abandon some or all of its business or growth strategies.
As high fuel prices continue to affect the profitability of the aviation industry, Lessees
might not be able to meet their Lease payment obligations, which would adversely affect
the Lessor's financial results and growth prospects and, in turn, the Company's ability to
satisfy the Notes.
Fuel costs represent a major expense to companies operating in the aviation industry. Fuel prices
fluctuate widely depending primarily on international market conditions, geopolitical and
environmental events, and currency/exchange rates. As a result, fuel costs are not within the
control of Lessees and significant increases in fuel costs would materially and adversely affect
their operating results. Factors such as hurricanes and other natural disasters can significantly
affect fuel availability and prices. The high cost of fuel has had, and sustained high costs in the
future may continue to have, a material adverse effect on the profitability of the Lessees. Due to
the competitive nature of the aviation industry, operators have been and may continue to be unable
to pass on increases in fuel prices to their customers by increasing fares in a manner that fully
offsets the increased fuel costs they have incurred. In addition, they may not be able to manage
this risk by appropriately hedging their exposure to fuel price fluctuations. If fuel prices remain at
high levels or increase further due to future terrorist attacks, acts of war, armed hostilities, natural
disasters, or for any other reason, they are likely to cause Lessees to incur higher costs and/or
generate lower revenues, resulting in an adverse effect on their financial condition and liquidity.
Consequently, these conditions may adversely affect the Lessees' ability to make rental and other
lease payments under their Leases, result in Lease restructurings and/or Aviation Asset
repossessions, increase the Lessor's costs of servicing and marketing its Aviation Assets, or impair
the Lessor's ability to lease or re-lease or sell them. Any of these events could adversely affect
the Lessor's financial results and growth prospects and, in turn, the Company's ability to satisfy
the Notes.
If the effects of terrorist attacks and geopolitical conditions continue to adversely affect the
financial condition of the airlines and other aircraft operators, Lessees might not be able to
meet their Lease payment obligations, which would adversely affect the Lessor's financial
results and growth prospects and, in turn, the Company's ability to satisfy the Notes.
As a result of the September 11, 2001 terrorist attacks in the United States and subsequent terrorist
attacks abroad, increased security restrictions were implemented on air travel, costs for aircraft
insurance and security measures have increased, passenger and cargo demand for air travel
decreased, and operators have faced and continue to face increased difficulties in acquiring
war risk and other insurance at reasonable costs. In addition, war or armed hostilities, or the fear
of such events, could further exacerbate many of the problems experienced as a result of terrorist
attacks. Future terrorist attacks, war or armed hostilities, or the fear of such events, could further
adversely affect the aviation industry and may have an adverse effect on the financial condition
and liquidity of the Lessees and Aviation Asset values and lease rates, and may lead to Lease
restructurings or repossessions, all of which could adversely affect the Lessor's financial
results and growth prospects and, in turn, the Company's ability to satisfy the Notes. Terrorist
attacks and adverse geopolitical conditions have adversely affected the aviation industry and
concerns about such events could also result in: (a) higher costs to the airlines due to the increased
security measures; (b) decreased passenger demand and revenue due to the inconvenience of
additional security measures; (c) uncertainty of the price and availability of jet fuel and the cost
{23647535;4} 30
and practicability of obtaining fuel hedges under current market conditions; (d) higher financing
costs and difficulty in raising the desired amount of proceeds on favorable terms, if at all; (e)
significantly higher costs of aviation insurance coverage for future claims caused by acts of
war, terrorism, sabotage, hijacking, and other similar perils, and the extent to which such insurance
has been or will continue to be available; (f) inability of airlines to reduce their operating costs
and conserve financial resources, taking into account the increased costs incurred as a
consequence of terrorist attacks and geopolitical conditions, including those referred to above;
and (g) special charges recognized by some operators, such as those related to the impairment of
aircraft and engines and other long-lived assets stemming from the grounding of aircraft as a result
of terrorist attacks, the economic slowdown, and airline reorganizations. Future terrorist attacks,
acts of war, or armed hostilities may cause certain aviation insurance to become available only at
significantly increased premiums, which may be for reduced amounts of coverage that are
insufficient to comply with the levels of insurance coverage currently required by aircraft and
engine lenders and lessors or by applicable government regulations, or to be not available at all.
Future terrorist attacks, acts of war, or armed hostilities are likely to cause Lessees to incur
higher costs and to generate lower revenues, which could result in an adverse effect on their
financial condition and liquidity. Consequently, these conditions may affect their ability to make
rental and other lease payments under their Leases or obtain the types and amounts of insurance
required by the applicable Leases, which may in turn lead to aircraft groundings, may result in
additional Lease restructurings and repossessions, may increase the cost of leasing or re-leasing
or selling the Aviation Assets, and may impair the ability to lease or re-lease or otherwise dispose
of them on a timely basis at favorable rates or on favorable terms, if at all, and may reduce the
proceeds received for the Aviation Assets upon any disposition. Any of these results could
adversely affect the Lessor's financial results and growth prospects and, in turn, the Company's
ability to satisfy the Notes.
The effects of epidemic diseases may adversely affect the airline industry in the future, which
might cause Lessees to not be able to meet their Lease payment obligations, which would
adversely affect the Lessor's financial results and growth prospects and, in turn, the
Company's ability to satisfy the Notes.
The outbreak of epidemic diseases could materially and adversely affect passenger demand for air
travel. In the event of an epidemic disease such as human influenza, SARS, or avian
influenza affecting humans, numerous responses, including travel restrictions, might be necessary
to combat the spread of the disease. Outbreaks of diseases, or the fear of such events, could
adversely affect passenger demand for air travel and the aviation industry. These consequences
could result in Lessees' inability to satisfy their Lease payment obligations, which would adversely
affect the Lessor's financial results and growth prospects and, in turn, the Company's ability to
satisfy the Notes.
The passenger aviation industry is inherently cyclical and a significant downturn in the
industry would adversely impact Lessees' ability to make Lease payments, which would
adversely affect the Lessor's financial results and growth prospects and, in turn, the
Company's ability to satisfy the Notes.
The passenger aviation industry has been characterized by periods of falling air traffic demand
and rising costs. Such industry downturns can be exacerbated by terrorist attacks, prolonged
military action, rising fuel prices, outbreaks of epidemic diseases, and other events beyond the
Managing Member's control. As a result, the global airline industry may experience significant
financial losses, and announce or implement reductions in capacity, service, and workforce.
{23647535;4} 31
Additionally, many airlines may seek protection under bankruptcy laws. The airline
bankruptcies and the reduction in demand may lead to the grounding of significant numbers of
aircraft and engines and the negotiation of reductions in Lease rental rates, which depress Aviation
Asset market values. There is a substantial risk of an industry downturn occurring again in
the future and the impact could be similar to the impact of the prior downturn. Such a downturn
would likely place already financially weakened Lessees under further duress, once again putting
downward pressure on lease rates applicable to the Leases. As in the previous downturn, the
grounding of undesirable older aircraft would also play a role in depressing Aviation Asset market
values.
The Notes are subject to restrictions on transferability and there is no public market for
the Notes; therefore, the Notes should be considered an illiquid investment.
The Notes are not registered under the Securities Act or qualified under the blue sky laws of any
state or jurisdiction, nor does the Company have any intention to seek registration. The Notes are
also subject to significant restrictions on transferability and resale and may not be transferred or
resold except as permitted under the Securities Act, and applicable state securities laws, pursuant
to registration or exemption therefrom, and except as permitted under the terms of the Notes. There
is no market for the Notes and, as a result, Noteholders should assume the Notes are illiquid
and the principal will not be paid prior to maturity (subject to extension in accordance with the
Note terms).
The Company's ability to satisfy the Notes is dependent on the principals of the Managing
Member and of Integrity Aviation, the loss of any of whom will have a material adverse
effect on the Company.
The Company's ability to satisfy the Notes will be largely dependent on the principals of the
Managing Member and Integrity Aviation who manage the Business. The skill of these persons
is critical to the success of the Company. The loss of services of any of these persons for any
reason may have a material adverse effect on the Company. There is no key person insurance on
any of these individuals.
The Noteholders have no right to participate in the management of the Company or
Integrity Aviation.
The Managing Member has the exclusive right, power and authority to manage the Company's
business and make all decisions with respect thereto. The principals of Integrity Aviation have
the exclusive right, power and authority to manage Integrity's business and make all decisions
with respect thereto. The securities to be issued in this offering consist of Secured Promissory
Notes, the holders of which do not have any right to vote or participate in the management of the
Company or Integrity Aviation or in any decisions by the Company or Integrity Aviation.
The Managing Member and its principal may have conflicts of interest, which may not be
resolved in favor of the Noteholders.
The Managing Member and its principal may have conflicts of interest. No assurances can be
given that these conflicts will be resolved in favor of the Company and the Noteholders.
See"Affiliate Fees and Transactions" and "Conflicts of Interest."
{23647535;4} 32
As of the date of this Memorandum, Integrity Aviation has not entered into an agreement
to purchase specific Aviation Assets to acquire or Leases to enter into which Noteholders may
evaluate before investing in the Company.
Integrity Aviation has not entered into an agreement to purchase specific Aviation Assets to acquire
or Leases to enter into. Accordingly, Noteholders will not have an opportunity to review and
evaluate the terms and conditions of the Aviation Assets to be acquired or Leases to be entered into
by Integrity Aviation prior to purchasing the Notes, and may not agree with how Integrity's
management uses the proceeds derived from this offering. If this offering continues following
the initial closing, then the Company will make available to prospective investors information
concerning the Company's and Integrity's assets and financial condition prior to their making an
investment decision.
The lack of suitable opportunities could cause delays or could result in transactions on less
than desirable terms.
No assurance can be given that there will be a sufficient number of suitable Aviation Assets to
acquire or Leases to enter into or whether they can be acquired or entered into on desirable terms
or in a desirable timeframe. Any delays as well as any transaction on less than desirable terms will
adversely affect the Company's ability to satisfy the Notes.
Noteholders have no control over how the Note proceeds will be used.
Noteholders will have no control or discretion over how the proceeds from the Notes are used, and
must trust the judgment of the principal of the Company as to how they utilize such
proceeds. There can be no guarantee or assurances that the Company will utilize such proceeds
in a manner that produces a cash flow stream sufficient to satisfy the Notes.
The Company will be substantially capitalized with debt securities and, therefore, creditors
of the Company could claim that the Notes are equity securities which could have adverse
consequences to the Noteholders.
The Company will be, upon issuance of the Notes, substantially capitalized with debt securities.
Accordingly, creditors of the Company could potentially seek to attack the Notes (or the secured
status thereof) based on legal and equitable theories traditionally employed by creditors of
companies with a high concentration of debt. It is, therefore, possible that all or a portion of the
Notes could be re-characterized as equity securities of the Company. Such re-characterization
could have adverse tax, legal and other consequences to the Noteholders.
If the Notes are re-characterized as equity securities, there could be adverse tax
consequences to the Noteholders.
The federal income tax consequences of owning the Notes are dependent upon the characterization
of the Notes as debt of the Company for federal income tax purposes, rather than as equity interests
in the Company or a partnership among the holders of Notes and the Company and/or its Managing
Member. The Company believes that the Notes have been structured in a manner that will allow
the Notes to be characterized as a debt of the Company for federal income tax purposes. However,
this is only the Company's belief, and no ruling from the Internal Revenue Service ("IRS")
or an opinion of counsel has been sought in this regard. Thus, the IRS could successfully challenge
{23647535;4} 33
this characterization. If the Notes are re-characterized as equity interests, there could be adverse
effects on Noteholders. For example, (a) income to non-U.S. holders could be subject to
federal income tax withholding, (b) unrelated business taxable income may result to tax-exempt
entities, including pension funds and some retirement accounts (if the relationship were
characterized as a partnership for tax purposes), and (c) the timing and amount of income that
accrues to holders of Notes may be different than anticipated. Because of these potential adverse
effects, prospective Noteholders are urged to consult their own tax advisors as to the tax
consequences that may apply to their particular situation in the event the Notes are recharacterized
as equity interests and as to the likelihood that the Notes could be so recharacterized.
Noteholders may have taxable income without regard to interest payments on the Notes.
Under applicable tax law, Noteholders may be required to recognize taxable interest income
annually with respect to the Notes even though the interest may not be paid until a later time and,
therefore, Noteholders may have to rely upon resources independent of the Notes to pay their
obligations to the federal, state and local tax authorities. Prospective Noteholders are urged to
consult their own tax advisors as to the tax consequences of holding a Note.
Noteholders will not have the ability to enforce the terms of the Note individually.
The Notes will be secured by a security interest in the Company's assets pursuant to the Security
Agreement attached hereto as Exhibit "C." The security interest will be managed by a Collateral
Agent that will take direction from the Noteholders in accordance with the Collateral Agency
Agreement attached hereto as Exhibit "D." The Collateral Agency Agreement provides, among
other things, that no Noteholder may alter the terms of the Notes or enforce the Notes against the
Company individually. All such actions and similar actions are reserved for voting among the
Noteholders and/or delegated to the Collateral Agent. The Security Agreement contains a crossdefault
provision such that a default by the Company on one Note will constitute a default on all
Notes. Noteholders are dependent upon the efforts of the Collateral Agent to enforce their rights
under the Notes and foreclose on the collateral and prosecute related claims. The Collateral
Agent can only be removed by a supermajority vote of the Noteholders if it has been found to have
engaged in willful misconduct. To the extent the Collateral Agency Agreement requires the vote
or consent of a majority of the Noteholders or less than all of the Noteholders, such consent, if not
obtained, could have an adverse affect on the Noteholders or, if obtained, could result in action
being taken by the Collateral Agent which the non-consenting Noteholders find objectionable.
Finally, if the security interests in the collateral are not perfected, third party claims may
successfully attach to the collateral, thereby adversely affecting the Noteholders. Noteholders
should carefully review the Collateral Agency Agreement and the Security Agreement.
There are risks relating to the security interest in the Company's assets serving as
collateral to secure the Notes.
It is anticipated that the Collateral Agent's security interest in the Company's assets serving as
collateral to secure payment on the Notes will be perfected solely through the filing of a UCC-1
financing statement with the Secretary of State of the State of Delaware where the Company is
formed. However, the perfection of a security interest in certain assets of the Company may require
a method other than the filing of a UCC-1 financing statement, such as through possession
or control of such assets or through filings of other documents with other governmental agencies.
{23647535;4} 34
Any such assets in which the Company is granting a security interest to the Collateral Agent which
cannot be perfected by filing a UCC-1 financing statement with the Delaware Secretary of State
will not be perfected. If the security interest in the collateral is not perfected for this or any other
reason (including the Collateral Agent's failure to properly perfect its security interest), third party
claims may successfully attach to the collateral and have priority over the Collateral Agent's
security interest in such collateral, thereby adversely affecting the Noteholders' security for the
Company's obligation to make payments on the Notes. Further, under the terms of the Collateral
Agency Agreement and the Security Agreement, the Company will have the right to use, dispose
of and encumber its assets in the ordinary course of its business prior to an event of default
under the Notes, free from any encumbrance of the security interest granted to the Collateral Agent
in favor of the Noteholders.
If a successor Collateral Agent is required to replace an existing Collateral Agent due to
resignation or removal, there may be additional fees and costs as well as modified terms to
the Collateral Agency Agreement.
If the Collateral Agent resigns or is removed, the Company will be required to find a successor to
takes its place. In such an event, a successor Collateral Agent may require other or additional
fees or terms to those set forth in the existing Collateral Agency Agreement. Accordingly, there
is a risk that the Collateral Agency Agreement may have to be modified if the Collateral Agent
resigns or is removed in order to accommodate its successor and that such modifications may
increase costs or otherwise be unfavorable to the Noteholders.
Noteholders may be required to indemnify the Collateral Agent.
Under the terms of the Collateral Agency Agreement, the Collateral Agent is entitled to receive
fees and expense reimbursements from the Company and, to the extent the Company fails to
satisfy such obligations, then the Noteholders (ratably in accordance with the relative principal
amounts of their Notes) are obligated to reimburse and hold harmless the Collateral Agent for such
amounts. Further, the Collateral Agency Agreement provides that the Company and the
Noteholders (ratably in accordance with the relative principal amounts of their Notes) shall
indemnify the Collateral Agent (and related persons) for its acts or omissions as Collateral Agent
except to the extent of the Collateral Agent's sole negligence or willful misconduct. If the Company
is required to indemnify the Collateral Agent, then this will reduce amounts available for payment
on the Notes and other Company purposes. If the Noteholders are required to indemnify the
Collateral Agent, then this will be a full recourse obligation of each Noteholder (subject to any
rights they may have against the Company).
This is a "best-efforts" offering.
This is not an underwritten offering. The Company may not be able to sell all of the Notes that it
is seeking to sell and issue in this offering. Consequently, the costs and expenses of the offering
and the Company's operations could represent a greater percentage of the offering proceeds.
No assurance can be given that the Company will have a diversified asset portfolio, which
could increase the risk that the Notes will not be fully paid.
The Company intends to attempt to diversify its assets and thus minimize the risk that the overall
performance of the Company will be materially adversely affected by the unfavorable performance
of few assets or even one asset in its portfolio. However, the Company’s ability to diversify will,
{23647535;4} 35
to a great extent, depend upon the proceeds of this offering which will determine the amount of
proceeds available for investment; the greater the aggregate principal amount of Notes sold, the
more funds that will be available to fund the Business which increases the ability to diversify
through acquiring numerous Aviation Assets and entering into numerous Leases. However, it is
possible that diversification will be limited due to the ultimate size of the offering, or for other
reasons.
A portion of the Note proceeds will be used to pay the Company's organizational and offering
expenses, and the percentage of each Noteholder's subscription proceeds applied toward
these expenses will vary inversely with the total amount of subscription proceeds.
The Company will bear organizational expenses and expenses related to this offering as
described elsewhere in this Memorandum. A portion of the Note proceeds of each purchaser of a
Note in this offering will be used to pay these expenses. These organizational and offering
expenses will be deducted from the initial funds raised at the initial closing or closings. As a
result, the portion of an investor's Note proceeds that is applied to pay these expenses will vary
inversely with the aggregate principal amounts of the Notes sold in this offering.
Unanticipated Expenses and reserves will reduce amounts otherwise available to acquire
assets or to satisfy the Notes and ultimately could have a material adverse effect on the
Company's ability to satisfy the Notes.
The Company will bear all Expenses. Certain Expenses are beyond the control of the Managing
Member and cannot be estimated or predicted. If the Company experiences unanticipated costs
or liabilities, including as a result of future litigation, the inability to liquidate assets on favorable
terms or otherwise, then this could have a material adverse effect on the Company's results of
operation and financial condition and ability to satisfy the Notes. In addition, the Company may
be required to establish reserves from time to time to cover known and unknown liabilities that
may arise. Such reserves will be determined by the Managing Member in its sole and absolute
discretion. These reserves may be established out of any Company funds as determined by the
Managing Member, including out of the offering proceeds (which will reduce amounts available
to acquire assets) and out of revenues derived from operations and assets (which will reduce
amounts available to make payments on the Notes). Without limiting the foregoing, if the Company
is unable to liquidate all of its assets prior to the maturity of the Notes and must place them in a
liquidating trust, the Company will be required to set aside due and adequate reserves at that time
to cover the expenses of holding, maintaining and disposing of those assets while in the liquidating
trust. Any such costs and reserves will reduce amounts otherwise available for application
toward satisfaction of the Notes.
If Notes are prepaid, Noteholders may not be able to find an alternative investment at the
same yields.
The Company may prepay all or a portion of the outstanding amounts due under the Notes at any
time without prepayment penalty or premium. If the Notes are prepaid, Noteholders expecting a
fixed return at the applicable Note rate for the full 30-month term may not be able to find an
alternative investment at the same or higher yields than the debt that was repaid, particularly in a
declining interest rate environment.
Notes with later maturity dates are subject to the risk of less diversified, liquid or valuable
{23647535;4} 36
collateral.
Noteholders holding Notes with later maturity dates are subject to the risk that collateral securing
their Notes will be liquidated to satisfy or prepay Notes with earlier maturity dates. Such
Noteholders holding Notes with later maturity dates may be left with a smaller and less diversified
pool of collateral securing their Notes, or with collateral that is illiquid or less valuable
compared to the collateral that has been liquidated to satisfy or prepay Notes with earlier
maturity dates.
There are risks associated with the Company's utilization of leverage.
The Company may utilize leverage in addition to the Notes sold in this offering ("Senior Debt")
for purposes of achieving its objectives. Pursuant to the terms of the Notes, the Senior Debt will
be senior in payment and in lien to the Notes. It is anticipated that debt service payments due on
any Senior Debt will be paid primarily out of cash flow generated from the Company's assets. No
assurance can be given that the amount of the Company's cash flow or other available resources
will be sufficient to make the debt service payments on any Senior Debt that may be incurred by
the Company. In addition, increases in the interest rate on any Senior Debt that may be incurred
by the Company that bears interest at a variable rate could make it more difficult and/or
expensive for the Company to meet its debt service requirements. In addition, the Company's
Senior Debt lender would likely require it to secure repayment of any Senior Debt with all or a
portion of the Company's assets, or at least the specific assets in respect of which it provides
financing, which assets currently serve as collateral to secure the Notes. If the Company does not
have financial resources available to satisfy the Senior Debt prior to the maturity date, it may be
required to sell its assets to do so which would reduce the collateral securing the Notes. There
can be no assurance that any of the Company's assets can be successfully sold to pay off any
Senior Debt incurred by it. If the Company fails to make payments on any secured Senior Debt
loan made to it or otherwise defaults under the applicable loan documents, the secured Senior Debt
lender generally would have the right to execute and foreclose its security interest in the collateral.
Because the Notes will be subordinated to such Senior Debt in payment and in lien, the claims
of such Senior Debt lender would take priority over the claims of Noteholders, and no assurance
can be given that the Company will have sufficient assets to satisfy the Notes after satisfaction
of such Senior Debt lender's claims. In that case, the Company could lose all or a portion of its
assets, which will have a material adverse effect on the Company's ability to satisfy the Notes.
The Company may be subject to indemnification claims in connection with its business.
The Company may be subject to indemnification claims in connection with its business. For
instance, the Managing Member and its principals, members, managers, officers and agents are
entitled to indemnification by the Company for their acts or omissions while acting on behalf of
the Company. The Company is also obligated to indemnify third party providers such as the
Collateral Agent in accordance with the applicable agreements between the Company and such
persons and entities. Further, the Company may be required by law, contract, court order or
otherwise to indemnify various parties for breach of warranty, representation or covenant, for
fraud, or for violation of law, in connection with its assets, including purchasers of assets from
the Company, sellers of assets to the Company, service providers such as companies it engages
to service its loans and assets, and annuity issuers and insurance companies involved in
underwriting policies, annuities and other assets acquired by the Company. Therefore, the
Company may incur costs if it is required to indemnify any such persons, in which event the
{23647535;4} 37
Company's profitability and ability to satisfy the Notes may be adversely affected.
The Company is not registered as an investment company or investment advisor and,
therefore, prospective Noteholders will not have the benefit of the protections afforded by
such registration and regulation.
While the Company may be considered a private investment company now or in the future
depending on its activities and applicable law, the Company is not required and does not intend
to register as such under the Investment Company Act of 1940 in reliance upon an applicable
exemption or exclusion therefrom. The Managing Member is also relying on an exemption or
exclusion from registration as an investment advisor under the Investment Advisors Act.
Accordingly, the provisions of these acts, which are designed to protect investment company
investors and regulate the relationship between the investment advisor and the investment
company, will not be applicable.
This offering is not registered with the Securities and Exchange Commission or any state
securities authorities and, therefore, prospective Noteholders will not have the benefit of
regulatory review.
The offering of the Notes will not be registered with the Securities and Exchange Commission
under the Securities Act or the securities agency of any state, and the Notes are being offered in
reliance upon an exemption from the registration requirements of the Securities Act and state
securities laws applicable only to offers and sales to investors meeting the suitability
requirements set forth herein. Since the offering is a nonpublic offering and, as such, is not
registered under federal or state securities laws, prospective investors will not have the benefit of
review by the Securities and Exchange Commission or any state securities regulatory authority.
The Company has not retained independent professionals to represent the prospective
Noteholders' interests.
The Company has not retained any independent professionals for subscribers in this offering to
review or comment on this offering or otherwise protect the interests of the subscribers
hereunder. Although the Company has retained its own counsel and accountants, neither such
firms nor any other firm has made any independent examination of any factual matters represented
by management herein, and purchasers of the Notes offered hereby should not rely on the firms
so retained with respect to any matters herein described. Each prospective Noteholder should
consult his, her or its own legal, tax and financial advisors regarding the merits and risks of
this investment.
Actual results of the Company will vary from any pro forma financial information contained
in this Memorandum or elsewhere.
Any pro forma financial information, if any, discussed in or accompanying this Memorandum
are "forward-looking statements" that involve significant risk and uncertainty. All materials or
documents supplied to prospective Noteholders by the Company, the Managing Member and
their respective affiliates, including any such pro forma financial information, should be considered
speculative and are qualified in their entirety by the assumptions, information and risks disclosed
{23647535;4} 38
in this Memorandum. The assumptions and facts upon which such financial information, if any,
is based are subject to variations that may arise as future events actually occur and to a complex
series of events, many of which are outside the control of the Company, the Managing Member
and their respective affiliates. Such pro forma financial information, to the extent any is provided,
is based on assumptions made by the Managing Member regarding future events. There is no
assurance that actual events will correspond with these assumptions. Actual results may differ
significantly.
CONFLICTS OF INTEREST
The financial interests of the principals of the Managing Member in the Company and
Integrity Aviation as well as fees payable to affiliates of the Managing Member in connection
with the Company's and Integrity's activities may create an incentive for the Company and
Integrity Aviation to engage in transactions that are riskier or not in the best interests of the
Noteholders.
Noteholders are entirely dependent upon the principals of the Managing Member and Integrity
Aviation to manage the Business. The financial interests of the principals of the Managing Member
in the Company and Integrity are dependent on revenues generated by the Company's and
Integrity's respective asset portfolios, and specifically that such revenues exceed expenses and
the amounts necessary to satisfy the Notes. Therefore, the financial interests of the principals of
the Managing Member in the Company and Integrity Aviation may create an incentive for the
principals of the Managing Member to cause the Company to acquire assets or enter into lease
agreements that are riskier than those that the Company would acquire or enter into in the
absence of such financial interests or otherwise to acquire assets or enter into lease agreements
not in the best interests of the Noteholders. This is particularly important due to the fact that
affiliates of the Managing Member will be receiving fees, commissions, and other compensation
with respect to the Company's activities whether or not the Notes are satisfied.
The Managing Member may form or control competing funds which may create conflicts
of interest in allocating opportunities among such funds.
Mr. Farias is not restricted from forming, investing in, managing, controlling, or otherwise
participating in other funds or businesses which have objectives the same as or substantially similar
to those of the Company. Conflicts of interest may arise in connection with the promotion of the
Company and such other funds to prospective investors (to the extent their offering periods
coincide) as well as the selection of assets and investment or business opportunities for the
Company and such other funds or the allocation of such assets and investment or business
opportunities among the Company and such other funds. The Noteholders will be relying upon
the Managing Member to act, in all instances, in the best interests of the Noteholders and to promote
the Company to prospective investors and to select the best assets and investment or business
opportunities for the Company, despite their interest in and relationships with other funds and
the inherent conflicts of interest arising therefrom.
The Managing Member's principals may have conflicts of interest in allocating their time
between the Business and their other activities.
Principals of the Managing Member are now and will continue to be engaged in other business
activities. The Company is not able to estimate the amount of time that such persons will devote
{23647535;4} 39
to the Business. As a result, they may have conflicts of interest in allocating their time between
the Business and these other activities. There can be no assurance that such principals will, at all
times, devote sufficient time to the Business.
Affiliates of the Managing Member may receive fees, commissions, reimbursements,
carried interests, and other compensation in connection with the Company's activities.
As more particularly discussed under the section above entitled "Affiliate Fees and
Transactions", affiliates of the Managing Member may receive fees, commissions,
reimbursements, carried interests, and other compensation in connection with the activities of the
Company. Such fees and other amounts will be paid whether or not the Notes are satisfied. Such
fees to affiliates create conflicts of interest, including an incentive for the principals of the
Managing Member to cause the Company to engage in transactions that are riskier than the
transactions in which they would engage in the absence of such compensation or otherwise to
engage in transactions that are not in the best interests of the Noteholders.
Transactions Among Affiliates.
The Company may engage in the various transactions described under the section above entitled
"Affiliate Fees and Transactions. These transactions will not be on arms'-length terms, and, in
the case of any transaction prices determined by independent third parties, such independent
third parties will be selected by the principals of the Managing Member. Further, to the extent
the Company engages in transactions with affiliates of the Managing Member, the Noteholders
will be relying on the principals of the Managing Member to protect the Company's interests and
to enforce its rights in the event of a dispute despite their inherent conflicts of interest, and no
assurance can be given that such conflicts will be resolved in favor of the Company and the
Noteholders.
The Company's and/or Integrity's ability to borrow additional funds increases risk to
Noteholders.
The principals of the Managing Member may cause the Company to borrow funds to increase the
number or aggregate amount of assets the Company acquires, in order to increase the financial
return to such principals (assuming all Notes are satisfied). However, this use of leverage, while
possibly allowing for greater returns to the principals of the Managing Member, may increase the
risk to Noteholders because of, among other things, their subordinated position in the collateral.
Accordingly, the incentive to increase leverage may conflict with the interests of Noteholders
and the Noteholders must therefore rely upon the judgment of the principals of the Managing
Member to prudently manage the use of such leverage in a way to minimize risk to Noteholders.
{23647535;4} 40
CAUTIONARY STATEMENTS CONCERNING TAX CONSEQUENCES
THE COMPANY ADVISES ALL PROSPECTIVE INVESTORS TO CONSULT THEIR OWN
TAX ADVISORS, WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION AND
THE POTENTIAL EFFECT OF APPLICABLE LAWS AND REGULATIONS. THIS
MEMORANDUM CONTAINS NO ANALYSIS OF, AND THE COMPANY PROVIDES NO
ADVICE CONCERNING, ANY OF THE POTENTIAL TAX CONSIDERATIONS AND
CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP OR DISPOSITION OF
THE NOTES. IN ADDITION, THE COMPANY HAS NOT OBTAINED, NOR DOES THE
COMPANY INTEND TO OBTAIN, A RULING FROM THE IRS OR AN OPINION OF
COUNSEL WITH RESPECT TO ANY TAX CONSEQUENCES OF PURCHASING,
OWNING OR DISPOSING OF THE NOTES. NEITHER THE COMPANY NOR THE
MANAGING MEMBER, OR COUNSEL OR ANY OTHER PROFESSIONAL ADVISORS
ENGAGED BY THE COMPANY, WILL ASSUME RESPONSIBILITY FOR THE TAX
CONSEQUENCES OF THIS TRANSACTION TO A NOTEHOLDER. IF YOU ARE
CONSIDERING THE PURCHASE OF A NOTE, YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF ACQUIRING,
HOLDING OR DISPOSING OF THE NOTES, INCLUDING THE EFFECT AND
APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.