Willis Lease Finance Corp · 10-K405 · For 12/31/96 · EX-10.16

Filed On 4/1/97   ·   SEC File 0-28774   ·   Accession Number 950005-97-379

Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report                                         46    272K 
 2: EX-10.5     Multi-Tenant Lease                                    45±   189K 
 3: EX-10.6     Second Addendum to Lease                               6     25K 
 4: EX-10.16    Material Contract                                     13     73K 
 5: EX-10.17    Material Contract                                     32±   139K 
 6: EX-11.1     Computation of Earnings                                1      9K 
 7: EX-27       Financial Data Schedule                                1      7K 

EX-10.16   ·   Material Contract
Exhibit Table of Contents

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                                                                   EXHIBIT 10.16

MASTER LOAN AND                                                                 
SECURITY AGREEMENT                                                [ * ]         

1.0      PARTIES, COLLATERAL AND OBLIGATIONS                                    

         1.1 This  Agreement  is dated as of  January  28,  1997.  For  valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
Willis  Lease  Finance  Corporation  ("Willis") & Terandon  Leasing  Corporation
("Terandon"),  as CoBorrowers (collectively referred to herein as "Debtor") with
offices at 180 Harbor Drive, Suite 200, Sausalito, California 94965 intending to
be legally bound,  hereby promises to pay to [ * ] (hereinafter  called "Secured
Party"),  any  amounts set forth on any  Schedule  to Master  Loan and  Security
Agreement hereunder (the "Schedule(s)",  all the terms of which are incorporated
herein) and Terandon hereby grants a security interest in and assigns, transfers
and sets over to Secured Party and to the  successors and assigns  thereof,  the
property  specified  in the  Exhibit  "A"  hereto  regarding  engines  hereunder
wherever located, and any and all proceeds thereof,  insurance  recoveries,  and
all replacements,  additions, accessions,  accessories and substitutions thereto
or therefor (hereinafter called the "Collateral"). The security interest granted
hereby is to secure payment of any and all  liabilities or obligations of Debtor
to the Secured  Party,  matured or  unmatured,  direct or indirect,  absolute or
contingent,  under this  Agreement  (all  hereinafter  called the  "obligations"
and/or the "liabilities").                                                      

         1.2  Assignment and Security  Interest.  Terandon  hereby  collaterally
assigns,  transfers  and sets over to Secured  Party,  and Secured  Party hereby
acknowledges  and consents to and takes  collateral  assignment of, the aircraft
engine lease agreements as fully described on Exhibit "A" hereto, (collectively,
the  "Leases")  and all of  Terandon's  right,  title and interest in and to the
property  leased pursuant to the Leases  (hereinafter  called the "Engines") and
all rights,  powers and remedies  therein.  Each lessee which is a party to each
such Lease (as  described  in more  detail on Exhibit  "A") shall be referred to
herein as a "Lessee."  Should an Event of Default (as defined  herein) occur and
continue,  and after all applicable  cure periods,  Secured Party shall have the
right, either in its own name, or in Terandon's name, to notify each Lessee that
Secured Party should  thereafter be regarded by such Lessee as Lessor under each
Lease and that  Terandon  shall no longer have any right title or interest in or
to such Lease,  except with  respect to  Terandon's  rights to recover from each
Lessee any payments arising from either the general or tax indemnity  provisions
of the Leases or payments pursuant to liability insurance proceeds.  Thereafter,
Secured Party may take any action under the provisions of the Leases as assignee
of Terandon's  interest in such Leases in accordance  with the terms thereof and
subject to the rights of each Lessee, and may release any rights against,  grant
extensions of time to, and compromise claims with, each Lessee and may repossess
and resell or release the Engines which are the subject thereof. Terandon and/or
Willis  will  reimburse  Secured  Party  for  all  expenses  of  collection  and
repossession  incurred by Secured Party in connection  with enforcing its rights
hereunder,  including  but not limited to,  reasonable  attorney's  fees,  court
costs,  expenses of  repossession  and sale and  interest  on overdue  payments.
Terandon  agrees that Secured Party may, upon  reasonable  prior notice and at a
reasonable  time,  audit Terandon's books and records relating to the Leases and
the Engines.                                                                    

         1.3 Joint and Several Liability; Payment Terms. All obligations to make
payments to Secured  Party  hereunder  shall be considered  as joint and several
obligations of both Willis and Terandon  regardless of the source of Collateral.
The  liability of Willis  hereunder  shall be limited to the  obligation to make
such  payments  in the event that  Terandon  fails to do so.  Except  insofar as
Willis  exercises  control over Terandon, Willis shall have no obligations  with
respect  to the  Collateral.  Interest  shall be  calculated  on the  basis of a
360-day  year.  All payments on any Schedule  hereunder  shall be made in lawful
money of the United States at the post office address of the Secured Party or at
such other place as the Secured  Party may  designate  to Debtor in writing from
time to time.  In no event shall any  Schedule  hereunder be enforced in any way
which permits Secured Party to collect interest in excess of the maximum lawful 
rate.  Should interest  collected  exceed such rate,  Secured Party shall refund
such excess interest to Debtor. In such event,  Debtor agrees that Secured Party
shall not be subject to any penalties for contracting for or collecting interest
in excess of the maximum lawful rate.                                           

         1.4 Late Charge.  If any of the  obligations  remains  overdue for more
than ten (10) days,  Debtor hereby agrees to pay on demand, as a late charge, an
amount  equal to the  lesser of (i) One  percent  (1.0%)  of each  such  overdue
amount;  or (ii) the maximum  percentage of any such overdue amount permitted by
applicable  law as a late  charge.  Debtor  agrees  that the amount of such late
charge  represents  a  reasonable  estimate  of the  cost to  Secured  Party  of
processing a delinquent payment and that the acceptance of any late charge shall
not constitute a waiver of default with respect to the overdue amount or prevent
Secured Party from exercising any other available rights and remedies.          

 [ * ]
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[ * ] Confidential Treatment Requested                                          

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2.0      WARRANTIES AND COVENANTS OF DEBTOR Debtor hereby represents,           
warrants and covenants that:                                  

         2.1  Business  Organization  Status and  Authority.  (i) Debtor is duly
organized,  validly existing and in good standing under the laws of the state of
its  incorporation;  (ii) Debtor has the lawful  power and  authority to own its
assets and to conduct the  business  in which it is engaged;  and to execute and
comply with the  provisions of this Agreement and any related  documents;  (iii)
the execution and delivery of this Agreement and any related documents have been
duly  authorized  by all  necessary  action;  (iv)  no  authorization,  consent,
approval, license or exemption of, or filing or registration with, any or all of
the owners of Debtor or any governmental  entity in the United States of America
was, is or will be necessary to the valid  execution,  delivery,  performance or
full  enforceability  of this  Agreement and any related  documents,  except for
appropriate  Federal  Aviation  Authority  filings and Uniform  Commercial  Code
filings.  Except as specifically  disclosed to Secured Party, Debtor utilizes no
trade  names in the  conduct of its  business  and/or has not  changed  its name
within the past five years.  Secured  Party is advised that Willis Lease Finance
Corporation  does business as The Willis Group and was formerly known as Charles
F. Willis Company.                                                              

         2.2 Merger;  Transfer of Assets.  Debtor will not  consolidate or merge
with or into any other entity, liquidate or dissolve,  distribute,  sell, lease,
transfer  or  dispose  of all of its  properties  or assets  or any  substantial
portion thereof other than in the ordinary course of its business, unless Debtor
shall advise Secured Party of such event, and the surviving, or successor entity
or the transferee of such assets, as the case may be, shall, at the time of such
event:  1) have a tangible  net worth which is equal to or greater  than that of
Debtor;  and,  2)  assume,  by a written  instrument  which is legal,  valid and
enforceable against such surviving or successor entity or transferee, all of the
obligations  of Debtor under this Agreement to Secured Party or any affiliate of
Secured Party.                                                                  

         2.3 No Violation of Covenants or Laws. Except as previously  disclosed,
Debtor  is not  party to any  agreement  or  subject  to any  restriction  which
materially and adversely  affects its ability to perform its  obligations  under
this Agreement and any related  documents.  The execution of and compliance with
the terms of this Agreement and any related  documents does not and will not (i)
violate any provision of law, or (ii) conflict with or result in a breach of any
order,  injunction,  or  decree of any court or  governmental  authority  or the
formation  documents of Debtor, or (iii) constitute or result in a default under
any agreement, bond or indenture by which Debtor is bound or to which any of its
property is subject, or (iv) result in the imposition of any lien or encumbrance
upon any of Debtor's assets, except for any liens created hereunder or under any
related documents.                                                              

         2.4  Accurate  Information.  To the  best of  Debtor's  knowledge,  all
financial  information submitted to the Secured Party in regard to Debtor or any
shareholder,  officer director,  member, or partner thereof, or any guarantor of
any of the  obligations  thereof,  was  prepared in  accordance  with  generally
accepted accounting principles,  consistently applied, and fairly and accurately
depicts the financial position and results of operations of Debtor or such other
person, as of the respective dates or for the respective  periods, to which such
information  pertains.  To the best of Debtor's  knowledge,  Debtor had good and
valid title to all the properties  and assets  reflected as being owned by it on
any balance sheets of Debtor  submitted to Secured Party as of the dates thereof
subject to the liens of  lenders  which  financed  specific  assets and  further
subject to the Leases described in 1.2 above.                                   

         2.5 Judgments; Pending Legal Action. There are no judgments outstanding
against Debtor, and there are no actions or proceedings  pending or, to the best
knowledge  of  Debtor,  threatened  against  or  affecting  Debtor or any of its
properties in any court or before any  governmental  entity which, if determined
adversely  to  Debtor,  would  result  in any  material  adverse  change  in the
business, properties or assets, or in the condition,  financial or otherwise, of
Debtor or would materially and adversely affect the ability of Debtor to satisfy
its obligations under this Agreement and any related documents.                 

         2.6 No Breach of Other Agreements;  Compliance with Applicable Laws. To
the best of  Debtor's  knowledge:  1) Debtor  is not in breach of or in  default
under  any  loan  agreement,   indenture,   bond,  note  or  other  evidence  of
indebtedness,  or any other material agreement or any court order, injunction or
decree or any lien,  statute,  rule or  regulation;  2) the operations of Debtor
comply  with  all  laws,  ordinances  and  governmental  rules  and  regulations
applicable  to them;  and, 3) Debtor has filed all Federal,  state and municipal
income  tax  returns  which are  required  to be filed and has paid all taxes as
shown on said  returns  and on all  assessments  billed to it to the extent that
such taxes or  assessments  have become  due.  Debtor does not know of any other
proposed tax assessment against it.                                             

[ * ] 

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[ * ] Confidential Treatment Requested                                          

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         2.7 Sale Prohibited.  Except as to the interest in the Engines conveyed
to the Lessees by virtue of the Leases and,  subject to the reasonable  approval
of  Secured  Party  any  future  leases,  Debtor  will not sell,  dispose  of or
otherwise  transfer the  Collateral or any interest  therein unless Debtor shall
remit to  Secured  Party  the pro  rata  share  of the  then  principal  balance
attributable to that item of Collateral.  All such future leases (along with all
current Leases) shall be referred to herein as "Leases". All such future lessees
(along with all current Lessees) shall be referred to herein as "Lessees".      

         2.8 Operation of  Collateral.  Within Thirty (30) days after the end of
each  calendar  quarter,  Debtor will  provide to Secured  Party the most recent
report received by Debtor from each Lessee as to the operation of each Engine.  

         2.9  Perfection  of  Security  Interest.  Except  for (i) the  security
interest  granted hereby and (ii) the interest  conveyed to Lessees by virtue of
the Leases and any  documents  relating  thereto,  Debtor is, to the best of its
knowledge,  the owner of the  Collateral  free from any adverse  lien,  security
interest or  encumbrance.  Debtor will defend the Collateral  against all claims
and demands of all persons at any time  claiming  any interest  therein.  At the
request of Secured  Party,  Debtor  will  execute,  acknowledge  and  deliver to
Secured  Party in  recordable  or fileable  form,  any  document  or  instrument
reasonably  required by Secured Party to further the purposes of this Agreement,
or to perfect its  interest in the  Collateral  or to  maintain  such  perfected
interest in full force and effect,  including (without limitation) any financing
statements and any amendments and  continuation  statements  thereto pursuant to
the Uniform Commercial Code, in form satisfactory to Secured Party, and will pay
the cost of filing the same or filing or recording  this Agreement in all public
offices wherever filing or recording is deemed by Secured Party to be reasonably
necessary.  Debtor hereby agrees that this  Agreement  shall be and constitute a
financing statement for purposes of the Uniform Commercial Code.                

         2.10 Insurance.  At its expense, Debtor shall maintain or shall require
each Lessee to maintain,  in force, at all times from delivery of the Engines to
Debtor and each Lessee until surrender thereof, insurance of types or amounts as
required under each Lease,  protecting Secured Party, as an additional  insured,
or loss payee,  or both at the option of the Secured  Party,  and  providing for
Thirty (30) days advance  written  notice to Secured  Party of  modification  or
cancellation; provided however, that if any notice period specified above is not
commercially  available,  such  policies  shall  provide for as long a period of
prior notice as is then commercially available.  Debtor shall within Thirty (30)
days of the date  hereof for Leases to domestic  Lessees  and within  Sixty (60)
days of the date  hereof  for  foreign  Lessees  (and,  in each  case,  annually
thereafter)  deliver to Secured Party  satisfactory  evidence of such  insurance
coverage. In the event Debtor fails to provide satisfactory evidence of coverage
within ten (10) days of a written request thereof by Secured Party, then Secured
Party may, at Secured Party's option,  in addition to any other rights available
to Secured Party,  obtain  coverage,  and any sum paid therefor by Secured Party
shall be immediately due and payable to Secured Party by Debtor.                

Without  limitation  of the  insurance  provisions  set  out  in  the  preceding
paragraph, it is agreed that Debtor will carry or cause to be carried at its own
or at each Lessee's expense:                                                    

     (a) Comprehensive   Airline  liability   (including,   without  limitation,
         passenger  legal  liability)  insurance and property  damage  insurance
         (exclusive of manufacturer's  product liability insurance) with respect
         to the Engines in an amount not less than  $20,000,000  per occurrence;
and,                                                          

     (b) Insurance against Loss or damage, consisting of all-risk hull insurance
         covering  the Engines,  and all-risk  coverage of the Engines and parts
         while removed from any aircraft and not replaced by similar components.
         Such  insurance  shall at times  while the  Engines are subject to this
         Agreement be for not less than  41,500,000.00  in the aggregate for all
         Engines or a lesser  amount  equal to the then  remaining  balance  due
hereunder.                                                    

Any policies  carried in  accordance  with this  section  shall name the Secured
Party  as an  additional  insured,  without  imposing  upon  Secured  Party  any
liability to pay premiums with respect to such insurance. If any material change
shall be made in the insurance  that  adversely  affects the interest of Secured
Party, any cancellation or change shall not be effective as to the Secured Party
for thirty (30) days after  receipt by Secured  Party of written  notice by such
insurer;  provided,  however,  that if any notice period  specified above is not
commercially  available,  such  policies  shall  provide for as long a period of
prior notice as is then commercially available.  Such insurance shall be primary
without any right of  contribution  from any other  insurance that is carried by
the Secured Party.                                                              

[ * ] 
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[ * ] Confidential Treatment Requested                                          

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         Insurance  payments for any property damage loss to the Engines will be
applied in payment for repairs or for replacement  property.  All such insurance
proceeds  remaining  after  compliance  with  this  section  will be paid to the
Debtor.  During  any  period  that  any  Engine  is in  storage  and  reasonable
precautions  have  been  taken to  insure  that the  Engine  will not be used or
operated without the insurance required hereunder,  Debtor may carry or cause to
be  carried,  in lieu  of the  insurance  otherwise  required  above,  insurance
otherwise  conforming  to that  carried by Debtor or each  Lessee  for  aircraft
engines similar to the Engines in similar storage. Such insurance shall be in an
amount equal to the lesser of the Initial  Principal  Balance  allocated to such
Engine as set forth on  Exhibit  "A" or the  amount  required  pursuant  to each
Lease.                                                                          

         2.11 Use,  Location and Maintenance of the  Collateral.  Debtor may use
and operate,  or permit the use and operation of, the Engines within and without
the  continental  limits of the United  States of America.  Debtor agrees not to
knowingly suffer the Engines to be maintained,  used or operated in violation of
any law or any rule, regulation or order of any domestic or foreign governmental
authority having  jurisdiction over the Engines or registration  relating to the
Engines  issued by any such  authority.  Debtor  also  agrees  not to suffer the
Engines to be used or operated,  in any area not fully covered by each insurance
policy in effect with respect to the Engines and  required by the terms  hereof.
At its own risk, Debtor shall use or permit the use of the Engines. Debtor shall
not use or  permit  the  use of the  Engines  in any  unintended,  injurious  or
unlawful manner and shall not change or alter or permit the change or alteration
of the Engines (except  pursuant to the Leases or future leases) without Secured
Party's written consent which shall not be unreasonably withheld. Debtor, at its
own cost and  expense,  shall  comply (or cause each Lessee to comply)  with all
applicable service, maintenance, repair and overhaul regulations, directives and
instructions   of  applicable   governmental   authority,   and  all  applicable
maintenance,   service,  repair  and  overhaul  manuals  and  service  bulletins
published by the manufacturers of the Engines or the accessories,  equipment and
parts  installed on the Engines.  Debtor shall maintain (or cause each Lessee to
maintain)  all records,  logs and other  materials  required by the  aeronautics
authority to be maintained in respect to the Engines after delivery,  regardless
of upon whom such  requirements are, by their terms,  normally  imposed.  Debtor
shall comply (or cause each Lessee to comply) with all laws of the  jurisdiction
in which the Engines  may be operated  and within all rules of the FAA and other
legislative,  executive, administrative or judicial body exercising any power or
jurisdiction over the Engines, to the extent that such laws and rules affect the
operation,  maintenance  or use of the  Engines.  In the event that such laws or
rules  require the  alteration  of the Engines,  Debtor shall  conform or obtain
conformance  therewith at no expense of Secured  Party,  and shall  maintain (or
cause each Lessee to maintain)  the Engines in proper  condition  for  operation
under  such laws and rules;  provided,  however,  that  Debtor may in good faith
contest,  or permit the Lessees to contest,  the validity and application of any
such law or rule in any  reasonable  manner which does not adversely  affect the
Engines or rights of Secured Party hereunder, or to the Engines. No technical or
non-substantial  non-compliance  with the provisions of this paragraph  shall be
deemed a  material  breach  if  Debtor  shall  have  obtained,  or  caused to be
obtained,   from  the  appropriate   authorities   permissions,   extensions  or
continuances.                                                                   

         2.12  Taxes  and  Assessments.  Debtor  will pay (or  cause to be paid)
promptly when due all taxes,  assessments,  levies, imposts, duties and charges,
of any kind or nature,  imposed upon the  Collateral or for its use or operation
or upon this Agreement or upon any instruments evidencing the obligations except
for (i) taxes on Secured  Party's net income,  or (ii) taxes being  contested in
good faith.                                                                     

         2.13  Financial  Statements.  Debtor  shall  furnish to Secured  Party,
within  sixty  (60)  days of the end of each  calendar  quarter,  the  Form  10Q
submitted by Debtor to the Securities and Exchange  Commission for that quarter.
Debtor shall furnish  Secured  Party within one hundred  twenty (120) days after
the close of each fiscal year of Debtor,  its financial  statements  (including,
without  limitation,  a balance sheet, a statement of income and surplus account
and a statement of changes in financial position) for the immediately  preceding
fiscal year,  setting forth the corresponding  figures for the prior fiscal year
in comparative  form,  all in reasonable  detail  without any  qualification  or
exception deemed material by Secured Party.  Such financial  statements shall be
prepared at least as a review by Debtor's independent certified accountants and,
if prepared as an audit,  shall be certified by such  accountants.  Debtor shall
also  furnish  Secured  Party with any other  financial  information  reasonably
deemed necessary by Secured Party. Each financial  statement submitted by Debtor
to Secured  Party  shall be  accompanied  by a  certificate  signed by the chief
executive officer, the chief operating officer or the chief financial officer of
Debtor,  certifying that (i) such financial statement was prepared in accordance
with generally accepted accounting  principles  consistently  applied and fairly
and  accurately  presents  the  Debtor's  financial  condition  and  results  of
operations  for the  period  to which  it  pertains,  and (ii)  that no Event of
Default  has  occurred  under  this  Agreement  during  the period to which such
financial statement pertains.                                                   

[ * ] 
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[ * ] Confidential Treatment Requested                                          

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3.0       EVENTS OF DEFAULT                                                     

         3.1 The following shall be considered Events of Default: (i) failure on
the  part of  Debtor  to  promptly  perform  in  complete  accordance  with  its
representations, warranties and covenants made in this Agreement, including, but
not limited to, the payment of any liability,  with interest, when due; (ii) the
dissolution of Debtor;  (iii) the filing of any petition or complaint  under the
Federal  Bankruptcy Code or other federal or state acts of similar nature, by or
against Debtor; or an assignment for the benefit of creditors by Debtor; (iv) an
application  for or the  appointment  of a  Receiver,  Trustee  or  Conservator,
voluntary or involuntary,  by or against Debtor or for any substantial assets of
Debtor;  (v)  insolvency of Debtor under either the Federal  Bankruptcy  Code or
applicable  principles  of  equity;  (vi)  entry of  judgment,  issuance  of any
garnishment or attachment, or filing of any lien, claim (which can be reasonably
substantiated) or government attachment against the Collateral in excess of Five
Million Dollars  ($5,000,000.00)  in the aggregate  which remains  undischarged,
unvacated,  unbonded,  or  unstayed  for more than  Thirty  (30)  days;  (vii) a
material  misrepresentation of fact has been made by Debtor in this Agreement or
in  any  writing  supplementary  or  ancillary  hereto;  or  (viii)  bankruptcy,
insolvency,  termination,  dissolution  or default of any  guarantor for Debtor.
Upon an Event of Default resulting from a material  misrepresentation by Debtor,
Secured  Party shall be entitled to exercise its remedies  immediately.  Upon an
Event of Default  resulting  from the failure on the part of Debtor in regard to
the payment of any liability  arising  hereunder  when due,  Secured Party shall
give Debtor ten (10) days written notice and an  opportunity  to cure.  Upon any
other  Event of Default as set forth  herein,  Secured  Party  shall give Debtor
thirty (30) days written notice and an opportunity to cure.                     

4.0      REMEDIES                                                               

         4.1 Upon the  happening  of any  Event of  Default  which is not  cured
within the applicable grace period and at any time thereafter and subject to the
Lessees'  rights under the Leases:  (i) all  liabilities of Debtor shall, at the
option of Secured Party, become immediately due and payable;  (ii) Secured Party
shall have and may exercise all of the rights and remedies  granted to a secured
party  under the Uniform  Commercial  Code;  (iii)  should such Event of Default
occur  during the first year of this  transaction  Secured  Party shall have the
right,  immediately,  and without notice or other action, to set-off against any
of Debtor's  liabilities to Secured Party the Cash Collateral (as defined in the
Schedule),  and Secured  Party shall be deemed to have  exercised  such right of
set-off and to have made a charge against any such Cash  Collateral  immediately
upon  the  occurrence  of  such  Event  of  Default  and the  expiration  of any
applicable  grace  period,  though  actual book entries may be made at some time
subsequent  thereto;  (iv) Secured  Party may proceed  with or without  judicial
process to take possession of all or any part of the  Collateral;  Debtor agrees
that upon receipt of notice of Secured  Party's  intention to take possession of
all or any part of said Collateral,  Debtor will do everything necessary to make
same available to Secured Party (including,  without limitation,  assembling the
Collateral  and making it available to Secured  Party at a place  designated  by
Secured Party which is reasonably  convenient to Debtor and Secured Party);  and
so long as Secured Party acts in a commercially reasonable manner, Debtor agrees
to assign,  transfer  and  deliver  at any time the whole or any  portion of the
Collateral  or any rights or  interest  therein in  accordance  with the Uniform
Commercial  Code and  without  limiting  the  scope of  Secured  Party's  rights
thereunder;  (v) Secured Party may sell the Collateral at public or private sale
or in any other  commercially  reasonable  manner  and, at the option of Secured
Party,  in bulk or in parcels and with or without  having the  Collateral at the
sale or  other  disposition,  and  Debtor  agrees  that in case of sale or other
disposition of the Collateral, or any portion thereof, Secured Party shall apply
all  proceeds  first  to  all  costs  and  expenses  of  disposition,  including
reasonable  attorneys'  fees, and then to Debtors  obligations to Secured Party;
(vi)  Secured  Party may elect to retain the  Collateral  or any part thereof in
satisfaction  of all sums due from  Debtor  upon  notice to Debtor and any other
party as may be required by the Uniform  Commercial Code. All remedies  provided
in this  paragraph  shall be  cumulative.  Secured Party may exercise any one or
more of such  remedies in addition to any and all other  remedies  Secured Party
may have under any applicable law or in equity.                                 

         4.2 Expenses;  Disposition.  Upon the occurrence of an Event of Default
and until same is cured,  all  amounts  due and to become due  hereunder  shall,
without  notice,  bear  interest at the lesser of (i) twelve  percent  (12%) per
annum or (ii) the maximum rate per annum which Secured Party is permitted by law
to charge from the date such  amounts are due until paid.  Debtor  shall pay all
reasonable  expenses  of  realizing  upon  the  Collateral  hereunder  upon  the
occurrence  of an Event of Default and the  expiration of any  applicable  grace
period and collecting all liabilities of Debtor to Secured Party, which expenses
shall include reasonable attorneys' fees, whether or not litigation is commenced
and  whether  incurred  at trial,  on appeal,  or in any other  proceeding.  Any
notification of a sale or other  disposition of Collateral or of other action by
Secured Party required to be given by Secured Party, will be sufficient if given
personally,  mailed,  or delivered by facsimile machine or overnight carrier not
less than five (5)  business  days  prior to the day on which such sale or other
disposition will be made or action taken, and such notification  shall be deemed
reasonable notice.                                                              

[ * ] 
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[ * ] Confidential Treatment Requested                                          

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                                                                               6
5.0       MISCELLANOUS                                                          

         5.1 No Implied Waivers;  Entire Agreement.  The waiver by Secured Party
of any default  hereunder or of any  provisions  hereof shall not  discharge any
party hereto from  liability  hereunder  and such waiver shall be limited to the
particular  event of default and shall not operate as a waiver of any subsequent
default.  This  Agreement  and any Schedule  hereunder  are  non-cancelable.  No
modification  of this  Agreement or waiver of any right of any party  hereunder 
shall be valid  unless in  writing  and signed by an  authorized  officer of the
parties hereto. No failure on the part of Secured Party to exercise, or delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right or remedy  hereunder  preclude
any other or further  exercise  thereof or the  exercise  of any other  right or
remedy.  This Agreement and any Schedule hereunder (a "Transaction")  embody the
entire  agreement  between the parties and  supersede all prior  agreements  and
understandings relating to the same subject matter.                             

         5.2 Choice of Law. This  Agreement and the rights of the parties hereto
shall  be  governed  by  applicable  Federal  law and the  laws of the  State of
California.  Any action arising out of this Agreement may be litigated under the
laws of California and submitted to the non-exclusive jurisdiction of the courts
of such state,  and that service of process by certified  mail,  return  receipt
requested, will be sufficient to confer personal jurisdiction over the Debtor.  

         5.3 Protection of the Collateral. At its option, upon the occurrence of
an Event of Default and the expiration of any applicable  grace period,  Secured
Party may discharge  taxes,  liens or other  encumbrances  at any time levied or
placed on the  Collateral,  may pay for insurance on the  Collateral and may pay
for the  maintenance  and  preservation  of the  Collateral.  Debtor  agrees  to
reimburse  Secured Party on demand for any payment made or any expense  incurred
by Secured Party pursuant to the foregoing authorization. Any such payments made
by Secured Party shall be  immediately  due and payable by Debtor and shall bear
interest at the rate of Twelve percent (12%) per annum.  Until the occurrence of
an Event of Default and the  expiration of any applicable  grace period,  Debtor
may retain  possession  of the  Collateral  and use it in any lawful  manner not
inconsistent  with the  provisions  of this  Agreement  and any other  agreement
between  Debtor  and  Secured  Party,  and not  inconsistent  with any policy of
insurance thereon.                                                              

         5.4 Binding Agreement;  Time of the Essence.  This Agreement shall take
effect as a sealed  instrument  and shall be binding upon and shall inure to the
benefit of the parties hereto, their respective  successors and assigns. Time is
of the essence with respect to the  performance  of Debtor's  obligations  under
this Agreement.                                                                 

         5.5 Enforceability.  Any term, clause or provision of this Agreement or
of  any  evidence  of  indebtedness  from  Debtor  to  Secured  Party  which  is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability  without invalidating
the remaining  terms or clauses of such  provision or the  remaining  provisions
hereof, and any such prohibition or  unenforceability  in any jurisdiction shall
not  invalidate or render  unenforceable  such term,  clause or provision in any
other jurisdiction.                                                             

         5.6 Notices.  Any notices or demands  required to be given herein shall
be given to the  parties in  writing  by  facsimile  with an  original  sent via
Federal Express (or other recognized  express carrier) or by United States first
class mail (express,  certified or otherwise) at the addresses set forth on page
1 of this  Agreement  or to such other  addresses  as the parties may  hereafter
substitute by written  notice given in the manner  prescribed in this  paragraph
via facsimile.                                                                  

         5.7 Discharge of the Agreement. This Agreement and the related Schedule
and all agreements  contained  herein and therein shall cease and terminate when
all the  obligations  of Debtor to Secured  Party  under the  Agreement  and the
Schedule have been  satisfied in full.  Upon such  termination  and cessation of
this  Agreement  and the  Schedule,  the Secured Party shall execute and deliver
such  instruments  as shall be  reasonably  requested  by  Debtor  (at  Debtor's
expense)  to  satisfy,  discharge,  release  and clear the public  record of the
security  interest  granted  to  Secured  Party  in the  Collateral  under  this
Agreement  and the  Schedule.  In  addition,  if an Engine is sold  pursuant  to
Section  2.7 of the  Agreement  or if the loan is  prepaid in part  pursuant  to
Section 6 of the Schedule and the  Schedule is  terminated  with respect to that
Engine  pursuant to Section 8 of the Schedule,  then Secured Party shall execute
and deliver  such  instruments  as shall be  reasonably  requested by Debtor (at
Debtor's expense) to satisfy, discharge,  release and clear the public record of
the security  interest  granted to Secured  Party in such Engine and any related
Lease.                                                                          

[ * ] 
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[ * ] Confidential Treatment Requested                                          

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                                                                               7
6.0 ASSIGNMENT                                                                  

         6.1 UPON THIRTY DAYS PRIOR NOTICE TO DEBTOR,  SECURED PARTY MAY SELL OR
ASSIGN ANY AND ALL RIGHT,  TITLE AND  INTEREST IT HAS IN THE  COLLATERAL  AND/OR
ARISING UNDER THIS AGREEMENT, SUBJECT TO AND IN ACCORDANCE WITH THE TERMS OF THE
LEASES AND ANY RELATED  DOCUMENTS.  DEBTOR SHALL,  UPON THE DIRECTION OF SECURED
PARTY:  1)  EXECUTE  ALL  DOCUMENTS  REASONABLY  NECESSARY  TO  EFFECTUATE  SUCH
ASSIGNMENT  AND, 2) PAY DIRECTLY AND  PROPERLY TO SECURED  PARTY'S  ASSIGNEE ALL
AMOUNTS  WHICH HAVE BECOME DUE UNDER THE ASSIGNED  AGREEMENTS.  SECURED  PARTY'S
ASSIGNEE  SHALL HAVE ANY AND ALL RIGHTS,  IMMUNITIES  AND  DISCRETION OF SECURED
PARTY  HEREUNDER AND SHALL BE ENTITLED TO EXERCISE ANY REMEDIES OF SECURED PARTY
HEREUNDER.  ALL REFERENCES HEREIN TO SECURED PARTY SHALL INCLUDE SECURED PARTY'S
ASSIGNEE (EXCEPT THAT SAID ASSIGNEE SHALL NOT BE CHARGEABLE WITH ANY OBLIGATIONS
OR LIABILITIES HEREUNDER OK IN RESPECT HEREOF).                                 

         6.2 NOTWITHSTANDING  THE FOREGOING,  SECURED PARTY SHALL NOT ASSIGN ITS
INTEREST HEREUNDER PRIOR TO JUNE 1, 1998 AND,  THEREAFTER,  SHALL NOT ASSIGN ITS
INTEREST HEREUNDER EXCEPT TO AN  "INSTITUTIONAL"  INVESTOR WHICH IS NOT A DIRECT
COMPETITOR  OF DEBTOR.  IN THE EVENT THAT  SECURED  PARTY  ASSIGNS ITS  INTEREST
HEREUNDER  TO MORE THAN ONE SUCH  INSTITUTIONAL  INVESTOR,  SECURED  PARTY SHALL
REMAIN RESPONSIBLE FOR SERVICING THIS AGREEMENT.                                

         6.3 EXCEPT AS OTHERWISE SET FORTH IN THIS  AGREEMENT,  DEBTOR SHALL NOT
ASSIGN OR IN ANY WAY  DISPOSE OF ALL OR ANY OF ITS RIGHTS OR  OBLIGATIONS  UNDER
THIS  AGREEMENT  OR ENTER INTO ANY  AGREEMENT  REGARDING  ALL OR ANY PART OF THE
COLLATERAL WITHOUT THE PRIOR WRITTEN CONSENT OF SECURED PARTY WHICH SHALL NOT BE
UNREASONABLY WITHHELD.                                                          

IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be duly
executed as of the day set forth above.                                         

[ * ]                                         WILLIS LEASE FINANCE CORPORATION  

                                     By: /s/ Charles F. Willis
                                         -----------------------------
                                         An Authorized Officer Thereof

                                  TERANDON LEASING CORPORATION

                                  By:   /s/  Charles F. Willis
                                         -----------------------------
                                         An Authorized Officer Thereof

[ * ] 
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[ * ] Confidential Treatment Requested                                          

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Exhibit A To Master Loan and Security Agreement 
Dated as of January 28, 1997 Between
Terandon Leasing Corporation and Willis Lease Finance Corporation as Debtor 
and 
[ * ] 

ENGINES 

Manufacturer            Model No. and Manufacturer's     Allocation of Initial  
------------            ----------------------------     ---------------------  
                      Serial No.                       Principal Balance and
                      ----------                       ---------------------
                                                 Cash Collateral
                                                 ---------------

General Electric         Model No. CF6-50C2                    4.82%            
Serial No. 455423             

Rolls Royce              Model No. RB-211-535-E-4              8.01%            
Serial No. 30771              

General Electric         Model No. CF6-50C2                    4.77%            
Serial No. 530114             

Pratt & Whitney          Model No. JT9D-7J                     5.88%            
Serial No. 685971             

Pratt & Whitney          Model No. JT9D-7J                     5.96%            
Serial No. P689462            

General Electric         Model No. CF6-80C2B6                 10.16%            
Serial No. 695444             

Pratt & Whitney          Model No. JT9D-7R4D                   5.83%            
Serial No. P709685            

Pratt & Whitney          Model No. JT8D-219                    5.90%            
Serial No. P718262            

CFM International        Model No. CFM 56-3B-2                 6.14%            
Serial No. 720190             

CFM International        Model No. CFM-56-3B2                  3.65%            
Serial No. 721397             

CFM International        Model No. CFM 56-3C-1                 4.68%            
Serial No. 725180             

CFM International        Model No. CFM-56-3B-2                 3.14%            
Serial No. 725192             

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[ * ] Confidential Treatment Requested                                          

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CFM International        Model No. CFM-56-3B2                  3.23%            
Serial No. 725557             

CFM International        Model No. CFM 56-5A3                 10.09%            
Serial No. 731570             

CFM International        Model No. CFM-56-3C1                  4.53%            
Serial No. 856173             
(Previous Serial No. 620173)  

CFM International        Model No. CFM-56-3C1                  4.45%            
Serial No. 856256             

General Electric         Model No. CF6-50C2                    4.84%            
Serial No. 455788             

Pratt & Whimey           Model No. JT8D-219                    3.91%            
Serial No. P718210D           

[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 

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(Pages 3, 4 and 5 of 5) [ * ]                                                   

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[ * ] Confidential Treatment Requested                                          

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SCHEDULE TO MASTER LOAN                                       [ * ]             
AND SECURITY AGREEMENT                                                          

Willis Lease Finance Corporation
& Terandon Leasing Corporation
180 Harbor Drive, Suite 200 
Sausalito, California 94965 

$41,500,000.00          Effective Date ______________    Loan Transaction Number

1. THIS  SCHEDULE is made between  Willis Lease  Finance  Corporation & Terandon
Leasing Corporation,  as Co-Debtors,  (referred to herein as "Debtor") and [ * ]
(which,  together with its successor  and permited  assigns,  will be called the
"Secured Party") pursuant to the Master Loan and Security  Agreement dated as of
January  28,  1997 (the "Loan  Agreement"),  the terms of which  (including  the
definitions) are incorporated  herein. If any terms hereof are inconsistent with
the terms of the Loan Agreement, the terms hereof shall prevail.                

2. FOR VALUE  RECEIVED,  Debtor  hereby  promises to pay to the order of Secured
Party the  principal  amount of Forty-One  Million,  Five  Hundred  Thousand and
00/100  Dollars  ($41,500,000.00)  with  interest on any  outstanding  principal
balance at the rate(s)  specified  herein from the  Effective  Date hereof until
this Schedule  shall have been paid in full,  in  accordance  with the following
payment schedule:  Eleven (11)  installments of $520,705.65 each,  including the
entire  amount of  interest  accrued on this  Schedule at the time of payment of
each  installment,  followed by one installment of approximately  $38,104,879.49
(the "Final  Installment"),  including the entire amount of interest  accrued on
this Schedule at the time of payment of such Final Installment (this Twelve (12)
month  period  shall be referred  to herein as the  "Initial  Term").  The first
payment shall be due on April 1, 1997 and a payment shall be due on the same day
of each succeeding month thereafter until the entire principal and interest have
been paid. The Final  Installment  shall be due on March 1, 1998. At the time of
the Final Installment hereon, all unpaid principal and interest shall be due and
owing. Each payment shall be applied first to accrued and unpaid interest,  and 
the balance to the  outstanding  principal  hereof.  Simultaneously  with and in
addition  to the first  installment  due  hereunder,  Debtor  shall pay per diem
interest  in the total  amount of  $65,372.63,  based upon per diem  interest of
$7,263.63 per day from February 20, 1997 through,  and  including,  February 28,
1997.                                                                           

3. EXTENDED TERM OPTION. Debtor may elect to pay the Final Installment over a 72
month term (the "Extended  Term").  Debtor shall notify Secured Party in writing
of such  election not less than Thirty (30) days prior to the date on which such
Final Installment is due. In connection with such notification, Debtor shall pay
to  Secured  Party a fee in the  amount  of .625%  of the  amount  of the  Final
Installment.  The first  payment  due during the  Extended  Term shall be due on
March 1,  1998  and a  payment  shall be due on the same day of each  succeeding
month  thereafter  until the entire  principal and interest have been paid.  The
final installment during the Extended Term shall be due on February 1, 2004.    

4 [ * ]                                                                         

5 FLOATING RATE ADJUSTMENTS.  During the Extended Term,  Secured Party may, from
time to time,  increase  or  decrease  the amount of unpaid  installments  to an
amount  Secured  Party deems  necessary  to amortize the  outstanding  principal
balance of this Schedule by the due date of the last installment.  Secured Party
shall  notify  Debtor  of  each  such  change  in  writing.  Whether  or not the
installment  amount is increased or  decreased,  Debtor  understands  that, as a
result of increases or decreases in the rate of interest in accordance herewith,
the Final  Installment  and/or the last installment due during the Extended Term
may be  substantially  more or  substantially  less than the  amount  originally
estimated.                                                                      

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[ * ] Confidential Treatment Requested                                          

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6.  PREPAYMENT.  This  Schedule  may be  prepaid in whole or in part at any time
without penalty. In connection with partial  prepayments,  Debtor shall remit to
Secured Party the pro rata share of the then principal  balance  attributable to
the item of  Collateral  with respect to which this  Schedule is being  prepaid.
Upon receipt of such partial  prepayment,  Secured Party shall remit to Debtor a
portion  of the  Cash  Collateral  (as  defined  in  Paragraph  9)  equal to the
percentage reduction in the then outstanding principal balance.                 

7. COLLATERAL DESCRIPTION.  The following property is hereby made Collateral for
all purposes under the Loan Agreement:                                          

     Those certain  Aircraft Engine Lease  Agreements  between  Terandon Leasing
     Corporation  as  Lessor  and  various  Lessees  (the  "Lessees")  all  more
     particularly  described on Exhibit "A" attached to the Loan  Agreement (the
     "Leases"),   and  related  schedules,   documents,  and  proceeds  thereof,
     including but not limited to, all rents, engine reserve payments,  security
     deposits  and all other  sums  whatsoever  payable  by Lessees to Lessor in
     regard to the following  Aircraft  Engines and subject to the rights of the
Lessees under such Leases.                                            

     Eighteen (18) Aircraft  Engines as more  particularly  described on Exhibit
     "A" (the "Engines") complete as equipped including, but not limited to, all
     accessories,   improvements,   components,   furnishings,    substitutions,
     additions, replacements, parts, tools, equipment, and books and records now
     or hereafter affixed to or used in connection with such Engines. As well as
     all income,  rents, lease payments,  rates, fees, accounts receivable,  and
     proceeds (including any recoveries from physical damage insurance), whether
     now  existing  or  hereafter  arising,  plus any and all  interest  in such
     Engines whether or not such Engines are or may be construed as inventory of
Terandon Leasing Corporation.                                         

8. ALLOCATION OF INITIAL PRINCIPAL BALANCE. Debtor and Secured Party agree that,
for purposes of this Schedule and the Loan Agreement,  each of the Engines shall
be valued at the amount set forth on Exhibit "A" and that,  Debtor may terminate
this  Schedule  with respect to any Engine by paying to Secured  Party an amount
equal to the  proportionate  share of that Engine to the total  amount  advanced
hereunder multiplied by the then outstanding principal balance of this Schedule.

9. CASH  COLLATERAL.  As additional  collateral  security for this  transaction,
Debtor hereby pledges to Secured Party all of Debtor's right, title and interest
in  and  to  the  amounts  deposited  in  an  account  titled  Terandon  Leasing
Corporation  Maintenance  Reserve Deposit Account,  Account Number  750-46051-2,
located at Marine Midland Bank,  Buffalo,  New York, ABA Number 021-001-088 (the
"Account").                                                                     

Immediately  following  funding by Secured  Party in the amount of  $41,500,000,
Debtor shall deposit with (or cause to be deposited  with) Secured Party the sum
of Eight Million Dollars  ($8,000,000) to be held by Secured Party as additional
collateral  security  for this  transaction  during the Initial  Term (the "Cash
Collateral").  Upon receipt of the Cash  Collateral  by Secured  Party,  Secured
Party  shall  advise  Marine  Midland  Bank that  Secured  Party has no  further
interest in the Account and  Debtor's  pledge of such  Account to Secured  Party
shall  terminate  without  any other or further  action on the part of Debtor or
Secured Party.                                                                  

The Cash  Collateral  is pledged by Debtor to Secured  Party as security for all
Debtor's  obligations  during the Initial Term under the Loan Agreement and this
Schedule. In the event that, during the Initial Term, an Event of Default should
occur and continue beyond any applicable  grace period,  Secured Party may apply
the  Cash  Collateral  to  cure  any  such  Event  of  Default,  and  upon  such
application, Debtor shall immediately restore to Secured Party the full value of
such Cash Collateral.  At the end of the Initial Term, Secured Party shall apply
the Cash Collateral against the Final Installment unless Debtor elects to extend
the term hereof.  At the commencement of the Extended Term,  Secured Party shall
have the option to either reduce the opening  principal  balance of the Extended
Term by the  amount of the Cash  Collateral  or to  transfer  such  amount to an
account in the name of Debtor, to be pledged by Debtor to Secured Party and held
by Secured Party as an Engine Reserve.                                          

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                                                                               3

10.  ENGINE  RESERVES.  During the Initial  Term,  Debtor shall  collect and use
engine  reserve  payments  from  each  Lessee in  accordance  with the terms and
conditions  of each  Lease and Debtor  shall  provide  to  Secured  Party,  on a
quarterly basis, an accounting of all receipts and disbursements in this regard.
As set  forth  above,  at  the  commencement  of the  Extended  Term,  the  Cash
Collateral  may, at the option of Secured  Party,  be combined  with such engine
reserve  payments.  The share of the Cash Collateral  which has been remitted to
Debtor  by each  Lessee  is set  forth on  Exhibit  "A."  The  total of the Cash
Collateral  and any  engine  reserve  payments  collected  by Debtor  during the
Initial  Term but not used by Debtor  shall be referred to herein as the "Engine
Reserve." The Engine Reserve shall be allocated among the Engines and the Leases
subject to the rights of the Lessees under the Leases. Such Engine Reserve shall
be held at [ * ] and  shall  be  pledged  in  support  of  Debtor's  obligations
hereunder.  At least  Thirty  (30) days  prior to the end of the  Initial  Term,
Debtor and  Secured  Party shall enter into an Engine  Reserve  Agreement  which
shall specify the terms and conditions governing the use of such Engine Reserve.

11. ENGINE  APPRAISAL.  On of before each anniversary date of the Extended Term,
Debtor shall provide to Secured Party, at Debtor's sole expense, an appraisal of
the Engines conducted by a qualified appraiser reasonably  acceptable to Secured
Party.  In the event that such  appraisal  indicates  that the total  "Half Life
Liquidation  Value" of the Engines is less than the then  outstanding  principal
balance  hereunder,  Debtor shall remit to Secured Party an amount  necessary to
reduce the then outstanding principal balance to such appraisal value.          

12. [ * ]                                                                       

13. PAY PROCEEDS  INSTRUCTIONS.  Debtor hereby instructs and authorizes  Secured
Party to disburse the proceeds to be funded hereunder as follows:               

$41,500,000.00 to Marine Midland Bank, Buffalo, New York, ABA Number 021-001-088

IN WITNESS  WHEREOF,  Debtor has  executed  this  Schedule as of the 28th day of
January, 1997.                                                                  

[ * ]                                      WILLIS LEASE FINANCE CORPORATION     

                                   By: /s/ Charles F. Willis
                                       -----------------------------
                                       An Authorized Officer Thereof

                                  TERANDON LEASING CORPORATION

                                 By:   /s/ Charles F. Willis
                                         -----------------------------
                                         An Authorized Officer Thereof

-------------                                                                   
[ * ] Confidential Treatment Requested                                          

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K405 Filing		Date		First		Last			Other Filings
For The Period Ended		12/31/96							10-K405/A
		1/28/97		1		11
		2/20/97		11
		2/28/97		11
Filed As Of		3/31/97							10-Q
Filed On		4/1/97		11
		3/1/98		11
		6/1/98		7
		2/1/4		11
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