UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___to___
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Commission File No. 2-91762
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POLARIS AIRCRAFT INCOME FUND I
State of Organization: California
IRS Employer Identification No. 94-2938977
201 Mission Street, 27th Floor, San Francisco, California 94105
Telephone - (415) 284-7400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X_ No___
This document consists of 16 pages.
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POLARIS AIRCRAFT INCOME FUND I
FORM 10-Q - For the Quarterly Period Ended March 31, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 1996 and
December 31, 1995..............................................3
b) Statements of Operations - Three Months Ended
March 31, 1996 and 1995........................................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1995
and Three Months Ended March 31, 1996..........................5
d) Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995..................................6
e) Notes to Financial Statements..................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............11
Part II. Other Information
Item 1. Legal Proceedings..........................................13
Item 6. Exhibits and Reports on Form 8-K...........................15
Signature...........................................................16
2
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Part 1. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND I
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 7,594,948 $ 9,807,315
RENT AND OTHER RECEIVABLES, net of
allowance for credit losses of $1,120,712 in 1996
and $811,131 in 1995 58,051 32,863
NOTES RECEIVABLE, net of allowance for
credit losses of $144,884 in 1996 and 1995 1,002,852 1,040,505
AIRCRAFT, net of accumulated depreciation of
$19,480,915 in 1996 and $19,166,733 in 1995 5,093,934 5,408,116
------------ ------------
$ 13,749,785 $ 16,288,799
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 48,868 $ 51,757
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 194,758 98,410
LESSEE SECURITY DEPOSITS 145,925 145,925
MAINTENANCE RESERVES 2,371,776 2,165,714
------------ ------------
Total Liabilities 2,761,327 2,461,806
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (618,691) (590,280)
Limited Partners, 168,729 units
issued and outstanding 11,607,149 14,417,273
------------ ------------
Total Partners' Capital 10,988,458 13,826,993
------------ ------------
$ 13,749,785 $ 16,288,799
============ ============
The accompanying notes are an integral part of these statements.
3
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1996 1995
---- ----
REVENUES:
Rent from operating leases $ 508,900 $ 509,250
Interest 124,793 119,298
Claims related to lessee defaults -- 9,698
Other 153,720 102,297
--------- ---------
Total Revenues 787,413 740,543
--------- ---------
EXPENSES:
Depreciation 314,182 310,294
Management fees to general partner 10,500 25,462
Provision for credit losses 309,581 --
Operating 148,430 13,695
Administration and other 31,105 38,281
--------- ---------
Total Expenses 813,798 387,732
--------- ---------
NET INCOME (LOSS) $ (26,385) $ 352,811
========= =========
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 252,804 $ 146,933
========= =========
NET INCOME (LOSS) ALLOCATED TO
LIMITED PARTNERS $(279,189) $ 205,878
========= =========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (1.65) $ 1.22
========= =========
The accompanying notes are an integral part of these statements.
4
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1994 $ (578,793) $ 15,553,044 $ 14,974,251
Net income 147,868 298,425 446,293
Cash distributions to partners (159,355) (1,434,196) (1,593,551)
------------ ------------ ------------
Balance, December 31, 1995 (590,280) 14,417,273 13,826,993
Net income (loss) 252,804 (279,189) (26,385)
Cash distributions to partners (281,215) (2,530,935) (2,812,150)
------------ ------------ ------------
Balance, March 31, 1996 $ (618,691) $ 11,607,149 $ 10,988,458
============ ============ ============
The accompanying notes are an integral part of these statements.
5
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POLARIS AIRCRAFT INCOME FUND I
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ (26,385) $ 352,811
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 314,182 310,294
Provision for credit losses 309,581 --
Changes in operating assets and liabilities:
Decrease (increase) in rent and other receivable (334,769) 306,618
Decrease in payable to affiliates (2,889) (33,159)
Increase (decrease) in accounts payable and
accrued liabilities 96,348 (10,701)
Increase in lessee security deposits -- 70,925
Increase in maintenance reserves 206,062 184,129
----------- -----------
Net cash provided by operating activities 562,130 1,180,917
----------- -----------
INVESTING ACTIVITIES:
Principal payments on note receivable 37,653 28,243
Net proceeds from sale of aircraft inventory -- 110,004
----------- -----------
Net cash provided by investing activities 37,653 138,247
----------- -----------
FINANCING ACTIVITIES:
Cash distributions to partners (2,812,150) (1,593,551)
----------- -----------
Net cash used in financing activities (2,812,150) (1,593,551)
----------- -----------
CHANGES IN CASH AND CASH
EQUIVALENTS (2,212,367) (274,387)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,807,315 7,486,952
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,594,948 $ 7,212,565
=========== ===========
The accompanying notes are an integral part of these statements.
6
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POLARIS AIRCRAFT INCOME FUND I
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Principles and Policies
In the opinion of management, the financial statements presented herein include
all adjustments, consisting only of normal recurring items, necessary to
summarize fairly Polaris Aircraft Income Fund I's (the Partnership's) financial
position and results of operations. The financial statements have been prepared
in accordance with the instructions of the Quarterly Report to the Securities
and Exchange Commission (SEC) Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1995, 1994, and
1993 included in the Partnership's 1995 Annual Report to the SEC on Form 10-K
(Form 10-K).
Aircraft and Depreciation - The aircraft are recorded at cost, which includes
acquisition costs. Depreciation to an estimated residual value is computed using
the straight-line method over the estimated economic life of the aircraft which
was originally estimated to be 12 years. Depreciation in the year of acquisition
was calculated based upon the number of days that the aircraft were in service.
The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's economic life based on estimated
residual values obtained from independent parties which provide current and
future estimated aircraft values by aircraft type. For any downward adjustment
in estimated residual value or decrease in the projected remaining economic
life, the depreciation expense over the projected remaining economic life of the
aircraft is increased.
If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, an impairment
loss is recognized. Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 121, as discussed below, measurement of an impairment loss will be
based on the "fair value" of the asset as defined in the statement.
Capitalized Costs - Aircraft modification and maintenance costs which are
determined to increase the value or extend the useful life of the aircraft are
capitalized and amortized using the straight-line method over the estimated
useful life of the improvement. These costs are also subject to periodic
evaluation as discussed above.
Financial Accounting Pronouncements - SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Partnership to disclose the fair
value of financial instruments. Cash and cash equivalents is stated at cost,
which approximates fair value. The fair value of the Partnership's notes
receivable is estimated by discounting future estimated cash flows using current
interest rates at which similar loans would be made to borrowers with similar
credit ratings and remaining maturities. The carrying value of the maintenance
cost sharing note receivable from Nations Air Express, Inc. (Nations Air), as
discussed in Note 2, approximates its estimated fair value. The carrying value
of the engine finance note receivable from Viscount Air Service, Inc. (Viscount)
discussed in Note 2 approximates the estimated fair value of the collateral. The
carrying value of the line of credit note receivable from Viscount, which is
guaranteed by certain affiliates of the principal shareholder of Viscount as
discussed in Note 2, approximates its estimated fair value. The carrying value
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of the rents receivable and maintenance cost sharing note receivable from
Viscount is zero due to a recorded allowance for credit losses equal to the
balance of these outstanding amounts. As of March 31, 1996 and December 31,
1995, the estimated fair value of these receivables from Viscount were also
zero.
The Partnership adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of January 1,
1996. This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Partnership estimates that this pronouncement will
not have a material impact on the Partnership's financial position or results of
operations unless events or circumstances change that would cause projected net
cash flows to be adjusted. No impairment loss was recognized by the Partnership
during the first quarter of 1996.
2. Viscount Default and Bankruptcy Filing
As discussed in the Form 10-K, in July 1994, the Partnership entered into a
restructuring agreement with Viscount to defer certain rents due the Partnership
which aggregated $753,200; to extend a line of credit to Viscount for a total of
$486,000 to be used primarily for maintenance expenses relating to the
Partnership's aircraft; and to give the Partnership the option to acquire
approximately 2.3% of the issued and outstanding shares of Viscount stock as of
July 26, 1994 for an option price of approximately $349,000. It was not
practicable to estimate the fair value of the stock options as of March 31,
1996, as they are not publicly traded, although Viscount's recent bankruptcy
filing (as discussed below) would have an adverse impact on the value of the
stock options, if any.
The deferred rents, which were being repaid by Viscount with interest at a rate
of 6% per annum over the remaining terms of the leases, were recognized as
revenue in the period earned. The unpaid balance of the deferred rents, which is
reflected in rent and other receivables in the March 31, 1996 and December 31,
1995 balance sheets, before the allowance for credit losses as discussed below,
was $528,163. The line of credit, which was advanced to Viscount during 1994,
was being repaid by Viscount over a 30-month period, beginning in January 1995,
with interest at a rate of 11.53% per annum. The line of credit balance of
$339,223, plus accrued interest, is reflected as notes receivable in the March
31, 1996 and December 31, 1995 balance sheets.
During 1995, the Partnership had been in discussions with Viscount to
restructure additional existing financial obligations of Viscount to the
Partnership. While such discussions were underway, Viscount had undertaken to
pay in full, by the end of each month, beginning in June 1995, the current
month's obligations by making partial periodic payments during that month.
Viscount is presently in default on its financial obligations to the
Partnership. On December 13, 1995, the Partnership issued a notice of default to
Viscount demanding, within 10 days, full payment of all delinquent amounts due
the Partnership. On January 9, 1996, Viscount was notified that the Partnership
had elected to terminate the leases and the Partnership demanded return of the
aircraft. On January 24, 1996, Viscount filed a petition for protection under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court in Tucson, Arizona. Viscount presently has possession of the Partnership's
aircraft and engines. Legal counsel has been retained and the general partner is
evaluating the rights, remedies and courses of action available to the
Partnership with respect to Viscount's default and bankruptcy filing. Although
payments from Nations Air for the aircraft sub-leased from Viscount continue to
be paid directly to the Partnership, the Partnership has received no additional
payments directly from Viscount during the first quarter of 1996. The
Partnership has received certain payments from Viscount subsequent to March 31,
1996 as discussed in Note 4. The Partnership's termination of the Viscount
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leases (which is disputed by Viscount) and Viscount's Chapter 11 bankruptcy
filing, create uncertainty as to the status of the Nations Air sub-lease.
The Partnership's three Boeing 737-200 commercial jet aircraft and two of its
five spare engines were on lease to Viscount prior to the lease termination
notifications. Viscount had sub-leased one of the Partnership's aircraft to
Nations Air through February 1998. Payments from Nations Air are paid directly
to the Partnership. In addition to the two spare engines on lease to Viscount,
one spare engine was sold to Viscount in November 1995. The payments on the
engine finance sale note receivable from Viscount are also in default. As of
March 31, 1996, the Partnership's aggregate rent, loan and interest receivable
from Viscount was approximately $2.1 million. In addition, delinquent
maintenance reserves and advances against future maintenance reserves due from
Viscount aggregate approximately $1.0 million as of March 31, 1996 for a total
of approximately $3.1 million in outstanding obligations. All payments, whether
due from Viscount directly or indirectly from Nations Air, may be affected by
Viscount's filing for protection under Chapter 11.
The engine finance sale note receivable, which has a balance of approximately
$455,000 plus accrued interest at March 31, 1996 and December 31, 1995, is
secured by the engine. The balance of the line of credit advanced to Viscount in
1994 of approximately $339,000 at March 31, 1996 and December 31, 1995, plus
accrued interest, is guaranteed by certain affiliates of the principal
shareholder of Viscount. An allowance for credit losses has not been provided
for these notes. The Partnership has recorded an allowance for credit losses for
the remaining unsecured receivable balances from Viscount for the aggregate of
the unpaid rents, outstanding deferred rent balance and accrued interest of
$1,120,712 and $811,131 as of March 31, 1996 and December 31, 1995,
respectively. In addition, the Partnership recorded an allowance for credit
losses as of December 31, 1995 equal to the outstanding principal balance of
$144,884 for the maintenance cost sharing note receivable from Viscount.
Viscount's failure to perform on its financial obligations with the Partnership
will have a material adverse effect on the Partnership's financial position. As
a result of Viscount's defaults and Chapter 11 bankruptcy filing, the
Partnership has incurred legal costs of approximately $146,000, which are
reflected in operating expense in the Partnership's statement of operations for
the three months ended March 31, 1996. The Partnership may incur maintenance,
remarketing, transition and additional legal costs related to the Partnership's
aircraft and engines, which cannot be estimated at this time. The outcome of
Viscount's Chapter 11 proceeding cannot be predicted. A further discussion of
the Viscount situation subsequent to March 31, 1996 is discussed in Note 4.
3. Related Parties
Under the Limited Partnership Agreement, the Partnership paid or agreed to pay
the following amounts for the current quarter to the general partner, Polaris
Investment Management Corporation, in connection with services rendered or
payments made on behalf of the Partnership:
Payments for
Three Months Ended Payable at
March 31, 1996 March 31, 1996
-------------- --------------
Aircraft Management Fees $ 6,541 $ 5,958
Out-of-Pocket Administrative Expense
Reimbursement 75,527 42,910
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 24,273 --
-------- --------
$106,341 $ 48,868
======== ========
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4. Subsequent Event
Viscount Chapter 11 Bankruptcy - On or about April 15, 1996, GE Capital Aviation
Services, Inc., on behalf of the Partnership and Polaris Holding Company,
Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund IV, and Polaris
Aircraft Investors XVIII, First Security Bank of Utah, National Association, the
owner/trustee in relation to the Partnership's aircraft, Viscount, and others
executed a Compromise of Claims and Stipulation under Section 1110 of the United
States Bankruptcy Code (the Compromise and Stipulation). The Compromise and
Stipulation, which remains subject to court approval, is described in the Legal
Proceedings section (Part II, Item 1). A hearing to consider approval of the
Compromise and Stipulation has been scheduled for May 14, 1996. The
Partnership's claims for past due amounts under the aircraft leases, as well as
its other claims, will be addressed under Viscount's plan of reorganization,
which must be filed by June 30, 1996, and confirmed by September 30, 1996, or in
accordance with bankruptcy distribution rules.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Polaris Aircraft Income Fund I (the Partnership) owns a portfolio of three used
Boeing 737-200 commercial jet aircraft, five spare engines and certain
inventoried aircraft parts out of its original portfolio of eleven aircraft. The
three aircraft are currently in the possession of Viscount Air Services, Inc.
(Viscount) which defaulted on it's obligations to the Partnership and
subsequently filed for Chapter 11 bankruptcy protection in January 1996 as
discussed below. Viscount has sub-leased one of these aircraft to Nations Air
Express, Inc. (Nations Air) through February 1998 as discussed below. The
Partnership leased three spare engines to CanAir Cargo Ltd. (CanAir). In
addition, the Partnership transferred four aircraft to aircraft inventory during
1992 and 1993. These aircraft have been disassembled for sale of their component
parts. Two engines from these aircraft remain in the possession of Viscount. One
additional engine from these aircraft was sold to Viscount during 1995. The
Partnership has sold three aircraft and one airframe from its original aircraft
portfolio: a Boeing 737-200 Convertible Freighter in 1990, a McDonnell Douglas
DC-9-10 in 1992, a Boeing 737-200 in 1993 and the airframe from a Boeing 737-200
aircraft in April 1995.
Partnership Operations
The Partnership recorded a net loss of $26,385, or $1.65 per limited partnership
unit, for the three months ended March 31, 1996, compared to net income of
$352,811 or $1.22 per unit for the same period in 1995. The decline in operating
results during the first quarter of 1996, as compared to the same period in
1995, is the result of a provision for credit losses recorded by the Partnership
in the first quarter of 1996 for certain rent and interest receivables from
Viscount combined with legal expenses incurred during the first quarter of 1996
related to the Viscount default and Chapter 11 bankruptcy filing.
The Partnership has recorded an allowance for credit losses during the first
quarter of 1996 for certain unpaid rent and accrued interest receivables from
Viscount recognized during the first quarter of 1996 as a result of Viscount's
default on certain obligations due the Partnership and Viscount's subsequent
bankruptcy filing. The aggregate allowance for credit losses of $309,581 for
these obligations is reflected as a provision for credit losses in the
Partnership's statement of operations for the three months ended March 31, 1996.
In addition, the Partnership recognized legal expenses of approximately $146,000
related to the Viscount default and Chapter 11 bankruptcy filing. These legal
costs are included in operating expense in the Partnership's statement of
operations for the three months ended March 31, 1996.
Liquidity and Cash Distributions
Liquidity - On January 24, 1996, Viscount filed a petition for protection under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court in Tucson, Arizona. Legal counsel has been retained and the general
partner is evaluating the rights, remedies and courses of action available to
the Partnership with respect to Viscount's default and bankruptcy filing. All
amounts, whether due from Viscount directly, or indirectly from Nations Air, may
be affected by Viscount's filing for protection under Chapter 11.
As of March 31, 1996, the Partnership's aggregate rent, loan and interest
receivable from Viscount was approximately $2.1 million. In addition, delinquent
maintenance reserves and advances against future maintenance reserves due from
Viscount aggregated approximately $1.0 million as of March 31, 1996 for a total
of approximately $3.1 million in outstanding obligations. Viscount's failure to
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perform on its financial obligations with the Partnership will have a material
adverse effect on the Partnership's financial position. As a result of
Viscount's defaults and Chapter 11 bankruptcy filing, the Partnership has
incurred legal costs of approximately $146,000 and may incur maintenance,
remarketing, transition and additional legal costs related to the Partnership's
aircraft and engines. A further discussion of the Viscount situation is included
in the Legal Proceedings section (Part II, Item 1).
The Partnership receives maintenance reserve payments from its lessees that may
be reimbursed to the lessee or applied against certain costs incurred by the
Partnership for maintenance work performed on the Partnership's aircraft or
engines, as specified in the leases. Maintenance reserve balances remaining at
the termination of the lease, if any, may be used by the Partnership to offset
future maintenance expenses or recognized as revenue. The net maintenance
reserves balances aggregate $2,371,776 as of March 31, 1996.
The Partnership's cash reserve balance is being retained to cover the costs that
the Partnership may incur relating to the Viscount default and bankruptcy,
including additional legal costs, potential aircraft maintenance, remarketing
and transition costs.
Cash Distributions - Cash distributions to limited partners were $2,530,935, or
$15.00 per limited partnership unit and $1,434,196, or $8.50 per unit for the
first quarters of 1996 and 1995, respectively. The timing and amount of future
cash distributions to partners are not yet known and will depend upon the
Partnership's future cash requirements, including the costs that will be
incurred relating to the Viscount default and bankruptcy, the receipt of
delinquent and current rental and loan payments from Viscount and the receipt of
rental payments from CanAir.
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Part II. Other Information
---------------------------
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund I's (the
Partnership) 1995 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K), there are a number of pending legal actions or
proceedings involving the Partnership. Except as described below, there have
been no material developments with respect to any such actions or proceedings
during the period covered by this report.
Viscount Air Services, Inc. (Viscount) Bankruptcy - On January 24, 1996,
Viscount filed a petition for protection under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
Arizona. The Partnership leases three aircraft and one spare aircraft engine
directly to Viscount and leases a second aircraft engine to Viscount through a
joint venture with Polaris Aircraft Income Fund II. In addition, Polaris Holding
Company, Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund IV, and
Polaris Aircraft Investors XVIII (collectively, Polaris Entities) lease a total
of seven other aircraft to Viscount. GE Capital Aviation Services, Inc. (GECAS),
on behalf of the Partnership and the Polaris Entities, delivered a letter of
termination to Viscount prepetition, notifying Viscount of the termination of
the aircraft and engine leases. Viscount disputes the effectiveness of the
termination and currently has possession of the aircraft and engines. Pursuant
to various agreements between Viscount and the Polaris Entities, the aggregate
outstanding obligations between Viscount and the Polaris Entities is estimated
to be approximately $11.5 million, of which approximately $3.1 million
represents indebtedness to the Partnership.
As of March 31, 1996, Viscount was in default under the aircraft and engine
leases in the approximate aggregate amount of $1.6 million. In addition,
Viscount is indebted to the Partnership under a Restructuring and Loan Agreement
(Loan Agreement), dated July 20, 1994, for amounts related to a line of credit
and deferred rent obligation under the leases. As of March 31, 1996, Viscount
was indebted to the Partnership in the approximate amount of $339,000 on the
line of credit and $528,000 on deferred rent obligations. The Partnership
entered into an Aircraft Engine Sale Agreement, dated as of November 1, 1995
(Engine Sale Agreement) whereby it sold one engine to Viscount. The principal
balance owing to the Partnership under the Engine Sale Agreement as of March 31,
1996 was approximately $455,000. In addition, the Partnership, Viscount and
Nations Air Express, Inc. (Nations Air) entered into a cost sharing agreement,
dated as of October 20, 1995 (the Sharing Agreement), whereby the parties
reached certain agreements regarding, among other matters, the sharing of the
cost of performing a D Check on the Partnership's aircraft subleased to Nations
Air. As of March 31, 1996, Viscount was indebted to the Partnership under the
Sharing Agreement in the approximate amount of $145,000. Viscount's total
outstanding obligations to the Partnership as of March 31, 1996, were
approximately $3.1 million.
On or about April 15, 1996, GECAS, on behalf of the Partnership and the Polaris
Entities, First Security Bank of Utah, National Association, the owner/trustee
in relation to the Partnership's aircraft, Viscount, and others executed a
Compromise of Claims and Stipulation under Section 1110 of the United States
Bankruptcy Code (the Compromise and Stipulation). The Compromise and
Stipulation, which remains subject to court approval, provides, among other
things, for: (i) Viscount's rejection of the lease with the joint venture
between the Partnership and Polaris Aircraft Income Fund II which covers one of
the Partnership's engines; (ii) Viscount's continued use of the Partnership's
three aircraft (the Compromise and Stipulation does not deal with the
directly-leased engine), subject to complying with the terms of the leases and
the Compromise and Stipulation; (iii) Viscount's acknowledgment that the
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aircraft leases with the Partnership are valid leases, and that the Partnership
possesses in respect of such leases the rights of a secured party or lessor
under Section 1110 of the United States Bankruptcy Code; (iv) Viscount's
acknowledgment and stipulation as to the amount of certain monetary defaults
under the aircraft leases through March 31, 1996; (v) Viscount's agreement to
resume monthly rent and maintenance reserve payments effective April 1, 1996, at
the contract rates, subject to certain rent increases (as discussed below); (vi)
Viscount's agreement to an increase in the per hour maintenance reserve amounts
and return rate amounts under the aircraft leases, effective April 1, 1996;
(vii) an assignment from certain of Viscount's guarantors under the Loan
Agreement of security interests in Viscount assets that will provide further
security for Viscount's indebtedness to the Partnership under the Loan
Agreement; (viii) a release by Viscount of claims against GECAS, the Partnership
and the Polaris Entities; and (ix) a release by GECAS, the Partnership, and the
Polaris Entities of Viscount's guarantors with respect to the Loan Agreement
(the guarantor's collateral for the obligations on the line of credit are being
substituted by the assignments referenced in (vii) above). The present contract
rate on each of the aircraft is $40,000 per month. The Compromise and
Stipulation provides for an increase in the monthly rent obligations to $50,000
commencing June 1, 1996, and to $60,000 commencing October 1, 1996, subject to
Bankruptcy Court approval. The rejection of the joint venture lease will give
rise to a prepetition claim in favor of the Partnership in Viscount's bankruptcy
for breach of contract damages.
On April 15, 1996, pursuant to the Compromise and Stipulation, Viscount resumed
payments under the aircraft leases effective April 1, 1996. The Compromise and
Stipulation further provides that the Partnership may exercise its rights to
take back the aircraft, if, after its approval, Viscount defaults in its
obligations under the Compromise and Stipulation or the aircraft leases, subject
to any right Viscount may have to cure. In addition, under the terms of the
Compromise and Stipulation, the Partnership shall be entitled to immediate
possession of the aircraft presently subleased to Nations Air, if such sublease
is terminated. A hearing to consider approval of the Compromise and Stipulation
has been scheduled for May 14, 1996. The Partnership's claims for past due
amounts under the aircraft leases, as well as its other claims (including the
line of credit, Engine Sale Agreement, deferred rents, engine leases, Sharing
Agreement and all other amounts due the Partnership prior to April 1, 1996),
will be addressed under Viscount's plan of reorganization, which must be filed
by June 30, 1996, and confirmed by September 30, 1996, or in accordance with
bankruptcy distribution rules.
Other Proceedings - Item 10 in Part III of the Partnership's 1995 Form 10-K
discusses certain actions which have been filed against Polaris Investment
Management Corporation and others in connection with the sale of interests in
the Partnership and the management of the Partnership. With the exception of
Novak, et al v. Polaris Holding Company, et al, (which has been dismissed, as
discussed in Item 10 of the Partnership's 1995 Form 10-K) where the Partnership
was named as a defendant for procedural purposes, the Partnership is not a party
to these actions. There have been no material developments with respect to any
of the actions described therein during the period covered by this report, but
the following new proceedings have been commenced.
In or around December 1994, a complaint entitled John J. Jones, Jr. v.
Prudential Securities Incorporated et al., was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
March 29, 1996, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company and General Electric
Capital Corporation. Plaintiff alleges claims of tort, breach of fiduciary duty
in tort, contract and quasi-contract, violation of sections of the Louisiana
Blue Sky Law and violation of the Louisiana Civil Code concerning the inducement
and solicitation of purchases arising out of the public offering of Polaris
14
<PAGE>
Aircraft Income Fund III. Plaintiff seeks compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.
On or around February 16, 1996, a complaint entitled Henry Arwe, et al. v.
General Electric Company, et al., was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint named as defendants General
Electric Company and General Electric Capital Corporation. Plaintiffs allege
claims of tort, breach of fiduciary duty in tort, contract and quasi-contract,
violation of sections of the Louisiana Blue Sky Law and violation of the
Louisiana Civil Code concerning the inducement and solicitation of purchases
arising out of the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief. The Partnership is not named as a defendant in this action.
On or about April 9, 1996, a summons and First Amended Complaint entitled Sara
J. Bishop, et al. v. Kidder Peabody & Co., et al., was filed in the Superior
Court of the State of California, County of Sacramento, by over one hundred
individual plaintiffs who purchased limited partnership units in Polaris
Aircraft Income Funds III, IV, V and VI and other limited partnerships sold by
Kidder Peabody. The complaint names Kidder, Peabody & Co. Incorporated, KP
Realty Advisors, Inc., Polaris Holding Company, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, Polaris Securities
Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services, Inc.,
General Electric Company, General Electric Financial Services, Inc., General
Electric Capital Corporation, General Electric Credit Corporation and DOES 1-100
as defendants. The complaint alleges violations of state common law, including
fraud, negligent misrepresentation, breach of fiduciary duty, and violations of
the rules of the National Association of Securities Dealers. The complaint seeks
to recover compensatory damages and punitive damages in an unspecified amount,
interest, and rescission with respect to the Polaris Aircraft Income Funds
III-VI and all other limited partnerships alleged to have been sold by Kidder
Peabody to the plaintiffs. The Partnership is not named as a defendant in this
action.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
27. Financial Data Schedule (Filed electronically only)
b) Reports on Form 8-K
One report, dated January 24, 1996 on Form 8-K, was filed during the quarter
ended March 31, 1996, pursuant to Item 5 of that form. No financial
statements were filed as a part of that report.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
POLARIS AIRCRAFT INCOME FUND I
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 8, 1996 By: /S/Marc A. Meiches
- ------------------------------ ------------------
Marc A. Meiches
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
the Registrant)
16
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