<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
--------------------
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
--- ---
Commission File No. 33-15551
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-3039169
----------------------------- -------------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
201 Mission Street, 27th Floor, San Francisco, California 94105
--------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 284-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Depository Units Representing Assignments of Limited Partnership Interests
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
No formal market exists for the units of limited partnership interest and
therefore there exists no aggregate market value at December 31, 1994.
Documents incorporated by reference: None
This document consists of 43 pages.<PAGE>
<PAGE>
PART I
Item 1. Business
The principal objectives of Polaris Aircraft Income Fund IV, A California
Limited Partnership (PAIF-IV or the Partnership) are to purchase and lease used
commercial jet aircraft in order to provide quarterly distributions of cash
from operations, to maximize the residual values of aircraft upon sale and to
protect Partnership capital through experienced management and diversification.
PAIF-IV was organized as a California limited partnership on June 27, 1984 and
will terminate no later than December 2020.
PAIF-IV has many competitors in the aircraft leasing market, including
airlines, aircraft leasing companies, other limited partnerships, banks and
several other types of financial institutions. This market is highly
competitive and there is no single competitor who has a significant influence
on the industry. In addition to other competitors, the general partner,
Polaris Investment Management Corporation (PIMC), and its affiliates, including
GE Capital Aviation Services, Inc. (GECAS), Polaris Aircraft Leasing
Corporation (PALC), Polaris Holding Company (PHC) and General Electric Capital
Corporation (GE Capital), acquire, lease, finance and sell aircraft for their
own accounts and for existing aircraft leasing programs sponsored by them.
Further, GECAS provides a significant range of management services to GPA Group
plc, a public limited company organized in Ireland, together with its
consolidated subsidiaries (GPA), which acquires, leases and sells aircraft.
Accordingly, in seeking to re-lease and sell its aircraft, the Partnership may
be in competition with the general partner and its affiliates and GPA.
A brief description of the aircraft owned by the Partnership is set forth in
Item 2. The following table describes certain material terms of the
Partnership's leases to American Trans Air, Inc. (ATA), Continental Airlines,
Inc. (Continental), GB Airways Limited (GB Airways), TBG Airways Limited (TBG
Airways), and Viscount Air Services, Inc. (Viscount) as of December 31, 1994:
Number of Lease
Lessee Aircraft Type Aircraft Expiration Renewal Options (6)
------ ------------- -------- ---------- -------------------
ATA Boeing 727-200 Advanced 1 2/00 (1) up to three one-year
periods
Boeing 727-200 Advanced 1 3/00 (1) up to three one-year
periods
Continental McDonnell Douglas DC-9-30 5 6/96 (2) none
GB Airways Boeing 737-200 Advanced 2 10/96 (3) one year
TBG Airways Boeing 737-200 Advanced 2 10/98 (4) none
Viscount Boeing 737-200 1 7/99 (5) none
Boeing 737-200 1 8/99 (5) none
(1) These aircraft were formerly leased to USAir, Inc. (USAir) through
December 1992. The lease rate is approximately 45% of the prior lease
rate. The lease included an eleven-month rent suspension period,
beginning on the delivery dates in February and March 1993. Under the ATA
lease, the Partnership incurred certain maintenance costs of approximately
2<PAGE>
<PAGE>
$415,000 and may be required to finance certain aircraft hushkits at an
estimated aggregate cost of approximately $5.0 million, which will be
partially recovered with interest through payments from ATA over an
extended lease term. In addition, the Partnership loaned $1,164,800 to
ATA in 1993 to finance the purchase by ATA of two spare engines. As part
of the lease transaction, ATA transferred unencumbered title to two of its
Boeing 727-100 aircraft to the Partnership in 1993. Both of these
aircraft were sold in 1994 as discussed in Item 7.
(2) The Continental leases were modified in 1991; the leases for the Boeing
727-200 aircraft were extended for ten months beyond the initial lease
expiration date in June 1993 at approximately 55% of the original lease
rates. The Partnership sold these aircraft to Continental upon expiration
of the leases in April 1994 as discussed in Item 7. The leases for the
McDonnell Douglas DC-9-30 aircraft were extended for 36 months beyond the
initial lease expiration date in June 1993 at approximately 79% of the
original lease rates. The Partnership also agreed to pay for certain
aircraft maintenance, modification and refurbishment costs, expected not
to exceed approximately $4.9 million, a portion of which will be recovered
with interest through payments from Continental over the extended lease
terms.
(3) These aircraft were formerly leased or sub-leased to Britannia Airways
Limited (Britannia) until June 1993. The leases were extended beyond
their initial termination dates for approximately four months through the
end of September 1993 at 85% of the original rates. The leases were then
again extended through various dates in October, November and December
1993, at the modified rates, which coincided with the commencement of
maintenance work required of the lessee to meet return conditions
specified in the lease.
In February 1994, the Partnership leased the aircraft to GB Airways.
Lease payments for an interim lease term through March 1994 were at a
variable rate based on usage. Thereafter and through March 1996, the
lease rate is fixed at 50% of the original rate received from Britannia.
The rate is then adjusted through the end of the lease in October 1996 to
57% of the original rate received from Britannia. GB Airways has the
option to extend the lease for one year at the initial fixed rate. The
lease stipulates that the Partnership share in the cost of meeting certain
Airworthiness Directives (ADs), not to exceed the present value of the
remaining rent payable under the lease at the time the work is complete,
which cannot be estimated at this time.
(4) These aircraft were formerly leased or sub-leased to Britannia Airways
Limited (Britannia) until June 1993. The leases were extended beyond
their initial termination dates for approximately four months through the
end of September 1993 at an aggregate of 75% of the original rates. The
leases were then again extended through various dates in October, November
and December 1993, at the modified rates, which coincided with the
commencement of maintenance work required of the lessee to meet return
conditions specified in the lease.
In February 1994, the Partnership leased the aircraft to TBG Airways
Limited (TBG Airways). Lease payments for the interim lease term through
April 1994 were at a variable rate based on usage. Thereafter and through
the end of the lease in October 1998, the aggregate rate is periodically
increased from 41% to 60% of the original aggregate rate received from
Britannia. The lease stipulates that the Partnership share in the cost of
certain ADs, not to exceed the present value of the remaining rent payable
under the lease at the time the work is complete, which cannot be
3<PAGE>
<PAGE>
estimated at this time. TBG Airways has the option to terminate the lease
early in April 1997 after paying a termination fee of $250,000 per
aircraft. TBG Airways also has the option to purchase the aircraft at the
end of the lease term for $8.0 million each.
(5) These aircraft were formerly leased or sub-leased to Britannia Airways
Limited (Britannia) until June 1993. The leases were extended beyond
their initial termination dates for approximately four months through the
end of September 1993 at 53% of the original rates. The leases were then
again extended through various dates in October, November and December
1993, at the modified rates, which coincided with the commencement of
maintenance work required of the lessee to meet return conditions
specified in the lease.
The Partnership leased the aircraft to Viscount for five years beginning
in July 1994 and September 1994, respectively. The lease rates are the
same as the prior rates received from Britannia during the lease extension
period. The Partnership may be required to finance certain aircraft
hushkits at an estimated aggregate cost of $3.4 million to $4.0 million,
which will be recovered with interest through payments from Viscount over
an extended lease term. As discussed in Item 7, the Partnership has
negotiated an agreement with Viscount to defer certain rents due the
Partnership and to provide financing to Viscount for maintenance expenses
relating to the Partnership's aircraft.
(6) The rental rate during the renewal term remains the same as the current
rate unless otherwise noted.
The Partnership sold both of the Boeing 727-100 aircraft that were transferred
to the Partnership by ATA, as discussed above, in 1994 (Item 7). In addition,
the Partnership sold fourteen Boeing 727-100 Freighter aircraft to Emery
Aircraft Leasing Corporation (Emery) in 1993 as discussed in Note 3 to the
financial statements (Item 8).
Approximately 600 commercial aircraft are currently available for sale or
lease, approximately 100 less than a year ago. The current surplus has
negatively affected market lease rates and fair market values of both new and
used aircraft. Current depressed demand for air travel has limited airline
expansion plans, with new aircraft orders and scheduled delivery being
cancelled or substantially deferred. As profitability has declined, many
airlines have taken action to downsize or liquidate assets and many airlines
have filed for bankruptcy protection. The Partnership has been forced to adjust
its estimates of the residual values realizable from its aircraft, which
resulted in an increase in depreciation expense in 1994, 1993 and 1992, as
discussed in Item 7. A discussion of the current market condition for the type
of aircraft owned by the Partnership follows:
Boeing 727-200 Advanced - The Boeing 727 was the first tri-jet introduced into
commercial service. The Boeing 727 is a short- to medium-range jet used for
trips of up to 1,500 nautical miles. In 1972, Boeing introduced the Boeing
727-200 Advanced model, a higher gross weight version with increased fuel
capacity. Noise suppression hardware, commonly known as a "hushkit," has been
developed which, when installed on the aircraft, bring the Boeing 727-200
Advanced into compliance with Federal Aviation Administration (FAA) Stage 3
noise restrictions as discussed in the Industry Update section of Item 7. The
cost of the hushkit is approximately $2.5 million for the Boeing 727-200
Advanced aircraft. Hushkits may not be cost effective on all aircraft due to
the age of some of the aircraft and the time required to fully amortize the
additional investment. Certain ADs applicable to all models of the Boeing 727
have been issued to prevent fatigue cracks and control corrosion. The market
4<PAGE>
<PAGE>
for this type of aircraft, as for all Stage 2 narrowbody aircraft, remains very
soft.
Boeing 737-200 and Boeing 737-200 Advanced - The Boeing 737-200 aircraft was
introduced in 1967 and 150 were delivered from 1967 through 1971. In 1971,
Boeing introduced the Boeing 737-200 Advanced model, a higher gross weight
aircraft with increased fuel capacity as compared to its predecessor, the
non-advanced model. This two-engine, two-pilot aircraft provides operators
with 107 to 130 seats, meeting their requirements for economical lift up to the
1,100 nautical mile range for the non-advanced model and the 2,000 nautical
mile range for the advanced model. Hushkits, that bring Boeing 737-200 aircraft
into compliance with FAA Stage 3 noise restrictions, are now available at a
cost of approximately $1.7 million for lighter weight aircraft and up to $3.0
million for aircraft with heavier takeoff weights. Hushkits may not be cost
effective on all aircraft due to the age of some of the aircraft and the time
required to fully amortize the additional investment. Certain ADs applicable
to all models of the Boeing 737 have been issued to prevent fatigue cracks and
control corrosion. The market for this type of aircraft, as for all Stage 2
narrowbody aircraft, remains very soft.
McDonnell Douglas DC-9-30 - The McDonnell Douglas DC-9-10, a short- to medium-
range twin-engine jet, was introduced in 1965. The McDonnell Douglas DC-9-30,
which is a stretched version of the McDonnell Douglas DC-9-10, was introduced
in 1967. This model offered improved performance when carrying heavier loads.
Over 970 McDonnell Douglas DC-9 aircraft were produced and there are
approximately 56 operators worldwide. Providing reliable, inexpensive lift,
these aircraft fill thin niche markets, mostly in the United States. Hushkits
at a cost of approximately $1.6 million are available to bring these aircraft
into compliance with Stage 3 requirements. The market for this type of
aircraft remains very soft. It is expected that the FAA will continue to
propose and adopt ADs for the McDonnell Douglas DC-9s similar to those
discussed above for the Boeing 737s and Boeing 727s, which will require
modifications at some point in the future to prevent fatigue cracks and control
corrosion. The demand for and the value of these aircraft may be diminished to
the extent that the costs of bringing McDonnell Douglas DC-9 aircraft into
compliance with any ADs reduces the economic efficiency of operating these
aircraft.
The general partner believes that in addition to the factors cited above, the
current soft market for the Partnership's aircraft reflects the airline
industry's reaction to the significant expenditures potentially necessary to
bring these aircraft into compliance with certain ADs issued by the FAA
relating to aging aircraft, corrosion prevention and control and structural
inspection and modification, as discussed in the Industry Update section of
Item 7.
5<PAGE>
<PAGE>
Item 2. Properties
PAIF-IV owns five McDonnell Douglas DC-9-30 leased to Continental, two Boeing
727-200 Advanced aircraft leased to ATA, two Boeing 737-200 aircraft leased to
Viscount, two Boeing 737-200 Advanced aircraft leased to GB Airways, and two
Boeing 737-200 Advanced aircraft leased to TBG Airways. One Boeing 727-100
Freighter, formerly leased to Emery, was declared a casualty loss due to an
accident in 1991. Fourteen Boeing 727-100 Freighter aircraft were sold to
Emery in 1993, five Boeing 727-200 aircraft were sold to Continental in 1994
(Item 7), and two Boeing 727-100 aircraft, that were transferred to the
Partnership by ATA, were sold during 1994 (Item 7).
The following table describes the Partnership's current aircraft portfolio in
greater detail:
Year of Cycles
Aircraft Type Serial Number Manufacture As of 9/30/94 (1)
------------- ------------- ----------- -----------------
Boeing 727-200 Advanced 22001 1980 23,733
Boeing 727-200 Advanced 22983 1982 20,458
Boeing 737-200 19711 1969 38,853
Boeing 737-200 20236 1969 39,713
Boeing 737-200 Advanced 20807 1974 30,146
Boeing 737-200 Advanced 21335 1977 24,101
Boeing 737-200 Advanced 21336 1977 24,262
Boeing 737-200 Advanced 21694 1978 23,808
McDonnell Douglas DC-9-30 45791 1968 61,409
McDonnell Douglas DC-9-30 47111 1967 64,169
McDonnell Douglas DC-9-30 47112 1967 64,364
McDonnell Douglas DC-9-30 47521 1971 50,720
McDonnell Douglas DC-9-30 47524 1971 50,507
(1) Cycle information as of 12/31/94 is not yet available.
6<PAGE>
<PAGE>
Item 3. Legal Proceedings
Continental Airlines, Inc. (Continental) Bankruptcy - On December 3, 1990,
Continental Airlines Holdings, Inc. and its subsidiaries, including
Continental, filed a petition under Chapter 11 of the Federal Bankruptcy Code
in the United States Bankruptcy Court for the District of Delaware. Polaris
Aircraft Income Fund IV (the Partnership) filed an administrative claim for the
fair rental value of aircraft operated by Continental during the bankruptcy
period and a general unsecured claim for the rental value of aircraft that were
not so operated. The Bankruptcy Court approved a negotiated agreement between
Continental and the Partnership on August 23, 1991, and Continental emerged
from bankruptcy under a plan of reorganization approved by the Bankruptcy Court
effective April 28, 1993. The Bankruptcy Court retains jurisdiction over
Continental for the purpose of approving the terms of a stipulated settlement
in which Continental would continue to operate certain of the Partnership's
aircraft under lease.
Kepford, et al. v. Prudential Securities, et al. - On April 13, 1994, an action
entitled Kepford, et al. v. Prudential Securities, Inc. was filed in the
District Court of Harris County, Texas. The complaint names Polaris Investment
Management Corporation, Polaris Securities Corporation, Polaris Holding
Company, Polaris Aircraft Leasing Corporation, the Partnership, Polaris
Aircraft Income Fund I, Polaris Aircraft Income Fund II, Polaris Aircraft
Income Fund III, Polaris Aircraft Income Fund V, Polaris Aircraft Income Fund
VI, General Electric Capital Corporation, Prudential Securities, Inc.,
Prudential Insurance Company of America and James J. Darr, as defendants.
Certain defendants were served with a summons and original petition on or about
May 2, 1994. Plaintiffs' original petition alleges that defendants violated
the Texas Securities Act, the Texas Deceptive Trade Practices Act, sections 11
and 12 of the Securities Act of 1933 and committed common law fraud, fraud in
the inducement, negligent misrepresentation, negligence, breach of fiduciary
duty and civil conspiracy by misrepresenting and failing to disclose material
facts in connection with the sale of limited partnership units in the
Partnership and the other Polaris Aircraft Income Funds. Plaintiffs seek,
among other things, an award of compensatory damages in an unspecified amount
plus interest thereon, and double and treble damages under the Texas Deceptive
Trade Practices Act.
Certain defendants, including Polaris Investment Management Corporation and the
Partnership, filed a general denial on June 29, 1994 and a motion for summary
judgment on June 17, 1994 on the basis that the statute of limitations has
expired. On June 29, 1994 and July 14, 1994, respectively, plaintiffs filed
their first amended original petition and second amended original petition,
both of which added plaintiffs. On July 18, 1994, plaintiffs filed their
response and opposition to defendants' motion for partial summary judgment and
also moved for a continuance on the motion for partial summary judgment. On
August 11, 1994, after plaintiffs again amended their petition to add numerous
plaintiffs, the defendants withdrew their summary judgment motion and motion to
stay discovery, without prejudice to refiling these motions at a later date.
Riskind, et al. v. Prudential Securities, Inc., et al. - An action entitled
Riskind, et al. v. Prudential Securities, Inc., et al. has been filed in the
District Court of the 165 Judicial District, Maverick County, Texas. This
action is on behalf of over 3,000 individual investors who purchased units in
"various Polaris Aircraft Income Funds," including the Partnership. Polaris
Aircraft Income Fund I and Polaris Investment Management Corporation received
service of plaintiffs' second amended original petition and, on June 13, 1994,
filed an original answer containing a general denial.
7<PAGE>
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The second amended original petition names Polaris Aircraft Income Fund I,
Polaris Investment Management Corporation, Prudential Securities, Inc. and
others as defendants and alleges that these defendants violated the Texas
Securities Act and the Texas Deceptive Trade Practices Act and committed common
law fraud, fraud in the inducement, negligent misrepresentation, negligent
breach of fiduciary duty and civil conspiracy by misrepresenting and failing to
disclose material facts in connection with the sale of limited partnership
units in the Partnership and the other Polaris Aircraft Income Funds.
Plaintiffs seek, among other things, an award of compensatory damages in an
unspecified amount plus interest thereon, and double and treble damages under
the Texas Deceptive Trade Practices Act.
On April 29, 1994 and June 30, 1994, plaintiffs filed third and fourth amended
original petitions which added additional plaintiffs. On April 24, 1994,
plaintiffs filed motions for (i) joinder and consolidation of cases in
arbitration, (ii) joinder and consolidation of cases not subject to
arbitration, and (iii) a pre-trial scheduling order. These motions were
amended on June 29, 1994 and, on August 22, 1994, plaintiffs filed a renewed
motion for consolidation and motion to set for jury. On August 31, 1994,
plaintiffs filed their fifth amended original petition which added additional
plaintiffs and also filed their second plea in intervention adding nearly 2,000
intervenors. On September 7, 1994, the court denied plaintiffs' motion to
consolidate and motion to set for jury, but determined to sever from the
primary lawsuit four plaintiffs and set the action for trial on November 7,
1994. On October 4, 1994, plaintiffs filed their sixth amended petition adding
as defendants: the Partnership, Polaris Aircraft Income Fund II, Polaris
Aircraft Income Fund III, Polaris Aircraft Income Fund V, Polaris Aircraft
Income Fund VI, Polaris Holding Company, Polaris Aircraft Leasing Corporation,
Polaris Securities Corporation, General Electric Capital Corporation, General
Electric Financial Services, Inc., and General Electric Company.
On October 14, 1994, defendants filed motions for summary judgment on the
grounds of, inter alia, statute of limitations and failure to state a claim.
The motions have been fully briefed and the parties are waiting for a decision
by the Texas trial court. On October 20, 1994, certain Polaris and General
Electric entities filed a motion to transfer venue, plea in abatement and
motion to dismiss the claims of non-Texas residents on the basis of forum non
conveniens. On November 1, 1994 and November 7, 1994, plaintiffs filed their
seventh and eighth amended original petitions. On November 4, 1994, plaintiffs
filed a motion for summary judgment, motion for collateral estoppel, and motion
for summary judgment on the issue of fraudulent concealment. On November 7,
1994, plaintiffs filed a second motion for summary judgment. These motions
were supplemented on November 10, 1994. Defendants filed responses to these
motions on November 23, 1994.
On November 7, 1994, the Partnership and other Polaris and General Electric
entities filed in the Court of Appeals for the 4th Judicial District San
Antonio, Texas: (1) an emergency motion to stay trial court proceedings, and
(2) a motion for leave to file petition for writ of mandamus, together with
relator's petition for writ of mandamus, supporting brief and record. These
motions, which concern trial court rulings regarding venue, discovery, and
trial settings were denied by the Court of Appeals on November 9, 1994. On
November 14, 1994, the Partnership and other Polaris and General Electric
entities filed in the Texas Supreme Court motions (a) for emergency stay of
trial court proceedings, and (b) for leave to file petition for writ of
mandamus, together with relators' petition and writ of mandamus, supporting
brief and record. On November 15, 1994, the Supreme Court granted the
emergency motion to stay trial court proceedings pending determination of
relators' motion for leave to file petition for writ of mandamus, which
concerns trial court rulings regarding venue, discovery, and trial settings.
8<PAGE>
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On November 16, 1994, plaintiffs filed an emergency motion to lift the stay.
On February 16, 1995, the Texas Supreme Court denied leave to file the petition
and writ of mandamus and the stay of trial court proceedings was lifted. On
February 21, 1995, the defendants filed a motion for a continuance of the case.
Howland, et al. v. Polaris Holding Company, et al. - On or about February 4,
1994, a purported class action entitled Howland, et al. v. Polaris Holding
Company, et al. was filed in the United States District Court for the District
of Arizona on behalf of investors in Polaris Aircraft Income Funds I-VI. The
complaint names each of Polaris Investment Management Corporation, Polaris
Securities Corporation, Polaris Holding Company, Polaris Aircraft Leasing
Corporation, the Partnership, Polaris Aircraft Income Fund I, Polaris Aircraft
Income Fund II, Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund
V, Polaris Aircraft Income Fund VI, General Electric Capital Corporation,
Prudential Securities, Inc., Prudential Securities Group, Inc., Prudential
Insurance Company of America, George W. Ball, Robert J. Sherman, James J. Darr,
Paul J. Proscia, Frank W. Giordano, William A. Pittman, Joseph H. Quinn, Joe W.
Defur, James M. Kelso and Brian J. Martin, as defendants. The complaint
alleges that defendants violated federal RICO statutes, committed negligent
misrepresentations, and breached their fiduciary duties by misrepresenting and
failing to disclose material facts in connection with the sale of limited
partnership units in the Partnership and the other Polaris Aircraft Income
Funds. Plaintiffs seek, among other things, an accounting of all monies
invested by plaintiffs and the class and the uses made thereof by defendants,
an award of compensatory, punitive and treble damages in unspecified amounts
plus interest thereon, rescission, attorneys' fees and costs. On August 3,
1994, the action was transferred to the multi-district litigation in the
Southern District of New York entitled In re Prudential Securities Limited
Partnerships Litigation, discussed in Part III, Item 10 below.
Adams, et al. v. Prudential Securities, Inc., et al. On or about February 13,
1995, an action entitled Adams, et al. v. Prudential Securities, Inc. et al.
was filed in the Court of Common Pleas, Stark County, Ohio. The action names
Prudential Securities, Inc., Prudential Insurance Company of America, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris
Aircraft Leasing Corporation, Polaris Holding Company, General Electric Capital
Corporation, the Partnership, Polaris Aircraft Income Fund I, Polaris Aircraft
Income Fund V and James Darr as defendants. The complaint alleges that
defendants committed common law fraud, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty and civil conspiracy by
misrepresenting and failing to disclose material facts in connection with the
sale of limited partnership units in the Partnership and the other Polaris
Aircraft Income Funds. Plaintiffs seek, among other things, rescission of
their investments in the Partnership and the other Polaris Aircraft Income
Funds, an award of compensatory damages in an unspecified amount plus interest
thereon, and punitive damages in an unspecified amount. On or about March 15,
1995, defendants filed a Notice of Removal to the United States District Court
for the Northern District of Ohio, Eastern Division.
Other Proceedings - Part III, Item 10 discusses certain other actions which
have been filed against the general partner in connection with certain public
offerings, including that of the Partnership. The Partnership is not a party
to these actions.
Item 4. Submission of Matters to a Vote of Security Holders
None.
9<PAGE>
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
a) Polaris Aircraft Income Fund IV's (PAIF-IV or the Partnership) units
representing assignments of limited partnership interest (Units) are
not publicly traded. The Units are held by Polaris Depositary IV on
behalf of the Partnership's investors (Unit Holders). Currently
there is no market for PAIF-IV's Units and it is unlikely that any
market will develop.
b) Number of Security Holders:
Number of Record Holders
Title of Class as of December 31, 1994
------------------------- -------------------------
Depository Units Representing Assignments
of Limited Partnership Interests: 17,321
General Partnership Interest: 1
c) Dividends:
The Partnership distributed cash to Unit Holders on a quarterly basis
beginning December 1987. Cash distributions to Unit Holders during 1994
and 1993 totaled $13,749,010 and $41,247,030, respectively. Cash
distributions per limited partnership unit were $27.50 and $82.50 in 1994
and 1993, respectively.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 7,912,192 $ 22,349,368 $ 32,661,004 $ 27,395,653 $ 37,408,597
Net Income (Loss) (8,058,577) 4,226,843 13,817,873 6,168,184 20,092,887
Net Income (Loss)
allocated to
Limited Partners (9,352,755) 2,309,897 11,430,081 3,328,980 16,766,496
Net Income (Loss) per
Limited Partnership
Unit (18.71) 4.62 22.86 6.66 33.54
Cash Distributions per
Limited Partnership
Unit 27.50 82.50 45.00 55.56 62.52
Total Assets 94,791,340 115,637,336 157,429,093 168,579,507 193,124,362
Partners' Capital 91,254,501 114,589,756 156,192,946 167,373,273 192,069,533
</TABLE>
10<PAGE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership owns a portfolio of 13 used commercial jet aircraft out of its
original portfolio of 33 aircraft. The portfolio includes five DC-9-30
aircraft leased to Continental Airlines, Inc. (Continental); two Boeing 727-200
Advanced aircraft leased to American Trans Air, Inc. (ATA); two Boeing 737-200
Advanced aircraft, formerly on lease to Britannia Airways Limited (Britannia),
that were leased to GB Airways Limited (GB Airways) in February 1994; two
Boeing 737-200 Advanced aircraft, formerly on lease to Britannia, that were
leased to TBG Airways Limited (TBG Airways) in February 1994; two Boeing
737-200 aircraft, formerly on lease to Britannia, that were leased to Viscount
Air Services, Inc. (Viscount) beginning in July and September 1994 as discussed
below. Out of an original portfolio of 33 aircraft, one Boeing 727-100
Freighter, formerly leased to Emery Aircraft Leasing Corporation (Emery), was
declared a casualty loss due to an accident in 1991, fourteen Boeing 727-100
Freighters were sold to Emery in 1993, and five Boeing 727-200 aircraft were
sold to Continental in May 1994. In 1993, ATA transferred to the Partnership
two Boeing 727-100 aircraft as part of the ATA lease transaction. As discussed
below, one of these Boeing 727-100 aircraft was sold to Total Aerospace
Services, Inc. (Total Aerospace) in February 1994 and the second Boeing 727-100
aircraft was sold to Sunrise Partners, Inc. (Sunrise Partners) in August 1994.
Partnership Operations
The Partnership recorded a net loss of $8,058,577, or $18.71 per limited
partnership unit in 1994, compared to net income of $4,226,843 and $13,817,873,
or $4.62 and $22.86 per limited partnership unit for the years ended December
31, 1993 and 1992, respectively. The sharp decline in operating results from
1992 through 1994 is attributable to a combination of declines in rental
revenue, increases in operating expenses, adjustments to depreciation expense,
and net losses recorded on the sale of certain of the Partnership's aircraft
during 1994 and 1993.
Rental revenues, net of related management fees, decreased significantly from
1992 to 1993, and again from 1993 to 1994. The Emery aircraft were sold at the
termination of the extended leases in January and April 1993 and no further
rentals were received, compared to a full year of rentals recognized in 1992.
The Britannia lease extensions in June 1993 through October, November and
December 1993 were at rates ranging from 53% to 85% of the original rates.
Four of the aircraft were re-leased in February 1994 and two of the aircraft
were re-leased in July and September 1994 at rates ranging from 37% to 53% of
the original rates received from Britannia. In addition, the ATA leases, which
began in February and March 1993, are at rates of 45% of the previous USAir,
Inc. (USAir) rates earned in 1992. Furthermore, the leases of five Boeing 727-
200 aircraft to Continental expired in April 1994 and the aircraft were
subsequently sold to Continental in May 1994. Partially offsetting the declines
in total revenues in 1994 and 1993 are interest and rental income recognized
from July 1992 on the first Continental rent deferral and interest and rental
income recognized from October 1993 on the additional Continental rent deferral
as discussed in Note 6 to the financial statements (Item 8).
The net loss for 1994 was primarily attributable to the loss of $6,707,562
recognized on the sale of five Boeing 727-200 aircraft to Continental.
Partially offsetting the loss on sale in 1994 was a gain of $425,000 recognized
on the sale of one Boeing 727-100 aircraft to Total Aerospace and a net gain of
$245,938 recognized on the sale of one Boeing 727-100 aircraft to Sunrise
Partners. Revenues during 1993 included an aggregate net loss of $492,319
recognized on the sale of fourteen aircraft to Emery.
11<PAGE>
<PAGE>
Further impacting the decline in operating results over the prior three-year
period have been significantly increased operating expenses. The 1994
operating results include maintenance and remarketing costs, aggregating
approximately $3.04 million, necessary to remarket the two Boeing 737-200
aircraft and four Boeing 737-200 Advanced aircraft, formerly on lease to
Britannia, to GB Airways, TBG Airways and Viscount. Approximately $285,000 of
these costs were capitalized during 1994. During 1993, the Partnership
recognized maintenance and remarketing costs of approximately $350,000
necessary to re-lease the two 727-200 Advanced aircraft, formerly on lease to
USAir, to ATA. During 1993, the Partnership recognized additional expenses of
approximately $94,000 for the ex-Britannia aircraft. Maintenance expenses
recognized during 1992 were minimal in comparison.
Partially offsetting the decrease in total revenues and the increase in
operating expense in 1994, depreciation expense was significantly lower during
1994 as compared to 1993 and 1992. The 1993 operating results include
approximately $3.5 million of increased depreciation expense as a result of
adjustments to the aircraft carrying values of the Emery aircraft.
Consequently, depreciation expense for 1994 does not include depreciation
expense for the Emery aircraft sold during 1993 and includes only five months
of depreciation expense for the five Boeing 727-200 aircraft sold to
Continental in May 1994. In addition, the 1994 and 1993 operating results
include adjustments of approximately $2.57 million and $591,000, respectively,
to depreciation expense to certain of the Partnership's on-lease aircraft in
which the expected net income generated from the lease results in a net loss,
as discussed in the Industry Update section.
Liquidity and Cash Distributions
Liquidity - The Partnership has received all lease payments due from current
lessees, with the exception of certain maintenance reserve payments due from
Viscount. However, to assist Viscount with the funding of costs associated with
Federal Aviation Regulation compliance relating to the Partnership's aircraft,
the Partnership has negotiated an agreement with Viscount under which it agreed
to defer certain rents due the Partnership on two aircraft. These deferred
rents are being repaid by Viscount with interest beginning in February 1995
over the remaining terms of the leases. The agreement with Viscount also
stipulates that the Partnership will advance Viscount $387,000, primarily for
maintenance expenses incurred by Viscount relating to the Partnership's
aircraft. In accordance with the agreement, the Partnership advanced Viscount
$387,000 in 1994 which is being repaid by Viscount with interest over a 30-
month period beginning in January 1995 as discussed later.
The Partnership receives maintenance reserve payments from certain of 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, as specified in the leases. Maintenance reserve balances remaining
at the termination of the lease may be used by the Partnership to offset future
maintenance expenses. The net maintenance reserves payments aggregate
$2,146,917 as of December 31, 1994.
As described in Note 6 to the financial statements (Item 8), the Continental
leases provide for payment by the Partnership of the costs of certain
maintenance work, Airworthiness Directive (AD) compliance, aircraft
modification and refurbishment costs, which are not to exceed approximately
$4.9 million, a portion of which will be recovered with interest through
payments from Continental over the lease terms. In accordance with the
Continental leases, the Partnership financed an additional $652,308 for new
image modifications during 1994.
12<PAGE>
<PAGE>
The ATA lease specifies that the Partnership may finance certain aircraft
hushkits at an aggregate cost of approximately $5.0 million, a portion of which
will be partially recovered with interest through payments from ATA over an
extended lease term. The Partnership's cash reserves are being retained to
finance a portion of the cost that may be incurred under the leases with
Continental and ATA and to cover other potential cash requirements.
Cash Distributions - Distributions of cash available from operations commenced
in 1987. Cash distributions from operations to limited partners totaled
$13,749,010, $18,748,650, and $22,498,380, or $27.50, $37.50, and $45.00 per
limited partnership unit in 1994, 1993 and 1992, respectively. In July 1993,
the Partnership made an additional cash distribution totaling $22,498,380, or
$45.00 per limited partnership unit, which was generated from the sales
proceeds of the former Emery aircraft. The timing and amount of future cash
distributions will depend on the Partnership's future cash requirements, the
receipt of payments from Continental for the sale of the five Boeing 727-200
aircraft, the receipt of rental payments and deferred rental payments from
Continental, the receipt of rental payments from ATA, GB Airways, TBG Airways
and Viscount, and the receipt of deferred rental payments and financing
payments from Viscount.
Remarketing Update
Sale of Boeing 727-100 Aircraft to Total Aerospace - In February 1994, the
Partnership sold one of the Boeing 727-100 aircraft, that was transferred to
the Partnership by ATA as discussed in the Note 3 to the financial statements
(Item 8), to Total Aerospace for $425,000. The Partnership recorded a gain on
sale of $425,000 in 1994.
Sale of Boeing 727-200 Aircraft to Continental - The leases of five Boeing 727-
200 aircraft to Continental expired on April 30, 1994. In May 1994, the
Partnership sold these aircraft to Continental for an aggregate sales price of
$5,032,865. The Partnership agreed to accept payment of the sales price in 29
monthly installments of $192,500, with interest at a rate of 9.5% per annum.
The Partnership recorded a note receivable for the sale price and recognized a
loss on sale of $6,707,562 in 1994. During 1994, the Partnership received all
scheduled payments due under the note. The note receivable balance at December
31, 1994 was $3,706,458.
Sale of Boeing 727-100 Aircraft to Sunrise Partners - In August 1994, the
Partnership sold one of the Boeing 727-100 aircraft that was transferred to the
Partnership by ATA, as discussed in Notes 3 and 5 to the financial statements
(Item 8), to Sunrise Partners for $250,000. The Partnership paid excise taxes
on the transfer of ownership of the aircraft in the amount of $4,063 and
recorded a net gain on sale of $245,937 in 1994.
Lease of Boeing 737-200 Advanced Aircraft to GB Airways - In February 1994, the
Partnership leased two Boeing 737-200 Advanced aircraft, formerly on lease to
Britannia, to GB Airways. Lease payments for an interim lease term through
March 1994 were at a variable rate based on usage. Thereafter and through
March 1996, the lease rate is fixed at 50% of the original rate received from
Britannia. The rate is then adjusted through the end of the lease in October
1996 to 57% of the original rate received from Britannia. GB Airways has the
option to extend the lease for one year at the initial fixed rate. The lease
stipulates that the Partnership share in the cost of meeting certain ADs, not
to exceed the present value of the remaining rent payable under the lease at
the time the work is complete, which cannot be estimated at this time. The
Partnership incurred legal costs related to the lease acquisition totaling
$84,519. These costs, which were capitalized and reflected as other assets in
13<PAGE>
<PAGE>
the Partnership's December 31, 1994 balance sheet (Item 8), are being amortized
over the lease term.
Lease of Boeing 737-200 Advanced Aircraft to TBG Airways - In February 1994,
the Partnership leased two Boeing 737-200 Advanced aircraft, formerly on lease
to Britannia, to TBG Airways. Lease payments for the interim lease term through
April 1994 were at a variable rate based on usage. Thereafter and through the
end of the lease in October 1998, the aggregate rate is periodically increased
from 41% to 60% of the original aggregate rate received from Britannia. The
lease stipulates that the Partnership share in the cost of certain ADs, not to
exceed the present value of the remaining rent payable under the lease at the
time the work is complete, which cannot be estimated at this time. TBG Airways
has the option to terminate the lease early in April 1997 after paying a
termination fee of $250,000 per aircraft. TBG Airways also has the option to
purchase the aircraft at the end of the lease term for $8.0 million each. The
Partnership incurred legal costs related to the lease acquisition totaling
$56,252. These costs, which were capitalized and reflected as other assets in
the Partnership's December 31, 1994 balance sheet (Item 8), are being amortized
over the lease term.
Lease of Boeing 737-200 Aircraft to Viscount - The Partnership leased the two
Boeing 737-200 aircraft, formerly on lease to Britannia, to Viscount for five
years beginning in July 1994 and September 1994, respectively. The lease rates
are the same as the prior rates received from Britannia during the lease
extension period. Prior to the delivery of the aircraft to Viscount, the
Partnership performed certain maintenance and modification work on the aircraft
aggregating approximately $2.53 million, of which the Partnership capitalized
approximately $285,000 in 1994. The balance of approximately $2.25 million is
included in operating expenses in the statement of operations for the year
ended December 31, 1994 (Item 8). In addition, the Partnership may be required
to finance certain aircraft hushkits at an estimated aggregate cost of $3.4
million to $4.0 million, which would be recovered with interest through
payments from Viscount over an extended lease term.
Viscount Restructuring Agreement
Rent Deferral - To assist Viscount with the funding of costs associated with
Federal Aviation Regulation compliance relating to the Partnership's aircraft,
the Partnership has entered into an agreement with Viscount to defer certain
rents due the Partnership for the first six months on the leases of two
aircraft. The deferred rents, which will aggregate $600,000, are being repaid
by Viscount with interest at a rate of 6% per annum beginning in February 1995,
over the remaining terms of the leases.
Maintenance Advance - The Partnership has also agreed to extend a line of
credit to Viscount for $387,000 to be used primarily for maintenance expenses
relating to the Partnership's aircraft. In accordance with the agreement, the
Partnership advanced Viscount $387,000 during 1994. Payments of interest at
variable rates ranging from 8.75% to 9.18% per annum were paid by Viscount
beginning in September 1994. Beginning in January 1995, level payments to
amortize the advance over a 30-month period, with interest at a rate of 11.53%
per annum, are being repaid in arrears.
Option - The Partnership has the option to acquire approximately 1.86% of the
issued and outstanding shares of Viscount stock as of July 26, 1994 for an
option price of approximately $279,000. The option may be exercised at any
time during the option period, which expires on July 20, 1999. This option is
carried at zero value in the balance sheet as of December 31, 1994 (Item 8) due
to the uncertainty of its realizability.
14<PAGE>
<PAGE>
Continental Restructuring
On January 26, 1995, Continental announced a number of actual and proposed
changes in its operations and financial situation. In connection with those
changes, Continental indicated that it was discussing with certain of its major
lenders modifications to existing debt amortization schedules to enhance the
airline's capital structure. Continental stated that during those discussions
it would not be making payments to such lenders and lessors otherwise required
under the current contracts. The Partnership is not engaged in any such
discussions with Continental at the present time, and Continental has made all
payments due to the Partnership on a current basis to date.
Reconciliation of Book Loss to Taxable Loss
The following is a reconciliation between net income per limited partnership
unit reflected in the accompanying financial statements (Item 8) and
information provided to unit holders for federal income tax purposes:
1994 book net loss per limited partnership unit $ (18.71)
Adjustments for tax purposes:
Recognition of tax rental revenue previously recognized for book 0.23
Rental revenue recognized for tax purposes and deferred for
book purposes 0.22
Management fee recognized for tax purposes and deferred for
book purposes (0.01)
Recognition of revenue from increase in maintenance reserves 4.25
Additional expense from disbursement of maintenance reserves (0.31)
Tax depreciation in excess of book depreciation (3.30)
Book gain on sale in excess of tax gain on sale (1.09)
Tax loss on sale in excess of book loss on sale (6.75)
Reversal of Continental rental revenue recognized for book (3.70)
Reversal of Continental interest revenue recognized for book (0.44)
Net reversal of management fees previously expensed for tax 0.32
Items capitalized for tax and expensed for book 1.02
--------
1994 taxable loss per limited partnership unit $ (28.27)
========
The differences between net loss for book purposes and net loss for tax
purposes result from the timing differences of certain revenue and deductions.
For book purposes, rental revenue was accrued during the 1993 ATA rent
suspension period. This recognition difference resulted in current year tax
rental revenue in excess of book and related tax management fee expense in
excess of book. This increased tax management fee expense was offset by the
reversal of management fee expense discussed below.
Rentals paid by lessees in advance are deferred as unearned revenue for book
purposes but must be recognized as revenue when received for tax purposes. In
addition, the corresponding management fees are also recognized for tax
purposes.
Increases in the Partnership's book maintenance reserve liability were
recognized as revenue for tax purposes. Certain disbursements from the
Partnership book maintenance reserves were capitalized or expensed for tax
purposes, as appropriate.
The Partnership computes depreciation using the straight-line method for
financial reporting and generally an accelerated method for tax purposes. As a
result, the current year tax depreciation expense is greater than book
depreciation expense and provides unit holders with the benefit of deferring
15<PAGE>
<PAGE>
taxation on a portion of their cash distributions. The Partnership also
periodically evaluates the ultimate recoverability of the carrying values and
the economic lives of its aircraft for book purposes and, accordingly,
recognized adjustments which increased depreciation expense by approximately
$2.57 million during 1994. The depreciation differences resulted in a larger
book gain on sale of certain aircraft than the tax gain and a larger tax loss
on sale of certain aircraft than the book loss.
In addition, there are differences between the recognition of certain deferred
rental revenue for book and tax purposes. As previously discussed, one of the
Partnership's lessees, Continental, filed for Chapter 11 bankruptcy protection
in 1990. The Partnership and Continental subsequently reached agreement as to
the payment of deferred and future rentals. The original deferred rentals were
converted into 12% promissory notes, to be repaid by Continental over periods
of up to 48 months beginning in July 1992. The subsequent deferred rentals
will likely be converted to notes under a similar agreement. For book
purposes, the Partnership will not recognize any of these deferred rentals, or
the related interest, as revenue, nor will it accrue management fee expense on
such rentals, until the amounts due are received from Continental. However,
for tax purposes, these amounts have been accrued over the period in which they
were earned. Finally, certain costs were capitalized for tax purposes and
expensed for book purposes.
Industry Update
Maintenance of Aging Aircraft - The process of aircraft maintenance begins at
the aircraft design stage. For aircraft operating under Federal Aviation
Administration (FAA) regulations, a review board consisting of representatives
of the manufacturer, FAA representatives and operating airline representatives
is responsible for specifying the aircraft's initial maintenance program. The
general partner understands that this program is constantly reviewed and
modified throughout the aircraft's operational life.
Since 1988, the FAA, working with the aircraft manufacturers and operators, has
issued a series of ADs which mandate that operators conduct more intensive
inspections, primarily of the aircraft fuselages. The results of these
mandatory inspections may uncover the need for repairs or structural
modifications that may not have been required under pre-existing maintenance
programs.
In addition, an AD adopted in 1990 requires replacement or modification of
certain structural items on a specific timetable. These structural items were
formerly subject to periodic inspection, with replacement when necessary. The
FAA estimates the cost of compliance with this AD to be approximately $1.0
million and $900,000 per Boeing 727 and Boeing 737 aircraft, respectively, if
none of the required work had been done previously. The FAA also issued
several ADs in 1993 updating inspection and modification requirements for
Boeing 737 aircraft. The FAA estimates the cost of these requirements to be
approximately $90,000 per aircraft. In general, the new maintenance
requirements must be completed by the later of March 1994, or 75,000 and 60,000
cycles for each Boeing 737 and 727 respectively. A similar AD was adopted on
September 24, 1990, applicable to McDonnell Douglas aircraft. The AD requires
specific work to be performed at various cycle thresholds between 50,000 and
100,000 cycles, and on specific date or age thresholds. The estimated cost of
compliance with all of the components of this AD is approximately $850,000 per
aircraft.
In December 1990, the FAA adopted another AD intended to mitigate corrosion of
structural components, which would require repeated inspections from 5 years of
16<PAGE>
<PAGE>
age throughout the life of an aircraft, with replacement of corroded components
as needed. Integration of the new inspections into each aircraft operator's
maintenance program was required by December 31, 1991 on Boeing aircraft. A
similar directive was issued in late 1992 for McDonnell Douglas aircraft.
The Partnership's existing leases require the lessees to maintain the
Partnership's aircraft in accordance with an FAA-approved maintenance program
during the lease term. The Partnership's leases to GB Airways and TBG Airways,
which operate in Great Britain, require the lessees to maintain the
Partnership's aircraft in accordance with Civil Aviation Authority (CAA)
requirements during the lease term. At the end of the leases, each lessee is
generally required to return the aircraft in airworthy condition including
compliance with all ADs for which action is mandated by the FAA or CAA,
whichever is applicable, during the lease term. The Partnership agreed to bear
a portion of certain maintenance and/or AD compliance costs, as discussed in
Item 1, with respect to the aircraft leased to ATA, Continental, GB Airways and
TBG Airways. In negotiating subsequent leases, market conditions currently
generally require that the Partnership bear some or all of the costs of
compliance with future ADs or ADs that have been issued, but which did not
require action during the previous lease term. The ultimate effect on the
Partnership of compliance with the FAA maintenance standards is not
determinable at this time and will depend on a variety of factors, including
the state of the commercial aircraft industry, the timing of the issuance of
ADs, and the status of compliance therewith at the expiration of the current
leases.
Aircraft Noise - Another issue which has affected the airline industry is that
of aircraft noise levels. The FAA has categorized aircraft according to their
noise levels. Stage 1 aircraft, which have the highest noise level, are, with
few exceptions, no longer allowed to operate from civil airports in the United
States. Stage 2 aircraft meet current FAA requirements, subject to the phase-
out rules discussed below. Stage 3 aircraft are the most quiet and Stage 3 is
the standard for all new aircraft.
On September 24, 1991, the FAA issued final rules on the phase-out of Stage 2
aircraft by the end of this decade. The current U.S. fleet is comprised of
approximately 57% Stage 3 aircraft and 43% Stage 2 aircraft. The key features
of the rule include:
- Compliance can be accomplished through a gradual process of phase-in or
phase-out (see below) on each of three interim compliance dates: December
31, 1994, 1996 and 1998. All Stage 2 aircraft must be phased out of
operations in the contiguous United States by December 31, 1999, with
waivers available in certain specific cases to December 31, 2003.
- All operators have the option of achieving compliance through a gradual
phase-out of Stage 2 aircraft (i.e., eliminate 25% of its Stage 2 fleet on
each of the compliance dates noted above), or a gradual phase-in of Stage
3 aircraft (i.e., 55%, 65% and 75% of an operator's fleet must consist of
Stage 3 aircraft by the respective interim compliance dates noted above).
- Carryforward credits will be awarded to operators for early additions of
Stage 3 aircraft to their fleets. These credits may be used to reduce
either the number of Stage 2 aircraft it must phase-out or the number of
Stage 3 aircraft it must phase-in by the next interim compliance date.
The credits must be used by that operator, however, and cannot be
transferred or sold to another operator.
The federal rule does not prohibit local airports from issuing more stringent
phase-out rules. In fact, several local airports have adopted more stringent
17<PAGE>
<PAGE>
noise requirements which restrict the operation of Stage 2 and certain Stage 3
aircraft.
Other countries have also adopted noise policies. The European Union (EU)
adopted a non-addition rule in 1989, which directed each member country to pass
the necessary legislation to prohibit airlines from adding Stage 2 aircraft to
their fleets after November 1, 1990. The rule has specific exceptions for
leased aircraft and does allow the continued use of Stage 2 aircraft which were
in operation before November 1, 1990, although adoption of rules requiring the
eventual phase-out of Stage 2 aircraft is anticipated. The International Civil
Aviation Organization has also endorsed the phase-out of Stage 2 aircraft on a
world-wide basis by the year 2002.
The Partnership's entire fleet consists of Stage 2 aircraft. Hushkit
modifications, which allow Stage 2 aircraft to meet Stage 3 requirements, are
currently available for the Partnership's aircraft. However, while technically
feasible, hushkits may not be cost effective on all models due to the age of
some of the aircraft and the time required to fully amortize the additional
investment. The general partner will evaluate, as appropriate, the potential
benefits of hushkitting some or all of the Partnership's aircraft. It is
unlikely, however, that the Partnership will incur such costs unless they can
be substantially recovered through a lease. Under the Partnership's leases
with ATA and Viscount, the Partnership may finance the installation of hushkits
on such aircraft.
Implementation of the Stage 3 standards has adversely affected the value of
Stage 2 aircraft, as these aircraft will require eventual modification to be
operated in the U.S. or other countries with Stage 3 standards after the
applicable dates.
Demand for Aircraft - Approximately 600 commercial aircraft are currently
available for sale or lease, approximately 100 less than a year ago. The
current surplus has negatively affected market lease rates and fair market
values of both new and used aircraft. Current depressed demand for air travel
has limited airline expansion plans, with new aircraft orders and scheduled
delivery being cancelled or substantially deferred. As profitability has
declined, many airlines have taken action to downsize or liquidate assets and
many airlines have filed for bankruptcy protection.
Effects on the Partnership's Aircraft - To ensure that the carrying value of
each asset equals its estimated residual value at the end of its expected
holding period, where appropriate, the Partnership made downward adjustments to
its estimates of aircraft residual value during 1994, 1993 and 1992 for certain
of its on-lease aircraft. During 1993, the Partnership recognized
approximately $3.5 million of increased depreciation expense as a result of
adjustments to the aircraft carrying values of the aircraft sold to Emery. In
addition, during 1994 and 1993, the Partnership recognized downward adjustments
totaling approximately $2.57 million and $591,000, respectively, to the book
value for certain of its on-lease aircraft in which the expected net income
generated from the lease results in a net loss. These adjustments are included
in depreciation expense in the statements of operations (Item 8).
The Partnership's leases expire between June 1996 and March 2000. To the
extent that the Partnership's non-advanced Boeing and McDonnell Douglas
aircraft continue to be adversely affected by industry events, the Partnership
will evaluate each aircraft as it comes off lease to determine whether a
re-lease or a sale at the then-current market rates would be most beneficial
for unit holders.
18<PAGE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH
AUDITORS' REPORT
19<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Polaris Aircraft Income Fund IV,
A California Limited Partnership:
We have audited the accompanying balance sheets of Polaris Aircraft Income Fund
IV, A California Limited Partnership as of December 31, 1994 and 1993, and the
related statements of operations, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the general partner. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the general partner, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polaris Aircraft Income Fund
IV, A California Limited Partnership as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
January 24, 1995
20<PAGE>
<PAGE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
1994 1993
ASSETS:
CASH AND CASH EQUIVALENTS $18,152,875 $ 628,222
SHORT-TERM INVESTMENTS, at cost which
approximates market value - 19,845,972
----------- ------------
Total Cash and Cash Equivalents and
Short-Term Investments 18,152,875 20,474,194
RENT AND OTHER RECEIVABLES 1,941,568 1,348,406
NOTES RECEIVABLE 5,862,206 1,522,301
AIRCRAFT at cost, net of accumulated
depreciation of 49,947,066 in 1994 and
$56,432,464 in 1993 68,730,378 92,256,548
OTHER ASSETS, net of accumulated amortization
of 2,105,937 in 1994 and $2,069,479 in 1993 104,313 35,887
----------- ------------
$94,791,340 $115,637,336
=========== ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 174,860 $ 543,580
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 32,995 14,000
LESSEE SECURITY DEPOSITS 1,072,067 490,000
MAINTENANCE RESERVES 2,146,917 -
DEFERRED RENTAL INCOME 110,000 -
----------- ------------
Total Liabilities 3,536,839 1,047,580
----------- ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (3,543,265) (3,309,775)
Limited Partners, 499,964 units issued
and outstanding 94,797,766 117,899,531
----------- ------------
Total Partners' Capital 91,254,501 114,589,756
----------- ------------
$94,791,340 $115,637,336
=========== ============
The accompanying notes are an integral part of these statements.
21<PAGE>
<PAGE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
---- ---- ----
REVENUES:
Rent from operating leases $ 12,132,058 $ 20,972,613 $ 31,403,163
Interest 1,816,759 1,869,074 1,257,841
Net loss on sale of aircraft (6,036,625) (492,319) -
------------ ------------ ------------
Total Revenues 7,912,192 22,349,368 32,661,004
------------ ------------ ------------
EXPENSES:
Depreciation and amortization 12,107,372 16,254,034 16,872,193
Management and advisory fees 606,603 1,048,631 1,570,158
Operating 2,963,776 545,055 118,172
Administration and other 293,018 274,805 282,608
------------ ------------ ------------
Total Expenses 15,970,769 18,122,525 18,843,131
------------ ------------ ------------
NET INCOME (LOSS) $ (8,058,577) $ 4,226,843 $ 13,817,873
============ ============ ============
NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 1,294,178 $ 1,916,946 $ 2,387,792
============ ============ ============
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $(9,352,755) $ 2,309,897 $ 11,430,081
============ ============ ============
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (18.71) $ 4.62 $ 22.86
============ ============ ============
The accompanying notes are an integral part of these statements.
22<PAGE>
<PAGE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1991 $ (531,690) $167,904,963 $167,373,273
Net income 2,387,792 11,430,081 13,817,873
Cash distributions to partners (2,499,820) (22,498,380) (24,998,200)
------------ ------------ ------------
Balance, December 31, 1992 (643,718) 156,836,664 156,192,946
Net income 1,916,946 2,309,897 4,226,843
Cash distributions to partners (4,583,003) (41,247,030) (45,830,033)
------------ ------------ ------------
Balance, December 31, 1993 (3,309,775) 117,899,531 114,589,756
Net income (loss) 1,294,178 (9,352,755) (8,058,577)
Cash distributions to partners (1,527,668) (13,749,010) (15,276,678)
----------- ------------ ------------
Balance, December 31, 1994 $(3,543,265) $ 94,797,766 $ 91,254,501
=========== ============ ============
The accompanying notes are an integral part of these statements.
23<PAGE>
<PAGE>
<TABLE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (8,058,577) $ 4,226,843 $ 13,817,873
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 12,107,372 16,254,034 16,872,193
Loss on sale of aircraft 6,036,625 492,319 -
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables (593,162) (1,268,787) 316,856
Decrease (increase) in other assets (104,884) 64,315 (53,454)
Increase (decrease) in payable to affiliates (368,720) 472,882 70,279
Increase (decrease) in accounts payable
and accrued liabilities 18,995 (66,500) 51,809
Increase in lessee security deposits 582,067 340,000 150,000
Increase in maintenance reserves 2,146,917 - -
Increase (decrease) in deferred income 110,000 (934,949) -
------------- ------------- -------------
Net cash provided by operating activities 11,876,633 19,580,157 31,225,556
------------- ------------- -------------
INVESTING ACTIVITIES:
Net proceeds from sale of aircraft 670,937 27,500,000 -
Increase in notes receivable (1,039,308) (1,852,753) (292,175)
Principal payments on notes receivable 1,732,268 175,993 85,398
Increase in aircraft capitalized costs (285,171) - -
Refund of deposit on hushkit options - - 330,000
------------- ------------- -------------
Net cash provided by investing activities 1,078,726 25,823,240 123,223
------------- ------------- -------------
FINANCING ACTIVITIES:
Cash distributions to partners (15,276,678) (45,830,033) (24,998,200)
------------- ------------- -------------
Net cash used in financing activities (15,276,678) (45,830,033) (24,998,200)
------------- ------------- -------------
CHANGES IN CASH AND CASH
EQUIVALENTS AND SHORT-TERM
INVESTMENTS (2,321,319) (426,636) 6,350,579
CASH AND CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR 20,474,194 20,900,830 14,550,251
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AND
SHORT-TERM INVESTMENTS AT
END OF YEAR $ 18,152,875 $ 20,474,194 $ 20,900,830
============= ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
24<PAGE>
<PAGE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. Accounting Principles and Policies
Accounting Method - Polaris Aircraft Income Fund IV, A California Limited
Partnership (PAIF-IV or the Partnership), maintains its accounting records,
prepares financial statements and files its tax returns on the accrual basis of
accounting.
Cash and Cash Equivalents - This includes deposits at banks and investments in
money market funds.
Short-Term Investments - The Partnership classifies all liquid investments with
original maturities of three months or less as short-term investments.
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 30 years from the date of manufacture.
Depreciation in the year of acquisition is calculated based upon the number of
days that the aircraft are in service.
The Partnership periodically reviews the estimated realizability of the
residual values at the end of each aircraft's economic life. For any downward
adjustment in estimated residual, or decrease in the estimated remaining
economic life, the depreciation expense over the remaining life of the aircraft
is increased. If the expected net income generated from the lease (rental
revenue, net of management fees, less adjusted depreciation and an allocation
of estimated administrative expense) results in a net loss, that loss will be
recognized currently. Off-lease aircraft are carried at the lower of
depreciated cost or estimated net realizable value. A further adjustment is
made for those aircraft, if any, that require substantial maintenance work.
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 appropriate
period. These costs are also subject to the periodic evaluation discussed
above.
Other Assets - Lease acquisition costs are capitalized as other assets and
amortized using the straight-line method over the term of the lease.
Operating Leases - The aircraft leases are accounted for as operating leases.
Lease revenues are recognized in equal installments over the terms of the
leases.
Operating Expenses - Operating expenses include costs incurred to maintain,
insure, lease and sell the Partnership's aircraft.
Net Income (Loss) Per Limited Partnership Unit - Net income (loss) per limited
partnership unit is based on the limited partners' share of net income (loss)
and the number of units outstanding for the years ended December 31, 1994,
1993, and 1992.
25<PAGE>
<PAGE>
Income Taxes - The Partnership files federal and state information income tax
returns only. Taxable income or loss is reportable by the individual partners.
Financial Accounting Pronouncements - SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," and the related SFAS No. 118, which together require
that certain impaired loans be measured based on the present value of expected
cash flows discounted at the loan's effective interest rate; or, alternatively,
at the loan's observable market price or the fair value of the collateral if
the loan is collateral dependent. This statement has been adopted as of
January 1, 1995. The Partnership does not expect the adoption of this
statement to have a significant impact on its financial position or results of
operations.
2. Organization and the Partnership
The Partnership was formed on June 27, 1984 for the purpose of acquiring and
leasing aircraft. The Partnership will terminate no later than December 2020.
Upon organization, both the general partner and the depositary contributed
$500. The Partnership recognized no profits or losses during the periods ended
December 31, 1984, 1985 and 1986. The offering of depositary units (Units),
representing assignments of limited partnership interest, terminated on
September 15, 1988, at which time the Partnership had sold 500,000 units of
$500, representing $250,000,000. All unit holders were admitted to the
Partnership on or before September 15, 1988. During November 1988, 36 units
were returned to the Partnership by an investor who did not meet the Investor
Suitability Standards described in the Prospectus.
Polaris Investment Management Corporation (PIMC), the sole general partner of
the Partnership, supervises the day-to-day operations of the Partnership. PIMC
is a wholly-owned subsidiary of Polaris Aircraft Leasing Corporation (PALC).
Polaris Holding Company (PHC) is the parent company of PALC. General Electric
Capital Corporation (GE Capital), an affiliate of General Electric Company,
owns 100% of PHC's outstanding common stock. PIMC has entered into a services
agreement dated as of July 1, 1994 with GE Capital Aviation Services, Inc.
(GECAS). Allocations to affiliates are described in Note 8.
3. Aircraft
The Partnership owns 13 aircraft from its original portfolio of 33 used
commercial jet aircraft which were acquired and leased or sold as discussed
below. All aircraft acquired from an affiliate were purchased within one year
of the affiliate's acquisition at the affiliate's original price paid. Two
aircraft were transferred from a lessee as discussed below. The aircraft
leases are net leases, requiring the lessees to pay all operating expenses
associated with the aircraft during the lease term. While the leases require
the lessees to comply with Airworthiness Directives (ADs) which have been or
may be issued by the Federal Aviation Administration (FAA) and require
compliance during the lease term, in certain of the leases the Partnership has
agreed to share in the cost of compliance with ADs. In addition to basic rent,
certain lessees are required to pay supplemental amounts based on flight hours
or cycles into a maintenance reserve account, to be used for heavy maintenance
of the engines or airframe. The leases generally state a minimum acceptable
return condition for which the lessee is liable under the terms of the lease
agreement.
Two Boeing 727-100 - These aircraft were transferred from American Trans Air,
Inc. (ATA) to the Partnership in April and May 1993 as part of the ATA lease
26<PAGE>
<PAGE>
transaction. The aircraft were sold in February 1994 and August 1994,
respectively, as discussed in Note 5.
Fifteen Boeing 727-100 Freighter - These aircraft were acquired for $64,610,000
in 1988 and leased to Emery Aircraft Leasing Corporation (Emery) until August
1993, except for one aircraft which was retired in May 1991 due to a casualty
incident. This aircraft was damaged as a result of fire while it was on the
ground. Emery paid to the Partnership the casualty value specified in the
lease of $4,310,000, which was equal to the Partnership's cost for the
aircraft. In January 1993, Emery purchased one of the aircraft for $1.5
million, in accordance with the purchase option in the lease (Note 5). In
April 1993, Emery exercised its option to purchase the remaining 13 Boeing 727-
100 Freighter aircraft for $2.0 million each (Note 5).
Two Boeing 737-200 and Four 737-200 Advanced - These aircraft were acquired for
$55,000,000 in 1988 and leased or subleased to Britannia Airways Limited
(Britannia) until June 1993. The leases were extended beyond their initial
termination dates for approximately four months through the end of September
1993 at lease rates ranging from 53% to 85% of the original rates. The leases
were then again extended through various dates in October, November and
December 1993, at the modified rates, which coincided with the commencement of
maintenance work required of the lessee to meet return conditions specified in
the lease. Subsequent to the return of these aircraft by Britannia, the
Partnership incurred approximately $3.14 million of maintenance costs required
to re-market the aircraft to new lessees as discussed below. During 1994,
approximately $285,000 of these costs were capitalized and reflected as
aircraft in the Partnership's December 31, 1994 balance sheet. The Partnership
recognized the remainder of these expenses of approximately $2.76 million and
approximately $94,000 in operating expense in the 1994 and 1993 statements of
operations, respectively.
In February 1994, the Partnership leased two of the Boeing 737-200 Advanced
aircraft to GB Airways Limited (GB Airways). Lease payments for an interim
lease term through March 1994 were at a variable rate based on usage.
Thereafter and through March 1996, the lease rate is fixed at 50% of the
original rate received from Britannia. The rate is then adjusted through the
end of the lease in October 1996 to 57% of the original rate received from
Britannia. GB Airways has the option to extend the lease for one year at the
initial fixed rate. The lease stipulates that the Partnership share in the
cost of meeting certain ADs, not to exceed the present value of the remaining
rent payable under the lease at the time the work is complete, which cannot be
estimated at this time. The Partnership incurred legal costs related to the
lease acquisition totaling $84,519. These costs, which were capitalized and
reflected as other assets in the Partnership's December 31, 1994 balance sheet,
are being amortized over the lease term.
In February 1994, the Partnership leased the remaining two Boeing 737-200
Advanced aircraft to TBG Airways Limited (TBG Airways). Lease payments for the
interim lease term through April 1994 were at a variable rate based on usage.
Thereafter and through the end of the lease in October 1998, the aggregate rate
is periodically increased from 41% to 60% of the original aggregate rate
received from Britannia. The lease stipulates that the Partnership share in
the cost of certain ADs, not to exceed the present value of the remaining rent
payable under the lease at the time the work is complete, which cannot be
estimated at this time. TBG Airways has the option to terminate the lease
early in April 1997 after paying a termination fee of $250,000 per aircraft.
TBG Airways also has the option to purchase the aircraft at the end of the
lease term for $8.0 million each. The Partnership incurred legal costs related
to the lease acquisition totaling $56,252. These costs, which were capitalized
27<PAGE>
<PAGE>
and reflected as other assets in the Partnership's December 31, 1994 balance
sheet, are being amortized over the lease term.
The Partnership leased the two Boeing 737-200 aircraft to Viscount Air
Services, Inc. (Viscount) for five years beginning in July 1994 and September
1994, respectively. The lease rates are the same as the prior rates received
from Britannia during the lease extension period. The Partnership may be
required to finance certain aircraft hushkits at an estimated aggregate cost of
$3.4 million to $4.0 million, which will be recovered with interest through
payments from Viscount over an extended lease term. The Partnership has
negotiated an agreement with Viscount to defer certain rents due the
Partnership and to provide financing to Viscount for maintenance expenses
relating to the Partnership's aircraft (Note 4).
Five Boeing 727-200 and Five McDonnell Douglas DC-9-30 - These aircraft were
acquired for $64,875,000 in 1988 and leased to Continental Airlines, Inc.
(Continental) for terms of 60 months. Continental filed for Chapter 11
bankruptcy protection in December 1990. In 1991, the Partnership and
Continental entered into an agreement for Continental's continued lease of the
Partnership's aircraft. Note 6 contains a detailed discussion of the
Continental lease modifications. The leases of the five Boeing 727-200
aircraft to Continental expired on April 30, 1994. In May 1994, the
Partnership sold these aircraft to Continental as discussed in Note 5.
Two Boeing 727-200 Advanced - These aircraft were acquired for $27,000,000 in
1988 and leased to USAir, Inc. (USAir) until late 1992. USAir paid rent
through December 1992 although the aircraft were returned prior to that time.
In December 1992, the Partnership negotiated a seven year lease with ATA for
the aircraft at approximately 45% of the prior rate. The leases began in
February and March 1993. ATA was not required to begin making cash rental
payments until January and February 1994, although recognition of rental income
will be spread over the entire lease term. The leases are renewable for up to
three one-year periods. ATA transferred to the Partnership two unencumbered
Boeing 727-100 aircraft as part of the lease transaction as previously
discussed.
Under the ATA lease, the Partnership incurred certain maintenance costs of
approximately $415,000 and may be required to finance aircraft hushkits for use
on the aircraft at an estimated aggregate cost of approximately $5.0 million,
which will be partially recovered with interest through payments from ATA over
the lease terms. The Partnership loaned $1,164,800 to ATA in 1993 to finance
the purchase by ATA of two spare engines. This loan is reflected in notes
receivable in the accompanying balance sheets. The Partnership has received
all scheduled principal and interest payments due under the notes. The
balances of the notes at December 31, 1994 and December 31, 1993 were $949,489
and $1,103,089, respectively.
The following is a schedule by year of future minimum rental revenue under all
of the existing leases, including the deferred rental payments specified in the
Continental lease modification (Note 6):
Continental
Deferred
Year Amount (1) Rental Payments Total
---------- --------------- -----
1995 $1,675,095 $10,708,004 $12,383,099
1996 1,267,713 8,413,004 9,680,717
1997 166,689 6,118,004 6,284,693
1998 - 5,557,861 5,557,861
1999 and thereafter - 2,534,228 2,534,228
---------- ----------- -----------
$3,109,497 $33,331,101 $36,440,598
========== =========== ===========
28<PAGE>
<PAGE>
(1) Rental payments for the period from December 1990 through September 1991
are payable with interest commencing in July 1992 according to the Continental
lease modification agreement. Rental payments for the period from November
1992 through January 1993 are payable with interest commencing in October 1993
according to the agreement with Continental. These payments are shown
separately because of contingencies regarding collectability as discussed in
Note 6. Future minimum rental payments may be offset or reduced by future
costs as discussed in Note 6.
To ensure that the carrying value of each asset equals its estimated residual
value at the end of its expected holding period, where appropriate, the
Partnership made downward adjustments to its estimates of aircraft residual
value during 1994, 1993 and 1992 for certain of its on-lease aircraft (Note 1).
During 1993, the Partnership recognized approximately $3.5 million of increased
depreciation expense as a result of adjustments to the aircraft carrying values
of the aircraft sold to Emery. In addition, during 1994 and 1993, the
Partnership recognized downward adjustments totaling approximately $2.57
million and $591,000, respectively, to the book value for certain of its
on-lease aircraft in which the expected net income generated from the lease
results in a net loss (Note 1). These adjustments are included in depreciation
expense in the statements of operations.
4. Viscount Restructuring Agreement
Rent Deferral - To assist Viscount with the funding of costs associated with
Federal Aviation Regulation compliance relating to the Partnership's aircraft,
the Partnership has entered into an agreement with Viscount to defer certain
rents due the Partnership for the first six months on the leases of two
aircraft. The deferred rents, which will aggregate $600,000, are to be repaid
by Viscount with interest at a rate of 6% per annum beginning in February 1995,
over the remaining terms of the leases.
Maintenance Advance - The Partnership has also agreed to extend a line of
credit to Viscount for $387,000 to be used primarily for maintenance expenses
relating to the Partnership's aircraft. In accordance with the agreement, the
Partnership advanced Viscount $387,000 during 1994. Payments of interest at
variable rates ranging from 8.75% to 9.18% per annum were paid by Viscount
beginning in September 1994. Beginning in January 1995, level payments to
amortize the advance over a 30-month period, with interest at a rate of 11.53%
per annum, will be due in arrears.
Option - The Partnership has the option to acquire approximately 1.86% of the
issued and outstanding shares of Viscount stock as of July 26, 1994 for an
option price of approximately $279,000. The option may be exercised at any
time during the option period, which expires on July 20, 1999. This option is
carried at zero value in the accompanying balance sheet as of December 31, 1994
due to the uncertainty of its realizability.
5. Sale of Aircraft
Sale of Fourteen Boeing 727-100 Freighter Aircraft - One of the Boeing 727-100
Freighter aircraft leased to Emery was sold to Emery at the end of its lease
term in January 1993 for $1.5 million, in accordance with the purchase option
in the lease. The Partnership recorded a loss on sale of $555,676.
Subsequently, Emery exercised its option to purchase the remaining 13 Boeing
29<PAGE>
<PAGE>
727-100 Freighter aircraft for $2.0 million each at the end of April 1993. The
Partnership reported an aggregate gain of $63,357 on these sales.
Sale of Boeing 727-100 Aircraft - In February 1994, the Partnership sold one of
the Boeing 727-100 aircraft that was transferred to the Partnership by ATA, as
discussed in Note 3, to Total Aerospace Services, Inc. for $425,000. The
Partnership recorded a gain on sale of $425,000 in 1994.
Sale of Boeing 727-200 Aircraft - The leases of five Boeing 727-200 aircraft to
Continental expired on April 30, 1994. In May 1994, the Partnership sold these
aircraft to Continental for an aggregate sales price of $5,032,865. The
Partnership agreed to accept payment of the sales price in 29 monthly
installments of $192,500, with interest at a rate of 9.5% per annum. The
Partnership recorded a note receivable for the sale price and recognized a loss
on sale of $6,707,562 in 1994. During 1994, the Partnership received all
scheduled payments due under the note. The note receivable balance at December
31, 1994 was $3,706,458.
Sale of Boeing 727-100 Aircraft - In August 1994, the Partnership sold one of
the Boeing 727-100 aircraft that was transferred to the Partnership by ATA, as
discussed in Note 3, to Sunrise Partners, Inc. for $250,000. The Partnership
paid excise taxes on the transfer of ownership of the aircraft in the amount of
$4,063 and recorded a net gain on sale of $245,937 in 1994.
6. Continental Lease Modification
As discussed in the Partnership's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1990, Continental filed
for Chapter 11 bankruptcy protection in December 1990. Continental emerged
from bankruptcy protection under a reorganization plan approved by the
Bankruptcy Court effective April 28, 1993. The modified agreement approved by
the Bankruptcy Court in 1991 specifies (i) extension of the leases for the five
Boeing 727-200s to the earlier of April 1994 or 60,000 cycles, and for the five
DC-9-30 aircraft to June 1996; (ii) renegotiated rental rates averaging
approximately 67% of the original lease rates; (iii) payment of ongoing rentals
at the reduced rates beginning in October 1991; (iv) payment of deferred
rentals with interest beginning in July 1992; and (v) payment by the
Partnership of certain aircraft modification and refurbishment costs, not to
exceed approximately $4.9 million, a portion of which will be recovered with
interest through payments from Continental over the extended lease term. The
Partnership's balance sheets reflect the net reimbursable costs incurred of
$819,259 and $419,212 as of December 31, 1994 and 1993, respectively, as notes
receivable. A portion of such costs which the Partnership will bear will be
capitalized and depreciated over the remaining lease term, subject to the
capitalized cost policy as described in Note 1. Continental will be entitled,
under certain circumstances related to a possible future substantial downsizing
by Continental, which is not currently anticipated, to reject the existing
leases.
The agreement with Continental included an extended deferral of the dates when
Continental will remit its rental payments for the period from December 3, 1990
through September 30, 1991 (the Deferred Amount), the Partnership will not
recognize the Deferred Amount as rental revenue until it is received, or until
the contingencies regarding collectability are removed. The unrecognized
Deferred Amounts as of December 31, 1994 and 1993 were $1,779,037 and
$3,281,033, respectively. In accordance with the aforementioned agreement,
Continental began making supplemental payments for accrued unpaid rent plus
interest on July 1, 1992. During 1994 and 1993, the Partnership received
supplemental payments of $1,975,739 and $3,186,649, respectively, of which
30<PAGE>
<PAGE>
$1,501,996 and $2,195,572 was recognized as rental income in 1994 and 1993,
respectively.
Additional Continental Deferral Agreement - As part of its reorganization plan,
Continental requested additional concessions from its aircraft lessors. As a
result, the Partnership and Continental reached an agreement to defer rental
payments for a period of three months beginning in November 1992, for a total
of $1,935,000 (Additional Deferred Amount), with repayment over the shorter of
three and one-half years or the remaining lease term. Repayment began
October 1, 1993. The unrecognized Additional Deferred Amount as of December
31, 1994 and 1993 was $1,330,460 and $1,810,282, respectively. Continental
continues to pay all other amounts due under the prior agreement. During 1994
and 1993, the Partnership received supplemental payments of $680,281 and
$170,070, respectively, of which $479,822 and $124,717 was recognized as rental
income in 1994 and 1993, respectively.
The Partnership's right to receive payments under the agreements fall into
various categories of priority under the Bankruptcy Code. In general, the
Partnership's claims are administrative claims, with the exception of certain
deferred amounts. If Continental's reorganization is not successful, it is
likely that a portion of the Partnership's claims will not be paid in full.
Note 10 discusses further Continental events subsequent to December 31, 1994.
7. Refund of Hushkit Deposits
In 1990, the Partnership agreed to acquire up to 12 hushkits for Boeing 727
aircraft from Federal Express Corporation (Federal Express). Because certain
conditions to the purchase of the hushkits were not satisfied, the Partnership
requested return of its deposit of $330,000 plus interest as provided in the
purchase documents. Federal Express refused the Partnership's request, pending
resolution with the Partnership of certain allegedly disputed contractual
issues. In April 1992, the general partner, on behalf of the Partnership,
commenced legal action to require Federal Express to refund the remaining
balance of the deposit, with interest, plus legal fees and other damages, and
Federal Express filed a cross-complaint against the Partnership alleging breach
of contract. A settlement was reached and payment of the deposit, with
interest, was received by the Partnership in November 1992.
8. Related Parties
Under the Partnership Agreement, the Partnership paid or agreed to pay the
following amounts to PIMC and/or its affiliates in connection with services
rendered:
a. An aircraft management fee equal to 5% of gross rental revenues with
respect to operating leases or 2% of gross rental revenues with
respect to full payout leases of the Partnership, payable upon
receipt of the rent, subordinated to receipt by unit holders of
distributions equalling an 8% cumulative, non-compounded return on
capital contributions, as defined in the Partnership Agreement. In
1994, 1993 and 1992, the Partnership paid management fees to PIMC of
$577,742, $950,604 and $1,633,299, respectively. Management fees
payable to PIMC at December 31, 1994 and 1993 were $94,824 and
$65,963 respectively.
b. Reimbursement of certain out-of-pocket expenses incurred in
connection with the management of the Partnership and supervision of
its assets. In 1994, 1993, and 1992, the Partnership reimbursed PIMC
31<PAGE>
<PAGE>
for services rendered or payments made on behalf of the Partnership
of $4,060,985, $2,147,152 and $584,749, respectively. Reimbursements
totaling $80,036 and $477,617 were payable to PIMC at December 31,
1994 and 1993, respectively.
c. A 10% interest in all cash distributions from operations and sales
proceeds, gross income in an amount equal to 9.09% of distributed
cash available from operations and 1% of net income or loss and
taxable income or loss, as such terms are defined in the Partnership
Agreement.
d. A subordinated sales commission of 3% of the gross sales price of
each aircraft for services performed upon disposition and
reimbursement of out-of-pocket and other disposition expenses.
Subordinated sales commissions shall be paid only after unit holders
have received distributions in an aggregate amount equal to their
capital contributions plus a cumulative non-compounded 8% per annum
return on their adjusted capital contributions, as defined in the
Partnership Agreement. The Partnership did not pay or accrue a sales
commission on any aircraft sales to date as the above subordination
threshold has not been met.
9. Income Taxes
Federal and state income tax regulations provide that taxes on the income or
loss of the Partnership are reportable by the partners in their individual
income tax returns. Accordingly, no provision for such taxes has been made in
the accompanying financial statements.
The net differences between the tax basis and the reported amounts of the
Partnership's assets and liabilities at December 31, 1994 and 1993 are as
follows:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
1994: Assets $ 94,791,340 $59,682,195 $35,109,145
Liabilities 3,536,839 1,538,893 1,997,946
1993: Assets $115,637,336 $87,614,677 $28,022,659
Liabilities 1,047,580 1,302,146 (254,566)
10. Subsequent Event
Continental Restructuring - On January 26, 1995, Continental announced a number
of actual and proposed changes in its operations and financial situation. In
connection with those changes, Continental indicated that it was discussing
with certain of its major lenders modifications to existing debt amortization
schedules to enhance the airline's capital structure. Continental stated that
during those discussions it would not be making payments to such lenders and
lessors otherwise required under the current contracts. The Partnership is not
engaged in any such discussions with Continental at the present time, and
Continental has made all payments due to the Partnership on a current basis to
date.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
32<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Polaris Aircraft Income Fund IV, A California Limited Partnership, (PAIF-IV or
the Partnership) has no directors or officers. Polaris Holding Company (PHC)
and its subsidiaries, including Polaris Aircraft Leasing Corporation (PALC) and
Polaris Investment Management Corporation (PIMC), the general partner of the
Partnership (collectively Polaris), have recently restructured their operations
and businesses (the Polaris Restructuring). In connection therewith, PIMC has
entered into a services agreement dated as of July 1, 1994 (the Services
Agreement) with GE Capital Aviation Services, Inc. (the Servicer or GECAS), a
Delaware corporation which is a wholly owned subsidiary of General Electric
Capital Corporation, a New York corporation (GE Capital). GE Capital has been
PHC's parent company since 1986. As subsidiaries of GE Capital, the Servicer
and PIMC are affiliates.
The GE Capital Restructuring - GE Capital has recently completed a
restructuring (the GE Capital Restructuring) of its commercial aviation
operations, and as a result the owned and managed aircraft portfolios of
certain of its affiliates, including its Polaris affiliates, are now managed by
GECAS, subject in the case of Polaris investment programs to overall management
and supervision by PIMC. The business of GECAS has combined commercial
aviation activities formerly conducted by GE Capital's Polaris affiliates and
its Transportation and Industrial Funding Corporation division (the T&I
Division). In addition, GECAS will provide a significant range of aircraft
management services to GPA Group plc, a public limited company organized in
Ireland, together with its consolidated subsidiaries.
The Polaris Restructuring - In connection with the GE Capital Restructuring,
the Servicer hired many of the employees who had performed the functions for
Polaris and its investment programs (including the Partnership) that are now
performed by the Servicer for PHC owned aircraft and for Polaris investment
programs under the Services Agreement and under similar services agreements
entered into by PIMC and/or PALC with the Servicer relating to other Polaris
investment programs.
In order to allow it to continue to be able to discharge its responsibilities
as general partner of the Partnership, PIMC has retained certain of its
employees. As of December 31, 1994, PIMC had seven full-time employees. In
addition, certain employees of GECAS will serve as officers and directors of
PIMC. The following management personnel will serve in the capacities shown
opposite their names:
Name PIMC Title
------------------ ---------------------
Howard L. Feinsand President; Director
Richard J. Adams Vice President; Director
Rodney Sirmons Director
James W. Linnan Vice President
John E. Flynn Vice President
Robert W. Dillon Vice President; Assistant Secretary
James F. Walsh Chief Financial Officer
William C. Bowers Secretary
Substantially all of these management personnel will devote only such portion
of their time to the business and affairs of PIMC as deemed necessary or
appropriate.
33<PAGE>
<PAGE>
Mr. Feinsand, 47, Senior Vice President and Manager, Capital Markets, Pricing
and Investor Programs of GECAS, joined PIMC and PALC as Vice President, General
Counsel and Assistant Secretary in April 1989. Effective July 1989,
Mr. Feinsand assumed the position of Senior Vice President, and served as
General Counsel and Secretary from July 1989 to August 1992. Mr. Feinsand, an
attorney, was a partner in the New York law firm of Golenbock and Barell from
1987 through 1989. In his previous capacities, Mr. Feinsand served as counsel
to PIMC and PALC. Mr. Feinsand also serves as a director on the board of Duke
Realty Investments, Inc. Effective July 1, 1994, Mr. Feinsand held the
positions of President and Director of PIMC.
Mr. Adams, 61, Senior Vice President, Aircraft Marketing - North America,
served as Senior Vice President - Aircraft Sales and Leasing of PIMC and PALC
effective August 1992, having previously served as Vice President - Aircraft
Sales & Leasing, Vice President - North America, and Vice President - Corporate
Aircraft since he joined PALC in August 1986. Effective July 1, 1994, Mr.
Adams held the positions of Vice President and Director of PIMC.
Mr. Sirmons, 48, is Vice President, Portfolio and Risk Management for GECAS.
During the last twenty-one years, he has held a variety of credit, underwriting
and financial positions with several businesses within GE Capital and its
predecessor. Effective July 1, 1994, Mr. Sirmons held the position of Director
of PIMC.
Mr. Linnan, 53, became Vice President - Financial Management of PIMC and PALC
effective April 1991, having previously served as Vice President - Investor
Marketing of PIMC and PALC since July 1986. Effective July 1, 1994, Mr. Linnan
held the position of Vice President of PIMC.
Mr. Flynn, 54, Senior Vice President and Manager, Task Force Marketing and
General Manager, Cargo, of GECAS, served as Senior Vice President, Aircraft
Marketing for PIMC and PALC effective April 1991, having previously served as
Vice President, North America of PIMC and PALC effective July 1989. Mr. Flynn
joined PALC in March 1989 as Vice President, Cargo. For the two years prior to
joining PALC, Mr. Flynn was a transportation consultant. Effective July 1,
1994, Mr. Flynn held the position of Vice President of PIMC.
Mr. Dillon, 53, became Vice President - Aviation Legal and Insurance Affairs
effective April 1989. Previously, he served as General Counsel of PIMC and
PALC effective January 1986. Effective July 1, 1994, Mr. Dillon held the
positions of Vice President and Assistant Secretary of PIMC.
Mr. Walsh, 45, Senior Vice President and Chief Financial Officer of GECAS,
joined PIMC and PALC in March 1987. He served as Senior Vice President and
Chief Financial Officer, having previously served as Vice President and Chief
Financial Officer. Effective October, 1993, Mr. Walsh resigned as Senior Vice
President and Chief Financial Officer of PIMC to assume new responsibilities at
GE Capital. Effective July 1, 1994, Mr. Walsh held the position of Chief
Financial Officer of PIMC.
Mr. Bowers, 48, Senior Vice President and Associate General Counsel of GECAS,
joined that company in November, 1993. Prior to joining GECAS, Mr. Bowers, an
attorney, was General Counsel of GPA Capital, the capital markets division of
GPA Group plc, from June, 1990 to October, 1993. Prior to joining GECAS, Mr.
Bowers was a partner in the New York office of Paul, Hastings, Janofsky &
Walker from January, 1988 until June, 1990, having joined that firm as an Of
Counsel in October, 1985. Effective November 18, 1994, Mr. Bowers held the
position of Secretary of PIMC.
34<PAGE>
<PAGE>
Through the personnel it has retained, PIMC will oversee the services to be
performed by the Servicer under the Services Agreement, make decisions as to
matters that are effectively reserved to PIMC for decision by the Services
Agreement, receive and analyze reports received from the Servicer, and
otherwise discharge its responsibilities as general partner of the Partnership
(See "The Services Agreement"). In addition, PIMC will continue to perform
investor relations services for the Partnership and will continue to supervise
ReSource/Phoenix, a division of Phoenix Leasing Incorporated which, since
August 1993, has been performing substantially all of the accounting and
financial reporting services previously performed by PIMC, pursuant to a
Program Accounting and Financial Reporting Administration Agreement. Since
July 1994, ReSource/Phoenix has also provided database time-share services,
data processing services and investor transfer services pursuant to a Time-
Share and Transfer Services Agreement.
GECAS - GECAS is a global commercial aviation financial services company that
(i) offers a broad range of financial products to airlines and aircraft
operators, aircraft owners, lenders and investors, including financing leases,
operating leases, tax-advantaged and other incentive-based financing and debt
and equity financing, and (ii) provides management, marketing and technical
support services to aircraft owners, lenders and investors, including GE
Capital, its affiliates, and certain third parties.
GECAS is the world's largest manager of commercial aircraft. From time to
time, GE Capital and its affiliates are likely to acquire additional new and
used aircraft which are expected to be included in the portfolio to be managed
by GECAS. GECAS's managed portfolio includes other aircraft of the same type
as those owned by the Partnership. Accordingly, the Servicer may have certain
conflicts of interest in performing its duties under the Services Agreement.
(See "The Services Agreement", herein.)
The Servicer has represented to PIMC that during the term of the Services
Agreement the Servicer's net worth will be greater than $25,000,000, and has
agreed during such term not to pay or make any dividends or distributions to
its shareholder(s) which would have the effect of reducing the Servicer's net
worth below that amount.
The Services Agreement - Under the Services Agreement, PIMC has engaged the
Servicer to perform, or arrange for the performance of, aircraft management
services, aircraft leasing and sales services, and certain portfolio management
services. These services will include, inter alia, managing the Partnership's
portfolio of aircraft, arranging for the re-leasing and sale of aircraft,
preparing certain reports for the Partnership, employing persons to perform
services for the Partnership, and otherwise performing various portfolio and
partnership management functions. PIMC will continue to serve as general
partner of the Partnership and will retain all of its rights, powers and
interests as general partner. In its capacity as general partner, PIMC will
exercise supervisory control over the Servicer's rendering of services in
connection with the Partnership and will continue to have control and overall
management of all matters relating to the Partnership's ongoing business and
operations. The Servicer is not becoming a general partner of the Partnership
and is not assuming any fiduciary duty that PIMC, as general partner, has had
or will have.
As compensation for services provided by the Servicer, PIMC will pay to the
Servicer (i) a portion of the aircraft management fees, cash available from
operations and cash available from sales proceeds received by PIMC under the
Partnership Agreement, and (ii) all sales commissions received by PIMC under
the Partnership Agreement with respect to sales of Partnership aircraft
arranged by the Servicer. The Servicer will also receive an amount equal to
35<PAGE>
<PAGE>
the reimbursement for Partnership expenses which PIMC receives from the
Partnership on account of expenses incurred by the Servicer in performing
services pursuant to the Services Agreement. The expense reimbursement
limitations in the Partnership Agreement will not be affected by the Services
Agreement.
The Services Agreement recognizes that the Servicer will be providing services
with respect to the separate aircraft of GE Capital and its affiliates as well
as with respect to the aircraft of third parties, and that conflicts of
interest may arise as a result. The Servicer is required to perform services
under the Services Agreement in good faith and, to the extent that a particular
Partnership aircraft and other aircraft then in the Servicer's managed
portfolio are substantially similar in terms of relevant objectively
identifiable characteristics, the Servicer must not discriminate between such
aircraft on the basis of ownership, fees payable to the Servicer, or on an
unreasonable basis. The Services Agreement also requires the Servicer to
perform services in accordance with all applicable laws, in a manner consistent
with all applicable provisions of the Partnership Agreement, and with such care
and in accordance with such standards of performance as would have been applied
to PIMC had PIMC performed the services directly.
The Services Agreement requires the Servicer to take any actions relating to
the Services Agreement that PIMC may direct so long as such actions are
reasonably deemed by PIMC to be necessary or appropriate in order to permit
PIMC to fulfill its fiduciary duties as general partner of the Partnership or
otherwise to be in the best interest of the Partnership or its limited
partners. Furthermore, certain actions with respect to the Partnership may not
be taken by the Servicer without the prior approval of PIMC. Such actions
include, among others: (i) selling or otherwise disposing of one or more
aircraft by the Partnership (including the sale or other disposition of an
aircraft as parts or scrap); (ii) entering into any new lease (or any renewal
or extension of an existing lease) with respect to any aircraft; (iii)
terminating or modifying any lease with respect to any aircraft; (iv) financing
or refinancing one or more aircraft by the Partnership; (v) making material
capital, maintenance or inspection expenditures for the Partnership;
(vi) hiring any broker to sell or lease any aircraft; (vii) entering into any
contract (including any contract of sale), agreement or instrument other than a
contract, agreement or instrument entered into in the ordinary course of
business that has a term of less than one year and that does not contemplate
payments which will exceed, over the term of the contract, agreement or
instrument, $100,000 in the aggregate; (viii) changing in any material respect
the type or amount of insurance coverage in place for the Partnership; and (ix)
incurring any Partnership expenses for which the Servicer will seek
reimbursement pursuant to the Services Agreement which exceed in the aggregate,
for any calendar month, the sum of $10,000. Absent PIMC authorization, it is
contemplated that the Servicer will not enter into contracts, agreements or
instruments on behalf of the Partnership.
Absent earlier termination based on certain events (including the withdrawal,
removal or replacement of PIMC as general partner of the Partnership), the
Services Agreement will terminate upon the completion of the winding up and
liquidation of the Partnership and the distribution of all of its assets.
Certain Legal Proceedings:
As reported in the Partnership's 1990 Form 10-K, on June 8, 1990, a purported
class action entitled Harner, et al., v. Prudential Bache Securities, Inc. et
al., (to which the Partnership was not a party) was filed by certain purchasers
of units in a 1983 and 1984 public offering in several corporate aircraft
public partnerships. Polaris Aircraft Leasing Corporation and Polaris
36<PAGE>
<PAGE>
Investment Management Corporation were named as two of the defendants in this
action. On September 24, 1991, the court entered an order in favor of Polaris
Aircraft Leasing Corporation and Polaris Investment Management Corporation
granting their motion for summary judgment and dismissing the plaintiffs'
complaint with prejudice. On March 13, 1992, plaintiff filed a notice of
appeal to the United States Court of Appeals for the Sixth Circuit. On
August 21, 1992, the Sixth Circuit ordered consolidation of the appellants'
causes for the purposes of briefing and submission. On September 9, 1994, the
Sixth Circuit affirmed the lower court's decision dismissing the action.
On October 27, 1992, a class action complaint entitled Weisl, Jr. et
al., v. Polaris Holding Company, et al. was filed in the Supreme Court of the
State of New York for the County of New York. The complaint sets forth various
causes of action which include allegations against certain or all of the
defendants (i) for alleged fraud in connection with certain public offerings,
including that of the Partnership, on the basis of alleged misrepresentation
and alleged omissions contained in the written offering materials and all
presentations allegedly made to investors; (ii) for alleged negligent
misrepresentation in connection with such offerings; (iii) for alleged breach
of fiduciary duties; (iv) for alleged breach of third party beneficiary
contracts; (v) for alleged violations of the NASD Rules of Fair Practice by
certain registered broker dealers; and (vi) for alleged breach of implied
covenants in the customer agreements by certain registered brokers. The
complaint seeks an award of compensatory and other damages and remedies. On
January 19, 1993, plaintiffs filed a motion for class certification. On March
1, 1993, defendants filed motions to dismiss the complaint on numerous grounds,
including failure to state a cause of action and statute of limitations. On
July 20, 1994, the court entered an order dismissing almost all of the claims
in the complaint and amended complaint. Certain claims, however, remain
pending. Plaintiffs filed a notice of appeal on September 2, 1994. The
Partnership is not named as a defendant in this action.
On or around February 17, 1993, a civil action entitled Einhorn, et al. v.
Polaris Public Income Funds, et al., was filed in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida against, among others, Polaris
Investment Management Corporation and Polaris Depositary Company. Plaintiffs
seek class action certification on behalf of a class of investors in the
Partnership, Polaris Aircraft Income Fund V and Polaris Aircraft Income Fund VI
who purchased their interests while residing in Florida. Plaintiffs allege the
violation of Section 517.301, Florida Statutes, in connection with the offering
and sale of units in the Partnership and the other Polaris Aircraft Income
Funds. Among other things, plaintiffs assert that the defendants sold
interests in the Partnership and the other Polaris Aircraft Income Funds while
"omitting and failing to disclose the material facts questioning the economic
efficacy of" the Partnership and such Polaris Aircraft Income Funds.
Plaintiffs seek rescission or damages, in addition to interest, costs, and
attorneys' fees. On April 5, 1993, defendants filed a motion to stay this
action pending the final determination of a prior filed action in the Supreme
Court for the State of New York entitled Weisl v. Polaris Holding Company. On
that date, defendants also filed a motion to dismiss the complaint on the
grounds of failure to attach necessary documents, failure to plead fraud with
particularity and failure to plead reasonable reliance. On April 13, 1993, the
court denied the defendants' motion to stay. On May 7, 1993, the court stayed
the action pending an appeal of the denial of the motion to stay. Defendants
subsequently filed with the Third District Court of Appeal a petition for writ
of certiorari to review the lower court's order denying the motion to stay. On
October 19, 1993, the Court of Appeal granted the writ of certiorari, quashed
the order, and remanded the action with instruction to grant the stay. The
Partnership is not named as a defendant in this action.
37<PAGE>
<PAGE>
On or around May 14, 1993, a purported class action entitled Moross, et al., v.
Polaris Holding Company, et al., was filed in the United States District Court
for the District of Arizona. This purported class action was filed on behalf
of investors in Polaris Aircraft Income Funds I-VI by nine investors in such
Polaris Aircraft Income Funds. The complaint alleges that defendants violated
Arizona state securities statues and committed negligent misrepresentation and
breach of fiduciary duty by misrepresenting and failing to disclose material
facts in connection with the sale of limited partnership units in the above-
named funds. An amended complaint was filed on September 17, 1993, but has not
been served upon defendants. On or around October 4, 1993, defendants filed a
notice of removal to the United States District Court for the District of
Arizona. Defendants also filed a motion to stay the action pending the final
determination of a prior filed action in the Supreme Court for the State of New
York entitled Weisl v. Polaris Holding Company ("Weisl") and to defendants'
time to respond to the complaint until 20 days after disposition of the motion
to action pending resolution of the motions for class certification and motions
to dismiss pending in Weisl. On January 20, 1994, the court stayed the action
and required defendants to file status reports every sixty days setting forth
the status of the motions in Weisl. The Partnership is not named as a
defendant in this action.
On September 21, 1993, a purported derivative action entitled Novak, et al., v.
Polaris Holding Company, et al., was filed in the Supreme Court of the State of
New York, County of New York. This action was brought on behalf of Polaris
Aircraft Income Funds I-III. The complaint names as defendants Polaris Holding
Company, its affiliates and others. Each of Polaris Aircraft Income Fund I-III
is named as a nominal defendant. The complaint alleges, among other things,
that defendants mismanaged such Polaris Aircraft Income Funds, engaged in self-
dealing transactions that were detrimental to such Polaris Aircraft Income
Funds and failed to make required disclosure in connection with the sale of the
units in the Partnership and the other Polaris Aircraft Income Funds. The
complaint alleges claims of breach of fiduciary duty and constructive fraud and
seeks, among other things an award of compensatory and punitive damages in an
unspecified amount, re-judgment interest, and attorneys' fees and costs. On
January 13, 1994, certain of the defendants, including Polaris Holding Company,
filed motions to dismiss the complaint on the grounds of, among others, failure
to state a cause of action and failure to plead the alleged wrong in detail.
On August 11, 1994, the court denied in part and granted in part defendants'
motions to dismiss. Specifically, the court denied the motions as to the
claims for breach of fiduciary duty, but dismissed plaintiffs' claim for
constructive fraud with leave to replead. On October 7, 1994, defendants filed
a notice of appeal. On November 15, 1994, defendants submitted an answer to
the remaining causes of action.
On or around March 13, 1993, a purported class action entitled Kahn v. Polaris
Holding Company, et al., was filed in the Supreme Court of the State of New
York, County of New York. This purported class action on behalf of investors
in Polaris Aircraft Income Fund V ("PAIF V") was filed by one investor in PAIF
V. The complaint names as defendants Polaris Investment Management
Corporation, Polaris Holding Company, its affiliates and others. The complaint
charges defendants with common law fraud, negligent misrepresentation and
breach of fiduciary duty in connection with certain misrepresentations and
omissions allegedly made in connection with the sale of interest in PAIF V.
Plaintiffs seek compensatory and consequential damages in an unspecified
amount, plus interest, disgorgement and restitution of all earnings, profits
and other benefits received by defendants as a result of their alleged
practices, and attorneys' fees and costs. Defendants' time to move, answer or
otherwise plead with respect to the complaint was extended by stipulation up to
and including April 24, 1995. The Partnership is not named as a defendant in
this action.
38<PAGE>
<PAGE>
On June 8, 1994, a consolidated complaint captioned In re Prudential Securities
Inc. Limited Partnerships Litigation was filed in the United States District
Court for the Southern District of New York, purportedly consolidating cases
that had been transferred from other federal courts by the Judicial Panel on
Multi-District Litigation. The consolidated complaint names as defendants
Prudential entities and various other sponsors of limited partnerships sold by
Prudential, including Polaris Holding Company, one of its former officers,
Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation
and Polaris Securities Corporation. The complaint alleges that the Prudential
defendants created a scheme for the sale of approximately $8-billion of limited
partnership interests in 700 assertedly high-risk limited partnerships,
including the Partnership, to approximately 350,000 investors by means of false
and misleading offering materials; that the sponsoring organizations (including
the Polaris entities) participated with the Prudential defendants with respect
to, among other things, the partnerships that each sponsored; and that all of
the defendants conspired to engage in a nationwide pattern of fraudulent
conduct in the marketing of all limited partnerships sold by Prudential. The
complaint alleges violations of the federal Racketeer Influenced and Corrupt
Organizations Act and the New Jersey counterpart thereof, fraud, negligent
misrepresentation, breach of fiduciary duty and breach of contract. The
complaint seeks rescission, unspecified compensatory damages, treble damages,
disgorgement of profits derived from the alleged acts, costs and attorneys
fees. On October 31, 1994, Polaris Investment Management Corporation and other
Polaris entities filed a motion to dismiss the consolidated complaint on the
grounds of, inter alia, statute of limitations and failure to state a claim.
The Partnership is not named as a defendant in this action.
A further litigation captioned Romano v. Ball et. al, an action by Prudential
Insurance Company policyholders against many of the same defendants (including
Polaris Investment Management Corporation and Polaris Aircraft Leasing
Corporation), has also been commenced by policy holders of the Prudential
Insurance Company as a purported derivative action on behalf of the Prudential
Insurance Company. The complaint alleges claims under the federal Racketeer
Influenced and Corrupt Organizations Act, as well as claims for waste,
mismanagement and intentional and negligent misrepresentation, and seeks
unspecified compensatory, treble and punitive damages. The case is being
coordinated with In re Prudential.
On or about February 6, 1995, a class action complaint entitled Cohen, et al.
v. J.B. Hanauer & Company, et al. was filed in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida. The
complaint names J.B. Hanauer & Company, General Electric Capital Corporation,
General Electric Financial Services, Inc., and General Electric Company as
defendants. The action purports to be on behalf of "approximately 5,000
persons throughout the United States" who purchased units in Polaris Aircraft
Income Funds I through VI. The complaint sets forth various causes of action
which include allegations against certain or all of the defendants (i) for
violation of Section 12(2) of the Securities Act of 1933, as amended, by a
registered broker dealer and for violation of Section 15 of such act by all
defendants in connection with certain public offerings, including that of the
Partnership, on the basis of alleged misrepresentation and alleged omissions
contained in the written offering materials and all presentations allegedly
made to investors; (ii) for alleged fraud in connection with such offerings;
(iii) for alleged negligent misrepresentation in connection with such
offerings; (iv) for alleged breach of fiduciary duties; (v) for alleged breach
of third party beneficiary contracts; (vi) for alleged violations of the NASD
Rules of Fair Practice by a registered broker dealer; and (vii) for alleged
breach of implied covenants in the customer agreements by a registered broker
dealer. The complaint seeks an award of compensatory and punitive damages and
other remedies. The Partnership is not named as a defendant in this action.
39<PAGE>
<PAGE>
On or about January 12, 1995, a class action complaint entitled Cohen, et al.
v. Kidder Peabody & Company, Inc., et al. was filed in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida. The
complaint names Kidder Peabody & Company, Inc., General Electric Capital
Corporation, General Electric Financial Services, Inc., and General Electric
Company as defendants. The action purports to be on behalf of "approximately
20,000 persons throughout the United States" who purchased units in Polaris
Aircraft Income Funds III through VI. The complaint sets forth various causes
of action which include allegations against certain or all of the defendants
(i) for violation of Section 12(2) of the Securities Act of 1933, as amended,
by a registered broker dealer and for violation of Section 15 of such act by
all defendants in connection with certain public offerings on the basis of
alleged misrepresentation and alleged omissions contained in the written
offering materials and all presentations allegedly made to investors; (ii) for
alleged fraud in connection with such offerings; (iii) for alleged negligent
misrepresentation in connection with such offerings; (iv) for alleged breach of
fiduciary duties; (v) for alleged breach of third party beneficiary contracts;
(vi) for alleged violations of the NASD Rules of Fair Practice by a registered
broker dealer; and (vii) for alleged breach of implied covenants in the
customer agreements by a registered broker dealer. The complaint seeks an
award of compensatory and punitive damages and other remedies. The Partnership
is not named as a defendant in this action.
Other Proceedings - Part I, Item 3 discusses certain other actions arising out
of certain public offerings, including that of the Partnership, to which both
the Partnership and its general partner are parties.
Disclosure pursuant to Section 16, Item 405 of Regulation S-K:
Based solely on its review of the copies of such forms received or written
representations from certain reporting persons that no Forms 3, 4, or 5 were
required for those persons, the Partnership believes that, during 1994 all
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were met.
40<PAGE>
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Item 11. Management Remuneration and Transactions
PAIF-IV has no directors or officers. PAIF-IV is managed by PIMC, the General
Partner. In connection with management services provided, management and
advisory fees of $577,742 were paid to PIMC in 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management
a) No person owns of record, or is known by PAIF-IV to own beneficially
more than five percent of any class of voting securities of PAIF-IV.
b) The General Partner of PAIF-IV owns the equity securities of PAIF-IV as
set forth in the following table:
(1) (2) (3) (4)
Title Name of Amount and Nature of Percent
of Class Beneficial Owner Beneficial Ownership of Class
-------- ---------------- -------------------- --------
General Polaris Investment Represents a 10.0% interest 100%
Partner Management of all cash distributions,
Interest Corporation gross income in an amount
equal to 9.09% of distributed
cash available from operations,
and a 1% interest in net income
or loss
c) There are no arrangements known to PAIF-IV, including any pledge by any
person of securities of PAIF-IV, the operation of which may at a
subsequent date result in a change in control of PAIF-IV.
Item 13. Certain Relationships and Related Transactions
None.
41<PAGE>
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements.
The following are included in Part II of this report:
Page No.
--------
Report of Independent Public Accountants 20
Balance Sheets 21
Statements of Operations 22
Statements of Changes in Partners'
Capital (Deficit) 23
Statements of Cash Flows 24
Notes to Financial Statements 25
2. Reports on Form 8-K.
None.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
10. Material Contracts.
a. Services Agreement.
27. Financial Data Schedules (Filed electronically only).
4. Financial Statement Schedules.
All financial statement schedules are omitted because they are not
applicable, not required or because the required information is included
in the financial statements or notes thereto.
42<PAGE>
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SIGNATURES
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 IV,
A California Limited Partnership
(REGISTRANT)
By: Polaris Investment
Management Corporation
General Partner
March 23, 1995 By: /S/ Howard L. Feinsand
------------------- --------------------------------
Date Howard L. Feinsand, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/Howard L. Feinsand Chairman of the Board and March 23, 1995
--------------------- President of Polaris --------------
(Howard L. Feinsand) Investment Management
Corporation, General Partner
of the Registrant
/S/Richard J. Adams Vice President and Director of March 23, 1995
------------------- Polaris Investment Management --------------
(Richard J. Adams) Corporation, General Partner
of the Registrant
/S/James F. Walsh Chief Financial Officer of March 23, 1995
----------------- Polaris Investment Management --------------
(James F. Walsh) Corporation, General Partner
of the Registrant
43<PAGE>
<PAGE>
Exhibit 10. Material Contracts
POLARIS AIRCRAFT INCOME FUND IV
--------------------------------------------------------------------------------
SERVICES AGREEMENT
By and Between
POLARIS INVESTMENT MANAGEMENT CORPORATION,
a California corporation, and
GE CAPITAL AVIATION SERVICES, INC.,
a Delaware corporation
Dated as of July 1, 1994
--------------------------------------------------------------------------------
<PAGE>
<PAGE>
SERVICES AGREEMENT
TABLE OF CONTENTS
-----------------
PAGE
----
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
2. PROVISION OF SERVICES AND COMPENSATION THEREFOR . . . . . . . 3
2.1 Performance of Services; Staff and Resources . . . . 3
2.2 Compensation for Services . . . . . . . . . . . . . 4
2.3 Expense Reimbursement . . . . . . . . . . . . . . . 4
2.4 Subordination . . . . . . . . . . . . . . . . . . . 5
2.5 Standard of Performance . . . . . . . . . . . . . . 5
2.6 Cooperation . . . . . . . . . . . . . . . . . . . . 5
2.7 Servicer Not a General Partner . . . . . . . . . . . 5
2.8 PIMC Responsibility . . . . . . . . . . . . . . . . 5
3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 6
3.1 Representations by PIMC . . . . . . . . . . . . . . 6
3.2 Representations by Servicer . . . . . . . . . . . . 6
3.3 Survival . . . . . . . . . . . . . . . . . . . . . . 7
4. CONTROL AND DECISION-MAKING . . . . . . . . . . . . . . . . . 7
4.1 General Partner's Role; Actions Requiring
Approval . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Servicer Committee . . . . . . . . . . . . . . . . . 8
4.3 Reports and Other Documents . . . . . . . . . . . . 8
4.4 Access . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Maintenance of Books and Records . . . . . . . . . . 9
5. EXCULPATION AND INDEMNIFICATION . . . . . . . . . . . . . . . 9
5.1 Exculpation and Indemnification of Servicer . . . . 9
5.2 Exculpation and Indemnification of PIMC . . . . . . 10
6. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . 10
6.1 Term . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Termination by PIMC . . . . . . . . . . . . . . . . 10
6.3 Termination by Servicer . . . . . . . . . . . . . . 10
6.4 Effect of Termination . . . . . . . . . . . . . . . 11
6.5 Post-Termination Matters . . . . . . . . . . . . . . 11
7. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . 12
8. CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . 12
9. NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . 13
i<PAGE>
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PAGE
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10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 No Commingling . . . . . . . . . . . . . . . . . . . 13
10.2 Successors and Assigns . . . . . . . . . . . . . . . 13
10.3 Governing Law . . . . . . . . . . . . . . . . . . . 13
10.4 Entire Agreement . . . . . . . . . . . . . . . . . . 13
10.5 Waivers . . . . . . . . . . . . . . . . . . . . . . 13
10.6 Counterparts . . . . . . . . . . . . . . . . . . . . 13
10.7 Independent Contractor Relationship . . . . . . . . 14
10.8 Further Assurances . . . . . . . . . . . . . . . . . 14
10.9 Severability . . . . . . . . . . . . . . . . . . . . 14
10.10 Notices . . . . . . . . . . . . . . . . . . . . . . 14
10.11 Titles and Captions . . . . . . . . . . . . . . . . 15
10.12 Amendments to Partnership Agreement . . . . . . . . 15
10.13 Attorneys' Fees . . . . . . . . . . . . . . . . . . 15
10.14 Additional Insured . . . . . . . . . . . . . . . . . 15
10.15 Net Worth of Servicer . . . . . . . . . . . . . . . 15
ii<PAGE>
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SERVICES AGREEMENT
------------------
THIS SERVICES AGREEMENT ("Services Agreement") is entered into to be
effective as of July 1, 1994, by and between: GE CAPITAL AVIATION SERVICES,
INC., a Delaware corporation ("Servicer"), and POLARIS INVESTMENT MANAGEMENT
CORPORATION, a California corporation ("PIMC").
RECITALS
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A. PIMC currently serves as general partner of Polaris Aircraft
Income Fund IV, a California Limited Partnership formed under the laws of the
State of California (the "Partnership").
B. PIMC desires to enter into this Services Agreement with Servicer
in order to engage Servicer to perform or cause to be performed for the
Partnership certain services which are more specifically described in
Section 2.
C. Servicer, having personnel with substantial expertise in the
areas of managing, leasing, selling and otherwise dealing with aircraft of the
type owned by the Partnership and providing administrative services in
connection therewith, and having the capability, technology and other
supporting resources to perform the services as they are required to be
performed by Servicer pursuant to this Services Agreement, desires to be
engaged to perform such services.
D. PIMC will continue to maintain such executive personnel and
other staff as PIMC shall determine in order to enable PIMC to discharge all of
its responsibilities, including those referred to in this Services Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
-----------
For purposes of this Services Agreement, the following terms shall
have the respective meanings ascribed to them below. Capitalized terms used
herein, but not otherwise defined below or elsewhere in this Services
Agreement, shall have the respective meanings assigned to them in the
Partnership Agreement (as such term is hereinafter defined):
Affiliate of any person shall mean: (i) any other person directly or
indirectly controlling, controlled by or under common control with such
person; (ii) any other person owning or controlling ten percent or more of
the outstanding voting securities of such person; (iii) any officer,
director or partner of such person; and (iv) if such other person is an
officer, director or partner, any company for which such person acts in
such capacity.
Aircraft shall mean the aircraft owned directly or indirectly by the
Partnership and any related equipment, including spare parts and engines,
and shall include any beneficial interest in an Aircraft.
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Aircraft Management Fee shall have the meaning set forth in the
Partnership Agreement.
Aircraft Management Services shall mean the Aircraft management
services which are provided to the Partnership by PIMC pursuant to the
terms of the Partnership Agreement in managing the Partnership's portfolio
of Aircraft, and shall include the services described in Section 9.3 of
the Partnership Agreement with respect to the Aircraft.
Aircraft Sales Services shall mean the services which are provided to
the Partnership by PIMC pursuant to the terms of the Partnership Agreement
in connection with the sale or other disposition of one or more of the
Aircraft by the Partnership.
Assignment shall have the meaning set forth in Section 7 of this
Services Agreement.
Cash Available from Operations shall have the meaning set forth in
Section 2.1 of the Partnership Agreement.
Cash Available from Sale Proceeds shall have the meaning set forth in
Section 2.1 of the Partnership Agreement.
Conflicts Standard shall have the meaning set forth in Section 8 of
this Services Agreement.
Effective Date shall mean July 1, 1994.
GE Capital shall mean General Electric Capital Corporation, a New
York corporation.
Legal Proceeding shall mean any action, suit, litigation,
arbitration, proceeding (including, without limitation, any civil,
criminal, administrative or appellate proceeding), prosecution, audit,
examination, inquiry, inquest, hearing or investigation.
Other Assets shall have the meaning set forth in Section 8 of this
Services Agreement.
Partnership shall have the meaning set forth in Recital A.
Partnership Agreement shall mean the Amended and Restated Limited
Partnership Agreement governing the affairs of the Partnership in effect
as of the Effective Date, as the same may be amended thereafter from time
to time.
Partnership Expenses shall mean any expenses that the Partnership may
permissibly pay or reimburse to PIMC or an Affiliate of PIMC pursuant to
the terms of the Partnership Agreement, including but not limited to all
such expenses which are described in Section 10.1 of the Partnership
Agreement.
PIMC Managed Asset shall have the meaning set forth in Section 8 of
this Services Agreement.
Portfolio Management Services shall mean the portfolio and
partnership management services which are provided to the Partnership
pursuant to the terms of the Partnership Agreement, including but not
limited to:
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(i) preparing or causing to be prepared certain reports,
statements and other relevant information relating to the Partnership
as PIMC may from time to time request;
(ii) employing employees, agents, independent contractors,
brokers, attorneys, accountants and other persons to perform services
for the Partnership, and dismissing such persons;
(iii) preparing, filing and publishing any and all instruments
or documents necessary to enable the Partnership to transact business
or otherwise to exist, operate and be recognized as a limited
partnership in jurisdictions outside California;
(iv) preparing financial projections of future results of
operations;
(v) causing to be performed any substantive accounting or tax
related research on new issues;
(vi) pursuant to the appropriate instruction by PIMC, causing
checks to be signed and approving wire transfers from bank accounts;
(vii) preparing and coordinating any communication regarding
delinquent payments with aircraft lessees; and
(viii) performing financial analyses with respect to
capitalization of aircraft expenditures.
; provided, however, that Portfolio Management Services shall not include
(i) Aircraft Management Services, (ii) Aircraft Sales Services,
(iii) investor relations services, and (iv) those accounting and financial
reporting services defined as the "Services" in that certain Program
Accounting and Financial Reporting Administration Agreement between PIMC
and ReSource/Phoenix, a division of Phoenix Leasing Incorporated.
Sales Commission shall have the meaning assigned to such term in
Section 2.1 of the Partnership Agreement.
Servicer Committee shall have the meaning set forth in Section 4.2 of
this Services Agreement.
Services shall mean the Aircraft Sales Services, the Aircraft
Management Services, and the Portfolio Management Services.
Standard of Performance shall have the meaning set forth in
Section 2.5 of this Services Agreement.
Termination Date shall mean the date on which this Services Agreement
terminates pursuant to the provisions of Section 6 of this Services
Agreement.
Unit Holders shall mean the investors in the Partnership, whether
denominated as limited partners or unit holders, and their respective
assignees or transferees.
2. PROVISION OF SERVICES AND COMPENSATION THEREFOR.
-----------------------------------------------
2.1 Performance of Services; Staff and Resources. From and after the
Effective Date, Servicer shall provide or arrange for the provision of the
3<PAGE>
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Aircraft Management Services, Aircraft Sales Services and Portfolio Management
Services. Servicer shall employ or otherwise engage such staff and maintain
such supporting resources as Servicer shall reasonably deem necessary, both in
number and in quality, to enable Servicer to perform the Services in accordance
with the terms of this Services Agreement.
2.2 Compensation For Services. As full compensation for the performance
of the Services by Servicer, PIMC shall pay to Servicer the following amounts:
(i) an amount equal to fifty percent (50%) of the Aircraft
Management Fees received by PIMC at any time pursuant to Section 9.3 of
the Partnership Agreement with respect to the period from the Effective
Date until the Termination Date, which amount shall be paid to Servicer
within five days after the date on which PIMC receives the corresponding
Aircraft Management Fees;
(ii) an amount equal to all Sales Commissions received by PIMC at
any time pursuant to Section 9.4 of the Partnership Agreement with respect
to sales of Aircraft arranged or effected by Servicer pursuant to this
Services Agreement during the period from the Effective Date until the
Termination Date, which amount shall be paid to Servicer by PIMC within
five days after the date on which PIMC receives the corresponding Sales
Commissions with respect to such Aircraft;
(iii) within five days after the end of each calendar year, with
respect to the immediately preceding year, an amount equal to the
difference between (A) the Cash Available From Operations and Cash
Available From Sale Proceeds which PIMC receives from the Partnership
during such preceding year, and (B) any amounts paid with respect to such
preceding year by PIMC to parties other than Servicer for services related
to the Partnership (not including any such amounts for which PIMC is
entitled to reimbursement from the Partnership); and
(iv) an amount equal to the reimbursement (the "Expense
Reimbursement") for Partnership Expenses which PIMC receives from the
Partnership pursuant to Section 2.3 herein on account of expenses incurred
by Servicer in performing the Services pursuant to this Services
Agreement.
2.3 Expense Reimbursement. The Expense Reimbursement to be made to
Servicer pursuant to clause (iv) of Section 2.2 shall be based upon Services
actually performed by Servicer during the period from the Effective Date until
the Termination Date, and shall be subject to all of the expense reimbursement
limitations set forth in the Partnership Agreement, including but not limited
to those set forth in Sections 10.1 and 10.2 of the Partnership Agreement.
Servicer shall on a monthly basis submit to PIMC an itemized statement of
expenses incurred by Servicer in performing the Services pursuant to this
Services Agreement for the immediately preceding month as to which Servicer
believes it is entitled to reimbursement pursuant to the Partnership Agreement.
Such statement shall be accompanied by such supporting detail and documentation
(including without limitation employee time records, receipts, expense
allocation information and the like) as PIMC shall reasonably request. After
receiving such itemized statement and such detail and documentation for a
particular month, PIMC shall review the same and promptly make a determination
of the amount of such expenses which are "Partnership Expenses" and as to which
Servicer is entitled to be reimbursed pursuant to the Partnership Agreement.
The determination of PIMC in this regard shall be final and binding upon
Servicer, absent manifest error on the part of PIMC. Promptly after making
such determination, PIMC shall submit to the Partnership for reimbursement the
amount of Partnership Expenses PIMC so determines are reimbursable, and will
4<PAGE>
<PAGE>
pay to Servicer an amount equal to the amount of such expenses actually
reimbursed by the Partnership to PIMC on account of Services performed by
Servicer, within five days after the date PIMC receives such reimbursement from
the Partnership.
2.4 Subordination. Servicer hereby acknowledges that payments by the
Partnership to PIMC of Sales Commissions are subordinated to certain returns to
the Unit Holders as provided in Section 9.4 of the Partnership Agreement and
that no amounts will be paid to Servicer unless and until such time, if any, as
PIMC shall actually receive from the Partnership the Sales Commissions.
2.5 Standard of Performance. In performing the Services required to be
performed by it pursuant to this Services Agreement, Servicer shall perform
such Services (i) in accordance with all applicable laws, rules and
regulations, (ii) in a manner that is consistent with all applicable provisions
of the Partnership Agreement (and Servicer shall take no action with respect to
the Partnership which PIMC as general partner of the Partnership is not
permitted to take), and (iii) with such care and in accordance with such
standards of performance as would be applied to the general partner of the
Partnership pursuant to the terms of the Partnership Agreement if the general
partner had performed such Services directly (including, without limitation, in
accordance with any fiduciary duty owed by the general partner of the
Partnership as a result of its status as general partner of the Partnership).
Without limiting the generality of the foregoing, Servicer shall not directly
or indirectly take any of the actions prohibited by Section 15.3 of the
Partnership Agreement. (The standards set forth in this Section 2.5 shall be
referred to collectively as the "Standard of Performance").
2.6 Cooperation. PIMC shall at all times cooperate with Servicer to
enable Servicer to provide the Services, including providing Servicer with all
powers of attorney as may be reasonably necessary or appropriate for Servicer
to perform the Services.
2.7 Servicer Not a General Partner. PIMC shall continue to serve as
general partner of the Partnership and shall continue to have all of the
rights, powers, and interests as general partner, whether granted to it by the
Partnership Agreement, by applicable law, rule or regulation, or otherwise.
Nothing in this Services Agreement is intended to imply that Servicer is acting
as or substituting for PIMC as the general partner of the Partnership, and PIMC
acknowledges that the responsibility for the Partnership and the protection of
the assets of the Partnership which PIMC had immediately prior to the Effective
Date by virtue of its role as general partner of the Partnership shall remain
with PIMC, and PIMC shall take such actions as PIMC deems necessary or
appropriate in order to discharge such responsibility. Without limiting the
foregoing, no provision of this Services Agreement (including without
limitation the provisions of this Section 2 requiring Servicer to perform
Portfolio Management Services for the Partnership) shall be construed as
stating or implying that Servicer is acting as or substituting for PIMC as
general partner of the Partnership, or that Servicer has assumed any fiduciary
duty that PIMC, as general partner of the Partnership, has had or hereafter
has.
2.8 PIMC Responsibility. Notwithstanding the appointment of Servicer to
perform the Services, PIMC shall continue to have and exercise through the PIMC
board of directors control and management of all matters related to its ongoing
business, operations, assets and liabilities.
5<PAGE>
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3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations by PIMC. PIMC hereby represents and warrants to
Servicer as follows:
(i) PIMC (a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and (b) has
full corporate power and authority to enter into this Services Agreement
and to perform all of the terms, conditions and provisions set forth
herein to be performed by PIMC, and the execution, delivery and
performance of this Services Agreement by PIMC have been duly authorized
by all necessary action on the part of PIMC and its officers, directors
and stockholder, and this Services Agreement has been duly executed and
delivered by PIMC;
(ii) this Services Agreement is binding upon and enforceable against
PIMC in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity);
(iii) none of the transactions hereby contemplated to be performed
by PIMC, nor the fulfillment of the terms, provisions and conditions
hereof, will materially conflict with, or result in a material breach of
any of the material terms, conditions, or provisions of, or constitute a
default under (a) any of the provisions of PIMC's articles of
incorporation or bylaws, (b) any resolution adopted by the stockholder or
board of directors of PIMC, or (c) any material agreement or instrument to
which PIMC is a party or by which it is bound;
(iv) the Partnership Agreement permits PIMC to engage Servicer to
perform the Services described in this Services Agreement on the terms set
forth herein;
(v) the copy of the Partnership Agreement heretofore provided to
Servicer is a true, correct and complete copy; and
(vi) PIMC is the sole general partner of the Partnership.
3.2 Representations by Servicer. Servicer hereby represents and warrants
to PIMC as follows:
(i) Servicer (a) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and (b) has
full corporate power and authority to enter into this Services Agreement
and to perform all of the terms, conditions and provisions set forth
herein to be performed by Servicer, and the execution, delivery and
performance of this Services Agreement by Servicer have been duly
authorized by all necessary action on the part of Servicer and its
officers, directors and stockholder, and this Services Agreement has been
duly executed and delivered by Servicer;
(ii) this Services Agreement is binding upon and enforceable against
Servicer in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); and
(iii) none of the transactions hereby contemplated to be performed
by Servicer, nor the fulfillment of the terms, provisions and conditions
6<PAGE>
<PAGE>
hereof, will materially conflict with, or result in a material breach of
any of the material terms, conditions, or provisions of, or constitute a
default under (a) any of the provisions of Servicer's certificate of
incorporation or bylaws, (b) any resolution adopted by the stockholder or
board of directors of Servicer, or (c) any material agreement or
instrument to which Servicer is a party or by which it is bound.
3.3 Survival. All representations and warranties contained in this
Services Agreement or made pursuant hereto or in connection herewith shall
remain in effect for a period of 12 months after the Termination Date, after
which they shall expire and cease to be of any force and effect, provided that
any representation or warranty which is not true when made and which is made
fraudulently and with intent to defraud or mislead shall survive such 12-month
period.
4. CONTROL AND DECISION-MAKING.
---------------------------
4.1 General Partner's Role; Actions Requiring Approval.
(a) PIMC, as general partner of the Partnership, shall have the
right to review and supervise all actions taken by Servicer hereunder.
Servicer shall take any actions relating to this Services Agreement that PIMC
may direct so long as such actions are reasonably deemed by PIMC to be
necessary or appropriate in order to permit PIMC to fulfill its fiduciary
duties as general partner of the Partnership or otherwise to be in the best
interests of the Partnership or its Unit Holders.
(b) Except as provided in this subsection (b) or subsection (c)
below, Servicer shall have the power and authority to provide or arrange for
the provision of the Services, without prior approval from PIMC.
Notwithstanding anything herein to the contrary, the following actions with
respect to the Partnership shall require the prior approval of PIMC, and if
Servicer shall propose that PIMC approve any of the following actions with
respect to the Partnership, it shall prepare and submit to PIMC, at a time
sufficiently far in advance of the date such action is proposed to be taken as
is reasonably necessary for PIMC to consider whether or not to approve such
proposed action (and in no event less than five days prior to the date of such
proposed action), a written description of the proposed action stating the
basis therefor and Servicer's recommendation with respect thereto (together
with such supporting materials as PIMC may reasonably request):
(i) selling or otherwise disposing of one or more Aircraft by the
Partnership (including, without limitation, the sale or other disposition
of an Aircraft as parts or scrap);
(ii) entering into any new lease (or any renewal or extension of an
existing lease) with respect to any Aircraft;
(iii) terminating or modifying any lease with respect to any
Aircraft;
(iv) financing or refinancing one or more Aircraft by the
Partnership;
(v) borrowing money by the Partnership;
(vi) surrendering an Aircraft to a lender;
7<PAGE>
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(vii) filing for protection under the bankruptcy laws by the
Partnership;
(viii) deferring or waiving any Partnership obligations to PIMC;
(ix) hiring counsel for the Unit Holders;
(x) making material capital, maintenance or inspection expenditures
for the Partnership;
(xi) hiring any broker to sell or lease any Aircraft;
(xii) causing an Aircraft to be placed in storage for a period in
excess of thirty days;
(xiii) transferring Partnership assets to a master limited
partnership or any other form of so-called partnership roll-up;
(xiv) entering into any contract (including, without limitation, any
contract of sale), agreement or instrument other than a contract,
agreement or instrument entered into in the ordinary course of business
that has a term of less than one year and that does not contemplate
payments which will exceed, over the term of the contract, agreement or
instrument, $100,000 in the aggregate;
(xv) issuing any guaranty on behalf of, or otherwise pledging the
credit of, the Partnership;
(xvi) incurring on behalf of the Partnership any liability (actual
or contingent) or causing any such liability to be incurred;
(xvii) amending the Partnership Agreement in any respect;
(xviii) changing in any material respect the type or amount of
insurance coverage in place for the Partnership as of the Effective Date;
(xix) making any distributions to Unit Holders;
(xx) commencing any Legal Proceeding with respect to the Partnership
or the Aircraft; and
(xxi) incurring any Partnership Expenses for which Servicer will
seek reimbursement pursuant to this Services Agreement which exceed in the
aggregate, for any calendar month, the sum of $10,000.
(c) In addition to the matters listed in subsection (b) above, PIMC
shall have the right, upon at least ten (10) days' prior written notice to
Servicer, to designate any additional action as an action that shall require
PIMC's prior approval if, in PIMC's reasonable judgment, such designation is
reasonably necessary in order to permit PIMC to carry out its fiduciary duties
as general partner of the Partnership.
4.2 Servicer Committee. Servicer has established or shall hereafter
establish a committee (the "Servicer Committee) which shall have, and shall
regularly exercise, the authority to approve matters relating to this Services
Agreement. Servicer shall submit to PIMC for PIMC's approval only those
proposed actions which have previously been approved by the Servicer Committee.
4.3 Reports and Other Documents. Servicer shall supply to PIMC the
following documents and reports:
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(i) copies of all correspondence and reports prepared by, or at the
direction of, Servicer and sent to or filed on behalf of the Partnership
with any federal regulatory agency (including, without limitation, the
Securities and Exchange Commission) or with any state or local regulatory
agency;
(ii) copies of all complaints, arbitration notices, mediation
notices, cease and desist orders and other similar orders from federal,
state or local regulatory authorities or other third parties, notices
threatening any Proceeding, and any other similar notices, in each case
which are received by Servicer and which relate to the Partnership or its
assets or operations;
(iii) copies of the annual report (including audited financial
statements) and related management letters normally prepared with respect
to the Partnership by the independent certified public accountants for the
Partnership;
(iv) any return (including any informational return), report,
statement, schedule, notice, form or other document or information
prepared by, or at the direction of, Servicer and filed with or submitted
to, or required to be filed with or submitted to, any federal, state or
local governmental agency in connection with the determination,
assessment, collection, or payment of any tax, assessment, deficiency or
other fee relating in any way to the Partnership or its assets or
operations; and
(v) copies of such other documents and reports relating to this
Services Agreement as PIMC may reasonably request.
Copies of the materials described in clauses (i), (iii) and (iv) above shall be
submitted to PIMC for its review and approval prior to the time the same are
sent to Unit Holders, filed with the Securities and Exchange Commission or any
state or local regulatory agency, or filed with any taxing authority, as
applicable.
4.4 Access. PIMC shall have the right, at all reasonable times during
customary business hours and at its own expense, upon reasonable advance notice
to Servicer, to inspect and make copies of the books of account and records of
Servicer relating to this Services Agreement and the matters set forth herein,
to enable PIMC to monitor the performance by Servicer under this Services
Agreement and otherwise to enable PIMC to discharge its obligations under this
Services Agreement and its obligations and responsibilities as general partner
of the Partnership. Such right may be exercised on behalf of PIMC by any
designated agent or employee of PIMC or by an independent certified public
accountant designated by PIMC.
4.5 Maintenance of Books and Records. Without the prior written consent
of PIMC, Servicer shall not destroy or otherwise dispose of the books of
account and records of Servicer relating to this Services Agreement or the
matters set forth herein.
5. EXCULPATION AND INDEMNIFICATION.
-------------------------------
5.1 Exculpation and Indemnification of Servicer. Nothing contained in
this Services Agreement shall in any way limit or constitute a waiver of any of
the exculpation and indemnification rights to which Servicer may be entitled
pursuant to (i) the Partnership Agreement (including without limitation the
provisions of Section 22 thereof), (ii) applicable laws, rules and regulations,
9<PAGE>
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and (iii) the provisions of any insurance policy now or hereafter maintained
which provides coverage to Servicer.
5.2 Exculpation and Indemnification of PIMC. Nothing contained in this
Services Agreement shall in any way limit or constitute a waiver of any of the
exculpation and indemnification rights to which PIMC may be entitled pursuant
to (i) the Partnership Agreement (including without limitation the provisions
of Section 22 thereof), (ii) applicable laws, rules, and regulations, and
(iii) the provisions of any insurance policy now or hereafter maintained which
provides coverage to PIMC.
6. TERM AND TERMINATION.
--------------------
6.1 Term. This Services Agreement shall commence on the Effective Date
and shall continue until the completion of the winding up and liquidation of
the Partnership and the distribution of all of its assets; provided, however,
that this Services Agreement may be sooner terminated by PIMC in the manner
provided in Section 6.2 below, and may be sooner terminated by Servicer in the
manner provided in Section 6.3 below.
6.2 Termination by PIMC. If, during the term of this Services Agreement,
any of the events listed below shall occur, PIMC, in addition to all of its
other rights and remedies, may terminate this Services Agreement upon written
notice to Servicer:
(i) any breach by Servicer of any of the representations, warranties
or covenants made by Servicer in this Services Agreement or in any
certificate or document executed pursuant hereto or in connection
herewith, which breach shall not be cured within thirty (30) days after
receipt of written notice thereof from PIMC or within such longer period
(but in any event not to exceed one hundred and twenty (120) days), if
any, as may be reasonably required to effect such cure by Servicer so long
as Servicer is diligently proceeding to effect such cure;
(ii) the discontinuance or cessation of business by Servicer,
including by reason of the bankruptcy of Servicer;
(iii) a decision made in the good faith judgment of PIMC that
termination is required to permit PIMC to satisfy its fiduciary
obligations to the Partnership or the Unit Holders;
(iv) at any time after the Effective Date, the adoption or enactment
of any applicable law or governmental rule, requirement, guideline, order
or regulation, or any change therein or change in the interpretation or
administration thereof, by any judicial or governmental authority which
shall make it illegal, impossible or inappropriate for PIMC to engage
Servicer to provide the Services;
(v) a decision made in the good faith judgment of PIMC that Servicer
is not acting in the best interests of the Partnership; or
(vi) the withdrawal, removal or replacement of PIMC as general
partner of the Partnership.
6.3 Termination by Servicer. If, during the term of this Services
Agreement, any of the events listed below shall occur, Servicer, in addition to
all of its other rights and remedies, may terminate this Services Agreement
upon written notice to PIMC:
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(i) a continuing default in the payment of any amounts owing to
Servicer under this Services Agreement, which default shall not be cured
within ten (10) days after receipt of written notice thereof from
Servicer;
(ii) the breach by PIMC of any of PIMC's representations, warranties
or covenants set forth in this Services Agreement or in any certificate or
document executed pursuant hereto or in connection herewith (other than
those covenants described in clause (i) above dealing with the payment of
amounts owing to Servicer under this Services Agreement), which breach
shall not be cured within thirty (30) days after receipt of written notice
thereof from Servicer or within such longer period (but in any event not
to exceed one hundred and twenty (120) days), if any, as may be reasonably
required to effect such cure by PIMC so long as PIMC is diligently
proceeding to effect such cure;
(iii) the withdrawal, removal or replacement of PIMC as general
partner of the Partnership;
(iv) at any time after the Effective Date, the adoption or enactment
of any applicable law or governmental rule, requirement, guideline, order
or regulation, or any change therein or change in the interpretation or
administration thereof, by any judicial or governmental authority which
shall make it illegal, impossible or inappropriate for Servicer to provide
the Services described herein; or
(v) the amendment of the Partnership Agreement of the Partnership
which has a material adverse effect on Servicer's rights, compensation or
obligations under this Services Agreement.
6.4 Effect of Termination. In the event of the termination of this
Services Agreement, then the entitlement of Servicer with respect to any
compensation provided for in this Services Agreement shall terminate
concurrently therewith. Notwithstanding the foregoing, no termination of this
Services Agreement shall impair the rights of Servicer to ultimately receive
all amounts earned by Servicer under this Services Agreement prior to the
effective date of any such termination.
6.5 Post-Termination Matters.
Upon the expiration of the term of this Services Agreement or in the
event of the earlier termination of this Services Agreement, Servicer shall:
(i) turn over to PIMC, without charge, all books, records, contracts
and documents relating to the Partnership, whether in writing or stored in
electro-magnetic or any other form, all bank accounts maintained with
respect to the Partnership and/or PIMC, all management summaries relating
to the administration of Partnership business, and all management systems
utilized to provide the Services, and all other materials generally
relating to the Partnership;
(ii) assign to PIMC all executory contracts to which Servicer is a
party which (x) relate primarily to the performance of the Services and
(y) have been approved by PIMC or otherwise have been entered into in
accordance with the provisions of this Services Agreement, whereupon PIMC
or an Affiliate of PIMC shall assume the obligations of Servicer to be
performed after, and that relate to the period after, the date of such
assignment, but only to the extent that such obligations relate to the
performance of the Services for the Partnership;
11<PAGE>
<PAGE>
(iii) offer to sell to PIMC, at the lower of book or market value,
such equipment, furnishings and other personal property that Servicer
shall then own and shall have utilized in connection with its performance
of this Services Agreement that Servicer shall not require (in Servicer's
sole discretion) in order to continue its other business activities
following termination of this Services Agreement;
(iv) consent, without the payment of any consideration, to the
employment by PIMC, or any other person that PIMC may retain to provide
Services to the Partnership following termination of this Services
Agreement of any of Servicer's employees whom Servicer shall not require
(in Servicer's sole discretion) in order to continue its other business
activities; and
(v) for such period as is reasonably required therefor, generally
cooperate in good faith with PIMC in order to facilitate the discharge by
PIMC of its obligations under the Partnership Agreement and its
obligations under applicable laws, rules, requirements, guidelines, orders
and regulations.
7. ASSIGNMENT.
----------
Servicer shall have no right to assign, give, delegate, convey
(including by way of a transfer of control of Servicer), mortgage, license or
otherwise transfer or encumber all or any part of its rights, duties, or other
interests in this Services Agreement (collectively, an "Assignment"), without
the consent of PIMC; provided, however, that such consent shall not be
unreasonably withheld with respect to a transfer by Servicer to an Affiliate of
Servicer so long as Servicer has given to PIMC at least 60 days prior written
notice of a proposed transfer and so long as (i) the proposed transferee is a
reputable company in good standing in the jurisdictions in which it operates,
(ii) the proposed transferee undertakes in a manner reasonably satisfactory to
PIMC to commit personnel to the provision of Services which are of comparable
quality, number and experience to Servicer personnel providing such Services at
the time of the proposed assignment, and (iii) the proposed transferee has a
net worth of $25,000,000 or more. Any attempted Assignment in violation of
this Section 7 shall be a material default under this Services Agreement and,
at the option of PIMC, shall be null and void.
8. CONFLICTS OF INTEREST.
---------------------
PIMC acknowledges and agrees that (i) in addition to providing the
Services to PIMC under this Services Agreement, Servicer and its Affiliates may
provide services to, and shall be entitled to provide such services from time
to time with respect to the separate assets ("Other Assets") and businesses of,
GE Capital, its Affiliates and third parties; (ii) in the course of conducting
such activities, Servicer may from time to time have conflicts of interest in
performing its duties on behalf of the various entities to which it provides
services and with respect to the various assets in respect of which it provides
services; and (iii) the PIMC board of directors has approved the transactions
contemplated by this Services Agreement and desires that such transactions be
consummated and in giving such approval the PIMC board of directors has
expressly recognized that such conflicts of interest may arise and that when
such conflicts of interest arise Servicer shall perform the Services in
accordance with the Standard of Performance and the Conflicts Standard.
If conflicts of interest arise regarding the provision of Services
with respect to (i) a particular asset subject to the terms of this Services
12<PAGE>
<PAGE>
Agreement (a "PIMC Managed Asset"), on the one hand, and another asset owned by
an investment vehicle sponsored by PIMC as to which Servicer provides
management services, on the other hand, or (ii) any PIMC Managed Asset, on the
one hand, and Other Assets, on the other hand, Servicer shall perform the
Services in good faith and, without limiting the generality of the foregoing,
to the extent (x) such PIMC Managed Asset and assets of such investment vehicle
or (y) such PIMC Managed Asset and such Other Assets are substantially similar
in terms of objectively identifiable characteristics relevant for purposes of
the particular Services to be performed, including without limitation
characteristics deemed relevant by a potential lessee or purchaser, Servicer
shall not discriminate between such PIMC Managed Asset and assets of such
investment vehicle or between such PIMC Managed Asset and such Other Assets,
respectively, on the basis of ownership, fees payable to Servicer in respect of
a particular transaction, or on an unreasonable basis. (The standards set
forth in this Section 8 shall be referred to collectively as the "Conflicts
Standard").
9. NO THIRD PARTY BENEFICIARIES.
----------------------------
Under no circumstances shall any provision of this Services Agreement
be deemed to be for the benefit of or enforceable by any person or entity other
than PIMC and Servicer (and their respective permitted successors and assigns)
and, to the extent expressly provided herein, their respective Affiliates.
10. MISCELLANEOUS.
-------------
10.1 No Commingling. The funds of PIMC shall not be commingled by
Servicer with the funds of any other person or entity. The funds of the
Partnership shall not be commingled by Servicer with the funds of any other
person or entity, except as expressly permitted by the Partnership Agreement.
10.2 Successors and Assigns. Without limiting the restrictions on
Assignment set forth in Section 7, this Services Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns.
10.3 Governing Law. This Services Agreement shall be construed in
accordance with the laws of the State of California, and venue for any legal
action arising out of this Services Agreement shall be in San Francisco County,
California.
10.4 Entire Agreement. This Services Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes any prior oral or written agreement between the parties respecting
the subject matter hereof.
10.5 Waivers. Neither this Services Agreement nor any of the terms
hereof may be terminated, amended or waived orally by the parties, but only by
an instrument in writing signed by the party against which enforcement of the
termination, amendment or waiver is sought. Notwithstanding the foregoing
provisions of this Section 10.5, the rights and obligations of the parties
hereunder shall be automatically modified from time to time hereunder to the
extent and in the manner necessary to make this Services Agreement and the
rights and obligations of the parties hereunder comply with any and all
applicable federal, state and local laws, rules and regulations.
10.6 Counterparts. This Services Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall not
13<PAGE>
<PAGE>
be necessary in making proof of this Services Agreement to produce or account
for more than one such counterpart.
10.7 Independent Contractor Relationship. This Services Agreement is not
intended to and shall not create any relationship of principal and agent,
partnership, joint venture, employer and employee or any other relationship,
association or affiliation whatsoever between the parties, except for that of
independent contractor.
10.8 Further Assurances. Each party covenants on behalf of itself, its
successors and assigns, to execute, with acknowledgment or affidavit if
required, any and all documents and writings which may be necessary or
desirable to carry out the purposes of this Services Agreement.
10.9 Severability. In the event that any provision of this Services
Agreement, or the application of such provision to any person, entity or set of
circumstances, shall be deemed invalid, unlawful or unenforceable to any
extent, the remainder of this Services Agreement, and the application of all
such provisions to persons, entities or circumstances other than those
determined invalid, unlawful or unenforceable shall not be affected and shall
continue to be enforceable to the fullest extent permitted by law.
10.10 Notices.
(a) All notices, demands or requests provided for or permitted to be
given pursuant to this Services Agreement must be in writing. All notices,
demands and requests to be sent to PIMC or the Partnership pursuant hereto
shall be deemed to have been properly given if served by personal delivery, by
depositing the same in the United States mail, postpaid, by depositing the same
with any reputable overnight mail courier, or by transmission of same by
telecopy or similar service, at the following address:
Until September 1, 1994:
Polaris Investment Management Corporation
Four Embarcadero Center, 40th Floor
San Francisco, CA 94111
Attention: James Linnan
After September 1, 1994:
Polaris Investment Management Corporation
201 Mission Street
San Francisco, CA 94105
Attention: James Linnan
with a copy at any time to:
Polaris Investment Management Corporation
1600 Summer Street
Stamford, CT 06927-1559
Attention: Howard Feinsand
(b) All notices, demands or requests to be sent to Servicer
pursuant hereto shall be deemed to have been properly given if served by
personal delivery, by depositing the same in the United States mail, postpaid,
by depositing the same with any reputable overnight mail courier, or by
transmission of same by telecopy or similar service, at the following address:
14<PAGE>
<PAGE>
GE Capital Aviation Services, Inc.
1600 Summer Street
Stamford, CT 06927-1559
Attention: President
with a copy to:
GE Capital Aviation Services, Inc.
1600 Summer Street
Stamford, CT 06927-1559
Attention: General Counsel
(c) Unless another requirement is specifically set forth in any
Section hereof, each notice, demand and request shall be effective upon
personal delivery, upon confirmation of receipt of the applicable telecopy, or
three (3) business days after the date on which the same is deposited in the
United States mail or with any reputable overnight mail courier in accordance
with the foregoing requirements. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall not adversely impact the effectiveness of any such notice, demand or
request.
(d) By giving to the other parties at least ten (10) days'
written notice thereof, the parties hereto, and their respective permitted
successors and assigns, shall have the right from time to time and at any time
during the term of this Services Agreement to change their respective addresses
and each shall have the right to specify as its address any other address
within the United States of America.
10.11 Titles and Captions. Paragraph titles or captions contained in
this Services Agreement are inserted only as a matter of convenience and for
reference. Such titles and captions in no way define, limit, extend or
describe the scope of this Services Agreement nor the intent of any provisions
hereof.
10.12 Amendments to Partnership Agreement. PIMC hereby covenants and
agrees that it shall give to Servicer prompt written notice of any amendment to
the Partnership Agreement proposed by PIMC or, to PIMC's knowledge, proposed by
Unit Holders of the Partnership.
10.13 Attorneys' Fees. If any party hereto brings an action to
enforce the terms hereof or to obtain a declaration of the rights of such party
hereunder, the prevailing party in any such action, upon its final resolution,
shall be entitled to such party's reasonable attorneys' fees to be paid by the
losing party.
10.14 Additional Insured. PIMC agrees that Servicer may add itself
and its Affiliates as additional insured parties (at the expense of the
Partnership to the extent permitted by the Partnership Agreement) under any
blanket insurance program applicable to the Partnership that is in effect from
time to time with respect to the Services provided hereunder.
10.15 Net Worth of Servicer.
(a) Servicer represents and warrants that no later than 30 days
after the date this Services Agreement has been fully executed, its net worth
(calculated in accordance with generally accepted accounting principles) will
be greater than $25,000,000. Servicer covenants and agrees that from and after
the date Servicer's net worth is greater than $25,000,000 as provided in the
immediately preceding sentence, Servicer will not pay or permit to be paid any
15<PAGE>
<PAGE>
dividends or make any other distributions to its shareholder or shareholders
which would have the result of reducing Servicer's net worth to the extent
that Servicer's net worth following any such reduction would be less than
$25,000,000.
(b) Within one hundred twenty (120) days after the end of each
calendar year during the term of this Services Agreement, Servicer shall cause
to be delivered to PIMC a balance sheet setting forth Servicer's net worth as
of the last day of such calendar year (calculated in accordance with generally
accepted accounting principles).
16<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Services
Agreement as of the Effective Date.
SERVICER:
GE CAPITAL AVIATION SERVICES, INC.
a Delaware corporation
By: /S/ Howard L. Feinsand
----------------------
Name: Howard L. Feinsand
------------------
Its: Senior Vice President
---------------------
PIMC:
POLARIS INVESTMENT MANAGEMENT CORPORATION,
a California corporation
By: /S/ Howard L. Feinsand
----------------------
Name: Howard L. Feinsand
------------------
Its: Senior Vice President
---------------------
17<PAGE>
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<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> YEAR
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