UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
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Commission File No. 33-21977
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POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3068259
201 Mission Street, 27th Floor, San Francisco, California 94105
Telephone - (415) 284-7400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
This document consists of 55 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
FORM 10-Q - For the Quarterly Period Ended June 30, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - June 30, 1997 and
December 31, 1996........................................3
b) Statements of Operations - Three and Six Months
Ended June 30, 1997 and 1996.............................4
c) Statements of Changes in Partners' Capital
(Deficit) -Year Ended December 31, 1996
and Six Months Ended June 30, 1997.......................5
d) Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996.............................6
e) Notes to Financial Statements............................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......11
Part II. Other Information
Item 1. Legal Proceedings...................................16
Item 6. Exhibits and Reports on Form 8-K....................17
Signature ....................................................18
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 24,420,733 $ 23,252,136
RENT AND OTHER RECEIVABLES 420,858 1,371,941
NOTES RECEIVABLE 41,685,728 12,118,157
AIRCRAFT, net of accumulated depreciation
of $146,813,332 in 1996 -- 35,852,034
OTHER ASSETS 1,472 --
------------ ------------
$ 66,528,791 $ 72,594,268
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 79,941 $ 231,741
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 262,574 73,093
SECURITY DEPOSITS -- 475,000
MAINTENANCE RESERVES -- 1,306,018
------------ ------------
Total Liabilities 342,515 2,085,852
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (1,548,962) (1,505,679)
Limited Partners, 500,000 units
issued and outstanding 67,735,238 72,014,095
------------ ------------
Total Partners' Capital 66,186,276 70,508,416
------------ ------------
$ 66,528,791 $ 72,594,268
============ ============
The accompanying notes are an integral part of these statements.
3
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<TABLE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Rent from operating leases $1,501,456 $ 3,298,099 $3,911,355 $ 6,844,628
Interest 866,366 255,189 1,448,108 546,856
Gain on sale of aircraft -- 211,436 -- 333,340
---------- ----------- ---------- ------------
Total Revenues 2,367,822 3,764,724 5,359,463 7,724,824
---------- ----------- ---------- ------------
EXPENSES:
Depreciation and amortization 1,318,620 9,015,817 2,297,427 12,195,221
Management fees to general partner -- 164,905 120,495 342,231
Operating 19,249 3,180 133,876 5,846
Administration and other 112,379 104,800 185,361 162,618
---------- ----------- ---------- ------------
Total Expenses 1,450,248 9,288,702 2,737,159 12,705,916
---------- ----------- ---------- ------------
NET INCOME (LOSS) $ 917,574 $(5,523,978) $2,622,304 $ (4,981,092)
========== =========== ========== ============
NET INCOME ALLOCATED
TO THE GENERAL PARTNER $ 384,139 $ 194,735 $ 651,161 $ 450,139
========== =========== ========== ============
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ 533,435 $(5,718,713) $1,971,143 $ (5,431,231)
========== =========== ========== ============
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 1.06 $ (11.43) $ 3.94 $ (10.86)
========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1996 and
Six Months Ended June 30, 1997
------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1995 $ (866,147) $ 135,317,754 $ 134,451,607
Net income (loss) 471,579 (53,303,659) (52,832,080)
Cash distributions to partners (1,111,111) (10,000,000) (11,111,111)
----------- ------------- -------------
Balance, December 31, 1996 (1,505,679) 72,014,095 70,508,416
Net income 651,161 1,971,143 2,622,304
Cash distributions to partners (694,444) (6,250,000) (6,944,444)
----------- ------------- -------------
Balance, June 30, 1997 $(1,548,962) $ 67,735,238 $ 66,186,276
=========== ============= =============
The accompanying notes are an integral part of these statements.
5
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 2,622,304 $ (4,981,092)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 2,297,427 12,195,221
Gain on sale of aircraft -- (333,340)
Changes in operating assets and liabilities,
net of effect of sale of aircraft:
Decrease (increase) in rent and other
receivables (49,756) 1,196,987
Increase in other assets (1,472) --
Decrease in payable to affiliates (99,370) (490,790)
Increase (decrease) in accounts payable and
accrued liabilities (26,419) 84,071
Decrease in security deposits (225,000) --
Decrease in maintenance reserves (909,642) (1,782,383)
------------ ------------
Net cash provided by operating activities 3,608,072 5,888,674
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of aircraft 5,674,334 1,748,776
Payments to Purchaser related to sale of aircraft (2,290,443) --
Principal payments on notes receivable 587,308 386,457
Principal payments on finance sale of aircraft 533,770 333,340
------------ ------------
Net cash provided by investing activities 4,504,969 2,468,573
------------ ------------
FINANCING ACTIVITIES:
Cash distributions to partners (6,944,444) (5,555,556)
------------ ------------
Net cash used in financing activities (6,944,444) (5,555,556)
------------ ------------
CHANGES IN CASH AND CASH
EQUIVALENTS 1,168,597 2,801,691
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 23,252,136 20,842,611
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 24,420,733 $ 23,644,302
============ ============
The accompanying notes are an integral part of these statements.
6
<PAGE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Principles and Policies
In the opinion of management, the financial statements presented herein include
all adjustments, consisting only of normal recurring items, necessary to
summarize fairly Polaris Aircraft Income Fund V's (the Partnership's) financial
position and results of operations. The financial statements have been prepared
in accordance with the instructions of the Quarterly Report to the Securities
and Exchange Commission (SEC) Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1996, 1995, and
1994 included in the Partnership's 1996 Annual Report to the SEC on Form 10-K
(Form 10-K).
2. Sale of One Boeing 737-200 to Westjet
In February 1997, the Partnership sold one Boeing 737-200 Advanced aircraft
formerly on lease to Southwest Airlines Co. (Southwest), to Westjet Airlines,
Ltd. (Westjet). The Partnership received $1,150,000 in February 1997, and
applied the $250,000 security deposit held in 1996 for a total sales price to
Westjet of $1,400,000. In October 1996, Southwest had paid to the Partnership
$155,694, which was recorded as an increase in maintenance reserves, in lieu of
meeting certain return conditions specified in the lease. Upon the sale of the
aircraft in February 1997, this amount was reported as additional sales revenue.
The combined sales revenue of $1,555,694 approximated the net carrying value of
the aircraft.
3. Sale of Aircraft to Triton
On May 28, 1997, Polaris Investment Management Corporation (the "General
Partner" or "PIMC"), on behalf of the Partnership, executed definitive
documentation for the purchase of all 12 of the Partnership's remaining aircraft
(the "Aircraft") and a note receivable by Triton Aviation Services V LLC, a
special purpose company (the "Purchaser"). The closings for the purchase of all
12 of the Aircraft occurred from May 28, 1997 to June 30, 1997. The Purchaser is
managed by Triton Aviation Services, Ltd. ("Triton Aviation" or the "Manager"),
a privately held aircraft leasing company which was formed in 1996 by Triton
Investments, Ltd., a company which has been in the marine cargo container
leasing business for 17 years and is diversifying its portfolio by leasing
commercial aircraft. Each Aircraft was sold subject to the existing leases, if
any.
The Terms of the Transaction - The total contract purchase price (the "Purchase
Price") to the Purchaser is $34,750,259 which is allocable to the Aircraft, a
note and other receivables. The Purchaser paid into an escrow account $3,914,964
of the Purchase Price in cash upon the closing of the first aircraft and
delivered a promissory note (the "Promissory Note") for the balance of
$30,835,295. The Partnership received $3,914,964 from the escrow account on June
24, 1997.
The Promissory Note is due in 28 quarterly installments of principal and
interest commencing June 30, 1997 in the amount of $1,512,367 over a period of
seven years bearing interest at a rate of 12% per annum with a balloon principal
payment in the amount of $5,621,617 due on March 31, 2004. The Purchaser has the
right to voluntarily prepay the Promissory Note in whole or in part at any time
7
<PAGE>
without penalty. In addition, the Promissory Note is subject to mandatory
partial prepayment in certain specified instances. The Purchaser is current on
its Promissory Note obligation.
Under the terms of the transaction, the Purchaser's assets, which are limited to
the Aircraft, including any income or proceeds therefrom, and any funds made
available to Purchaser under the working capital line described below constitute
the sole source of payments under the Promissory Note. Although no security
interest over the Aircraft or the leases is granted in favor of the Partnership,
the equity interests in the Purchaser have been pledged to the Partnership. In
connection with that pledge, the Purchaser is prohibited from incurring
indebtedness other than (i) the Promissory Note; (ii) deferred taxes not yet due
and payable; (iii) indebtedness incurred to hushkit Aircraft owned by the
Purchaser; (iv) demand loans to another SPC (defined below) at a market rate of
interest; and (v) debt to trade creditors incurred in the ordinary course of
business. In addition, the Purchaser undertakes to keep the Aircraft and leases
free of any lien, security interest or other encumbrance other than (i) inchoate
taxes and materialmen's liens and the like, (ii) in the event that the Purchaser
elects to install hushkits on any Aircraft, secured debt to the extent of the
full cost of such hushkit and other hushkits acquired with proceeds from the
same loan facility; (iii) liens lessees are customarily permitted to incur that
are required to be removed. The Purchaser has the right to sell any of the
Aircraft without the consent of the Partnership, except that the Partnership's
consent would be required in the event that the sale price is less than the
portion of the outstanding balance of the Promissory Note which is allocable to
the Aircraft in question and the Purchaser does not have sufficient funds to
make up the difference. In the event that any of the Aircraft are sold by the
Purchaser, the Promissory Note is subject to a mandatory prepayment of the
portion of the Promissory Note which is allocable to the Aircraft sold.
Under the terms of the transaction, the Purchaser's Manager has undertaken to
make available a working capital line to the Purchaser of up to approximately
$4,034,000 to fund operating obligations of the Purchaser. This working capital
line is guaranteed by Triton Investments, Ltd., the parent of the Purchaser's
Manager and such guarantor provided the Partnership with a copy of its most
recent balance sheet showing a consolidated net worth (net of minority
interests) of at least $150-million at December 31, 1996. Provided that the
Purchaser is not in default in making payments due under the Promissory Note to
the Partnership, the Purchaser is permitted to dividend to its equity owners an
amount not to exceed approximately $108,000 per month. The Purchaser may
distribute additional dividends to the equity owners to the extent of the
working capital advances made by the Purchaser's Manager provided that the
working capital line available to the Purchaser will be deemed increased to the
extent of such dividends.
Under the purchase agreement, the Purchaser purchased the Aircraft effective as
of April 1, 1997 notwithstanding the actual closing dates. The utilization of an
effective date facilitated the economic determination of rent and other
allocations between the parties. The Purchaser has the right to receive all
income and proceeds, including rents and receivables, from the Aircraft accruing
from and after April 1, 1997, and the Promissory Note commenced bearing interest
as of April 1, 1997 subject to the closing of the aircraft. Each Aircraft was
sold subject to the existing leases, if any, and as part of the transaction the
Purchaser assumed all obligations relating to maintenance reserves and security
deposits relating to such leases. Subsequent to the Aircraft closings, cash
balances related to maintenance reserves and security deposits of approximately
$1,741,000 and $225,000, respectively were transferred to the Purchaser.
Neither PIMC nor GECAS will receive a sales commission in connection with the
transaction. In addition, PIMC will not be paid a management fee with respect to
the collection of the Promissory Note or on any rents accruing from or after
April 1, 1997. Neither PIMC nor GECAS or any of its affiliates holds any
interest in Triton Aviation or any of Triton Aviation's affiliates. John Flynn,
the current President of Triton Aviation, was a Polaris executive until May
1996, and has over 15 years experience in the commercial aviation industry. At
the time Mr. Flynn was employed at PIMC he had no affiliation with Triton
Aviation or its affiliates.
8
<PAGE>
The Partnership continues to own the note receivable (the "AIA Receivable") from
American International Airways Limited ("AIA") with a current principal balance
of $11,437,741 plus accrued interest, which had initially been included in the
assets which were to be transferred to the Purchaser. After the date that the
Partnership and the Purchaser entered into the definitive documentation for the
sale transaction, but prior to the date that the AIA Receivable was transferred
to the Purchaser, AIA failed to make a scheduled principal payment under the AIA
Receivable and asked the Partnership to modify and restructure the AIA
Receivable. As a result, the Partnership and the Purchaser agreed to modify and
reform the definitive documentation for the sale transaction to exclude the AIA
Receivable. The General Partner is currently assessing the request made by AIA.
The AIA Receivable is secured by a mortgage on a Boeing 747-100 Special
Freighter aircraft.
Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund III, Polaris
Aircraft Income Fund IV and Polaris Aircraft Income Fund VI have also sold
certain aircraft assets to separate special purpose companies under common
management with the Purchaser (collectively, together with the Purchaser, the
"SPC's") on terms similar to those set forth above, with the exception of the
Polaris Aircraft Income Fund VI aircraft, which were sold on an all cash basis.
The Accounting Treatment of the Transaction - In accordance with generally
accepted accounting principles (GAAP), the Partnership recognized rental income
up until the closing date for each aircraft which occurred from May 28, 1997 to
June 30, 1997. However, under the terms of the transaction, the Purchaser was
entitled to receive any payments of rents accruing from April 1, 1997 to the
closing dates. As a result, the Partnership made payments to the Purchaser for
the amounts due and received effective April 1, 1997. Payments during this
period totaling $1,501,456 are included in rent from operating leases and
interest income. For financial reporting purposes, the cash down payment portion
of the sales proceeds of $3,914,964 have been adjusted by the following: income
and proceeds, including rents and receivables from the effective date of April
1, 1997 to the closing date, interest due on the cash portion of the purchase
price, interest on the Promissory Note from the effective date of April 1, 1997
to the closing date, estimated selling costs, adjustments to the aircraft
maintenance reserves due the Purchaser and aircraft return conditions payments
that the Partnership was entitled to retain. As a result of these GAAP
adjustments, the net adjusted sales price recorded by the Partnership, including
the Promissory Note, was $33,141,808.
The Aircraft sold pursuant to the definitive documentation executed on May 28,
1997 have been classified as aircraft held for sale from that date until the
closing date. Under GAAP, aircraft held for sale are carried at their fair
market value less estimated costs to sell. The adjustment to the sales proceeds
described above and revisions to estimated costs to sell the aircraft required
the Partnership to record an adjustment to the net carrying value of the
Aircraft held for sale of approximately $1,318,620 during the three months ended
June 30, 1997. This adjustment to the net carrying value of the aircraft held
for sale is included in depreciation and amortization expense on the statement
of operations for the three and six months ended June 30, 1997.
4. AIA Note Restructuring
American International Airways Inc. (AIA) has requested a restructuring of its
outstanding promissory note to the Partnership. Under the terms of the proposed
restructuring, AIA has requested, among other things, for a deferral of 7 months
of principal payments due in May 1997 through November 1997, to be paid back
during a seven month extension of the loan term. AIA has not made its principal
payments since April 1997, but continues to pay the scheduled interest portion
of the note. As a result, this note has been classified as impaired. At this
time, management believes the note receivable balance of $11,437,741 is fully
recoverable.
9
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5. Related Parties
Under the Limited Partnership Agreement, the Partnership paid or agreed to pay
the following amounts for the current quarter to the general partner, Polaris
Investment Management Corporation, in connection with services rendered or
payments made on behalf of the Partnership:
Payments for
Three Months Ended Payable at
June 30, 1997 June 30, 1997
------------- -------------
Aircraft Management Fees $ 30,705 $13,968
Out-of-Pocket Administrative and Selling
Expense Reimbursement 110,058 65,973
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 332,793 --
-------- -------
$473,556 $79,941
======== =======
10
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the quarter ended June 30, 1997, the Partnership sold its remaining
portfolio of 12 used aircraft. The aircraft sold during the quarter ended June
30, 1997 consisted of 11 Boeing 737-200 Advanced aircraft and one Boeing 747-100
Special Freighter aircraft. The Partnership sold one Boeing 737-200 to Westjet
Airlines, Ltd. (Westjet) in February 1997. The Partnership sold two Boeing
727-100 aircraft that ATA transferred to the Partnership as part of the ATA
lease transaction in April 1993, to Empresa de Transporte Aereo del Peru S.A.
(Aeroperu). Aeroperu completed its payment obligations to the Partnership in
July 1996. As discussed below, the Partnership sold one Boeing 747-100 Special
Freighter aircraft to its former lessee American International Airways Limited
(AIA) in June 1996.
REMARKETING UPDATE
Sale of One Boeing 737-200 to Westjet
In February 1997, the Partnership sold one Boeing 737-200 Advanced aircraft
formerly on lease to Southwest Airlines Co. (Southwest), to Westjet Airlines,
Ltd. (Westjet). The Partnership received $1,150,000 in February 1997, and
applied the $250,000 security deposit held in 1996 for a total sales price to
Westjet of $1,400,000. In October 1996, Southwest had paid to the Partnership
$155,694, which was recorded as an increase in maintenance reserves, in lieu of
meeting certain return conditions specified in the lease. Upon the sale of the
aircraft in February 1997, this amount was reported as additional sales revenue.
The combined sales revenue of $1,555,694 approximated the net carrying value of
the aircraft.
Sale of Aircraft to Triton
On May 28, 1997, Polaris Investment Management Corporation (the "General
Partner" or "PIMC"), on behalf of the Partnership, executed definitive
documentation for the purchase of all 12 of the Partnership's remaining aircraft
(the "Aircraft") and a note receivable by Triton Aviation Services V LLC, a
special purpose company (the "Purchaser" or "Triton"). The closings for the
purchase of all 12 of the Aircraft occurred from May 28, 1997 to June 30, 1997.
The Purchaser is managed by Triton Aviation Services, Ltd. ("Triton Aviation" or
the "Manager"), a privately held aircraft leasing company which was formed in
1996 by Triton Investments, Ltd., a company which has been in the marine cargo
container leasing business for 17 years and is diversifying its portfolio by
leasing commercial aircraft. Each Aircraft was sold subject to the existing
leases, if any.
The General Partners Decision to Approve the Transaction - In determining
whether the transaction was in the best interests of the Partnership and its
unitholders, the General Partner evaluated, among other things, the risks and
significant expenses associated with continuing to own and remarket the Aircraft
(many of which were subject to leases that were nearing expiration). The General
Partner determined that such a strategy could require the Partnership to expend
a significant portion of its cash reserves for remarketing and that there was a
substantial risk that this strategy could result in the Partnership having to
reduce or even suspend future cash distributions to limited partners. The
General Partner concluded that the opportunity to sell the Aircraft at an
attractive price would be beneficial in the present market where demand for
Stage II aircraft is relatively strong rather than attempting to sell the
aircraft "one-by-one" over the coming years when the demand for such Aircraft
might be weaker. During the months of intense negotiations, GE Capital Aviation
Services, Inc. ("GECAS"), which provides aircraft marketing and management
services to the General Partner, sought to obtain the best price and terms
available for these Stage II aircraft given the aircraft market and the
conditions and types of planes owned by the Partnership. Both the General
Partner and GECAS approved the sale terms of the Aircraft (as described below)
as being in the best interest of the Partnership and its unitholders because
both believe that this transaction will optimize the potential cash
distributions to be paid to limited partners.
11
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To ensure that no better offer could be obtained, the terms of the transaction
negotiated by GECAS included a "market-out" provision that permitted the
Partnership to elect to accept an offer for all (but no less than all) of the
assets to be sold by it to the Purchaser on terms which it deemed more
favorable, with the ability of the Purchaser to match the offer or decline to
match the offer and be entitled to be compensated in an amount equal to 1 1/2%
of the Purchaser's proposed purchase price.
On May 9, 1997, the General Partner received a competing offer (the "Competing
Offer") from a third party to purchase the Partnership's twelve aircraft and
certain notes receivable, subject to a number of contingencies, as disclosed in
the Partnerships Quarterly Report to the Securities and Exchange Commission Form
10-Q at March 31, 1997. The Competing Offer included a higher purchase price
than the offer made by the Purchaser (the "Original Offer"). Both the Competing
Offer and the Original Offer contained similar financing structures, but the net
worth of the company submitting the Competing Offer was approximately $11
million, as compared to the approximately $150 million net worth of Triton
Investments, Ltd., the parent of the Purchaser's Manager. On May 14, 1997, upon
review and comparison of the Competing Offer with the Original Offer, the
General Partner determined that it would be in the best interests of the
Partnership to reject the Competing Offer due to the significant difference in
the net worth and the execution risks both at closing and thereafter, as well as
the payment of the 1 1/2% fee that would be due to the Purchaser under the
Original Offer representing approximately half of the premium represented by the
Competing Offer over the Original Offer.
The Terms of the Transaction - The total contract purchase price (the "Purchase
Price") to the Purchaser is $34,750,259 which is allocable to the Aircraft, a
note and other receivables. The Purchaser paid into an escrow account $3,914,964
of the Purchase Price in cash upon the closing of the first aircraft and
delivered a promissory note (the "Promissory Note") for the balance of
$30,835,295. The Partnership received $3,914,964 from the escrow account on June
24, 1997.
The Promissory Note is due in 28 quarterly installments of principal and
interest commencing June 30, 1997 in the amount of $1,512,367 over a period of
seven years bearing interest at a rate of 12% per annum with a balloon principal
payment in the amount of $5,621,617 due on March 31, 2004. The Purchaser has the
right to voluntarily prepay the Promissory Note in whole or in part at any time
without penalty. In addition, the Promissory Note is subject to mandatory
partial prepayment in certain specified instances. The Purchaser is current on
its Promissory Note obligation.
Under the terms of the transaction, the Purchaser's assets, which are limited to
the Aircraft, including any income or proceeds therefrom, and any funds made
available to Purchaser under the working capital line described below constitute
the sole source of payments under the Promissory Note. Although no security
interest over the Aircraft or the leases is granted in favor of the Partnership,
the equity interests in the Purchaser have been pledged to the Partnership. In
connection with that pledge, the Purchaser is prohibited from incurring
indebtedness other than (i) the Promissory Note; (ii) deferred taxes not yet due
and payable; (iii) indebtedness incurred to hushkit Aircraft owned by the
Purchaser; (iv) demand loans to another SPC (defined below) at a market rate of
interest; and (v) debt to trade creditors incurred in the ordinary course of
business. In addition, the Purchaser undertakes to keep the Aircraft and leases
free of any lien, security interest or other encumbrance other than (i) inchoate
taxes and materialmen's liens and the like, (ii) in the event that the Purchaser
elects to install hushkits on any Aircraft, secured debt to the extent of the
full cost of such hushkit and other hushkits acquired with proceeds from the
same loan facility; (iii) liens lessees are customarily permitted to incur that
are required to be removed. The Purchaser has the right to sell any of the
Aircraft without the consent of the Partnership, except that the Partnership's
consent would be required in the event that the sale price is less than the
portion of the outstanding balance of the Promissory Note which is allocable to
the Aircraft in question and the Purchaser does not have sufficient funds to
make up the difference. In the event that any of the Aircraft are sold by the
Purchaser, the Promissory Note is subject to a mandatory prepayment of the
portion of the Promissory Note which is allocable to the Aircraft sold.
12
<PAGE>
Under the terms of the transaction, the Purchaser's Manager has undertaken to
make available a working capital line to the Purchaser of up to approximately
$4,034,000 to fund operating obligations of the Purchaser. This working capital
line is guaranteed by Triton Investments, Ltd., the parent of the Purchaser's
Manager and such guarantor provided the Partnership with a copy of its most
recent balance sheet showing a consolidated net worth (net of minority
interests) of at least $150-million at December 31, 1996. Provided that the
Purchaser is not in default in making payments due under the Promissory Note to
the Partnership, the Purchaser is permitted to dividend to its equity owners an
amount not to exceed approximately $108,000 per month. The Purchaser may
distribute additional dividends to the equity owners to the extent of the
working capital advances made by the Purchaser's Manager provided that the
working capital line available to the Purchaser will be deemed increased to the
extent of such dividends.
Under the purchase agreement, the Purchaser purchased the Aircraft effective as
of April 1, 1997 notwithstanding the actual closing dates. The utilization of an
effective date facilitated the economic determination of rent and other
allocations between the parties. The Purchaser has the right to receive all
income and proceeds, including rents and receivables, from the Aircraft accruing
from and after April 1, 1997, and the Promissory Note commenced bearing interest
as of April 1, 1997 subject to the closing of the aircraft. Each Aircraft was
sold subject to the existing leases, if any, and as part of the transaction the
Purchaser assumed all obligations relating to maintenance reserves and security
deposits relating to such leases. Subsequent to the Aircraft closings, cash
balances related to maintenance reserves and security deposits of approximately
$1,741,000 and $225,000, respectively were transferred to the Purchaser.
Neither PIMC nor GECAS will receive a sales commission in connection with the
transaction. In addition, PIMC will not be paid a management fee with respect to
the collection of the Promissory Note or on any rents accruing from or after
April 1, 1997. Neither PIMC nor GECAS or any of its affiliates holds any
interest in Triton Aviation or any of Triton Aviation's affiliates. John Flynn,
the current President of Triton Aviation, was a Polaris executive until May
1996, and has over 15 years experience in the commercial aviation industry. At
the time Mr. Flynn was employed at PIMC he had no affiliation with Triton
Aviation or its affiliates.
The Partnership continues to own the note receivable (the "AIA Receivable") from
American International Airways Limited ("AIA") with a current principal balance
of $11,437,741 plus accrued interest, which had initially been included in the
assets which were to be transferred to the Purchaser. After the date that the
Partnership and the Purchaser entered into the definitive documentation for the
sale transaction, but prior to the date that the AIA Receivable was transferred
to the Purchaser, AIA failed to make a scheduled principal payment under the AIA
Receivable and asked the Partnership to modify and restructure the AIA
Receivable. As a result, the Partnership and the Purchaser agreed to modify and
reform the definitive documentation for the sale transaction to exclude the AIA
Receivable. The General Partner is currently assessing the request made by AIA.
The AIA Receivable is secured by a mortgage on a Boeing 747-100 Special
Freighter aircraft.
Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund III, Polaris
Aircraft Income Fund IV and Polaris Aircraft Income Fund VI have also sold
certain aircraft assets to separate special purpose companies under common
management with the Purchaser (collectively, together with the Purchaser, the
"SPC's") on terms similar to those set forth above, with the exception of the
Polaris Aircraft Income Fund VI aircraft, which were sold on an all cash basis.
The Accounting Treatment of the Transaction - In accordance with generally
accepted accounting principles (GAAP), the Partnership recognized rental income
up until the closing date for each aircraft which occurred from May 28, 1997 to
June 30, 1997. However, under the terms of the transaction, the Purchaser was
entitled to receive any payments of rents accruing from April 1, 1997 to the
closing dates. As a result, the Partnership made payments to the Purchaser for
the amounts due and received effective April 1, 1997. Payments during this
13
<PAGE>
period totaling $1,501,456 are included in rent from operating leases and
interest income. For financial reporting purposes, the cash down payment portion
of the sales proceeds of $3,914,964 has been adjusted by the following: income
and proceeds, including rents and receivables from the effective date of April
1, 1997 to the closing date, interest due on the cash portion of the purchase
price, interest on the Promissory Note from the effective date of April 1, 1997
to the closing date, estimated selling costs, adjustments to the aircraft
maintenance reserves due the Purchaser and aircraft return conditions payments
that the Partnership was entitled to retain. As a result of these GAAP
adjustments, the net adjusted sales price recorded by the Partnership, including
the Promissory Note, was $33,141,808.
The Aircraft sold pursuant to the definitive documentation executed on May 28,
1997 have been classified as aircraft held for sale from that date until the
actual closing date. Under GAAP, aircraft held for sale are carried at their
fair market value less estimated costs to sell. The adjustment to the sales
proceeds described above and revisions to estimated costs to sell the Aircraft
required the Partnership to record an adjustment to the net carrying value of
the aircraft held for sale of approximately $1,318,620 during the three months
ended June 30, 1997. This adjustment to the net carrying value of the aircraft
held for sale is included in depreciation and amortization expense on the
statement of operations for the three and six months ended June 30, 1997.
PARTNERSHIP OPERATIONS
The Partnership recorded net income of $917,574, or $1.06 per limited
partnership unit for the three months ended June 30, 1997, compared to a net
loss of $5,523,978, or $11.43 per limited partnership unit, for the three months
ended June 30, 1996. The Partnership recorded net income of $2,622,304, or $3.94
per limited partnership unit for the six months ended June 30, 1997, compared to
a net loss of $4,981,092, or $10.86 per limited partnership unit, for the six
months ended June 30, 1996. The significant improvement in operating results for
the three and six months ended June 30, 1997 compared to the same periods in
1996 is due primarily to decreased depreciation expense recognized during 1997.
In June 1996, the Partnership sold one Boeing 747-100 Special Freighter aircraft
to AIA. The Partnership recognized an impairment loss of approximately
$5,836,000 on this aircraft which was recorded as additional depreciation
expense during the second quarter of 1996.
Interest income increased during the three and six months ended June 30, 1997
compared to the same period in 1996, due to the recognition of interest income
on the notes receivable from AIA and Triton. In June 1996, the Partnership sold
a Boeing 747-100 Special Freighter to AIA. The Partnership agreed to accept
payment of the sale price with interest in 60 monthly installments beginning in
July 1996. As a result, the Partnership recognized interest income on this note
of approximately $281,000 and $576,000 during the three and six months ended
June 30, 1997 as compared to $0 during the same periods in 1996. In the second
quarter of 1997, the Partnership sold 12 Aircraft to Triton for cash and a
promissory note. The promissory note is payable in 28 quarterly installments of
principal and interest over a period of seven years. The Partnership recognized
interest income on this note of approximately $316,000 during the three and six
months ended June 30, 1997, as compared to $0 during the same periods in 1996.
One of the three aircraft returned by Southwest in 1996 was sold in February
1997 to Westjet for $1,400,000. In October 1996, Southwest had paid to the
Partnership $155,694, which was recorded as an increase in maintenance reserves,
in lieu of meeting certain return conditions specified in the lease. Upon the
sale of the aircraft in February 1997, this amount was reported as additional
sales revenue. The combined sales revenue of $1,555,694 approximated the net
carrying value of the aircraft.
Rental revenues, net of related management fees, decreased during the three and
six months ended June 30, 1997 as compared to the same period in 1996 due to the
sale of the Partnership's 12 Aircraft during the three months ended June 30,
14
<PAGE>
1997, combined with the expiration of several leases during 1996. In May 1996,
the aircraft lease for the Boeing 747-100 Special Freighter expired and the
aircraft was sold to American International Airways Limited (AIA) in June 1996,
resulting in a decrease in rental revenues in 1997 compared to 1996. In October
and December 1996, three aircraft leased to Southwest reached the end of their
lease terms and were returned to the Partnership, resulting in further
reductions in rental revenues during 1997 compared to 1996.
LIQUIDITY AND CASH DISTRIBUTIONS
LIQUIDITY
The Partnership received all lease payments on a current basis from all lessees
except Polar Air Cargo which was past due at June 30, 1997. The Partnership
received the March 1997 lease payment of $279,370 from Polar Air Cargo on July
28, 1997, which was included in rent and other receivables on the balance sheet
at June 30, 1997.
PIMC has determined that the Partnership maintain cash reserves as a prudent
measure to insure that the Partnership has available funds in the event the
Purchaser defaults under the Promissory Note and for other contingencies
including expenses of the Partnership. The Partnership's cash reserves will be
monitored and may be revised from time to time as further information becomes
available in the future.
AIA Note Restructuring - American International Airways Inc. (AIA) has requested
a restructuring of its outstanding promissory note to the Partnership. Under the
terms of the proposed restructuring, AIA has requested, among other things, for
a deferral of 7 months of principal payments due in May 1997 through November
1997, to be paid back during a seven month extension of the loan term. AIA has
not made its principal payments since April 1997, but continues to pay the
interest portion of the note. At this time, management believes the note
receivable balance of $11,437,741 is fully recoverable.
CASH DISTRIBUTIONS
Cash distributions to limited partners during the three months ended June 30,
1997 and 1996 were $3,750,000, or $7.50 and $2,500,000, or $5.00 per limited
partnership unit, respectively. Cash distributions to limited partners during
the six months ended June 30, 1997 and 1996 were $6,250,000, or $12.50 and
$5,000,000, or $10.00 per limited partnership unit, respectively.
In accordance with the Limited Partnership Agreement, cash distributions are to
be allocated 90% to the limited partners and the 10% to the general partner. In
July 1997, the Partnership made a cash distribution to limited partners of
$11,485,000 ($22.97 per limited partnership unit) and $1,276,111 to the general
partner. The timing and amount of future cash distributions are not yet known
and will depend on the Partnership's future cash requirements including expenses
of the Partnership, as previously discussed in the Liquidity section, and the
receipt of note payments from AIA and Triton.
15
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund V's (the
Partnership) 1996 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K) and in Item 1 of Part II of the Partnership's Quarterly
Report to the SEC on Form 10-Q (Form 10-Q) for the period ended March 31, 1997,
there are a number of pending legal actions or proceedings involving the
Partnership. Except as discussed below, there have been no material developments
with respect to any such actions or proceedings during the period covered by
this report.
Equity Resources, Inc., et al. v. Polaris Investment Management Corporation, et
al. - On May 12, 1997, plaintiffs appealed the Superior Court's denial of their
motion seeking to enjoin the sale by the Partnership of certain of its aircraft
and notes receivable. On May 15, 1997, the Appellate Court denied plaintiffs'
appeal. On May 19, 1997, plaintiffs appealed the Superior Court's denial of
their motion to the Supreme Court of Massachusetts. The Supreme Court of
Massachusetts denied plaintiffs' appeal on May 29, 1997. On May 23, 1997, the
defendants filed a motion to dismiss the action.
Ron Wallace v. Polaris Investment Management Corporation, et al. - On or about
June 18, 1997, a purported class action entitled Ron Wallace v. Polaris
Investment Management Corporation, et al. was filed on behalf of the unit
holders of Polaris Aircraft Income Funds II through VI in the Superior Court of
the State of California, County of San Francisco. The complaint names each of
Polaris Investment Management Corporation (PIMC), GE Capital Aviation Services,
Inc. (GECAS), Polaris Aircraft Leasing Corporation, Polaris Holding Company,
General Electric Capital Corporation, certain executives of PIMC and GECAS and
John E. Flynn, a former PIMC executive, as defendants. The complaint alleges
that defendants committed a breach of their fiduciary duties with respect to the
Sale Transaction involving the Partnership as described in Item 2, under the
caption "Remarketing Update -- Sale of Aircraft to Triton."
"Accelerated" High Yield Income Fund II, Ltd., L.P. v. Polaris Investment
Management Corporation, et al. - On or about June 19, 1997, an action entitled
"Accelerated" High Yield Income Fund II, Ltd., L.P. v. Polaris Investment
Management Corporation, et al. was filed in the Superior Court of the State of
California, County of San Francisco. The complaint names each of Polaris
Investment Management Corporation (PIMC), GE Capital Aviation Services, Inc. and
Eric Dull (the President of PIMC), as defendants. The complaint alleges that
defendants committed a breach of their fiduciary duties with respect to the Sale
Transaction involving the Partnership as described in Item 2, under the caption
"Remarketing Update -- Sale of Aircraft to Triton."
Other Proceedings - Item 10 in Part III of the Partnership's 1996 Form 10-K and
Item 1 of Part II of the Partnership's Form 10-Q for the period ended March 31,
1997 discuss certain actions which have been filed against Polaris Investment
Management Corporation and others in connection with the sale of interests in
the Partnership and the management of the Partnership. With the exception of
Novak, et al v. Polaris Holding Company, et al, (which has been dismissed, as
discussed in the 1996 Form 10-K) where the Partnership was named as a defendant
for procedural purposes, the Partnership is not a party to these actions. Except
as discussed below, there have been no material developments with respect to any
of the actions described therein during the period covered by this report.
The following actions have been settled pursuant to a settlement agreement
entered into on June 6, 1997:
- - Thelma Abrams, et al. v. Polaris Holding Company, et al.
- - Sara J. Bishop, et al. v. Kidder, Peabody & Co. Incorporated, et al.
- - Enita V. Elphick, et al. v. Kidder, Peabody & Co. Incorporated, et al.
16
<PAGE>
- - Janet K. Johnson, et al. v. Polaris Holding Company, et al.
- - Wayne W. Kuntz, et al. v. Polaris Holding Company, et al.
- - Joyce H. McDevitt, et al. v. Polaris Holding Company, et al.
- - Mary Grant Tarrer, et al. v. Kidder, Peabody & Co. Incorporated, et al.
- - Harry R. Wilson, et al. v. Polaris Holding Company, et al.
- - George Zicos, et al. v. Polaris Holding Company, et al.
- - Michael J. Ouellette, et al. v. Kidder, Peabody & Co. Incorporated, et al.;
Thelma A. Rolph, et al. v. Polaris Holding Company, et al.; Carl L. Self, et al.
v. Polaris Holding Company, et al. - On or about March 21, 1997, three
complaints were filed in the Superior Court of the State of California, County
of Sacramento naming as defendants Kidder, Peabody & Company, Incorporated,
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Capital Services, General Electric Capital Corporation, GE
Capital Aviation Services and Does 1-100. The first complaint, entitled Michael
J. Ouellette, et al. v. Kidder Peabody & Co., et al., was filed by over 50
individual plaintiffs who purchased limited partnership units in one or more of
Polaris Aircraft Income Funds I-VI. The second complaint, entitled Thelma A.
Rolph, et al. v. Polaris Holding Company, et al., was filed by over 500
individual plaintiffs who purchased limited partnership units in one or more of
Polaris Aircraft Income Funds I-VI. The third complaint, entitled Carl L. Self,
et al. v. Polaris Holding Company, et al., was filed by over 500 individual
plaintiffs who purchased limited partnership units in one or more of Polaris
Aircraft Income Funds I-VI. Each complaint alleges violations of state common
law, including fraud, negligent misrepresentation and breach of fiduciary duty,
and violations of the rules of the National Association of Securities Dealers,
Inc. Each complaint seeks to recover compensatory damages and punitive damages
in an unspecified amount, interest and rescission with respect to Polaris
Aircraft Income Funds I-VI and all other limited partnerships alleged to have
been sold by Kidder Peabody to the plaintiffs.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
2.9 Modification Agreement
2.10 Promissory Note (Replacement)
27 Financial Data Schedule
b) Reports on Form 8-K
A Current Report on Form 8-K, dated May 28, 1997, reporting the sale of
assets under Item 2 was filed on June 12, 1997.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
August 12, 1997 By: /S/Marc A. Meiches
- --------------------------------- ------------------
Marc A. Meiches
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
the Registrant)
18
MODIFICATION AGREEMENT
MODIFICATION AGREEMENT, dated as of _____________, 1997, among
Triton Aviation Services V LLC, a California limited liability company ("TAS V")
and Polaris Aircraft Income Fund V, a California limited partnership ("PAIF V")
("Agreement").
R E C I T A L S:
WHEREAS, PAIF V and TAS V have entered into that certain
Purchase, Assignment and Assumption Agreement, dated as of April 1, 1997 (the
"Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, PAIF V agreed to
sell the Receivables to TAS V; and
WHEREAS, between the date of the Purchase Agreement and May
28, 1997 (the date of the Effective Time for the Receivable), the obligor under
the only Receivable failed to make a scheduled principal payment and requested a
restructuring of and modification to the terms of the Receivable;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained the receipt and sufficiency of which are hereby
agreed and acknowledged, it is agreed as follows:
1. Definitions. The capitalized terms used herein and not
otherwise defined herein shall have the meaning assigned to such terms in the
Purchase Agreement.
2. Rescission of Sale of Receivable. The parties hereto
acknowledge and agree that the agreement to convey the Receivable to TAS V
pursuant to the Purchase Agreement is hereby rescinded and rendered null and
void ab initio and that the Receivable is no longer a subject of the Purchase
Agreement, that the Purchase Agreement and each of the Ancillary Agreements are
hereby deemed to be reformed to delete all references to the Receivables, the
Receivable Agreements, the Receivable Effective Date and the Receivable
Transferred Interests and Schedule 8 to the Purchase Agreement is hereby deleted
in its entirety.
<PAGE>
3. Reduction of Purchase Price. The Purchase Price is hereby
reduced to $34,750,259.34, of which $3,914,964.14 is the Cash Amount and
$30,835,295.20 is the Note Amount. Schedule 4(a) to the Purchase Agreement is
hereby deleted in its entirety and replaced by the Schedule 4(a) attached hereto
as Exhibit A.
4. Delivery of Replacement Promissory Note. Contemporaneously
with the execution and delivery of this Agreement, TAS V will execute and
deliver a Promissory Note to PAIF V in the form attached hereto as Exhibit B
(the "Replacement Note") in substitution for and replacement of the Promissory
Note delivered to PAIF V in connection with the first Effective Time to occur
under the Purchase Agreement. The parties further acknowledge and agree that all
references to the Promissory Note in the Purchase Agreement or any of the other
Ancillary Agreements to which they are a party shall be deemed to be references
to the Replacement Note, the Replacement Note shall be deemed to be an Ancillary
Agreement and the Promissory Note shall be deemed null and void ab initio upon
delivery of the Replacement Note.
5. Return of Pro Rata Cash Amount and Note Income;
Distribution of Excess Cash. Pursuant to Section 4(a) of the Purchase Agreement,
TAS V has caused $5,203,540 to be deposited into the Cash Account, $1,288,575.86
of which is attributable to the Receivable. Pursuant to Section 4(b) of the
Purchase Agreement, PAIF V has caused $95,314.51 to be transferred to TAS V in
respect of Income on the Receivable since April 1, 1997. Upon the later to occur
of (i) the withdrawal of the Cash Amount from the Cash Account in accordance
with Section 4(c) of the Purchase Agreement or (ii) the execution and delivery
of this Agreement, PAIF V will cause $1,288,575.86 to be returned to TAS V and
TAS V will cause $95,314.51 to be returned to PAIF V. Notwithstanding anything
to the contrary in the Replacement Note or any other Ancillary Agreement, TAS V
shall have the right to distribute to its members, and such members shall have
the right to retain free of any security interest of PAIF V, an amount equal to
$1,288,575.86 in excess of all other amounts TAS V is otherwise entitled to
distribute to its members under the Replacement Note.
6. Reference to and Effect on the Purchase Agreement and the
Ancillary Agreements
(a) Upon the effectiveness of this Agreement, from and after
the date hereof, each reference in the Purchase Agreement to "this Agreement",
2
<PAGE>
"hereunder", "hereof" or words of like import referring to the Purchase
Agreement and each reference in any of the Ancillary Agreements to "the Purchase
Agreement", "thereunder", "thereof" or words of like import referring to the
Purchase Agreement, shall mean and be a reference to the Purchase Agreement as
modified hereby and each reference in any of the Ancillary Agreements to "the
Promissory Note", "the Note", "thereunder", "thereof" or words of like import
referring to the Promissory Note, shall mean and be a reference to the
Replacement Note.
(b) Except as specifically modified by this Agreement, the
Purchase Agreement, and all of the Ancillary Agreements (including, without
limitation, the Replacement Note) are and shall continue to be in full force and
effect, are hereby ratified and confirmed in all respects and are enforceable in
accordance with their respective terms, subject to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights and remedies of creditors generally and, with respect to
the enforceability of any such agreement, by general principles of equity,
including principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity). Without limiting the generality of the foregoing, to the extent
provided therein, the Security Agreement and all of the Pledged Collateral
described therein do and shall continue to secure the payment of all Secured
Obligations under the Security Agreement.
7. Reduction of Keep Well Amount. Section 1(b) of the Keep Well
Agreement, dated April 1, 1997, among Triton Aviation Services Limited, a
Bermuda corporation, TAS V and PAIF V is hereby amended to delete the amount of
$4,034,060 and insert in its place the amount of $3,035,088. In connection
therewith, PAIF V and TAS V hereby authorize and instruct Weil Gotshal & Manges
LLP to substitute the page of the Keep Well Agreement delivered on May 28, 1997
with a new page reflecting such amendment.
8. Consent of Additional Parties. By their execution and delivery of
this Agreement, each of Triton Aviation Services Limited (in its individual
capacity) and Triton Investments Limited hereby consents to all of the terms and
provisions of this Agreement and ratifies and confirms that the Keepwell, the
Keepwell Guaranty, the Loan Guaranty and each of the other Ancillary Agreement
to which they are a party all remain in full and effect and enforceable in
accordance with their respective terms, subject to the effect of bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights and remedies of creditors generally and, with respect to
the enforceability of any such agreement, by general principles of equity,
including principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
3
<PAGE>
9. Notices. All notices, demands, declarations and other communications
required by this Agreement shall be in writing and shall be effective (i) if
given by facsimile, when transmitted, (ii) if given by registered or certified
mail, three (3) Business Days after being deposited with the U.S. Postal
Service, (iii) if given by courier, when received, or (iv) if personally
delivered, when so delivered, addressed:
If to PAIF V, to:
c/o Polaris Investment Management Corporation
201 Mission Street, 27th Floor
San Francisco, CA 94105
Attention: President
Facsimile Number: (415) 284-7460
With a copy to:
c/o Polaris Investment Management Corporation
201 High Ridge Road, 1st Floor
Stamford, CT 06927-4900
Attention: Portfolio Management
Facsimile Number: (203) 357-4585
or to such other address as PAIF V shall from time to time designate in writing
to TAS V; and
If to TAS V, to:
Triton Aviation Services V LLC
55 Green Street, Suite 500
San Francisco, CA 94111
Attn: President
Facsimile Number: (415) 398-9184
4
<PAGE>
or to such other address as TAS V may from time to time designate in writing to
PAIF V.
10. GOVERNING LAW. THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION,
THE INTERPRETATION, CONSTRUCTION, VALIDITY AND ENFORCEABILITY THEREOF, SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA,
EXCLUDING ANY CONFLICT OF LAWS RULES THEREOF.
11. Miscellaneous.
(a) If any provision hereof should be held invalid,
illegal or unenforceable in any respect in any jurisdiction, then, to the
fullest extent permitted by law, (i) all other provisions hereof shall remain in
full force and effect in such jurisdiction and shall be construed in order to
carry out the intentions of the parties hereto as nearly as may be possible and
(ii) such invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of such provision in any other
jurisdiction.
(b) No amendment, modification, waiver, termination
or discharge of any provision of this Agreement, nor any consent to any
departure by PAIF V or TAS V from any provision hereof, shall in any event be
effective unless the same shall be in writing and signed by PAIF V and TAS V,
and each such amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or explained
by any oral agreement, course of dealing or performance or any other matter not
set forth in an agreement in writing and signed by PAIF V and TAS V.
(c) This Agreement and any amendments, waivers or
consents hereto may be executed by PAIF V and TAS V in separate counterparts (or
upon separate signature pages bound together into one or more counterparts),
each of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute one and the same instrument.
5
<PAGE>
(d) This Agreement, the Purchase Agreement and the
Ancillary Agreements constitute the entire agreement of PAIF V and TAS V with
respect to the subject matter hereof or thereof, and all prior understandings or
agreements, whether written or oral, between PAIF V and TAS V with respect to
such subject matter are hereby superseded in their entirety.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this AGREEMENT to be
duly executed as of the day and year first written above.
POLARIS AIRCRAFT INCOME FUND V
By: Polaris Investment Management Corporation,
General Partner
By: /s/ Eric M. Dull
--------------------------------------------
Name: Eric M. Dull
------------------------------------------
Title: Executive Vice President
-----------------------------------------
TRITON AVIATION SERVICES V LLC
By: Triton Aviation Services Limited,
Manager
By: /s/ John E. Flynn
----------------------------------------
Name: John E. Flynn
--------------------------------------
Title: President
-------------------------------------
Consented and Agreed to
this ___ day of June, 1997
TRITON AVIATION SERVICES LIMITED
By: /s/ John E. Flynn
-----------------------------
Title: President
7
<PAGE>
TRITON INVESTMENTS LIMITED
By:/s/ Steven C. Wight
---------------------------
Title:
8
<PAGE>
EXHIBIT A
SCHEDULE 4(a)
PURCHASE PRICE
Purchase Note Cash
Transferred Interests Price Amount Amount
---
Transferred Interest 21345 |
Transferred Interest 21601 |
Transferred Interest 19733 |
Transferred Interest 20925 |
Transferred Interest 21117 |
Transferred Interest 21447 |
Transferred Interest 21448 |--- $34,750,259.34 $30,835,295.20 $3,914,964.14
Transferred Interest 21533 | -------------- -------------- -------------
Transferred Interest 21534 |
Transferred Interest 21999 |
Transferred Interest 23014 |
Transferred Interest 22162 |
---
9
<PAGE>
EXHIBIT B
REPLACEMENT PROMISSORY NOTE
10
PROMISSORY NOTE
(Replacement)
$30,835,295.20 Effective as of
April 1, 1997
FOR VALUE RECEIVED, the undersigned, TRITON AVIATION SERVICES
V LLC, a California limited liability company having its principal office at 55
Green Street, San Francisco, California 94111 ("Borrower"), hereby promises to
pay to the order of POLARIS AIRCRAFT INCOME FUND V, a California limited
partnership ("Lender"), having an office c/o General Electric Capital Aviation
Services, Inc. at 201 High Ridge Road, Stamford, CT 06925, the principal amount
of THIRTY MILLION EIGHT HUNDRED THIRTY-FIVE THOUSAND TWO HUNDRED NINETY-FIVE AND
20/100 DOLLARS ($30,835,295.20) (hereinafter referred to as the principal amount
hereof), together with interest thereon (computed on the basis of a 360 day
year) on the unpaid balance thereof, commencing from the effective date hereof.
Interest shall accrue and be payable at a rate equal to the lesser of the
maximum lawful rate under applicable law or twelve percent (12%) per annum (the
"Interest Rate"). All past due installments of principal and, if permitted by
applicable law, of interest, shall bear interest at a rate equal to the Interest
Rate plus two percent (2%) per annum (the "Default Interest Rate"). During the
existence of any Event of Default (as such term is defined in Section 5 of this
Promissory Note), the entire unpaid balance of principal shall, at the option of
the holder hereof, bear interest at the Default Interest Rate. Borrower agrees
to pay Lender quarterly, as it accrues, interest on the principal amount
hereunder. Subject to Sections 1.2 and 1.4 hereof, the principal amount hereof,
together with interest at the Interest Rate, shall be payable as provided in
Schedule A hereto in twenty-seven (27) quarterly payments of principal and
interest payable on each March 31, June 30, September 30 and December 31,
beginning June 30, 1997 and one balloon payment of all remaining principal and
accrued interest on March 31, 2004. Each payment of principal and interest shall
be made by wire transfer to a bank account designated by the holder to Borrower
in writing.
The further terms and conditions of this Promissory Note are
as follows:
<PAGE>
1.0 Seller Financing; Defined Terms.
1.1 Borrower and Lender have entered into that certain Purchase,
Assignment and Assumption Agreement (the "Purchase Agreement") dated as of April
1, 1997. This Promissory Note is given in respect of certain obligations as more
fully set forth in Section 6 hereof, in connection with Borrower's acquisition
of the Transferred Interests.
1.2 The principal amount of this Promissory Note and the principal
repayments set forth on Schedule A shall be recalculated in accordance with
Section 1.4 hereof to give effect to any reduction to the Purchase Price
pursuant to Section 4(c) or Section 4(d)(ii) of the Purchase Agreement.
1.3 This Promissory Note may be prepaid in whole or in part at any time
without penalty.
1.4 Amounts prepaid pursuant to Sections 1.3 or 3.8 hereof shall be
applied on a pro rata basis to reduce all remaining payments of principal and
the interest payable thereon shall be recalculated based on such reduced
outstanding principal amount in accordance with a mortgage style amortization
schedule determined with reference to the remaining term of this Promissory Note
plus four quarters with a balloon payment due at March 31, 2004.
1.5 Unless otherwise defined herein, terms defined in the Purchase
Agreement are used herein as therein defined, and the following shall have
(unless otherwise provided elsewhere in this Promissory Note) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
"Economic Interest" means with respect to a member of Borrower
(i) if such member's capital account is a positive amount, the percentage
obtained by dividing such member's capital account by the total positive capital
accounts of all members of Borrower, (ii) if such member's capital account is
zero or less, a percentage equal to zero, or (iii) if the capital accounts of
all members are zero or less, the percentage interest of such member in
distributions of Borrower's cash flow from operations. The capital account
amounts set forth in the most recently filed Federal income tax return of
Borrower and the cash flow percentages set forth in Borrower's operating
agreement shall be used for the foregoing determination.
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"Equity Dividend Amount" means, (i) for any calendar month
that ends prior to the first Effective Time to occur under the Purchase
Agreement, an amount equal to $64,760, and (ii) for the calendar month in which
the first Effective Time occurs under the Purchase Agreement and for each
calendar month thereafter, an amount equal to $107,933 and for any period that
is less than a calendar month, a proportionate amount thereof calculated using
the same proportion that the number of days in such period bears to thirty days.
"Indebtedness" of any Person means any (i) indebtedness for
borrowed money or for the deferred purchase price of property or services (but
not including obligations to trade creditors incurred in the ordinary course of
business that are not yet due and payable), (ii) obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
acquired property, (iv) capitalized lease obligations of such Person, (v)
obligations guaranteeing, indemnifying, assuming, purchasing or repaying any
indebtedness, lease, dividend, or other obligation of any other Person in any
manner, (vi) indebtedness referred to in clause (i), (ii), (iii), (iv) or (v)
above secured by (or for which the holder of such indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or in property
owned by such Person, or (vii) liabilities under Title IV of ERISA (as such term
is defined in Section 2.11).
"Letter of Credit" means an irrevocable direct-pay letter of
credit issued by a bank (i) whose long term debt obligations are rated "AA" or
better by Thompson's Bankwatch or (ii) that is rated "AA" or better by Standard
& Poor's in the Financial Institutions Rating Service and that is payable upon
presentation by the beneficiary of such Letter of Credit of a sight draft (it
being understood, but without any impairment of the issuing bank's obligations
under such Letter of Credit, that the beneficiary shall not present such sight
draft unless (x) there has been a default under the promissory note secured by
such Letter of Credit or (y) the Letter of Credit would expire within 45 days of
such presentation and an extension of such expiration date shall not have been
granted nor an acceptable replacement Letter of Credit been provided).
"Permitted Investment" means (i) any Permitted SPV Investment
and (ii) (A) any evidence of Indebtedness, maturing not more than one year after
its acquisition by Borrower, issued or unconditionally guaranteed by the United
States Government, (B) commercial paper, maturing not more than twelve months
from the date of issue, which is issued by a Person having a rating of A-1 or
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P-1 or the equivalent or higher from at least one of Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Phoenix Duff & Phelps or Fitch
Investors Services, (C) any certificate of deposit or bankers acceptance,
maturing not more than one year after its acquisition by Borrower, which is
issued by a commercial banking institution organized under the laws of the
United States that has a combined capital and surplus and undivided profits of
not less than $250,000,000, (D) any repurchase agreement entered into with any
commercial banking institution described in the foregoing clause (C) which is
secured by a security interest in any obligation of a type described in any of
the foregoing clauses (A) through (C), or (E) any money market account or
similar investment account that invests solely in securities of the type
described in clause (A), (B) or (C) of this definition.
"Permitted SPV Indebtedness" means any indebtedness of
Borrower: (i) owed to any Triton LLC, (ii) for monies borrowed solely for the
purpose of (x) funding any maintenance, improvements, additions, refurbishments
or modifications to any Aircraft owned, directly or indirectly, by Borrower or
(y) making payments due and owing to Lender under this Promissory Note, (iii)
evidenced by a note payable to such Triton LLC on demand, bearing interest at a
rate equal to the higher of 12% per annum or Bank of America's prime rate plus
2%, but not exceeding the maximum lawful rate under applicable law and (iv)
guaranteed by TIL and secured by a Letter of Credit in an amount equal to the
outstanding balance of such promissory note plus six months interest thereon
(calculated at 10% per annum), all as provided in the Loan Guaranty.
"Permitted SPV Investment" means a demand loan made: (i) to
any Triton LLC, (ii) solely for the purpose of (a) funding any maintenance,
improvements, additions, refurbishments or modifications to any Aircraft owned,
directly or indirectly, by such Triton LLC or (b) making payments due and owing
to a Polaris Entity by such Triton LLC under a promissory note entered into in
connection with an SPV Purchase Agreement, (iii) evidenced by a promissory note
made by such Triton LLC payable to Borrower on Borrower's demand, (iv) bearing
interest at a rate equal to the higher of 10% per annum or Bank of America's
prime rate plus 2%, but not exceeding the maximum lawful rate under applicable
law and (v) guaranteed by TIL and secured by a Letter of Credit issued in favor
of Borrower in an amount equal to the outstanding balance of such promissory
note plus six months interest thereon (calculated at 10% per annum).
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<PAGE>
"Polaris Entity" means any of Polaris Aircraft Income Fund II,
Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund IV, Polaris
Aircraft Income Fund V or Polaris Aircraft Income Fund VI, each a California
limited partnership.
"Qualified Holder" means (i) any Person who is Triton
Management, (ii) any Triton Member or (iii) any Person with a consolidated net
worth, net of minority interests and, if such Person is a natural person,
exclusive of his principal residence, of an amount that is not less than the
greater of (x) $3,000,000 or (y) the product of the aggregate consideration
(including cash, notes or other deferred compensation) paid by such Person for
all ownership interests owned by such Person in Borrower multiplied by two.
"SPV Purchase Agreements" means those certain Purchase,
Assignment and Assumption Agreements, each by and between a Polaris Entity, as
assignor, and a Triton LLC, as assignee, entered into simultaneously with the
Purchase Agreement.
"TAL" means Triton Aviation Limited, a Bermuda corporation.
"TASL" means Triton Aviation Services Limited, a Bermuda
corporation.
"TIL" means Triton Investment Limited, a Bermuda corporation.
"Triton Container" means Triton Container International
Limited, a Bermuda corporation.
"Triton LLC" means any of Triton Aviation Services II LLC,
Triton Aviation Services III LLC, Triton Aviation Services IV LLC or Triton
Aviation Services V LLC, each a California limited liability company.
"Triton Management" means any director, officer or other
member of senior management of TASL, or TIL or any Triton Member.
"Triton Member" means (i) TAL, TASL and Triton Container and
(ii) any other Person 90% or more of the ownership interest in which is held,
directly or indirectly, by TIL and which Person has a consolidated net worth,
net of minority interests, that is not less than the greater of (x) $3,000,000
or (y) the product of the aggregate consideration (including cash, notes or
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<PAGE>
other deferred compensation) paid by such Person for all ownership interests
owned by such Person in Borrower multiplied by two.
2.0 Representations and Warranties. To induce Lender to accept this
Note and extend seller financing to Borrower, Borrower hereby makes the
following representations and warranties:
2.1 Borrower is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of California
and is duly qualified as a foreign limited liability company and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification (except for
jurisdictions in which failure to so qualify or be in good standing would not
have a material adverse effect on the business, assets, operations, prospects,
or financial or other condition of Borrower (a "Material Adverse Effect")).
2.2 The execution, delivery and performance by Borrower of
this Promissory Note are within Borrower's power, have been duly authorized by
all necessary or proper limited liability company action, are not in
contravention of any provision of Borrower's articles of organization, operating
agreement, or any other such governing document, will not violate any law or
regulation, or any order or decree of any Government Entity, will not conflict
with or result in the breach or termination of, constitute a default under or
accelerate any performance required by, any indenture, mortgage, deed of trust,
lease, agreement, or other instrument to which Borrower is a party or by which
Borrower or its property is bound, and do not require the consent or approval of
any Person except those already obtained. This Promissory Note constitutes the
legal, valid and binding obligation of Borrower enforceable against it in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws affecting the
rights and remedies of creditors generally and, with respect to the
enforceability of this Promissory Note, by general principles of equity,
including principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
2.3 The pro forma balance sheet of Borrower as of May 1, 1997,
a copy of which has been furnished to Lender, was prepared in accordance with
generally accepted accounting principles ("GAAP") and reflects the assignment of
all Transferred Interests and the seller financing transactions contemplated
hereunder and under the Purchase Agreement as if they had occurred as at the
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<PAGE>
date of such balance sheet and presents fairly on a pro forma basis the
financial position of Borrower at such date assuming the events specified in
this paragraph had actually occurred on such date. Borrower, as of the date of
this Promissory Note, had no obligations, contingent liabilities or liabilities
for taxes or other charges, long-term leases or unusual forward or long-term
commitments which were not reflected in the aforementioned pro forma balance
sheet of Borrower.
2.4 No dividends or other distributions have been declared,
paid or made upon any membership interest (or any other equity interest) of
Borrower nor have any membership interests (or any other equity interest) of
Borrower been redeemed, retired, purchased or otherwise acquired for value by
Borrower.
2.5 Borrower owns full, complete and good title to all of its
properties and assets and none of its properties and assets is subject to any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, easement or encumbrance, or
other security agreement of any kind or nature whatsoever (collectively, "Liens"
and individually, a "Lien"), except Permitted Encumbrances (as defined in
Section 4.3 hereof).
2.6 Borrower has insurance on all its properties or assets,
including, without limitation, policies of fire, theft and other casualty and
liability insurance on terms and conditions and in amounts that are customary
for owners of commercial aircraft. All such policies are in full force and
effect and there are no defaults by any party under any provision thereof.
2.7 Borrower is not in default, nor is any third party in
default, under or with respect to any contract, agreement, lease or other
instrument to which Borrower is a party.
2.8 Borrower is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended. The obligations evidenced by this Promissory Note, the repayment
thereof and the consummation of the transactions contemplated by this Promissory
Note will not violate any provision of such Act or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder.
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<PAGE>
2.9 The seller financing evidenced by this Promissory Note
will be used only for the purposes contemplated hereunder and under the Purchase
Agreement.
2.10 All federal, state, local and foreign tax returns,
reports and statements required to be filed by Borrower have been filed with the
appropriate governmental agencies and all taxes, charges and other impositions
shown thereon to be due and payable have been paid prior to the date on which
any fine, penalty, interest or late charge may be added thereto for nonpayment
thereof, or any such fine, penalty, interest or late charge has been paid.
Borrower has paid when due and payable all taxes and other charges required to
be paid by it except those contested in good faith by appropriate proceedings,
with adequate reserves made in respect thereof in accordance with and to the
extent required by GAAP.
2.11 Borrower does not maintain or contribute to and is not
obligated to contribute to, and has not maintained or contributed to and was not
obligated to contribute to, any employee benefit plan as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2.12 No action, claim or proceeding is now pending or
threatened against Borrower, at law, in equity or otherwise, before any court,
board, commission, agency or instrumentality of any federal, state, or local
government or of any agency or subdivision thereof, or before any arbitrator or
panel of arbitrators nor does a state of facts exist which is reasonably likely
to give rise to such proceedings.
2.13 All representations and warranties made by Borrower in
the Purchase Agreement are true and correct in all material respects on and as
of the date hereof as though made on and as of this date.
3.0 Affirmative Covenants. Borrower covenants and agrees that,
unless Lender shall otherwise consent in writing, from and after the date hereof
and until this Promissory Note is paid in full:
3.1 Borrower shall (i) do or cause to be done all things
necessary to preserve and keep in full force and effect its existence as a
California limited liability company and its rights; (ii) continue to conduct
its business in accordance with its operating agreement and articles of
organization as permitted hereunder; and (iii) at all times use its best efforts
to maintain, preserve and protect, or cause to be maintained, preserved and
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<PAGE>
protected, all of its property, in use or useful in the conduct of its business
and keep the same in good repair, working order and condition (taking into
consideration ordinary wear and tear).
3.2 Borrower shall (i) pay and discharge or cause to be paid
and discharged all its Indebtedness, including, without limitation, all amounts
outstanding hereunder as and when due and payable, and (ii) except where
contested, in good faith, by proper legal actions or proceedings with adequate
cash reserves therefor, pay and discharge or cause to be paid and discharged
promptly all (A) taxes or other charges imposed upon it, its income and profits,
or any of its real or personal property, whether tangible or intangible, and (B)
lawful claims for labor, materials, supplies and services or otherwise before
any thereof shall become in default.
3.3 Borrower shall deliver to Lender (i) within 60 days after
the end of each of the first three fiscal quarters of Borrower, a copy of the
unaudited balance sheet of Borrower as of the end of such fiscal quarter and an
unaudited statement of income and cash flow of Borrower for such fiscal quarter,
all prepared in accordance with GAAP (subject to normal year end adjustment),
accompanied by a certification of the chief executive officer or chief financial
officer of the manager of Borrower that all such financial statements are
complete and correct and present fairly, all in accordance with GAAP (subject to
normal year end adjustments), the financial position, the results of operations
and cash flow statements of Borrower as at the end of such quarter and for the
period then ended and that no Event of Default or event which with the giving of
notice or lapse of time or both would become an Event of Default (a "Default")
is in existence as of such time, (ii) within 120 days after the end of each
fiscal year of Borrower, a copy of the audited balance sheet of Borrower as of
the end of such fiscal year and an audited statement of income and cash flow of
Borrower for such fiscal year, all prepared in accordance with GAAP, accompanied
by (x) a certification of the chief executive officer or chief financial officer
of Borrower that all such financial statements are complete and correct and
present fairly, all in accordance with GAAP, the financial position, the results
of operations and the changes in financial position of Borrower as at the end of
such year and for the period then ended and that no Default or Event of Default
is in existence as of such time and (y) an auditor's report unqualified as to
the scope of the audit and as to the Borrower being a going concern, from KPMG
Peat Marwick LLP, or any other firm of independent certified public accountants
of recognized national standing selected by Borrower and acceptable to Lender,
(iii) copies of any documents relating to or evidencing any Permitted SPV
Indebtedness incurred by or any Permitted SPV Investment made by Borrower, no
later than three (3) business days after Borrower incurring or making, as
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<PAGE>
applicable, any Permitted SPV Indebtedness or Permitted SPV Investment, (iv)
notice that the Borrower has incurred any other Indebtedness or acquired any
Permitted Investments (other than Permitted SPV Investments) no later than 30
days after Borrower incurring or making, as applicable, any such Indebtedness or
Permitted Investment together with such other information about any Indebtedness
or Permitted Investment as Lender may reasonably request, (v) written notice of
any Keep Well proceeds received by Borrower and of any dividend or distribution
declared or made by Borrower, in each case no later than three (3) business days
after receipt of such proceeds or the declaration or payment of any such
dividend or distribution, as applicable and (vi) written notice of any
transaction by Borrower with an Affiliate setting forth the identity of each
Affiliate that is a party to such transaction, the material terms of such
transaction and any amounts required to be paid by, on behalf of or to Borrower
in respect of such transaction.
3.4 Borrower shall deliver to Lender as soon as practicable,
but in any event within two (2) business days after Borrower becomes aware of
the existence of any Default or Event of Default, or any development or other
information which would have a Material Adverse Effect, telephonic or facsimile
notice specifying the nature of such Default, Event of Default or development or
information, including the anticipated effect thereof, which notice, if
telephonic, shall be promptly confirmed in writing to Lender within three (3)
business days.
3.5 Borrower shall deliver to Lender such other information
respecting Borrower's business, financial condition or prospects as Lender may,
from time to time, reasonably request including, without limitation, monthly
reports of the outstanding balances of accounts receivable since the last
monthly report; a detailed aged trial balance of all then-existing accounts
receivable by Lessee and specifying the names of account debtors and such other
information relating to the accounts receivable as Lender may reasonably
require; and a certificate of the gross revenues of Borrower for the preceding
month. Lender and any of its officers, employees and/or agents shall have the
right, exercisable as frequently as Lender reasonably determines to be
appropriate, during normal business hours (or at such other times as may
reasonably be requested by Lender), to inspect the properties and facilities of
Borrower and to inspect, audit and make extracts from all of Borrower's records,
files and books of account. Borrower shall deliver any document or instrument
reasonably necessary for Lender to obtain records from any service bureau
maintaining records for Borrower.
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3.6 (a) Borrower shall, either directly or indirectly, procure
and maintain insurance policies with reputable insurers, covering all of its
properties or assets, including, without limitation, policies of fire, theft and
other casualty and liability insurance on terms and conditions and for amounts
that are customary for owners of commercial aircraft. Without limiting the
foregoing, Borrower shall, directly or indirectly, procure and maintain, at all
times, (i) all risk hull insurance (including the War and Allied Perils
Endorsement insurance) written by recognized aircraft insurers on each Aircraft
owned, directly or indirectly, by Borrower in an amount equal, at all times, to
the Appraised Value of such Aircraft and (ii) comprehensive liability insurance
written in an amount not less than $500,000,000. Lender shall be named as an
additional insured on all such insurance policies and named as additional
insured on all liability policies.
(b) All such policies of insurance shall provide (i) by means
of endorsements or otherwise, in form and manner satisfactory to Lender, that
such insurance shall not be invalidated by any action or inaction of Borrower
and shall insure Lender, regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by Borrower; (ii) by means
of endorsements or otherwise in form and manner satisfactory to Lender, that if
such insurance is cancelled for any reason whatever, or any substantial change
is made in the coverage which affects the interests of Lender or if such
insurance is allowed to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to Lender for 30 days (or, in the case
of any war risks or allied perils coverage, seven (7) days, or such other period
as may from time to time be customarily obtainable in the industry) after
receipt by Lender of written notice from such insurers of such cancellation,
change or lapse; (iii) by means of endorsements or otherwise in form and manner
satisfactory to Lender, that such insurers shall waive any rights of subrogation
against Lender; (iv) that they are primary without right of contribution from
any other insurance which is carried by Lender with respect to any Aircraft that
is owned, directly or indirectly, by Borrower (or any engines or other parts
thereof); and (v) that all provisions thereof, except the limits of liability,
shall operate in the same manner as if there were a separate policy with and
covering each insured.
(c) Borrower shall arrange for appropriate certification, to
the reasonable satisfaction of Lender, as to the scope and existence of such
insurance and the terms thereof to be made to Lender on or prior to the
occurrence of the first Effective Time under the Purchase Agreement and annually
thereafter, until this Promissory Note is paid in full, and thereafter not later
than fourteen (14) days after the renewal date of each of the insurances by each
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insurer (or by a firm of independent insurance brokers of reorganized standing
in the placement of similar coverage) in such form and dealing with such matters
relating to the obligations of Borrower hereunder as Lender may reasonably
require.
3.7 Borrower shall comply with all Federal, state and local
laws and regulations applicable to it, including, without limitation, those
relating to environmental matters and perform, within all required time periods,
all of its obligations and enforce all of its rights under each agreement to
which it is a party. Borrower shall not terminate or modify in any manner
materially adverse to Borrower any provision of any agreement to which it is a
party.
3.8 (a) Borrower shall make a prepayment on this Promissory
Note on the terms hereinafter set forth in the event of any sale or casualty
loss (each a "Prepayment Event") relating to any Aircraft or any property
comprising all or any portion of any Transferred Interest acquired by Borrower
pursuant to the Purchase Agreement (an "Asset") (each such Asset that is the
subject of a Prepayment Event is hereinafter referred to as a "Removed Asset");
provided, however, a Prepayment Event shall not be deemed to include (i) any
sale of an engine or a part if, within 45 days (with respect to engines) or 90
days (with respect to parts) after such sale, Borrower obtains a replacement for
such engine or part that has the same or greater value as the engine or part
that was the subject of such sale, (ii) any sale of obsolete or surplus parts,
at their fair market value, to the extent that the aggregate of all such sales
in a calendar year do not exceed $200,000 or (iii) any casualty loss of an
engine or any part if Borrower causes such engine or part to be repaired or
replaced, within 45 days (with respect to engines) or 90 days (with respect to
parts) after such casualty loss, and such repaired or replaced engine or part
has the same or greater value as the engine or part that was the subject of such
casualty loss. If a Prepayment Event relates to a Removed Asset but relates to
less than the entire Removed Asset, Borrower and Lender shall negotiate in good
faith to determine the appropriate percentage of such Removed Asset that was the
subject of such Prepayment Event. Such percentage shall then be multiplied by
the appraised value of the entire Removed Asset (calculated immediately prior to
the Prepayment Event), and the amount therefrom shall be used to calculate the
Allocable Portion Percentage (as defined below) of the Removed Asset.
(b) The amount of the prepayment required as a result of a
Prepayment Event shall be an amount equal to the greater of (1) 100% of the
Allocable Portion Percentage for the Removed Asset multiplied by the then
outstanding principal balance of this Promissory Note and (2) the proceeds
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actually received by Borrower in respect of the Removed Asset, net of any
reasonable out of pocket costs and expenses incurred by Borrower in connection
with such Prepayment Event (but not to exceed an amount equal to 120% of the
Allocable Portion Percentage with respect to the Removed Asset multiplied by the
then outstanding principal balance of this Promissory Note). The Allocable
Portion Percentage shall mean, with respect to any Asset, the amount obtained by
dividing the appraised value of the Asset immediately prior to the Prepayment
Event by the sum of the appraised values of all Assets owned, directly or
indirectly, by Borrower immediately prior to the Prepayment Event. For this
purpose, appraised value of an Aircraft owned, directly or indirectly, by
Borrower shall be the Appraised Value. The appraised value of any receivable
that constitutes a Removed Asset shall be the aggregate outstanding amount of
the principal and accrued interest and fees on such receivable as of the date of
the Prepayment Event.
(c) Any prepayment required as a result of a Prepayment Event
shall be due and payable hereunder no later than three (3) days after the date
of the Prepayment Event; provided, that if such Prepayment Event is a casualty
loss that is insured, the portion of the prepayment required as a result of such
Prepayment Event that is payable pursuant to such insurance coverage shall be
due and payable hereunder no later than the first to occur of (i) three (3) days
after receipt by Borrower of such insurance coverage or (ii) 15 days after the
date of the Prepayment Event. Amounts prepaid pursuant to this Section 3.8 shall
be applied as provided in Section 1.4 hereof.
4.0 Negative Covenants.Borrower covenants and agrees that, without
Lender's prior written consent, from and after the date hereof and until this
Promissory Note is paid in full:
4.1 Borrower shall not, directly or indirectly, by operation
of law or otherwise, merge with, consolidate with, acquire all or substantially
all of the assets or capital stock or other equity interests in, or otherwise
combine with, any Person (excluding the acquisition of the Transferred Interests
pursuant to the Purchase Agreement), nor form any subsidiary.
4.2 (a) Except as otherwise expressly permitted by this
Promissory Note, Borrower shall not create, incur, assume or permit to exist any
Indebtedness except (i) Indebtedness evidenced by this Promissory Note, (ii)
Permitted SPV Indebtedness, (iii) Indebtedness to trade creditors incurred in
the ordinary course of business that is due and payable but is being contested
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in good faith, by proper legal actions or proceedings, if Borrower has cash
reserves on hand adequate to pay such Indebtedness, (iv) deferred taxes that are
either not yet due and payable or are being contested in good faith by proper
legal actions or proceedings, if Borrower has cash reserves on hand adequate to
pay such deferred taxes, and (v) Indebtedness, not to exceed $26,000,000, in the
aggregate, during the term of this Promissory Note that is incurred and used
solely to hushkit an Aircraft that is owned, directly or indirectly, by Borrower
(or to refinance any Indebtedness incurred solely to hushkit such Aircraft;
provided, however, that (x) the amount of such Indebtedness does not exceed the
then outstanding principal amount of the Indebtedness being so refinanced and
(y) the term of such Indebtedness does not materially extend beyond the term of
the Indebtedness being so refinanced). Indebtedness incurred by Borrower to
hushkit an Aircraft that is owned, directly or indirectly, by it shall not
exceed the aggregate fair market value of such hushkit equipment and labor costs
necessary to install such hushkit equipment on such Aircraft.
(b) Borrower shall not make investments in, or make or
accrue loans or advances of money through the direct or indirect holding of
securities or otherwise to any Person; provided, however, that Borrower may own
the Transferred Interests and may invest in Permitted Investments. Borrower
shall demand payment under any Permitted SPV Investment (or any guaranty or
Letter of Credit guaranteeing or securing such Permitted SPV Investment) to the
extent Borrower needs funds to make any payments due to Lender under this
Promissory Note.
4.3 Borrower shall not create or permit any Lien on any of its
properties or assets except any of the following ("Permitted Encumbrances"): (A)
Liens for taxes or assessments or other governmental charges or levies, not yet
due and payable, (B) Liens in favor of such Owner Trustee pursuant to a Trust
Agreement or, in each case, workers', mechanics', suppliers', carriers',
warehousemen's or other similar Liens arising in the ordinary course of business
and securing obligations that are not yet due and payable, (C) Liens on an
Aircraft securing Indebtedness of Borrower which is permitted by the terms of
this Promissory Note and which is incurred solely to hushkit such Aircraft (a
"Current Loan"); provided, however, that if such Current Loan constitutes an
extension of credit pursuant to an existing financing facility of Borrower,
Borrower may grant, to secure such Current Loan, a Lien on one or more other
Aircraft if each such other Aircraft is at such time subject to a Lien that
secures such existing financing facility, (D) any renewal or replacement of any
Lien permitted by (C) above (in connection with refinancing of Indebtedness
14
<PAGE>
permitted by subsection 4.2(a)(v) hereof); provided, however, that (x) the
amount of Indebtedness secured by any such renewal or replacement Lien does not
exceed the then outstanding principal amount of the Indebtedness being so
refinanced, (y) such renewal or replacement Lien does not spread to cover any
additional asset and (z) the term of the Indebtedness secured by any such
replacement Lien does not materially extend beyond the term of the Indebtedness
being so refinanced; (E) leases of the Aircraft and (F) Liens on Aircraft owned,
directly or indirectly, by Borrower of a type that a lessee of such Aircraft
would customarily be permitted to incur and be required to remove from such
Aircraft.
4.4 Borrower shall not issue or sell or enter into any
agreement, contract or commitment to issue or sell any equity interest (other
than those outstanding as of the date of this Agreement) unless, after giving
effect to such issuance or sale (a) TASL shall remain the sole manager of
Borrower, retaining all responsibilities and duties allocated to TASL as manager
of Borrower pursuant to Borrower's operating agreement or certificate of
formation and shall make no delegation or assignment to any other Person of any
such responsibility or duty except as permitted thereby, (b) the number of
members of Borrower (x) who are not Triton Members or Triton Management shall
not exceed three (3) (y) who are Triton Management shall not exceed five (5) and
(z) who are Triton Members (excluding TAL, TASL and Triton Container) shall not
exceed five (5), (c) the Triton Members shall hold, in the aggregate, at least
50% of the Economic Interests of Borrower, (d) the holder of such equity
interest shall be a Qualified Holder, (e) such Qualified Holder shall expressly
agree to the pledge of such Interests under the Security Agreement and to be
bound by the terms and conditions thereof, and (f) after notice to Lender given
pursuant to the terms of Section 10 hereof, Lender shall consent to such
transfer or issuance (such consent not to be unreasonably withheld); provided,
however, that if Lender does not respond to such notice within ten (10) days
after receipt by Lender of such notice, such consent shall be deemed granted.
Notwithstanding the foregoing, no such issuance or sale shall be made if it
would violate any applicable law or cause the Aircraft owned, directly or
indirectly, by Borrower then registered under the Act no longer to be eligible
for registration under the Act.
4.5 Borrower shall not (i) make any changes in its capital
structure (including, without limitation, in the terms of its outstanding
membership interests, stock or any other equity interests, as the case may be)
except as permitted by Section 4.4 or (ii) amend its operating agreement or any
other such governing document (other than amendments (1) with respect to
15
<PAGE>
allocations of (A) profits and losses, (B) tax income or gains or tax losses or
any components thereof or (C) cash distributions among members or (2) to
implement actions permitted under this Promissory Note, provided, however,
notice of amendments to implement such actions shall be given to Lender no later
than ten (10) days prior to their effectiveness).
4.6 Borrower shall not engage in any business or activities
except to the extent permitted by Borrower's articles of organization or
operating agreement.
4.7 Except as otherwise expressly permitted by this Promissory
Note, Borrower shall not (i) pay or enter into any agreement or transaction to
pay to any of its Affiliates any management, advisory, consulting, service or
similar fee or any fee based on or related to Borrower's operating performance
or income or any percentage thereof; or (ii) enter into any other transaction
with any of its Affiliates, except (A) any agreement or transaction entered into
pursuant to the reasonable requirements of Borrower's ordinary course of
business and upon terms that are no less favorable to Borrower than Borrower
could obtain in a comparable arm's length transaction with a Person not an
Affiliate of Borrower and (B) reimbursement to TASL for the costs and expenses
incurred by TASL in connection with the repair and refurbishment of the aircraft
bearing manufacturer's serial numbers 20925 and 21117. Borrower shall not enter
into or be a party to any transaction with any Person except for transactions
entered into upon arm's length terms and conditions that are commercially
reasonable and fair to Borrower. Borrower shall not enter into any employment
agreements or pay any management or similar fee to any Person or become
obligated to pay any Person any advisory, consulting or service fee except in
accordance with the reasonable needs of Borrower's business and operations.
Borrower shall not amend or agree to amend the Keep Well, the Keep Well Guaranty
or the Loan Guaranty.
4.8 Borrower shall not make capital expenditures during the
term of this Promissory Note, except for capital expenditures made to fund any
maintenance, improvements, additions, refurbishments or modifications to any
Aircraft owned, directly or indirectly, by Borrower.
4.9 (a) Borrower shall not sell, transfer, convey or otherwise
dispose of any assets or properties; provided, however, that the foregoing shall
not prohibit (i) transfers resulting from any casualty or condemnation of assets
or properties or (ii) sales of engines or parts that do not constitute
Prepayment Events pursuant to Section 3.8(a). Notwithstanding the foregoing,
16
<PAGE>
Borrower may, subject to Section 3.8 hereof, sell Assets without the consent of
the holder of this Promissory Note if the proceeds from any such sale (net of
any costs and expenses or other obligations incurred by Borrower in connection
with such sale) equal or exceed 100% of the Allocable Portion Percentage for
such Asset multiplied by the then outstanding balance of this Promissory Note.
(b) Borrower shall not sell, transfer, convey or
otherwise dispose of all or any portion of any Asset for an amount (net of any
costs, expenses or other obligations incurred by Borrower in connection with
such sale, transfer, conveyance or disposition) less than 100% of the Allocable
Portion Percentage of such Asset multiplied by the then outstanding balance of
this Promissory Note without the prior written consent of the holder of this
Promissory Note unless Borrower has sufficient funds available from (a)
operating cash flow, exclusive of security deposits, maintenance reserves or
other property held by it as collateral, (b) the issuance or sale of equity
interests in Borrower, (c) sale proceeds held by it from the sale of other
Aircraft owned, directly or indirectly by it, (d) funds paid to Borrower by TASL
under the Keep Well if the Asset is disposed of for an amount equal to or
greater than the product of (1) 90% of the Allocable Portion Percentage for such
Asset multiplied by (2) the then outstanding balance of this Promissory Note, or
(e) any combination of the foregoing, which funds, when added to the proceeds of
the disposition of such Asset (net of any costs and expenses or other
obligations incurred by Borrower in connection with such sale, transfer,
conveyance or disposition) will equal the product of (A) 100% of the Allocable
Portion Percentage of such Asset multiplied by (B) the then outstanding balance
of this Promissory Note. If Borrower sells, transfers, conveys or otherwise
disposes of less than 100% of an Asset, the percentage interest sold,
transferred, conveyed or otherwise disposed of shall be multiplied by the
appraised value of the entire Asset and the product thereof shall be used to
calculate the Allocable Portion Percentage of such Asset for the purposes of the
immediately preceding sentence.
4.10 Borrower shall not (A) prepay, defease, redeem, retire or
otherwise acquire any obligation or Indebtedness owed by it except as permitted
by this Promissory Note, as required by Section 3.8 of this Promissory Note or
as required by any Permitted SPV Indebtedness, (B) cancel, forgive or waive any
claim, debt or Indebtedness owing to it, (C) declare any dividend or other
distribution or incur any liability in respect thereof, with respect to the
membership interests (or any other equity interest) in Borrower other than (1)
beginning as of April 1, 1997, payable in the next following calendar month, the
Equity Dividend Amount and any accrued and unpaid Equity Dividend Amount for
17
<PAGE>
each month thereafter, (2) amounts equal to equity contributions made pursuant
to the Keep Well which have not been previously recouped through the payment of
any dividend or distribution and (3) amounts equal to any reduction of the Cash
Amount pursuant to Section 4(c) or Section 4(d)(ii) of the Purchase Agreement;
provided, however, that during any period in which any payment under this
Promissory Note is overdue or a Default has occurred and is continuing, Borrower
shall not declare, pay, incur any liability in respect of or make any dividend
or other distribution whatsoever but Borrower may continue to accrue a liability
equal to the Equity Dividend Amount during such period and Borrower may make
payments in respect of any such accrued liability so long as no amounts due and
payable under this Promissory Note are overdue and no Default is continuing and
provided, further, that all dividends or distributions by Borrower shall be
declared, paid or made only in accordance with applicable law, or (D) incur any
liability to, or engage in any purchase, redemption or retirement transaction,
with respect to the membership interests (or any other equity interest) of
Borrower.
4.11 Borrower shall not directly or indirectly enter into any
employee benefit plan as defined in Section 3(3) of ERISA, nor any other
employee benefit arrangements or payroll practices, including, without
limitation, severance pay, sick leave, vacation pay, salary continuation for
disability, consulting or other compensation agreements, retirement, deferred
compensation, bonus, stock purchase, hospitalization, medical insurance, life
insurance or scholarship programs.
5.0 Events of Default. The following shall be Events of Default
hereunder:
5.1 Borrower shall fail to make any payment of principal or
interest owing in respect of this Promissory Note including, without limitation,
any prepayment required pursuant to Section 3.8 hereof, when due and payable.
5.2 Borrower shall fail to make any payment of any other
amount owing in respect of this Promissory Note within five (5) days after such
other amount becomes due and payable.
5.3 Borrower shall fail to perform, keep or observe any of the
covenants contained in Sections 3, 4 or 8 of this Promissory Note.
5.4 Borrower shall fail to perform, keep or observe any other
18
<PAGE>
provision of this Promissory Note or any provision of the Security Agreement,
and the same shall remain unremedied for a period of ten (10) days after receipt
of written notice thereof from Lender.
5.5 Any representation or warranty made herein by Borrower or
in any Ancillary Agreement to which it is a party shall be untrue or incorrect
in any material respect as of the date when made.
5.6 Any provision of the Security Agreement, the Keep Well,
the Keep Well Guaranty or the Loan Guaranty shall cease to be valid and
enforceable in any material respect in accordance with its terms.
5.7 Any Person (other than Lender) shall fail or neglect to
perform, keep or observe any provision of any of the Ancillary Agreement to
which it is a party, and the same shall remain unremedied for a period of ten
(10) days after receipt by such Person of written notice thereof from Lender.
5.8 Any other event shall have occurred which would have a
Material Adverse Effect.
5.9 Final judgment or judgments (after the expiration of all
times to appeal therefrom) for the payment of money in excess of $347,502 shall
be rendered against Borrower and the same shall not be fully covered by
insurance or vacated, stayed, bonded, paid or discharged for a period of thirty
(30) days.
5.10 There shall occur any default under any agreement,
document or instrument to which Borrower is a party or by which Borrower or any
of Borrower's property is bound (other than this Promissory Note), and such
default results in the acceleration, maturity, demand or required repayment of
Indebtedness or other obligations due thereunder that singly or in the aggregate
exceeds $347,502.
5.11 Borrower shall fail to maintain insurance as required by
Section 3.6 of this Promissory Note.
5.12 Any of the assets (with value, individually or in the
aggregate, in excess of $347,502 of Borrower shall be attached, seized, levied
upon or subjected to a writ or distress warrant, or come within the possession
of any receiver, trustee, custodian or assignee for the benefit of creditors of
Borrower and shall remain unstayed or undismissed for thirty (30) consecutive
days; or any person other than Borrower shall apply for the appointment of a
19
<PAGE>
receiver, trustee or custodian for any of the assets of Borrower and shall
remain unstayed or undismissed for thirty (30) consecutive days; or Borrower
shall have concealed, removed or permitted to be concealed or removed, any part
of the property of Borrower with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of any obligation which may be fraudulent under bankruptcy,
fraudulent conveyance or other similar law.
5.13 A case or proceeding shall have been commenced against
Borrower in a court having competent jurisdiction seeking a decree or order in
respect of Borrower (i) under title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal, state or
foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of Borrower
or of any substantial part of its properties, or (iii) ordering the winding-up
or liquidation of the affairs of Borrower and such case or proceeding shall
remain undismissed or unstayed for thirty (30) consecutive days or such court
shall enter a decree or order granting the relief sought in such case or
proceeding.
5.14 Borrower shall (i) file a petition seeking relief under
title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal, state or foreign bankruptcy or other similar law,
(ii) consent to the institution of proceedings thereunder or to the filing of
any such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) of
Borrower or of any substantial part of the property of Borrower, (iii) fail
generally to pay its debts as such debts become due or (iv) take any action in
furtherance of the foregoing.
Upon the occurrence and during the continuance of any such
Event of Default under Sections 5.1 through 5.11 hereof, the holder hereof may,
by written notice to Borrower, declare the entire unpaid balance of this
Promissory Note to be immediately due and payable, whereupon the same shall
forthwith mature without presentment, demand, protest or other notice, all of
which are hereby waived. Upon the occurrence and during the continuance of any
Event of Default under Sections 5.12 through 5.14 hereof, this Promissory Note
shall immediately mature and be due and payable without presentment, demand,
protest or other notice, all of which are hereby waived.
20
<PAGE>
6.0 Purchase, Assignment and Assumption Agreement. This Promissory
Note represents the Note Amount due under the Purchase Agreement in respect of
the Transferred Interests.
7.0 Security Agreement. All obligations due Lender by Borrower,
including, without limitation, those evidenced by this Promissory Note, shall be
secured pursuant to the Security Agreement.
8.0 Costs and Expenses. Borrower shall reimburse Lender for all of
its costs and expenses (including reasonable attorneys' fees) incurred by it
in connection with the indebtedness evidenced hereby, lien searches and filings,
the Security Agreement and related documents and any amendments thereto or
waivers or modifications thereof; provided, however, that Borrower shall not be
obligated to pay any costs or expenses (including attorney's fees) incurred by
Lender in connection with preparation of this Promissory Note or any other
Ancillary Agreement or any ordinary administrative costs and expenses of Lender
in the absence of a default by Borrower under this Promissory Note or any other
Ancillary Agreement to which it is a party. Borrower shall also reimburse Lender
or any other holder hereof for all costs incurred by it (including reasonable
attorneys' fees) in the enforcement or collection of any amounts due under this
Promissory Note. Borrower shall indemnify and hold Lender harmless from and
against all losses, claims, damages, costs and expenses, arising from the seller
financing evidenced by this Promissory Note or the transactions contemplated
hereby; provided, however, that such indemnity obligation shall not limit or be
deemed to limit Borrower's rights under Section 13 of the Purchase Agreement.
9.0 No Waiver. No delay, failure or omission by the holder hereof
in respect of any default by Borrower to exercise any right or remedy granted to
the holder hereof or allowed to the holder hereof by law shall constitute a
waiver of the right to exercise such right or remedy upon any default or
subsequent default.
10.0 Notices. All notices, demands, declarations and other
communications required by this Promissory Note shall be in writing and shall be
effective (i) if given by facsimile, when transmitted, (ii) if given by
registered or certified mail, three (3) Business Days after being deposited with
21
<PAGE>
the U.S. Postal Service, (iii) if given by courier, when received, or (iv) if
personally delivered, when so delivered, addressed:
If to Borrower, to:
Triton Aviation Services V LLC
55 Green Street, Suite 500
San Francisco, CA 94111
Attn: President
Facsimile Number: (415) 398-9184
or to such other address as Borrower shall from time to time designate in
writing to Lender; and
If to Lender, to:
c/o Polaris Investment Management Corporation
201 Mission Street, 27th Floor
San Francisco, CA 94105
Attention: President
Facsimile Number: (415) 284-7460
With a copy to:
c/o Polaris Investment Management Corporation
201 High Ridge Road, 1st Floor
Stamford, CT 06927-4900
Attention: Portfolio Management
Facsimile Number: (203) 357-4585
or to such other address as Lender may from time to time designate in writing to
Borrower.
11.0 Confidentiality. Lender agrees that it shall keep confidential all
information regarding Borrower that it may receive in connection with the
transactions contemplated by this Promissory Note and agrees that it will only
use such information in connection with such transactions and will not disclose
any of such information other than (i) to its directors, officers, employees,
advisors, auditors, agents or representatives who are or are expected to be
22
<PAGE>
involved in the evaluation of such information in connection with such
transactions and who are advised of the confidential nature of such information
(and for whose compliance Lender shall be liable), (ii) to the extent such
information presently is or hereafter becomes available to Lender on a
non-confidential basis from a source other than Borrower, (iii) to the extent
such information has been independently acquired or developed by Lender without
violating any of its obligations under this Promissory Note, or (iv) to the
extent disclosure is required by law, regulation or judicial order.
12.0 Permitted Indebtedness. Lender agrees to execute from time to time
a certificate verifying whether or not Lender has declared an Event of Default
that is continuing as of the date of such certificate and stating the
outstanding principal amount of and interest accrued on this Promissory Note as
of the date of such certificate as Borrower may reasonably request in connection
with incurring Indebtedness for hushkit financing that is permitted by the terms
of this Promissory Note.
13.0 No Recourse to Members. Without impairing any of the other rights,
powers, privileges, liens or security interests of Lender hereunder or under any
other Ancillary Agreement (which term for purposes of this Section 13.0 shall
include the Purchase Agreement), Lender and each subsequent holder of this
Promissory Note agrees that (i) the obligations of Borrower under this
Promissory Note and the other Ancillary Agreements, howsoever created, arising
or evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing, or due or to become due, including, without limitation,
obligations relating to principal, interest or any breach by Borrower of any
representation, warranty, covenant or indemnity made by Borrower, shall be
payable only from the assets of Borrower, and all of the statements,
representations, covenants and agreements made by Borrower herein and in any
other Ancillary Agreement are made and intended only for the purpose of
establishing the existence of rights and remedies which can be exercised and
enforced against the assets of Borrower; and (ii) no recourse shall be had with
respect to any representation, warranty, covenant or indemnity made by this
Promissory Note or any other Ancillary Agreement against any member of Borrower
or any officer, director, employee, trustee, servant or direct or indirect
controlling Person or Persons of any member, and no such Persons shall have any
personal liability for any amounts payable hereunder or under any other
Ancillary Agreement or for any damages for breach thereof; provided, however,
nothing contained in this Section 13.0 shall be construed to limit the exercise
or enforcement, in accordance with the terms hereof or any Ancillary Agreement,
of rights and remedies against the assets of Borrower; and provided further,
23
<PAGE>
however, that nothing in this Section 13.0 shall (A) release any Person
(including, without limitation, any member or the manager of Borrower) from
personal liability for any obligation of such Person under any Ancillary
Agreement to which it is a party, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or hereafter existing,
or due or to become due, including, without limitation, obligations relating to
(1) breach by such Person of any representation, warranty, covenant or indemnity
made by such Person or (2) any actual fraud by the manager or any member of
Borrower, or (B) release TIL from personal liability for any breach of its
obligations under or resulting from the breach by TIL of any representation
warranty, covenant or indemnity made by TIL pursuant to the Loan Guaranty or the
Keep Well Guaranty or release TASL from personal liability for any of its
obligations under or resulting from the breach by TASL of any representation,
warranty, covenant or indemnity made by TASL pursuant to the Keep Well or the
Security Agreement. For purposes of this Promissory Note and the Ancillary
Agreements, the assets of Borrower shall in no event include, nor shall Lender
or any subsequent holder have any recourse against or claim to, any deficit
capital account owed to Borrower by a member of Borrower, except to the extent
of distributions made to such member by Borrower in violation of the terms of
this Promissory Note.
14.0 Waiver of Trial by Jury. THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER, OR
UNDER THE SECURITY AGREEMENT.
15.0 Waiver. Borrower and all endorsers and guarantors hereby severally
waive demand, presentment, notice of dishonor, diligence in collection, notice
of protest, notice of intent to accelerate, notice of acceleration, and agree to
all extensions and partial payments before or after maturity, without prejudice
to the holder of this Promissory Note.
24
<PAGE>
16.0. Governing Law. THIS PROMISSORY NOTE SHALL BE DEEMED TO BE A
CONTRACT UNDER, AND SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO THE PRINCIPLES
THEREOF RELATING TO CONFLICT OF LAWS.
TRITON AVIATION SERVICES V LLC
By: Triton Aviation Services
Limited, Manager
By: /s/ John E. Flynn
----------------------------
Name: John E. Flynn
Title: President
Accepted and Acknowledged by
POLARIS AIRCRAFT INCOME FUND V
By: Polaris Investment Management
Corporation, General Partner
By: /s/ Eric M. Dull
--------------------------------
Name: Eric M. Dull
Title: Executive Vice President
25
<PAGE>
SCHEDULE A
Principal Payments as a Percentage
of Original Balance
Principal Balloon Total
Payments Payment Payments
-------- ------- --------
1.9047% 1.9047%
1.9618% 1.9618%
2.0207% 2.0207%
2.0813% 2.0813%
2.1437% 2.1437%
2.2080% 2.2080%
2.2743% 2.2743%
2.3425% 2.3425%
2.4128% 2.4128%
2.4852% 2.4852%
2.5597% 2.5597%
2.6365% 2.6365%
2.7156% 2.7156%
2.7971% 2.7971%
2.8810% 2.8810%
2.9674% 2.9674%
3.0564% 3.0564%
3.1481% 3.1481%
3.2426% 3.2426%
3.3398% 3.3398%
3.4400% 3.4400%
3.5432% 3.5432%
3.6495% 3.6495%
3.7590% 3.7590%
3.8718% 3.8718%
3.9879% 3.9879%
26
<PAGE>
Principal Payments as a Percentage
of Original Balance
Principal Balloon Total
Payments Payment Payments
-------- ------- --------
4.1076% 4.1076%
4.2308% 18.23% 22.4619%
0.0000% 0.0000% 0.0000%
0.0000% 0.0000% 0.0000%
0.0000% 0.0000% 0.0000%
0.0000% 0.0000% 0.0000%
------- ------- --------
81.7689% 18.2311% 100.0000%
<TABLE> <S> <C>
<ARTICLE>5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 24420733
<SECURITIES> 0
<RECEIVABLES> 42106586
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 66528791
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 66186276
<TOTAL-LIABILITY-AND-EQUITY> 66528791
<SALES> 0
<TOTAL-REVENUES> 5359463
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2737159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2622304
<INCOME-TAX> 0
<INCOME-CONTINUING> 2622304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2622304
<EPS-PRIMARY> 3.94
<EPS-DILUTED> 0
</TABLE>
