-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VnIeJ35+1Yr7xFfXhhK34EJ+GDqUPGndsmzPuhuBkn3IzkkoaNJJFnkxzke7+WxW 5FhWAhj50X2bVoa0JH6AfA== 0000948524-97-000064.txt : 19970613 0000948524-97-000064.hdr.sgml : 19970613 ACCESSION NUMBER: 0000948524-97-000064 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970528 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970612 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS AIRCRAFT INCOME FUND III CENTRAL INDEX KEY: 0000806031 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943023671 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-10122 FILM NUMBER: 97623034 BUSINESS ADDRESS: STREET 1: 201 MISSION ST STREET 2: 27TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4152947440 MAIL ADDRESS: STREET 1: 201 MISSION ST STREET 2: 27TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94105 8-K 1 FORM 8K MAY 28, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 8-K --------------------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (date of earliest event reported): May 28, 1997 --------------------------- Commission File No. 33-10122 --------------------------- POLARIS AIRCRAFT INCOME FUND III, A California Limited Partnership State of Organization: California IRS Employer Identification No. 94-3023671 201 Mission Street, 27th Floor, San Francisco, California 94105 Telephone - (415) 284-7400 This document consists of 6 pages. Item 2. On May 28, 1997, Polaris Investment Management Corporation (the "General Partner" or "PIMC"), on behalf of Polaris Aircraft Income Fund III (the "Partnership"), executed definitive documentation for the purchase of 8 of the Partnership's 18 remaining aircraft (the "Aircraft") and certain of its notes receivables by Triton Aviation Services III LLC, a special purpose company (the "Purchaser"). The final closings for the purchase of 3 of the 8 Aircraft had occurred as of June 6, 1997. The Purchaser is managed by Triton Aviation Services, Ltd. ("Triton Aviation"), 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. The General Partner's 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. 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. The Partnership did not receive any other offers and, accordingly, the General Partner believes that a valid market check has occurred confirming that the terms of this transaction were the most beneficial that could have been obtained. The Terms of the Transaction The total purchase price (the "Purchase Price") to the Purchaser is $10,947,000 which is allocable to the Aircraft and to certain notes receivable by the Partnership. The Purchaser is not receiving any of the Partnership's cash reserves, estimated to be approximately $15,800,000 after the anticipated July cash distribution is made to limited partners. The Purchaser paid into an escrow account $1,233,289 of the Purchase Price in cash at the closing and delivered a promissory note (the "Promissory Note") for the balance of $9,713,711. As described below, this transaction will enable the Partnership to distribute to limited partners the cash down payment received on the sale of the Aircraft. The Partnership intends to make this distribution as part of its July 1997 quarterly distribution to limited partners. The Promissory Note is to be repaid beginning June 30, 1997 in 28 quarterly installments of principal and interest in the amount of $476,425 over a period of seven years bearing interest at a rate of 12% per annum with a balloon principal payment in the amount of $1,770,917 due on March 31, 2004. 2 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. 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. Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund IV, Polaris Aircraft Income Fund V 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. 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 $956,000 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 $26,000 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. The Purchaser purchased the Aircraft effective as of April 1, 1997 notwithstanding the actual closing date. The utilization of an effective date facilitated the 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. 3 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. 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. With respect to the 5 Aircraft that have not yet been transferred to the Purchaser as of June 6, 1997, the Partnership has agreed to obtain the Purchaser's consent before undertaking any significant action, such as making a material modification or waiving a default under a lease. Anticipated July Cash Distribution The Partnership anticipates making a cash distribution to the limited partners of approximately $2,975,000 ($5.95 per limited partnership unit) by July 30, 1997. Such distribution would be comprised of (i) the cash down payment received from the sale of the Aircraft, less estimated transaction expenses (representing approximately $2.20 per limited partnership unit); (ii) the Promissory Note payment due from the Purchaser on June 30, 1997 (representing approximately $.85 per limited partnership unit); and (iii) cash generated from operations which is primarily from the 10 aircraft leased to Trans World Airlines, Inc. ("TWA") (representing approximately $2.90 per limited partnership unit). The foregoing anticipated distribution is based on the assumptions that the closings for all the Aircraft being sold to the Purchaser occur prior to July 1, 1997, the Partnership timely receives all payments due from the Purchaser, timely receives all payments due from TWA under its lease of the 10 remaining aircraft (the "TWA Leases") and TWA experiences no material adverse change in its ability to perform its obligations under the TWA Leases, and the Partnership incurs estimated operating and administrative expenses (including expenses in connection with the transaction) of approximately $126,000 for the quarter ended June 30, 1997. The Partnership's estimated cash distributions to limited partners constitutes forward looking information based upon the above assumptions that may, for any number of reasons, not occur. Accordingly, there can be no assurance that the Partnership will make a cash distribution in the amount anticipated. Estimated Cash Reserves The Partnership estimates its cash reserves will be approximately $15,800,000 ($28.44 per limited partnership unit) after the cash distribution to limited partners anticipated to be made in July 1997. PIMC has determined that the Partnership maintain these cash reserves as a prudent measure to insure that the Partnership has available funds in the event that the aircraft presently on lease to TWA require remarketing, 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. 4 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. a) Financial Statements. None b) Pro Forma Information. None c) Exhibits. 2.1 Purchase, Assignment and Assumption Agreement 2.2 Escrow Agreement 2.3 Pledge and Security Agreement 2.4 Keep Well Agreement 2.5 Promissory Note 2.6 Guaranty (Keep Well) 2.7 Guaranty (SPV Indebtedness) 5 SIGNATURE Pursuant to the requirements 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 III (Registrant) By: Polaris Investment Management Corporation, General Partner June 6, 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) 6 EX-2.1 2 PUR, ASSIGN & ASSUM AGREEMENT 8K ================================================================================ PURCHASE, ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of April 1, 1997 between POLARIS AIRCRAFT INCOME FUND III as Assignor and TRITON AVIATION SERVICES III LLC as Assignee ================================================================================ TABLE OF CONTENTS Page ---- SECTION 1. Definitions.......................................... 1 SECTION 2. Sale and Assignment.................................. 10 SECTION 3. Purchase and Assumption.............................. 11 SECTION 4. Purchase Price....................................... 11 (a) Payment of Purchase Price............................ 11 (b) Transfer of Aircraft Income and Lessee Deposits...... 12 (c) First Effective Date; Mop-Up Date.................... 12 (d) Settlement of Aircraft Income and Lessee Deposits.... 13 SECTION 5. Representations and Warranties of Assignor; Limitation of Warranty; Covenant with Respect to Pre-Closing Actions.................................. 15 5.1 Representations and Warranties of Assignor........... 15 (a) Partnership Organization, Etc........................ 15 (b) Due Authorization; Non-Contravention................. 15 (c) Due Execution and Delivery; Enforceability........... 15 (d) Event of Default..................................... 16 (e) Total Loss........................................... 16 (f) Taxes................................................ 16 (g) Litigation........................................... 17 (h) Encumbrances......................................... 17 (i) Brokers' Fees........................................ 17 (j) Operative Agreements................................. 18 (k) Title to Transferred Interests....................... 18 5.2 Supplements to Schedules; Post-Signing Information. ...... 18 5.3 Limitation of Warranty............................... 18 5.4 Actions with Respect to Transferred Interests........ 19 SECTION 6. Representations and Warranties of Assignee; Access Covenant...................................... 20 6.1 Representations and Warranties of Assignee........... 20 (a) LLC Organization, Etc................................ 20 (b) Due Authorization; Non-Contravention................. 20 (c) Due Execution and Delivery; Enforceability........... 21 (d) Litigation........................................... 21 (e) Compliance with Operative Agreements................. 21 i (f) Non-Airline.......................................... 21 (g) Brokers' Fees........................................ 21 (h) Acquisition For Own Account.......................... 22 6.2 Access Covenant...................................... 22 SECTION 7. Conditions Precedent to the Obligations of Assignor.. 22 (a) Purchase Price....................................... 22 (b) Affidavit of Limited Control by a Non-U.S. Citizen... 22 (c) Escrow Agreement..................................... 23 (d) TASL "Keep Well" Agreement........................... 23 (e) TIL Keep Well Guaranty and Loan Guaranty............. 23 (f) Assignee Security Agreement.......................... 23 (g) Approvals and Consents............................... 23 (h) Due Authorization, Execution and Delivery............ 24 (i) Representations and Warranties....................... 24 (j) Organizational and Authorization Matters............. 24 (k) Illegality; No Proceedings........................... 25 (l) No Total Loss........................................ 25 (m) Opinions............................................. 26 (n) Location of Aircraft................................. 26 (o) TIL Balance Sheets................................... 26 (p) Other Instruments and Documents; Additional Information.......................................... 26 (q) Outside Date......................................... 26 (r) No Pending Superior Proposal......................... 27 SECTION 8. Conditions Precedent to the Obligations of Assignee.. 27 (a) Leases and Trust Agreements.......................... 27 (b) Due Authorization, Execution and Delivery............ 27 (c) Representations and Warranties....................... 27 (d) Schedules ........................................... 27 (e) Partnership Authorization Matters.................... 28 (f) Illegality; No Proceedings........................... 28 (g) Approvals and Consents............................... 29 (h) No Total Loss........................................ 29 (i) Opinions............................................. 29 (j) Location of Aircraft................................. 29 (k) Other Instruments and Documents; Additional Information.......................................... 30 (l) Outside Date......................................... 30 SECTION 9. Payments............................................. 30 ii SECTION 10. Certain Notices...................................... 30 SECTION 11. Superior Proposal.................................... 31 SECTION 12. Further Assurances................................... 32 SECTION 13. Taxes and Indemnities................................ 32 (a) Transfer Taxes....................................... 32 (b) Notice of IRS Reports................................ 33 (c) Assignor's Indemnity................................. 33 (d) Assignee's Indemnity................................. 34 (e) Survival of Representations and Warranties........... 35 SECTION 14. Indemnification Procedure............................ 35 SECTION 15. Termination.......................................... 37 SECTION 16. Miscellaneous........................................ 38 (a) Notices.............................................. 38 (b) Headings............................................. 39 (c) References........................................... 39 (d) GOVERNING LAW........................................ 39 (e) Severability......................................... 39 (f) Amendments in Writing................................ 39 (g) Expenses............................................. 40 (h) Execution in Counterparts............................ 40 (i) Entire Agreement..................................... 40 (j) Exhibits............................................. 40 (k) Assignment and Successors............................ 40 (l) Confidentiality...................................... 41 iii EXHIBITS Exhibit A -- Form of Promissory Note Exhibit B -- Form of TASL Keep Well Exhibit C-1 -- Form of TIL Keep Well Guaranty Exhibit C-2 -- Form of TIL Loan Guaranty Exhibit D -- Form of Pledge and Security Agreement Exhibit E -- Form of SPV Provisions SCHEDULES Schedule 1 -- Aircraft Schedule 2 -- Leases Schedule 3 -- Foreign Aircraft Engines Schedule 4 -- Other Operative Agreements Schedule 4(a) -- Purchase Price Schedule 5 -- Owner Trustees Schedule 5(b) -- Consents Schedule 5(d) -- Assignor Claims Schedule 5(g) -- Pending Litigation Schedule 5(h) -- Liens Schedule 5(j) -- Missing Documents Schedule 6 -- Trust Agreements Schedule 7 -- Unfunded Commitments iv This PURCHASE, ASSIGNMENT AND ASSUMPTION AGREEMENT (as the same may be amended, modified or supplemented from time to time, this "Agreement"), dated as of April 1, 1997, is by and between POLARIS AIRCRAFT INCOME FUND III, a California limited partnership ("Assignor"), and TRITON AVIATION SERVICES III LLC, a California limited liability company ("Assignee"). W I T N E S S E T H: WHEREAS, Assignor desires to sell and assign to Assignee and Assignee desires to purchase and assume from Assignor all of Assignor's right, title and interest in and to the Transferred Interests; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements of the parties contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Assignor and Assignee agree as follows: SECTION 1. Definitions In addition to the terms defined elsewhere herein, when used in this Agreement, the following terms have the meanings indicated below: "Act" means Part A of subtitle VII of title 49, United States Code. "actual knowledge" of any Person, means the conscious awareness of facts or other information by any director, officer, employee or agent of such Person, in either such case, who is (i) actively involved in negotiating the transactions contemplated by this Agreement or (ii) responsible, in the ordinary course, for administering, on behalf of Assignor, the transactions contemplated by the Operative Agreements. "Affiliate" means, with respect to any Person, (i) each Person that, direct ly or indirectly, owns or controls, whether beneficially or as a trustee, guardian or other fiduciary, 20% or more of the Stock having ordinary voting power in the election of direc tors or managers of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person and (iii) each of such Person's officers, directors, members, joint venturers and partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. 1 "After-Tax Basis" means on a basis such that any payment received or deemed to have been received by any Person shall be supplemented by a further amount paid to that Person, so that the recipient is held harmless on an after-Tax basis from all Taxes (calculated with respect to the highest applicable tax rate and taking into account any related credits or deductions allowed to the recipient of such payment in respect of the indemnified matters) resulting from the receipt (actual or constructive) of such payments and where the indemnitee is treated as a partnership for federal income tax purposes, the "highest applicable tax rate" means the highest applicable federal tax rate in effect for individuals at the time the indemnity payment is made plus 6%. "Agreement" shall have the meaning assigned to it in the preamble hereof. "Aircraft" means the aircraft more fully described on Parts A and B of Schedule 1 attached hereto and, with respect to each Foreign Aircraft, shall include (i) any and all Parts installed on or attached to any such Foreign Aircraft as of the Effective Time relating to such Foreign Aircraft (subject to any pooling, replacement or exchange rights arising under the Operative Agreements relating to such Foreign Aircraft), (ii) all Aircraft Documents relating to such Foreign Aircraft, (iii) the Engines and (iv) to the extent assignable by Assignor, all warranties of manufacturers or other vendors of such Foreign Aircraft, Engines or Parts relating thereto that are in effect on the Effective Date relating to such Foreign Aircraft. "Aircraft Documents" mean, with respect to any Aircraft, all records, logs, technical data and manuals relating to the maintenance or operation of such Aircraft which are owned by Assignor. "Aircraft Income" means, with respect to a Transferred Interest, all income, scheduled rental payments, payments in respect of fees due to Assignor or the Owner Trustee and proceeds of such Transferred Interest earned on or after April 1, 1997, but shall not be deemed to include any Lessee Deposit or Reserved Rights associated with such Transferred Interest. "Allocable Portion Percentage" means, with respect to any Aircraft, the amount obtained by dividing the Appraised Value of such Aircraft (determined immediately before such Aircraft suffered a Total Loss or such Aircraft is otherwise deleted from this Agreement) by the sum of the Appraised Values of all the Aircraft (determined at the same time). "Ancillary Agreements" mean, collectively, the Promissory Note, the Keep Well, the Keep Well Guaranty, the Loan Guaranty, the Security Agreement, the Assignment and Assumption Agreements and all other agreements, 2 instruments, documents and certificates, including, without limitation, consents, assignments, contracts, financing statements and all other written matters whether now or hereafter executed by or on behalf of Assignor or Assignee or any of their respective Affiliates and delivered in connection with this Agreement or the transactions contemplated hereby. "Appraised Value" means, with respect to any Aircraft, the most recent semi-annual generic current fair market value of aircraft of the same type, age, gross weight and configuration, including, without limitation, engine type and hushkit status, published by Avitas Aircraft Appraisal Inc. without adjustment for the maintenance "half-time" condition of such Aircraft. "Assignee" shall have the meaning assigned to it in the preamble hereof. "Assignee Acceptance Notice" shall have the meaning assigned to it in Section 11(c) hereof. "Assignee Indemnitees" shall have the meaning assigned to it in Section 13(c) hereof. "Assignment and Assumption Agreement" shall mean (i) each Assignment and Assumption Agreement (FAA), executed and delivered by Assignor and Assignee at the applicable Effective Time, in form and substance satisfactory to Assignee and Assignor and (ii) each Novation Agreement, executed and delivered by Assignor and Assignee at the applicable Effective Time, in form and substance satisfactory to Assignee and Assignor. "Assignor" shall have the meaning assigned to it in the preamble hereof. "Assignor Indemnitees" shall have the meaning assigned to it in Section 13(d) hereof. "Assumed Liabilities" mean, with respect to each Transferred Interest, (i) all of the obligations and liabilities of Assignor relating to the applicable Trust Estate and under the applicable Trust Agreement and all other Operative Agreements relating to such Trust Estate or such Transferred Interest to the extent arising from acts, omissions, events or circumstances occurring or accruing on or after the applicable Effective Time for such Transferred Interest, (ii) all Deposit Liabilities relating to such Transferred Interest and (iii) all Unfunded Commitments relating to such Transferred Interest. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the States of California or New York. 3 "CAA" means the United Kingdom Civil Aviation Authority. "Cash Account" shall have the meaning assigned to it in Section 4(a) hereof. "Citizen of the United States" means Citizen of the United States as defined in Section 40102(a)(15) of the Act and in the FAA Regulations. "Claim Notice" shall have the meaning assigned to it in Section 14(a) hereof. "Damages" means, in respect of any obligation to indemnify any Person pursuant to the terms of this Agreement, any and all losses, claims, damages, liabilities, obligations, actions, suits, judgments, settlements, awards, reasonable and documented out-of-pocket costs, expenses and attorneys' fees but shall exclude any consequential, expectancy or speculative Damages or any Damages based on a claim of lost profits or opportunities. "Daylight Effective Time" means any Effective Time that occurs on a Business Day during the hours of 9:30 a.m. and 5:00 p.m. EDT, New York City time. "Deposit Liabilities" mean, with respect to any Lessee Deposit transferred to Assignee pursuant to this Agreement, all liabilities, obligations and duties owed by Assignor or any Owner Trustee to a Lessee or any assignee of or successor to such Lessee relating to, based on or arising out of such Lessee Deposit, whether known or unknown, contingent or absolute, or arising before, on or after the Effective Time applicable to such Lessee Deposit. "Effective Time" means, subject to the final sentence of this definition, each date and time on which any Transferred Interest is delivered by Assignor to Assignee and accepted by Assignee in accordance with the terms of this Agreement as specified in the Assignment and Assumption Agreement with respect to such Transferred Interest. Each Transferred Interest may be delivered by Assignor to Assignee and accepted by Assignee in accordance with the terms hereof and the terms of the applicable Assignment and Assumption Agreement independently of any other Transferred Interest and at different Effective Times. Notwithstanding the foregoing, the Effective Time for each Transferred Interest assigned to Assignee shall be deemed, with respect to the allocation of Aircraft Income as between Assignor and Assignee (but not for any other purpose), to be April 1, 1997. "Engine" means each of the engines identified as to manufacturer, type and manufacturer serial number on Schedule 3 hereto together, 4 in each case, with any and all Parts incorporated or installed in or attached thereto as of the Effective Time relating to such Engine (subject to any pooling, replacement or exchange rights arising under the Operative Agreements relating to such Engine). "Escrow Agent" means the escrow agent (and any financial institution that succeeds such escrow agent) pursuant to the terms of the Escrow Agreement. "Escrow Agreement" means an Escrow Agreement among Assignor, Assignee and the Escrow Agent, in form and substance satisfactory to each of them. "FAA" means the Federal Aviation Administration of the United States or any Government Entity succeeding to the functions of the Federal Aviation Administration. "Foreign Aircraft" means, collectively, the Aircraft described on Part B of Schedule 1. "Government Entity" means (a) any federal, state, provincial or similar government, and any body, board, department, commission, court, tribunal, authority, agency or other instrumentality of any such government or otherwise exercising any executive, legislative, judicial, administrative or regulatory functions of such government or (b) any other government entity having jurisdiction over any matter contemplated by the Operative Agreements or relating to the observance or performance of the obligations of any of the parties to the Operative Agreements. "Indemnified Party" shall have the meaning assigned to it in Section 14(a) hereof. "Indemnitor" shall have the meaning assigned to it in Section 14(a) hereof. "IRS" means the Internal Revenue Service or any Government Entity succeeding to the functions of the Internal Revenue Service. "Keep Well" shall have the meaning assigned to it in Section 7(d) hereof. "Keep Well Guaranty" shall have the meaning assigned to it in Section 7(e) hereof. "Leases" mean, collectively, the Leases listed on Schedule 2 attached hereto, as the same may have been amended, supplemented or modified from time to time. 5 "Lessee Deposit" means any security deposit, maintenance reserve or other funds held by Assignor or any Owner Trustee as security for the performance by a Lessee of any of its obligations under a Lease or any of the Operative Agreements relating to such Lease (including any interest or earnings on any such funds which, pursuant to such Lease or such Operative Agreements relating to such Lease, are for the account or the benefit of the Lessee). "Lessees" mean, collectively, the Persons listed on Schedule 1 attached hereto. "Lien" means any mortgage, pledge, lien, charge, claim, encumbrance, lease or security interest affecting the title to or any interest in property. "Loan Guaranty" shall have the meaning assigned to it in Section 7(e) hereof. "Loss of Title" means, with respect to any Aircraft, the condemnation, confiscation, appropriation or seizure of, or requisition of title to such Aircraft by any Government Entity; provided, however, that requisition of the use of an Aircraft shall not constitute a Loss of Title unless there has also been a requisition of title to such Aircraft by a Governmental Entity. "Mop-Up Date" means the seventh (7th) Business Day after the Start Date; provided, however, that if, on the seventh (7th) Business Day after the Start Date, Assignee gives notice to Assignor that an Aircraft which is subject of a Transferred Interest not yet transferred to Assignee (i) is located in a jurisdiction that is unacceptable to Assignee and (ii) cannot be relocated to an acceptable jurisdiction because either (x) such Aircraft is physically unable to be so relocated or (y) the Lessee of such Aircraft has refused to cooperate in relocating it, then in such case "Mop-Up Date" shall mean the earlier of (A) the thirtieth (30th) day following the seventh (7th) Business Day after the Start Date or (B) June 30, 1997. "Offering Party" means any Person making a bona fide inquiry, offer or proposal to acquire, directly or indirectly, (a) all or substantially all of the assets subject to the Trust Agreements or (b) all or substantially all of the Transferred Interests or (c) a combination thereof. "Operative Agreements" means, collectively, each of the Leases, the Trust Agreements, the tax indemnity agreements and the other agreements listed on Schedule 4 attached hereto, as the same may have been amended, supplemented or modified from time to time. 6 "Outside Date" shall have the meaning assigned to it in Section 7(g) hereof. "Owner Trustee" means each Owner Trustee listed on Schedule 5 attached hereto, not in its individual capacity but solely as owner trustee under the applicable Trust Agreement. "Parts" mean, with respect to any Aircraft or any Engine, all appli ances, components, parts, instruments, appurtenances, accessories, furnishings, spare parts, seats and other equipment of whatever nature (other than complete engines), incorporated or installed in or attached to any such Aircraft or Engine as of the Effective Time relating to any such Aircraft or Engine (subject to any pooling, replacement or exchange rights arising under the Operative Agreements relating to such Aircraft or Engine). "Person" means any Government Entity, individual, sole proprietor ship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation or other entity. "PIMC" means Polaris Investment Management Corporation, a California corporation. "Promissory Note" shall have the meaning assigned to it in Section 4(a) hereof. "Purchase Price" shall have the meaning assigned to it in Section 4(a) hereof. "Purchase Price Interest" means an amount equal to interest on the "Cash Amount" set forth on Schedule 4(a) hereto (as such Cash Amount may be reduced pursuant to Section 4(c) or Section 4(d)(ii)), calculated for the period from and including April 1, 1997 through but not including the date Assignor receives the Cash Amount pursuant to Section 4(a), at a rate equal to 5.3% per annum. "Reserved Rights" mean, with respect to each Transferred Interest, any of the right, title or interest of Assignor in, to or in respect of each and every indemnity or other payment or obligation (whether in the form of rent or otherwise), arising in connection with any claim, cause of action or payment obligation payable to, on behalf or in favor of Assignor, under or pursuant to any Trust Agreement or any other Operative Agreements relating to such Transferred Interest (including, without limitation, any rights or causes of action Assignor may have against any Owner Trustee pursuant to the terms of any Trust Agreement) to the extent that such indemnities, payments or obligations vested or relate to an act, omission, event or circumstance occurring or accruing prior to the Effective Time for such Transferred Interest other than Aircraft Income, Lessee Deposits or other rights specifically transferred to Assignee pursuant to this Agreement. 7 "Security Agreement" shall have the meaning assigned to it in Section 7(f) hereof. "SP Notice" shall have the meaning assigned to it in Section 11(b) hereof. "Special CAA Counsel" shall have the meaning assigned to it in Section 7(o) hereof. "Special FAA Counsel" shall have the meaning assigned to it in Section 7(o) hereof. "Start Date" means the earlier of (i) a date mutually acceptable to Assignor and Assignee or (ii) the sixth (6th) Business Day after which, in the good faith judgement of Assignor, the conditions precedent set forth in Section 7(g), (k) or (r) are first satisfied with respect to a Transferred Interest. "Stock" means all shares, options, warrants, general or limited partnership interests, membership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, membership interest or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regula tions promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Superior Proposal" means any bona fide inquiry, offer or proposal which, in the case of an offer or proposal, is made by a Person that, in the good faith judgment of Assignor, is financially capable of consummating such offer or proposal to acquire, directly or indirectly, (a) all or substantially all of the assets subject to the Trust Agreements or (b) all or substantially all of the Transferred Interests or (c) any combination thereof, the terms of which, in the good faith judgment of Assignor, provide aggregate present value consideration to Assignor that is materially better or more advantageous than the aggregate present value consideration provided by the transactions contemplated hereby; provided that in making such judgment Assignor shall have no duty or obligation to seek the advice of any outside advisors or appraisers. "TASL" means Triton Aviation Services Limited, a Bermuda corporation. 8 "Taxes" mean all license, recording, documentary, registration and other similar fees and all taxes, levies, imposts, duties, charges, assessments or with holdings of any nature whatsoever imposed by any Taxing Authority, together with any penalties, additions to tax, fines or interest thereon or additions thereto. "Taxing Authority" means any federal, state or local Government Entity or other taxing authority in the United States, any foreign government or any political subdivision or taxing authority thereof, any international taxing authority or any territory or possession of the United States or any taxing authority thereof. "Threshold Amount" shall have the meaning assigned to it in Section 13(c) hereof. "TIL" means Triton Investments Limited, a Bermuda corporation. "Third Party Action" shall have the meaning assigned to it in Section 14(a) hereof. "Total Loss" means, with respect to any Aircraft, any of the following events: (a) total loss of such Aircraft or the destruction, damage beyond economic repair or rendition of such Aircraft permanently unfit for normal use for any reason whatsoever; (b) any damage to such Aircraft which results in an insurance settlement with respect to such Aircraft on the basis of a total loss or on the basis of a compromised or constructive total loss; and (c) Loss of Title. "Transfer Taxes" shall have the meaning assigned to it in Section 13(a) hereof. "Transferred Interests" mean, collectively, all of Assignor's present and future right, title and interest in, to and under the Trust Estate, the Trust Agree ments and all other Operative Agreements, all Lessee Deposits, all Aircraft Income and all Foreign Aircraft, but excluding, in each case, the Reserved Rights. The term Transferred Interest followed immediately by a manufacturer's serial number of an Aircraft (e.g., "Transferred Interest 19711") shall mean, in each case, collectively, all of Assignor's present and future right, title and interest in, to and under the Trust Estate, the Trust Agreement and other Operative Agreements, Lessee Deposits and Aircraft Income relating to the Aircraft bearing such manufacturer's serial number. "Trust Agreements" mean, collectively, each Trust Agreement listed on Schedule 6 attached hereto, as the same may have been amended, supplemented or modified from time to time. 9 "Trust Estate" means, collectively, each Trust Estate as defined in each of the Trust Agreements. "Trusts" mean, collectively, each Trust as defined in each of the Trust Agreements. "Unfunded Commitment" means, with respect to any Transferred Interest, any unfunded obligations of Assignor or the Owner Trustee to make loans, advances or extensions of credit or to defer or extend the time for payment of rent obligations for the purpose of funding or otherwise financing modifications to the Aircraft to which such Transferred Interest relates or the acquisition of equipment. "without special inquiry" means with respect to Assignor, no inquiry other than that conducted in the ordinary course of administering the transactions contemplated by the Operative Agreements and that conducted in the ordinary course of negotiating the transactions contemplated by this Agreement, by any director, officer, employee or agent of Assignor who is actively involved in negotiating the transactions contemplated by this Agreement. As used herein, each of "Assignor," "Assignee," "Lessee," "Owner Trustee" or any other Person includes, without prejudice to the provisions of any Operative Agreements, any successor in interest to it and any permitted transferee, permitted purchaser or permitted assignee of it. SECTION 2. Sale and Assignment Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of Assignee set forth herein, at each applicable Effective Time, Assignor does hereby sell, assign and transfer to Assignee all of Assignor's present and future right, title and interest in, to and under each Trans ferred Interest including, without limitation, all of the Assumed Liabilities relating to such Transferred Interest; provided that such sale, assignment and transfer shall be effective only upon the satisfaction or waiver, at or prior to the applicable Effective Time for each such Transferred Interest, of the conditions set forth in Section 7, such satisfaction or waiver to be evidenced by Assignor's acceptance from Assignee of the Assignment and Assumption Agreement for each such Transferred Interest. 10 SECTION 3. Purchase and Assumption Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of Assignor set forth herein, at each applicable Effective Time, Assignee does hereby (i) purchase and accept each Transferred Interest, (ii) assume all of the Assumed Liabilities relating to each such Transferred Interest and (iii) confirm that it shall be deemed a party to each Trust Agreement as of the Effective Time relating, and with respect, to the Transferred Interest referenced in such Trust Agreement, and agrees to be bound by all the terms of each thereof and hereby undertakes and assumes all of the Assumed Liabilities relating to such Trans ferred Interest; provided, however, that Assignor shall remain liable for the obligations of Assignor relating to Reserved Rights; provided, further, that such purchase, acceptance and assumption shall be effective only upon the satisfaction or waiver, at or prior to the applicable Effective Time for such Transferred Interest, of the conditions set forth in Section 8, such satisfaction or waiver to be evidenced by Assignee's delivery to Assignor of the Assignment and Assumption Agreement for such Transferred Interest. The assumption contemplated hereby, at the applicable Effective Time, as between Assignor and Assignee, shall be deemed to release Assignor from all Assumed Liabilities relating to such Transferred Interest. SECTION 4. Purchase Price (a) Payment of Purchase Price The purchase price for the Transferred Interests is as set forth on Schedule 4(a) attached hereto plus the Purchase Price Interest (the "Purchase Price"). The Purchase Price Interest shall be due and payable on the Business Day after the earlier to occur of (i) the last Effective Time to occur hereunder and (ii) the seventh Business Day after the Start Date and shall be paid by Assignee to Assignor by wire transfer of immediately available funds in accordance with the instructions of Assignor. At or prior to the first Effective Time to occur pursuant to the terms hereof, Assignee shall (i) deliver a note to Assignor in substantially the form attached hereto as Exhibit A (the "Promissory Note"), in an amount equal to the amount set forth on Schedule 4(a) as the "Note Amount" and (ii) wire transfer immediately available funds in an amount equal to the amount set forth on Schedule 4(a) as the "Cash Amount" to the Escrow Agent for deposit into the account established pursuant to the Escrow Agreement (the "Cash Account"). 11 (b) Transfer of Aircraft Income and Lessee Deposits For each Daylight Effective Time and on the Mop-Up Date, contemporaneously with such Daylight Effective Time or on the Mop-Up Date, and for each Effective Time that does not constitute a Daylight Effective Time or is not deemed to occur on the Mop-Up Date, promptly at the beginning of the next Business Day after such Effective Time, Assignor shall wire transfer immediately available funds to Assignee, at an account designated in writing by Assignee, in an amount equal to the Aircraft Income and Lessee Deposits estimated by Assignor pursuant to Section 4(d)(i) hereof to constitute part of the Transferred Interest transferred (or deemed to be transferred) as of such Effective Time or as of the Mop-Up Date. (c) First Effective Date; Mop-Up Date Each of Assignor and Assignee covenants and agrees that (i) if each of the conditions precedent in Section 7 (as to Assignor) or Section 8 (as to Assignee) are satisfied or waived by the appropriate party, the first Effective Time will occur on the Start Date and (ii) the Effective Time for each and every Transferred Interest will occur not later than the close of business in New York on the Mop-Up Date. Each of Assignor and Assignee further agrees that at any time after the earlier of (i) the seventh Business Day after the Start Date and (ii) the last Effective Time to occur pursuant to the terms hereof, (A) Assignor is hereby authorized to withdraw from the Cash Account, an amount equal to the Cash Amount less any reduction of the Cash Amount pursuant to the last sentence of this Section 4(c) or pursuant to Section 4(d)(ii) less one-half of the fees owed to the Escrow Agent and (B) Assignee is hereby authorized to withdraw from the Cash Account all other funds in excess of the amount set forth in clause (A); provided, however, if Assignee withdraws the Cash Amount pursuant to the foregoing clause (i) and there is a subsequent reduction in the Cash Amount pursuant to the last sentence of this Section 4(c), then Assignor shall promptly return to Assignee an amount equal to such subsequent reduction plus interest at the rate of 5.3% per annum from the withdrawal date through the date of repayment to Assignee. On the Mop-Up Date, so long as (i) the conditions precedent set forth in Section 7 hereof (other than with respect to the location of the Aircraft) shall have been satisfied or waived by Assignor, Assignor shall be obligated to deliver, with respect to each Transferred Interest that has not been assigned previously to Assignee (including any Transferred Interest which has not been transferred previously because the Aircraft relating to such Transferred Interest has been the subject of a Loss of Title but as to which such Loss of Title has been cured or otherwise corrected on or prior to the Mop-Up Date), Assignment and Assumption Agreements, the evidence of authorization described in Section 8(e)(iv), any consents referred to in Section 5.1(b), the opinions described in Section 8(i) and any other instruments or documents as Assignee or its counsel shall 12 reasonably request and (ii) the conditions precedent set forth in Section 8 hereof (other than with respect to the location of the Aircraft) shall have been satisfied or waived by Assignee, Assignee shall be obligated to deliver, with respect to each Transferred Interest that has not been assigned previously to Assignee (including any Transferred Interest which has not been transferred previously because the Aircraft relating to such Transferred Interest has been the subject of a Loss of Title but as to which such Loss of Title has been cured or otherwise corrected on or prior to the Mop-Up Date), Assignment and Assumption Agreements, the evidence of authorization described in Section 7(j)(v), any consents referred to in Section 6.1(b), the opinions described in Section 7(n) and any other instruments or documents as Assignor or its counsel shall reasonably request. If on the Mop-Up Date any of the conditions precedent set forth in Section 7 or Section 8 hereof (other than with respect to the location of the Aircraft) are not satisfied or waived by the applicable party with respect to any Transferred Interest, any Aircraft which is subject of such Transferred Interest will no longer be the subject of this Agreement and this Agreement will be deemed to be reformed to delete all references to such Aircraft and such Transferred Interest and the Purchase Price will be reduced in an amount equal to the Allocable Portion Percentage for such Aircraft and each of the Note Amount and the Cash Amount as set forth on Schedule 4(a) hereof will be adjusted on a pro rata basis. (d) Settlement of Aircraft Income and Lessee Deposits (i) Prior to assignment of a Transferred Interest to Assignee hereunder, Assignor shall estimate the Aircraft Income and any Lessee Deposits that have been received by Assignor or the Owner Trustee relating to such Transferred Interest as of the applicable Effective Time for such Transferred Interest. Because the actual amount of the Aircraft Income and any Lessee Deposits relating to a Transferred Interest and received by Assignor or such Owner Trustee will not be readily determinable until after the applicable Effective Time, a final calculation cannot be made on that date. Therefore, within fifteen (15) Business Days after the end of the month in which such Effective Time occurs, Assignor shall provide Assignee with such final calculation (in reasonable detail) of Aircraft Income and any Lessee Deposits that have been received by Assignor or the Owner Trustee relating to such Transferred Interest. To the extent the calculation indicates that the amounts transferred by Assignor pursuant to Section 4(b) hereof with respect to such Transferred Interest were in excess of the actual Aircraft Income and any Lessee Deposits received by Assignor or the Owner Trustee relating to such Transferred Interest, Assignee shall promptly pay the amount of such excess to Assignor 13 (plus interest on such amount at the rate of 5.3% per annum from the applicable date of payment to Assignee to the date of repayment to Assignor). To the extent the calculation indicates that the amounts transferred by Assignor pursuant to Section 4(b) hereof with respect to such Transferred Interest were less than the actual Aircraft Income and any Lessee Deposits received by Assignor or the Owner Trustee relating to such Transferred Interest, Assignor shall promptly pay the amount of such deficiency to Assignee (plus interest on such amount at the rate of 5.3% per annum from the Business Day following the applicable Effective Time to the date of payment to Assignee). An adjustment to the Purchase Price for Aircraft Income under this Section 4(d)(i) shall be treated by the parties as a purchase price adjustment for all income tax purposes. (ii) If at any time prior to the last Effective Time to occur pursuant to the terms hereof, any Aircraft which is subject of a Transferred Interest not yet transferred by Assignor to Assignee suffers a Total Loss, such Aircraft will no longer be the subject of this Agreement and this Agreement will be deemed to be reformed to delete all references to such Aircraft and the related Transferred Interests; provided, however, that with respect to any such Aircraft, if such Total Loss is due to a Loss of Title and if Assignor cures or otherwise corrects such Loss of Title by regaining or recovering the use thereof or title thereto on or prior to the Mop-Up Date, such Aircraft will be deemed to be reinstated and once more subject to this Agreement and this Agreement will be deemed to be reformed to include all previously deleted references to such Aircraft and the related Transferred Interests. Contemporaneously with the removal of any Aircraft from the terms of this Agreement, the Purchase Price will be reduced in an amount equal to the Allocable Portion Percentage for such Aircraft and each of the Note Amount and the Cash Amount as set forth on Schedule 4(a) hereof will be adjusted on a pro rata basis. Contemporaneously with the reinstatement of an Aircraft into this Agreement, the Purchase Price will be increased in an amount equal to the Allocable Portion Percentage for such Aircraft and each of the Note Amount and the Cash Amount as set forth on Schedule 4(a) hereof will be adjusted on a pro rata basis. If at any time prior to the last Effective Time to occur pursuant to the terms hereof, any Aircraft which is subject of a Transferred Interest not yet transferred by Assignor to Assignee suffers any property damage or loss not constituting a Total Loss and such property damage or loss is not cured or corrected prior to the time when such Transferred Interest is transferred (or deemed to be transferred) by Assignor to Assignee, Assignor shall pay to Assignee any insurance proceeds received by Assignor with respect to such property damage or loss promptly after receipt by Assignor of such insurance proceeds; provided, however, that Assignor shall not enter into any settlement of any insurance claim without the prior written consent of Assignee, which consent may not be unreasonably withheld. 14 SECTION 5. Representations and Warranties of Assignor; Limitation of Warranty; Covenant with Respect to Pre-Closing Actions 5.1 Representations and Warranties of Assignor. As of the date hereof and as of each Effective Time with respect to the Transferred Interest being transferred at such Effective Time, Assignor makes the following representations and warranties to Assignee: (a) Partnership Organization, Etc. Assignor (i) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of California, (ii) is a Citizen of the United States and (iii) has the requisite partnership power and authority to carry on its business as presently conducted, to own or hold under lease its properties, and to enter into and perform its obligations under this Agreement and each of the Ancillary Agreements to which it is a party. (b) Due Authorization; Non-Contravention The execution and delivery by Assignor of this Agreement and each of the Ancillary Agreements to which it is a party, and the performance by Assignor of its obligations hereunder and thereunder, (i) have been duly authorized by all necessary partnership action on the part of Assignor, (ii) do not require any part nership approval, or approval or consent of any trustee or holder of any indebtedness or obligations of Assignor not already obtained, (iii) do not contravene any law, governmental rule, regulation, judgment or order applicable to or binding on Assignor, or the limited partnership agreement of Assignor or contravene the provi sions of, or constitute a default under or result in the creation of any Lien (other than as provided for or otherwise permitted in the Operative Agreements) upon the Trust Estate or any other Transferred Interest under any indenture, mortgage, bank credit agreement, note or bond purchase agreement, long-term lease, license or other agreement or instrument to which Assignor is a party or by which Assignor is bound and (iv) except as set forth on Schedule 5(b) attached hereto, do not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or foreign governmental authority or agency or any other Person, except those already obtained. (c) Due Execution and Delivery; Enforceability This Agreement and each of the Ancillary Agreements to which it is a party have been duly executed and delivered and are enforceable against Assignor in accordance with their terms, subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and other 15 similar laws affecting the rights and remedies of creditors generally and, with respect to the enforceability of this Agreement or any such Ancillary 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). (d) Event of Default Except as set forth on Schedule 5(d), no claims have been made by or at the direction of Assignor that remain unresolved under any of the Operative Agreements, and to the actual knowledge of Assignor, without special inquiry, no basis for such claims exists (excluding in all cases claims for reimbursement of fees, costs and expenses which are either immaterial or incurred in the ordinary course). Except as set forth on Schedule 5(d), to the actual knowledge of Assignor, without special inquiry, (i) no disputes exist among any of the parties to the Operative Agreements concerning the rights or obligations of such parties thereunder, (ii) there exists no default or event of default under any Leases, any Trust Agreement or any other Operative Agreement attributable to any act or omission of Assignor, (iii) Assignor is not in default under any of the Operative Agreements, (iv) no default under any Operative Agreement has occurred and is continuing as a result of any action taken by the Owner Trustee in accordance with any express instruction by Assignor and (v) there has been no assertion by any Lessee of any default on the part of Assignor or the Owner Trustee under any Operative Agreement. (e) Total Loss To the actual knowledge of Assignor, without special inquiry, none of the Aircraft are the subject of any Total Loss. (f) Taxes (i) All tax returns and reports required to be filed by or on behalf of each Owner Trustee (solely in its capacity as Owner Trustee and not in its individual capacity), and all federal income tax returns required to be filed by or on behalf of Assignor on or before the Effective Time have been timely filed with the appropriate taxing authorities in all jurisdictions in which such tax returns were required to be filed and all taxes shown due on such tax returns have been paid in full; and (ii) No claims have been made by or on behalf of Assignor or any other Person in respect of any obligation under the Operative Agreements to indemnify any Owner Trustee or Assignor for or with respect to Taxes, and Assignor has no present intention of making any such claim (other than possible claims for state, local and foreign Taxes or foreign tax credits 16 arising from the use or operation of the Aircraft by the applicable Lessee or any sublessee prior to the applicable Effective Time). (g) Litigation Except as set forth on Schedule 5(g) hereof, there are no legal or governmental actions, suits or proceedings pending or, to the actual knowledge of Assignor, threatened against Assignor before any court, administrative agency or tribunal which, if determined adversely to Assignor, would materially adversely affect the ability of Assignor to perform its obligations under this Agreement or any of the Ancillary Agreements to which it is a party. (h) Encumbrances Except as set forth on Schedule 5(h) hereof, Assignor is the sole legal and beneficial owner of (i) each of the Transferred Interests (other than the Foreign Aircraft), free and clear of all Liens and, except as set forth on Schedule 5(b), transfer restrictions and (ii) each of the Foreign Aircraft, free and clear of all Liens and, except as set forth on Schedule 5(b), transfer restrictions other than (A) Liens that are permitted by the terms of the leases relating to such Foreign Aircraft and (B) the rights of the Lessee with respect to such Foreign Aircraft. Except as set forth on Schedule 5(h) hereof, each Owner Trustee is the sole legal owner of each Trust Estate for which such Owner Trustee is owner trustee pursuant to the applicable Trust Agreement, free and clear of all Liens and, except as set forth on Schedule 5(b), transfer restrictions other than Liens permitted by and transfer restrictions contained in the Operative Agreements relating to such Trust Estate. Except as otherwise provided in the Operative Agreements, Assignor has not previously sold, assigned, encumbered, transferred or conveyed, and other than as provided in this Agreement, has no obligation to sell, assign, encumber, transfer or convey, any of its right, title or interest in, to or under the Transferred Interests to any Person. (i) Brokers' Fees Assignor is not liable for the fees of any broker or Person acting on Assignor's behalf in connection with the transactions contemplated hereby or by any of the Ancillary Agreements to which it is a party. 17 (j) Operative Agreements Except as set forth on Schedule 5(j), Assignor has provided Assignee with true and complete originals of each of the Leases and the Trust Agreements and with true and complete copies of each of the other Operative Agreements and all amendments and supplements thereto as set forth on Schedules 2, 4 and 6 hereto, which represent, collectively, all of the agreements, instruments and documents among Assignor and the parties to the Operative Agreements with respect to the Transferred Interests and no other agreements, instruments or documents, among Assignor and the parties to the Operative Agreements, with respect to the Transferred Interests exist. (k) Title to Transferred Interests Upon execution and delivery to Assignee of each of the Assign ment and Assumption Agreements and the consummation of the transactions contem plated hereunder and thereunder, Assignee will acquire legal title to the Transferred Interests, free and clear of all Liens and transfer restrictions other than as set forth on Schedule 5(h). (l) Unfunded Commitments Except as set forth on Schedule 7 hereof, there are no Unfunded Commitments in respect of any Aircraft. 5.2 Supplements to Schedules; Post-Signing Information. Assignor may supplement or amend Schedules 5(d), 5(g) and 5(h) to this Agreement with respect to any matter, condition or occurrence hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedules or would otherwise have been inconsistent with its representations herein. 5.3 Limitation of Warranty. Assignor's representations and warranties are limited as set forth below: (a) THE AIRCRAFT, EACH ENGINE AND EACH PART THAT CONSTITUTE A PORTION OF ANY TRANSFERRED INTEREST IS BEING TRANSFERRED AND DELIVERED TO ASSIGNEE "AS IS" AND "WHERE IS," AND EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.1 HEREOF, WITHOUT ANY REPRESENTATION, GUARANTEE OR WARRANTY OF ASSIGNOR, EXPRESS OR IMPLIED, OF ANY KIND, ARISING BY LAW OR OTHERWISE; AND 18 (b) WITHOUT LIMITING THE GENERALITY OF THE FORE GOING, ASSIGNOR SPECIFICALLY DISCLAIMS, AND EXCLUDES HEREFROM (i) ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, (ii) ANY IMPLIED WARRANTY OF FREEDOM FROM ANY RIGHTFUL CLAIM BY WAY OF INFRINGEMENT OF PATENT, COPYRIGHT, TRADE MARK, DESIGN OR OTHER PROPRIETARY RIGHT, (iii) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, AND (iv) EXCEPT AS EXPRESSLY SET FORTH IN SECTION 13(c) HEREOF, ANY OBLIGATION OR LIABILITY OF ASSIGNOR ARISING IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OF ASSIGNOR, ACTUAL OR IMPLIED, OR IN STRICT LIABILITY, INCLUDING ANY OBLIGATION OR LIABILITY FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT OR ENGINE OR PART OR FOR ANY LIABILITY OF ASSIGNOR TO ANY THIRD PARTY OR ANY OTHER DIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES WHATSOEVER. 5.4 Actions with Respect to Transferred Interests. From the date this Agreement is executed and delivered by Assignor to Assignee to the earlier to occur of (i) the termination of this Agreement pursuant to Section 15 hereof or (ii) the Effective Time with respect to a Transferred Interest, except as otherwise expressly required or permitted by this Agreement, Assignor shall not and shall not direct the Owner Trustee to, without the prior written consent of Assignee: (a) enter into or materially modify any agreement, contract or commitment which, if entered into, created or established prior to the date of this Agreement, would be required to be listed (or, in the case of modifications and amendments, pertains to an agreement, contract, commitment or arrangement which is presently listed) on Schedule 2, 4, 7 or 8 of this Agreement or waive any default or event of default under any Operative Agreement; or (b) mortgage, pledge or otherwise encumber any of the Transferred Interests or any Aircraft which is part of a Trust Estate; or (c) sell, lease, transfer or otherwise dispose of any of the Transferred Interests or any Aircraft which is a part of a Trust Estate; or 19 (d) enter into an agreement or arrangement to do any of the above. SECTION 6. Representations and Warranties of Assignee; Access Covenant 6.1 Representations and Warranties of Assignee. As of the date hereof and as of each Effective Time with respect to the Transferred Interest being transferred at such Effective Time, Assignee makes the following representations and warranties to Assignor: (a) LLC Organization, Etc. Assignee (i) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California, and (ii) has the requisite power and authority to carry on its business as presently conducted and as proposed to be conducted after the date of this Agreement, to own or hold under lease its properties, and to enter into and perform its obligations under this Agreement, each of the Ancillary Agreements to which it is a party, each of the Trust Agreements and each of the other Operative Agreements. (b) Due Authorization; Non-Contravention The execution and delivery by Assignee of this Agreement and each of the Ancillary Agreements to which it is a party, and the performance by Assignee of its obligations hereunder, thereunder and under the Trust Agreements and the other Operative Agreements (i) have been duly authorized by all necessary action on the part of Assignee, (ii) do not require any member approval or any approval or consent of any trustee or holder of any indebtedness or obligations of Assignee except those already obtained, (iii) do not contravene any provision of the Act or any other law, governmental rule, regulation, judgment or order applicable to or binding on Assignee, or the organizational documents of Assignee or contravene the provisions of, or constitute a default under, or result in the creation of any Lien (other than as provided for or otherwise permitted in the Operative Agreements) upon the Trust Estate under any indenture, mortgage, bank credit agreement, note or bond purchase agreement, long-term lease, license or other agreement or instrument to which Assignee is a party or by which Assignee is bound and (iv) except as set forth on Schedule 6(b) attached hereto, do not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or foreign governmental authority or agency or any other Person, except those already obtained. 20 (c) Due Execution and Delivery; Enforceability This Agreement and each of the Ancillary Agreements to which it is a party have been duly executed and delivered and are enforceable against Assignee in accordance with their 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 Agreement or any such Ancillary 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). (d) Litigation There are no legal or governmental actions, suits or proceedings pending or, to the actual knowledge of Assignee, threatened against Assignee before any court, administrative agency or tribunal which, if determined adversely to Assignee, would materially adversely affect the ability of Assignee to perform its obligations under this Agreement, any of the Ancillary Agreements, the Trust Agree ments or the other Operative Agreements. (e) Compliance with Operative Agreements Prior to the Effective Time for a Transferred Interest, Assignee will have complied with and satisfied all of the conditions, requirements and other obligations imposed on Assignee pursuant to each of the Leases, Trust Agreements and other Operative Agreements which have not been waived by the party entitled to require compliance with such conditions, requirements or other obligations in order to effect a permitted binding transfer of the Transferred Interests to Assignee. (f) Non-Airline Assignee is not a commercial air carrier or Affiliate thereof that is in direct competition with any Lessee. (g) Brokers' Fees Assignee is not liable for the fees of any broker or Person acting as a broker on Assignee's behalf in connection with the transactions contemplated hereby. 21 (h) Acquisition For Own Account The Transferred Interests are being acquired by Assignee for its own account, for investment and not with a view to any resale or distribution thereof. Assignee acknowledges that it has received, or has had access to, all information which it considers necessary or advisable to enable it to make a decision concerning the transfer of the Transferred Interests including, without limitation, access to the Leases, the Trust Agreements and the other Operative Agreements and an opportunity to inspect the Aircraft. 6.2 Access Covenant. Assignee agrees that it shall use its best efforts to retain the Operative Agreements with respect to each of the Transferred Interests transferred to it hereunder in perpetuity; provided, however, that Assignee shall have the right to (a) transfer any Operative Agreements relating to a Transferred Interest or Aircraft to the purchaser of such Transferred Interest or Aircraft, as the case may be, subject to such purchaser's agreement to retain such Operative Agreements and to permit Assignor and its agents and representatives access to such Operative Agreements for the remaining term of the Promissory Note and (b) dispose of or destroy any such Operative Agreements at any time which is after payment in full and discharge of the Promissory Note. Assignee will allow or will cause Assignor and its agents and representatives to be allowed access, during regular business hours at the offices of Assignee, to all of the Operative Agreements and to any Persons having possession of or information relating to the Operative Agreements. SECTION 7. Conditions Precedent to the Obligations of Assignor The obligation of Assignor to sell and assign any Transferred Interest to Assignee is subject to the satisfaction of the following conditions with respect to such Transferred Interest: (a) Purchase Price Assignee shall have paid the Purchase Price in the manner specified in Section 4. (b) Affidavit of Limited Control by a Non-U.S. Citizen Not later than the first Effective Time, an affidavit shall have been duly authorized, executed, notarized and delivered by Owner Trustee to FAA Counsel in form suitable for filing with the FAA pursuant to the Act certifying that (i) contemporaneously with the Effective Time with respect 22 to each Transferred Interest, the Trust Agreement with respect thereto shall have been amended to include limitations on the voting rights of Assignee thereunder and (ii) Owner Trustee is a Citizen of the United States pursuant to the Act. (c) Escrow Agreement Assignor shall have received a copy of the Escrow Agreement, dated as of a date not later than the first Effective Time to occur under this Agree ment which shall have been executed and delivered by Assignee, Assignor and the Escrow Agent. (d) TASL "Keep Well" Agreement Assignor shall have received a copy of the Keep Well Agree ment, dated as of a date not later than the first Effective Time to occur under this Agreement which shall have been executed and delivered by Assignee and TASL, in substantially the form attached hereto as Exhibit B (the "Keep Well"). (e) TIL Keep Well Guaranty and Loan Guaranty Assignor shall have received an original counterpart of the Keep Well Guaranty and the Loan Guaranty, each dated as of a date not later than the first Effective Time to occur under this Agreement, each of which shall have been executed and delivered by TIL, in substantially the form attached hereto as Exhibit C-1 (the "Keep Well Guaranty") or C-2 (the "Loan Guaranty"), as applicable. (f) Assignee Security Agreement Assignor shall have received an original counterpart of the Pledge and Security Agreement, dated as of a date not later than the first Effective Time, which shall have been executed and delivered by Assignee, TASL and each member of Assignee in substantially the form attached hereto as Exhibit D (the "Security Agreement") together with evidence that all other actions necessary or, in the opinion of Assignor, desirable to perfect and protect the security interests and liens created by the Security Agreement have been taken including, without limitation, the filing of financing statements against Assignee, TASL and each member of Assignee. (g) Approvals and Consents All approvals, consents and other items listed on Schedule 5(b) shall have been obtained, satisfactory to Assignor in all respects, as determined by Assignor in its sole discretion and any 23 authorizations which may be required for the valid consummation by Assignor and Assignee of the transactions contemplated by this Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have been obtained (including, but not limited to, the expiration of any applicable waiting period thereunder). (h) Due Authorization, Execution and Delivery This Agreement, the Assignment and Assumption Agreement and any other Ancillary Agreements with respect to such Transferred Interest shall have been duly authorized, executed and delivered by Assignee. (i) Representations and Warranties The representations and warranties of Assignee contained herein shall be true and correct in all material respects as of the applicable Effective Time with the same force and effect as though such representations and warranties had been made on and as of such Effective Time. (j) Organizational and Authorization Matters Assignor shall have received: (i) Resolutions of the boards of directors of each of TASL, TIL, each member of Assignee that is not a natural person and of the manager of Assignee, certified by the respective Secretary or Assistant Secretary thereof, as of the date of this Agreement, to be duly adopted and in full force and effect on such date, authorizing (a) the consummation of each of the transactions contemplated by this Agreement and each of the Ancillary Agreements and (b) specific officers or representatives of TASL, TIL and Assignee to execute and deliver this Agreement and the Ancillary Agreements to which any of them is a party. (ii) Governmental certificates, dated the most recent practicable date prior to the date of this Agreement with telegram updates where available, showing that each of Assignee, TASL, TIL and each member of Assignee that is not a natural person is organized and in good standing in the jurisdiction of its organization and that each of Assignee, TASL, TIL and each member of Assignee that is not a natural person is qualified as a foreign corporation, partnership or limited liability company, as applicable, and in good standing in each jurisdiction where the ownership or operation of its properties or conduct of its business requires such qualification. 24 (iii) A copy of (a) the certificate of formation and all amendments thereto of Assignee and the articles of incorporation and all amendments thereto of each of TASL, TIL and each member of Assignee that is not a natural person, each certified as of a recent date by the Secretary of State of the jurisdiction of its organization, (b) the bylaws of each of TASL, TIL and each member of Assignee that is not a natural person certified by the Secretary or Assistant Secretary thereof as true and correct as of the date of this Agreement and (c) the operating agreement of Assignee (which shall include provisions that are substantially in the form attached hereto as Exhibit E) and the articles of incorporation and all amendments thereto of each of TASL, TIL and each member of Assignee that is not a natural person certified, by its manager as true and correct on the date of this Agreement (with tax allocation and cash distribution provisions deleted). (iv) Certificates of the Secretary or an Assistant Secretary of each of TASL, TIL and each member of Assignee that is not a natural person and of the manager of Assignee, as to the incumbency and signatures of the representatives thereof executing this Agreement or any of the Ancillary Agreements to which any of them is a party, together with evidence of the incumbency of such Secretary or Assistant Secretary. (v) As of each Effective Time,a certificate of the Secretary, an Assistant Secretary or an Attesting Secretary of each of TASL, TIL, each member of Assignee that is not a natural person and the manager of Assignee certifying that the certificates delivered in accordance with clauses (i), (ii), (iii) and (iv) above are true and correct as of such Effective Time. (k) Illegality; No Proceedings At the applicable Effective Time, the performance of the trans actions contemplated hereby, upon the terms and conditions set forth herein, shall not, in the reasonable judgment of Assignor, violate, and shall not subject Assignor to any penalty or liability under, any law, rule or regulation binding upon Assignor. At the applicable Effective Time, no legal or governmental action, suit or proceeding shall have been instituted or threatened before any court, administrative agency or tribunal, nor shall any order, judgment or decree have been issued or proposed to be issued by any court, administrative agency or tribunal to set aside, restrain, enjoin or prevent the consummation of this Agreement or the transactions contemplated hereby. (l) No Total Loss At the applicable Effective Time, there shall not exist a Total Loss with respect to the Aircraft related to such Transferred Interest. 25 (m) Opinions Assignor shall have received an opinion reasonably satisfactory to Assignor, dated as of the first Effective Time from Manwell & Milton, counsel to Assignee, each member of Assignee, TASL and TIL with respect to such matters and to such effect as Assignor shall reasonably request. Assignor shall also have received, with respect to each Transferred Interest, at the applicable Effective Time for such Transferred Interest, an opinion from (i) Manwell & Milton, counsel to Assignee and (ii) Crowe & Dunlevy, special FAA counsel ("Special FAA Counsel") or Theodore Goddard ("Special CAA Counsel") or in each case with respect to such matters relating to such Transferred Interest and to such effect as Assignor shall reasonably request. (n) Location of Aircraft Subject to Section 4(c) hereof, the location of the Aircraft relating to each Transferred Interest shall be acceptable to Assignor at the applicable Effective Time for such Transferred Interest. (o) TIL Balance Sheets Assignor shall have received an audited balance sheet of TIL as of December 31, 1996 reflecting a consolidated net worth, net of minority interests, of at least $150,000,000. (p) Other Instruments and Documents; Additional Information Assignor shall have received such other instruments and docu ments as Assignor or its counsel shall reasonably request. Assignor shall have received such other documents and evidence with respect to Assignee as Assignor may reasonably request in order to establish the authority of Assignee to consummate the transactions contemplated by this Agreement, the consummation of the transac tions contemplated by this Agreement, the taking of all appropriate action in connec tion therewith and compliance with the conditions set forth in this Agreement. (q) Outside Date Except as otherwise agreed by the parties hereto, all of the fore going conditions shall have been satisfied or waived on or before 5:00 p.m. E.D.T. on June 30, 1997 (the "Outside Date"). 26 (r) No Pending Superior Proposal Assignor shall not have received and have accepted or be considering any Superior Proposal with respect to such Transferred Interest in accordance with Section 11 hereof. SECTION 8. Conditions Precedent to the Obligations of Assignee The obligation of Assignee to purchase any Transferred Interest from Assignor and assume the obligations related thereto at the applicable Effective Time is subject to the satisfaction of the following conditions: (a) Leases and Trust Agreements The Lease and Trust Agreement and, as applicable, each other Operative Agreement with respect to such Transferred Interest shall be in full force and effect. (b) Due Authorization, Execution and Delivery This Agreement, the Assignment and Assumption Agreement and any of the other Ancillary Agreements with respect to such Transferred Interest to which Assignor is a party shall have been duly authorized, executed and delivered by Assignor. (c) Representations and Warranties The representations and warranties of Assignor contained herein shall be true and correct in all material respects as of the Effective Time with the same force and effect as though such representations and warranties had been made on and as of such Effective Time. (d) Schedules Schedule 5(d) shall not have been supplemented or amended by Assignor to include a default or event of default caused by the filing by the Lessee of the Aircraft that is the subject of such Transferred Interest for protection from its creditors. 27 (e) Partnership Authorization Matters Assignee shall have received: (i) Resolutions of the board of directors of PIMC, general partner of Assignor, certified by the Secretary or Assistant Secretary thereof, as of the date of this Agreement, to be duly adopted and in full force and effect on such date, authorizing (i) the consummation of each of the transactions contemplated by this Agreement and each of the Ancillary Agreements to which Assignor is a party and (ii) specific officers or representatives to execute and deliver this Agreement and the Ancillary Agreements to which Assignor is a party. (ii) A copy of the certificate of limited partnership and all amendments thereto of Assignor, certified as of a recent date by the Secretary of State of the jurisdiction of its organization and a copy of the agreement of limited partnership, as amended, certified by an officer of the general partner. (iii) Certificates of the Secretary or an Assistant Secretary of PIMC, certified by the Secretary or Assistant Secretary thereof, as to the incumbency and signatures of the representatives thereof executing this Agreement or any of the Ancillary Agreements to which Assignor is a party, together with evidence of the incumbency of such Secretary or Assistant Secretary. (iv) As of each Effective Time, a certificate of the Secretary or an Assistant Secretary of PIMC certifying that the certificates delivered in accordance with clauses (i), (ii) and (iii) above are true and correct with respect to such Transferred Interest being conveyed as of the applicable Effective Time. (f) Illegality; No Proceedings At the applicable Effective Time, the performance of the trans actions contemplated hereby, upon the terms and conditions set forth herein, shall not, in the reasonable judgment of Assignee, violate, and shall not subject Assignee to any penalty or liability under, any law, rule or regulation binding upon Assignee. At the applicable Effective Time, no legal or governmental action, suit or proceeding shall have been instituted or threatened before any court, administrative agency or tribunal, nor shall any order, judgment or decree have been issued or proposed to be issued by any court, administrative agency or tribunal to set aside, restrain, enjoin or prevent the consummation of this Agreement or the transactions contemplated hereby. 28 (g) Approvals and Consents All approvals and consents and other items listed on Schedule 5(b) shall have been obtained. (h) No Total Loss At the applicable Effective Time, there shall not exist a Total Loss with respect to the Aircraft related to such Transferred Interest. (i) Opinions Assignee shall have received opinions reasonably satisfactory to Assignee, dated as of the first Effective Time from (i) Haight, Gardner, Poor & Havens, California counsel to Assignor, with respect to Assignor's due organization and good standing, the due execution and delivery of this Agreement and the Ancillary Agreements to which it is a party, no violation of Assignor's organizational documents, the enforceability of this Agreement and the Ancillary Agreements to which it is a party and that there are no consents required under California law and (ii) Weil, Gotshal & Manges LLP, counsel to Assignor, that the execution and delivery of this Agreement and the consummation of the transactions contemplated thereby and compliance by the Company with the provisions thereof will not conflict with or violate any federal law or regulation (other than federal securities laws, the Hart-Scott Rodino Act or any federal laws or regulations relating to the Federal Aviation Administration or civil or commercial aviation). Assignee shall also have received, with respect to each Transferred Interest, at the applicable Effective Time for such Transferred Interest, an opinion from (i) Haight, Gardner, Poor & Havens, California counsel to Assignor and (ii) Special FAA Counsel or Special CAA Counsel, as applicable, in each case with respect to such matters relating to such Transferred Interest and to such effect as Assignee shall reasonably request. (j) Location of Aircraft Subject to Section 4(c) hereof, the location of the Aircraft relating to each Transferred Interest shall be acceptable to Assignee at the applicable Effective Time for such Transferred Interest. 29 (k) Other Instruments and Documents; Additional Information Assignee shall have received such other instruments and documents as Assignee or its counsel shall reasonably request. Assignee shall have received such other documents and evidence with respect to Assignor as Assignee may reasonably request in order to establish the authority of Assignor to consummate the transactions contemplated by this Agreement, the consummation of the transactions contemplated by this Agreement, the taking of all appropriate partnership action in connection therewith and compliance with the conditions set forth in this Agreement. (l) Outside Date Except as otherwise agreed by the parties hereto, all of the fore going conditions shall have been satisfied or waived on or before 5:00 p.m. E.D.T. on the Outside Date. SECTION 9. Payments To the extent not transferred in accordance with Section 4, Assignor hereby covenants and agrees to pay over to Assignee, no later than five (5) Business Days after receipt by Assignor from and after the applicable Effective Time, any Aircraft Income or Lessee Deposits paid to or for the benefit of Assignor that consti tute a Transferred Interest earlier transferred to Assignee hereunder (including any amounts payable as interest in respect thereof), and until so paid over, any Aircraft Income or Lessee Deposits received by Assignor in respect of any such Transferred Interest shall be received and held by Assignor in trust for Assignee. Assignee hereby covenants and agrees to pay over to Assignor, no later than five (5) Business Days after receipt by Assignee from and after the applicable Effective Time, any amounts paid to or for the benefit of Assignee that constitute Reserved Rights which relate to a Transferred Interest earlier transferred (including any amounts payable as interest in respect thereof), and until so paid over any such amounts received by Assignee shall be received and held by Assignee in trust for Assignor. SECTION 10. Certain Notices Assignor hereby covenants and agrees promptly to forward to Assignee any notice Assignor receives from any party to any of the Operative Agreements (other than Assignee) relating to any of the Transferred Interests. Assignee hereby covenants and agrees promptly to forward to Assignor any notice Assignee receives from any party to any of the Operative Agreements (other than Assignor) pursuant to and in accordance with this Agreement, the Assignment and Assumption Agreement, the Trust Agreements or any other Operative Agreement related to the Reserved Rights. Assignor hereby covenants and agrees to notify Assignee of any Reserved Right, describing the circumstances of such Reserved Right in reasonable detail, promptly after Assignor has actual knowledge of facts or circumstances giving rise to a Reserved Right and that such facts and circumstances constitute a Reserved Right. 30 SECTION 11. Superior Proposal (a) Each party agrees and acknowledges that from and after the date hereof until the close of business on April 28, 1997, if Assignor receives a Superior Proposal, Assignor may (i) furnish any information requested by the Offering Party with respect to such Superior Proposal (other than the contents of this Agreement or any Ancillary Agreement), (ii) participate in negotiations with such Offering Party regarding such Superior Proposal or (iii) enter into one or more letters of intent, term sheets or agreements with respect to any Superior Proposals; provided, however, that if Assignor proposes to take any of the actions specified in clause (iii) hereof, Assignor shall give Assignee prior written notice setting forth Assignor's proposed actions. (b) Not later than the close of business on May 12, 1997, Assignor shall require each Offering Party with whom it is still engaged in discussions to submit a final binding offer, subject only to acceptance by Assignor. Not later than the close of business on May 16, 1997, Assignor shall (i) determine whether any such offer constitutes a Superior Proposal, (ii) if there is more than one Superior Proposal, select which Superior Proposal Assignor intends to accept and (iii) provide written notice to Assignee setting forth all the material terms and conditions of such selected Superior Proposal ("SP Notice"). (c) After receipt of the SP Notice, Assignee shall have five (5) days to notify Assignor of its agreement to modify this Agreement and any Ancillary Agreement as necessary to acquire the Transferred Interests at the same price and under the same terms and conditions as set forth in the SP Notice ("Assignee Acceptance Notice"); provided further, however, if under the terms set forth in the SP Notice Assignor is proposing to accept property (other than cash or promissory notes), Assignee shall have the right to substitute cash in an amount equal to the value of such other property. (d) If Assignor does not give an SP Notice to Assignee on or before May 16, 1997, or if Assignee gives an Assignee Acceptance Notice to Assignor in accordance with subsection (c) hereof, neither Assignor nor Assignee shall thereafter have any right to terminate this Agreement pursuant to Section 15(c). 31 SECTION 12. Further Assurances Each party agrees, upon the reasonable request of the other party at any time and from time to time, promptly to execute and deliver all such further documents and promptly to take and forbear from all such action as may be reason ably necessary or appropriate in order to more effectively confirm or carry out the provisions of this Agreement or any of the Ancillary Agreements, including, without limitation, the filing of any Assignment and Assumption Agreement with the FAA pursuant to the Act or the CAA. The parties agree that the transactions are fully effective as of the applicable Effective Time and that they will treat the transactions as such for all purposes and acknowledge that any filings with the FAA or the CAA are merely ministerial in nature. SECTION 13. Taxes and Indemnities (a) Transfer Taxes Assignee hereby covenants and agrees to pay (and indemnify and hold Assignor harmless on an After-Tax Basis for) any and all registration, docu ment or filing fees and any and all sales taxes, use taxes and similar transfer taxes (including, without limitation, any charges, such as gross receipts taxes (but excluding any taxes in the nature of any income tax) in lieu thereof) (collectively, "Transfer Taxes"), that may be imposed in connection with the sale, assignment and transfer of any Transferred Interests including, without limitation, any penalties, fines or interest thereon and those Transfer Taxes relating to the transfer of rights and other interests in and to, and the act of assuming duties, liabilities and obligations in, to and under this Agreement, the Assignment and Assumption Agreements, the Transferred Interests, the Aircraft and the Operative Agreements together with all reasonable and documented out-of-pocket costs, expenses and attorney's fees incurred in connection therewith. Assignor hereby agrees to perform such acts, including, without limitation, attending the closing of the transactions contemplated hereby at a site or sites selected by Assignee, and executing such documents as may be reasonably necessary to minimize Transfer Taxes. The parties further agree to furnish each other with such documents and certificates as they may reasonably request in connection with any claims for exemption from the payment of Transfer Taxes. 32 (b) Notice of IRS Reports (i) Assignor shall promptly notify Assignee of receipt from the IRS of any written proposed or final revenue agent's report, 30-day letter or notice of deficiency in which an adjustment is proposed to the federal income taxes of Assignor for which any of the Lessees would be required to indemnify Assignor under any Operative Agreement and, thereafter, shall upon request keep Assignee apprised at least monthly of the progress of any protest or proceeding in respect of such adjustment. (ii) Assignee shall promptly notify Assignor of receipt from the IRS of any written proposed or final revenue agent's report, 30-day letter or notice of deficiency in which an adjustment is proposed to the federal income taxes of Assignee for which any of the Lessees would be required to indemnify Assignee under any Operative Agreement and, thereafter, shall upon request keep Assignor apprised at least monthly of the progress of any protest or proceeding in respect of such adjustment. (c) Assignor's Indemnity Assignor hereby covenants and agrees upon demand of Assignee to pay and assume liability for, and indemnify, protect, defend, save and keep harmless Assignee and each of its Affiliates and in each such case their respective directors, officers, employees and agents (the "Assignee Indemnitees"), on an After-Tax Basis, from and against any and all Damages which may at any time or from time to time be imposed upon, incurred by or asserted against any of the Assignee Indemnitees in any way relating directly or indirectly to, or arising out of, (i) any inaccuracy or breach of any representation or warranty made by Assignor under this Agreement or any Ancillary Agreement to which it is a party, (ii) the ownership, leasing, use or operation of any Transferred Interest prior to the Effective Time applicable to such Transferred Interest including, without limitation, any obligations relating to the Trust Estate or any of the Operative Agreements relating to such Transferred Interest which arise from acts, omissions, events or circumstances occurring or accruing prior to the Effective Time with respect to such Transferred Interest but not including any Assumed Liabilities, (iii) the failure of Assignor to perform or observe any of its obligations under this Agreement or any Ancillary Agreement to which it is a party, (iv) any litigation, claim or action brought by a limited partner of Assignor against any Assignee Indemnitee to the extent such litigation, claim or action directly arises out of and relates to the transactions contemplated by this Agreement other than to the extent any litigation, claim or action relates directly or indirectly to, or arises out of, the breach by such Assignee Indemnitee of the terms of this Agreement or any Ancillary Agreement or (v) any Liens set forth on Schedule 5(h) hereto; provided that (a) Assignor shall not be liable for any Damages to the extent that Assignee has a recovery available to it under any insurance policy which was in effect on or prior to the applicable Effective Time; (b) Assignor shall not be liable for any Damages attributable to the gross negligence or willful misconduct of Assignee or its Affiliates; and (c) Assignor shall not be liable for any Damages in excess of the Purchase Price. Notwithstanding the foregoing, Assignor shall be liable pursuant to this Section 13(c) only to the extent that the aggregate cumulative Damages incurred by the Assignee Indemnitees which are required to be indemnified by Assignor exceed $50,000 (the "Threshold Amount") in which event, Assignor shall then also be liable for the initial $50,000 of aggregate cumulative Damages incurred by the Assignee Indemnitees; provided, that, with respect to any Lien set forth on Schedule 5(h) hereto, (x) the Threshold Amount limitation shall not apply and Assignor shall be liable for all Damages arising from such Liens and (y) amounts expended by Assignor to discharge and release such Liens shall not constitute Damages to be applied toward the Threshold Amount and only those expenses, if any, actually incurred by Assignee in connection with such discharge or release shall be so applied. 33 (d) Assignee's Indemnity Assignee hereby covenants and agrees upon demand of Assignor to pay and assume liability for, and indemnify, protect, defend, save and keep harmless, Assignor and each of its Affiliates and in each such case their respective directors, officers, employees and agents (the "Assignor Indemnitees"), on an After-Tax Basis, from and against any and all Damages which at any time or from time to time may be imposed upon, incurred by or asserted against the Assignor Indemnitees in any way relating directly or indirectly to, or arising out of, (i) any inaccuracy or breach of any representation or warranty made by Assignee or any of its Affiliates under this Agreement or any Ancillary Agreement to which it or any of its Affiliates is a party, (ii) the ownership, leasing, use or operation of any Transferred Interest on or after the Effective Time applicable to such Transferred Interest including, without limitation, any obligations relating to the Trust Estate or any of the Operative Agreements relating to such Transferred Interest which arise from acts, omissions, events or circumstances occurring or accruing on or after the Effective Time with respect to such Transferred Interest, (iii) the failure of Assignee or any of its Affiliates to perform or observe any of their respective obligations under this Agreement or any Ancillary Agreement to which it or any of its Affiliates is a party, (iv) any Assumed Liabilities or (v) any modification, amendment or other change to any of the Operative Agreements entered into by Assignee, or to which Assignee consents or forbears, in any such case without the prior written consent of Assignor (such consent not to be unreasonably withheld) that affects any of the Reserved Rights; provided, however, that with respect to any Transferred Interest which includes a Lease, such indemnification obligation shall only relate to modifications, amendments or other changes made or agreed to during the period beginning on the Effective Date applicable to such Transferred Interest and ending on the date that is twenty-four (24) months after the termination of the Lease included in such Transferred Interest (which period shall be deemed to include any renewals, extensions or continuations of such Lease). Notwithstanding the foregoing, (a) Assignee shall not be liable for any Damages to the extent that Assignor has a recovery available to it under any insurance policy which was in effect on or prior to the Effective Time; (b) Assignee shall not be liable for any Damages attributable to the gross negligence or willful misconduct of Assignor; (c) Assignee shall not be liable for any Damages in excess of the Purchase Price and (d) Assignee shall be liable pursuant to this Section 13(d) only to the extent that the aggregate Damages incurred by the Assignor Indemnitees which are required to be indemnified by Assignee exceed $50,000 in which event, Assignee shall then also be liable for the initial $50,000 of aggregate cumulative Damages incurred by the Assignor Indemnitees. 34 (e) Survival of Representations and Warranties All representations and warranties of the parties hereto contained in this Agreement (including all Schedules hereto) or in any document, statement, certificate or other instrument referred to herein or delivered at the applicable Effective Time in connection with the transactions contemplated hereby, that (i) relate to any Transferred Interest which includes a Lease, shall survive until the later of (A) twenty-four (24) months after the Effective Time applicable to such Transferred Interest or (B) twelve (12) months after the expiry of the Lease included in such Transferred Interest (which period shall not be deemed to include any renewals, extensions or continuations of such Lease), (ii) relate to any Transferred Interest which does not include a Lease, shall survive until twenty-four (24) months after the Effective Time applicable to such Transferred Interest and (iii) do not relate to a Transferred Interest, shall survive until twenty-four (24) months after the first Effective Time to occur under this Agreement. SECTION 14. Indemnification Procedure (a) Any Assignee Indemnitee or Assignor Indemnitee (the "Indemnified Party") seeking indemnification hereunder shall give to the party obligated under this Agreement to provide indemnification to such Indemnified Party (the "Indemnitor") a notice ("Claim Notice") describing in reasonable detail the facts giving rise to its claim for indemnification hereunder, and shall include in such Claim Notice (if then known) the amount or method of computation of the amount of the claim, and a reference to the provision of this Agreement or any other agreement, document or instrument executed and delivered hereunder or in connection herewith upon which such claim is based; provided that a Claim Notice in respect of any action at law or suit in equity against an Indemnified Party by a third party, as to which indemnification will be sought (a "Third Party Action"), shall be given promptly after the action or suit is commenced; provided, further, that failure of the Indemnified Party to give the Indemnitor prompt notice in respect of any such Third Party Action as provided herein shall not relieve the Indemnitor of its obligations hereunder, except to the extent such Indemnitor shall have been materially prejudiced by such failure. (b) The Indemnitor shall be entitled (but not obligated) to assume the defense or settlement of such Third Party Action, or to conduct any negotiations or proceedings to settle or otherwise eliminate any Third Party Claim and shall pay the reasonable fees and disbursements of such counsel related to such Third Party Action. If the Indemnitor assumes any such defense or settlement or any such negotiations, it shall pursue such defense, settlement or negotiations in good faith. If the Indemnitor fails to elect in writing within 30 Business Days of the notification referred to above to assume such defense, the Indemnified Party may engage counsel to defend, settle or otherwise 35 dispose of such action or proceeding, which counsel shall be reasonably satisfactory to the Indemnitor. In any such Third Party Action, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnitor and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Indemnitor and the Indemnified Party and representation of both the Indemnitor and the Indemnified Party by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnitor shall not, in connection with any Third Party Action or related Third Party Action in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to local counsel) for all Persons to be indemnified pursuant to Section 13; provided that the Indemnitor will be so liable if (x) the Indemnified Party has reasonably concluded that there may be legal defenses available to it in such Third Party Action that are different from or in addition to those available to the Indemnitor or (y) a conflict or potential conflict exists between the Indemnified Party and the Indemnitor in such Third Party Action (in which case the Indemnitor will not have the right to direct the defense of such Third Party Action with respect to which such conflict exists on behalf of the Indemnified Party), but only to the extent such fees and expenses are incurred in connection with such conflicting issues. Any such separate firm shall be designated in writing by the Indemnified Party. The Indemnitor shall not be liable for any settlement of any proceeding of such Third Party Action effected without its written consent, but if the Indemnitor consents to any such settlement, the Indemnitor agrees to indemnify the Indemnified Party from and against any loss or liability for which indemnity is available hereunder and which is specified in such settlement or judgment. No Indemnitor shall, without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed), effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability or claims that are the subject matter of such proceeding and such settlement only involves the payment of money. (c) Assignor shall be entitled in all cases (but not obligated) to assume the settlement and to conduct negotiations or proceedings to obtain the discharge and release of or otherwise eliminate any Lien set forth on Schedule 5(h) hereto. If Assignor assumes any such settlement or any such negotiations, it shall pursue such settlement or negotiations in good faith. Assignor shall not be liable for any settlement or discharge of any such Lien effected without its written consent, but if Assignor consents to any such settlement or discharge, Assignor agrees to indemnify Assignee from and against any loss or liability for which indemnity is available hereunder and which is specified in such settlement or discharge. 36 SECTION 15. Termination This Agreement may be terminated at any time prior to the first Effective Time to occur pursuant to the terms hereof: (a) by mutual written consent of Assignee and Assignor; (b) by either party by written notice to the other party if the transactions contemplated hereby have not been consummated on or before the Outside Date; provided, however, that the right to terminate this Agreement under this Section 15(b) shall not be available to any party whose failure to fulfill any of its obligations under this Agreement has been the cause of or has resulted in the failure of the transactions contemplated hereby being consummated on or before the Outside Date; or (c) by (i) Assignor if (a) Assignor accepts or recommends one or more Superior Proposals to its partners or resolves to do either of the foregoing and (b) Assignee no longer has the right pursuant to Section 11(c) to deliver an Assignee Acceptance Notice to Assignor or (ii) by Assignee if (x) Assignor has given an SP Notice and (y) at least fourteen (14) days have passed since the date on which Assignee's right pursuant to Section 11(c) to deliver an Assignee Acceptance Notice terminated. 37 SECTION 16. Miscellaneous (a) 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 Assignor, to: c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor San Francisco, CA 94105 Attention: President Facsimile Number: 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 Assignor shall from time to time designate in writing to Assignee; and If to Assignee, to: Triton Aviation Services III LLC 55 Green Street, Suite 500 San Francisco, CA 94111 Attn: President Facsimile Number: (415) 398-9184 or to such other address as Assignee may from time to time designate in writing to Assignor. 38 (b) Headings Headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement. (c) References Any reference to a specific Section or Section number shall be interpreted as a reference to that Section of this Agreement unless otherwise expressly provided. (d) GOVERNING LAW THIS AGREEMENT, INCLUDING, WITHOUT LIMITA TION, THE INTERPRETATION, CONSTRUCTION, VALIDITY AND ENFORCE ABILITY THEREOF, SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, EXCLUDING ANY CONFLICT OF LAWS RULES THEREOF. (e) Severability 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. (f) Amendments in Writing No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor any consent to any departure by Assignor or Assignee from any provision hereof, shall in any event be effective unless the same shall be in writing and signed by Assignor and Assignee, 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 Assignor and Assignee. 39 (g) Expenses Each of Assignor and Assignee shall be responsible for all fees and expenses incurred by it, including for legal counsel and other advisors, in connection with this Agreement, any Ancillary Agreement or otherwise relating to the transactions contemplated hereby; provided, however, all costs and expenses incurred in connection with Special FAA Counsel or with Special CAA Counsel and all fees and expenses payable to the Escrow Agent pursuant to the Escrow Agreement shall be shared equally by Assignor and Assignee; provided, further, if either Assignor or Assignee terminates this Agreement in accordance with Section 15(c) hereof, Assignor shall pay or cause to be paid to Assignee within two (2) Business Days of such termination a fee in immediately available funds in an amount equal to one and one-half percent (1.5%) of the Purchase Price. (h) Execution in Counterparts This Agreement and any amendments,waivers or consents hereto may be executed by Assignor and Assignee 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. (i) Entire Agreement This Agreement and the Ancillary Agreements constitute the entire agreement of Assignor and Assignee with respect to the subject matter hereof or thereof, and all prior understandings or agreements, whether written or oral, between Assignor and Assignee with respect to such subject matter are hereby superseded in their entirety. (j) Exhibits The exhibits attached hereto are incorporated by reference herein and shall have the same force and effect with respect to the provisions set forth therein as though fully set forth in this Agreement. (k) Assignment and Successors 40 This Agreement may not be assigned except by operation of law. This Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by Assignor and Assignee and their respective successors. (l) Confidentiality This Agreement and the Ancillary Agreements are confidential documents between the parties thereto and shall not be disclosed by either party to third parties without the prior written consent of the other party other than (i) to such party's directors, officers, employees, advisors, auditors, agents or representatives who are advised of the confidential nature of this Agreement and the Ancillary Agreements (and for whose compliance with the terms hereof, such party shall be liable), (ii) to the extent disclosure as required by any applicable law, regulation or judicial order or (iii) in connection with the disclosure requirements of the Securities and Exchange Commission. The obligations and protections contained in this Section 16(l) are in addition to and not a replacement of any obligations and protections provided pursuant to any confidentiality agreement executed by and currently in effect between the parties hereto or any of their respective Affiliates. 41 IN WITNESS WHEREOF, the undersigned have caused this PURCHASE, ASSIGNMENT AND ASSUMPTION AGREEMENT to be duly executed as of the day and year first written above. POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, General Partner By: /S/ ERIC DULL ------------------------------------------ Name: ERIC DULL ------------------------------------------ Title: PRESIDENT ------------------------------------------ TRITON AVIATION SERVICES III LLC By: Triton Aviation Services Limited, Manager By: /S/ JOHN E. FLYNN ------------------------------------------ Name: JOHN E. FLYNN ------------------------------------------ Title: PRESIDENT ------------------------------------------ EX-2.2 3 ESCROW AGREEMENT 8K ESCROW AGREEMENT ESCROW AGREEMENT, dated as of June 4, 1997, (the "Agreement") by and among POLARIS AIRCRAFT INCOME FUND III, a California limited partnership ("Polaris"), TRITON AVIATION SERVICES III LLC, a California limited liability company ("Triton") and Bankers Trust Company, a New York banking corporation (as escrow agent hereunder, the "Escrow Agent"). W I T N E S S E T H: WHEREAS, the parties hereto, other than the Escrow Agent, have entered into a Purchase, Assignment and Assumption Agreement dated as of April 1, 1997 (the "Purchase Agreement") pursuant to which Polaris has agreed to sell to Triton and Triton has agreed to purchase from Polaris, certain assets, as provided therein (the "Assets"); and WHEREAS, pursuant to Section 4 of the Purchase Agreement, Polaris and Triton have agreed that Triton shall deposit or cause to be deposited the purchase price for the Assets, to be held in escrow and distributed in accordance with the terms of this Escrow Agreement and the Purchase Agreement; and WHEREAS, the Escrow Agent is willing to serve as escrow agent and hold the Escrowed Property (as hereinafter defined) in accordance with the terms and conditions hereof. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each of the parties hereto, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. Appointment of Escrow Agent. Polaris and Triton hereby appoint Bankers Trust Company as escrow agent in accordance with the terms and conditions set forth herein, and the Escrow Agent hereby accepts such appointment. 2. Deposit into the Escrow Fund. Triton, simultaneously with the execution and delivery of this Agreement, has deposited or caused to be deposited with the Escrow Agent the sum of $1,234,289 (of which $1,000 represents one-half of the Escrow Fees (as defined in paragraph 8 hereof)) in immediately available funds (together with any interest earned thereon, the "Escrowed Property"), the receipt of which will be acknowledged by the Escrow Agent, and which Escrowed Property shall be held by the Escrow Agent upon the terms and conditions hereinafter set forth. 3. Deposit of Escrowed Property. (a) During the term of this Agreement, the Escrow Agent is hereby directed to deposit the Escrowed Property and any interest or income earned thereon in the BT Institutional Cash Management Fund. (b) The Escrow Agent shall not have any liability for any loss sustained as a result of any investment made as provided above, any liquidation of any such investment prior to its maturity, or the failure of an authorized person of the Company to give the Escrow Agent any written instruction to invest or reinvest the Escrowed Funds or any earnings thereon. 4. Distribution of Escrowed Property. (a) The Escrow Agent shall hold the Escrowed Property in its possession until instructed hereunder to deliver the Escrowed Property or any specified portion thereof as provided in paragraph 4(b) below. (b) At such time as Polaris delivers a written notice substantially in the form of Exhibit A hereto (the "Release Notice") to the Escrow Agent, signed by an authorized representative of Polaris, stating that the requirements under the Purchase Agreement for release of the Escrowed Property have been met, the Escrow Agent shall promptly disburse to Polaris to the account specified by Polaris in the Release Notice, the amount set forth in the Release Notice (which amount shall be the Cash Amount, as defined in the Purchase Agreement), less one-half of the Escrow Fees payable to the Escrow Agent hereunder, and shall disburse the balance of the Escrowed Property to Triton to an account specified by Triton to the Escrow Agent. (c) The Escrow Agent is acting as a stakeholder only with respect to the Escrowed Property. If any dispute arises as to whether the Escrow Agent is obligated to deliver the Escrowed Property or as to whom the Escrowed Property is to be delivered or the amount thereof, the Escrow Agent shall not be required to make any delivery, but in such event the Escrow Agent may hold the Escrowed Property until receipt by the Escrow Agent of instructions in writing, signed by all parties which have, or claim to have, an interest in the Escrowed Property, directing the disposition of the Escrowed Property, or in the absence of such authorization, the Escrow Agent may hold the Escrowed Property until receipt of a certified copy of a final judgment of a court of competent jurisdiction providing for the disposition of the Escrowed Property. The Escrow Agent may require, as a condition to the disposition of the Escrowed Property pursuant to written instructions, indemnification and/or opinions of counsel, in form and substance satisfactory to the Escrow Agent, from each party providing such instructions. If such written instructions, indemnification and opinions are not received, or proceedings for such determination are not commenced, within 30 days after receipt by the Escrow Agent of notice of any such dispute 2 and diligently continued, or if the Escrow Agent is uncertain as to which party or parties are entitled to the Escrowed Property, the Escrow Agent may either (i) hold the Escrowed Property until receipt of such written instructions and indemnification or a certified copy of a final judgment of a court of competent jurisdiction providing for the disposition of the Escrowed Property, or (ii) deposit the Escrowed Property in the registry of a court of competent jurisdiction; provided, however, that notwithstanding the foregoing, the Escrow Agent may, but shall not be required to, institute legal proceedings of any kind. 5. Resignation of Escrow Agent. The Escrow Agent may resign and be discharged from its duties hereunder at any time by giving written notice of such resignation to Polaris and Triton specifying a date when such resignation shall take effect and upon delivery of the Escrowed Property to the successor escrow agent designated by all parties hereto (other than the Escrow Agent) in writing. Upon such notice, a successor escrow agent shall be appointed with the mutual consent of Polaris and Triton. Such successor escrow agent shall become the escrow agent hereunder upon the resignation date specified in such notice. If Polaris and Triton are unable to agree upon a successor escrow agent within thirty (30) days after such notice, the Escrow Agent shall be entitled to apply to a court of competent jurisdiction for the appointment of a successor. The Escrow Agent shall continue to serve until its successor accepts the escrow and receives the Escrowed Property. Polaris and Triton shall have the right at any time upon their mutual consent to substitute a new Escrow Agent by giving notice thereof to the Escrow Agent then acting. Upon its resignation (or replacement) and delivery of the Escrowed Property as set forth in this Paragraph 5, the Escrow Agent shall be discharged of and from any and all further obligations arising in connection with the escrow contemplated by this Agreement. 6. Indemnification of Escrow Agent. (a) The Escrow Agent shall exercise ordinary care in fulfilling its duties and obligations hereunder. The Escrow Agent shall have no duties or responsibilities whatsoever with respect to the Escrowed Property except as are specifically set forth herein. The Escrow Agent shall neither be responsible for or under, nor chargeable with knowledge of the terms and conditions of any other agreement, instrument or document in connection herewith. Except as otherwise provided in subsection (b) hereof, the Escrow Agent may conclusively rely upon, and shall be fully protected from all liability, loss, cost, damage or expense in acting or omitting to act pursuant to any written notice, instrument, request, consent, certificate, document, letter, telegram, opinion, order, resolution or other writing hereunder without being required to determine the authenticity of such document, the correctness of any fact stated therein, the propriety of the service thereof or the capacity, identity or authority of any party purporting to sign or deliver such document. The Escrow Agent shall have no responsibility for the contents of any such writing contemplated herein and may conclusively rely without any liability upon the contents thereof. 3 (b) The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and reasonably believed by it to be authorized hereby or with the rights or powers conferred upon it hereunder, nor for action taken or omitted by it in good faith, and in accordance with advice of counsel (which counsel may be of the Escrow Agent's own choosing), and shall not be liable for any mistake of fact or error of judgment or for any acts or omissions of any kind except for its own willful misconduct or negligence. (c) Polaris and Triton agree severally and not jointly to indemnify the Escrow Agent and its employees, directors, officers and agents and hold each harmless against any and all liabilities incurred by it hereunder as a consequence of such party's action, and both Polaris and Triton agree severally and not jointly to indemnify the Escrow Agent and hold it harmless against any and all liabilities incurred by it and them hereunder that are not a consequence of any party's action, except in either case for liabilities incurred by the Escrow Agent resulting from its own willful misconduct or negligence. In connection therewith, Polaris and Triton shall each be liable for 50% of any such liabilities. 7. Compensation of Escrow Agent. The Escrow Agent shall be entitled to payment for customary fees and expenses for all services rendered by it hereunder in accordance with Schedule B attached hereto (as such schedule may be amended from time to time by Polaris, Triton and the Escrow Agent) ("Escrow Fees"). The Escrow Agent shall also be entitled to reimbursement on demand for all reasonable loss, liability, damage or expenses paid or incurred by it in the administration of its duties hereunder, including, but not limited to, all reasonable counsel, advisors' and agents' fees and disbursements and all taxes or other governmental charges. 8. Further Assurances. From time to time on and after the date hereof, the other parties hereto shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do and cause to be done such further acts as the Escrow Agent shall reasonably request (it being understood that the Escrow Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder. 9. Termination of Agreement. This Agreement shall terminate on the final disposition of the Escrowed Property provided that the rights of the Escrow Agent and the obligations of the other parties hereto under Sections 6 and 7 shall survive the termination hereof and the resignation or removal of the Escrow Agent. 4 10. Consents to Service of Process. Each of the parties hereto hereby irrevocably consents to the jurisdiction of the courts of the State of New York and of any Federal Court located in the Borough of Manhattan in such State in connection with any action, suit or other proceeding arising out of or relating to this Agreement or any action taken or omitted hereunder, and waives any claim of forum non conveniens and any objections as to laying of venue. Each party further waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to such person at such person's address for purposes of notices hereunder. 11. Waiver. THE PARTIES TO THIS AGREEMENT HEREBY UNCONDITIONALLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG THEM. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, AND RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENT, AND RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 12. Miscellaneous. (a) This Agreement embodies the entire agreement and understanding among these parties relating to the subject matter hereof except, as to Polaris and Triton, the Purchase Agreement. (b) All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally, on the next Business Day after delivery to a recognized overnight courier or when sent by facsimile to the parties (which facsimile copy shall be followed, in the case of notices or other communications sent to the Escrow Agent, by a hard copy) at the following addresses (or to such other address as a party may have specified by notice given to the other parties pursuant to this provision); 5 If to Polaris, to: c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor San Francisco, California 94105 Attention: President Facsimile Number: (415) 284-7460 With a copy to: c/o Polaris Investment Management Corporation 201 High Ridge Road Stamford, Connecticut 06927-4900 Attention: Portfolio Management Facsimile Number: (203) 357-4585 If to Triton, to: Triton Aviation Services III LLC 55 Green Street San Francisco, California 94111 Attention: President Facsimile Number: (415) 398-9184 If to the Escrow Agent, to: Bankers Trust Company Corporate Trust and Agency Group Four Albany Street New York, New York 10006 Attention: Corporate Market Services Facsimile Number: (212) 250-6961/6392 (c) The headings of the Paragraphs of this Agreement have been inserted for convenience and shall not modify, define, limit or expand the express provisions of this Agreement. (d) This Agreement and the rights and obligations hereunder of parties hereto may not be assigned except with the prior written consent of the 6 other parties hereto. This Agreement shall be binding upon and inure to the benefit of each party's respective successors and permitted assigns. Except as expressly provided herein, no other person shall acquire or have any rights under or by virtue of this Agreement. This Agreement is intended to be for the sole benefit of the parties hereto, and (subject to the provisions of this Paragraph 12(d)) their respective successors and assigns, and none of the provisions of this Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person. (e) This Agreement may not be amended, supplemented or otherwise modified without the prior written consent of the parties hereto. (f) The Escrow Agent makes no representation as to the validity, value, genuineness or the collectability of any security or other document or instrument held by or delivered to it. (g) The Escrow Agent shall not be called upon to advise any party as to the wisdom in selling or retaining or taking or refraining from any action with respect to any securities or other property deposited hereunder. (h) Any payments of income from the Escrowed Property shall be subject to withholding regulations then in force with respect to United States taxes. Each of Polaris and Triton will provide the Escrow Agent with its Employer Identification Number for use by the Escrow Agent if necessary. It is understood that the Escrow Agent shall be responsible for income reporting only with respect to income earned on the Escrowed Property and will not be responsible for any other reporting. (i) This Agreement shall be governed by and construed in accordance with laws of the State of New York without reference to the principles of conflict of laws. (j) This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. (k) Time is of the essence in each and every term and provision of this Agreement. (l) In the event that the interpretation of any provision of this Agreement conflicts in any way with any other provision of any other document related to the transactions contemplated herein, then the provisions of this Agreement shall be controlling between these parties and will take precedence. 7 (m) For purposes of this Agreement, "Business Day" shall mean any day that is not a Saturday or a day on which banks are required or permitted by law or executive order to be closed in The City of New York. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, General Partner By:/S/MARY DUNNE --------------------------- Name: MARY DUNNE Title: ATTORNEY IN FACT TRITON AVIATION SERVICES III LLC By: Triton Aviation Services Limited, Manager By:/S/CHARLES F. HORNECKER ---------------------------- Name: CHARLES F. HORNECKER Title: ATTORNEY IN FACT BANKERS TRUST COMPANY By:/S/KEVIN WEEKS --------------------------------- Name: KEVIN WEEKS Title: ASSISTANT TREASURER 9 Schedule A Schedule of Fees Prepared For Escrow Agreement A. Acceptance Fee: $2,000 one time fee. (Includes acceptance of appointment, review of documentation, establishment of account and records. This fee is intended to cover costs and set up of a standard escrow agreement. Any escrow that substantially alters the agreement may incur addi- tional costs which would be billed as an acceptance fee.) B. Annual Administrative Fee: None. (Payable annually in advance. Includes normal administrative duties as stipulated in the agreement.) C. Investment Transactions: None. (Covers all costs associated with investing in eligible investments at the direction of the client, including ticket charges, custody and tax reporting.) D. Wire Transfer Fee: None. (Pertains to outgoing wires only.) The fees set forth in this schedule are subject to review of documentation. The fees are also subject to change should circumstances warrant. As provided in the Escrow Agreement, reimbursement for all out-of-pocket expenses, disbursements and fees of counsel (including their disbursements and expenses) incurred in the performance of the Escrow Agent's duties will be added to billed fees. Once appointed, if the deal should fail to close for reasons beyond our control, we reserve the right to charge a fee not to exceed the amount of our acceptance fee, and we will require reimbursement in full for our legal fees and any out-of-pocket expenses related to the deal. Fees for any services not specifically covered in this or other applicable schedules will be based on an appraisal of services rendered. Exhibit A Release Notice Pursuant to Paragraph 4(b) of the Escrow Agreement dated May __, 1997 (the "Escrow Agreement") among Polaris Aircraft Income Fund III ("Polaris"), Triton Aviation Services III LLC ("Triton") and Bankers Trust Company, as escrow agent (the "Escrow Agent"), the undersigned hereby certifies that the requirements under the Purchase Agreement for release of the Escrowed Property have been met and directs the Escrow Agent to promptly disburse the Escrowed Property (as defined in the Escrow Agreement) as follows: (i) $__________ to Polaris to [account information]; and (ii) the balance of the Escrowed Property to an account specified by Triton. IN WITNESS WHEREOF, the undersigned has executed this Release Notice this __ day of ________, 19__. POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, general partner By: Name: Title: Exhibit B Receipt of Funds by Escrow Agent BANKERS TRUST COMPANY, a New York banking corporation, as escrow agent (the "Escrow Agent") under that certain Escrow Agreement dated May __, 1997 (the "Escrow Agreement") among Polaris Aircraft Income Fund III ("Polaris"), Triton Aviation Services III LLC ("Triton"), and the Escrow Agent, hereby acknowledges receipt from Triton, by wire transfer of immediately available funds to the account specified by the Escrow Agent, of the aggregate amount of [$__________], to be held in escrow pursuant to the terms of the Escrow Agreement. Dated: __________, 1997 BANKERS TRUST COMPANY, as Escrow Agent By: Name: Title: EX-2.3 4 PLEDGE AND SECURITY AGREEMENT 8K PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of April 1, 1997, among Triton Aviation Services III LLC, a California limited liability company ("Borrower"), Triton Aviation Services Limited, a Bermuda corporation ("TASL"), the other parties executing the signature pages hereto as pledgors (Borrower, TASL, and such other parties, collectively, "Pledgors" and each of them individually a "Pledgor") and Polaris Aircraft Income Fund III, a California limited partnership ("Lender"). R E C I T A L S: WHEREAS, Pledgors are the sole members of Borrower; and WHEREAS, Pledgors are the record and beneficial owners of the membership interests described in Schedule I hereto (the "Pledged Interests" of each such Pledgor) issued by Borrower; and WHEREAS, Borrower has executed and delivered to Lender a Promissory Note (as the same may be amended, modified or supplemented from time to time, the "Note"), pursuant to the Purchase, Assignment and Assumption Agreement, dated as of April 1, 1997 (the "Purchase Agreement"), between Lender and Borrower; and WHEREAS, Pledgors, as the sole members of Borrower, will derive substantial direct and indirect economic benefit from the transactions contemplated by the Purchase Agreement and the delivery of the Note to Lender; and WHEREAS, in connection with the making of the Purchase Agreement and the delivery of the Note and as security for all of the Obligations, Lender is requiring that Pledgors shall have executed and delivered this Pledge and Security Agreement and granted the security interest contemplated hereby; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained the receipt and sufficiency of which are hereby agreed and acknowledged and to induce Lender to provide the seller financing evidenced by the Note, it is agreed as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Note are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Additional Holder" shall have the meaning assigned to such term in Section 7(d) hereof. "Agreement" shall mean this Pledge and Security Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative. "Ancillary Agreements" shall have the meaning assigned to it in the Purchase Agreement. "Bankruptcy Code" shall mean title 11, United States Code, as amended from time to time, and any successor statute thereto "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 $15,349 and (ii) for the calendar month in which the first Effective Time occurs under the Purchase Agreement and for each calendar month thereafter, the Purchase Agreement, an amount equal to $25,581, 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. "General Intangibles" shall mean all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code, now owned or hereafter acquired by any Pledgor relating to the collateral of such Pledgor pledged hereby. "Governmental Authority" shall mean (a) any federal, state, provincial or similar government, and any body, board, department, commission, court, tribunal, author ity, agency or other instrumentality of any such government or otherwise exercising any executive, legislative, judicial, administrative or regulatory functions of such government or (b) any other government entity having jurisdiction over any matter contemplated by this Agreement, the Purchase Agreement or any other Ancillary Agreements or relating to the observance or performance of the obligations of any of the parties hereto or thereto. 2 "Interests" shall mean all shares, options, warrants, general or limited partnership interests, membership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Keep Well" shall mean that certain Keep Well Agreement, dated as of the date hereof, among TASL, Borrower and Lender. "Keep Well Guaranty" shall mean that certain Guaranty (Keep Well), dated as of the date hereof, among TIL, Lender and Borrower. "Loan Guaranty" shall mean that certain Guaranty (SPV Indebtedness), dated as of the date hereof, between TIL and Borrower. "Obligations" shall mean (i) all loans, advances, debts, liabilities and obligations, for monetary amounts (whether or not such amounts are liquidated or determinable) owing by Borrower to Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Purchase Agreement or the Note including, without limitation, all interest, fees, charges, expenses, attorneys' fees and any other sum chargeable to Borrower under the Purchase Agreement or the Note, (ii) all obligations of any kind or nature, present or future, of TASL under the Keep Well, (iii) all obligations of any kind or nature, present or future, of TIL under the Keep Well Guaranty and (iv) all obligations of any kind or nature, present or future, of TIL under the Loan Guaranty. "Person" shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Pledged Collateral" shall have the meaning assigned to such term in Section 2 hereof. 3 "Pledged Interests" shall have the meaning assigned to such term in the recitals hereof. "Secured Obligations" shall have the meaning assigned to such term in Section 3 hereof. "Termination Date" shall mean the date on which all determinable and liquidated Obligations have been completely discharged. "TIL" shall mean Triton Investments Limited, a Bermuda corporation. "Transferee" shall have the meaning assigned to such term in Section 7(d) hereof. "Uniform Commercial Code" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of California; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Lender's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, Uniform Commercial Code shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfec tion or priority and for purposes of definitions related to such provisions. 2. Pledge. Each Pledgor hereby pledges to Lender, and grants to Lender, a first priority security interest in, all of the following (the "Pledged Collateral"): (a) in the case of each Pledgor other than Borrower, the Pledged Interests of such Pledgor and all dividends, distributions, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed by Borrower in respect of or in exchange for any or all of the Pledged Interests of such Pledgor; provided, however, that Pledged Collateral shall not include any distributions made by Borrower which are permitted to be made by it under Section 7(b) hereof; (b) in the case of each Pledgor other than Borrower, all additional Interests issued by Borrower to such Pledgor or from time to time acquired by such Pledgor in any manner (which Interests shall be deemed to be part of the Pledged Interests), and the certificates, if any, representing such additional Interests, and all dividends, distributions, cash, instruments and 4 other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Interests; (c) in the case of Borrower, all rights under the Keep Well, the Keep Well Guaranty and the Loan Guaranty; (d) in the case of each Pledgor, all General Intangibles; and (e) all proceeds of any of the foregoing. 3. Security for Obligations. This Agreement secures, and the Pledged Collateral is security for, the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, and performance of the Obligations, whether for principal, premium, interest, fees, costs and expenses, and all obligations of Pledgors now or hereafter existing under this Agreement (collectively, the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates, if any, representing or evidencing the Pledged Interests shall be delivered to and held by or on behalf of Lender pursuant hereto and shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Lender. Lender shall have the right, at any time in its discretion and without notice to Pledgors, to transfer to or to register in the name of Lender or any of its nominees, as pledgees, any or all of the Pledged Interests. In addition, Lender shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Interests for certificates or instruments of smaller or larger denominations. 5. Representations and Warranties. Each Pledgor represents and warrants to Lender that: (a) Such Pledgor is, and at the time of delivery of the Pledged Interests to Lender pursuant to Section 4 hereof will be, the sole holder of record and the sole beneficial owner of the Pledged Collateral pledged by such Pledgor free and clear of any Lien thereon or affecting the title thereto, except for the Lien created by this Agreement. (b) All of the Pledged Interests of such Pledgor have been duly authorized, validly issued and are fully paid and nonassessable. 5 (c) Such Pledgor has the right and requisite authority to pledge, assign, transfer, deliver, deposit and set over the Pledged Collateral pledged by such Pledgor to Lender as provided herein. (d) None of the Pledged Interests of such Pledgor has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject. (e) As of the date hereof, the authorized, issued and outstanding Interests of Borrower consist solely of the membership interests that are described in Schedule I hereto. As of the date hereof, there are no existing options, warrants, calls or commitments of any character whatsoever relating to any Interests of Borrower other than as set forth on Exhibit A hereto. (f) No consent, approval, authorization or other order of any Person and no consent, authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority, other than as already obtained, given or filed, is required by Pledgor either (i) for the pledge by such Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement or the Ancillary Agreements to which such Pledgor is a party, by such Pledgor or (ii) for the exercise by Lender of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally. (g) The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid first priority lien on and a first priority perfected security interest in the Pledged Collateral pledged by such Pledgor, and the proceeds thereof, securing the payment of the Secured Obligations. (h) This Agreement and the Ancillary Agreements to which such Pledgor is a party have been duly authorized, executed and delivered by such Pledgor and constitute legal, valid and binding obligations of such Pledgor enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, or other similar laws affecting the rights of creditors generally or by the application of general equity principles. (i) Borrower has no subsidiaries. 6 The representations and warranties set forth in this Section 5 shall survive the execution and delivery of this Agreement. 6. Covenants. (a) Each Pledgor jointly and severally covenants and agrees that until the Termination Date: (i) Subject to Section 7(d), without the prior written consent of Lender, such Pledgor will not sell, assign, transfer, pledge or otherwise encumber any of its rights in or to the Pledged Collateral pledged by such Pledgor or any unpaid dividends or other distributions or payments with respect thereto or grant a Lien in any therein. (ii) Such Pledgor will, at its expense, promptly execute, acknowledge and deliver all such instruments and take all such action as Lender from time to time may reasonably request in order to ensure to Lender the benefits of the Liens in and to the Pledged Collateral intended to be created by this Agreement, including the filing of any necessary Uniform Commercial Code financing statements, which may be filed by Lender with or without the signature of such Pledgor, and will cooperate with Lender, at such Pledgor's expense, in obtaining all necessary governmental approvals and making all necessary filings under federal or state law in connection with such Liens or any sale or transfer of the Pledged Collateral. (iii) Such Pledgor has and will defend the title to the Pledged Collateral and the Liens of Lender thereon against the claim of any Person and will maintain and preserve such Liens until the Termination Date. (iv) Each of them will, upon obtaining any additional Interest of Borrower, which Interest is not already Pledged Collateral, promptly (and in any event within three (3) business days) deliver to Lender a Pledge Amendment, duly executed by such Pledgor, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the additional Pledged Interests which are to be pledged pursuant to this Agreement. Each Pledgor hereby authorizes Lender to attach each Pledge Amendment to this Agreement and agrees that all Pledged Interests listed on any Pledge Amendment delivered to Lender shall for all purposes hereunder be considered Pledged Collateral. 7 (v) None of them will take any action to amend, alter or change Borrower's articles of organization or operating agreement (other than amendments permitted under the Note), the Keep Well, the Keep Well Guaranty or the Loan Guaranty or permit Borrower to repeal its articles of organization. (vi) None of them will take any action that would authorize or permit Borrower to take any of the actions specified in Paragraph 2.4 of its operating agreement. (vii) TASL covenants and agrees that it will cause Borrower to comply with the terms of and limitations contained in Borrower's articles of organization or in its operating agreement. (b) TASL shall deliver to Lender written notice of (i) any payments made by it to Borrower pursuant to the Keep Well and (ii) any dividend or distribution received by it from Borrower other than Equity Dividend Amounts, in each case no later than three (3) business days after disbursing such payment or the receipt of any such dividend or distribution, as applicable. (c) TASL covenants and agrees that it will at all times during the term of this Agreement maintain management personnel who are qualified and competent to manage and direct the business and operations of Borrower and who have experience in the commercial aviation industry. (d) TASL covenants and agrees that, at all times, Triton Members shall hold, in the aggregate, at least fifty percent (50%) of the Economic Interests of Borrower. TASL covenants and agrees that, at all times, it shall be the sole manager of Borrower and shall have all responsibilities and duties allocated to TASL as manager of Borrower pursuant to Borrower's operating agreement or articles of organization and shall not make any delegation or assignment to any other Person of such responsibility or duty except as permitted thereby. 7. Pledgors' Rights. (a) As long as no Default or Event of Default shall have occurred and be continuing and until written notice shall be given to each Pledgor in accordance with Section 8(a) hereof, such Pledgor shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Note or any Ancillary Agreement; provided, however, that no vote shall be cast, and no consent shall be given or action taken, which would have the effect of impairing the position or interest of 8 Lender in respect of the Pledged Collateral or which would authorize or effect (i) the dissolution or liquidation, in whole or in part, of Borrower, (ii) the consolidation or merger of Borrower with any other Person, (iii) except as permitted under this Agreement or the Note, the sale, disposition or encumbrance of all or substantially all of the assets of Borrower, (iv) except as permitted by Section 7(d) hereof and Section 4.4 of the Note, any change in the authorized number of Interests or the stated capital of Borrower and the issuance of any additional Interests, (v) the alteration of the voting rights with respect to the Interests of Borrower, or (vi) any change, alteration or modification of Borrower's articles of organization, operating agreement (other than amendments permitted under the Note, the Keep Well, the Keep Well Guaranty or the Loan Guaranty. (b) No Pledgor shall be entitled to collect and receive any dividend or other distribution paid in respect of the Pledged Interests whether paid or payable in cash, instruments or other property other than (1) beginning as of April 1, 1997, payable in the next calendar month, the Equity Dividend Amount and any accrued and unpaid Equity Dividend Amount for each month thereafter, (2) with respect to TASL only, amounts equal to equity contributions made by TASL pursuant to the Keep Well which have not been previously recouped through the payment of any dividend or distribution by Borrower 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 the Note is overdue or a Default has occurred and is continuing, no Pledgor shall be entitled to collect and receive 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 the Note are overdue and no Default thereunder is continuing, and provided, further, that any permitted dividends or distributions in respect of the Pledged Interests shall be paid only to the extent permitted by applicable law. (c) Other than dividends and distributions permitted to be received by a Pledgor pursuant to subsection (b) above, all dividends or other distributions paid in respect of any of the Pledged Interests, whenever paid or made, shall be delivered to Lender to hold as Pledged Collateral and shall, if received by such Pledgor, be received in trust for the benefit of Lender, be segregated from the other property or funds of such Pledgor, and be forthwith delivered to Lender as Pledged Collateral in the same form as so received (with any necessary endorsement). 9 (d) (i) Borrower shall be permitted to issue additional Interests to any Person (each, an "Additional Holder") and (ii) each member of Borrower shall be permitted to sell or otherwise transfer Pledged Interests to any Person (each, a "Transferee"); provided, in each case that after giving effect to any such issuance or transfer (A) the number of members of Borrower who are not Triton Members shall not exceed three (3) as a result of any such issuance or transfer, (B) the Triton Members shall hold, in the aggregate, at least 50% of the Economic Interests of Borrower, (C) the Additional Holder or Transferee of such equity interest shall be a Qualified Holder, (D) such Additional Holder or Transferee shall expressly agree to the pledge of such Interests under this Agreement and to be bound by the terms and conditions hereof by delivery of a duly executed Pledge Amendment, and (E) after notice to Lender by the applicable Pledgor, pursuant to the terms of Section 19 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 transfer shall be permitted if such issuance or transfer would violate any applicable law or cause the Aircraft owned, directly or indirectly, by Borrower then registered under the Act to no longer be eligible for registration under the Act. 8. Defaults and Remedies. (a) Upon the occurrence of an Event of Default and during the continuation of such Event of Default, then or at any time after the declaration of such Event of Default (provided that such declaration is not rescinded by Lender) and following written notice to each Pledgor, Lender (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exercise the voting rights with respect thereto, to collect and receive all dividends and other distributions made thereon, to sell in one or more sales after seven (7) days' notice of the time and place of any public sale or of the time after which a private sale is to take place (which notice each Pledgor agrees is commercially reasonable), but without any previous notice or advertisement, the whole or any part of the Pledged Collateral and to otherwise act with respect to the Pledged Collateral as though Lender was the outright owner thereof, each Pledgor hereby irrevocably constituting and appointing Lender as the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so; provided, however, Lender shall not have any duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. Any sale shall be made at a public or private sale at Lender's place of business, or at any public building in the City and County of San Francisco or elsewhere to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Lender may deem fair, and Lender may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same 10 thereafter in its own right free from any claim of such Pledgor or any right of redemption. Each sale shall be made to the highest bidder, but Lender reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of Lender. (b) If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to Lender, in its discretion, the unlikelihood of the proceeds of the sales of the whole of the Pledged Collateral being sufficient to discharge all the Secured Obligations, Lender may, on one or more occasions and in its discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, however, that any sale or sales made after such postponement shall be after seven (7) days' notice to Pledgors. (c) In the event of any sales hereunder Lender shall, after deducting all costs or expenses of every kind (including reasonable attorneys' fees and disbursements) for care, safekeeping, collection, sale, delivery or otherwise, apply the residue of the proceeds of the sales to the payment or reduction, either in whole or in part, of the Secured Obligations in accordance with the agreements and instruments governing and evidencing such Obligations, returning the surplus, if any, to Pledgors. (d) If, at any time when Lender shall determine to exercise its right to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as amended (or any similar statute then in effect) (the "Act"), Lender may, in its discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Lender may deem necessary or advisable, but subject to the other requirements of this Section 8, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event Lender in its discretion (x) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under 11 the Act, (y) may approach and negotiate with a single possible purchaser to effect such sale and (z) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or part thereof. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act at the time of any proposed sale pursuant to this Section 8, then Lender shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale, (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof, (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person's access to financial information about Pledgors and such Person's intentions as to the holding of the Pledged Collateral so sold for investment, for its own account, and not with a view to the distribution thereof, and (iv) as to such other matters as Lender may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of creditors' rights and the Act and all applicable state securities laws. (e) Each Pledgor recognizes that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Lender shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the registrant to register such securities for public sale under the Act, or under applicable state securities laws, even if any Pledgor would agree to do so. (f) Each Pledgor agrees that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and each Pledgor waives the benefit of all such laws to the extent it lawfully may do so. Each Pledgor agrees that it will not interfere with any right, power and remedy of Lender provided for in this Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the 12 exercise or beginning of the exercise by Lender of any one or more of such rights, powers or remedies. No failure or delay on the part of Lender to exercise any such right, power or remedy and no notice or demand which may be given to or made upon any Pledgor by Lender with respect to any such remedies shall operate as a waiver thereof, or limit or impair Lender's right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against any Pledgor in any respect. (g) Each Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to Lender, that Lender has no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this Section 8 shall be specifically enforceable against such Pledgor, and such Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that the Secured Obligations are not then due and payable in accordance with the agreements and instruments governing and evidencing such obligations. 9. Application of Proceeds. Any cash held by Lender as Pledged Collateral and all cash proceeds received by Lender in respect of any sale of, liquidation of, or other realization upon all or any part of the Pledged Collateral or pursuant to Section 8(g) hereof shall be applied by Lender as follows: (a) First, to the payment of the costs and expenses of such sale, including reasonable compensation to Lender and its agents and counsel, and all expenses, liabilities and advances made or incurred by Lender in connection therewith; (b) Next, to the payment of the Secured Obligations; and (c) Finally, after payment in full of all Secured Obligations, to the payment to Pledgors, or their successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. 10. Waiver. No delay on Lender's part in exercising any power of sale, Lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgors by Lender with respect to any power of sale, Lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Lender's right to take any action or to exercise any power of sale, Lien, option, or any other right hereunder, without notice or demand, or prejudice Lender's rights as against Pledgors in any respect. 13 11. Assignment. Lender may assign, endorse or transfer any instrument evidencing all or any part of the Secured Obligations as provided in, and in accordance with, the Note, the Keep Well, the Keep Well Guaranty and the Loan Guaranty, as applicable, and the holder of such instrument shall be entitled to the benefits of this Agreement. 12. Termination. Immediately following the payment of all Secured Obligations, Lender shall deliver to each Pledgor the Pledged Collateral pledged by such Pledgor at the time subject to this Agreement and all instruments of assignment executed in connection therewith, free and clear of the Liens hereof and, except as otherwise provided herein, all of Pledgors' obligations hereunder shall at such time terminate. 13. Lien Absolute. All rights of Lender hereunder, and all obligations of Pledgors hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Note, the Purchase Agreement, the Keep Well, the Keep Well Guaranty, the Loan Guaranty or any other agreement or instrument governing or evidencing any Secured Obligations; (b) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Note, the Keep Well, the Keep Well Guaranty, the Loan Guaranty or any other agreement or instrument governing or evidencing any Secured Obligations; (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Secured Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Pledgor. 14. Release. Each Pledgor consents and agrees that Lender may at any time, or from time to time, in its discretion (a) renew, extend or change (pursuant to any right to do so provided in the relevant agreement) the time of payment, and/or the manner, place or terms of payment of all or any part of the Secured Obligations and (b) exchange, release and/or surrender all or any of the Pledged Collateral, or any part thereof, by whomsoever deposited, which is now or may hereafter be held by Lender in connection with all or any of the Secured Obligations; all in such manner and upon such terms as Lender may deem proper, 14 and without notice to or further assent from such Pledgor, it being hereby agreed that such Pledgor shall be and remain bound upon this Agreement, irrespective of the existence, value or condition of any of the Pledged Collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, renewal or extension, and notwithstanding also that the Secured Obligations may, at any time, exceed the aggregate principal amount thereof set forth in the Note, the Keep Well, the Keep Well Guaranty, the Loan Guaranty or any other agreement governing any Secured Obligations. Each Pledgor hereby waives notice of acceptance of this Agreement, and also presentment, demand, protest and notice of dishonor of any and all of the Secured Obligations, and promptness in commencing suit against any party hereto or liable hereon, and in giving any notice to or of making any claim or demand hereunder upon such Pledgor. No act or omission of any kind on Lender's part shall in any event affect or impair this Agreement. 15. Indemnification. Each Pledgor jointly and severally agrees to indemnify and hold Lender harmless from and against any taxes, liabilities, claims and damages, including reasonable attorney's fees and disbursements, and other expenses incurred or arising by reason of the taking or the failure to take action by Lender, in good faith, in respect of any transaction effected under this Agreement or in connection with the Lien provided for herein, including, without limitation, any taxes payable in connection with the delivery or registration of any of the Pledged Collateral as provided herein. Each Pledgor jointly and severally agrees to promptly reimburse Lender for all actual reasonable out-of-pocket costs and expenses, including, without limitation, reasonable counsel fees, incurred by Lender, in connection with the administration and enforcement of this Agreement and all reasonable fees, expenses and disbursements, including the reasonable fees of Lender's agents or representatives, incurred in connection with any lien searches and filings made by Lender, any amendments hereto or waivers or modifications hereof; provided, however, that Pledgors shall not be obligated to pay any costs or expenses (including attorney's fees) incurred by Lender in connection with preparation of this Agreement or any other Ancillary Agreement or any ordinary administrative costs and expenses of Lender in the absence of a Default by Borrower under this Agreement, the Note or any other Ancillary Agreement or a Default by any Pledgor under this Agreement or any other Ancillary Agreement; and provided, further, that nothing contained herein shall limit or be deemed to limit any right of Borrower under Section 13 of the Purchase Agreement. The obligations of Pledgors under this Section 15 shall survive the termination of this Agreement. 16. Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against 15 any Pledgor for liquidation or reorganization, should any Pledgor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Pledgor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 17. Miscellaneous. (a) Lender may execute any of its duties hereunder by or through agents or employees and shall be entitled to advice of counsel concerning all matters pertaining to its duties hereunder. (b) Neither Lender nor any of its officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct. (c) This Agreement shall be binding upon Pledgors and their successors and assigns, and shall inure to the benefit of, and be enforceable by, Lender and its successors and assigns, and shall be governed by, and construed and enforced in accordance with, the internal laws in effect in the State of California without giving effect to principles of conflicts of laws, and none of the terms or provisions of this Agreement may be waived, altered, modified or amended except in writing duly signed for and on behalf of Lender and Pledgors. 18. Severability. If for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid. 19. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other a communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt 16 acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback addressed as follows: (a) If to Lender, at c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor San Francisco, CA 94105 Attention: President Telecopy Number: (415) 284-7460 With copies to c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor 201 High Ridge Road, 1st Floor Stamford, CT 06927-4900 Attention: Portfolio Management Telecopy Number: (203) 357-4585 (b) If to any Pledgor, at c/o Triton Aviation Services Limited 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Telecopy Number: (415) 398-9184 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three (3) business days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons 17 designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 20. Confidentiality. Lender agrees that it will keep confidential all information regarding Pledgors that it may receive in connection with the transactions contemplated hereunder 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 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 a Pledgor, (iii) to the extent such information has been independently acquired or developed by Lender without violating any of its obligations under the Purchase Agreement or any Ancillary Agreement, or (iv) to the extent disclosure is required by law, regulation or judicial order. 21. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 22. Counterparts. This Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 18 IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security Agreement to be duly executed as of the date first written above. TRITON AVIATION SERVICES III LLC By: Triton Aviation Services Limited, its Manager By: /S/ JOHN E. FLYNN ----------------------------------------- Title: JOHN E. FLYNN, PRESIDENT TRITON AVIATION SERVICES LIMITED By: /S/ JOHN E. FLYNN ----------------------------------------- Title: JOHN E. FLYNN, PRESIDENT TRITON AVIATION LIMITED By: /S/ STEVEN C. WIGHT ------------------------------------------ Title: STEVEN C. WIGHT, MANAGING DISRECTOR Accepted and Acknowledged by: POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, General Partner By: /S/ MARC A. MEICHES --------------------------------------- Title: MARC A. MEICHES, VICE PRESIDENT 19 SCHEDULE I Attached to and forming a part of that certain Pledge and Security Agreement dated as of April 1, 1997 among Triton Aviation Services III LLC, a California limited liability company ("Borrower"), Triton Aviation Services Limited, a Bermuda corporation ("TASL"), Triton Aviation Limited, a Bermuda corporation (collectively, "Pledgors" and each of them individually a "Pledgor") to Polaris Aircraft Income Fund III, a California limited partnership. Name and Address of Pledgor Interests - ------- --------- Triton Aviation Services Limited 99% 55 Green Street, Suite 500 San Francisco, California 94111 Triton Aviation Limited 1% 55 Green Street, Suite 500 San Francisco, California 94111 SCHEDULE II to the Pledge and Security Agreement PLEDGE AMENDMENT This Pledge Amendment, dated ______, 19__ is delivered pursuant to [Section 6(a)(iv)/Section 7(d)] of the Pledge and Security Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to that certain Pledge and Security Agreement, dated ________ __, 1997 among the undersigned and others, as Pledgors, to Polaris Aircraft Income Fund [__], a California limited partnership, that the Pledged Interests listed on this Pledge Amendment shall be and become a part of the Pledged Collateral referred to in said Pledge and Security Agreement and shall secure all Secured Obligations referred to in said Pledge and Security Agreement and that the undersigned shall be deemed to be a Pledgor under said Pledge and Security Agreement. [Name of Pledgor] By: ___________________________ Title: Name and Address of Pledgor Interests - ------- --------- EXHIBIT A None. EX-2.4 5 KEEP WELL DOCUMENT 8K KEEP WELL AGREEMENT This KEEP WELL AGREEMENT is dated as of April 1, 1997, and made by TRITON AVIATION SERVICES LIMITED, a Bermuda corporation ("TASL"), in favor of TRITON AVIATION SERVICES III LLC, a California limited liability company (the "Borrower"), and in favor of POLARIS AIRCRAFT INCOME FUND III, a California limited partnership (the "Lender") (the "Agreement"). R E C I T A L S: WHEREAS, the Lender has entered into a Purchase, Assignment and Assumption Agreement dated as of April 1, 1997 with the Borrower (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Purchase Agreement", the terms defined therein and not otherwise defined herein being used herein as therein defined) and, in connection therewith, the Borrower has delivered to the Lender a promissory note effective as of April 1, 1997 in the amount of $9,713,711 (the "Note"); and WHEREAS, TASL, as the owner of 99 percent of the outstanding member interests in the Borrower, will derive substantial direct and indirect economic benefit from the transactions contemplated by the Purchase Agreement and the delivery of the Note to the Lender; and WHEREAS, in connection with the execution and delivery of the Purchase Agreement and the Note, the Lender is requiring that TASL shall have executed and delivered this Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce the Lender to enter into the Purchase Agreement and accept delivery of the Note, TASL hereby agrees as follows: SECTION 1. Obligation to Cause the Borrower to Perform. (a) TASL shall pay to the Borrower from time to time, in cash in United States dollars through additional contributions to the equity of the Borrower, amounts sufficient to permit the Borrower promptly to perform all of its obligations under the Note, the Security Agreement and the Purchase Agreement. (b) Notwithstanding anything to the contrary contained herein, TASL shall not be required to make unrecouped payments under this Agreement to the Borrower or the Lender in excess of an aggregate of $956,111 (the "Maximum Obligation") at any time outstanding; provided, however, that any dividends or other distributions made by the Borrower (other than dividends or distributions made in respect of any Equity Dividend Amount, as such term is defined in the Note), shall be deemed to be made in recoupment of any payments made by TASL hereunder and the aggregate amount of TASL's obligation under subsection (a) above shall be restored by the amount of such dividend or distribution, up to the Maximum Obligation. (c) If TASL shall at any time and from time to time fail to perform or comply with any of its obligations contained in subsection (a) above and if for any reason the Lender shall have failed to receive when due and payable (whether at stated maturity, by acceleration, or otherwise) the payment of all or any part of the principal of or interest on the Note or any other amount payable by the Borrower thereunder or under the Security Agreement or the Purchase Agreement, then in each such case: (i) it shall be conclusively assumed without necessity of proof that such failure by TASL was the sole and direct cause of the Lender failing to receive such payment when due irrespective of any other contributing or intervening cause whatsoever; (ii) TASL agrees that it will be unconditionally liable to the Lender for liquidated damages (for loss of a bargain and not as a penalty) for the amount of such payment not received by the Lender when so due and payable as well as for all costs and expenses, if any, incurred by the Lender in enforcing this Agreement (but only to the extent of and as a reduction of the Maximum Obligation); (iii) TASL further irrevocably waives to the full extent permitted by applicable law any right or defense TASL may have to cause the Lender to prove the cause or amount of such damages or to mitigate the same; and (iv) since TASL has agreed to liquidated damages in the amount specified above, the Lender shall not be entitled to any damages in excess of such amount with respect to such payment. (d) Notwithstanding anything herein to the contrary, during any period in which the Lender shall have failed to receive when due and payable 2 (whether at stated maturity, by acceleration or otherwise) the payment of all or any part of the principal of or interest on the Note or any other amount payable by the Borrower thereunder or under the Security Agreement or the Purchase Agreement, TASL shall make payment of all funds under this Agreement directly to the Lender c/o Polaris Investment Management Corporation, 201 Mission Street, 27th Floor, San Francisco, CA 94105, and the Lender shall apply such funds in the same manner as though paid directly by the Borrower. All payments which are received by the Borrower contrary to the provisions of this subsection (d) shall be received in trust for the benefit of the Lender, shall be segregated from other funds and property held by the Borrower, and shall be paid over to the Lender in the same form as so received (with any necessary indorsement). SECTION 2. Other Permitted Payments. If and to the extent that amounts paid to the Borrower pursuant to Section 1(a) do not exceed the Maximum Obligation, TASL may make payments to the Borrower from time to time for any purpose in which the Borrower is permitted to engage, and in each case the amount of such payment shall be credited against TASL's obligation to make payments to the Borrower under Section 1(a) hereof up to the Maximum Obligation; provided, however, that if the Borrower sells, transfers, conveys or otherwise disposes of an Asset (as such term is defined in the Note) for an amount (the "Sale Price") that is less than 90% of the product of (x) the Allocable Portion Percentage (as defined in the Note) for such Asset multiplied by (y) the then outstanding balance of the Note, then any payment made by TASL to the Borrower in the 60 day period preceding or the 60 day period following such sale, transfer, conveyance or other disposition shall be included in determining if the Maximum Obligation has been reached only after deducting (a) the Shortfall Amount (as defined below) and (b) any dividends or other distributions (other than dividends or distributions in respect of any Equity Dividend Amount) made by the Borrower during both such periods. For purposes of this Section 2, "Shortfall Amount" means the amount that is the difference between (i) the product of the Allocable Portion Percentage for the Asset which has been sold, transferred, conveyed or otherwise disposed of multiplied by the then outstanding balance of the Note and (ii) the Sale Price. SECTION 3. Taxes, Authorizations, Etc. (a) TASL will pay any stamp or other tax (including any interest and penalties) with respect to the performance by TASL of its obligations pursuant to this Agreement; provided, however, in no event shall such taxes include any taxes imposed upon or measured by the gross or net income of the Borrower or the Lender. If any such tax is paid by the Lender in the good faith belief that such tax is owing, TASL will, upon demand of the Lender, indemnify the Lender for such payment, together with 3 any interest, penalties and expenses in connection therewith plus interest thereon at the lesser of 10% or the maximum rate under applicable law. The Lender shall thereafter cooperate in a commercially reasonable manner with TASL in seeking any refunds of such taxes, interest, penalties and expenses which refunds and any interest thereon shall be paid by the Lender to TASL within five (5) business days of receipt by the Lender, provided, that in no event shall the Lender be required to expend its own funds in seeking any such refund and provided, further, that any expenses incurred in connection therewith shall be paid by TASL. (b) TASL will obtain any authorization, approval or other action by, and will give any notice to or make any filing with, any governmental authority or regulatory body required in connection with the performance by TASL of its obligations pursuant to this Agreement. SECTION 4. Obligation Absolute. TASL will perform its obligations under this Agreement regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of the terms of the Note, the Security Agreement or the Purchase Agreement or any other document related thereto or the rights of the Lender with respect thereto. The obligations of TASL under this Agreement shall be absolute and unconditional irrespective of: (i) any lack of validity, enforceability or value of the Purchase Agreement, the Note, the Security Agreement or any other agreement or instrument relating thereto or any collateral therefor; (ii) any change in any term of the Note (including any change in the time, manner or place of payment thereof), the Security Agreement or the Purchase Agreement, or any other amendment or waiver of or any consent to departure from the Note, the Security Agreement or the Purchase Agreement; (iii) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for the Note, the Security Agreement or the Purchase Agreement; (iv) any failure to pay any taxes which may be payable with respect to the performance of such obligations by TASL, or any failure to obtain any authorization or approval from or other action by, or to notify or file with, any Government Entity required in connection with the performance of such obligations by TASL; or 4 (v) any impossibility or impracticality of performance, illegality, force majeure, any act of any Government Entity, or any other circumstance which might constitute a defense available to, or a discharge of, TASL or a surety, or any other circumstance, event or happening whatsoever, whether foreseen or unforeseen and whether similar or dissimilar to anything referred to above in this Section 4. This Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment is rescinded or must otherwise be returned by the Lender upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been made. The obligations of TASL under this Agreement shall not be subject to reduction, termination or other impairment by reason of any set-off, recoupment, counterclaim or defense or for any other reason. SECTION 5. Waiver. TASL hereby waives promptness, diligence, notice of acceptance and any other notice with respect to the Purchase Agreement, the Note and this Agreement and any requirement that the Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other person or entity or any collateral. SECTION 6. Separate Undertaking. Without limiting the generality of any of the foregoing provisions of this Agreement, TASL irrevocably waives, to the full extent permitted by applicable law and for the benefit of, and as a separate undertaking with, the Lender, any defense to the performance of this Agreement which may be available to TASL as a consequence of this Agreement being rejected or otherwise not assumed by the Borrower or any trustee or other similar official for the Borrower or for any substantial part of the property of the Borrower, or as a consequence of this Agreement being otherwise terminated or modified, in any proceeding seeking to adjudicate the Borrower a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, protection, relief or composition of the Borrower or the debts of the Borrower under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors, whether such rejection, non-assumption, termination or modification be by reason of this Agreement being held to be an executory contract or by reason of any other circumstance. If this Agreement shall be so rejected or otherwise not assumed, or so terminated or modified, TASL agrees for the benefit of, and as a separate undertaking with, the Lender, that it will be unconditionally liable to pay to the Lender an amount equal to each payment which would otherwise be payable by TASL under or in connection with this Agreement if this Agreement were not so rejected or otherwise not assumed or were otherwise not so terminated or modified, such 5 amount to be payable to the Lender, as and when such payment would otherwise be payable hereunder and such amount to be applied as such payment would otherwise be applied under the Note. SECTION 7. Representations and Warranties. TASL hereby represents and warrants to Borrower and Lender as follows: (a) TASL (i) is a corporation duly organized, validly existing and in good standing under the laws of Bermuda and (ii) has the requisite power and authority to carry on its business as presently conducted and as proposed to be conducted after the date of this Agreement and to enter into and perform its obligations under this Agreement. (b) TASL is the beneficial and record owner of 99% of all outstanding member interests of the Borrower free and clear of any lien, security interest or other charge or encumbrance other than that set forth in the Security Agreement. (c) The execution and delivery by TASL of this Agreement, and the performance by TASL of its obligations hereunder (i) have been duly authorized by all necessary action on the part of TASL, (ii) do not contravene any provision of law, governmental rule, regulation, judgment or order applicable to or binding on TASL, or the organizational documents of TASL and (iii) do not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any federal, state or foreign governmental authority or agency or any other Person, except those already obtained. (d) This Agreement has been duly executed and delivered and is enforceable against TASL 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 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). SECTION 8. No Transfer of Interest. TASL covenants and agrees that, so long as the Note shall remain unpaid, TASL will not sell, assign, pledge, encumber or otherwise dispose of any member interest of the Borrower except to the extent and in the manner permitted by the Security Agreement and that any transfer by it of any interest in the Borrower shall not reduce, release or lessen its obligations under this Agreement. 6 SECTION 9. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by TASL therefrom shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10. Expenses. TASL will upon demand pay to the Borrower and the Lender, respectively, the amount of any and all reasonable expenses, including attorneys' fees and expenses, which the Borrower and the Lender, as the case may be, may incur in connection with the exercise or enforcement of any of their respective rights or interests hereunder; provided, however, that TASL shall not be obligated to pay any costs or expenses (including attorney's fees) incurred by the Borrower or the Lender in connection with the preparation of this Agreement or (x) any ordinary administrative costs and expenses of the Borrower so long as there is no default by TASL under this Agreement or (y) any ordinary administrative costs and expenses of the Lender so long as there is no default by TASL under this Agreement or a default by the Borrower under the Purchase Agreement, the Note or any other Ancillary Agreement. SECTION 11. Addresses for 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 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: 7 If to TASL, to: Triton Aviation Services Limited 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Facsimile: (415) 398-9184 or to such other address as TASL may from time to time designate in writing to the Borrower and Lender. If to the Borrower, to: Triton Aviation Services III LLC 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Facsimile: (415) 398-9184 or to such other address as the Borrower may from time to time designate in writing to TASL and Lender. If to Lender, to: Polaris Aircraft Income Fund III c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor San Francisco, CA 94105 Attention: President Facsimile: (415) 284-7460 With a copy to: Polaris Aircraft Income Fund III c/o Polaris Investment Management Corporation 201 High Ridge Road, 1st Floor Stamford, CT 06927-4900 Attention: Portfolio Management Facsimile: (203) 357-4585 8 or to such other address as Lender shall from time to time designate in writing to the Borrower and TASL. SECTION 12. No Waiver; Remedies. No failure on the part of the Borrower or the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 13. Continuing Agreement; Transfer of Note. This Agreement is a continuing agreement and shall (i) remain in full force and effect until payment in full and discharge of the Note, (ii) be binding upon TASL, its successors and assigns, and (iii) inure to the benefit of and be enforceable by the Borrower, the Lender and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), the Lender may assign or otherwise transfer the Note held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the rights in respect thereof granted to the Lender herein or otherwise. SECTION 14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. 9 IN WITNESS WHEREOF, TASL has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. TRITON AVIATION SERVICES LIMITED By: /S/JOHN E. FLYNN --------------------- Name: JOHN E. FLYNN Title: PRESIDENT The foregoing Agreement is hereby accepted and agreed to as of the date first above written: TRITON AVIATION SERVICES III LLC By: Triton Aviation Services Limited, Manager By:/S/JOHN E. FLYNN --------------------- Name: JOHN E. FLYNN Title: PRESIDENT POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, General Partner By:/S/MARC A. MEICHES ---------------------- Name: MARC A. MEICHES Title: VICE PRESIDENT 10 EX-2.5 6 PROMISSORY NOTE 8K PROMISSORY NOTE $9,713,711 Effective as of April 1, 1997 FOR VALUE RECEIVED, the undersigned, TRITON AVIATION SERVICES III 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 III, 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 NINE MILLION SEVEN HUNDRED THIRTEEN THOUSAND SEVEN HUNDRED ELEVEN AND 00/100 DOLLARS ($9,713,711) (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: 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. 2 "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 $15,349, 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 $25,581 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 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 3 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). "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, 4 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 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 5 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 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. 6 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. 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. 7 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 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 8 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 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 9 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. 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 10 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 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, 11 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 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. 12 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 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 $22,000,000, 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"): 13 (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 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. 14 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 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 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. 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. 15 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, 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 16 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 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 provision of this Promissory Note or any provision of the Security Agreement, 17 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 $109,470 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 $109,470. 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 $109,470) 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 18 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. 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. 19 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 the U.S. Postal Service, (iii) if given by courier, when received, or (iv) if personally delivered, when so delivered, addressed: 20 If to Borrower, to: Triton Aviation Services III 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 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 21 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, 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 22 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. 23 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 III LLC By: Triton Aviation Services Limited, Manager By:/S/JOHN E. FLYNN ------------------------- Name: JOHN E. FLYNN Title: PRESIDENT 24 Accepted and Acknowledged by POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, General Partner By:/S/MARC A. MEICHES ------------------------------ Name: MARC A. MEICHES Title: VICE PRESIDENT 25 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% 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% EX-2.6 7 GUARANTY (KEEP WELL) 8K GUARANTY (KEEP WELL) GUARANTY, dated as of April 1, 1997, of TRITON INVESTMENTS LIMITED, a Bermuda corporation ("Guarantor"), in favor of TRITON AVIATION SERVICES III LLC, a California limited liability company ("Borrower") and POLARIS AIRCRAFT INCOME FUND III, a California limited partnership ("Lender") (Borrower and Lender each sometimes referred to herein as a "Beneficiary" and, together, as the "Beneficiaries"). W I T N E S S E T H: WHEREAS, Borrower and Lender have entered into a Purchase, Assignment and Assumption Agreement dated as of April 1, 1997 (as at any time amended, modified or supplemented, the "Purchase Agreement") and, in connection therewith, Borrower has delivered to Lender a promissory note effective as of April 1, 1997 (the "Note"); and WHEREAS, Triton Aviation Services Limited, a Bermuda corporation and a majority-owned and controlled subsidiary of Guarantor ("TASL") is the record and beneficial owner of 99% of the member interests in Borrower; and WHEREAS, TASL, Borrower and Lender have entered into a Keep Well Agreement of even date herewith (the "Keep Well"), pursuant to which TASL has agreed to pay certain amounts to Borrower as a contribution to Borrower's equity in order to permit Borrower promptly to perform all of its obligations under the Note and the Purchase Agreement; and WHEREAS, Guarantor, as the majority owner of TASL, will derive substantial direct and indirect economic benefit from the transactions contemplated by the Purchase Agreement, the Keep Well and the delivery of the Note to Lender; and WHEREAS, in connection with the execution and delivery of the Purchase Agreement, the Keep Well and the Note and as security for the Obligations (as defined below), each of the Beneficiaries is requiring that Guarantor shall have executed and delivered this Guaranty; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lender to enter into the Purchase Agreement, it is agreed as follows: 1. DEFINITIONS. Unless otherwise defined herein, terms defined in the Note are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Guaranty) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Obligations" means all obligations of any kind or nature, present or future, of TASL under the Keep Well. References to this "Guaranty" shall mean this Guaranty, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. 2. THE GUARANTY. The guaranty of Guarantor hereunder is as follows: 2.1. Guaranty of Obligations of TASL. Guarantor hereby unconditionally guarantees to each of the Beneficiaries and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the Obligations. Guarantor agrees that this Guaranty is a guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in this Guaranty, the Keep Well, the Note or any other agreement, document or instrument to which Borrower, TASL, Lender and/or Guarantor is or are or may become a party; (b) the absence of any action to enforce this Guaranty, the Keep Well, the Note or any other agreement, document or instrument to which Borrower, TASL, Lender and/or Guarantor is or are or may become a party, or the waiver or consent by Lender with respect to any of the provisions thereof; 2 (c) the existence, value or condition of, or failure to perfect its lien against, any security for the Obligations or any action, or the absence of any action, by any Beneficiary in respect thereof (including, without limitation, the release of any such security); or (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being agreed by Guarantor that its obligations under this Guaranty shall not be discharged until the payment and performance, in full, of the Obligations. Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations. Guarantor expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel (i) Borrower to proceed in respect of the Obligations against TASL or any other party or (ii) Lender to proceed in respect of the Obligations against Borrower or TASL or any other party, or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, Guarantor. Guarantor agrees that any notice or directive given at any time to a Beneficiary which is inconsistent with the waiver in the immediately preceding sentence shall be null and void and may be ignored by such Beneficiary, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless such Beneficiary has specifically agreed otherwise in writing. It is agreed among Guarantor and each of the Beneficiaries that the foregoing waivers are of the essence of the transaction contemplated by the Purchase Agreement and the Note and that, but for this Guaranty and such waivers, the Beneficiaries would decline to enter into the Purchase Agreement and to deliver the Note. 2.2. Demand by Beneficiary. In addition to the terms of the Guaranty set forth in Section 2.1 hereof, and in no manner imposing any limitation on such terms, it is expressly understood and agreed that, if TASL has failed to make any payments required to be made under the Keep Well, then Guarantor shall, upon demand in writing therefor by a Beneficiary to Guarantor, pay to such Beneficiary the entire outstanding Obligations due and owing to such Beneficiary; provided, however, if both Beneficiaries shall make demand, Guarantor shall make the payment to Lender and Borrower shall give Lender 10 days prior written notice of the failure of TASL to make any payments due under the Keep Well prior to demand by Borrower upon Guarantor; provided, further, that if at any time Lender shall notify Guarantor that any amounts are due and owing to it by Borrower, then until such notice has been revoked by Lender, any payments to be made by Guarantor hereunder shall be made by Guarantor directly 3 to Lender and Lender shall apply all payments received from Guarantor in the same manner as though paid directly by Borrower. 2.3. Enforcement of Guaranty. In no event shall (i) Borrower have any obligation (although it is entitled at its option) to proceed against TASL or any other Person or any real or personal property pledged to secure the Obligations, or (ii) Lender have any obligation (although it is entitled, at its option) to proceed against Borrower or TASL or any other Person or any real or personal property pledged to secure the Obligations, before seeking satisfaction from Guarantor. A Beneficiary may proceed, prior or subsequent to, or simultaneously with, the enforcement of such Beneficiary's rights hereunder, to exercise any right or remedy which it may have against any property, real or personal, as a result of any lien it may have as security for all or any portion of the Obligations. 2.4. Waiver. In addition to the waivers contained in Section 2.1 hereof, Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its obligations under, or the enforcement by the Beneficiaries of, this Guaranty. Guarantor hereby waives diligence, presentment and demand (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Obligations, notice of adverse change in Borrower's or TASL's financial condition or any other fact which might materially increase the risk to Guarantor) with respect to any of the Obligations or all other demands whatsoever and waives the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Guarantor repre sents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Lender, TASL or Borrower of any kind. Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims, offsets or defenses against Lender or against Borrower or TASL of any kind which may arise in the future. 2.5. Benefit of Guaranty. The provisions of this Guaranty are for the benefit of the Beneficiaries and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between TASL and Lender or TASL and Borrower, as the case may be, the obligations of TASL under the Keep Well. In the event all or any part of the 4 Obligations are transferred, indorsed or assigned by Lender to any Person or Persons, any reference to "Lender" herein shall be deemed to refer equally to such Person or Persons. 2.6. Modification of Obligations, Etc. If Lender and/or Borrower shall at any time or from time to time, with or without the consent of, or notice to, Guarantor: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Obligations; (b) take any action under or in respect of the Keep Well in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Keep Well; (d) extend or waive the time for any of Guarantor's, Borrower's, TASL's or any other Person's performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under the Keep Well, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold security or collateral for the payment of the Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Lender has been granted a lien, to secure any indebtedness of Guarantor, Borrower or TASL to Lender or of Guarantor or TASL to Borrower, as the case may be; (f) release anyone who may be liable in any manner for the payment of any amounts owed by Guarantor, Borrower or TASL to Lender or by Guarantor or TASL to Borrower, as the case may be; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of Guarantor, Borrower or TASL are subordinated to the claims of Lender and/or (h) apply any sums by whomever paid or however realized to any amounts owing by Guarantor, Borrower or TASL to Lender 5 or by Guarantor, or TASL to Borrower, in such manner as Lender or Borrower, as the case may be, shall determine in its discretion; then Lender and/or Borrower shall not incur any liability to Guarantor pursuant hereto as a result thereof, and no such action shall impair or release the obligations of Guarantor under this Guaranty. 2.7. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrower, TASL or Guarantor for liquidation or reorganization, should Borrower, TASL or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of Borrower's, TASL's or Guarantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by a Beneficiary, whether as a "voidable preference", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 2.8. Waiver of Subrogation Etc. (a) If, pursuant to applicable law, Guarantor, by payment or otherwise, becomes subrogated to all or any of the rights of the Beneficiaries or either of them under the Keep Well, the rights of such Beneficiary to which Guarantor shall be subrogated shall be accepted by Guarantor "as is" and without any representation or warranty of any kind by such Beneficiary, express or implied, with respect to the legality, value, validity or enforceability of any of such rights, or the existence, availability, value, merchantability or fitness for any particular purpose of any collateral and shall be without recourse to such Beneficiary. (b) If a Beneficiary may, under applicable law, proceed to realize its benefits under the Keep Well, giving such Beneficiary a lien upon any collateral, whether owned by TASL or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, such Beneficiary may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, such Beneficiary shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against TASL or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, Guarantor hereby consents to 6 such action by such Beneficiary and waives any claim based upon such action, even if such action by such Beneficiary shall result in a full or partial loss of any rights of subrogation which Guarantor might otherwise have had but for such action by such Beneficiary. Any election of remedies which results in the denial or impairment of the right of a Beneficiary to seek a deficiency judgment against TASL or any other Person shall not impair Guarantor's obligation to pay the full amount of the Obligations. In the event a Beneficiary shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Keep Well, such Beneficiary may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by such Beneficiary but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether a Beneficiary or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which such Beneficiary might otherwise be entitled but for such bidding at any such sale. 2.9. Continuing Guaranty. Guarantor agrees that this Guaranty is a continuing guaranty and shall remain in full force and effect until the payment and performance in full of the Obligations. 2.10. Limitation on Guaranty. Notwithstanding anything to the contrary contained herein, in no event shall Guarantor's obligation under this Guaranty with respect to the Obligations exceed an amount equal to the outstanding Maximum Obligation (as defined in the Keep Well) of TASL under the Keep Well; provided, however, that nothing in this Section 2.10 shall limit Guarantor's obligations or liabilities in respect of the representations, warranties and covenants of Guarantor set forth in this Guaranty. Except as expressly set forth in this Guaranty, Guarantor shall have no obligation with respect to the Note. 3. REPRESENTATIONS AND WARRANTIES. To induce the Beneficiaries to enter into the Purchase Agreement and accept the Note, Guarantor makes the following representations and warranties to the Beneficiaries, each and all of which shall survive the execution and delivery of this Guaranty: 3.1. Corporate Existence; Compliance with Law. Guarantor (i) is a corporation duly organized, validly existing and in good standing under the laws of Bermuda; (ii) is duly qualified to do business and is 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 7 jurisdictions in which such failure so to qualify or to be in good standing would not have a materially adverse effect on (A) the business, operations, prospects or financial condition of Guarantor, or (B) Guarantor's ability to pay or perform the Obligations in accordance with the terms hereof); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its articles of incorporation and by-laws or other organizational documents; and (vi) is in compliance with all applicable provisions of law where the failure to so comply would have a materially adverse effect on (A) the business, operations, prospects, assets or financial or other condition of Guarantor or (B) the Guarantor's ability to pay or perform the Obligations in accordance with the terms hereof. 3.2. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance of this Guaranty and all other instruments and documents to be delivered by Guarantor hereunder and under the Purchase Agreement are within Guarantor's corporate powers, have been duly authorized by all necessary or proper corporate action, including the consent of stockholders where required, are not in contravention of any provision of Guarantor's articles of incorporation or by-laws (or other organizational documents), will not violate any law or regulation, or any order or decree of any court or governmental instrumentality, will not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Guarantor is a party or by which Guarantor or any of its property is bound, will not result in the creation or imposition of any lien upon any of the property of Guarantor, and the same do not require the consent or approval of any governmental body, agency, authority or any other Person except those already obtained. At or prior to the Closing Date, this Guaranty and each of the Ancillary Agreements to which Guarantor is a party shall have been duly executed and delivered for the benefit of or on behalf of Guarantor, and each shall then constitute a legal, valid and binding obligation of Guarantor, enforceable against Guarantor 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 Guaranty, 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). 8 3.3. No Material Adverse Change. Since December 31, 1996, there has been no material adverse change in the business, financial condition, results of operations or liabilities of Guarantor. 4. Covenants. Guarantor hereby covenants and agrees that: 4.1. Guarantor will not take any action, directly or indirectly, to authorize or permit any amendment, alteration or change to Borrower's articles of organization or operating agreement (other than amendments permitted under the Note), the Keep Well, the Keep Well Guaranty or the Loan Guaranty or permit Borrower to repeal its articles of organization. 4.2. Guarantor covenants and agrees that it will not take any action, directly or indirectly, to authorize or permit Borrower to take any of the actions set forth on Annex A attached hereto; provided, however, that with respect to all prohibited actions included on Annex A attached hereto, Guarantor shall have no obligation under this Section 4.2 to provide any funds to Borrower which Borrower may require in order to avoid or cure any violation or breach thereof; provided, further that the failure of Guarantor to change or replace the management, directors or Persons holding similar offices of TASL or Borrower will not be deemed, in and of itself, to constitute Guarantor's authorization or permission of actions taken by such management, directors or Persons which cause or result in Borrower taking any of the prohibited actions set forth on Annex A. 4.3. Guarantor shall deliver to Lender (i) within 60 days after the end of each of the first three fiscal quarters of Guarantor, a copy of the unaudited balance sheet of Guarantor as of the end of such fiscal quarter and an unaudited statement of income and cash flow of Guarantor 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 Guarantor 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 Guarantor as at the end of such quarter and for the period then ended and (ii) within 120 days after the end of each fiscal year of Guarantor, a copy of the audited balance sheet of Guarantor as of the end of such fiscal year and an audited statement of income and cash flow of Guarantor 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 Guarantor that (1) all such financial statements are complete and correct and present fairly in accordance with GAAP the financial position, the results of operations and the changes in financial position of Guarantor as at the end of such year and for 9 the period then ended and (2) there have been no amendments, modifications or changes to Borrower's articles of organization or operating agreement other than those which are permitted pursuant the Note hereof and(y) an auditor's report unqualified as to the scope of the audit and as to Guarantor being a going concern, from KPMG Peat Marwick LLP, or any other firm of independent certified public accountants of recognized national standing selected by Guarantor and acceptable to Lender together with a certification from such firm that the Economic Interests held by all Triton Members in Borrower as of the end of such fiscal year are, in the aggregate, at least fifty percent (50%) of the Economic Interests of Borrower. 4.4. At all times, Triton Members shall hold, in the aggregate, at least fifty percent (50%) of the Economic Interests of Borrower. 5. PERMITTED ASSIGNMENT BY LENDER. Lender may freely assign its rights and delegate its duties under this Guaranty, but no such assignment or delegation shall increase or diminish Guarantor's obligations hereunder. Lender shall give Guarantor prompt notice of such assignment or delegation and agrees to use its best efforts to give such notice at least three (3) Business Days prior to such assignment or delegation, but the consent of Guarantor shall not be required for any such assignment or delegation and failure to give such notice shall not affect the validity or enforceability of any such assignment or delegation or this Guaranty or subject Lender to any liability. 6. FURTHER ASSURANCES. Guarantor agrees, upon the written request of the Beneficiaries or either of them, to execute and deliver to such Beneficiary, from time to time, any additional instruments or documents reasonably considered necessary by such Beneficiary to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 7. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made by Guarantor hereunder shall be made to the Beneficiaries free and clear of, and without deduction for, any and all present and future taxes, withholdings, levies, duties, and other governmental charges ("Taxes"), excluding such income and franchise taxes thereof which would otherwise have been payable (i) by Borrower if TASL had paid the Obligations to Borrower, or (ii) by Lender if Borrower or TASL, as the case may be, had paid the Obligations to Lender, in accordance with the terms of the Keep Well. Upon request by the Beneficiaries or either of them, Guarantor shall furnish to such Beneficiary a receipt for any Taxes paid by Guarantor pursuant to this Section 6 or, if no Taxes are payable with respect to any payments required to be made by Guarantor hereunder, either a certificate from each appropriate taxing authority or an opinion of counsel acceptable to such Beneficiary, in either case stating that 10 such payment is exempt from or not subject to Taxes. If Taxes are paid by a Beneficiary in the good faith belief that such taxes are owing, Guarantor will, upon demand of such Beneficiary, and whether or not such Taxes shall be correctly or legally asserted, indemnify such Beneficiary for such payments, together with any interest, penalties and expenses in connection therewith plus interest thereon at the lesser of 10% or the maximum lawful rate under applicable law. Such Beneficiary shall thereafter cooperate in a commercially reasonable manner with Guarantor in seeking any refunds of such Taxes, interest, penalties and expenses, which refunds and any interest thereon shall be paid by such Beneficiary to Guarantor within five (5) business days of receipt by such Beneficiary; provided, that in no event shall any Beneficiary be required to expend its own funds in seeking any such refund and provided, further, that any expenses incurred in connection therewith shall be paid by Guarantor. 8. MISCELLANEOUS. 8.1. Entire Agreement; Amendments. This Guaranty, together with the Purchase Agreement, the Note, the Keep Well and the other Ancillary Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of payment and performance of the Obligations and may not be amended or supplemented except by a writing signed by Guarantor and each of the Beneficiaries. 8.2. Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 8.3. Severability. In the event that any one or more of the provisions contained in this Guaranty shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and the remaining provisions of this Guaranty shall not be in any way impaired. 8.4. Notices. All notices, demands, declarations and other communications required by this Guaranty 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: (a) If to Lender at: 11 c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor San Francisco, CA 94105 Attention: President Telecopy Number: (415) 284-7460 With a copy to: c/o Polaris Investment Management Corporation 201 High Ridge Road Stamford, Connecticut 06927-4900 Attention: Portfolio Management Telecopy Number: (203) 357-4585 or to such other address as Lender may from time to time designate in writing to Borrower and Guarantor. (b) If to Borrower, at: Triton Aviation Services III LLC 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Telecopy Number: (415) 398-9184 or to such other address as Borrower may from time to time designate in writing to Lender and Guarantor. (c) If to Guarantor, at: Triton Investments Limited c/o Triton Container International Inc. 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Telecopy Number: (415) 398-9184 12 or to such other address as Guarantor may from time to time designate in writing to Lender and Borrower. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. 8.5. Binding Effect. This Guaranty shall bind Guarantor and shall inure to the benefit of each of the Beneficiaries and its respective successors and assigns. Guarantor may not assign this Guaranty. 8.6. Non-Waiver. The failure of the Beneficiaries or either of them to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against such Beneficiary, nor excuse Guarantor from its Obligations hereunder. Any waiver of any such right or remedy by a Beneficiary must be in writing and signed by such Beneficiary. 8.7. Termination. This Guaranty shall terminate and be of no further force or effect at such time as the Obligations shall be paid and performed in full. Upon payment and performance in full of the Obligations, the Beneficiaries shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 8.8. Governing Law. The terms of this Guaranty shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of California (exclusive of any rules as to conflict of laws) and the laws of the United States applicable therein. Guarantor hereby submits to personal jurisdiction and waives any objection as to venue in the County of San Francisco, State of California. Service of process on Guarantor in any action arising out of or relating to this Guaranty shall be effective if mailed to Guarantor in accordance with Section 7.4 hereof. Nothing herein shall preclude the Beneficiaries from bringing suit or taking other legal action in any other jurisdiction. 8.9. Counterparts. This Guaranty may be executed in any number of counterparts which shall individually and collectively constitute one agreement. 13 IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first above written. TRITON INVESTMENTS LIMITED By: /S/ STEVEN C. WIGHT ------------------------ Name: STEVEN C. WIGHT Title: PRESIDENT Accepted and acknowledged by: POLARIS AIRCRAFT INVESTMENT FUND III By: Polaris Investment Management Corporation, General Partner By: /S/ MARC A. MEICHES -------------------------- Name: MARC A. MEICHES Title: VICE PRESIDENT TRITON AVIATION SERVICES III LLC By: Triton Aviation Services Limited, its Manager By: /S/ JOHN E. FLYNN -------------------------- Name: JOHN E. FLYNN Title: PRESIDENT 14 Annex A Borrower will not: (a) engage in any business or activity other than (i) acquiring, holding, maintaining, improving, refurbishing, modifying, selling, leasing, transferring and disposing of all right, title and interest in those certain trust estates, subject of the Trust Agreements, and the related Aircraft and (ii) any activity or exercise of any powers permitted to limited liability companies under the laws of the State of California that are incident, necessary and appropriate to accomplish the activities specified in clause (i) of this subsection (a); (b) liquidate or take any affirmative action to dissolve, in whole or in part; (c) acquire any interest in any aircraft other than the Aircraft; (d) consolidate or merge with or into any other entity or convey or transfer its properties and assets substantially as an entirety to any entity, except as permitted under the Note; (e) engage in transactions with Affiliates other than 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 any person or entity not an Affiliate of Borrower; (f) declare any dividend or other distribution or incur any liability in respect thereof, with respect to the membership interests (or any other equity interest) of Borrower, other than as permitted by the Note; (g) employ any employees; (h) institute proceedings to be adjudicated bankrupt or insolvent; (i) consent to the institution of bankruptcy or insolvency proceedings against it; 15 (j) file a petition seeking, or consent to, reorganization or relief under any applicable federal or state law relating to bankruptcy; (k) seek or consent to the appointment of a receiver, liquidator, conservator, assignee, trustee, sequestrator, custodian or any other similar official of Borrower or a substantial part of its properties; (l) make any assignment for the benefit of creditors; (m) admit in writing its inability to pay its debts generally as they become due; (n) otherwise seek relief under any laws relating to the relief from debts or the protection of debtors generally; (o) guarantee or become obligated for the debts of any other entity or person; (p) hold out its credit as being available to satisfy the obligations of any other person or entity; (q) acquire the obligations or securities of its affiliates or owners other than Permitted SPV Investments; (r) make loans to any other person or entity or buy or hold evidence of indebtedness issued by any other person or entity (except for Permitted Investments); (s) create, incur, assume or permit to exist any Indebtedness except Indebtedness permitted to be incurred by Borrower pursuant to Section 4.2 of the Note; (t) except for Permitted Encumbrances, pledge its assets for the benefit of any other person or entity or create any Lien on any of its properties or assets; (u) permit any Lien to exist on any of its properties or assets except for (i) involuntary or inchoate Liens that are incurred by 16 Borrower in the ordinary course of Borrower's business conducted in compliance with the provisions of subsection (a) hereof or (ii) Permitted Encumbrances; (v) take any action in furtherance of any of the preceding actions. 17 EX-2.7 8 GUARANTY (SPV INDEBTEDNESS) 8K GUARANTY (SPV INDEBTEDNESS) GUARANTY, dated as of April 1, 1997, of TRITON INVESTMENTS LIMITED, a Bermuda corporation ("Guarantor"), in favor of TRITON AVIATION SERVICES III LLC, a California limited liability company ("Lender"). W I T N E S S E T H: WHEREAS, Triton Aviation Services Limited, a Bermuda corporation and a majority-owned and controlled subsidiary of Guarantor ("TASL") is the record and beneficial owner of 99% of the member interests in each of Lender and Triton Aviation Services II LLC, Triton Aviation Services IV LLC and Triton Aviation Services V LLC, each a California limited liability company (each a "Triton LLC"; collectively, the "Triton LLC's"); and WHEREAS, Guarantor, as the majority owner of TASL, will derive substantial direct and indirect economic benefit from the making of loans from time to time by Lender to the Triton LLC's ("SPV Loans"); and WHEREAS, in connection with the making of SPV Loans from time to time to the Triton LLC's, Lender is requiring that Guarantor shall have executed and delivered this Guaranty; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce Lender to make SPV Loans, it is agreed as follows: 1. DEFINITIONS. The following shall have (unless otherwise provided elsewhere in this Guaranty) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Letter of Credit" means an irrevocable direct pay letter of credit issued by a bank (i) whose long term debt is rated "AA" or better by Thompson's Bankwatch or (ii) 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). "Obligations" means all obligations of any kind or nature, present or future, owed by any of the Triton LLC's to Lender with respect to any SPV Indebtedness incurred by such Triton LLC. "SPV Indebtedness" means any and all monies borrowed by a Triton LLC from Lender pursuant to an SPV Loan. References to this "Guaranty" shall mean this Guaranty, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Guaranty as the same may be in effect at the time such reference becomes operative. 2. THE GUARANTY. The guaranty of Guarantor hereunder is as follows: 2.1. Guaranty of Obligations of Triton LLC's. Guarantor hereby unconditionally guarantees to Lender, and its respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the Obligations. Guarantor agrees that this Guaranty is a guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in this Guaranty, any SPV Indebtedness or any other agreement, document or instrument to which the Triton LLC's, Lender and/or Guarantor is or are or may become a party; (b) the absence of any action to enforce this Guaranty, any SPV Indebtedness or any other agreement, document or instrument to which the Triton LLC's, Lender and/or Guarantor is or are or may become a party, or the waiver or consent by Lender with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its lien against, any security for the Obligations or any 2 action, or the absence of any action, by Lender in respect thereof (including, without limitation, the release of any such security); or (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being agreed by Guarantor that its obligations under this Guaranty shall not be discharged until the payment and performance, in full, of the Obligations. Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations. Guarantor expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Lender to proceed in respect of the Obligations against any Triton LLC or any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, Guarantor. Guarantor agrees that any notice or directive given at any time to Lender which is inconsistent with the waiver in the immediately preceding sentence shall be null and void and may be ignored by Lender, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless Lender has specifically agreed otherwise in writing. It is agreed among Guarantor and Lender that the foregoing waivers are of the essence of the transactions contemplated in connection with the making of SPV Loans and that, but for this Guaranty and such waivers, Lender would decline to make such SPV Loan(s). 2.2. Additional Provisions Relating to SPV Indebtedness. (a) Guarantor hereby acknowledges and agrees that it is a condition to the incurrence of each SPV Loan that the Triton LLC incurring such SPV Indebtedness obtain a Letter of Credit in favor of Lender in an amount equal to the outstanding principal amount of such SPV Loan plus six months interest thereon (calculated at the lesser of 10% per annum and the maximum rate under applicable law) and Guarantor hereby agrees that it will cause such Triton LLC to obtain and maintain in existence such Letter of Credit so long as there is any SPV Indebtedness outstanding under such SPV Loan. (b) Upon the failure of a Triton LLC to pay any amounts demanded under any promissory note evidencing any SPV Indebtedness, Guarantor (i) hereby waives, releases and disclaims any right of subrogation, reimbursement, contribution or other similar rights against the Triton LLC that is the borrower in respect of such SPV Indebtedness, (ii) is hereby deemed to release, forgive and discharge such Triton LLC from any obligation of such Triton LLC to pay any amount to Guarantor in the event that Guarantor is obligated to make any payment hereunder or to the issuer of any Letter of Credit with respect to such SPV 3 Indebtedness; provided, however that any such payment by Guarantor hereunder or to the issuer of any Letter of Credit shall be deemed to be a capital contribution by Guarantor to such Triton LLC. 2.3. Demand by Lender. In addition to the terms of the Guaranty set forth in Sections 2.1 and 2.2 hereof, and in no manner imposing any limitation on such terms, it is expressly understood and agreed that, if the then outstanding principal amount of any of the Obligations (together with all accrued interest thereon) is declared to be immediately due and payable, then Guarantor shall, upon demand in writing therefor by Lender to Guarantor but subject to Section 2.6(b) hereof, pay to Lender the entire outstanding Obligations due and owing to Lender. 2.4. Enforcement of Guaranty. In no event shall Lender have any obligation (although it is entitled, at its option) to proceed against any Triton LLC or any other Person or any Letter of Credit or any real or personal property pledged to secure the Obligations before seeking satisfaction from Guarantor. Lender may proceed, prior or subsequent to, or simultaneously with, the enforcement of Lender's rights hereunder, to exercise any right or remedy which it may have against any Letter of Credit or any property, real or personal, as a result of any lien it may have as security for all or any portion of the Obligations. 2.5. Waiver. In addition to the waivers contained in Section 2.1 or 2.2 hereof, Guarantor waives, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Guarantor of its obligations under, or the enforcement by Lender of, this Guaranty. Guarantor hereby waives diligence, presentment and demand (whether for non-payment or protest or of acceptance, maturity, extension of time, change in nature or form of the Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Obligations, notice of adverse change in any Triton LLC's financial condition or any other fact which might materially increase the risk to Guarantor) with respect to any of the Obligations or all other demands whatsoever and waives the benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Guarantor represents, warrants and agrees that, as of the date of this Guaranty, its obligations under this Guaranty are not subject to any offsets or defenses against Lender or any Triton LLC of any kind. Guarantor further agrees that its obligations under this Guaranty shall not be subject to any counterclaims, offsets or defenses against Lender or against any Triton LLC of any kind which may arise in the future. 4 2.6. Benefit of Guaranty. (a) Except as provided in paragraph (b) below, the provisions of this Guaranty are solely for the benefit of Lender and its successors, transferees, endorsees and assigns. Nothing herein contained shall impair, as between any Triton LLC and Lender, the obligations of such Triton LLC under any SPV Indebtedness. In the event all or any part of the Obligations are transferred, indorsed or assigned by Lender to any Person or Persons, any reference to "Lender" herein shall be deemed to refer equally to such Person or Persons. (b) Guarantor and Lender agree that this Guaranty is executed in part to induce Polaris Aircraft Income Fund III, a California limited partnership ("Polaris"), to enter into that certain Purchase, Assignment and Assumption Agreement dated as of April, 1997 with Lender and to accept the delivery by Lender of that certain Promissory Note effective as of April 1, 1997 in connection therewith, and accordingly the provisions of this Guaranty are hereby declared to be for the benefit of Polaris and its successors, transferees, endorsees and assigns, and may be enforced by them. Guarantor and Lender further agree that in the event Polaris notifies Guarantor that any amounts are due and owing to it by Lender, then until such notice has been revoked by Polaris, any payments to be made by Guarantor hereunder shall instead be made by Guarantor directly to Polaris and Polaris shall apply all payments received from Guarantor in the same manner as though paid directly by Lender. 2.7. Modification of Obligations, Etc. If Lender shall at any time or from time to time, with or without the consent of, or notice to, Guarantor: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Obligations; (b) take any action under or in respect of any SPV Indebtedness in the exercise of any remedy, power or privilege contained therein or available to it at law, equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, any document, instrument or agreement with respect to SPV Indebtedness; (d) extend or waive the time for any of Guarantor's, any Triton LLC's or other Person's performance of, or compliance with, any term, covenant or agreement on its part to be performed or observed under any document, instrument or agreement with respect to SPV 5 Indebtedness, or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold security or collateral for the payment of the Obligations guaranteed hereby or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which Lender has been granted a lien, to secure any indebtedness of Guarantor or any Triton LLC to Lender; (f) release anyone who may be liable in any manner for the payment of any amounts owed by Guarantor or any Triton LLC to Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of Guarantor or any Triton LLC are subordinated to the claims of Lender and/or (h) apply any sums by whomever paid or however realized to any amounts owing by Guarantor or any Triton LLC to Lender in such manner as Lender shall determine in its discretion; then Lender shall not incur any liability to Guarantor pursuant hereto as a result thereof, and no such action shall impair or release the obligations of Guarantor under this Guaranty. 2.8. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against any Triton LLC or Guarantor for liquidation or reorganization, should such Triton LLC or Guarantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of such Triton LLC's or Guarantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by Lender, whether as a "voidable preference", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 6 2.9. Waiver of Claims, Etc. If Lender may, under applicable law, proceed to realize its benefits under any SPV Indebtedness, giving Lender a lien upon any collateral, whether owned by the Triton LLC that is the borrower under such SPV Indebtedness or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Guaranty. If, in the exercise of any of its rights and remedies, Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against a Triton LLC or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, Guarantor hereby consents to such action by Lender and waives any claim based upon such action. Any election of remedies which results in the denial or impairment of the right of Lender to seek a deficiency judgment against a Triton LLC or any other Person shall not impair Guarantor's obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the under any SPV Indebtedness, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Guaranty, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale. 2.10. Continuing Guaranty. Guarantor agrees that this Guaranty is a continuing guaranty and shall remain in full force and effect until the payment and performance in full of the Obligations. 3. REPRESENTATIONS AND WARRANTIES. To induce Lender to make SPV Loans from time to time, Guarantor makes the following representations and warranties to Lender, each and all of which shall survive the execution and delivery of this Guaranty: 3.1. Corporate Existence; Compliance with Law. Guarantor (i) is a corporation duly organized, validly existing and in good standing under the laws of Bermuda; (ii) is duly qualified to do business and is 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 7 jurisdictions in which such failure so to qualify or to be in good standing would not have a materially adverse effect on (A) the business, operations, prospects or financial condition of Guarantor or (B) Guarantor's ability to pay the Obligations in accordance with the terms hereof); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its articles of incorporation and by-laws or other organizational documents; and (vi) is in compliance with all applicable provisions of law where the failure to so comply would have a materially adverse effect on (A) the business, operations, prospects, assets or financial or other condition of Guarantor or (B) the Guarantor's ability to pay the Obligations in accordance with the terms hereof. 3.2. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery and performance of this Guaranty and all other instruments and documents to be delivered by Guarantor hereunder and under the Purchase Agreement are within Guarantor's corporate powers, have been duly authorized by all necessary or proper corporate action, including the consent of stockholders where required, are not in contravention of any provision of Guarantor's articles of incorporation or by-laws (or other organizational documents), will not violate any law or regulation, or any order or decree of any court or governmental instrumentality, will not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Guarantor is a party or by which Guarantor or any of its property is bound, will not result in the creation or imposition of any lien upon any of the property of Guarantor and the same do not require the consent or approval of any governmental body, agency, authority or any other Person except those already obtained. At or prior to the closing date for any SPV Indebtedness, this Guaranty shall have been duly executed and delivered for the benefit of or on behalf of Guarantor, and shall then constitute a legal, valid and binding obligation of Guarantor, enforceable against Guarantor 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 Guaranty, 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). 8 3.3. No Material Adverse Change. Since December 31, 1996, there has been no material adverse change in the business, financial condition, results of operations or liabilities of Guarantor. 4. NO ASSIGNMENT. Neither Guarantor nor Lender may assign their respective rights or delegate their respective duties under this Guaranty. 5. FURTHER ASSURANCES. Guarantor agrees, upon the written request of Lender, to execute and deliver to Lender, from time to time, any additional instruments or documents reasonably considered necessary by Lender to cause this Guaranty to be, become or remain valid and effective in accordance with its terms. 6. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be made by Guarantor hereunder shall be made to Lender free and clear of, and without deduction for, any and all present and future taxes, withholdings, levies, duties, and other governmental charges ("Taxes"), excluding such income and franchise taxes thereof which would otherwise have been payable by Lender if the Triton LLC that is the borrower under any SPV Indebtedness, as the case may be, had paid the Obligations to Lender in accordance with the terms of any SPV Indebtedness. Upon request by Lender, Guarantor shall furnish to Lender a receipt for any Taxes paid by Guarantor pursuant to this Section 6 or, if no Taxes are payable with respect to any payments required to be made by Guarantor hereunder, either a certificate from each appropriate taxing authority or an opinion of counsel acceptable to Lender, in either case stating that such payment is exempt from or not subject to Taxes. If Taxes are paid by Lender in the good faith belief that such taxes are owing, Guarantor will, upon demand of Lender, and whether or not such Taxes shall be correctly or legally asserted, indemnify Lender for such payments, together with any interest, penalties and expenses in connection therewith plus interest thereon at the lesser of 10% or the maximum rate under applicable law. Lender shall thereafter cooperate in a commercially reasonable manner with Guarantor in seeking any refunds of such taxes, interest, penalties and expenses which refunds and any interest thereon shall be paid by Lender to Guarantor within five (5) business days of receipt by Lender; provided, that in no event shall Lender be required to expend its own funds in seeking any such refund and provided, further, that any expenses incurred in connection therewith shall be paid by Guarantor. 7. MISCELLANEOUS. 7.1. Entire Agreement; Amendments. This Guaranty, together with any documents, instruments and agreements with respect to SPV Indebtedness, 9 constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements relating to a guaranty of payment and performance of the Obligations and may not be amended or supplemented except by a writing signed by Guarantor, Lender and Polaris. 7.2. Headings. The headings in this Guaranty are for convenience of reference only and are not part of the substance of this Guaranty. 7.3. Severability. In the event that any one or more of the provisions contained in this Guaranty shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and the remaining provisions of this Guaranty shall not be in any way impaired. 7.4. Notices. All notices, demands, declarations and other communications required by this Guaranty 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: (a) If to Lender at: Triton Aviation Services III LLC 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Telecopy Number: (415) 398-9184 With a copy to: Polaris Investment Management Corporation 201 High Ridge Road Stamford, Connecticut 06927-4900 Attention: Telecopy Number: (203) 357-4585 10 or to such other address as Lender may from time to time designate in writing to Guarantor. (b) If to Guarantor, at: Triton Investments Limited 55 Green Street, Suite 500 San Francisco, CA 94111 Attention: President Telecopy Number: (415) 398-9184 or to such other address as Guarantor may from time to time designate in writing to Lender. (c) If to Polaris at: c/o Polaris Investment Management Corporation 201 Mission Street, 27th Floor San Francisco, CA 94105 Attention: President Telecopy Number: (415) 284-7460 With a copy to: c/o Polaris Investment Management Corporation 201 High Ridge Road Stamford, Connecticut 06927-4900 Attention: Portfolio Management Telecopy Number: (203) 357-4585 or to such other address as Polaris may from time to time designate in writing to Lender and Guarantor. 7.5. Binding Effect. This Guaranty shall bind Guarantor and shall inure to the benefit of Lender and its respective successors and assigns. Guarantor may not assign this Guaranty. 11 7.6. Non-Waiver. The failure of Lender to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against Lender, nor excuse Guarantor from its Obligations hereunder. Any waiver of any such right or remedy by Lender must be in writing and signed by Lender. 7.7. Termination. This Guaranty shall terminate and be of no further force or effect at such time as the Obligations shall be paid and performed in full. Upon payment and performance in full of the Obligations, Lender shall deliver to Guarantor such documents as Guarantor may reasonably request to evidence such termination. 7.8. Governing Law. The terms of this Guaranty shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of California (exclusive of any rules as to conflict of laws) and the laws of the United States applicable therein. Guarantor hereby submits to personal jurisdiction and waives any objection as to venue in the County of San Francisco, State of California. Service of process on Guarantor in any action arising out of or relating to this Guaranty shall be effective if mailed to Guarantor in accordance with Section 7.4 hereof. Nothing herein shall preclude Lender from bringing suit or taking other legal action in any other jurisdiction. 7.9. Counterparts. This Guaranty may be executed in any number of counterparts which shall individually and collectively constitute one agreement. 12 IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first above written. TRITON INVESTMENTS LIMITED By: /S/ STEVEN C. WIGHT --------------------- Name: STEVEN C. WIGHT Title: EXECUTIVE VICE PRESIDENT Accepted and acknowledged by: TRITON AVIATION SERVICES III LLC By: Triton Aviation Services Limited, its Manager By: /S/ JOHN E. FLYNN ----------------------------- Name: JOHN E. FLYNN Title: PRESIDENT 13 Solely in its capacity as a third party beneficiary, POLARIS AIRCRAFT INCOME FUND III By: Polaris Investment Management Corporation, General Partner By: /S/ MARC A. MEICHES ----------------------------- Name: MARC A. MEICHES Title: VICE PRESIDENT 14 -----END PRIVACY-ENHANCED MESSAGE-----