<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17712
Pegasus Aircraft Partners, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 84-1099968
(State of organization) (IRS employer
Identification No.)
Four Embarcadero Center, 35th Floor
San Francisco, California 94111
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (415) 434-3900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Depositary Units
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: Not applicable.
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Pegasus Aircraft Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1995
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I
Item 1 Business................................................................................... 1
Item 2 Properties................................................................................. 12
Item 3 Legal Proceedings.......................................................................... 12
Item 4 Submission of Matters to a Vote
of Security Holders.................................................................... 14
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters........................................................ 15
Item 6 Selected Financial Data.................................................................... 16
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............................................................. 16
Item 8 Financial Statements....................................................................... F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................................................................... 23
Part III
Item 10 Directors and Executive Officers
of the Registrant...................................................................... 24
Item 11 Executive Compensation..................................................................... 28
Item 12 Security Ownership of Certain
Beneficial Owners and Management....................................................... 28
Item 13 Certain Relationships and
Related Transactions................................................................... 29
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................................................ 31
</TABLE>
<PAGE> 3
PART I
Item 1. Business
General
Pegasus Aircraft Partners, L.P. (the "Partnership" or the "Registrant")
is a limited partnership organized under the laws of the State of Delaware on
June 23, 1988. The general partners of the Partnership are Pegasus Aircraft
Management Corporation, the Managing General Partner, a California corporation
that is a wholly-owned subsidiary of Pegasus Capital Corporation, and Air
Transport Leasing, Inc., the Administrative General Partner, a Delaware
corporation that is a wholly-owned subsidiary of PaineWebber Group Inc.
(collectively, the "General Partners")
On October 18, 1988, the Partnership commenced an offering of limited
partnership depositary units ("Units"). The $80,000,000 maximum offering size
was reached during the first quarter of 1989. The Partnership incurred
$8,441,000 of commissions and other expenses in connection with the sale of
these Units.
Although the Partnership was organized on June 23, 1988, the
Partnership conducted no activities and recognized no revenues, profits or
losses prior to December 21, 1988 at which time the Partnership commenced
operations. During the period between December 23, 1988 and March 22, 1989, the
Partnership acquired its portfolio of used commercial aircraft, which are
principally subject to triple net operating leases with commercial air carriers.
The Partnership is required to dissolve and distribute all of its
assets no later than December 31, 2012. The Partnership may reinvest the
proceeds of sales of aircraft occurring prior to March 22, 1997 provided that
sufficient cash is distributed to Limited Partners to pay estimated federal and
state income taxes to be incurred by Limited Partners as a result of the
aircraft sale. Thereafter, the net proceeds of any sales of aircraft will be
distributed to the partners.
Outlook for the Airline and Aircraft-Leasing Industries
The US airline industry enjoyed an excellent year in 1995 with net
earnings estimated to top $2 billion, which will be the industry's first
profitable year since 1990 and its best earnings year ever. The airlines have
benefited from increases in traffic, the effect of cost cutting programs and
relatively stable fares. New aircraft orders caused the backlog of orders to
increase for the first time since 1990. At least for the short term, the demand
for used aircraft has increased and used aircraft prices are increasing.
Continental Airlines Inc. ("Continental") and TransWorld Airlines, Inc.
("TWA") have reported significant improvements in their financial results for
1995. US AirInc. ("US Air") also showed improved operating results, but
continues to struggle with a high cost structure and strong competition from low
fare carriers. Kiwi International Air Lines Inc. ("Kiwi") has benefited
slightly from the overall industry upturn, but continues to struggle with
capital and liquidity concerns. However, some observers are
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expressing caution regarding the continued growth in traffic in 1996. Aircraft
leasing continues to be a highly competitive business. The Partnership's lessees
continue to face significant competitive challenges. Air traffic has been and
continues to be correlated to overall economic activity.
Recent Partnership Developments
Immediately below is a table which shows the December 1995 appraised
value of the Partnership's aircraft (including a spare engine) to be
approximately $38.1 million, or 53% of the portfolio's original acquisition cost
(excluding acquisition fees) adjusted for capital expenditures since
acquisition. Based on these appraised values, the Partnership's net asset value
at December 31, 1995 was equal to $9.34 per Unit. It should be noted that these
are only estimates of values at that date and not necessarily representative of
the values that will ultimately be realized when these aircraft are disposed of,
nor does this represent the values that may be realized upon the disposition of
a Unit.
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Aircraft Portfolio
The following table describes the Partnership's aircraft portfolio
including a spare engine:
<TABLE>
<CAPTION>
December Current
1995 Lease Original Noise
Current Aircraft Ownership Acquisition Appraised Expiration Delivery Abatement
Lessee Type Interest Costs (1) Value (2) Date (3) Date Compliance
- ------ -------- --------- ------------ --------- ---------- -------- ----------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Aircraft on
Operating Leases
Continental Boeing 727-200
Airlines, Inc. Advanced 100% $ 8.0 $ 3.2 10/96 1974 Stage 2
(8) Boeing 747-100
100 17.8 6.2 (8) 1970 Stage 2(5)
Trans World McDonnell
Airlines, Inc. Douglas MD-82 100 21.3 17.0 10/04 1983 Stage 3
USAir, Inc. McDonnell
Douglas MD-81 50(6) 10.0 6.3 06/98(9) 1982 Stage 3
Kiwi International Boeing 727-200
Air Lines, Inc. Non-Advanced 100 7.6 2.65 12/99 1969 Stage 2
Kiwi International Boeing 727-200
Air Lines, Inc. Non-Advanced 100 7.5 2.65 12/99 1969 Stage 2
Kiwi International
Air Lines, Inc. JT8D-9A engine(7) 100 0.2 .1 12/99 1969 Stage 2
----- -----
$72.4 $38.1
===== =====
</TABLE>
<TABLE>
<CAPTION>
Cumulative Cumulative
Current Flight Flight
Lessee Hours (4) Cycles (4)
- ------ ---------- ----------
<S> <C> <C>
Aircraft on
Operating Leases
Continental
Airlines, Inc. 62,650 42,033
(8)
81,704 16,146
Trans World
Airlines, Inc. 39,559 20,704
USAir, Inc.
38,405 35,312
Kiwi International
Air Lines, Inc. 60,158 48,404
Kiwi International
Air Lines, Inc. 61,530 49,513
Kiwi International
Air Lines, Inc. 40,368 36,805
</TABLE>
Notes: (1) Acquisition costs do not include acquisition related fees of $2.0
million paid to the General Partners. The amounts shown include
additional investments in the respective aircraft which aggregate
approximately $3.0 million.
(2) The December 1995 appraised values were determined by an
independent aircraft appraisal firm. Appraised values include the
present value of rents due under leases in place plus an estimated
residual value for the aircraft at the end of the lease. It
should be noted that appraisals are only estimates of value and
should not be relied on as measures of realizable value.
(3) Lease expiration dates do not include renewal options except in
the case of USAir.
(4) The number of cumulative flight cycles and cumulative flight hours
shown are as of December 31, 1995, except for the USAir MD-81,
which is as of February 2, 1996.
(5) The Boeing 747 currently complies with Stage 3 requirements if it
is flown with certain operating restrictions.
(6) The remaining one-half beneficial interest is owned by Pegasus
Aircraft Partners II, L.P., an affiliated partnership.
(7) The engine was not appraised. Value is based upon life remaining
until overhaul and current market rental value and approximates
book value. Flight hours and cycles are as of February 1996.
(8) In 1995 the Boeing 747-100 aircraft was returned by Continental to
the Partnership and is currently off lease. The appraisal value
reflected for the 747 aircraft represents its approximate current
market value unencumbered by a lease.
(9) If USAir does not renew for an initial three-year renewal period,
the Partnership is entitled to a lease termination payment.
The following is a description of the principal financial terms of the
leases listed in the table.
Kiwi International Air Lines Leases The Partnership owns two Boeing
727-200 non-advanced aircraft, originally acquired on December 1988 for
$6,308,000 per aircraft. The aircraft were originally leased to Northwest
Aircraft, Inc. ("Northwest") subject to operating leases, one of which expired
in August 1993 and the other of which expired in April 1994, both after short
extensions. Upon the expiration of the leases, Northwest paid the Partnership
$433,000 and
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$325,000 representing economic settlements in lieu of completing certain
maintenance procedures required under the respective leases. On February 1994
and April 1994, the Partnership entered into the leases with Kiwi, each for
terms of approximately five years with rents payable monthly in advance at
$55,000 per aircraft. The leases also required Kiwi to pay maintenance reserves
of $250 per flight hour, which can be drawn down by Kiwi, for specific
maintenance procedures. The aircraft were delivered in April and July 1994. In
connection with the first Kiwi lease, the Partnership also acquired an
additional aircraft engine at a cost of $195,000, which is used as a spare by
Kiwi, at $105 per flight hour of use.
In connection with the Kiwi leases, the Partnership completed certain
maintenance procedures, aircraft-aging related modifications, the purchase of
the spare engine for Kiwi's fleet discussed above and other lessee-required
modifications prior to delivery of the aircraft to Kiwi at an aggregate cost of
$3,303,000 of which $580,000 represented maintenance-related work funded by the
maintenance-related payments received from Northwest and the balance of which
was capitalized as part of the Partnership's basis in the aircraft.
During the terms of the leases Kiwi can request that the aircraft be
hushkitted to obtain Stage III noise abatement for which the lease term will be
reset to five years with lease payments increasing to amortize the cost of
hushkitting at the rate of 2% per month (increased for inflation).
Alternatively, the Partnership can deem the hushkitting economically
unfeasible at which point Kiwi can terminate the lease and return the aircraft.
As discussed in Item 1, Business, "Aircraft Noise Regulating, all operators
(i.e. commercial airlines) are required to achieve Stage 3 noise reduction with
respect to 50% of their fleet by December 31, 1996. Based upon the composition
of its fleet, management believes that Kiwi will request that the Partnership
hushkit one or both of the 727 aircraft by December 1996.
During 1995, Kiwi encountered continued liquidity and operating
problems. The Partnership and Kiwi agreed to a deferral of February 1995 and
half of March 1995 rent ($165,000 in the aggregate) plus an accommodation to
permit Kiwi to not fund the maintenance reserves in February, March and April
1995. The deferred rent is payable with interest of 12% over a 9-month period
which began July 1, 1995. All payments have been made as scheduled through
December 31, 1995 and the outstanding balance of rents receivable was
approximately $56,000 as of such date. The Partnership received or accrued
approximately $200,000 in 1995 with respect to the utilization lease of the
spare engine, approximately $100,000 of which was accounted for as reserves for
maintenance. Additionally, at December 31, 1995, the Partnership held
maintenance deposits aggregating $1,135,000 with respect to the Kiwi aircraft
which are reflected as restricted cash on the balance sheet dated December
31, 1995. Kiwi requested additional time to make February 1996 rental, deferred
rental and maintenance payments and made such payments in late February 1996
and early March 1996. Kiwi's ability to make timely lease and maintenance
reserve payments in the future is uncertain due to its continued liquidity and
capital concerns.
The Partnership recorded provisions for decline in market value of
$1,943,000 and $2,335,000 during the years ended December 31, 1994 and 1992,
respectively, with respect to these aircraft. These provisions are reflected in
the carrying value of the Partnership's investments in these two aircraft as of
December 31, 1995.
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Continental Airlines Leases During December 1988, the Partnership
acquired a Boeing 727-200 advanced aircraft for a total purchase price of
$8,025,000. The aircraft was originally subject to an operating lease with
Continental Airlines, Inc. ("Continental"), the term of which ends on October
31, 1996. Rental payments are payable monthly, in advance at the rate of
$81,000.
During December 1988, the Partnership acquired a Boeing 747-100
aircraft for a total purchase price of $17,847,000. The aircraft was originally
subject to an operating lease with Continental, the term of which was scheduled
to expire on April 30, 1996 with rental payable monthly, in advance, at the rate
of $269,000.
In January 1995, Continental announced that it was grounding its Airbus
Industrie manufactured aircraft and taking certain Boeing 747 aircraft out of
service, including the Boeing 747 Aircraft owned by the Partnership. Continental
discontinued utilizing the Aircraft, did not make any rental payments after
January 1995 and returned the Aircraft to the Partnership. The Partnership sent
Continental a default notice with respect to the unpaid rent and preserved all
of its rights against Continental. During the quarter ended September 30, 1995
the Partnership and Continental completed the negotiation of a lease settlement
agreement ("Lease Settlement"). Under the terms of the Lease Settlement,
Continental agreed to pay the Partnership the amount otherwise due under the
Lease as rent for the period February 1995 to August 1995 plus a discounted
amount representing the amount of rent that would have been due under the Lease
for the period September 1, 1995 to April 30, 1996, the scheduled expiration
date of the Lease. Continental returned the Aircraft and engines in the return
condition required by the Lease. On October 16, 1995 the Partnership received
the Lease Settlement proceeds totaling $3,906,491.
A substantial portion of the proceeds were accounted for under the cost
recovery method reducing the Partnership's net carrying value of the aircraft.
At December 31, 1995, the Partnership had a carrying value of $6,061,000 in the
747-100 aircraft which approximated its estimated market value at such date. The
remaining gain on the lease settlement was offset by the related management fees
accrued and thus no net gain or loss was recognized on the settlement.
The Partnership is remarketing the aircraft and has had lease
negotiations with several potential lessees. The Partnership estimates that the
aircraft will require approximately $1.3 million of maintenance work in order to
integrate the aircraft to a new lessee. It is anticipated that the Partnership
will utilize its loan facility or cash reserves to finance such maintenance and
integration costs.
Continental did not make the monthly rental payments under the leases
on December 1, 1990 and filed for Chapter 11 Bankruptcy protection on December
3, 1990. Below is a description of the various lease modifications and other
financial agreements that the Partnership has with Continental, principally as
the result of the bankruptcy.
On July 3, 1991, the Bankruptcy Court approved an agreement amending
the Partnership's lease agreements with Continental with respect to the
Partnership's Boeing 727-200 advanced, and Boeing 747-100, aircraft. Pursuant to
the agreement, Continental paid 50% of the rentals due each month, effective
June 1, 1991. Continental resumed paying 100% of the
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rentals due each month beginning October 1, 1991, issued promissory notes for
the unpaid rents for December 1990 through May 1991 and the remaining 50% of the
rentals due for the months of June 1991 through September 1991 (which totaled
$2,798,000 and which were sold to a third party) and reduced the rentals with
respect to the Boeing 727-200 advanced aircraft from $118,000 to $81,000 per
month, effective December 1, 1990. The amount of the rent payable with respect
to the Boeing 747-100 aircraft was not changed at that time.
Additionally, the Partnership also agreed to and advanced $500,000 for
certain qualifying capital expenditures incurred by Continental with respect to
the Boeing 747-100 aircraft and $250,000 for the Boeing 727-200 advanced
aircraft which are being repaid by Continental with interest at 12% per annum,
over the lesser of 36 months or the then remaining lease term. The advances for
these qualifying capital expenditures were funded from operating reserves. The
balance of the related receivables aggregated $199,000 at December 31, 1995. All
first quarter 1996 repayments of advances have been made by Continental when
due.
On December 30, 1992, the Bankruptcy Court approved an agreement to
further amend the Partnership's lease agreements with Continental with respect
to the Partnership's Boeing 727-200 Advanced and Boeing 747-100, aircraft.
Pursuant to the agreement, rentals attributable to the period from November 1,
1992 through February 15, 1993 were deferred. Continental resumed paying rentals
on a current basis beginning February 15, 1993. The deferred rentals are
payable, along with interest at the rate of 8.70% per annum, in 36 equal monthly
installments which began May 1, 1993. At December 31, 1995, the balance of the
deferred rentals was $152,000. All first quarter 1996 repayments of deferred
rentals have been made by Continental when due.
The Partnership recorded provisions for decline in market value of
$400,000 and $57,000 during the years ended December 31, 1995 and 1994,
respectively, to reflect an estimate of the recoverability of the Partnership's
investment in the Boeing 727-200 aircraft.
The lease of the Boeing 727-200 expires in October 1996, unless
renewed. The Partnership is investigating opportunities with respect to the
aircraft if it is returned by Continental, including an upgrade to Stage 3 or
cargo conversion (See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Trans World Airlines Lease During February 1989, the Partnership
acquired a McDonnell Douglas MD-82 aircraft for a total purchase price of
$21,017,000. The aircraft is subject to an operating lease with TWA.
Airlines, Inc. ("TWA"). The lease which was originally scheduled to expire on
April 23, 1993 was modified and under the terms of the lease amendment was
extended until October 1, 1998 with rentals payable monthly, in advance, at the
rate of $185,000 per month.
Pursuant to the lease amendment, the Partnership reimbursed TWA for
$225,000 of capital improvements which were made to the aircraft and advanced
$750,000 to TWA to finance certain major maintenance procedures which were
performed on the aircraft. TWA is repaying the $750,000 to the Partnership over
the remaining lease term, in equal monthly installments, with interest at a
fixed rate of 9.68%. At December 31, 1995, the balance of the receivable was
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$428,000 ($557,000 at December 31, 1994). All first quarter 1996 payments have
been made by TWA as scheduled.
In mid-October 1994 because of operating and financial problems, TWA
announced that it would seek a global restructuring of its capital by offering
common stock for its debt securities, preferred stock obligations and lease
deferrals negotiated with aircraft lessors such as the Partnership ("Exchange
Offer"). TWA and the Partnership agreed to a deferral of 50% of the rent
scheduled for November 1994 and 75% of the rent scheduled from December 1994 to
April 1995 with originally scheduled payments resuming in May 1995.
Additionally, TWA and the Partnership reached an agreement to extend the lease
of the MD-82 aircraft six years beyond the then scheduled expiration date to
October 1, 2004 at the current lease rate of $185,000 per month. The rents
deferred during the November 1994 to April 1995 period are being repaid with
interest at 12% from the date of the deferral over an 18 month period which
began May 1, 1995. On June 30, 1995, TWA filed a prepackaged reorganization plan
under Chapter 11 of the U.S. Bankruptcy Code. On August 23, 1995, the
reorganization plan, which included the foregoing lease modifications, was
confirmed by the Bankruptcy Court and TWA emerged from bankruptcy. TWA has made
all rental payments, advance repayments and payments of deferred rent when due.
However, there can be no assurance that TWA will be able to meet its obligations
in the future. At December 31, 1995 and 1994, the Partnership had $465,000 and
$231,000 of deferred rent receivables relating to the TWA aircraft which were
included in rents and other receivables on the balance sheets.
USAir Lease During March 1989, the Partnership acquired one-half of the
beneficial interest in a trust ("Trust") which is the owner/lessor of a
McDonnell Douglas MD-81 aircraft for a total purchase price of $9,999,000. The
remaining one-half interest in the Trust is owned by Pegasus Aircraft Partners
II, L.P., an affiliated partnership. The aircraft is subject to an operating
lease with USAir, Inc., the term of which ends on June 1, 1998. The lease may be
terminated subject to the lessee's guarantee that the Partnership will receive
contractually defined minimum termination values upon remarketing of the
aircraft. Rental payments are payable quarterly, in arrears, at a rate of
$304,000 (for the Partnership's one-half interest in the aircraft). The lease
provides for one three-year renewal option, at the same quarterly rental rate.
If the lease is not renewed for the first renewal period, the lessee must make a
termination payment of $1,113,000 to the Partnership. USAir also has three
additional one-year renewal options at fair market rental rates. USAir may elect
to purchase the aircraft at its fair market value at the end of any renewal
term.
The McDonnell Douglas MD-81 aircraft was purchased subject to a tax
benefit transfer lease ("TBT lease") which provided for the transfer of the
investment tax credits and depreciation deductions with respect to the aircraft
to a tax lessor. Under the TBT lease, the Trust, as the owner of the aircraft
and the tax lessee under the TBT lease, has agreed to indemnify the tax lessor
if certain anticipated tax benefits are lost by the tax lessor as a result of,
among other things, acts or omissions by the Trust, breach of covenants by the
Trust under the TBT lease, loss or damage to the aircraft or use of the aircraft
outside the United States. The TBT lease requires that a letter of credit be
posted to collateralize this obligation. The Partnership is obligated for its
share of the cost of the letter of credit as well as any related calls on the
letter of credit.
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The letter of credit has a current face amount of approximately $2.3
million. Under the terms of the letter of credit agreement, the Partnership was
required to deposit with the Lender $35,000 per quarter as cash collateral to
collateralize the obligation. In conjunction with the extension of the
Partnership loan commitment (see Item 7, "Management Discussion and Analysis of
Financial Conditions and Results of Operations" and Item 8, "Financial
Statements," Footnote 7, Loans payable), the Lender released its interest in
substantially all of the cash in the collateral account. The balance in the cash
collateral account was $455,000 ($70,000 of which was funded in 1995) at the
time the bank released the funds. The Partnership remains obligated under the
letter of credit arrangement.
Under the operating lease, the lessee, USAir, has assumed all
liabilities, indemnities and obligations of the Trust to the tax lessor under
the TBT lease and has agreed to indemnify the Trust for any liability, indemnity
or obligation to the tax lessor under the TBT lease except for liability
resulting from breaches by the Trust of various covenants under the operating
lease. It has not posted a letter of credit to collateralize this obligation. As
a result of the foregoing, if the tax lessor draws on the letter of credit as a
result of action by the lessee, the Partnership and Pegasus Aircraft Partners
II, L.P. through the Trust will be responsible for the loss to the tax lessor
until and if the lessee performs under its indemnification. To date, there have
been no calls on the letter of credit.
The tax lessor is entitled to call on the letter of credit whether its
loss of tax benefits is caused by Pegasus Aircraft Partners II, L.P. or the
Partnership, and Pegasus Aircraft Partners II, L.P. and the Partnership have
agreed to indemnify each other for any loss occasioned by the acts of the other.
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Significant Lessees
The Partnership leased its aircraft to four different airlines during
1995. Revenues from all of these airlines accounted for greater than 10% of the
total rental revenues of the Partnership during 1995 as follows:
<TABLE>
<CAPTION>
Airline Percent of Total Rental Revenues
---------------------------------- --------------------------------
<S> <C>
Continental Airlines, Inc.(1) 20.3%
TransWorld Airlines, Inc. 36.5%
USAir, Inc. 20.0%
Kiwi International Air Lines, Inc. 23.2%
</TABLE>
(1) Additionally, the Partnership received a lease settlement payment of
$3,906,401 from Continental with respect to the early return and termination of
the lease of the Boeing 747-100 aircraft which is not included in the above
percentages. Substantially all of such settlement was accounted for under the
cost recovery method.
Safety Requirements and Aircraft Aging
In addition to registration, the FAA imposes strict requirements
governing aircraft inspection and certification, maintenance, equipment
requirements, general operating and flight rules (including limits on arrivals
and departures), noise levels, certification of personnel and record keeping in
connection with aircraft maintenance. FAA regulations establish standards for
repairs, periodic overhauls and alterations and require that the owner or
operator of an aircraft establish an airworthiness inspection program to be
carried out by certified mechanics. No aircraft of the Partnership may be
operated without a current airworthiness certificate.
The FAA periodically reviews Service Bulletins which are issued by the
aircraft manufacturers. These bulletins focus on safety problems that have
developed during the aircraft's operation. The FAA may incorporate these Service
Bulletins in Airworthiness Directives ("ADs"), which are mandates requiring the
airline to perform specific maintenance within a specified period of time.
Aircraft aging is a significant issue in aircraft safety regulation. In
the past, certain aviation incidents and accidents raised concerns over the
structural integrity of older aircraft. In 1989, in its "Report to Congress on
the Status of the U.S. Stage 2 Commercial Aircraft Fleet", the FAA stated that
"no correlation has been established between the chronological age of an
aircraft and its structural airworthiness. A more accurate assessment of the
physical "age" of an aircraft is the total number of flight cycles and flight
hours flown." A flight cycle is defined as one takeoff and one landing. A flight
cycle is important because of the added stress on the airframe, landing gear and
other components from repeated takeoffs, landings and pressurizations. As
different types of aircraft have different missions, and carriers fly a variety
of routes, flight cycles can vary widely among aircraft of the same
chronological age. In general, narrow-body aircraft which are used for
short-haul service will have greater cycles per year than wide-body aircraft
used for longer routes. Other factors which contribute to the aging of an
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aircraft are the number of hours actually flown, the predominant environment in
which an aircraft has flown, and its actual age in years.
The FAA has adopted certain ADs for Boeing and McDonnell Douglas
aircraft models, including Boeing 727s, 737s and 747s and McDonnell Douglas
DC-9s, MD-80s and DC-10s. These ADs make mandatory the periodic replacement or
modification of structural materials, fittings and skin at certain times in the
life of an aircraft, typically when the aircraft reaches a certain number of
flight cycles or age threshold. Previously, these aircraft were subject only to
periodic inspection, and the replacement and modification of materials and parts
was done where deemed necessary. Similar ADs for Lockheed and Airbus
manufactured aircraft are expected to be proposed and adopted by the FAA. In
addition, it is widely expected that foreign civil aviation authorities,
especially in Europe and Japan, will adopt similar measures to protect the
structural integrity of older aircraft.
These aging aircraft ADs will initially impact only a limited number of
older aircraft, but additional aircraft will be covered as they accumulate
time-and-service and reach the thresholds for the required modifications.
Significantly, in the case of each aircraft type, a significant majority of
replacements or modifications are mandated when a plane reaches a certain number
of flight cycles and relatively few required replacements are triggered when a
plane reaches a certain chronological age or number of flight hours.
The following table summarizes the age, flight cycle, and flight hour
thresholds for each major aircraft type under the ADs. In general, these
thresholds are based on the "economic design goal" of an aircraft, which is
typically considered to be the period of service after which an increase in
maintenance costs is expected to take place in order to assure continued
operational safety. In addition, the table provides an estimate by the FAA of
the costs of complying with all of the mandated replacements and modifications
of the ADs. It is important to note that since most of the proposed work under
the ADs is based on flight cycle thresholds, those lower-cycle aircraft which
reach the aircraft age or flight hour thresholds should incur significantly
lower AD compliance cost than the total amounts estimated below.
<TABLE>
<CAPTION>
Aircraft Flight Flight Estimated
Aircraft Age Cycle Hour AD
Type Threshold Threshold Threshold Costs
-------- --------- --------- --------- ----------
(Years)
<S> <C> <C> <C> <C>
Boeing 727 20 60,000 N/A $1,100,000
Boeing 737 20 75,000 N/A $ 934,000
Boeing 747 20 20,000* N/A $3,400,000
McDonnell Douglas DC-9 20 100,000 75,000 $ 79,000
McDonnell Douglas MD-80 20 75,000 75,000 $ 4,000
McDonnell Douglas DC-10 None 42,000 60,000 $ 187,000
</TABLE>
* Substantially cycle limited
Flight cycle and flight hour information with respect to the
Partnership's aircraft are included in the aircraft portfolio table included
earlier on page 3.
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The Partnership's leases generally require the lessees to bear the
costs of compliance with ADs which require action during the lease terms. The
Partnership's three 727 Boeing aircraft have had the major calendar
modifications performed as required.
Overall, the General Partners believe that the increased maintenance
costs mandated for older aircraft may have some impact on re-lease and resale
values for these aircraft, but counterbalancing this, compliance with the ADs
should also serve to prolong the revenue lives of the affected aircraft.
Aircraft Noise Regulations
On November 5, 1990, Congress enacted into law the Airport Noise and
Capacity Act of 1990 (the "Act"). On September 24, 1991, the FAA issued the
final rules of implementation for the Act. The Act provides that Stage 2
aircraft will be phased out from operation within United States airspace as of
December 31, 1999.
Implementing regulations proposed by the FAA would require each United
States operator to increase its Stage 3 airplane fleet to 25 percent by December
31, 1995; to 50 percent by December 31, 1996; to 75 percent by December 31, 1998
and to 100 percent by December 31, 1999.
However, the Act further provides, that if by July 1, 1999, at least
85% of an air carrier's fleet complies with Stage 3 noise levels, the carrier
may apply for a waiver of the operational ban for the remaining aircraft in the
operator's fleet until December 31, 2003. The application for such a waiver must
be submitted to the Secretary of the Department of Transportation no later than
January 1, 1999 and must include a plan with firm orders for making all aircraft
operated by the air carrier comply with Stage 3 noise levels by December 31,
2003.
Stage 3 hushkitting and re-engineering for the Boeing 727-200 aircraft
have been approved by the FAA. The aviation industry is in the process of
evaluating the economics of such technology. The Partnership's Boeing 747 will
comply with Stage 3 noise levels if it is flown with certain operating
restrictions. Alternatively, the engines can be upgraded with existing
technology to provide for greater performance and compliance with Stage 3
requirements.
Certain airlines have determined that it is economically feasible to
hushkit certain Stage 2 aircraft to achieve Stage 3 noise standards. The
Partnership continues to monitor the marketplace based upon the availability of
aircraft, pricing for Stage 2 and Stage 3 aircraft and the timetable for
implementation of Stage 3, to best position the Partnership's aircraft for
continued and future deployment.
11
<PAGE> 14
Competition
The aircraft leasing industry is highly competitive. The Partnership
competes with aircraft manufacturers, distributors, airlines and other
operators, equipment managers, leasing companies, financial institutions and
other parties engaged in leasing, managing or remarketing aircraft, many of
which have significantly greater financial resources and greater experience than
the Partnership. Such competitors may lease aircraft at lower rates than the
Partnership and provide benefits, such as direct maintenance, crews, support
services and trade-in privileges, which the Partnership does not intend to
provide. Competitors may include certain affiliates of the General Partners.
Employees
The Partnership has no employees. The officers, directors and employees
of the General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursements of certain out-of-pocket expenses incurred in connection with the
performance of these management services. See Item 10 of this Report, "Directors
and Executive Officers of the Registrant", and Item 13 of this Report, "Certain
Relationships and Related Transactions", which are incorporated herein by
reference.
Item 2. Properties
The Partnership does not own or lease any physical properties other
than the aircraft and engine which are discussed in Item 1 of this Report,
"Business", which is incorporated herein by reference.
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and PaineWebber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Air Transport Leasing Inc., an affiliate
of PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions
alleged, among other things, that, in connection with the sale of interests in
the Partnership, PaineWebber and the Administrative General Partners (1)
failed to provide adequate disclosure of the risks involved with each
partnership; (2) made false and misleading representations about the safety of
the investments and the partnership's anticipated performance; and (3)
marketed the partnership to investors for whom such investments were not
suitable. The plaintiffs also alleged that following
12
<PAGE> 15
the sale of the partnership investments PaineWebber and the Administrative
General Partner misrepresented financial information about the partnership's
value and performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment
of the plaintiffs' claims in the New York Limited Partnership Actions.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to resolve the litigation in accordance with a definitive
settlement agreement and plan of allocation which the parties expect to submit
to the court for its consideration and approval within the next several months.
Until a definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits will be
made available to unitholders in the Partnership.
In April 1995, two investors in the Pegasus limited partnerships filed
a purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Robert M. Jacobson, et al. v. PaineWebber, Inc., et al., making
allegations substantially similar to those in the New York Limited Partnership
Actions, but limited in subject matter to the sale of the Pegasus partnerships,
and without a RICO claim. The plaintiffs in the Jacobson case simultaneously
remained as participants in the New York Limited Partnership Actions, and
subsequently sought to intervene in that action and to be named class
representatives for a separate subclass that they asked the Court to establish
consisting of investors in the Pegasus partnerships. The court in the New York
Limited Partnership Actions has not yet ruled on their request.
Three actions were filed in the District court for Brazoria county,
Texas, relating to the sale and sponsorship of interests in the Partnership and
an affiliated partnership. The complaints make state law claims, specifically,
common law fraud, consipiracy, violations of section 27.01 of the Texas
Business and Commerce Code, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty, violations of the
Texas Securities Act, and violations of the Texas Deceptive Trade Practices
Act. The plaintiffs seek unspecified damages, including attorney's fees,
reimbursement for all sums invested by them in the partnerships, exemplary
damages, and treble damages under the Texas Deceptive Trade Practices Act. All
three actions have been removed to federal court and two have been transferred
to the United States District Court for the Southern District of New York. The
third action has been dismissed with the consent of the parties on the ground
that it is duplicative of the two actions now before the federal court in New
York.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and its affiliates,
including the Administrative General Partner could be entitled to
indemnification from the Partnership for expenses and liabilities in
connection with this litigation. The General Partners are unable to determine
the effect, if any, of such actions on the Partnerships' financial statements,
taken as a whole.
13
<PAGE> 16
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Partnership, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1995.
14
<PAGE> 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Units represent the economic rights attributable to limited
partnership interests in the Partnership. There is no organized trading market
for the purchase and sale of the Units and certain measures have been adopted
and implemented to assure that no such organized trading market will develop to
assure continued Partnership status.
As of March 1, 1996, the number of Limited Partners of record was
approximately 5,000.
The Partnership has declared the following distributions to its Limited
Partners out of cash flow received from operations during 1995 and 1994:
<TABLE>
<CAPTION>
Amount Of
Distribution
Period Per Unit Record Date Payment Date
------ -------- ----------- ------------
<S> <C> <C> <C>
1st Quarter 1995 $.25 March 31, 1995 April 29, 1995
2nd Quarter 1995 .30 June 30, 1995 July 29, 1995
3rd Quarter 1995 .90 September 30, 1995 October 29, 1995
4th Quarter 1995 .40 December 31, 1995 January 26, 1996
1st Quarter 1994 .45 March 31, 1994 April 29, 1994
2nd Quarter 1994 .45 June 30, 1994 July 29, 1994
3rd Quarter 1994 .45 September 30, 1994 October 28, 1994
4th Quarter 1994 .45 December 31, 1994 January 27, 1995
</TABLE>
Total distributions to all partners for 1995 and 1994 were declared as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Limited Partners $7,400 $7,200
General Partners 74 72
------ ------
$7,474 $7,272
====== ======
</TABLE>
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital, or both. The portion of
each cash distribution by a partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. Based on the amount of net
income reported by the Partnership for accounting purposes, approximately 88%,
94% and 62%, respectively, of the cash distributions declared for the years
ended December 31, 1995, 1994, and 1993 constituted a return of capital. Also,
based on the amount of net income reported by the Partnership for accounting
purposes, approximately 68% of the cash
15
<PAGE> 18
distributions paid to the partners from inception of the Partnership through
December 31, 1995 constituted a return of capital. However, the total actual
return on capital over the Partnership's life can only be determined at the
termination of the Partnership after all cash flows, including proceeds from the
sale of the aircraft, have been realized.
Item 6. Selected Financial Data
The following selected financial data of the Partnership was derived
from the audited financial statements for the indicated periods. The
information set forth below should be read in conjunction with the
Partnership's financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Items 8 and 7, respectively, of this Report, which are
incorporated herein by reference.
<TABLE>
<CAPTION>
As of December 31,
or Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Rental Revenue $6,076(2) $8,527 $9,062 $10,006 $10,253
Net Income 880 426 2,881 1,740 3,927
Net Income per Limited
Partnership Unit (1) .22 .11 .71 .43 .97
Distributions per Limited
Partnership Unit (1) 1.85 1.80 1.90 2.30 2.16
Total Assets 36,611 42,619 46,727 51,875 59,926
Notes Payable 1,625 2,000 - - -
Partners' Equity 31,176 37,770 44,616 49,411 56,964
</TABLE>
- ---------------
(1) Distribution amounts are reflected on the accrual basis.
(2) Such amount excludes lease settlement proceeds accounted for under the
cost recovery method.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership owns and manages a diversified portfolio of leased
commercial aircraft and makes quarterly distributions to the partners of net
cash flow generated by operations. In certain situations, the Partnership may
retain cash flow from operations to finance authorized capital expenditures.
Cash distributions declared by the Partnership were approximately $7.4
million in 1995 ($1.85 per Unit), $7.3 million in 1994 ($1.80 per Unit) and $7.7
million in 1993 ($1.90 per Unit). Net cash provided by operating activities was
$6.1 million for 1995, $7.9 million for 1994 and $8.5 million for 1993. In 1995,
the Partnership received the Continental Lease Settlement proceeds of $3.9
million which was substantially accounted for under the cost recovery method and
thus, was not included in cash from operations. In the aggregate, for this three
year period net cash provided by operating activities totaled $22.5 million and
cash distributions declared by the Partnership totaled $22.4 million. Further,
during 1995, 1994 and 1993 the Partnership paid
16
<PAGE> 19
cash distributions of $7.7 million, $7.3 million and $7.9 million, respectively,
totaling $22.9 million for the three year period.
Partnership equity declined by approximately $6.6 million for 1995,
from December 31, 1994 to December 31, 1995 as a result of the declaration of
cash distributions to the partners in excess of the Partnership's net income.
This resulted from the fact that, unlike net income, cash flow generated by
operations, which is the source of the cash utilized to make the distributions,
is not reduced by depreciation expense and provisions for decline in market
value of aircraft attributable to the Partnership's aircraft. Additionally, a
significant portion of the Lease Settlement proceeds received from Continental
were accounted for under the cost recovery method and thus did not flow through
the Statement of Income for 1995. (See Footnote 1, "Significant Accounting
Policies" and Footnote 5, "Aircraft Under Operating Leases")
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital, or both. The portion of
each cash distribution by a partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. Based on the amount of net
income reported by the Partnership for accounting purposes, approximately 88%,
94% and 62%, respectively, of the cash distributions declared for the years
ended December 31, 1995, 1994 and 1993, constituted a return of capital. Also,
based on the amount of net income reported by the Partnership for accounting
purposes, approximately 68% of the cash distributions paid to the partners from
inception of the Partnership through December 31, 1995 constituted a return of
capital. However, the total actual return on capital over the Partnership's life
can only be determined at the termination of the Partnership after all cash
flows, including proceeds from the sale of the aircraft, have been realized.
In April 1994, the Partnership established a loan facility with a third
party lender which expired in May 1995. In July 1995, the Partnership and the
Lender completed an extension of the commitment. Under the new agreement, the
aggregate commitment remained at $4,000,000, the Partnership's ability to borrow
under the facility was extended until May 1, 1997 and the floating interest rate
charged under the facility was reduced to the Lender's prime rate plus .5%. The
Lender released the Boeing 747-100 aircraft as collateral under the loan and
received a perfected security interest in the Partnership's MD-82 aircraft
leased to TWA. Through December 31, 1995, the Partnership had borrowed an
aggregate of $2,150,000 pursuant to the loan agreement, of which $1,625,000 and
$2,000,000 were outstanding at December 31, 1995 and December 31, 1994,
respectively. In connection with the extension of the loan commitment the Lender
released its interest in a cash collateral account established to secure the
Partnership's obligation under the letter of credit agreement relating to the
TBT lease.
The Partnership may require additional financing to fund future
maintenance work on aircraft, hushkitting the aircraft, or other capital
improvements such as cargo conversion. For example, because of FAA mandated
compliance with Stage 3 aircraft noise regulation, Kiwi may request the
Partnership to hushkit one or both of the 727 aircraft leased to Kiwi. If the
Partnership were to elect to hushkit these aircraft, the Partnership would need
to utilize its current loan facility or complete a new financing. The
Partnership can borrow up to 35% of the original offering proceeds. Any such
borrowings will only be made if the General Partners believe such borrowings
will be in the best interests of the Partnership and enhance portfolio value.
The
17
<PAGE> 20
Partnership cannot utilize borrowings to purchase aircraft. However, there can
be no assurance that the Partnership would be able to obtain any additional
borrowings, if required.
At December 31, 1995, the Partnership's unrestricted cash and cash
equivalents exceeded declared but unpaid distributions to partners by
$2,465,000. At December 31, 1994, the Partnership's declared, but unpaid,
distributions to the partners exceeded unrestricted cash and cash equivalents by
$55,000. The principal reasons for the increase in cash is the retention of
approximately half of the proceeds from the Continental Lease Settlement plus
the release of the cash that was in the cash collateral account that previously
collateralized the Partnership's obligation under a letter of credit. It is
anticipated that such proceeds will be utilized for any modification needed to
enhance the leasability of the 747 (or any other aircraft as deemed necessary)
and for distribution to partners.
Rent and other receivables decreased by $419,000 from $1,953,000 at
December 31, 1994 to $1,534,000 at December 31, 1995. This decrease is primarily
the result of the continued repayments of advances and deferrals to various
lessees, net of deferrals granted to lessees in 1995.
Prepaid expenses increased by $12,000 from $35,000 at December 31, 1994
at $47,000 at December 31, 1995, due primarily to amounts associated with the
extended loan commitment (See Item 8, "Financial Statements" Note 7, "Notes
Payable")
Payable to affiliates increased by $348,000 from $280,000 at December
31, 1994 to $628,000 at December 31, 1995. The increase was attributable to
the management fees associated with the Continental Lease Settlement which were
accrued at December 31, 1995 and the voluntary deferral by the Administrative
General Partner of management fees and re-lease fees otherwise payable with
respect to the period commencing January 1, 1995.
Deferred rental income increased $81,000 from $137,000 at December 31,
1994 to $218,000 at December 31, 1995 due to the receipt in December 1995, of
certain rents due January 1, 1996 with respect to the January period.
Management and re-lease fees payable to the General Partners for the
1995 Period increased $97,000, or 16%, as compared to the 1994 Period.
Management fees (base management fees and incentive management fees) increased
by $83,000 for the 1995 Period as compared to the 1994 Period. This was
principally because of the fees recorded associated with the Continental Lease
Settlement which included a settlement of future rentals (through April 1996)
substantially all of which was accounted for under the cost recovery method,
which resulted in a greater base on which fees were recorded in 1995 as compared
to 1994. Re-lease fees incurred during the 1995 Period increased by $14,000 as
compared to the 1994 Period due principally to the fees associated with the
re-lease of the two Boeing aircraft to Kiwi during 1994 and thus was subject to
re-lease fees for only a portion of the 1994 Period.
During 1995, TWA completed its financial restructuring and made all
payments due. Additionally, during 1995, Kiwi continued to make rental and
maintenance payments subject to the leases as amended, although it continues to
have liquidity and capital concerns. Kiwi requested an extension of time to
make related rental, deferred rent and maintenance reserve
18
<PAGE> 21
payments for February 1996 and made such payments in late February 1996.
Finally, the Partnership settled the Continental 747 lease obligations in 1995
and accepted redelivery of the aircraft. The Partnership has entered into
discussions with potential users of the aircraft. It is anticipated that
certain scheduled maintenance and integration costs, which are estimated to
aggregate $1,300,000 will be necessary to complete a remarketing. The
Partnership intends to finance such costs as necessary through its cash
reserves and loan facility. Additionally, because of the need to meet Stage 3
aircraft thresholds required by FAA mandated noise regulation, Kiwi may require
that the Partnership hushkit (upgrade to Stage 3) one or both of the 727
aircraft leased to Kiwi. If the Partnership determines to perform such work,
which is estimated to cost $1.9 million per aircraft, it will need to finance
substantially all of such cost through its loan facility or other new
borrowings which may or may not be obtainable. If the Partnership elects not to
do such work, Kiwi may terminate the lease and the Partnership may encounter
delays and costs of redeployment. The Partnership's future cashflow will be
impacted by the timing and the lease rate achieved with respect to a remarket
of the 747 aircraft, which was available for lease at December 31, 1995, as
well as any changes in the status of the Kiwi leases as the result of Kiwi's
continued liquidity concerns or because of Stage 3 implementation.
Additionally, the lease of the 727 aircraft to Continental is scheduled to
expire in October 1996, unless renewed. The Partnership is investigating
opportunities with regard to that aircraft.
Litigation
See Item 3, "Legal Proceedings" for a complete discussion of certain class
action lawsuits and related settlement.
Results of Operations
Substantially all of the Partnership's revenue was generated from the
leasing of the Partnership's aircraft to commercial air carriers under triple
net operating leases. The balance of the Partnership's revenue consisted of
interest income earned with respect to certain advances made to lessees as well
as certain deferred rental arrangements with Continental, TWA and Kiwi.
Under the terms of the triple net leases, substantially all of the
expenses related to the operation and maintenance of the aircraft during 1995,
were paid for by the lessees or in the case of Kiwi, funded to a certain extent
through hourly maintenance reserves paid by Kiwi. The direct lease expenses
incurred by the Partnership represent the costs of providing insurance coverage
for the Partnership's aircraft in excess of the amounts required to be carried
by the lessees, trustee fees related to the ownership of the aircraft and the
cost of the letter of credit required under the terms of the TBT lease on the
McDonnell Douglas MD-81 leased to USAir.
The Partnership also records depreciation expense pertaining to the
aircraft and incurs certain general and administrative expenses in connection
with operations of the Partnership. General and administrative expenses consist
primarily of investor reporting expenses, transfer agent and audit fees and the
cost of accounting services.
Impact Of Future Adoption of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued FASB 121,
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of" ("FAS 121"). FAS 121 requires companies to review their long lived
assets, such as the Partnership's aircraft, and certain identifiable
intangibles for impairment whenever events and changes in circumstances
indicate that the carrying value of a long-lived asset may not be recoverable.
The Partnership will be required to adopt the provisions of FAS 121 as of
January 1996. The Partnership believes that based upon its operations and
current methods used to evaluate declines in market value, the future adoption
of FAS 121 will not have a material impact on the Partnerships financial
position or results of operations.
1995 as compared to 1994
The Partnership's net income was $880,000 for the year ended December
31, 1995 ("1995 Period"), as compared to $426,000 for the year ended December
31, 1994 ("1994 Period").
19
<PAGE> 22
The increase in the Partnership's net income for the 1995 Period as
compared to the 1994 Period resulted primarily from the reduced requirement for
provision for decline in market value of aircraft in the 1995 Period as compared
to the 1994 Period ($400,000 as compared to $2,000,000) offset by a decrease in
rental revenue, as a result of the return of the 747-100 aircraft leased to
Continental. (See above discussion regarding Continental and the related Lease
Settlement.) The decrease in rental revenue was partially offset by a decrease
in depreciation due primarily to the non-recognition of depreciation expense in
the 1995 Period with respect to the 747-100 aircraft which was off lease for
substantially all of 1995 as well as a reduction in depreciable base of certain
aircraft due to the provisions for declines in market value provided in 1994.
Rental revenue decreased $2,451,000 or 28% for the 1995 Period
principally due to the non-accrual of rent with respect to the 747-100 aircraft
which was returned early in 1995 by Continental (see discussion of Continental
Lease Settlement), which was partially offset by rents generated by the two
727-200 aircraft leased to Kiwi that were off-lease for a portion of the 1994
Period.
Interest income for the 1995 Period increased by $63,000, or 27% in
comparison to the 1994 Period. The increase was primarily attributable to the
interest income earned with respect to the TWA rent deferrals, the Kiwi rent
deferrals and the advance made to Continental in the fourth quarter of 1994 and
the undistributed proceeds from the Continental settlement, partially offset by
the continued repayment of advances pursuant to various repayment schedules.
The Partnership recognized other income in 1995 of $233,000 which
represented the difference between the Continental Lease Settlements proceeds
and the amount of such proceeds accounted for under the cost recovery method.
The other income was offset by related management fees.
Depreciation and amortization decreased by $1,207,000 or 23%, for the
1995 Period in comparison to the 1994 Period. This was due primarily to the fact
that the Partnership did not recognize depreciation after the first quarter 1995
with respect to the 747-100 aircraft, which was taken out of service by
Continental during the first quarter of 1995, as well as the decrease in
depreciable basis of certain aircraft due to the provision for decline in market
value of aircraft provided in the 1994 Period.
The Partnership provided an allowance for decline in market value of
$400,000 in the 1995 Period as compared to the $2,000,000 in the 1994 Period to
reflect the General Partner's estimate of recoverability of the Partnership
investment in certain aircraft based upon estimated Cash Flow, third party
appraisals and market conditions.
General and administrative expenses for the 1995 Period increased by
$30,000 or 17% in comparison to the 1994 Period, principally due to an increase
in professional fees, including transfer agent servicing expenses.
Interest expense for the 1995 Period increased by $79,000 or 64% in
comparison to the 1994 Period due to the fact that the related borrowings were
made in April and July 1994 and thus were not outstanding for the entire 1994
Period, partially offset by principal installments paid during 1995 reducing the
balance outstanding.
20
<PAGE> 23
Direct lease expenses for the 1995 Period decreased by $8,000, or 7% as
compared to the 1994 Period due principally to a reduction in the letter of
credit fee in 1995 as compared to 1994.
1994 Compared to 1993
The Partnership's net income was $426,000 for the year ended December
31, 1994 compared to $2,881,000 for the year ended December 31, 1993.
The decrease in the Partnership's net income for 1994 resulted
primarily from (i) an increase in the provision for decline in market value of
aircraft, (ii) a decrease in rental revenue, (iii) an increase in depreciation,
and (iv) the interest expense incurred in 1994 relating to amounts borrowed in
1994.
Rental revenue decreased $535,000 or 6% for 1994 compared to 1993. This
decrease was principally because the Northwest aircraft leases which were
scheduled to expire in April 1993, were extended at lower lease rates. (The
first Northwest aircraft was extended until August 1993 and the second Northwest
aircraft was extended until April 1994.) Additionally, the lease term for the
McDonnell Douglas MD-82 leased to TWA was extended in April 1993 at a slightly
lower lease rate.
Interest income increased by $12,000 or 6% in 1994 as compared to 1993.
This increase was attributable to the interest income earned with respect to the
advances which were made to TWA during April 1993 (and, therefore, were not
outstanding for all of 1993).
Depreciation and amortization increased $218,000 or 4% for 1994 in
comparison to 1993, principally due to depreciation relating to $2,723,000 of
capitalized costs expended in connection with the two aircraft remarketed to
Kiwi. The increase was partially offset by the reduced depreciation expense
during 1994 with respect to the Boeing 727-200 advanced aircraft leased to
Continental as a result of the reserve for decline in market value of the
aircraft which the Partnership recorded at December 31, 1993.
The Partnership provided a decline in market value of aircraft in the
amount of $2,000,000 in 1994 as compared to $434,000 in 1993, to reflect the
General Partners' estimate of the recoverability of the Partnership's
investments in certain aircraft.
Aggregate subordinated management and re-lease fees paid to the General
Partners were similar for 1994 as compared to 1993. Management fees decreased
because of the decreases in the Partnership's rental revenue and net income
(without regard to depreciation) which serve as the bases with respect to which
the management fees are calculated. However, the decrease in such management
fees was substantially offset by an increase in re-lease fees during 1994. There
were no re-lease fees prior to the second quarter of 1993.
The Partnership incurred interest expense of $123,000 in 1994, with
respect to the borrowings made in April 1994 and July 1994. The Partnership had
no such borrowings outstanding in 1993. (See Item 8, Financial Statements, Note
7, "Notes Payable").
21
<PAGE> 24
Inflation and Changing Prices
Inflation has had no material impact on the operations or financial
condition of the Partnership during 1995. However, market and worldwide economic
conditions and changes in federal regulations have in the past, and may in the
future, impact the airline industry and thus lease rates and aircraft values.
Additionally, inflation and changing prices, may affect future leasing rates and
the eventual selling price of the aircraft.
22
<PAGE> 25
Item 8. Financial Statements
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Balance Sheets -- December 31, 1995 and 1994 F-3
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 F-4
Statements of Partners' Equity for the years ended
December 31, 1995, 1994 and 1993 F-5
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-6
Notes to Financial Statements F-8 to F-22
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the financial statements and notes
thereto; (2) schedules are not required under the related instruction or; (3)
the schedules are inapplicable.
F-1
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Limited Partners of
Pegasus Aircraft Partners, L.P.
We have audited the accompanying financial statements as listed in the
index on Page F-1 herein. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pegasus Aircraft
Partners, L.P. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1994 and
1993, in conformity with generally accepted accounting principles.
As discussed in Note 9 to the Financial Statements, there is litigation
pending against, among others, the Administrative General Partner and
affiliates of the Administrative General Partner. The ultimate outcome of this
litigation and its effects, if any, on the Partnership cannot presently be
determined.
New York, New York
February 15, 1996 except
as to Note 9 for which the
date is March 19, 1996
F-2
<PAGE> 27
PEGASUS AIRCRAFT PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---- ----
(in thousands, except unit data)
<S> <C> <C>
Cash and cash equivalents (Note 4) $ 4,081 $ 1,763
Restricted cash (Note 5) 1,135 907
Rent and other receivables (Note 5) 1,534 1,953
Aircraft, net (Note 5) 29,814 37,961
Prepaid expenses 47 35
------- -------
Total Assets $36,611 $42,619
======= =======
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Notes payable (Note 7) $ 1,625 $ 2,000
Accounts payable and accrued expenses 98 76
Payable to affiliates (Note 6) 628 280
Distributions payable to partners 1,616 1,818
Maintenance reserves payable 1,235 522
Deferred rental income 218 137
Accrued interest payable 15 16
------- -------
Total Liabilities 5,435 4,849
------- -------
CONTINGENCIES (Notes 5, 7 and 9)
PARTNERS' EQUITY:
General Partners (485) (420)
Limited Partners (4,000,005 units outstanding
in 1995 and 1994) 31,661 38,190
------- -------
Total Partners' Equity 31,176 37,770
------- -------
Total Liabilities and Partners' Equity $36,611 $42,619
======= =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE> 28
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands, except unit data
and per unit amounts)
REVENUE:
<S> <C> <C> <C>
Rentals from operating leases $ 6,076 $ 8,527 $ 9,062
Interest 293 230 218
Other income 233 - -
---------- ---------- ----------
6,602 8,757 9,280
---------- ---------- ----------
EXPENSES:
Depreciation and amortization 4,105 5,312 5,094
Provision for decline in market
value of aircraft (Note 5) 400 2,000 434
Management and re-lease fees (Note 6) 698 601 602
General and administrative (Note 6) 210 180 166
Direct lease 107 115 97
Interest expense 202 123 -
Aircraft maintenance and storage - - 6
---------- ---------- ----------
5,722 8,331 6,399
---------- ---------- ----------
NET INCOME $ 880 $ 426 $ 2,881
========== ========== ==========
NET INCOME ALLOCATED:
To the General Partners 9 4 29
To the Limited Partners $ 871 $ 422 $ 2,852
---------- ---------- ----------
$ 880 $ 426 $ 2,881
========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .22 $ .11 $ .71
========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 4,000,005 4,000,005 4,000,005
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE> 29
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- -----
(in thousands)
<S> <C> <C> <C>
Balance, December 31, 1992 $(305) $49,716 $49,411
Net income 29 2,852 2,881
Distributions to partners declared (76) (7,600) (7,676)
----- ------- -------
Balance, December 31, 1993 (352) 44,968 44,616
Net income 4 422 426
Distribution to partners declared (72) (7,200) (7,272)
----- ------- -------
Balance December 31, 1994 (420) 38,190 37,770
Net income 9 871 880
Distributions to partners declared (74) (7,400) (7,474)
----- ------- -------
Balance December 31, 1995 $(485) $31,661 $31,176
===== ======= =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 30
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 880 $ 426 $ 2,881
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,105 5,312 5,094
Provision for decline in market value of aircraft 400 2,000 434
Unrestricted maintenance reserves received from lessee 100 325 433
Utilization of maintenance reserve provided for - (580) -
Change in assets and liabilities:
Rent and other receivables 128 231 (261)
Prepaid expenses (12) (7) 33
Accounts payable and accrued expenses 22 28 (34)
Payable to affiliates 348 217 20
Deferred rental income 81 (45) (137)
Accrued interest payable (1) 16 -
------ ------ -------
Net cash provided by operating activities 6,051 7,923 8,463
------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Continental settlement, net 3,673 - -
Capitalized aircraft improvements (31) (2,723) (225)
Advances to lessees - (100) (1,089)
Repayment of advances by lessees 291 332 176
------ ------ -------
Net cash provided by (used in) investing activities 3,933 (2,491) (1,138)
------ ------ -------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 31
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (continued)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds from notes payable - 2,150 -
Repayment of notes payable (375) (150) -
Transfers from (to) restricted cash 385 (140) (140)
Cash distributions paid to partners (7,676) (7,272) (7,878)
------- ------- -------
Net cash used in financing activities (7,666) (5,412) (8,018)
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,318 20 (693)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,763 1,743 2,436
------- ------- -------
CASH AND CASH EQUIVALENTS
AT END OF YEAR 4,081 1,763 $ 1,743
======= ======= =======
Supplemental Schedule of Cash Flow Information:
Interest Paid $ 203 $ 107 $ -
Restricted maintenance reserves collected net of
maintenance drawdowns $ 613 $ 522 $ -
======= ======= =======
NONCASH TRANSACTIONS
Distributions to partners declared but unpaid $ 1,616 $ 1,818 $ 1,818
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE> 32
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Basis or Presentation Pegasus Aircraft Partners, L.P. (the
"Partnership"), a Delaware limited partnership, maintains its accounting
records and prepares financial statements on the accrual basis of accounting.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant assumptions and estimates relate to useful life and
recoverability of the aircraft and tax indemnity provisions described below.
Actual results could differ from these estimates.
Cash and Cash Equivalents The Partnership invests funds not immediately
required for operations or distributions in short term, highly liquid
investments until such time as the funds are required to meet its obligations.
The short term, highly liquid investments are recorded at cost which
approximates fair market value. For purposes of the balance sheets and the
statements of cash flows, the Partnership considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Restricted Cash Restricted cash represents maintenance reserves (also
described below) collected from Kiwi International Air Lines, Inc. ("Kiwi") with
respect to the two aircraft leased to Kiwi. (See also Note 5 "Aircraft Under
Operating Leases") In prior years, restricted cash included cash in a collateral
account that secured the Partnership's obligation under a letter of credit
agreement (See Note 5 "Aircraft Under Operating Leases" and Note 7, "Notes
Payable", for further discussion).
Aircraft and Depreciation The aircraft are recorded at cost, which
includes acquisition costs and the acquisition fee and the financial management
advisory fee paid to the General Partners. Depreciation is computed using the
straight-line method over an estimated economic life of twelve years (five years
for the aircraft engine separately leased to Kiwi). Improvements to aircraft are
capitalized when incurred and depreciated, generally, over the remaining useful
life of the improvement. The Partnership evaluates these estimates based upon
changes in market conditions in accordance with generally accepted accounting
principles. Accordingly, the Partnership records a provision for decline in
market value of aircraft to recognize a loss in the value of an aircraft when
the General Partners believe that the recoverability of the Partnership's
investment in an aircraft has been impaired. Proceeds received in lease
settlements or terminations are accounted for under the cost recovery method
when and to the extent that, based upon third party appraisals and market
conditions, there has been a diminution to the carrying value of the aircraft.
Impact Of Future Adoption Of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued FASB 121,
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of" ("FAS 121"). FAS 121 requires companies to review their long lived
assets, such as the Partnership's aircraft, and certain identifiable
intangibles for impairment whenever events and changes in circumstances
indicate that the carrying value of a long-lived asset may not be recoverable.
The Partnership will be required to adopt the provisions of FAS 121 as of
January 1996. The Partnership believes that based upon current operations and
current methods used to evaluate declines in market value, the future adoption
of FAS 121 will not have a material impact on the Partnerships financial
position or results of operations.
F-8
<PAGE> 33
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Tax Benefit Transfer Lease The McDonnell Douglas MD-81 aircraft under
lease to USAir, Inc. ("USAir")was purchased subject to a tax benefit transfer
lease which provided for the transfer of the investment tax credits and
depreciation deductions with respect to the aircraft to a tax lessor. The
transfer was accomplished by the sale, for income tax purposes only, of the
aircraft to the tax lessor for cash and a note and a leaseback of the aircraft
for rental payments which match the payments on the note. Under the terms of
the tax benefit transfer lease, the Partnership's required rental payments are
contingent upon and may, by agreement, be offset by the tax lessor's required
note payments. Accordingly, no asset or liability for the tax benefit transfer
lease has been recorded.
Maintenance Reserve Funds Two of the Partnership's leases require the
lessee to make monthly payments to maintenance reserve funds administered by the
Partnership. The Partnership is obligated to reimburse the lessee for specified
maintenance costs out of the reserve funds, upon submission of appropriate
evidence documenting the maintenance costs incurred by the lessee. Interest
earned on the reserve funds is deposited into the funds and utilized in the same
manner as other payments to the funds. These reserve funds are included in
restricted cash on the balance sheets.
Operating Leases The aircraft leases which are structured principally
as triple net leases are accounted for as operating leases. Lease revenues are
recognized ratably over the terms of the related leases.
Deferred Rental Income Deferred rental income represents rental
payments received in advance which have not been earned.
Income Taxes No provision for income taxes has been made in the
financial statements since such taxes are the responsibility of the individual
partners rather than the Partnership.
Net Income Per Limited Partnership Unit The net income per limited
partnership unit is computed by dividing the net income allocated to the Limited
Partners by the weighted average number of Units outstanding for the period.
2. ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on June 23, 1988 for the purpose of
acquiring, leasing, and ultimately selling used commercial aircraft principally
to US airlines. The Managing General Partner of the Partnership is Pegasus
Aircraft Management Corporation, a wholly-owned subsidiary of Pegasus Capital
Corporation, and the Administrative General Partner is Air Transport Leasing,
Inc., a wholly-owned subsidiary of PaineWebber Group Inc. (collectively, the
"General Partners").
The Partnership is required to dissolve and distribute all of its
assets no later than December 31, 2012. The Partnership may reinvest the
proceeds from sales of aircraft occurring prior to March 22, 1997, provided that
prior to any such reinvestment the Partnership distributes to the Limited
Partners cash in an amount sufficient to pay any federal and state income taxes
to
F-9
<PAGE> 34
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
be incurred by the Limited Partners as a result of the aircraft sale.
Thereafter, the net proceeds of any sales of aircraft will be distributed to the
partners.
Upon formation of the Partnership, the General Partners each
contributed $500 to the capital of the Partnership, and the initial Limited
Partner contributed $100 for five limited partnership depositary units
("Units"). An additional 4,000,000 Units were then sold at a price of $20.00 per
Unit, with the Partnership receiving gross offering proceeds of $80,000,000.
Title to the aircraft owned by the Partnership is held by
non-affiliated trustees of trusts of which the Partnership is the beneficiary or
one of two beneficiaries. The purpose of this method of holding title is to
satisfy certain registration requirements of the Federal Aviation
Administration.
3. PARTNERSHIP ALLOCATIONS
The Partnership Agreement provides that cash flow from operations be
distributed on a quarterly basis at the General Partners' discretion, 99% to the
Limited Partners and 1% to the General Partners. Cash flow is defined in the
Partnership Agreement as including cash receipts from operations and interest
income earned, less expenses incurred and paid in connection with the ownership
and lease of the aircraft. Depreciation and amortization expenses are not
deducted from cash receipts in determining cash flow. Distributable proceeds
from sales of aircraft upon liquidation of the Partnership will be distributed
in accordance with the partners' capital accounts after all allocations of
income and losses.
Income and losses generally will be allocated 99% to the Limited
Partners and 1% to the General Partners. Upon the sale of aircraft, gain
generally will be allocated, first, to the General Partners in an amount equal
to the difference between their capital contributions and 1.01% of the aggregate
capital contributions of the Limited Partners, and, then, 99% to the Limited
Partners, and 1% to the General Partners.
4. CASH EQUIVALENTS
The Partnership invests funds not immediately required for operations
or distributions in short-term highly liquid investments. These investments are
primarily short-term commercial paper issued by large domestic corporations. At
December 31, 1995, the Partnership held short-term commercial paper issued by
Ford Motor Credit Company (with various maturities) with par values aggregating
$3,826,000, which were acquired at cost aggregating $3,806,985 and short term
commercial paper issued by John Deere, Inc. with a par value of $150,000 which
was purchased for a cost of $148,974.
F-10
<PAGE> 35
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
5. AIRCRAFT UNDER OPERATING LEASES
Net Investment in Aircraft
The Partnership's net investment in aircraft as of December 31, 1995
and 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Aircraft on operating leases $56,095 $ 74,415
Less: Accumulated depreciation (26,995) (31,507)
Reserve for decline in market value of aircraft (5,169) (4,769)
Provision for maintenance cost (178) (178)
------- --------
23,753 37,961
Aircraft held for lease $18,351 $ -
Less: Accumulated depreciation (8,617) -
Net lease settlement proceeds accounted for as cost (3,673) -
recovery
------- --------
6,061 -
------- --------
$29,814 $ 37,961
======= ========
</TABLE>
Net investment in aircraft includes depreciated cost of approximately
$127,000 for a spare engine leased to Kiwi at December 31, 1995.
F-11
<PAGE> 36
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Financial Terms of Leases
Kiwi International Air Lines Leases The Partnership owns two Boeing
727-200 non-advanced aircraft, originally acquired on December 1988 for
$6,308,000 per aircraft. The aircraft were originally leased to Northwest
Aircraft, Inc. ("Northwest") subject to operating leases, one of which expired
in August 1993 and the other of which expired in April 1994, both after short
extensions at lower lease rates. Upon the expiration of the leases, Northwest
paid the Partnership $433,000 and $325,000 representing economic settlements in
lieu of completing certain maintenance procedures required for the respective
leases. On February 1994 and April 1994, the Partnership entered into the leases
with Kiwi, each for terms of approximately five years with rents payable monthly
in advance $55,000 per aircraft. The leases also required Kiwi to pay
maintenance reserves, which can be drawn down by Kiwi for specific maintenance
procedures, of $250 per flight hour. The aircraft were delivered in April and
July 1994. In connection with the first Kiwi lease, the Partnership also
acquired an additional aircraft engine, at a cost of $195,000, which is used as
a spare by Kiwi on a utilization basis at $105 per flight hour of use.
In connection with the Kiwi leases, the Partnership completed certain
maintenance procedures, aircraft-aging related modifications, the purchase of
the spare engine for Kiwi's fleet discussed above and other lessee-required
modifications prior to delivery of the aircraft to Kiwi at an aggregate cost of
$3,303,000 of which $580,000 represented maintenance-related work funded by the
maintenance-related payments received from Northwest and the balance of which
was capitalized as part of the Partnership's basis in the aircraft.
During the terms of the leases Kiwi can request that the aircraft be
hushkitted to obtain Stage III noise abatement for which the lease term will be
reset to five years with lease payments increasing to amortize the cost of
hushkitting at the rate of 2% per month. Alternatively, the Partnership can deem
the hushkitting economically unfeasible at which point Kiwi can terminate the
lease and return the aircraft. Based upon the composition of its fleet and the
FAA mandated deadlines for compliance with Stage 3 Noise Regulation, management
believes that Kiwi will request that the Partnership hushkit one or both of
the 727 aircraft by December 1996. Such upgrade is estimated to cost $1.9
million per aircraft and the Partnership would need to acquire additional
financing to complete such work.
During 1995, Kiwi encountered continued liquidity and operating
problems. The Partnership and Kiwi agreed to a deferral of February 1995 and
half of March 1995 rent ($165,000 in the aggregate) plus an accommodation to
permit Kiwi to not fund the maintenance reserves in February, March and April
1995. The deferred rent is payable with interest of 12% over a 9-month period
which began July 1, 1995. All 1995 payments have been made as scheduled and
the outstanding balance was approximately $56,000 at December 31, 1995.
Additionally, at December 31, 1995, the Partnership held maintenance deposits
aggregating $1,135,000 with respect to the Kiwi aircraft. Kiwi requested
additional time to make February rental, deferred rental and maintenance
payments and made such payments in late February 1996 and early March 1996.
Kiwi's ability to make future payments on a timely basis is uncertain due to
continued liquidity and capital concerns.
F-12
<PAGE> 37
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The Partnership recorded provisions for decline in market value of
$1,943,000 and $2,335,000 during the years ended December 31, 1994 and 1992,
respectively, with respect to these aircraft. These provisions are reflected in
the carrying value of the Partnership's investments in these two aircraft as of
December 31, 1995.
Continental Airlines Leases During December 1988, the Partnership
acquired a Boeing 727-200 advanced aircraft for a total purchase price of
$8,025,000. The aircraft was originally subject to an operating lease with
Continental Airlines, Inc. ("Continental"), the term of which ends on October
31, 1996. Rental payments are payable monthly, in advance at the rate of
$81,000.
During December 1988, the Partnership acquired a Boeing 747-100
aircraft for a total purchase price of $17,847,000. The aircraft was originally
subject to an operating lease with Continental, the term of which was scheduled
to expire on April 30, 1996 with rental payable monthly, in advance, at the rate
of $269,000.
In January 1995, Continental announced that it was grounding its Airbus
Industrie manufactured aircraft and taking certain Boeing 747 aircraft out of
service, including the Boeing 747 Aircraft owned by the Partnership. Continental
discontinued utilizing the Aircraft, did not make any rental payments after
January 1995 and returned the Aircraft to the Partnership. During the quarter
ended September 30, 1995 the Partnership and Continental completed the
negotiation of a lease settlement agreement ("Lease Settlement"). Under the
terms of the Lease Settlement, Continental agreed to pay the Partnership the
amount otherwise due under the Lease as rent for the period February 1995 to
August 1995 plus a discounted amount representing the amount of rent that would
have been due under the Lease for the period September 1, 1995 to April 30,
1996, the scheduled expiration date of the Lease. Continental returned the
Aircraft and engines in the return condition required by the Lease. On October
16, 1995 the Partnership received the Lease Settlement proceeds totaling
$3,906,491.
A substantial portion of the proceeds were accounted for under the cost
recovery method reducing the Partnership's net carrying value of the aircraft.
At December 31, 1995, the Partnership had a carrying value of $6,061,000 in the
747-100 aircraft which approximated its estimated market value at such date. The
remaining gain on the lease settlement was offset by the related management fees
accrued and thus no net gain or loss was recognized on the settlement.
The Partnership has entered into various lease modifications and
financing arrangements with Continental as a result of the bankruptcy which are
summarized below. Continental filed for Chapter 11 bankruptcy protection on
December 3, 1990 and stopped making lease payments.
F-13
<PAGE> 38
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
On July 3, 1991, the Bankruptcy Court approved an agreement amending
the Partnership's lease agreements with Continental with respect to the
Partnership's Boeing 727-200 advanced, and Boeing 747-100, aircraft. Pursuant to
the agreement, Continental paid 50% of the rentals due each month, effective
June 1, 1991. Continental resumed paying 100% of the rentals due each month
beginning October 1, 1991, issued promissory notes for the unpaid rents for
December 1990 through May 1991 and the remaining 50% of the rentals due for the
months of June 1991 through September 1991 (which totaled $2,798,000 and which
were sold to an unaffiliated third party) and reduced the rentals with respect
to the Boeing 727-200 advanced aircraft from $118,000 to $81,000 per month,
effective December 1, 1990. The amount of the rent payable with respect to the
Boeing 747-100 aircraft was not changed.
Additionally, the Partnership also agreed to and advanced $500,000 for
certain qualifying capital expenditures incurred by Continental with respect to
the Boeing 747-100 aircraft and $250,000 for the Boeing 727-200 advanced
aircraft. Continental agreed to repay the amounts advanced by the Partnership
pursuant to this financing arrangement, with interest at 12% per annum, over the
lesser of 36 months or the then remaining lease term. The advances for these
qualifying capital expenditures, were funded from operating reserves. The
balance of the related receivables aggregated $199,000 at December 31, 1995. All
first quarter 1996 repayments of advances have been made by Continental when
due.
On December 30, 1992, the Bankruptcy Court approved an agreement to
further amend the Partnership's lease agreements with Continental with respect
to the Partnership's Boeing 727-200 advanced, and Boeing 747-100, aircraft.
Pursuant to the agreement, rentals attributable to the period from November 1,
1992 through February 15, 1993 were deferred. Continental resumed paying rentals
on a current basis beginning February 15, 1993. The deferred rentals are
payable, along with interest at the rate of 8.70% per annum, in 36 equal monthly
installments which began May 1, 1993. At December 31, 1995, the balance of the
deferred rentals was $152,000. All first quarter 1996 repayments of deferred
rentals have been made by Continental when due.
The Partnership recorded a provision for decline in market value of
$400,000 and $57,000 during the years ended December 31, 1995 and 1994,
respectively, to reflect an estimate of recoverability of the Partnership's
investment in the Boeing 727-200 aircraft.
Trans World Airlines Lease During February 1989, the Partnership
acquired a McDonnell Douglas MD-82 aircraft for a total purchase price of
$21,017,000. The aircraft is subject to an operating lease with Trans World
Airlines, Inc. ("TWA"). The lease which was originally scheduled to expire on
April 23, 1993 was modified and under the terms of the lease amendment was
extended until October 1, 1998 with rentals payable monthly, in advance, at the
rate of $185,000 per month.
F-14
<PAGE> 39
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Pursuant to the lease amendment, the Partnership reimbursed TWA for
$225,000 of capital improvements and advanced $750,000 to TWA to finance certain
major maintenance procedures. TWA is repaying the $750,000 to the Partnership
over the remaining lease term, in equal monthly installments, with interest at a
fixed rate of 9.68%. At December 31, 1995, the balance of the receivable was
$428,000 ($557,000 at December 31, 1994). All first quarter 1996 payments have
been made by TWA.
In mid-October 1994 because of operating and financial problems, TWA
announced that it would seek a global restructuring of its capital by offering
common stock for its debt securities preferred stock obligation and lease
deferrals negotiated with aircraft lessors such as the Partnership ("Exchange
Offer"). TWA and the Partnership agreed to a deferral of 50% of the original
rent scheduled for November 1994 and 75% of the original schedule from December
1994 to April 1995 with originally scheduled payments resuming in May 1995.
Additionally, TWA and the Partnership reached an agreement to extend the lease
of the MD-82 aircraft by six years beyond the then scheduled expiration date to
October 1, 2004 at the current lease rate at $185,000 per month. All rents
deferred during the November 1994 to April 1995 period are scheduled to be
repaid with interest at 12% from the date of the deferral over an 18 month
period commencing May 1, 1995. On June 30, 1995, TWA filed its prepackaged
reorganization plan under Chapter 11 of the U.S. Bankruptcy Code. On August 23,
1995, the reorganization plan, which included the foregoing lease
modifications, was confirmed by the Bankruptcy Court, and TWA emerged from
bankruptcy. TWA has made all rental payments, advance repayments and payments
of deferred rent when due. However, there can be no assurance that TWA will be
able to meet its obligations in the future. At December 31, 1995 and 1994, the
Partnership had $465,000 and $231,000 of deferred rent receivables relating to
the TWA aircraft which were included in rents and other receivables on the
balance sheets.
USAir Lease During March 1989, the Partnership acquired one-half of the
beneficial interest in a trust ("Trust") which is the owner/lessor of a
McDonnell Douglas MD-81 aircraft for a total purchase price of $9,999,000. The
remaining one-half interest in the Trust is owned by Pegasus Aircraft Partners
II, L.P., an affiliated partnership. The aircraft is subject to an operating
lease with USAir, the term of which ends on June 1, 1998. The lease may be
terminated subject to the lessee's guarantee that the Partnership will receive
contractually defined minimum termination values upon remarketing of the
aircraft. Rental payments are payable quarterly, in arrears, at a rate of
$304,000 (for the Partnership's one-half interest in the aircraft). The lease
provides for one three-year renewal option, at the same quarterly rental rate.
If the lease is not renewed for the first renewal period, the lessee must make a
termination payment of $1,113,000 to the Partnership. The lessee also has three
additional one-year renewal options at fair market rental rates. The lessee may
elect to purchase the aircraft at its fair market value at the end of any
renewal term.
F-15
<PAGE> 40
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The McDonnell Douglas MD-81 aircraft was purchased subject to a tax
benefit transfer lease ("TBT lease") which provided for the transfer of the
investment tax credits and depreciation deductions with respect to the aircraft
to a tax lessor. Under the TBT lease, the Trust, as the owner of the aircraft
and the tax lessee under the TBT lease, has agreed to indemnify the tax lessor
if certain anticipated tax benefits are lost by the tax lessor as a result of,
among other things, acts or omissions by the Trust, breach of covenants by the
Trust under the TBT lease, loss or damage to the aircraft or use of the aircraft
outside the United States. The TBT lease requires that a letter of credit be
posted to secure this obligation. The Partnership shares in the annual cost of
the letter of credit and is obligated for one-half of any calls on the letter of
credit.
The letter of credit has a current face amount of approximately $2.3
million. Through June 1995 the letter of credit agreement obligated the
Partnership to deposit $35,000 per quarter (beginning on June 1, 1992 and
originally scheduled to terminate on June 1, 1997) into a restricted account at
the bank ("Lender") which issued the current letter of credit. The funds in this
restricted account, which totaled $385,000 at December 31, 1994, served as cash
collateral to collateralize the Partnership's obligations under the letter of
credit agreement. In July 1995, the Partnership restructured its borrowing
arrangement with the Lender, extending the $4,000,000 commitment to May 1997.
The Lender, which also separately held the cash collateral account, released
its Security interest in the cash collateral account and eliminated the
requirement for future deposits to such account.
Under the operating lease, the lessee, USAir, Inc., has assumed all
liabilities, indemnities and obligations of the Trust to the tax lessor under
the TBT lease and has agreed to indemnify the Trust for any liability, indemnity
or obligation to the tax lessor under the TBT lease except for liability
resulting from breaches by the Trust of covenants under the operating lease. It
has not posted a letter of credit to secure this obligation. As a result of the
foregoing, if the tax lessor draws on the letter of credit as a result of action
by the lessee, the Partnership and Pegasus Aircraft Partners II, L.P., through
the Trust, will be responsible for the loss to the tax lessor until they can
obtain indemnification from the lessee.
The tax lessor is entitled to call on the letter of credit whether its
loss of tax benefits is caused by Pegasus Aircraft Partners II, L.P. or the
Partnership, and Pegasus Aircraft Partners II, L.P. and the Partnership have
agreed to indemnify each other for any loss occasioned by the acts of the other.
To date, there have been no calls against the letter of credit.
General The aircraft leases are principally triple net leases. As such,
during the terms of leases, the lessees are required to pay substantially all
expenses associated with the aircraft and in the case of Kiwi, also fund certain
maintenance expenses through hourly maintenance reserves paid monthly.
F-16
<PAGE> 41
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Significant Lessees
The Partnership leased its aircraft to four different airlines during
1995. Revenues from airlines which accounted for greater than 10% of the
Partnership's total rental revenues during 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Percentage of Rental Revenues
-----------------------------
Airlines 1995 1994 1993
-------- ---- ---- ----
<S> <C> <C> <C>
Trans World Airlines, Inc. 36.5% 26.0% 25.1%
Kiwi International Air Lines, Inc. 23.2 - -
Continental Airlines, Inc. 20.3 49.2 45.8
USAir, Inc. 20.0 14.2 13.4
Northwest Aircraft, Inc. - - 15.7
</TABLE>
Such percentages excluded the lease settlement payment received from Continental
in 1995 with respect to the 747-100 previously leased to them. Such proceeds
were substantially accounted for under the cost recovery method.
Future Minimum Rental Income
The following is a schedule by year of future minimum rental income
under the leases as of December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 5,561
1997 4,754
1998 4,754
1999 4,754
2000 3,434
Thereafter 8,802
-------
Total $32,059
=======
</TABLE>
The above schedule of future minimum rental income does not include the
rental income which would result from the renewal of existing leases or the
re-leasing of aircraft, except for the initial three-year renewal period (June
1998 to June 2001) for the McDonnell Douglas MD-81 aircraft under lease to
USAir, Inc. This renewal is included since USAir must make a termination
payment of $1,113,000 if the renewal is not exercised.
The Partnership operates in one industry, the leasing of used
aircraft to commercial airlines.
F-17
<PAGE> 42
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
6. TRANSACTIONS WITH AFFILIATES
Management Fees The General Partners receive a quarterly subordinated
base management fee in an amount generally equal to 1.5% of gross aircraft
rentals, net of re-lease fees paid. Of this amount, 1.0% is payable to the
Managing General Partner and 0.5% is payable to the Administrative General
Partner. During the years ended December 31, 1995, 1994 and 1993, the General
Partners earned base management fees of $148,000, $126,000 and $135,000,
respectively.
The General Partners also receive a quarterly subordinated incentive
management fee in an amount equal to 4.5% of quarterly cash flow and sales
proceeds (net of resale fees), of which 2.5% is payable to the Managing General
Partner and 2.0% is payable to the Administrative General Partner. During the
years ended December 31, 1995, 1994 and 1993, the General Partners earned
incentive management fees of $426,000, $365,000 and $396,000, respectively.
Re-lease Fee The General Partners receive a quarterly subordinated fee
for re-leasing aircraft or renewing a lease in an amount equal to 3.5% of the
gross rentals from such re-lease or renewal for each quarter for which such
payment is received. Of this amount, 2.5% is payable to the Managing General
Partner and 1.0% is payable to the Administrative General Partner. During the
years ended December 31, 1995, 1994 and 1993, the General Partners earned
$124,000, $110,000 and $71,000, respectively of re-lease fees.
Accountable Expenses The General Partners are entitled to reimbursement
of certain expenses paid on behalf of the Partnership which are incurred in
connection with the administration and management of the Partnership. Such
reimbursable expenses amounted to $50,000, $50,000 and $51,000 during 1995, 1994
and 1993, respectively, all of which were paid or accrued to the Administrative
General Partner.
Other In 1994, the Partnership acquired an aircraft engine from Pacific
Aviation Holding Company, an affiliate of the Managing General Partner, at a
purchase price of $195,000. The purchase price paid by the Partnership was equal
to Pacific Aviation Holding Company's actual cost of the engine. The depreciated
cost of the engine is included in Aircraft, net on the balance sheet on December
31, 1995.
During 1995, the Administrative General Partner voluntarily deferred
the receipt of management fees and release fees earned beginning January 1,
1995. Such amount aggregated $273,000.
F-18
<PAGE> 43
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
7. NOTES PAYABLE
During April 1994, the Partnership established a loan facility with an
unaffiliated, third-party lender ("Lender"), which was collateralized by the
Partnership's one-half interest in the McDonnell Douglas MD-81 aircraft leased
to USAir, Inc. ("USAir") and the Partnership's Boeing 747-100 aircraft leased to
Continental. Under the terms of the loan agreement, the Partnership was entitled
to borrow up to $4,000,000, the commitment for which expired on May 1, 1995. The
loan agreement required a commitment fee on the unborrowed funds of .5% per
annum payable quarterly. There are no compensating balance requirements. The
Partnership had an option for a fixed (market interest rate on the U.S. Treasury
bond with a similar maturity plus 2.75%) or floating (the Lender's prime rate
plus 1.5%) rate of interest.
In July 1995, the Partnership and the Lender completed an extension of
the commitment. Under the new agreement, the aggregate commitment will remain at
$4,000,000, the Partnership's ability to borrow under the facility will be
extended until May 1, 1997 and the floating interest rate charged under the
facility will be reduced to the Lender's prime rate plus .5%. The Lender
released the Boeing 747-100 aircraft as collateral under the loan and received
as substitute collateral a perfected security interest in the Partnership's
MD-82 aircraft leased to TWA. Through December 31, 1995, the Partnership had
borrowed an aggregate of $2,150,000 pursuant to the loan agreement, of which
$1,625,000 and $2,000,000 were outstanding at December 31, 1995 and December 31,
1994, respectively.
Based upon the outstanding borrowings at December 31, 1995, the
required repayment schedule is as follows: (in thousands)
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 407
1997 442
1998 481
1999 295
------
$1,625
======
</TABLE>
F-19
<PAGE> 44
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
8. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net income as shown in the
accompanying financial statements to the taxable income (loss) reported for
federal income tax purposes (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $ 880 $ 426 $2,881
Increase (decrease) resulting from:
Depreciation (2,037) (613) (428)
Reserves for maintenance costs and
decline in market value of aircraft 500 1,745 867
Continental lease settlement proceeds accounted
for as cost recovery 3,673 - -
TBT interest income less
TBT rental expense (591) (470) (375)
Deferred rental income 218 (182) (136)
Other 43 53 56
Maintenance reserves collected and related interest
net of expense 613 522 -
------- ------ ------
Taxable income per federal income tax return $ 3,299 $1,481 $2,865
======= ====== ======
</TABLE>
The following is a reconciliation of the amount of the Partnership's
total Partnership equity as shown in the accompanying financial statements to
the tax bases of the Partnership's net assets (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Total Partnership equity per financial statements $ 31,176 $ 37,770 $ 44,616
Increase (decrease) resulting from:
Commissions and expenses paid
in connection with the sale
of limited partnership units 8,441 8,441 8,441
Reserves for maintenance costs and
decline in market value of aircraft including Continental lease
settlement, accounted for as cost recovery 9,020 4,947 3,202
Distributions payable to partners 1,616 1,818 1,818
Deferred rental income 218 - 182
Accumulated depreciation (21,067) (19,030) (18,417)
TBT interest income less TBT
rental expense (2,281) (1,690) (1,220)
Maintenance reserves payable 1,255 522 -
Other (8) (31) (83)
-------- -------- --------
Tax bases of net assets $ 28,370 $ 32,747 $ 38,539
======== ======== ========
</TABLE>
F-20
<PAGE> 45
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
9. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and PaineWebber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Air Transport Leasing Inc., an affiliate
of PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions
alleged among other things, that, in connection with the sale of interests in
The Partnership, PaineWebber and the Administrative General Partners (1) failed
to provide adequate disclosure of the risks involved with each partnership; (2)
made false and misleading representations about the safety of the investments
and the partnership's anticipated performance; and (3) marketed the partnership
to investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for
all sums invested by them in the partnerships, as well as disgorgement of all
fees and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment
of the plaintiffs' claims in the New York Limited Partnerships Actions.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125
F-21
<PAGE> 46
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
million into an escrow fund under the supervision of the United States District
Court for the Southern District of New York to be used to resolve the litigation
in accordance with a definitive settlement agreement and plan allocation which
the parties expect to submit to the court for its consideration and approval
within the next several months. Until a definitive settlement and plan of
allocation is approved by the court, there can be no assurance what, if any,
payment or non-monetary benefits will be made available to unitholders in the
Partnership.
In April 1995, two investors in the Pegasus limited partnerships filed
a purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Robert M. Jacobson, et al. v. PaineWebber, Inc., et al., making
allegations substantially similar to those in the New York Limited Partnership
Actions, but limited in subject matter to the sale of the Pegasus partnerships,
and without a RICO claim. The plaintiffs in the Jacobson case simultaneously
remained as participants in the New York Limited Partnership Actions, and
subsequently sought to intervene in that action and to be named class
representatives for a separate subclass that they asked the Court to establish
consisting of investors in the Pegasus partnerships. The court in the New York
Limited Partnership Actions has not yet ruled on their request.
Three actions were filed in the District court for Brazoria county,
Texas, relating to the sale and sponsorship of interests in the Partnership and
an affiliated partnership. The complaints make state law claims, specifically,
common law fraud, consipiracy, violations of section 27.01 of the Texas
Business and Commerce Code, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty, violations of the
Texas Securities Act, and violations of the Texas Deceptive Trade Practices
Act. The plaintiffs seek unspecified damages, including attorney's fees,
reimbursement for all sums invested by them in the partnerships, exemplary
damages, and treble damages under the Texas Deceptive Trade Practices Act. All
three actions have been removed to federal court and two have been transferred
to the United States District Court for the Southern District of New York. The
third action has been dismissed with the consent of the parties on the ground
that it is duplicative of the two actions now before the federal court in New
York.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, Paine Webber and its affiliates
including, the Administrative General Partner could be entitled to
indemnification from the Partnership for expenses and liabilities in connection
with this litigation. The General Partners are unable to determine the effect,
if any, of such action on the Partnership's financial statements, taken as a
whole.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value of certain financial instruments, whether
or not reported on the balance sheet. Where quoted market prices are available
the values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used
including the discount rate and estimates of future cash flows. In addition,
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements including leased aircraft owned by
the Partnership. Therefore, the aggregate fair value amounts presented do not
purport to represent and should not be considered representative of the
underlying market value of the Partnership.
The methods and assumptions used to estimate the fair value of each
class of the financial instruments are described below.
Cash equivalents. For cash equivalents, carrying value approximates
fair value.
F-22
<PAGE> 47
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Restricted cash. For Restricted cash, carrying value approximates fair
value.
Rents and other receivables. For rents and other receivables, carrying
value approximates fair value.
Prepaid expenses. For prepaid expenses, carrying value approximates
fair value.
Notes payable. For notes payable, carrying value approximates fair
value.
Distribution to partners. For distribution to partners, carrying value
approximates fair value.
Accounts payable and accrued expenses payable to affiliates, and
accrued interest payable. For accounts payable and accrued expenses payable to
affiliates, and accrued interest payable, carrying value approximates fair
value.
Maintenance reserves payable. For maintenance reserves payable,
carrying value approximates fair value.
Deferred rental income. For deferred rental income, carrying value
approximates fair value.
F-23
<PAGE> 48
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in accountants or disagreements with accountants
with respect to accounting or financial disclosure issues during 1995 or 1994.
23
<PAGE> 49
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers and directors. The General Partners
jointly manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners is as
follows:
<TABLE>
<CAPTION>
Pegasus Aircraft Management Corporation
Name Positions Held
---- --------------
<S> <C>
Richard S. Wiley President and Chairman of the Board
Richard W. Doust Executive Vice President, Assistant Secretary and
Director
Gregory Harding-Brown Executive Vice President, Assistant Secretary,
Treasurer and Director
Carol L. Chase Senior Vice President, General Counsel and Secretary
</TABLE>
Richard S. Wiley, age 42, is President and Chairman of the Board of the
Managing General Partner and Pegasus Capital Corporation, which was formed in
1988. Prior to forming Pegasus Capital Corporation, Mr. Wiley was a Vice
President of CIS Corporation ("CIS"), a wholly-owned subsidiary of Continental
Information Systems Corporation ("Continental") for the period 1986 to 1988. Mr.
Wiley originated aircraft transactions throughout the world and sold aircraft to
third-party investors. From 1985 to 1986, Mr. Wiley worked as Treasurer of
Caterpillar Capital Company in San Diego, California. From 1983 to 1985, he
served as Managing General Partner and President of RAM Financial Corporation in
Houston, Texas, an equipment leasing venture capital company. Prior to joining
RAM, he worked for GATX Leasing Corporation as a District Manager from 1980 to
1983. Mr. Wiley received a B.S. degree from the Indiana University School of
Business and an M.B.A. from the University of California, Los Angeles.
Richard W. Doust, age 52, is an Executive Vice President, Assistant
Secretary and Director of the Managing General Partner and Pegasus Capital
Corporation. He is also a co-founder of Cirrus Capital Corporation of Florida
("CCCF") and Cirrus Capital Corporation ("Cirrus"), both of which were formed in
October 1989 to engage in aircraft and other financing activities. Under dual
capacity as President of Cirrus and Vice President of CCCF, Mr. Doust, along
with Mr. Harding-Brown (see below), was responsible for the day-to-day
operations for these companies including origination, finance and aircraft sales
transactions totaling $225,000,000 involving DC-10s, MD-80s, 737-300s, 727s and
other aircraft. Mr. Doust has 28 years of varied experience within the aviation
and finance industries dating back to 1966. Prior to forming Cirrus, Mr. Doust
was with Security Pacific Leasing Corporation from 1983 to 1989 as head of the
Aviation Division. In that position, he purchased and sold all aircraft types.
From December 1978 to 1982, Mr. Doust was director of aircraft marketing and air
agreements for
24
<PAGE> 50
World Airways. Mr. Doust holds an MBA from Golden Gate University (1982) in
International Business (finance) and a BA from the University of San Francisco
(1966). He has a Commercial Pilots License, and has been awarded the Air Medal
with Bronze Star and Distinguished Flying Cross by the U.S. Government. He also
holds both Series 7 and Series 24 licenses as a registered principal with
Pegasus Securities Corporation, an NASD member firm.
Gregory Harding-Brown, age 40, is an Executive Vice President,
Assistant Secretary, Treasurer and Director of the Managing General Partner and
Pegasus Capital Corporation. He is a co-founder of Cirrus Capital Corporation of
Florida ("CCCF") and Cirrus Capital Corporation ("Cirrus"), both of which were
formed in October 1989 to engage in aircraft and other financing activities.
Under dual capacity as Executive Vice President of Cirrus and Vice President of
CCCF, Mr. Harding-Brown, along with Mr. Doust (see above), was responsible for
the day-to-day operations for these companies including origination, finance,
equity sales and lease analysis transactions totaling $225,000,000. Prior to
forming Cirrus, Mr. Harding-Brown was with Security Pacific Leasing Corporation
from 1983 to 1989. He was responsible for more than $450 million in financing on
all types of aircraft and transportation equipment. From 1980 to 1983, he held
various positions with financial service companies. Mr. Harding-Brown holds a BA
from the University of California at Berkeley in Political Economy of Industrial
Societies (International Economics). He also holds both Series 7 and Series 24
licenses as a registered principal with Pegasus Securities Corporation, an NASD
member firm.
Carol L. Chase, Esq., age 43, is a Senior Vice President, General
Counsel and Secretary of the Managing General Partner and Pegasus Capital
Corporation. She is responsible for providing legal counsel for all aspects of
capital equipment leasing, financing and placement. Prior to joining Pegasus,
from 1987 to 1988, Ms. Chase was Senior Corporate Counsel at CIS where she
provided legal counsel for transactions involving aircraft and related
equipment. From 1981 to 1987, Ms. Chase was legal counsel at Transamerica
Airlines where she was responsible for the legal negotiation and documentation
for the purchase, sale, lease and finance of aircraft and aircraft-related
equipment. Ms. Chase received a B.A. degree from California State University,
Hayward and a J.D. degree from the University of California, Davis. She is a
member of the State Bar of California, the American Bar Association, and the
American Corporate Counsel Association.
<TABLE>
<CAPTION>
Air Transport Leasing, Inc.
Name Positions Held
---- --------------
<S> <C>
Gerald F. Goertz, Jr. Chairman of the Board
Clifford B. Wattley President and Director
Stephen R. Dyer Vice President, Assistant Secretary and Director
Joseph P. Ciavarella Vice President, Secretary, Treasurer and
Chief Financial and Accounting Officer
</TABLE>
Gerald F. Goertz, Jr., age 38, is Chairman of the Board of Directors of
the Administrative General Partner. Mr. Goertz joined PaineWebber Incorporated
in December 1990 and holds the position of Corporate Vice President and Director
of Private Investments. Prior to joining PaineWebber Incorporated, Mr. Goertz
was associated with CG Realty Advisors and The
25
<PAGE> 51
Freeman Company. He received his Bachelor of Arts degree in Business
Administration in 1979 from Vanderbilt University and his Juris Doctorate and
Masters of Business Administration from Memphis State University in 1982.
Clifford B. Wattley, age 46, is President and a Director of the
Administrative General Partner. Mr. Wattley is a Corporate Vice President with
PaineWebber Incorporated, having joined the firm in 1986. He also was employed
previously by Paine, Webber, Jackson & Curtis from 1979 to 1980. From 1986 to
1992, Mr. Wattley participated in PaineWebber's Principal Transactions Group.
Since 1992, Mr. Wattley has been a member of the Private Investment Department.
He holds a Bachelor of Science degree in engineering from Columbia University
and a Masters in Business Administration from Harvard University.
Stephen R. Dyer, age 36, is a Vice President, Assistant Secretary and a
Director of the Administrative General Partner. He joined PaineWebber
Incorporated in June 1988 as a Divisional Vice President and is currently a
Corporate Vice President. Prior to joining PaineWebber Incorporated, Mr. Dyer
had been employed, since June 1987, as an Assistant Vice President in the Retail
National Products Group of L.F. Rothschild & Co. Incorporated. Prior to joining
L.F. Rothschild he was employed, beginning in January 1985, as an Associate in
the Real Estate Department of Thomson McKinnon Securities Inc. From July 1981 to
August 1983, Mr. Dyer was on the audit staff of the accounting firm of Arthur
Young & Company. He received his Bachelor of Science degree in Accounting in
1981 from Boston College and a Masters of Business Administration from Indiana
University in December 1984. Mr. Dyer is a Certified Public Accountant.
Joseph P. Ciavarella, age 40, is a Vice President, Secretary, Treasurer
and Chief Financial and Accounting Officer of the Administrative General
Partner. He joined PaineWebber Incorporated in May 1994 as a Corporate Vice
President. Prior to joining PaineWebber Incorporated, he was affiliated with
Aviation Capital Group in the area of aircraft finance. He was associated with
Integrated Resources, Inc. from 1983 to 1993 as a corporate officer as well as a
senior officer in various subsidiaries in the equipment leasing, aircraft
finance and venture capital areas. He has a Bachelor of Business Administration
degree in Accounting from Hofstra University and is a Certified Public
Accountant.
26
<PAGE> 52
Item 11. Executive Compensation No compensation was paid by the Partnership to
the officers and directors of the General Partners. See Item 13 of this Report,
"Certain Relationships and Related Transactions", which is incorporated herein
by reference, for a description of the compensation and fees paid to the General
Partners and their affiliates by the Partnership during 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the Partnership
to be the beneficial owner of more than 5% of the Units of the
Partnership. The Partnership has no directors or officers, and
neither of the General Partners of the Partnership owns any
Units. The Assignor Limited Partner for the Partnership,
Pegasus Assignor L.P.A., Inc. (an affiliate of the Managing
General Partner), owns 5 Units. Additionally, as of December
31, 1995 ATL Inc., an affiliate of the Administrative
General Partner owns approximately 31,716 Units as the
result of legal settlements with various limited partners.
The names and addresses of the General Partners are as
follows:
Managing General Partner:
Pegasus Aircraft Management Corporation
Four Embarcadero Center, 35th Floor
San Francisco, CA 94111
Administrative General Partner:
Air Transport Leasing, Inc.
1200 Harbor Boulevard, 5th Floor
Weehawken, NJ 07087
The General Partners, collectively, have a 1% interest in each
item of the Partnership's income, gains, losses, deductions,
credits and distributions.
(b) The following table sets forth the number of Units
beneficially owned as of March 1, 1996, by directors of the
Managing General Partner and the Administrative General
Partner and by all directors and officers of such corporations
as a group:
<TABLE>
<CAPTION>
Number
of Units
Beneficially Percent
Name Owned of Class
---- ------------ --------
<S> <C> <C>
Managing General Partner
Richard S. Wiley 3,216 *
Richard W. Doust 5,234 *
Gregory Harding-Brown 3,396 *
</TABLE>
27
<PAGE> 53
<TABLE>
<S> <C> <C>
Administrative General Partner
None
All directors and officers
as a group (3 persons) 11,846 *
</TABLE>
* Less than 1% of class.
(c) The Partnership knows of no arrangements, the operation of the
terms of which may at a subsequent date result in a change in
control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have received, or will
receive, certain types of compensation, fees or other distributions in
connection with the operations of the Partnership. The fees and compensation
were determined in accordance with the applicable provisions of the Partnership
Agreement.
Following is a summary of the amounts paid, or payable, to the General
Partners and their affiliates during 1995.
Base Management Fee The General Partners receive a quarterly
subordinated fee in an amount generally equal to 1.5% of gross aircraft rentals,
net of re-lease fees paid. Of this amount, 1.0% is payable to the Managing
General Partner and 0.5% is payable to the Administrative General Partner.
During 1995, the General Partners earned base management fees of $148,000.
Incentive Management Fee The General Partners also receive a quarterly
subordinated fee, in an amount equal to 4.5% of quarterly cash flow and sales
proceeds (net of resale fees), of which 2.5% is payable to the Managing General
Partner and 2.0% is payable to the Administrative General Partner. During 1995,
the General Partners earned incentive management fees of $426,000.
Re-lease Fee The General Partners receive a quarterly subordinated fee
for re-leasing aircraft or renewing a lease in an amount equal to 3.5% of the
gross rentals from such re-lease or renewal for each quarter for which such
payment is received. Of this amount, 2.5% is payable to the Managing General
Partner and 1.0% is payable to the Administrative General Partner. During 1995
the General Partners earned re-lease fees of $124,000.
Commencing January 1, 1995 the Administrative General Partner voluntary
deferred the receipt of the base management fees, incentive management fees and
release fees otherwise payable. Such amount aggregated $273,000 for 1995.
Accountable Expenses The General Partners are entitled to reimbursement
of certain expenses paid on behalf of the Partnership which are incurred in
connection with the
28
<PAGE> 54
administration and management of the Partnership. Such reimbursable expenses
amounted to $50,000 during 1995, all of which was paid or is payable to the
Administrative General Partner.
Partnership Interest In the aggregate, the General Partners received
cash distributions of $74,000 as their allocable share of distributable cash
flow for 1995. In addition, $33,000 of the Partnership's net taxable income for
1995 was allocated to the General Partners.
29
<PAGE> 55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to
Item 8 of this Report, "Financial Statements and
Supplementary Data").
(b) The Partnership did not file any reports on Form 8-K during
the fourth quarter of the fiscal year ended December 31, 1995.
(c) Exhibits required to be filed.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1(a) First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 3.1 to Pre-Effective
Amendment No. 2 to Form S-1 Registration
Statement dated September 16, 1988
(Commission File No. 33-22986).*
(b) Amendment, dated as of December 26, 1990, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K dated December
26, 1990.*
(c) Amendment, dated as of March 31, 1992, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 4 to Registrant's
Current Report on Form 8-K dated April 16,
1992.*
4.1 Depositary Agreement dated December 20,
1988, by and among Pegasus Aircraft
Partners, L.P. ("Registrant"), Pegasus
Aircraft Management Corporation, a
California corporation, PaineWebber Aircraft
Leasing, Inc., a Delaware corporation,
Pegasus Assignor L.P.A., Inc., a California
corporation, dated April 27, 1989. Filed as
Exhibit 4.1 to the Registrant's Form 8-A on
May 1, 1989 (Commission File No. 33-22986).*
10.1(a) Lease Agreement dated as of September 26,
1988 by and between Pegasus Capital
Corporation, a California corporation
("Seller") and Northwest Aircraft, Inc.
("Lessee") (Boeing Model 727-251 airframe,
SN 20289). Filed as Exhibit 10.2(c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
</TABLE>
* Filed previously
30
<PAGE> 56
<TABLE>
<S> <C>
(b) Lease Agreement dated as of September 26,
1988 by and between the Seller and Northwest
Aircraft, Inc. ("Lessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(d) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(c) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 20289). Filed as
Exhibit 10.2(e) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(d) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(f) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(e) Trust Agreement 258 dated as of December 23,
1988 by and between First Security Bank of
Utah, National Association in its capacity
as Owner Trustee ("Owner Trustee") and
Registrant. Filed as Exhibit 10.2(i) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(f) Trust Agreement 267 dated as of December 23,
1988 by and between the Owner Trustee and
Registrant. Filed as Exhibit 10.2(j) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(g) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N258US. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(h) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N267US. Filed as Exhibit 10.1(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(i) Lease Agreement dated April 15, 1994 between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
</TABLE>
* Filed previously
31
<PAGE> 57
<TABLE>
<S> <C>
International Airlines, Inc., (Lessee) with
respect to one used Boeing 727-251 Aircraft
US Registration number N258US.*
(j) Lease Agreement dated February 15, 1994,
between First Security Bank of Utah,
National Association, as Trustee, (Lessor)
and Kiwi International Airlines, Inc.,
(Lessee) with respect to one used Boeing
727-251 Aircraft US Registration number
N267US.*
(k) Lease Amendment No. 1 dated March 15, 1995
with respect to lease between First
Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (i) dated April 15, 1994.*
(l) Lease Amendment No. 1 dated March 15, 1995
with respect to the lease between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (j) dated February 15,
1994.*
10.2(a) Trust Agreement 603, dated as of October 10,
1988 by and between the Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 747-143
Aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.3(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 603, dated as of October 14,
1988 by and between the Owner Trustee and
Lessee. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental
</TABLE>
* Filed previously
32
<PAGE> 58
<TABLE>
<S> <C>
Airlines, Inc., New York Airlines, Inc., Bay
Air Lease I, Cirrus Capital Corporation of
Florida, Bay Air Lease III, Meridian Trust
Company, as Owner Trustee, IAL Aircraft
Acquisitions, Inc., Pegasus Aircraft
Partners II, L.P., Pegasus Capital
Corporation, IAL Aviation Resources, Inc.,
Aircraft Leasing, Inc., Pegasus Aircraft
Partners, L.P., Gilman Financial Services,
Inc. and First Security Bank of Utah, as
Owner Trustee concerning various aircraft
and aircraft engines. Filed as Exhibit
19.1(b) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.2(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
(f) Lease termination agreement, dated
October 16, 1995 between Continental
Airlines, Inc. and First Securitiy Bank
of Utah, N.A. as trustee of a trust in
which Pegasus Aircraft Partners LP is
the sole beneficiary regarding the lease of
the 747-143 aircraft.
10.3(a) Trust Agreement 735, dated as of September
26, 1988 by and between Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 727-224
aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.4(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 735, dated as of September
26, 1988 by and between Owner Trustee and
Lessee. Filed as Exhibit 10.4(d) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the
</TABLE>
* Filed previously
33
<PAGE> 59
<TABLE>
<S> <C>
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(b) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
10.4(a) Trust Certificate dated February 16, 1989,
for the benefit of the Registrant from New
DC-9T-I, Inc., a New York Corporation and
Meridian Trust Company ("Trustee"). Filed as
Exhibit 19.2(c) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.*
(b) Lease, dated as of May 20, 1983, as
supplemented by Lease Supplement No. 1 dated
May 24, 1983, between DC-9T-I, Inc., as
Lessor, and Trans World Airlines, Inc., as
Lessee, pertaining to one McDonnell Douglas
DC-9-82 aircraft, U.S. Registration No.
904TW. Filed as Exhibit 10.4 (b) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
(c) Amendment Agreement, dated as of December
15, 1986, between Trans World Airlines,
Inc., as Lessee, and DC-9T-I, Inc., as
Lessor. Filed as Exhibit 10.4 (c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
</TABLE>
* Filed previously
34
<PAGE> 60
<TABLE>
<S> <C>
(d) Amendment No. 1, dated as of May 1, 1991, to
Lease dated as of May 20, 1983, each between
Meridian Trust Company, as Owner Trustee and
Lessor, and Trans World Airlines, Inc., as
Lessee. Filed as Exhibit 19.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1991.*
(e) Amendment No. 2, dated as of April 15, 1993,
between Meridian Trust Company, as Owner
Trustee, and Trans World Airlines, Inc. as
Lessee.*
(f) Agreed Order, dated April 14, 1993,
approving lease amendments among Trans World
Airlines, Inc., Registrant, Pegasus Aircraft
Partners II, L.P. and Pegasus Capital
Corporation relating to leases of certain
aircraft.*
(g) Amendment No. 3 dated as of January 16, 1995
between Meridian Trust Company Owner Trustee
as Lessor and TWA as lessee with respect to
the lease of one McDonnell Douglas MD-82,
U.S. Registration No. N904TW.*
10.5(a) Amended and Restated Lease No. 1, dated
October 14, 1988, between PS Group, Inc. and
USAir, Inc. Filed as Exhibit 10.2.9 to Form
S-1 Registration Statement, dated July 3,
1989 for Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(b) Agreement pursuant to Section 168(f)(8) of
the Internal Revenue Code of 1954, as
Amended between Pacific Southwest Airlines
and General Mills, Inc. Filed as Exhibit
19.3(c) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1989.*
(c) Assumption Agreement, dated March 22, 1989,
among Pegasus Capital Corporation, a
California corporation ("PCC"), the
Purchaser, Concord Asset Management, Inc., a
Delaware corporation ("CAMI") and the
Registrant. Filed as Exhibit 19.3(e) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(d) Participation Agreement, dated September 21,
1989, among Registrant, First Security Bank
of Utah, a national association (the "Owner
Trustee"), CAMI and Pegasus Aircraft
Partners II, L.P., a Delaware limited
partnership. Filed as Exhibit 19.2(e) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
</TABLE>
* Filed previously
35
<PAGE> 61
<TABLE>
<S> <C>
(e) Amended and Restated Reimbursement
Agreement, dated September 21, 1989, between
the Registrant and CAMI. Filed as Exhibit
19.2(f) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(f) Amended and Restated Security Agreement,
dated September 21, 1989, between the
Registrant and CAMI. Filed as Exhibit
19.2(h) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(g) Security Agreement, dated September 21,
1989, between the Registrant and Pegasus
Aircraft Partners II, L.P. Filed as Exhibit
19.2(j) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(h) Security Agreement, dated September 21,
1989, between Pegasus Aircraft Partners II,
L.P. and the Registrant. Filed as Exhibit
19.2(k) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(i) Trust Agreement 814, dated as of March 10,
1989, among PCC, as Beneficiary, the
Registrant, as Beneficiary, and the Owner
Trustee. Filed as Exhibit 19.3(i) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(j) First Amendment to Trust Agreement 814,
dated September 21, 1989, among Pegasus
Aircraft Partners II, L.P., as Beneficiary,
the Registrant, as Beneficiary and the Owner
Trustee. Filed as Exhibit 19.2(m) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
(k) Letter of Credit Agreement, dated as of
April 30, 1992, between First Security Bank
of Utah as Owner Trustee and Philadelphia
National Bank, Incorporated, as CoreStates
Bank, N.A. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992.*
(l) Assumption Agreement, dated April 30, 1992,
among Pegasus Aircraft Partners, L.P. and
Pegasus Aircraft Partners II, L.P. as
Obligors and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(b) to the Registrant's
</TABLE>
* Filed previously
36
<PAGE> 62
<TABLE>
<S> <C>
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.*
(m) Security Agreement and Assignment of lease,
dated as of April 30, 1992, between First
Security Bank of Utah, National Association
as Owner Trustee and Philadelphia National
Bank, Incorporated, as CoreStates Bank, N.A.
Filed as Exhibit 10.1 (c) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992. *
(n) Assignment of Collateral, dated as of April
30, 1992, between Pegasus Aircraft Partners,
L.P. and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(d) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992. *
10.6(a) Loan Agreement, dated April 22, 1994,
between Pegasus Aircraft Partners, L.P. and
Philadelphia National Bank, Incorporated as
CoreStates Bank, N.A.*
(b) Promissory Note, dated April 22, 1994, made
by Pegasus Aircraft Partners, L.P. in favor
of Philadelphia National Bank Incorporated
as CoreStates Bank, N.A.*
(c) Security Agreement and Assignment of lease
between First Security Bank of Utah,
National Association as owner trustee and
Philadelphia National Bank Incorporated as
CoreStates Bank, N.A. with respect to
aircraft N17010.*
(d) Assignment of beneficial interest for
Pegasus Aircraft Partnership to Philadelphia
National Bank Incorporated as CoreStates
Bank, N.A. with respect to the Pegasus
interest in the USAir Trust Agreement and
the Continental Trust Agreement.*
(e) Amended and restated loan agreement between
Pegasus Aircraft Partners LP and
CoreStates Bank, N.A. dated as of July 20,
1995.
19.1 Prospectus of Registrant, dated as of
September 30, 1988. Filed as Exhibit 19.1 to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.*
</TABLE>
* Filed previously
37
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1996
Pegasus Aircraft Partners, L.P. (Registrant)
By: Air Transport Leasing, Inc.
Administrative General Partner
By: /s/ Clifford B. Wattley
-----------------------
Clifford B. Wattley
President and Director
By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Treasurer,
Secretary and Chief Financial
and Accounting Officer
By: Pegasus Aircraft Management Corporation
Managing General Partner
By: /s/ Richard S. Wiley
--------------------
Richard S. Wiley
President and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1996.
Signature Title
- --------- -----
/s/ Richard S. Wiley President and Chairman of
- -------------------- the Board of Pegasus Aircraft
Richard S. Wiley Management Corporation
38
<PAGE> 64
/s/ Richard W. Doust Executive Vice President,
- -------------------- Assistant Secretary and
Richard W. Doust Director of Pegasus Aircraft
Management Corporation
/s/ Gregory Harding-Brown Executive Vice President,
- ------------------------- Assistant Secretary, Treasurer
Gregory Harding-Brown and Director of Pegasus Aircraft
Management Corporation
/s/ Gerald F. Goertz, Jr. Chairman of the Board of
- ------------------------- Air Transport Leasing, Inc.
Gerald F. Goertz, Jr.
/s/ Clifford B. Wattley President and Director of
- ----------------------- Air Transport Leasing, Inc.
Clifford B. Wattley
/s/ Stephen R. Dyer Vice President, Assistant
- ------------------- Secretary and Director of
Stephen R. Dyer Air Transport Leasing, Inc.
39
<PAGE> 65
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1(a) First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 3.1 to Pre-Effective
Amendment No. 2 to Form S-1 Registration
Statement dated September 16, 1988
(Commission File No. 33-22986).*
(b) Amendment, dated as of December 26, 1990, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K dated December
26, 1990.*
(c) Amendment, dated as of March 31, 1992, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 4 to Registrant's
Current Report on Form 8-K dated April 16,
1992.*
4.1 Depositary Agreement dated December 20,
1988, by and among Pegasus Aircraft
Partners, L.P. ("Registrant"), Pegasus
Aircraft Management Corporation, a
California corporation, PaineWebber Aircraft
Leasing, Inc., a Delaware corporation,
Pegasus Assignor L.P.A., Inc., a California
corporation, dated April 27, 1989. Filed as
Exhibit 4.1 to the Registrant's Form 8-A on
May 1, 1989 (Commission File No. 33-22986).*
10.1(a) Lease Agreement dated as of September 26,
1988 by and between Pegasus Capital
Corporation, a California corporation
("Seller") and Northwest Aircraft, Inc.
("Lessee") (Boeing Model 727-251 airframe,
SN 20289). Filed as Exhibit 10.2(c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
</TABLE>
* Filed previously
<PAGE> 66
<TABLE>
<S> <C>
(b) Lease Agreement dated as of September 26,
1988 by and between the Seller and Northwest
Aircraft, Inc. ("Lessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(d) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(c) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 20289). Filed as
Exhibit 10.2(e) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(d) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(f) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(e) Trust Agreement 258 dated as of December 23,
1988 by and between First Security Bank of
Utah, National Association in its capacity
as Owner Trustee ("Owner Trustee") and
Registrant. Filed as Exhibit 10.2(i) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(f) Trust Agreement 267 dated as of December 23,
1988 by and between the Owner Trustee and
Registrant. Filed as Exhibit 10.2(j) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(g) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N258US. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(h) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N267US. Filed as Exhibit 10.1(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(i) Lease Agreement dated April 15, 1994 between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
</TABLE>
* Filed previously
<PAGE> 67
<TABLE>
<S> <C>
International Airlines, Inc., (Lessee) with
respect to one used Boeing 727-251 Aircraft
US Registration number N258US.*
(j) Lease Agreement dated February 15, 1994,
between First Security Bank of Utah,
National Association, as Trustee, (Lessor)
and Kiwi International Airlines, Inc.,
(Lessee) with respect to one used Boeing
727-251 Aircraft US Registration number
N267US.*
(k) Lease Amendment No. 1 dated March 15, 1995
with respect to lease agreement in principle
to Amendment No. 1 of the lease between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (i) dated April 15, 1994.*
(l) Lease Amendment No. 1 dated March 15, 1995
with respect to lease agreement in principle
to Amendment No. 1 of the lease between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (j) dated February 15,
1994.*
10.2(a) Trust Agreement 603, dated as of October 10,
1988 by and between the Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 747-143
Aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.3(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 603, dated as of October 14,
1988 by and between the Owner Trustee and
Lessee. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental
</TABLE>
* Filed previously
<PAGE> 68
<TABLE>
<S> <C>
Airlines, Inc., New York Airlines, Inc., Bay
Air Lease I, Cirrus Capital Corporation of
Florida, Bay Air Lease III, Meridian Trust
Company, as Owner Trustee, IAL Aircraft
Acquisitions, Inc., Pegasus Aircraft
Partners II, L.P., Pegasus Capital
Corporation, IAL Aviation Resources, Inc.,
Aircraft Leasing, Inc., Pegasus Aircraft
Partners, L.P., Gilman Financial Services,
Inc. and First Security Bank of Utah, as
Owner Trustee concerning various aircraft
and aircraft engines. Filed as Exhibit
19.1(b) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.2(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
(f) Lease termination agreement, dated
September 15, 1995 between Continental
Airlines, Inc. and First Securitiy Bank
of Utah, N.A. as trustee of a trust in
which Pegasus Aircraft Partners LP is
the sole beneficiary regarding the lease of
the 747-143 aircraft.
10.3(a) Trust Agreement 735, dated as of September
26, 1988 by and between Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 727-224
aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.4(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 735, dated as of September
26, 1988 by and between Owner Trustee and
Lessee. Filed as Exhibit 10.4(d) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the
</TABLE>
* Filed previously
<PAGE> 69
<TABLE>
<S> <C>
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(b) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
10.4(a) Trust Certificate dated February 16, 1989,
for the benefit of the Registrant from New
DC-9T-I, Inc., a New York Corporation and
Meridian Trust Company ("Trustee"). Filed as
Exhibit 19.2(c) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.*
(b) Lease, dated as of May 20, 1983, as
supplemented by Lease Supplement No. 1 dated
May 24, 1983, between DC-9T-I, Inc., as
Lessor, and Trans World Airlines, Inc., as
Lessee, pertaining to one McDonnell Douglas
DC-9-82 aircraft, U.S. Registration No.
904TW. Filed as Exhibit 10.4 (b) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
(c) Amendment Agreement, dated as of December
15, 1986, between Trans World Airlines,
Inc., as Lessee, and DC-9T-I, Inc., as
Lessor. Filed as Exhibit 10.4 (c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
</TABLE>
* Filed previously
<PAGE> 70
<TABLE>
<S> <C>
(d) Amendment No. 1, dated as of May 1, 1991, to
Lease dated as of May 20, 1983, each between
Meridian Trust Company, as Owner Trustee and
Lessor, and Trans World Airlines, Inc., as
Lessee. Filed as Exhibit 19.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1991.*
(e) Amendment No. 2, dated as of April 15, 1993,
between Meridian Trust Company, as Owner
Trustee, and Trans World Airlines, Inc. as
Lessee.*
(f) Agreed Order, dated April 14, 1993,
approving lease amendments among Trans World
Airlines, Inc., Registrant, Pegasus Aircraft
Partners II, L.P. and Pegasus Capital
Corporation relating to leases of certain
aircraft.*
(g) Amendment No. 3 dated as of January 16, 1995
between Meridian Trust Company Owner Trustee
as Lessor and TWA as lessee with respect to
the lease of one McDonnell Douglas MD-82,
U.S. Registration No. N904TW.*
10.5(a) Amended and Restated Lease No. 1, dated
October 14, 1988, between PS Group, Inc. and
USAir, Inc. Filed as Exhibit 10.2.9 to Form
S-1 Registration Statement, dated July 3,
1989 for Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(b) Agreement pursuant to Section 168(f)(8) of
the Internal Revenue Code of 1954, as
Amended between Pacific Southwest Airlines
and General Mills, Inc. Filed as Exhibit
19.3(c) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1989.*
(c) Assumption Agreement, dated March 22, 1989,
among Pegasus Capital Corporation, a
California corporation ("PCC"), the
Purchaser, Concord Asset Management, Inc., a
Delaware corporation ("CAMI") and the
Registrant. Filed as Exhibit 19.3(e) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(d) Participation Agreement, dated September 21,
1989, among Registrant, First Security Bank
of Utah, a national association (the "Owner
Trustee"), CAMI and Pegasus Aircraft
Partners II, L.P., a Delaware limited
partnership. Filed as Exhibit 19.2(e) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
</TABLE>
* Filed previously
<PAGE> 71
<TABLE>
<S> <C>
(e) Amended and Restated Reimbursement
Agreement, dated September 21, 1989, between
the Registrant and CAMI. Filed as Exhibit
19.2(f) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(f) Amended and Restated Security Agreement,
dated September 21, 1989, between the
Registrant and CAMI. Filed as Exhibit
19.2(h) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(g) Security Agreement, dated September 21,
1989, between the Registrant and Pegasus
Aircraft Partners II, L.P. Filed as Exhibit
19.2(j) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(h) Security Agreement, dated September 21,
1989, between Pegasus Aircraft Partners II,
L.P. and the Registrant. Filed as Exhibit
19.2(k) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(i) Trust Agreement 814, dated as of March 10,
1989, among PCC, as Beneficiary, the
Registrant, as Beneficiary, and the Owner
Trustee. Filed as Exhibit 19.3(i) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(j) First Amendment to Trust Agreement 814,
dated September 21, 1989, among Pegasus
Aircraft Partners II, L.P., as Beneficiary,
the Registrant, as Beneficiary and the Owner
Trustee. Filed as Exhibit 19.2(m) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
(k) Letter of Credit Agreement, dated as of
April 30, 1992, between First Security Bank
of Utah as Owner Trustee and Philadelphia
National Bank, Incorporated, as CoreStates
Bank, N.A. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992.*
(l) Assumption Agreement, dated April 30, 1992,
among Pegasus Aircraft Partners, L.P. and
Pegasus Aircraft Partners II, L.P. as
Obligors and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(b) to the Registrant's
</TABLE>
* Filed previously
<PAGE> 72
<TABLE>
<S> <C>
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.*
(m) Security Agreement and Assignment of lease,
dated as of April 30, 1992, between First
Security Bank of Utah, National Association
as Owner Trustee and Philadelphia National
Bank, Incorporated, as CoreStates Bank, N.A.
Filed as Exhibit 10.1 (c) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992. *
(n) Assignment of Collateral, dated as of April
30, 1992, between Pegasus Aircraft Partners,
L.P. and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(d) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992. *
10.6(a) Loan Agreement, dated April 22, 1994,
between Pegasus Aircraft Partners, L.P. and
Philadelphia National Bank, Incorporated as
CoreStates Bank, N.A.*
(b) Promissory Note, dated April 22, 1994, made
by Pegasus Aircraft Partners, L.P. in favor
of Philadelphia National Bank Incorporated
as CoreStates Bank, N.A.*
(c) Security Agreement and Assignment of lease
between First Security Bank of Utah,
National Association as owner trustee and
Philadelphia National Bank Incorporated as
CoreStates Bank, N.A. with respect to
aircraft N17010.*
(d) Assignment of beneficial interest for
Pegasus Aircraft Partnership to Philadelphia
National Bank Incorporated as CoreStates
Bank, N.A. with respect to the Pegasus
interest in the USAir Trust Agreement and
the Continental Trust Agreement.*
(e) Amended and restated loan agreement between
Pegasus Aircraft Partners LP and
CoreStates Bank, N.A. dated as of July 20,
1995.
19.1 Prospectus of Registrant, dated as of
September 30, 1988. Filed as Exhibit 19.1 to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.*
27 Financial Data Schedule
</TABLE>
* Filed previously
<PAGE> 1
LEASE TERMINATION AGREEMENT
1. Continental Airlines, Inc. (Lessee") and First Security Bank of Utah,
National Association, not in its individual capacity but solely as owner
trustee for the Benefit of Pegasus Aircraft Partners, L.P. (the "Owner
Participant") under Trust Agreement 603 dated as of October 10, 1988
("Lessor") are parties to that certain Lease Agreement 603 dated as of
October 14, 1988, as thereafter amended, supplemented and assigned (the
"Lease"). Lessee has requested that Lessor accept the early return of the
Aircraft (as hereinafter defined) and Lessor is willing to do so only under
the terms and conditions set forth herein. NOW, THEREFORE, in consideration
of the mutual covenants and agreements herein set forth and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Lessee, Lessor and Owner Participant hereby agree as to
certain matters arising out of or in connection with the early return of the
Aircraft by Lessee to Lessor. Capitalized words used but not otherwise
defined herein shall have the meanings set forth in the Lease.
2. Lessor is, on the date hereof (the "Return Date") receiving from Lessee
possession of one (1) Boeing 747-143 airframe bearing U.S. Registration
Number N17010 and Manufacturer's Serial Number 19729 (the "Airframe"),
together with four (4) Pratt & Whitney JT9D-7A engines bearing
Manufacturer's Serial Numbers 662342, 662541, 662273 and 662367 (such
engines hereinafter referred to as the "Engines"), and all Parts, attached
thereto and thereon, together with all records. manuals, diagrams, logbooks
and other documents related thereto required under the Lease (collectively,
the "Aircraft"). Except as otherwise expressly provided herein or in the
Attachment I hereto, the Aircraft has been returned in the condition
required under Section 5 of the Lease.
3. The Airframe, Engines, Landing Gear and APU had the following hours/cycles
on the Return Date:
(a) Airframe:
Hours since new: 81,704 Cycles since new: 16,146
"C" Check: Hours since last "C" check: 2,894
Hours to next "C" check: 556
"D" Check: Hours since last mid "D" check: 8,010
Hours to next mid "D" check: 9,490
1
<PAGE> 2
(b) Engines: Four Pratt & Whitney JT9D-7A Engines:
<TABLE>
<CAPTION>
Hours Cycles Cycles/Hours
Since Since Remaining to
Serial Total Total Shop Shop Life Ltd. Parts
Number Time Cycles Visit Visit Change
<S> <C> <C> <C> <C> <C>
662342 51,687 13,346 4,516 644 2,780 Hours
662541 55,408 13,497 11,034 1,599 5,402 Hours
662273 71.795 17,369 6,853 1,375 3,386 Hours
662367 64,113 13.157 4,484 636 237 Cycles
</TABLE>
(c) Landing Gear:
<TABLE>
<CAPTION>
Cycles/
Cycles/ Days to Next
Serial Date Days Since Scheduled
Position Number Installed Last Overhaul Overhaul
<S> <C> <C> <C> <C>
NOSE 25174 19-May-95 0/276 6,000/2,644
RWG 1500 24-May 95 0/276 6,000/2,644
LWG 2167 24-May-95 0/276 6,000/2,644
RBG 0912 24-May-95 0/276 6,000/2,644
LBG 0238 12-May-95 0/276 6,000/2,644
</TABLE>
(d) Auxiliary Power Unit (APU)
Serial No. Date Installed Hours Since Last Overhaul
P37725 11/8/94 395
4. In consideration of Lessor's agreement to accept the return of the Aircraft
on the Return Date, Lessee hereby agrees to the following:
(a) Lessee will store the Aircraft at Tucson, Arizona for a period of up to
sixty (60) days after the date of acceptance of the Aircraft by
Lessor, at Lessee's sole cost and expense (including ground and ferry
flight insurance for the Aircraft); and
(b) Lessee will permit Lessor, at no charge to Lessor, to use Lessee's FAA-
approved Maintenance Program for the Aircraft to assist Lessor in
transitioning the Aircraft to a follow-on lessee's maintenance program.
2
<PAGE> 3
5. Lessee shall pay to Lessor, on the Return Date, the sum of $3,906,491.00, in
full and final settlement of Lessee's obligation to pay Basic Rent under the
Lease.
6. Lessee confirms its obligation to continue to repay Modification Advances
and Deferred Rent Amounts under the Lease, pursuant to the Stipulation and
Order dated July 3, 1991 and Supplemental Stipulation and Order dated
December 30, 1992 related to the Aircraft, as evidenced by two (2)
Promissory Notes, the forms of which are attached hereto as Exhibits A-1 and
A-2 (the "Promissory Notes"): Original Promissory Notes executed by Lessee
in favor of Lessor have been or will be delivered to Lessor on or before the
Return Date.
7. Lessor and Lessee hereby acknowledge that each of the Engines will not have
been installed on the Aircraft and accepted by Lessor on the Return Date,
and that in further consideration of Lessor's agreement to accept the return
of the Aircraft on the Return Date. Lessee hereby agrees to the following
with respect to each of the Engines:
(a) Engine S/N 662342 has had its records and borescope inspections
completed and accepted by Lessor; however, such Engine still requires
and Lessor is still entitled to observe Lessee's engine performance run.
(b) Engine S/N's 662273 and 662367 have each had its borescope inspection
completed and accepted by Lessor; however, such Engines still require
and Lessor is still entitled to complete its, records inspection and
observe Lessee's engine performance run with respect to each such
Engine. Lessor shall promptly complete its records inspection.
(c) Engine S/N 662541 is acknowledged by Lessee and Lessor to be a disputed
engine (that is, as to whether such Engine meets the conditions required
for return under the Lease) (the "Disputed Engine"). Lessor believes
the Disputed Engine is exhibiting a chronic oil leak. Lessee believes
the Disputed Engine is exhibiting a static oil leak. Lessee will perform
a compressor wash and an oil consumption check in accordance with the
Pratt & Whitney maintenance manual. If the Disputed Engine is within
Pratt & Whitney maintenance manual limits, Lessee shall borescope the
Disputed Engine in the same manner as the other Engines, to Lessor's
satisfaction. If the Disputed Engine passes such borescope inspection,
Lessor shall be entitled to observe Lessee's engine performance run.
Lessor has completed its records inspection with respect to the Disputed
Engine. If the Disputed Engine is not accepted by Lessor, Lessee shall
promptly deliver and install a replacement engine which meets the
required return conditions under the Lease.
(d) With respect to Engine S/N's 662273 and 662367 and the Disputed Engine
and any replacement engine therefor, Lessee shall pay to Lessor the sum
of $1,500 per day from and including October 10, 1995 with respect to
the Disputed Engine, October 21, 1995 with respect to Engine S/N 662273
and October 24, 1995 with respect to Engine S/N 662367, to
3
<PAGE> 4
but excluding the date each such Engine or any replacement
enginetherefor which meets the required return conditions under the
Lease is delivered and installed on the Aircraft and accepted by Lessor,
it being agreed that Lessor shall promptly inspect any replacement
engine and its related records tendered by Lessee: Notwithstanding the
preceding sentence, (i) with respect to the Disputed Engine, in the
event the Disputed Engine passes its borescope inspection and
engine performance run as described in Section 7(c) above, then Lessee
shall not be required to pay to Lessor the sum of $1,500 per day from
October 10, 1995 and (ii) with respect to Engine S/N 662273, in the
event such Engine passes its records inspection and engine performance
run, then Lessee shall not be required to pay to Lessor the sum of
$1,500 per day from October 21, 1995. All payments to be made by Lessee
to Lessor hereunder shall be paid monthly in arrears on the first day of
each month, in accordance with Section 3.4 of the Lease.
(e) If any of the Engines shall fail the records inspection, borescope
inspection or engine performance run and Lessee is unable to correct
such failure. then Lessor shall not be required to accept such Engine,
and Lessee shall promptly deliver: and install a replacement engine
which meets the required return conditions under the Lease. In the event
any Engine shall fail the records inspection, borescope inspection or
engine performance run, Lessee shall (i) in the case of Engine SIN
662342, pay to Lessor the sum of $1,500 per day from and including the
date such Engine failed the records inspection, borescope inspection or
engine performance run, and (ii) in the case of Engine S/N's 662273 and
662367 and the Disputed Engine, pay to Lessor the sum of $1,500 per day
from and including the dates set forth in paragraph (d) above, to but
excluding (in the case of all Engines) the date a replacement engine
therefor is delivered and installed on the Aircraft and accepted by
Lessor, it being agreed that Lessor shall promptly inspect any
replacement engine and its related records tendered by Lessee: All
payments to be made by Lessee to Lessor hereunder shall be paid monthly
in arrears on the first day of each month. in accordance with Section
3.4 of the Lease.
(f) Lessee agrees that it shall perform the engine performance run promptly,
but in no event later than October 20, 1995.
8. The parties hereby agree that the Lease and other Operative Agreements are
terminated and, except with respect to obligations described herein and
except for any obligations under the Operative Agreements which, by their
terms expressly survive the return of the Aircraft to Lessor and termination
of such agreements, no party shall have any obligation under the Lease or
Operative Agreements and each party hereto hereby expressly releases and
discharges the each of the other parties hereto from any and all liability
or causes or action such panty ever had, now has or may have in the future,
whether known or unknown, relating to the Lease and other Operative
Agreements.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Lease Termination
Agreement to be executed in their respective corporate names by their duly
authorized representatives this 16th day of October, 1995.
FIRST SECURITY BANK OF UTAH, CONTINENTAL AIRLINES, INC.
NATIONAL ASSOCIATION, not in its
individual capacity but solely as owner
trustee under Trust Agreement 603
dated as of October 10, 1988
By: /s/ Greg A. Hawley By: /s/ Gerald Laderman
----------------------------- ------------------------------
Name: Greg A. Hawley Name: Gerald Laderman
-------------------------- -----------------------------
Title: Assistant Vice President Title: Vice President
-------------------------- -----------------------------
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation, as Managing
General Partner
By: /s/ Carol L. Chase
------------------------------
Carol L. Chase
Title: Senior Vice President, General
Counsel and Secretary
---------------------------
By: Air Transport Leasing, Inc., as
Administrative General Partner
By: /s/ Clifford G. Wats
------------------------------
Title: President
---------------------------
5
<PAGE> 6
ATTACHMENT 1
LIST OF DISCREPANCIES
1. Accomplishment of all component changes and inspection requirements due per
the return conditions under the Lease, as described in that certain Forecast
Inquiry to be dated the date of acceptance of the Aircraft by Lessor.
2. Correction of discrepancies noted and deferred at time of storage by Lessee
(as described in that certain Inbound Deferred Log consisting of 11 pages)
to the extent required by Section 5.1 of the Lease.
3. Observe Lessee's Engine Performance Runs on all Engines.
4. Records Inspections on Engine S/N's 662273 and 662367.
5. Borescope Inspection of Engine S/N 662541.
6. "Power-On" Systems Check of the Aircraft.
7. Test Flight of the Aircraft in accordance with Section 5.6 of the Lease.
8. Redelivery Flight (which may be combined with the Test Flight set forth in
item 7 above, at Lessee's option) of the Aircraft to the Hamilton Aviation
facility in Tucson, Arizona.
9. Any and all discrepancies noted by Lessor during the activities set forth in
items 1-8 above shall be corrected by Lessee, at Lessee's sole cost and
expense. prior to redelivery to and final acceptance of the Aircraft by
Lessor.
<PAGE> 7
EXHIBIT A-1
THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MUST BE HELD
INDEFINITELY UNLESS SO REGISTERED
OR TRANSFERRED IN A TRANSACTION
EXEMPT FROM REGISTRATION
Houston, Texas $208,155.43
October 1, 1995 Principal Amount
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Borrower") hereby promises to pay to First Security Bank of Utah,
N.A. ("Holder"), or its assigns, in lawful money of the United States of
America, the principal sum of Two Hundred Eight Thousand One Hundred Fifty-Five
and 43/100 Dollars ($208,155.43) (the "Principal"), together with interest at
the rate of 8.70 percent per annum calculated on the basis of a 360 day year
consisting of twelve 30-day months (the "Interest Rate"), which interest shall
accrue on the outstanding Principal from and including the date hereof to but
excluding the date on which the principal and all accrued interest are paid in
full. The principal of, and accrued interest on, this Note shall be payable in
accordance with the provisions of Section 2 hereof. The entire unpaid Principal
of this Note, together with accrued and unpaid interest thereon, if any, shall
be finally due and payable on the Maturity Date (as hereinafter defined). All
amounts of Principal and, to the extent permitted by applicable law, interest
which are not paid when due in accordance with the provisions of Section 2
hereof shall bear interest from the date such Principal and interest payment
was due until paid at the Default Rate (hereinafter defined) (calculated on the
basis of a 360 day year consisting of twelve 30-day months),
Section 1. Certain Definitions. As used herein, the following terms have
the following meanings:
1.1 "Business Day" means a day other than a Saturday, Sunday or other day
on which banks in New York City or Houston, Texas are permitted or required to
close.
<PAGE> 8
2
1.2 "Default" means the occurrence of one or more of the following events:
(a) The failure of Borrower to pay any amounts of Principal or interest
thereon due on this Note within five (5) Business Days after the same
becomes due and payable in accordance with the terms hereof; or
(b) The failure of Borrower to perform, observe, and comply with any
covenant, agreement, or condition (other than the covenant to pay amounts of
Principal or interest thereon due under this Note) contained in this Note
and the continuation of such a failure for a period of thirty (30) days
following written notice to Borrower from the Holder of the continuation of
such failure; or
(c) The occurrence end continuance of an "Event of Default" as such term
is defined in the Lease, subject to the provisions therein concerning notice
and/or opportunity to cure such Event of Default, or a default under the
Stipulation (after giving effect to the grace periods provided for therein)
insofar as it relates to the Lease or the equipment subject thereto, in any
such case if and only if at the time of such occurrence and at the time
notice of acceleration is given hereunder, the Holder is an Interested
Party.
1.3 "Default Rate" means the rate per annum equal to the lesser of (a) the
Interest Rate plus 2%, or (b) the highest rate then permitted by law for any
period during which the Principal shall be overdue; provided, however, that if
no such highest rate exists, then the rate specified in clause (a) preceding
shall apply.
1.4 "Interested Party" means the lessor under the Lease or any other party
having an ownership interest in the equipment subject to the Lease or having
the benefit of a security interest in the Lease.
1.5 "Lease" means Lease Agreement 603, dated as of October 14, 1988, between
First Security Bank of Utah, N.A., as Owner Trustee for the benefit of Pegasus
Aircraft Partners, L.P., as Lessor, and Continental Airlines, Inc., a. Lessee,
covering one Boeing 747-143 aircraft bearing U.S. Registration No. N17010 and
four Pratt & Whitney JT9D-7A engines bearing Manufacturer Serial Nos. 662342,
662579, 662542 and 685702 as such Lease may be amended, restated or
supplemented from time to time.
1.6 "Maturity Date" means April 1, 1996.
<PAGE> 9
3
1.7 "Stipulation" means Supplemental Stipulation and Order among Continental
Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P.,
Pegasus Capital Corporation, IAL Aviation Resources, Inc., Pegasus Aircraft
Partners, L.P., Gilman Financial Services, First Security Bank of Utah, as
Owner Trustee concerning three DC-9-82 aircraft, one A300B4-103 aircraft, two
747-143 aircraft, five 727-224 aircraft, three DC-10-10 aircraft, one 747-238
aircraft, certain engines and equipment related to the foregoing aircraft, six
CF6-6D aircraft engines, eight JT8D-15 aircraft engines, three JT9D-7A aircraft
engines, four JT8D-217 aircraft engines and two CFM56-3B1 aircraft engines, as
approved by the U.S. Bankruptcy Court for the District of Delaware on December
30, 1992.
Section 2. Payments of Principal and Interest.
(a) payment of Principal and the interest accrued at the Interest Rate on
the unamortized portion of the Principal shall be made in seven equal
monthly installments of Principal and interest commencing on the date hereof
and on the first Business Day of each of the next six months. Each monthly
payment shall reflect interest accrued from and including the first day of
the preceding month to and including the last day of such month.
(b) Notwithstanding the foregoing, at the Maturity Date, the entire unpaid
balance of Principal and all accrued and unpaid interest shall be finally
due and payable.
Section 3, Prepayments. Borrower shall be entitled to prepay the unpaid
Principal, at any time and from time to time, in whole or in part, without
premium or penalty, but only if all accrued and unpaid interest on this Note is
paid to the date of such prepayment.
Section 4. Events of Default and Remedies. The entire unpaid Principal,
and all accrued interest, if any, on this Note shall immediately become due and
payable at the option of the Holder hereof if a Default shall have occurred and
be continuing upon written notice from the Holder to Borrower of acceleration.
In the event a Default shall have occurred, the Holder of this Note may proceed
without consent or approval of the Bankruptcy Court having jurisdiction over
the Borrower to protect and enforce its rights either by suit in equity and/or
by action at law, or by other appropriate Proceedings, whether for the specific
performance of any covenant or agreement contained in this Note, or in aid of
the exercise of any power or right
<PAGE> 10
4
granted by this Note or to enforce any other legal or equitable right of the
Holder of this Note, including any rights accorded Holder under the
Stipulation.
Section 5. No Partnership or Agency Intended. Nothing contained herein is
intended, or shall in any way be construed, so as to create any form of
partnership or agency relationship between Borrower and Holder. The parties
hereby expressly disclaim any intention of any kind to create any such
partnership or agency relationship between themselves hereby. Accordingly, in
no event shall Holder be liable for any of the debts, obligations, or
liabilities of Borrower as a result of the execution of this Note.
Section 6. Cumulative Rights. No delay on the part of the Holder of this
Note in the exercise of any power or right under this Note shall operate as a
waiver thereof, nor shall a single or partial exercise of any such power or
right. The remedies provided to Holder herein are cumulative of any other
rights and remedies available at law or in equity and enforcement by the Holder
of this Note shall not constitute any election by it of remedies so as to
preclude the exercise of any other remedy available to it.
Section 7. Waiver. Except as expressly provided herein, Borrower and each
other party, if any, ever liable for the payment of any sum of money payable on
this Note, jointly and severally waive demand, presentment, protest, notice of
nonpayment, dishonor and notice of dishonor, notice of intention to accelerate,
notice of protest, notice of acceleration and any and all lack of diligence or
any delay in collection or the filing of suit hereon which may occur, and agree
that their liability on this Note shall not be affected by any renewal or
extension in the time of payment hereof or by any indulgences, and hereby
consent to any and all renewals, extensions or indulgences, regardless of the
number of such renewals, extensions or indulgences.
Section 8. Attorneys' Fees and Costs. If a Default shall occur and
thereafter this Note is placed in the hands of an attorney for collection, or
if this Note is collected in whole or in part through legal proceedings of any
nature, then and in any such case, Borrower promises to Pay Holder all
reasonable costs of collection, including but not limited to reasonable
attorneys' fees incurred by the Holder hereof on account of such collection,
whether or not suit is filed.
Section 9. Notices. Any notice or other communication permitted or
required to be given hereunder by one party to the other shall be given in
accordance with the Lease. If Holder is
<PAGE> 11
5
not a party to the Lease, Holder agrees to provide Borrower all notice
information reasonably requested by Borrower.
SECTION 10. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN
THE CONSTRUCTION, VALIDITY, ENFORCEMENT, AND INTERPRETATION OF THIS NOTE.
Section 11. Headings; Construction. The headings of the sections of this
Note are inserted for convenience only and shall not be deemed to constitute a
part hereof, words used herein of any gender shall be construed to include any
other gender where appropriate, and words used herein which are either singular
or plural shall be construed to include the other where appropriate.
Section 12. Successors and Assigns. All of the covenants, stipulations,
premises, and agreements in this Note contained by or on behalf of Borrower
shall bind its successors and assigns, whether so expressed or not; provided,
however, that Borrower may not, without the Prior consent of Holder, assign any
rights, duties, or obligations under this Note except in connection with an
assignment of Borrower's rights, obligation and duties under the Lease to the
extent permitted thereunder and under the Stipulation. All rights, duties and
privileges of Holder under this Note shell inure to the benefit of any
successors and assigns, whether in whole or in part, of Holder.
Section 13. Payments. Unless otherwise directed in writing by Holder,
Borrower shall make all payments or prepayments on this Note in accordance with
the payment provisions of the Lease. All payments received in respect of this
Note shall be applied first, to discharge any amounts owing under Section 8
hereof; second, to the payment of accrued and unpaid interest; third, to the
payment of any Principal due and owing; and fourth, to the prepayment of
Principal in the inverse order of maturity in accordance with Section 3 hereof.
Section 14. Registration and Transfer of the Note. Borrower shall keep a
register (the "Note Register") in which provision shall be made for the
registration of this Note and the registration of transfer of this Note, and
transfer of this Note may be effected only by surrender of this Note to
Borrower and the issuance by Borrower of a new instrument representing the
outstanding principal amount of, end accrued and unpaid interest on, this Note.
A transfer of this Note may only be made to a single transferee and only in the
full amount of the outstanding principal amount of this Note. If Holder wishes
to transfer this Note, Holder shall surrender this Note to Borrower duly
endorsed, or accompanied by written instruments of transfer duly executed, by
the Holder or its attorney duly authorized in writing, with the signatures
guaranteed by an institution reasonably acceptable
<PAGE> 12
6
to Borrower, accompanied by payment or reasonable evidence of payment of any
applicable transfer taxes, written instructions as to the account for payments
and address for notices to the transferee and any tax information reasonably
requested by Borrower. Borrower shall not be obligated to effect any transfer
if such transfer is not exempt from applicable registration requirements under
applicable securities law or is in violation of any applicable securities law,
and in connection with any requested transfer the Holder shall furnish Borrower
with evidence of compliance with such securities laws, including representation
letters and opinions of counsel, in form and substance reasonably satisfactory
to Borrower. As between the Holder and Borrower, all costs of transfer Shall
be borne by the Holder. Borrower shall treat the Person in whose name this
Note is registered on the Note Register as the Holder with respect thereto for
all purposes hereof, notwithstanding any notice to the contrary, until this
Note has been transferred as provided in this Section 14.
<PAGE> 13
IN WITNESS WHEREOF, the undersigned has executed this Note on the day and
year first above written.
CONTINENTAL AIRLINES, INC.
By:
----------------------
Name:
Title:
<PAGE> 14
EXHIBIT A-2
THIS NOTE HAS HOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MUST BE HELD
INDEFINITELY UNLESS SO REGISTERED
OR TRANSFERRED IN A TRANSACTION
EXEMPT FROM REGISTRATION
Houston, Texas $155,286.77
October 1, 1995 Principal Amount
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, CONTINENTAL AIRLINES, INC., a Delaware
corporation ("Borrower") hereby promises to pay to First Security Bank of Utah,
N.A, ("Holder"), or its assigns, in lawful money of the United States of
America, the principal sum of One Hundred Fifty-five Thousand Two Hundred
Eighty-six and 77/100 Dollars ($155,286.77) (the "Principal"), together with
interest at the rate of twelve percent per annum calculated on the basis of a
360 day year consisting of twelve 30-day months (the "Interest Rate"), which
interest shall accrue on the outstanding Principal from and including the date
hereof to but excluding the date on which the Principal and all accrued
interest are paid in full. The Principal of, and accrued interest on, this
note shall be payable in accordance with the provisions of Section 2 hereof.
The entire unpaid Principal of this Note, together with accrued and unpaid
interest thereon, if any, shall be finally due and payable on the Maturity Date
(as hereinafter defined). All amounts of Principal and, to the extent
permitted by applicable law, interest which are not paid when due in accordance
with the provisions of section 2 hereof shall bear interest from the data such
Principal and interest payment was due until paid at the Default Rate
(hereinafter defined) (calculated on the basis of a 360 day year consisting of
twelve 30-day months).
Section 1. Certain Definitions. As used herein, the following terms have the
following meanings:
1.1 "Business Day" means a day other than a Saturday, Sunday or other day on
which banks in New York City or Houston, Texas are permitted or required to
close.
<PAGE> 15
2
1.2 "Default" means the occurrence of one or more of the following events:
(a) The failure of Borrower to pay any amounts of Principal or
interest thereon due on this Note within five (5) Business Days after
the same becomes due and payable in accordance with the terms hereof; or
(b) The failure of Borrower to Perform, observe, and comply with any
covenant, agreement, or condition (other than the covenant to pay
amounts of Principal or interest thereon due under this Note) contained
in this Note and the continuation of such a failure for a period of
thirty (30) days following written notice to Borrower from the Holder of
the continuation of such failures or
(c) The occurrence and continuance of an "Event of Default" as such
term is defined in the Lease, subject to the provisions therein
concerning notice and/or opportunity to cure such Event of Default, or a
default under the stipulation (after giving effect to the grace periods
provided for therein) insofar as it relates to the Lease or the
equipment subject thereto, in any such case if and only if at the time
of such occurrence and at the time notice of acceleration is given
hereunder, the Holder is an Interested Party.
1.3 "Default Rate" means the rate per annum equal to the lesser of (a) the
Interest Rate plus 2%, or (b) the highest rate then permitted by law for any
period during which the Principal shall be overdue; provided, however, that if
no such highest rate exists, then the rate specified in clause (a) Preceding
shall apply.
1.4 "Interested Party" means the lessor under the Lease or any other party
having an ownership interest in the equipment subject to the Lease or having
the benefit of a security interest in the Lease.
1.5 "Lease" means Lease Agreement 603, dated as of October 14, 1988, between
First Security Bank of Utah, N.A., as Owner Trustee for the benefit of Pegasus
Aircraft Partners, L.P., as Lessor, and Continental Airlines, Inc., as Lessee,
covering one Boeing 747-143 aircraft bearing U.S. Registration No. N17010 and
four Pratt & Whitney JT9D-7A engines bearing Manufacturer Serial Nos. 662342,
662579, 662542 and 685702 as such Lease may be amended. restated or
supplemented from time to time.
1.6 "Maturity Date" means December 1, 1996.
<PAGE> 16
3
1.7 "Stipulating" means Stipulation and Order among Continental Airlines,
Inc., New York Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of
Florida, Bay Air Lease III, Meridian Trust Company, as Owner Trustee, IAL
Aircraft Acquisitions, Inc. Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources, Inc., Aircraft Leasing, Inc.,
Pegasus Aircraft Partners, L.P., Gilman Financial Services, First Security Bank
of Utah, as Owner Trustee concerning three DC-9-82 aircraft, one DC-8-83
aircraft, one 737- 291 aircraft, one A300B4-103 aircraft, two 747-143 aircraft,
six 727-224 aircraft, three DC-10-10 aircraft, one 747-238 aircraft, certain
engines and equipment related to the foregoing aircraft, six CF6-6D aircraft
engines, eight JT8D-15 aircraft engines, three JT9D-7A aircraft engines, four
JT8D-217 aircraft engines and two CFM56-3B1 aircraft engines, as approved by
the U.S. Bankruptcy Court for the District of Delaware on July 3, 1991.
Section 2. Payments of Principal and Interest.
(a) Payment of Principal and the interest accrued at the Interest Rate on
the unamortized portion of the Principal shall be made in fifteen equal
monthly installments of Principal and interest commencing on the date hereof
and on the first Business Day of each of the next fourteen months. Each
monthly payment shall reflect interest accrued from and including the first
day of the preceding month to and including the last day of such month.
(b) Notwithstanding the foregoing, at the Maturity Date, the entire
unpaid balance of Principal and all accrued and unpaid interest shall be
finally due and payable.
Section 3. Prepayments. Borrower shall be entitled to prepay the unpaid
Principal, at any time and from time to time, in whole or in part, without
premium or penalty, but only if all accrued and unpaid interest on this Note is
paid to the date of such prepayment.
Section 4. Events of Default and Remedies. The entire unpaid Principal, and
all accrued interest, if any, on this Note shall immediately become due and
payable at the option of the Holder hereof if a Default shall have occurred and
be continuing upon written notice from the Holder to Borrower of acceleration.
In the event a Default shall have occurred, the Holder of this Note may proceed
without consent or approval of the Bankruptcy Court having jurisdiction over
the Borrower to protect and enforce its rights either by suit in equity and/or
by action at law, or by other appropriate proceedings, whether for the specific
performance of any covenant or agreement contained in this Note, or in aid of
the exercise of any power or right
<PAGE> 17
4
granted by this Note or to enforce any other legal or equitable right of the
Holder of this Note, including any rights accorded Holder under the
stipulation.
Section 5. No Partnership or Agency Intended. Nothing contained herein is
intended, or shall in any way be construed, so as to create any form of
partnership or agency relationship between Borrower and Holder. The parties
hereby expressly disclaim any intention of any kind to create any such
partnership or agency relationship between themselves hereby. Accordingly, in
no event shall Holder be liable for any of the debts, obligations, or
liabilities of Borrower as a result of the execution of this Note.
Section 6. Cumulative Rights. No delay on the part of the Holder of this
Note in the exercise of any power or right under this Note shall operate as a
waiver thereof, nor shall a single or partial exercise of any such power or
right. The remedies provided to Holder herein are cumulative of any other
rights and remedies available at law or in equity and enforcement by the Holder
of this Note shall not constitute any election by it of remedies so as to
preclude the exercise of any other remedy available to it.
Section 7. Waiver. Except as expressly provided herein, Borrower and each
other party, if any, ever liable for the payment of any sum of money payable on
this Note, jointly and severally waive demand, presentment, protest, notice of
nonpayment, dishonor and notice of dishonor, notice of intention to accelerate,
notice of protest, notice of acceleration and any and all lack of diligence or
any delay in collection or the filing of suit hereon which may occur, and agree
that their liability on this Note shall not be affected by any renewal or
extension in the time of payment hereof or by any indulgences, and hereby
consent to any and all renewals, extensions or indulgences, regardless of the
number of such renewals, extensions or indulgences.
Section 8. Attorneys' Fees and Costs. If a Default shall occur and
thereafter this Note is placed in the hands of an attorney for collection, or
if this Note is collected in whole or in part through legal proceedings of any
nature, then and in any such case, Borrower promises to pay Holder all
reasonable costa of collection, including but not limited to reasonable
attorneys' fees incurred by the Holder hereof on account of such collection,
whether or not suit is filed.
Section 9. Notices. Any notice or other communication permitted or required
to be given hereunder by one party to the other shall be given in accordance
with the Lease. If Holder is
<PAGE> 18
5
not a party to the Lease. Holder agrees to provide Borrower all notice
information reasonably requested by Borrower.
SECTION 10. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN
THE CONSTRUCTION, VALIDITY, ENFORCEMENT, AND INTERPRETATION OF THIS NOTE.
Section 11. Headings; Construction. The headings of the sections of this
Note are inserted for convenience only and shall not be deemed to constitute a
part hereof, words used herein of any gender shall be construed to include any
other gender where appropriate, and words used herein which are either singular
or plural shall be construed to include the other where appropriate.
Section 12. Successors and Assignments. All of the covenants, stipulations,
promises, and agreements in this Note contained by or on behalf of Borrower
shall bind its successors and assigns, whether so expressed or not; provided,
however, that Borrower may not, without the prior consent of Holder, assign any
rights. duties, or obligations under this Note except in connection with an
assignment of Borrower's rights, obligation and duties under the Lease to the
extent permitted thereunder and under the Stipulation. All rights, duties and
privileges of Holder under this Note shall inure to the benefit of any
successors and assigns, whether in whole or in part, of Holder.
Section 13. Payments. Unless otherwise directed in writing by Holder,
Borrower shall make all payments or prepayments on this Note in accordance with
the payment provisions of the Lease. All payments received in respect of this
Note shall be applied first, to discharge any amounts owing under Section 8
hereof; second, to the payment of accrued and unpaid interest; third, to the
payment of any Principal due and owing; and fourth, to the prepayment of
Principal in the inverse order of maturity in accordance with Section 3 hereof.
Section 14. Registration and Transfer of the Note. Borrower shall keep a
register (the "Note Register") in which provision shall be made for the
registration of this Note and the registration of transfer of this Note, and
transfer of this Note may be effected only by surrender of this Note to
Borrower and the issuance by Borrower of a new instrument representing the
outstanding principal amount of, and accrued and unpaid interest on, this Note.
A transfer of this Note may only be made to a single transferee and only in the
full amount of the outstanding principal amount of this Note. If Holder wishes
to transfer this Note, Holder shall surrender this Note to Borrower duly
endorsed, or accompanied by written instruments of transfer duly executed, by
the Holder or its attorney duly authorized in writing, with the signatures
guaranteed by an institution reasonably acceptable
<PAGE> 19
6
to Borrower, accompanied by payment or reasonable evidence of payment of any
applicable transfer taxes, written instructions as to the account for payments
and address for notices to the transferee and any tax information reasonably
requested by Borrower. Borrower shall not be obligated to effect any transfer
if such transfer is not exempt from applicable registration requirements under
applicable securities law or is in violation of any applicable securities law,
and in connection with any requested transfer the Holder shall furnish Borrower
with evidence of compliance with such securities laws, including representation
letters and opinions of counsel, in form and substance reasonably satisfactory
to Borrower. As between the Holder and Borrower, all Costs of transfer shall
be borne by the Holder. Borrower shall treat the Person in whose name this
Note is registered on the Note Register as the Holder with respect thereto for
all purposes hereof, notwithstanding any notice to the contrary, until this
Note has been transferred as provided in this Section 14.
<PAGE> 20
IN WITNESS WHEREOF, the undersigned has executed this Note on the day and year
first above written.
CONTINENTAL AIRLINES, INC.
By:
--------------------------------------
Name:
Title:
<PAGE> 1
AMENDED and RESTATED LOAN AGREEMENT
between
PEGASUS AIRCRAFT PARTNERS, L. P.
and
CORESTATES BANK, N. A.
dated
as of JULY 20, 1995
<PAGE> 2
AMENDED and RESTATED
LOAN AGREEMENT
Amended and Restated LOAN AGREEMENT, (Loan Agreement originally dated as of
April 22, 1994) amended and restated as of June ___, 1995, between PEGASUS
AIRCRAFT PARTNERS, L.P., a Delaware limited partnership ("Borrower"), and
CORESTATES BANK, N.A., a national banking association ("CoreStates") .
WITNESSETH
WHEREAS, Borrower and CoreStates are parties to that Loan Agreement dated April
22, 1994 pursuant to which CoreStates agreed to advance Borrower a loan facility
of up to US $4,000,000;
WHEREAS, the Borrower and CoreStates have agreed, inter alia, to extend the
Maturity Date and to substitute certain Collateral thereunder; and
WHEREAS, the parties hereto now seek to amend and restate the Loan Agreement in
its entirety as hereinafter set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms shall have the meanings herein specified
unless the context otherwise requires. Defined terms in this Agreement shall
include the singular number, the plural and the plural number of the singular:
"Act" - the Federal Aviation Act of 1958, as amended, and the rules and
regulations promulgated thereunder, as in effect on the date hereof and as
modified or amended hereafter or any successor or substituted legislation at the
time in effect and applicable.
"Aircraft" - shall mean the TWA Aircraft.
"Aircraft Lease" - shall mean the TWA Lease.
"Air Transport" - Air Transport Leasing, Inc., the administrative
general partner of Borrower.
"Applicable Treasury Bond Obligation" - the debt obligation of the United States
Treasury having a maturity date nearest in time to the Maturity Date as
published in the Wall Street Journal.
"Assumption Agreement" - that certain Assumption Agreement dated as of April 30,
1992 among Borrower, Pegasus Aircraft Partners, L.P.
and CoreStates.
"Borrower Assignment" - that certain Assignment of Collateral, dated the date
hereof, made by Borrower in favor of CoreStates with respect to Borrower's 100%
beneficial interest in the TWA Trust Agreement.
"Borrowing Notice" - as defined Section 2.2(a) hereof.
2
<PAGE> 3
"Business Day" - any day other than Saturday, Sunday or any other day on which
commercial banks in Philadelphia are authorized or required to close under the
laws of the Commonwealth of Pennsylvania.
"Closing Date" - the date as of which this Agreement is executed and delivered
by the parties hereto.
"Collateral" - shall mean the Collateral (as such term is defined in the
Security Agreement) and the TWA Collateral (as such terms are defined in the
Borrower Assignment).
"Commitment" - shall mean at any time the principal sum of Four Million
Dollars (U.S. $4,000,000.00)
"Conversion Notice" - as defined in Section 2.2(b) hereof.
"Event of Default" - as defined in Article 7 hereof.
"FAA" - the Federal Aviation Administration provided for in the Department of
Transportation Act of 1966, as in effect on the date hereof and as modified or
amended hereafter, or any successor or substituted United States governmental
authority at the time having jurisdiction over the Collateral.
"Financing Documents" - this Agreement, the Note, the Security Agreement, the
Borrower Assignment, the TWA Trust Agreement and all documents executed and/or
delivered by or on behalf of the Borrower or Trustee in connection herewith or
therewith, including all amendments, modifications and supplements of or to
evidences delivered in connection therewith.
"Fixed Rate" - the rate of the Applicable Treasury Bond Obligation on the Fixed
Rate Date (the asking yield on the Fixed Rate Date, as specified in the Wall
Street Journal) plus 275 basis points per annum.
"Fixed Rate Date" - the Loan Closing Date with respect to a Fixed Rate Loan or
the date on which the interest on a Floating Rate Loan is converted to the Fixed
Rate.
"Fixed Rate Loan" - a Loan for which the interest rate then in effect is equal
to the Fixed Rate.
"Floating Rate" - the prevailing prime rate as set by CoreStates as is publicly
announced from time to time plus 50 basis points per annum.
"Floating Rate Loan" - a Loan for which the interest rate then in effect is
equal to the Floating Rate.
"General Partners" - Air Transport and PAMC.
"Indebtedness" - all obligations, contingent or otherwise, which in accordance
with generally accepted accounting principals should be classified upon
Borrower's balance sheet as liabilities other than (i) any accrued distributions
which Borrower is not contractually obligated to distribute to its partners,
(ii) the unamortized portion of the prepaid basic rent under any aircraft lease,
and
3
<PAGE> 4
(iii) any lessee security deposit delivered to Borrower which is required to be
held in a restricted cash account.
"Letter of Credit Agreement" - that certain Letter of Credit Agreement dated as
of April 30, 1992 between Trustee and CoreStates, as amended.
"Lien" - any pledge, security interest, encumbrance, lien or other charge of any
kind (including any agreement to give any of the foregoing), any conditional
sale or other title retention agreement or any lease in the nature thereof.
"Loans" - shall mean all Fixed Rate Loans and all Floating Rate Loans.
"Loan Closing Date" - each date on which a Loan is made to Borrower by
CoreStates hereunder.
"Loan Repayment Schedule" - as described in Section 2.3 hereof.
"Loan Term" - that period of time from the date hereof through the Maturity
Date.
"Maturity Date" - shall mean May 1, 1997. The Maturity Date may be extended for
additional annual periods at CoreStates sole discretion upon request by
Borrower.
"Note" - shall have the meaning ascribed to it in Section 2.3(a) hereof.
"PAMC" - Pegasus Aircraft Management Corporation, the managing general partner
of Borrower.
"Partnership Agreement" - that certain Amended and Restated Limited Partnership
Agreement of the Borrower, dated April 27, 1989, by and among PAMC, Air
Transport and each of the General Partners as attorney-in-fact for those Persons
who subsequently become Limited Partners.
"Payment Dates" - each March 1, June 1, September 1 and December 1 subsequent to
the date hereof and ending no later than sixty months from the Maturity Date.
"Post-Default Rate" - shall be (i) with respect to any amounts due (other than
interest) in respect of the Loan not paid when due, a rate per annum equal to
two percent (2%) in excess of the rate then in effect with respect to such Loan
as determined in accordance with Section 2.5(b) hereof and (ii) with respect to
any amounts due hereunder other than in respect of a Loan not paid when due, a
rate per annum equal to two percent (2%) in excess of the Floating Rate at such
time.
"Prepayment Amount" - with respect only to a Fixed Rate Loan, an amount equal to
the excess, if any, of (i) all payments of principal and interest which would
have been payable during the remainder of the Loan Term for any Fixed Rate Loan
pre-paid pursuant to Section 2.6 hereof discounted to present value at a rate
per annum equal to the yield to maturity of the Applicable
4
<PAGE> 5
Treasury Bond Obligation on the date of such prepayment over (ii) the
outstanding principal amount of such Fixed Rate Loan.
"Principal Office" - the principal office of CoreStates from time to time which
is presently located at 1500 Market Street, Philadelphia, Pennsylvania 19102.
"Security Agreement" - that certain Security Agreement and Assignment of Lease,
pursuant to which Borrower shall grant CoreStates a security interest in and to
the TWA Aircraft and TWA Lease between Trustee and CoreStates entered into in
connection with this Agreement.
"Security Documents" - shall mean the Security Agreement and the Borrower
Assignment.
"Trustee" - Meridian Trust Company, not in its individual capacity but solely as
owner trustee, under the TWA Trust Agreement.
"TWA" - Trans World Airlines, Inc.
"TWA Aircraft" - that certain McDonnell Douglas DC-9-82 Aircraft bearing FAA
Registration Number N904TW and manufacturer's serial number 49156 together with
two Pratt & Whitney JT 8D-217A engines bearing manufacturer's serial numbers
P709716D and P70917D.
"TWA Lease" - that certain Lease dated as of May 20, 1993 and Supplement No. 1
thereto between Meridian Trust Company as lessor, as successor in interest to
DC-9T-I, Inc., and Trans World Airlines, Inc. as lessee, as amended by an
Amendment Agreement dated as of December 15, 1986, an Amendment No. 1, dated May
1, 1991 and Amendment No. 2 dated April 15, 1993 and an Amendment No.
3 to Lease dated January 16, 1995.
"TWA Trust Agreement" - that certain Trust Agreement, dated March 31, 1988,
between the Borrower, as beneficiary, and Trustee, as owner trustee, as amended.
(All capitalized terms used herein and not otherwise defined herein shall have
the meanings given them in the Security Agreement)
SECTION 2. AMOUNT AND TERMS OF LOAN.
2.1. The Loan. Subject to and on the terms and conditions of this Agreement,
CoreStates agrees to make loans (each a "Loan" and collectively, the "Loans") to
the Borrower from the date hereof up to the Maturity Date in an aggregate
principal amount not to exceed the Commitment.
2.2. Notice of Borrowings and Conversions.
(a) The Borrower shall give written notice to CoreStates (the
"Borrowing Notice") of each Loan requested hereunder. Each Borrowing Notice
shall be irrevocable and shall be effective only if received by CoreStates no
later than 12:00 noon (Philadelphia time) on the date which is three Business
Days prior to the date of the Loan. Each Borrowing Notice shall be in
substantially the form of Exhibit A hereto and shall contain the information set
forth therein, including, without limitation, (i) the amount of the Loan
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(which shall be at least $500,000 or such lesser amount as shall, when
aggregated with all other outstanding Loans, constitute the entire Commitment),
(ii) whether such Loan shall be designated as a Floating Rate Loan or a Fixed
Rate Loan, and (iii) a representation from the Borrower that (1) the
representations and warranties of the Borrower contained in Article 3 hereof and
any of the other Financing Documents are true and correct in all respects on the
date of such Borrowing Notice as if made on such date, unless such
representations and warranties expressly relate to another date, (2) there
exists no Event of Default hereunder, nor any default or event of default under
any of the other Financing Documents, and (3) all other conditions precedent to
the making of such Loan as set forth in Article 4 hereof have been fully
satisfied.
(b) If at such time no Event of Default shall have occurred and be
continuing, the Borrower shall have the right at any time to convert all or any
of the Floating Rate Loans to a Fixed Rate Loan at any time during the Loan Term
provided that the Borrower shall give CoreStates written notice (the "Conversion
Notice") of each such conversion. The Conversion Notice shall be irrevocable and
shall be effective on the third Business Day following receipt of the Conversion
Notice by CoreStates. Each Conversion Notice shall be in the form of Exhibit B
hereto, and shall contain the information set forth therein. The Borrower shall
not have the right to convert a Fixed Rate Loan to a Floating Rate Loan.
2.3. The Note.
(a) The Borrower's obligations to pay the principal of, and the
interest on, the Loans shall be evidenced by a secured promissory note (the
"Note") duly executed and delivered by the Borrower, in the form of Exhibit C
hereto. The Note shall be subject to repayment in accordance with Section 2.4
hereof.
(b) In lieu of issuing a new Note upon the making of each Loan other
than the initial Loan, the Borrower shall deliver to CoreStates, together with
each Borrowing Notice, a Loan Repayment Schedule which shall be attached to the
Note by CoreStates and which shall set forth the Loan Closing Date for such
Loan, the principal amount of such Loan, the interest rate on such Loan and the
principal to be paid on each Payment Date with respect to such Loan. In
addition, CoreStates shall maintain a loan account (the "Loan Account") in which
shall be recorded (i) all Loans and advances made by CoreStates to Borrower
pursuant to this Agreement, (ii) all payments made by Borrower on all such
Loans, and (iii) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, all fees, charges, expenses and
interest. All entries in Borrower's Loan Account shall be made in accordance
with CoreStates' customary accounting practices as in effect from time to time
and shall show the date, amount and reason for such entry. Borrower promises to
pay the amount reflected as owing by it under its Loan Account and all of its
other obligations hereunder as such amounts become due or are declared due
pursuant to the terms of this Agreement. Notwithstanding the foregoing, the
failure by CoreStates to make such entries on the Loan Account or to attach a
Loan Repayment Schedule to the Note shall not affect the rights of CoreStates or
the obligations of Borrower hereunder
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<PAGE> 7
in respect of the Loans.
2.4. Payments of Principal. The principal amount of each Loan shall be repaid in
accordance with a principal amortization schedule submitted by Borrower and
acceptable to CoreStates. Such amortization schedule shall include payments of
principal no less frequently than on each Payment Date. In no event shall the
term of each Loan exceed 60 months or extend more than 60 months from the
Maturity Date.
2.5. Interest.
(a) The Borrower shall pay to CoreStates interest on the unpaid
principal amount of each Loan on each Payment Date at rate per annum equal to:
(i) with respect to Fixed Rate Loans, the Fixed Rate; or (ii) with respect to
Floating Rate Loans, the Floating Rate. Such interest shall be due and payable
in arrears on each Payment Date.
(b) Notwithstanding the foregoing, the Borrower shall pay interest on
the Loan and any installment thereof, and on any other amount payable by the
Borrower hereunder (to the extent permitted by law) which shall not be paid in
full when due (whether at stated maturity, by acceleration or otherwise) for the
period commencing on the due date thereof until the same is paid in full at the
Post-Default Rate. Such interest shall be payable on demand of CoreStates.
(c) Anything in this Agreement or the Note to the contrary
notwithstanding, the obligation of the Borrower to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to CoreStates to the extent that CoreStates' receipt thereof
would not be permissible under the law or laws applicable to CoreStates limiting
rates of interest which may be charged or collected by CoreStates. Any such
payments of interest which are not made as a result of the limitation referred
to in the preceding sentence shall be made by the Borrower to CoreStates on the
earliest interest payment date or dates on which the receipt thereof would be
permissible under the laws applicable to CoreStates limiting rates of interest
which may be charged or collected by CoreStates. Such deferred interest shall
not bear interest.
2.6. Prepayments.
(a) Optional Prepayment. The Borrower may, at its option, exercisable
on five Business Days prior written notice to CoreStates, prepay any Loan, in
full, but not in part, and shall deliver to CoreStates an amount equal to (i)
all accrued and unpaid interest on such Loan through the date of such
prepayment, (ii) the outstanding principal on such Loan, and (iii) the
Prepayment Amount.
(b) Mandatory Prepayment. If, at any time, the outstanding principal
amount of all Loans exceeds the Commitment or there shall have occurred an Event
of Default, the Borrower shall repay the principal amount of the Loans in an
amount equal to (i) such excess if the outstanding amount exceeds the
Commitment, (ii) all amounts due and owing thereunder if there shall have
occurred an Event of
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<PAGE> 8
Default, or (iii) the Borrower shall begin implementation of a plan to liquidate
its assets with the intent to dissolve the Borrower, in each case, along with
all accrued and unpaid interest on such excess through the date of such
prepayment and any related Prepayment Amount.
2.7. Fees. The Borrower agrees to pay to CoreStates a commitment fee, which fee
shall be paid quarterly on each Payment Date and shall be equal to the product
of (1) .125% and (2) the Commitment on such Payment Date less the average daily
outstanding amount of Loans during the period from the immediately preceding
Payment Date to such Payment Date (the "Commitment Fee").
2.8. Use of Proceeds. The proceeds of the Loans made hereunder shall be used by
Borrower solely for the maintenance, modification work, and upgrades (including
cash needed to exchange off-lease equipment for like equipment on lease) on
aircraft owned by the Borrower; provided that the proceeds of the first Loan may
be used as distributions to the partners of the Borrower.
2.9. Time and Method of Payments. All payments of principal, interest and other
amounts (including indemnities and the Commitment Fee) payable by Borrower
hereunder shall be made no later than 3:00 p.m. (Philadelphia time) at the
Principal Office in lawful money of the United States of America and in
immediately available funds. If any payment hereunder or under the Note becomes
due and payable on a day other than a Business Day, the due date thereof shall
be extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the rate set forth herein during
such extension.
2.10. Application of Payments. Any amounts paid hereunder on the Note, whether
by or on behalf of Borrower or as a result of receipt by CoreStates of the
proceeds of any sale of the Collateral, any proceeds of insurance, including any
liability insurance or indemnity payments, payable to Borrower or CoreStates
with respect to damage to or destruction of all or any part of any of the
Aircraft, and any other proceeds in any manner payable to Borrower or CoreStates
derived from any use, lease, disposition, disappearance or destruction of, or
damage to, any of the Aircraft paid to CoreStates (other than pursuant to
Section 2.6 hereof) or Borrower, shall immediately be paid to CoreStates for
application by CoreStates in following order and manner:
First, to pay the interest then accrued on the Loans and the Prepayment
Amount, if any;
Second, the payment of costs, fees, expenses and indemnities
(including, without limitation, amounts payable under Section 8.1 hereof) of
CoreStates, in respect of the Loans or in regard to the collection of such
amounts;
Third, to repay the then outstanding principal amount of the Loans; and
Fourth, to Borrower.
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SECTION 3. REPRESENTATIONS AND WARRANTIES.
In order to induce CoreStates to enter into this Agreement and to make the Loans
provided for herein, Borrower makes the following representations and warranties
which shall survive the execution and delivery of this Agreement and the Note:
3.1. Good Standing: Authorization. The Borrower is a limited partnership duly
formed pursuant to the Delaware Revised Uniform Limited Partnership Act and
existing as a limited partnership in good standing in the State of Delaware;
PAMC is a corporation duly organized and existing and in good standing in the
State of California; Air Transport is a corporation duly organized and existing
and in good standing in the State of Delaware; each of the Borrower and the
General Partners is duly qualified and in good standing and authorized to do
business in all jurisdictions wherein the nature of its business or property
makes such qualification necessary (except where the failure to so qualify would
have no material adverse consequence on the validity and enforceability of the
Loans and the security interests granted by the Security Agreement or otherwise
in the Collateral) ; and each of the Borrower and the General Partners has the
requisite power and authority to own the properties which it now owns, to carry
on its business as now conducted, to execute, deliver and perform this Agreement
and each of the other Financing Documents to which it is a party, as
contemplated hereunder and thereunder. Each of the Financing Documents to which
the Borrower or the General Partners is a party constitutes (or when issued,
executed and delivered pursuant to this Agreement will constitute) the
respective valid and binding obligations of the Borrower or the General
Partners, as the case may be, enforceable against the Borrower or the General
Partners, as the case may be, in accordance with the terms thereof, except as
such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws from time to time in effect that affect creditors' rights generally
or by limitation upon the availability of equitable remedies. The execution,
delivery and performance of the Financing Documents have been duly authorized by
all necessary proceedings on the part of the Borrower and the General Partners,
as the case may be.
3.2. Compliance with Other Instruments. The execution, delivery and performance
of the Financing Documents will not conflict with, or result in any violation or
breach of, constitute a default under or (except as expressly contemplated by
the Security Documents) result in the creation of any security interest in
respect of any property of the Borrower or the General Partners pursuant to: (i)
the Partnership Agreement or the charter or by-laws of the General Partners,
(ii) any judgment, decree, order, statute, rule or regulation applicable to the
Borrower or the General Partners, or (iii) any agreement or instrument to which
the Borrower or the General Partners is a party. Neither the Borrower nor the
General Partners is (or, as a result of the consummation on each Loan Closing
Date of the transactions contemplated hereby, will be) in violation of any term
of the Partnership Agreement or the charter or by-laws of the General Partners,
or of any term of any agreement, instrument, judgment or Law applicable to it,
the violation of which could be reasonably expected to materially adversely
affect the business, operations, properties, or financial
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<PAGE> 10
position of the Borrower or the General Partners. Without limiting the scope of
the foregoing, each of the Borrower and the General Partners is in compliance in
all respects with all federal and state laws, the noncompliance with which could
have a material adverse impact on the Borrower or the General Partners.
3.3. Liens. Except for permitted Liens, all of the Collateral is and will
continue to be owned by Borrower or Trustee, free and clear of all Liens.
3.4. Government Approvals. Neither the Borrower, the General Partners, nor any
of the other holders of partnership interests in the Borrower is required to
obtain any order, consent, approval or authorization of, or required to make any
declaration or filing (other than the filing of financing statements and
aircraft mortgages) with, any governmental authority in connection with the
execution and delivery of the Security Documents and the granting of the
security interests in the Collateral pursuant to any of the Security Documents.
3.5. Full Disclosure. There is no material fact that the Borrower has not
disclosed to CoreStates or which is not disclosed in the Borrower's filings with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
which might reasonably be expected to have a material adverse effect on the
business, operations, properties or financial position of the Borrower or the
General Partners. The certificates and statements delivered herewith or
heretofore by the Borrower to CoreStates in connection with the negotiation,
execution and consummation of this Agreement, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to keep the statements contained herein or therein form being
misleading.
3.6. No Default. No event has occurred and is continuing which constitutes an
Event of Default. To the best of Borrower's knowledge, no default or event of
default has occurred and is continuing under the TWA Lease.
3.7. Material Agreements. The Borrower is not in default under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other material
agreement or obligation to which it is a party or by which any of its properties
are bound the result of which is likely to have a material adverse effect on the
Borrower.
3.8. Pending Litigation. There are no actions, suits, proceedings or
investigations pending, or so far as the Borrower is aware, threatened, against
or affecting the Borrower or any properties or any rights of the Borrower,
before any court, arbitrator or governmental body which, in the aggregate, might
adversely affect any action taken or to be taken by the Company under the
Agreement or which, in the aggregate, might materially adversely affect the
business, operations, properties or financial position of the Borrower.
3.9. Partnership Status for Tax Purposes. The Borrower is a "Partnership" for
Federal income tax purposes within the meaning of 7701(a) (2) of the Code.
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3.10. Citizenship. The Borrower and the General Partners are citizens of the
United States within the meaning of Section 101(16) of the Federal Aviation act
of 1958, as amended, and the regulations thereunder.
3.11. Subsidiaries. The Borrower has no subsidiaries.
3.12. Taxes. The Borrower and the General Partners have filed all Federal and
State income tax returns which are required to be filed, and have paid all taxes
as shown on said returns and all assessments received by it to the extent that
such taxes have become due, other than taxes being contested in good faith.
3.13. Security. As of the date of each Loan, the Security Agreement, the
Borrower Assignment and security interests granted to CoreStates pursuant to the
Security Documents in the property purported to be covered thereby (i) will
constitute a perfected security interest under the UCC or, with respect to the
Aircraft or interests therein otherwise subject to laws covering Liens in the
Aircraft and related interests, the relevant laws of the United States (the
"Recording Acts"), (ii) will be entitled to all of the rights, benefits and
priorities provided by the UCC or the Recording Acts, as applicable, and (iii)
will be superior and prior to the rights of all third Persons now existing or
hereafter arising whether by way of any Lien or otherwise, in each case assuming
compliance with the applicable Recording Act. On or promptly after the date of
the initial Loan, all recordations and filings shall have been accomplished with
respect to the Security Documents in each jurisdiction as may be required by law
to establish and perfect CoreStates's rights in and to the Collateral, and any
giving of notice or any other action to such end required by law has been given
or taken.
3.14. Principal Office. Borrower's chief executive offices and principal places
of business are in San Francisco, California and Weehawken, New Jersey.
3.15. Additional Representations. The Borrower makes each of the representations
and warranties which are set forth in the other Financing Documents to which the
Borrower is a party to, and for the benefit of, CoreStates as if the same were
set forth at length herein.
SECTION 4. CONDITIONS PRECEDENT.
4.1. Conditions Precedent to the Initial Loan. The obligations of CoreStates to
make the initial Loan to be made by it hereunder shall be subject to the
fulfillment (to the satisfaction of CoreStates) of the following conditions:
(a) Trustee shall have duly executed and delivered to CoreStates the
Security Agreement;
(b) Borrower shall have duly executed and delivered to CoreStates the
Note;
(c) Borrower shall have duly executed and delivered to
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CoreStates the Borrower Assignment;
(d) CoreStates shall have received a favorable opinion of Aispach,
Derenthal & Danhauser, special counsel for Borrower addressed to CoreStates and
dated the date hereof;
(e) TWA, the Borrower, and Trustee shall have duly executed and
delivered to CoreStates The Acknowledgment of and Consent to Assignment of Lease
Agreement, dated the date hereof, pertaining to the TWA Lease;
(f) CoreStates shall have received a certificate of insurance, or
insurance policy, with respect to the TWA Aircraft and CoreStates shall be named
an additional loss payee on such policy;
(g) CoreStates shall have received a certificate of an officer of each
of PAMC and Air Transport, the general partners of Borrower, attaching copies of
PAMC's or Air Transport's, as the case may be, (i) Certificate of Incorporation,
(ii) By-Laws, (iii) Resolutions adopted by the respective Board of Directors
authorizing the transactions contemplated hereby, and (iv) the incumbency and
signatures of the officers;
(h) Borrower and Trustee shall have duly executed Uniform Commercial
Code Financing Statements and such statements shall have been filed in the
States of California, New Jersey and Pennsylvania with respect to the Borrower's
Assignment and the Security Agreement;
(i) To the extent the same exists Borrower shall have delivered to
CoreStates the manually executed counterpart of the TWA Lease, which TWA Lease
is legended as "Counterpart No. 1" or "Original", or if such legended
counterpart does not exist then the only counterpart, which if such Lease is
chattel paper under the Uniform Commercial Code, in which a security interest
can be perfected by possession;
(j) Borrower shall have delivered to CoreStates a duly executed
Borrowing Certificate with respect to the initial Loan; and
(k) All documentation required by CoreStates in connection with this
Agreement shall be satisfactory to CoreStates.
4.2. Conditions Precedent to the Subsequent Loans. The obligations of CoreStates
to make the Loans to be made by it hereunder other than the initial Loan shall
be subject to the fulfillment (to the satisfaction of CoreStates) of the
following conditions:
(a) Borrower shall have delivered to CoreStates a duly executed
Borrowing Certificate with respect to the such Loan; and
(b) All documentation required by CoreStates in connection with this
Agreement shall be satisfactory to CoreStates.
RIDER
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4.3 Other Conditions In addition to the foregoing, the obligations of the
parties hereto with respect to the transactions contemplated hereby shall be
subject to the fulfillment of the following conditions:
(a) in termination and release of any and all of CoreState's security
interests in and to that Boeing model 747-143 aircraft bearing
MSN 19729 and U.S. Reg. N17010, as equipped with four (4) Pratt &
Whitney JT9D-7A engines, and the lease of the same to Continental
Airlines, Inc; and
(b) the termination and release of any and all CoreStates second lien
in and to the Borrower's beneficial interest in and to that
McDonnell Douglas model MD-81 aircraft bearing MSN 48094, and
U.S. Reg. N814US, as equipped with two (2) Pratt & Whitney model
JT8D-217 engines, and the lease of the same to USAir, Inc. to the
extent and only to the extent such second lien collateralizes
Borrower's liabilities for the Loans made hereunder.
Each of CoreStates and Borrower agrees to execute and deliver any and
all such documents and make any and all required FAA and UCC filings
simultaneously with the creation of the security interests in and to the TWA
Aircraft and the TWA Lease as contemplated by the Security Agreement.
SECTION 5. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that so long as the Commitment is in effect
and until the Note together with interest, and all other obligations incurred
hereunder, are paid in full, the Borrower will or will cause the Lessee to:
5.1. Inspection. Allow any person acting on behalf of CoreStates to visit and
inspect the Aircraft, to examine its books of record and account and to discuss
its affairs, finances and accounts with its officers, all at such times and as
often as CoreStates may reasonably request, and at CoreStates sole expense in
accordance with the terms of the Aircraft Lease during normal business hours.
5.2. Payment of Charges. Duly pay and discharge (a) all of its trade bills
before the time that any Lien attaches and (b) all taxes, assessments and
governmental charges or levies imposed upon or against it or its property or
assets, or upon any property leased by it, prior to the date on which penalties
attach thereto, and (c) all lawful claims, whether for labor, materials,
supplies, services or anything else, which might or could, if unpaid, become a
Lien upon such property or assets, unless and to the extent only that (in
respect of any such taxes, assessments, charges, levies or claims) the validity
thereof is being contested in good faith and, if appropriate, by proper
proceeding, provided that, in the case of any such contest, the Borrower
maintains appropriate reserves with respect thereto or has made adequate
provision for the payment thereof, in accordance with generally accepted
accounting principles; provided, however, that to the extent that this Section
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5.2 applies to a lessee of the Aircraft, Borrower shall only be required to pay
or discharge those amounts as they relate to the Aircraft.
5.3. Maintenance of Records. Subject to the terms of the applicable aircraft
lease, keep at all times books of record and account in which full, true and
correct entries will be made of all material dealings or transactions in
relation to its business and affairs, and the Borrower will provide adequate
protection against loss or damage to such books of record and account.
5.4. Insurance. Borrower shall (i) cause the Aircraft to be maintained in
accordance with the provisions of the Aircraft Lease, but in no event shall (a)
casualty value insurance on the Aircraft be less than the greater of (1) the
fair market value of the Aircraft or (2) $5,000,000 and (b) liability insurance
be less than the limits presently prescribed under the TWA Lease, (ii) maintain
or cause to be maintained all such insurance as is required to be maintained
pursuant to Section 2.21 of the Security Agreement and (iii) cause such
insurance to be written by an insurer acceptable to CoreStates, which acceptance
shall not be unreasonably withheld.
5.5. Leases. Give CoreStates written notice of all material terms of any lease
to be entered into with respect to the TWA Aircraft at least 30 days prior to
entering into such lease or within such time as is reasonably practical in
connection with such lease.
5.6. Further Assurances. Take all such other steps and actions, and sign such
documents, financing statements and other papers, as in CoreStates's reasonable
opinion may be necessary or advisable in order to assure to CoreStates the
security interest in the property granted to it by the Security Documents.
SECTION 6. NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Commitment is in effect
and until the Note, together with all interest thereon, and all other
obligations incurred hereunder, are paid in full, the Borrower will not:
6.1. Indebtedness. Incur any additional Indebtedness other than in connection
with the maintenance, repair, preservation, modification, or improvement of any
aircraft or flight equipment now owned by Borrower (including Indebtedness
necessary to acquire and install engine hush-kits or noise suppression
equipment), provided that such additional Indebtedness shall not exceed an
amount that results in the Borrower's aggregate Indebtedness exceeding Nine
Million Dollars ($9,000,000.00).
6.2. Type of Business. Enter into any business other than its ownership and
leasing of aircraft.
6.3. Liens. Create, assume or suffer to exist any Lien upon the Aircraft or any
of the Collateral whether now owned or hereafter acquired, except (i) Liens for
taxes not yet due or which are being contested in good faith by appropriate
proceedings; (ii) other
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Liens incidental to the conduct of its business or the ownership of its property
and assets which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not, either individually or in
the aggregate, materially detract from the value of its property or assets or
materially impair their use in the operation of its business (provided that no
Lien on the Aircraft or any portion thereof or interest therein is permitted
under this clause (ii)); and (iii) Liens in favor of CoreStates.
6.4. Consolidation. Merger and Sale or Purchase of Assets. Wind up, liquidate or
dissolve its affairs or enter into any transaction of merger or consolidation,
or convey, sell, or otherwise dispose of (whether in one or in a series of
transactions) all or a substantial part of its property or assets (whether now
owned or hereafter acquired), or purchase, lease or otherwise acquire all or any
substantial part of the property or assets of any Person, if such property or
assets would constitute a substantial part of the property or assets of the
Borrower, or agree to do any of the foregoing at any future time.
6.5. Advances and Loans. Except to a lessee or third party in connection with an
aircraft lease or a sale of an asset in the ordinary course of Borrower's
business, lend money or extend credit to any Person (including, but not limited
to, directors, officers, employees and stockholders) ; provided, however, that
with respect to any sale of an asset in the ordinary course of business, such
loan or extension of credit shall be adequately secured by the equity in the
asset.
6.6. Prepayment, etc. If an Event of Default shall have occurred and be
continuing or the making of any prepayment would materially adversely effect the
Borrower's ability to pay its Indebtedness as it becomes due, make any
prepayment which is not required by a contract to which the Borrower or any of
its property is subject or bound by law on account of the principal of the
indebtedness evidenced thereby or, unless required by any such contract or by
law, retire (by acquisition) or enter into any modification, amendment or
restructuring relating to any such indebtedness if the effect of any such action
would be to accelerate principal payment thereof.
6.7. Investments. Invest in (by capital contribution or otherwise), or acquire
or purchase or make any commitment to purchase the obligations or stock of (or
other form of equity interest in), any Person, except as permitted under the
Partnership Agreement.
6.8. Amendments to Agreements. Modify, amend, change, supplement or cancel,
terminate or assign or transfer any interest in, or agree to vary or waive any
rights under, the Trust Agreement or any document executed in connection
therewith, without CoreStates's prior written consent.
6.9. Principal Office. Change its chief executive office or principal place of
business without 15 days' prior written notice to CoreStates.
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SECTION 7. EVENTS OF DEFAULT.
If any one or more of the following events (each an "Event of Default") shall
occur and be continuing then, at CoreStates option, the entire unpaid balance of
the principal and interest on the Loans and all other obligations and
indebtedness of Borrower to CoreStates arising hereunder and under the other
Financing Documents shall immediately become due and payable with presentment or
demand for payment, notice of non-payment, protest or notice or demand of any
kind, all of which are expressly waived by Borrower:
(a) Borrower shall fail to make, within five days of the date when due,
whether at maturity, at a date fixed for payment thereof, on acceleration
thereof or otherwise, any payment of principal or interest upon the Note; or
(b) Any representation or warranty or statement made by Borrower or
Trustee herein or in any Financing Document, or in any certificate or statement
furnished pursuant hereto or thereto prove to have been untrue in any material
respect on the date as of which made; or
(c) Any covenant made by Borrower or the Trustee herein or in any
Financing Document, or in any certificate or statement furnished pursuant hereto
or thereto or in connection herewith or therewith shall be breached; or
(d) (i) Borrower shall make an assignment for the benefit of creditors,
file a petition in bankruptcy, be adjudicated insolvent or bankrupt, petition or
apply to any tribunal for the appointment of, or have appointed in respect of
it, a receiver, manager, statutory manager, custodian, or any trustee for it or
a substantial part of its assets, or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or any order is made that it be wound up or that a liquidator or similar
officer is appointed in respect of it or it resolves to wind itself up or
otherwise dissolve itself or gives notice of its intention to do so, except to
reconstruct or amalgamate on terms approved by CoreStates or there shall have
been filed any such petition or application, or any such proceeding shall have
been commenced against it, which remains undismissed for a period of sixty (60)
days or more; or Borrower by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
the appointment of a custodian, receiver, manager, statutory manager or any
trustee for it or any substantial part of its assets or Borrower shall suffer
any custodianship, receivership, statutory management or trusteeship to continue
undischarged for a period of sixty (60) days or more; or
(ii) Borrower shall "generally not pay its debts as such debts
become due," as such term is used under the Federal bankruptcy statute and the
same shall not be cured within sixty (60) days; or
(iii) Borrower shall have concealed, removed, or
16
<PAGE> 17
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law, or, while insolvent, shall have made any
transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a lien upon any of its
property thought legal proceedings or distraint which is not vacated within
sixty (60) days form the date thereof; or
(e) The removal, withdrawal or termination of both of the general
Partners as the general partners of Borrower; or
(f) Any default shall occur under any Financing Document which is not
cured within any cure period provided for therein; or any Financing Document
shall be disaffirmed or repudiated in any material respect by or on behalf of
any party thereto other than CoreStates; or
(g) Any default shall occur under the Letter of Credit Agreement or the
Assumption Agreement which is not cured within any cure period provided for
therein; or the Letter of Credit Agreement or the Assumption Agreement shall be
disaffirmed or repudiated in any respect by or on behalf of any party thereto
other than CoreStates; or
(h) Attachments or other liens except for the security interests
created in favor of CoreStates under the Security Documents, shall be issued or
entered against the Collateral and the same shall not be released and terminated
within sixty (60) days.
SECTION 8. MISCELLANEOUS.
8.1. Expenses.
(a) Whether or not the transactions hereby contemplated shall be
consummated, Borrower shall pay all reasonable out-of-pocket costs and expenses
of CoreStates incurred in connection with (x) the preparation, execution,
delivery, administration, filing and recording of, and (y) the amendment
(including any waiver or consent), modification, and enforcement of or
preservation of any rights under, this Agreement, the Note and the Financing
Documents, (A) the reasonable fees and expenses of counsel for CoreStates, and
any special, local and foreign counsel retained by CoreStates, and (B) the
administrative costs of Trustee.
(b) The Borrower agrees to pay, and to save CoreStates harmless from
all present and future stamp, filing and other similar taxes, fees or charges
(including interest and penalties, if any), which may be payable in connection
with the Financing Documents or the issuance of the Note or any modification of
any of the foregoing.
(c) The Borrower shall indemnify, pay and hold harmless CoreStates, any
Bank Assignee (as defined in Section 8.7) and the
17
<PAGE> 18
holders of the Note from and against any and all liabilities, obligations,
losses, damages, penalties, judgments, costs, expenses and disbursements
(including, without limitation, legal fees and expenses) of any kind whatsoever
which may be incurred by or asserted against CoreStates or the holders of the
Note (each, the "Indemnified Party") in any way related to or in connection with
any claim, action, suit, investigation or proceeding (in each case, regardless
of whether or not the Indemnified Party is a party thereto or target thereof) in
any way relating to the Collateral or in any way relating to the Borrower or
relating to or arising out of this Agreement, the Aircraft Lease, or any of the
other Financing document or other documents or transactions in connection
herewith or therewith or relating thereto; provided, however, that Borrower
shall not be liable to any Indemnified Party for any portion of such
liabilities, obligations, losses, damages, penalties, judgments, costs, expenses
or disbursements resulting from such Indemnified Party's gross negligence or
willful misconduct.
(d) All obligations provided for in this Section 8.1 shall survive any
termination of the Agreement and the payment in full of the Note.
8.2. Modification. This Agreement and the Note may be modified only by an
instrument in writing signed by the parties hereto.
8.3. Governing Law. This Agreement and the rights and obligations of the parties
hereunder and under the Note shall be construed in accordance with, and be
governed by, the law of the State of New York.
8.4. Notices. All notices required hereby or provided for herein shall be
delivered to each party hereto at the address set forth below or to such other
address given by any such party to all other parties hereto in the manner
provided herein. Each such notice shall be deemed given when received. Notices
may be given by first-class mail, postage prepaid, such notices deemed delivered
on the third business day after (not including) the date of the mailing; by hand
delivery, such notices deemed received on the day delivered (provided such
delivery is made prior to 4:00 PM local time of the delivered party); and by
telefax for teletype, such notices deemed received on the day sent (provided
such notice is so sent prior to 4:00 PM local time of the delivered party).
If to Borrower, to it at:
Four Embarcadero Center
Suite 3540
San Francisco, California 94111
Telecopy No.: 415-434-3917
with a copy to:
Pegasus Aircraft Management Corporation
Four Embarcadero Center
Suite 3540
San Francisco, California 94111
Telecopy No.: 415-434-3917
18
<PAGE> 19
and
Air Transport Leasing, Inc.
1200 Harbor Blvd.
5th Floor
Weehawken, NJ 07087
Telecopy No.: 201-902-5306
If to CoreStates, to it at:
Leasing Department
1500 Market Street
Centre Square, West Tower
Philadelphia, Pennsylvania 19102
Telecopy No.: 215-786-7704
8.5. Waiver. CoreStates's rights, powers, privileges and remedies under
or in connection with this Agreement and the Note are cumulative and not
exclusive and shall not be waived, precluded or limited by any failure or delay
in the exercise thereof or by the partial exercise thereof or by any course of
dealing between the Borrower and CoreStates. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right
of CoreStates to any other or future action in any circumstances without notice
or demand.
8.6. Descriptive Headings, etc. The descriptive headings used in this
Agreement are for convenience only and shall not be deemed to affect the meaning
or construction of any provision hereof.
8.7. Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns and in particular any holder from time to time of the Note, except that
the Borrower may not transfer or assign any or all of its rights or obligations
hereunder without the prior written consent of CoreStates. In furtherance of the
foregoing, CoreStates shall be entitled at any time to grant participations in
or assign, sell or otherwise transfer the whole or any part of its rights and/or
obligations under this Agreement, the Financing Documents or any Loan or the
Note to any Person provided that such assignee shall agree to be bound by the
terms of this Agreement and further provided that any such assignment, sale or
transfer shall not expand or increase any of the Borrower's obligations or
liabilities hereunder and under the other documents and agreements delivered in
connection herewith. CoreStates shall use its best efforts to give the Borrower
five (5) days prior written notice of any such participation or assignment. No
such participation, assignment, sale or other transfer shall relieve CoreStates
from its obligations hereunder and the Borrower need deal solely with CoreStates
with respect to waivers, modifications and consents to this Agreement, the
Financing Documents or the Note. Any such participant, assignee, purchase or
transferee is referred to in this Agreement as a "Bank Assignee". Borrower
agrees that the provisions of Section 8.1 (c) shall run to the benefit of each
Bank Assignee and its participations or interests herein, and CoreStates may
enforce such provisions on behalf of any
19
<PAGE> 20
such Bank Assignee. The Borrower hereby further agrees that any such Bank
Assignee may, to the fullest extent permitted by applicable law, exercise the
right of setoff with respect to such participation (and in an amount up to the
amount of such participation) as fully as if such Bank Assignee were the direct
creditor of the Borrower. Upon a participation, assignment, sale or transfer in
accordance with the foregoing, the Borrower shall execute such documents and do
such acts as CoreStates may reasonably request to effect such assignment.
CoreStates may furnish any information concerning the Borrower in its possession
from time to time to Bank assignees (including prospective Bank Assignees).
8.8. Execution and Effectiveness. This Agreement may be executed in
counterparts, each of which shall be regarded as an original and all of which
shall constitute a single instrument and shall become effective on the date (the
"Effective Date") when each of the parties hereto shall have signed a copy
hereof (whether the same or different copies) and CoreStates shall have received
a copy executed by each party. Complete sets of counterparts shall be lodged
with both parties.
8.9. Consent to Jurisdiction. The Borrower agrees that any legal action or
proceeding against the Borrower, with respect to the Agreement or the Note or
the other Financing Documents, may be brought in the courts of the State of New
York in New York County or of the United States of America for the Southern
District of New York, as CoreStates may elect, and, by execution and delivery of
the Agreement, the Borrower accepts, for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified airmail, postage prepaid, to the Borrower at
its address for notices as specified herein, such service to become effective 3
days after such mailing. Nothing herein shall affect the right to serve process
in any other manner permitted by law or the right of CoreStates to bring legal
action or proceedings in any other competent jurisdiction. THE BORROWER HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE
NOTE OR THE OTHER FINANCING DOCUMENTS.
8.10. No Third Party Beneficiaries. This Agreement is solely for the benefit of
CoreStates, the Borrower, and their respective successors and assigns and
nothing contained herein shall be deemed to confer upon anyone other than the
Borrower and their respective successors and assigns any right to insist on or
to enforce the performance or observance of any of the obligations contained
herein. All conditions to the obligations of CoreStates to make the Loan
hereunder are imposed solely and exclusively for the benefit of CoreStates and
its successors and assigns and no other person shall have standing to require
satisfaction of such conditions in accordance with their terms and no other
Person shall under any circumstances be deemed to be beneficiary of such
conditions.
8.11. Survival. Each of the representations, warranties, terms, covenants,
agreements and conditions contained in this Agreement
20
<PAGE> 21
shall specifically survive the execution and delivery of this Agreement and the
other Financing Documents and the making of the Loan and shall, unless otherwise
expressly provided, continue in full force and effect until the Loan together
with interest thereon, the fees and compensation of CoreStates, and all other
sums payable hereunder or thereunder have been indefeasibly paid in full.
IN WITNESS WHEREOF, the parties hereto have executed this Restated and Amended
Agreement as of July 20, 1995.
PEGASUS AIRCRAFT PARTNERS L.P.
By: Pegasus Aircraft Management
Corporation, as Managing
General Partner
By: /s/ Carol L. Chase
---------------------------------
Name: Carol L. Chase
Title: Senior Vice President, General Counsel
and Secretary
By: Air Transport Leasing, Inc.
as Administrative General
Partner
By: /s/ Clifford B. Wattley
----------------------------------
Name: Clifford B. Wattley
Title: President
CORESTATES BANK, N.A.
By: /s/ Geoffrey D. Minott
----------------------------------
Name: Geoffrey D. Minott
Title: Vice President
21
<PAGE> 22
Exhibit A
BORROWING NOTICE
Pursuant to Section 2.2(a) of the Loan Agreement (the "Loan Agreement"),
originally dated April 22, 1994, and Amended and Restated as of July 20, 1995,
between PEGASUS AIRCRAFT PARTNERS, L.P. and PHILADELPHIA NATIONAL BANK,
INCORPORATED, as CORESTATES BANK, N.A., the undersigned hereby gives notice of
its borrowing to be made on ____________________,199_ of a [Floating rate Loan]
[Fixed Rate Loan] in the principal amount of ________________________________
____________________________ and ___________ /100 ($____________).
The undersigned hereby represents and warrants that on the date hereof (i) the
representations and warranties of the undersigned contained in Article 3 of the
Loan Agreement are true and correct on the date hereof, (ii) no Event of
Default, or an event which with the passage of time would constitute an Event of
Default, has occurred and is continuing, (iii) all conditions precedent set
forth in the Loan Agreement to the making of the Loan requested hereunder have
been fully satisfied and (iv) the Loan requested hereunder shall be paid in
accordance with the terms of the Loan Agreement.
Attached hereto is true and correct Loan Schedule, which Loan Schedule
accurately reflects the amount of the Loan requested hereunder, the Loan Closing
Date for the Loan requested hereunder, the interest rate on the Loan and the
principal amount to be paid on such Loan on each Payment Date.
Unless otherwise defined, capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Loan Agreement.
22
<PAGE> 23
IN WITNESS WHEREOF, the undersigned has executed this document the ____ day of
___________, 199__.
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation, as Managing
General Partner
By: _______________________________
Name:
Title:
By: Air Transport Leasing Corp.,
as Administrative General
Partner
By: _______________________________
Name:
Title:
23
<PAGE> 24
LOAN SCHEDULE NUMBER ____ TO PROMISSORY NOTE MADE BY PEGASUS AIRCRAFT PARTNERS,
L.P. DATED _________ ____, 1995
Date of Borrowing:
Principal Amount of Borrowing:
Interest Rate:
Principal to be paid on each Payment Date with respect to the Loan:
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation, as Managing
General Partner
By: _________________________
Name:
Title:
By: Air Transport Leasing Corp.,
as Administrative General
Partner
By: _____________________________
Name:
Title:
24
<PAGE> 25
Exhibit B
CONVERSION NOTICE
Pursuant to Section 2.2(b) of the Loan Agreement (the "Loan Agreement"),
originally dated April 22, 1994, as Amended and Restated on July 20, 1995,
between PEGASUS AIRCRAFT PARTNERS, L.P. and PHILADELPHIA NATIONAL BANK,
INCORPORATED, as CORESTATES BANK, N.A., the undersigned hereby gives irrevocable
notice of its conversion of the Floating Rate Loan in the principal amount of
$_______________, which Loan was originally made on ___________________, 199__,
to a Fixed Rate Loan, such conversion to be effective as of
__________________________, 199__.
The undersigned hereby represents that on the date hereof (i) the
representations and warranties of the undersigned contained in Article 3 of the
Loan Agreement are true and correct on the date hereof and (ii) no Event of
Default, or an event which with the passage of time would constitute an Event of
Default, or an event which with the passage of time would constitute an Event of
Default, has occurred and is continuing.
Unless otherwise defined, capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Loan Agreement.
IN WITNESS WHEREOF, this undersigned has executed this document the ___________
day of __________________,199___.
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation, as Managing
General Partner
By: ________________________________________
Name:
Title:
By: Air Transport Leasing Corp.
as Administrative General
Partner
By: _______________________________________
Name:
Title:
25
<PAGE> 26
EXTENSION AND AMENDMENT OF $4 MILLION LINE OF CREDIT
BY
CORESTATES BANK, N.A.
TO
PEGASUS AIRCRAFT PARTNERS, L.P.
INDEX OF CLOSING DOCUMENTS
JULY 20, 1995
DOCUMENTS
1. Restated and Amended Loan Agreement among Pegasus Aircraft Partners,
L.P. ("Pegasus") and CoreStates Bank, N.A. ("CoreStates").
2. Security Agreement & Assignment of Lease (the "Security Agreement")
between Trustee with respect to Aircraft N904TW.
3. Assignment of Beneficial Interest from Pegasus to CoreStates with
respect to Pegasus's interest in the TWA Trust Agreement.
4. Acknowledgment of Assignment of Lease by TWA with respect to the TWA
Lease.
5. Direction and Instruction Letter to Trustee from Pegasus.
6. Letter from Trustee and Pegasus to CoreStates pursuant to which Trustee
and Pegasus agree that they will not pledge or grant a security
interest in the TWA Lease to any party other than CoreStates.
7. Certificate of Existence and Officers' Certificates of Pegasus Aircraft
Management Corp. and Air Transport Leasing Corp. attesting to
continuing validity of matters covered under prior Certificates.
8. Secretary's Certificate of Pegasus Aircraft Management Corp. ("PAMC"),
the managing general partner of Pegasus attaching certified copies of:
(a) Certificate of Incorporation of PAMC
(b) By-Laws of PAMC:
(c) Resolutions adopted by the Board of Directors of PAMC
authorizing the transactions contemplated hereby;
<PAGE> 27
(d) The incumbency and signatures of the officer of PAMC.
9. Secretary's Certificate of Air Transport Leasing Corp. ("Air
Transport"), the administrative general partner of Pegasus with respect
to:
(a) Certificate of Incorporation of Air Transport;
(b) By-Laws of Air Transport;
(c) Resolutions adopted by the Board of Directors of Air
Transport authorizing the transactions contemplated
hereby;
(d) The incumbency and signatures of the officers of Air
Transport.
10. Certificate of the Trustee attaching certified copies of the articles
of association and by-laws, corporate resolutions incumbency and
specimen signatures of officers authorized to execute the documents to
which the Trustee is a party.
11. Opinion of Alspach, Derenthal & Dannhauser, counsel to Pegasus, PAMC
and Air Transport, addressed to CoreStates.
12. Opinion of Daugherty, Fowler & Peregrin, special FAA Counsel.
13. Certificates of Insurance with respect to the TWA Aircraft.
14. UCC-1 Financing Statement filed with the Secretary of State of
California with respect to the security interest granted by Pegasus.
15. UCC-1 Financing Statement filed with the Secretary of State of New
Jersey with respect to the security interests granted by Pegasus.
16. UCC-1 Financing Statement to be filed with the Secretary of
Commonwealth of Pennsylvania and the Prothonotary of Reading county
with respect to the security interests granted by Trustee.
17. Delivery of the Original TWA Lease together with all amendments and
supplements appropriately stamped.
18. Copy of Pegasus Partnership Agreement.
19. Copy of Pegasus Trust Agreement.
<PAGE> 28
SECURITY AGREEMENT AND ASSIGNMENT OF LEASE
SECURITY AGREEMENT AND ASSIGNMENT OF LEASE (this "Agreement") dated as
of July 20, 1995, between Meridian Trust Company, a trust company organized and
existing under the laws of the Commonwealth of Pennsylvania, not in its
individual capacity, but (except as expressly noted in Section 7.7(b) herein)
solely as Owner Trustee ("Trustee") under the certain Trust Agreement dated as
of March 31, 1988 (the "Trust Agreement") for the benefit of Pegasus Aircraft
Partners, L.P. ("Pegasus"), as amended, relating to the "Aircraft" (as
hereinafter defined, with an office at 35 North Sixth Street, Reading, PA 19601,
and CORESTATES BANK, N.A., a national banking association ("CoreStates") with an
office at 1500 Market Street, Philadelphia, Pennsylvania 19102.
W I T N E S S E T H:
WHEREAS, Trustee is the owner of the Airframe and Engines (the Airframe
and Engines collectively referred to as the "Aircraft") as described on Schedule
1 attached hereto and made a part hereof;
WHEREAS, pursuant to the Trust Agreement, Trustee was appointed Owner
Trustee for the benefit of Pegasus with respect to the Aircraft;
WHEREAS, DC-9T-I, INC ("DC-9T-I"), as lessor and Trans World Airlines,
Inc., as lessee ("Lessee") entered into that certain Lease Agreement dated as of
May 20, 1983 and Lease Supplement No. 1, which was attached thereto and dated
May 24, 1983, which Lease, with Lease Supplement No. 1 attached was recorded by
the Federal Aviation Administration ("FAA") on September 22, 1983 and assigned
Conveyance Number H38434, as amended by an Amendment Agreement dated as of
December 15, 1986, between DC-9T-I as lessor and Lessee, recorded by the FAA on
January 26, 1987 and assigned Conveyance No. E91223 and assigned by Agreement of
Assignment and Assumption dated as of March 31, 1988, between DC-9T-I, as
assignor, and Meridian Trust Company ("Meridian"), as owner Trustee and
assignee, which Agreement of Assignment and Assumption was recorded by the FAA
on April 12, 1988 and assigned Conveyance No. C09394, and amended by Amendment
No. 1 to the Lease dated as of May 1, 1991, between Meridian, as lessor and
Lessee, which Amendment No. 1 was recorded by the FAA on June 10, 1991 and
assigned Conveyance No. G82584, an Amendment No. 2 to the Lease dated as of
April 15, 1993, between Meridian, as lessor and Lessee, which Amendment No. 2
was recorded by the FAA on May 3, 1993 and was assigned Conveyance No. JJ07770,
and an Amendment No. 3 dated as of January 16, 1995, which Amendment No. 3 is
being filed with the FAA contemporaneously herewith (collectively the "Aircraft
Lease").
WHEREAS, simultaneously herewith CoreStates is providing Pegasus, the
owner participant under the Trust Agreement, a $4,000,000 loan facility pursuant
to that certain Amended and Restated Loan Agreement (the "Loan Agreement"),
dated as of April 22, 1994, and amended and restated on July 20, 1995 between
Pegasus and CoreStates, the loans thereunder to be evidenced by a Promissory
Note, dated as of April 22, 1994, made by Pegasus in favor of CoreStates (the
"Note");
[RECORDED STAMP]
<PAGE> 29
WHEREAS, all amounts and other sums at any time due and owing from or
required to be paid by Pegasus under the terms of the Loan Agreement or the Note
or under this Security Agreement or any other Financing Document to or for the
benefit of CoreStates are hereinafter sometimes referred to as the "Indebtedness
Hereby Secured". (Unless otherwise indicated, all capitalized terms used herein
shall the meaning ascribed to them in the Loan Agreement).
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. Security Interest. In consideration of the Loans and other
good and valuable consideration, receipt whereof is hereby
acknowledged, and in order to secure the payment of the Indebtedness
Hereby Secured and the prompt performance and observance of all the
covenants and conditions contained in the Trust Agreement, the Loan
Agreement, the Note and in this Agreement, Trustee hereby mortgages,
assigns, pledges and grants a security interest in, and hypothecates
unto CoreStates, its successors and assigns, the following described
properties, rights, interests and privileges (all of which properties
are hereinafter collectively referred to as the "Collateral"):
DIVISION 1
The Aircraft, together with all accessories, attachments and
appurtenances at any time incorporated or installed in or appertaining
or attached to the Aircraft, whether now owned or hereafter acquired,
and all substitutions, renewals and replacements of, and improvements
to said Aircraft, together with all the rents, issues, income, profits
and avails thereof, and all logs, manuals and data and all records,
including, without limitation, all inspection, modification and
overhaul records, maintained with respect to the Aircraft.
DIVISION 2
All right, title and interest of Trustee in, under and to the
Aircraft Lease or any other lease entered into from time to time with
respect to the Aircraft (a "Subsequent Lease"), any lease schedules
thereto and amendments thereof, and all rights and remedies of the
lessor under the Aircraft Lease and any Subsequent Lease, any lease
schedules thereto and amendments thereof and all rents and other sums
due and to become due under the Aircraft Lease and any Subsequent
Lease, including without limitation any and all extensions or renewals
of the Aircraft Lease, any Subsequent Lease and any subleases
thereunder, and all re-lease rents and all guaranties or other
agreements securing or supporting the performance of the Lessee under
the Aircraft Lease or the lessee under a Subsequent Lease,
(collectively, the "Payment"); it being the intent and purpose hereof
that the assignment and transfer to CoreStates of the Payments with
respect to the Aircraft Lease and any Subsequent Lease shall be
effective and operative immediately
2
<PAGE> 30
and shall continue in full force and effect and CoreStates shall have
the right to collect and receive the payments for application in
accordance with the provisions of Section 5 hereto at all times during
the period from and after the date of the Agreement until the
Indebtedness Hereby Secured has been fully paid and satisfied;
provided, however, that so long as no Event of Default (as such term is
hereinafter defined) has occurred and is continuing, Trustee shall be
entitled to receive all payments under the Aircraft Lease other than
(i) any prepayments of Basic Rent or, with respect to a Subsequent
Lease, its equivalent, except to the extent that such prepayment
represents the next required payment of Basic Rent or its equivalent
and such prepayment is not made prior to the required payment date
which immediately precedes the required payment date that such
prepayment would otherwise be due, or (ii) payments made in connection
with the loss, damage, destruction or sale of the Aircraft, which loss,
damage, destruction or sale payments shall include without limitation,
any insurance proceeds, sale proceeds or payments representing
stipulated loss value or termination value.
DIVISION 3
All claims, rights, powers, privileges and remedies of Trustee with
respect to the Aircraft whether arising under the Aircraft Lease or by
statute, at law, in equity or otherwise.
DIVISION 4
All right, title and interest of Trustee under the Trust
Agreement, (as such term is defined in the Aircraft Lease), together
with all estates and interests therein and thereto, and all rights,
powers and privileges thereunder or in respect thereof, and any and all
payments thereunder or in respect thereof to which Trustee is or may
become entitled, but the foregoing shall not include rights, interests,
estates, powers and privileges of Meridian Trust Company in its
individual capacity, including, but not limited to indemnities,
undertakings, fees and payments due from Owner Participant to Meridian
Trust Company thereunder.
DIVISION 5
All proceeds of any of the foregoing including, without
limitation, insurance proceeds, termination payments, casualty loss
payments, accounts, chattel paper, goods, documents, instruments and
general intangibles.
2. Covenants and Warranties. Trustee, not in its individual
capacity but solely as Owner Trustee, covenants, represents, warrants
and agrees as follows:
3
<PAGE> 31
2.1 Warranty of Title. Trustee has good and marketable title to the
Collateral free and clear of all claims, liens, security interests or other
encumbrances (other than liens permitted under the Lease, under Section 6.3 of
the Loan Agreement, including but not limited to the lien created hereby),
subject to the right and interest of the Lessee under the Aircraft Lease.
Trustee has full power and authority to grant a security interest in the
Collateral to CoreStates and, hereby warrants said title to the Collateral
against all claims and demands whatsoever subject as aforesaid. No financing
statement, mortgage or other evidence of a lien or other encumbrance with
respect to the Collateral, other than to the extent that the Aircraft Lease is
deemed an encumbrance, exists or is on file or registered in any public office
other than those representing the rights and interests of CoreStates in the
Collateral.
2.2 Security Interest Created. This Agreement creates a valid, binding
and enforceable first priority security interest in favor of CoreStates in the
Collateral, which security interest shall be superior in right to all claims of
secured and unsecured creditors of Trustee, both individually and as Owner
Trustee, and to all other security interests, liens, claims and encumbrances.
2.3 Recordation and Filing. (a) Except as set forth in the following
sentence, no action, including any filing or recording of any document, is
necessary in order to afford protection to CoreStates under applicable law in
connection with the creation or enforcement of its security interest granted
hereunder as a perfected first priority security interest in the Collateral
other than (i) the filing of Uniform Commercial Code (the "Code") financing
statements with the Secretary of State of Pennsylvania and the Prothonotary of
Reading County, (ii) delivery to CoreStates of the manually executed counterpart
of the Aircraft Lease, which Aircraft Lease is legended as "Counterpart No. 1"
or " "Original," and (iii) the filing of this Agreement with the FAA, all of
which filings and deliveries have been properly made. The continued possession
of CoreStates of the Aircraft Lease may, under certain circumstances, be
required to maintain CoreStates' first priority security interest therein.
(b) Trustee will, at Trustee's own expense, do everything reasonably
necessary or expedient, as determined and explicitly directed by CoreStates, to
preserve, perfect and maintain, or cause to be preserved, perfected and
maintained, in favor of CoreStates a perfected security interest prior to all
other security interests in the Collateral as against Trustee and in the
Aircraft as against the Lessee and any subsequent transferee thereof, including,
without limitation, (i) causing all filings and doing all acts and things which
CoreStates may require to preserve its security interest in the Collateral in
the territory in which the Lessee may operate the Aircraft, in the territory in
which the Aircraft is registered and in the jurisdiction where the principal
offices of
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Trustee are located, including, without limitation, as may be required by the
Code or the law of any other applicable jurisdiction or as reasonably directed
by CoreStates in order to preserve and protect the rights of CoreStates
hereunder, and (ii) doing or causing to be done any and all acts and things
which may be required under the terms of any other agreement, or by any
practice, custom or understanding involving any state in which the Lessee may
operate, whether or not such agreement, practice, custom or understanding is
currently in force or effect, as may be necessary or as CoreStates may
reasonably request, to perfect and preserve its security interest in the
Collateral within the jurisdiction of any such state.
2.4 Further Assurance. Trustee will, upon written direction from
CoreStates and at Trustee's own expense, do such other and further acts,
execute, acknowledge and deliver all deeds, conveyances, transfers and
assurances reasonably necessary or proper for the better assuring, conveying,
assigning and perfecting CoreStates' interest in and confirming unto CoreStates
all of the Collateral. Trustee acknowledges that CoreStates may assign, upon
thirty (30) days prior notice to Trustee, its interest in the Collateral, this
Agreement or portions thereof provided such assignee assumes all of CoreStates'
obligations under this Agreement, the Loan Agreement, the Note and any related
instrument and agrees to comply with the provisions hereof and thereof. On
request by CoreStates, Trustee shall execute all documents that CoreStates may
reasonably require to confirm Trustee's obligations hereunder or the interest of
CoreStates in the Collateral. Notwithstanding this Agreement, Trustee will
perform all obligations of lessor under the Aircraft Lease, however, arising.
2.5 Performance and Compliance. Trustee shall perform and comply with
each and every term of this Agreement, the Loan Agreement, the Aircraft Lease
and the Trust Agreement and all other documents relating to the Collateral to be
performed or complied with by Trustee, and shall exercise its reasonable best
efforts to cause the Lessee, as lessee under the Aircraft Lease, to perform and
comply with each and every term of the Aircraft Lease.
2.6 Actions Under or With Respect to the Aircraft Lease and the Trust
Agreement. Trustee will not, without the prior written consent of CoreStates:
(a) Declare a default or exercise the remedies of the lessor
under the Aircraft Lease;
(b) Receive or collect or permit the receipt or collection of
any rental or other payment under the Aircraft Lease or extend any time for
payment under the Aircraft Lease or grant any waiver or consent under the
Aircraft Lease; provided, however, that so long as no Event or Default has
occurred and is continuing, Trustee shall be entitled to receive all payments
under the
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Aircraft Lease other than any prepayments of Basic Rent or, with respect to a
Subsequent Lease, its equivalent, except to the extent that such prepayment
represents the next required payment of Basic Rent or its equivalent and such
prepayment is not made prior to the required payment date which immediately
precedes the required payment date that such prepayment would otherwise be due,
or payments made in connection with the loss, damage, destruction or sale of the
Aircraft, which loss, damage, destruction or sale payments shall include without
limitation, any insurance proceeds, sale proceeds or payments representing
stipulated loss value or termination value; or
(c) Terminate prior to the scheduled termination date, amend, modify or
permit any termination, amendment or modification of, the Aircraft Lease, or the
Trust Agreement.
2.7 Notice of Certain Matters. Trustee shall give notice to CoreStates,
within ten (10) days of Trustee's obtaining actual knowledge thereof by an
officer of the corporate trust department, of any of the following:
(a) any litigation or claim of any kind against the Collateral
or the ability of CoreStates to dispose of the Collateral or the rights and
remedies of CoreStates in relation thereto, including but not limited to, the
filing of any liens or levy of any legal process against the Collateral and the
adoption of any orders, arrangements or procedures affecting the Collateral,
whether governmental or otherwise;
(b) any litigation or claim of any kind that might subject
Trustee, in its capacity as owner trustee, to any material liability;
(c) any dispute between Trustee and any governmental agency
relating to the Collateral, the adverse determination of which might materially
affect the Collateral;
(d) any threat or commencement of proceedings in condemnation
or eminent domain against the Collateral or any seizure of the Collateral;
(e) any Event of Default hereunder or event which, with the
giving of notice or the passage of time or both, would constitute an Event of
Default hereunder;
(f) any event of condition constituting an Event of Default
under the Aircraft Lease;
(g) the existence of any lien on or claim against any part of
the Collateral; and
(h) an event of loss or damage to the Collateral, or any
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replacement or exchange or any Airframe or any Engine, as those terms are
defined in the Aircraft Lease, (other than exchanges of Engines in the normal
course of Lessee's business in the manner and as permitted under the Aircraft
Lease), of which an officer of the corporate trust department of the Trustee has
actual knowledge.
2.8 Retention of Title. Except as permitted in Section 2.22 hereof,
Trustee will not encumber, sell, assign or otherwise dispose of any interest in
the Collateral, except as such is encumbered and assigned to CoreStates.
2.9 Organization. Meridian Trust Company is a trust company duly
organized and validly existing in good standing under the laws of the
Commonwealth of Pennsylvania and is qualified to do business in all
jurisdictions in which qualification is required in order for it to carry out
the transactions contemplated by this Agreement, the Trust Agreement and the
Aircraft Lease; and the Trustee is empowered and authorized to own its
properties and carry on its business as now or hereafter conducted.
2.10 Authority; Validity. Trustee has full power and authority to
execute this Agreement and the other documents contemplated hereby and thereby
and to consummate the transactions contemplated hereby and thereby; the
execution and delivery of this Agreement and the other documents contemplated
hereby and thereby and the performance of Trustee's obligations hereunder and
thereunder have been duly authorized by all necessary corporate action; and each
of this Agreement and the other documents contemplated hereby and thereby
constitute the valid and binding agreement and obligation of Trustee,
enforceable against Trustee in accordance with its respective terms.
2.11 No Contravention. The execution, delivery and performance of this
Agreement and all other documents and agreements contemplated hereby to which
Trustee is a party will not (i) contravene any provision of Pennsylvania or
United States Federal law, governmental rule or regulation, writ, injunction,
decree, judgment or order applicable to Trustee, (ii) violate any provision of
Meridian Trust Company's articles of association or by-laws, or (iii) conflict
or be inconsistent with or result in breach of, any of the terms, covenants,
conditions, or provisions of, or constitute or default under or results in the
creation or imposition of (or the obligation to create or impose) any lien
(except pursuant to this Agreement) upon any indenture, mortgage, deed of trust,
agreement or other instrument to which Trustee is a party or by which it or any
of its property or assets is bound or to which it may be subject.
2.12 Approvals. No giving of notice to, registration with,
authorization or approval of, or taking any action in respect of or under any
federal law governing trust powers, laws of the Commonwealth of Pennsylvania or
any subdivision or agency thereof
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is required for the execution and delivery of this Agreement or for the validity
and enforceability hereof or for the grant of the security interest hereunder on
the terms and conditions herein provided, or, if any such actions or approvals
are so required, they have been so given and/or obtained, and, if any such
approvals are hereafter required, they will be promptly obtained.
2.13 Litigation. No actions, claims or proceedings are pending or, to
the best knowledge of Trustee, threatened against or affecting Trustee in any
court or before any arbitrator or government body, the adverse determination of
which would affect the validity of this Agreement, the rights of CoreStates or
its successors hereunder, or the ability of Trustee to perform its obligations
under this Agreement.
2.14 Tax Matters. Trustee shall pay or cause to be paid all charges,
taxes and assessments levied or assessed against itself which if unpaid would
constitute a lien on the Collateral, or the Aircraft Lease or any payments made
or to be made by the Lessee in respect thereof, which could result in the
imposition of any lien against the Collateral or any payments made or to be made
by the Lessee in respect thereof, other than liens for taxes not yet due.
2.15 Office. The chief executive office of Trustee is located at 35
North Sixth Street, Reading, PA 19601, and Trustee shall give CoreStates at
least 30 days' prior written notice of any change in the location of Trustee's
chief executive office.
2.16 Aircraft Lease. (a) The Aircraft Lease and the Trust Agreement (i)
are in full force and effect in the form provided to CoreStates by Pegasus and
(ii) have not had any of the provisions thereof waived.
(b) All amounts due and payable under the Aircraft Lease prior
to the date hereof have been paid in full and no amounts due and payable on or
after the date hereof have been prepaid, in whole or in part;
(c) To the actual knowledge of officers of the corporate trust
department of the Trustee no event or condition constituting an Event of Default
under the Aircraft Lease or which with notice or lapse of time, or both, would
constitute such an Event of Default has occurred and is continuing under the
Aircraft Lease;
(d) Trustee will duly perform all of the obligations of the
lessor under the Aircraft Lease and shall remain liable thereunder to the Lessee
notwithstanding this Agreement or CoreStates' exercise of any of its rights or
remedies hereunder;
(e) To the actual knowledge of officers of the corporate trust
department of the Trustee, no Event of Loss (as
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defined in the Aircraft Lease) has occurred in relation to the Aircraft; and
(f) There is only one executed copy of the Aircraft Lease
bearing the legend "Counterpart No. 1" or "Original" which copy is being
delivered to CoreStates along with any lease supplements and amendments thereto
contemporaneously with the execution and delivery of this Agreement. All other
copies of the Aircraft Lease along with any lease supplements and amendments
thereto have been marked "Duplicate".
2.17 Compliance. Trustee shall deliver to CoreStates, from time to the
time upon CoreStates' explicit request, in form and substance satisfactory to
CoreStates, evidence requested by CoreStates that Trustee has complied with all
applicable laws, ordinances, regulations and other requirements of all
governmental agencies having jurisdiction over the Collateral and that all
necessary licenses, consents and approvals of any governmental agency have been
regularly and finally received with respect to the Collateral. Trustee shall
comply in all material respects with all laws and requirements applicable to its
business and obtain all authorization, consents, appraisals, orders, licenses,
exemptions with, any government agency that is necessary for the transaction of
its business.
2.18 Maintenance. Trustee shall maintain the Collateral (or cause the
Collateral to be maintained) in good condition and repair, and not permit any
material waste or damage with respect thereto, ordinary wear and tear excepted.
Trustee shall take or cause to be taken all measures reasonably required by
CoreStates and permitted under the Aircraft Lease to protect the physical
security of the Collateral. During the term of the Aircraft Lease and any
Subsequent Lease Trustee shall cause the Aircraft to be maintained in accordance
with the provisions of the Aircraft Lease, and of all other government,
regulatory or judicial bodies applicable to the Aircraft, to the extent required
by the Aircraft Lease, provided that such standards shall comply (or cause to be
compiled with) all noise, health, customs, immigration, agriculture and police
regulations and all rules and orders relating to the Aircraft that the Aircraft
may be subject to in its use and operation and in particular Trustee will not
permit the Aircraft to proceed to any airport or enter any airspace which is at
any time the subject or a prohibition or exclusion order by the insurers of the
Aircraft or by the government of the United States. Notwithstanding anything to
the contrary contained herein, provided that Lessee is compliance with its
obligations under the Aircraft Lease, then Trustee shall be deemed to have
complied with the requirements hereof. At such times that the Aircraft is
subject to neither the Aircraft Lease nor any Subsequent Lease Trustee shall be
obligated to the preserve the Aircraft in the condition in which it was returned
(assuming that it was returned in the condition required by the Aircraft Lease
or any Subsequent Lease) and in such
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condition that the Aircraft's certificate of airworthiness is continually
maintained.
2.19 Inspection. Trustee shall at all times prior to the indefeasible
repayment in full of the Indebtedness Hereby Secured, subject to the provisions
of the Aircraft Lease, permit CoreStates and its agents, (a) the right of entry
and free access to the Aircraft for any purpose, including without limitation,
to conduct an inspection or appraisal, and (b) the right to inspect and copy all
books, contracts and records of Trustee, or to which Trustee has a right of
access or inspection, pertaining to the Collateral.
2.20 Taxes. Trustee shall file all required tax and similar reports and
returns in all relevant jurisdictions and pay or cause to be paid all charges,
taxes and assessments levied or assessed against itself which if unpaid would
constitute a lien on the Collateral or the Aircraft Lease or any payments made
or to be made by the Lessee in respect thereof.
2.21 Insurance. Trustee shall maintain or cause to be maintained, at
its expense or at the expense of the Lessee, insurance in the same manner and to
the same extent as is provided in Section 11 of the Aircraft Lease, but in no
event shall (i) casualty value insurance on the Aircraft be in an amount less
than the greater of (1) the fair market value of the Aircraft or (2) $5,000,000
and (ii) liability insurance be less than the lesser of (1) $1,500,000 times the
number of seats in the Aircraft or (2) $300,000,000. All such insurance
coverages shall be in form and issued by insurers satisfactory to CoreStates
from time to time, shall name CoreStates as an additional insured, and with
respect to the Aircraft all-risk insurance, as loss payee, and shall provide
that the insurer shall notify CoreStates of a cancellation or material change in
such coverage at least thirty (30) days prior to such cancellation or change.
2.22 Releasing. Upon the expiration of the term of the Aircraft Lease,
Trustee will not enter into any Subsequent Lease unless (i) the insurance
required under the Subsequent Lease complies with the requirements of Section
2.21 hereof, (ii) the maintenance provisions contained in the Subsequent Lease
are no less stringent than general industry standards for comparable aircraft,
(iii) an appraisal by an independent appraiser mutually acceptable to Trustee
and CoreStates provides that the value of the Aircraft is in excess of
$5,000,000 when subjected to the Subsequent Lease, (iv) Trustee executes an
assignment of lease in favor of CoreStates which gives CoreStates a collateral
assignment in the Subsequent Lease and all payments thereunder equivalent to the
rights granted hereunder to CoreStates in the Aircraft Lease, (v) Trustee gives
CoreStates written notice of the material terms of the Subsequent Lease at least
30 days prior to entering into the Subsequent Lease of within such time as is
reasonably practical in connection with such lease, and (vi) Trustee does
everything
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reasonably necessary or expedient, as determined by CoreStates, in its
reasonable discretion, to preserve, perfect and maintain, or cause to be
preserved, perfected and maintained, in favor of CoreStates a perfected security
interest prior to all other security interests in the Collateral and the
Subsequent Lease, including, without limitation, obtaining an opinion of counsel
which provides that CoreStates has first priority perfected security interest in
the Collateral and the Subsequent Lease.
2.23 Bankruptcy. Notwithstanding anything to the contrary contained
herein with respect to the Aircraft Lease:
(a) Trustee shall not, without CoreStates written consent, make any
election or take any action pursuant to Section 1110 of the Bankruptcy
Code, 11 U.S.C. SC 1110. Any such election or action made without
CoreStates prior written consent shall be void.
(b) If any action, proceeding, motion or notice shall be commenced or
filed in respect of the Lessee or the Collateral in connection with any
case under the Bankruptcy Code, 11 U.S.C. Sec. 101 et seq. CoreStates
shall have the right, but not the obligation, to conduct any such
litigation with counsel agreed upon between CoreStates and Trustee in
connection therewith. Trustee shall, upon demand, pay to CoreStates all
reasonable costs and expenses (including without limitation reasonable
attorneys' fees) paid or incurred by CoreStates in connection with the
prosecution or conduct of any such proceedings.
(c) Trustee shall promptly, after an officer of its corporate trust
department shall have obtained actual knowledge thereof, notify
CoreStates in writing of any filing by or against the Lessee of a
petition under the Bankruptcy Code, 11 U.S.C. section 101 et seq,
setting forth any information available to Trustee with respect to the
date of such filing, the court in which such petition was filed, and
the relief sought therein. Trustee shall promptly deliver to
CoreStates, following its receipt thereof, any and all notices,
summonses, pleadings, applications and other documents received by
Trustee in connection with any such petition and any proceedings
relating thereto.
2.24 Plaque To Be Affixed. Trustee shall affix or cause to be affixed
in a prominent position on the flight deck and on the engines constituting part
of the Aircraft, a metal plaque of reasonable size, inscribed in fireproof and
legible characters as follows:
"This Aircraft/Engine is owned by Meridian Trust Company, as
Owner Trustee, and is operated by Trans World Airlines, Inc.
and is
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subject to a first mortgage in favor of CoreStates Bank, N.A,
1500 Market Street, Philadelphia, Pennsylvania 19102."
3. Rights of CoreStates. Trustee hereby irrevocably constitutes and
appoints CoreStates and any officer, employee or agent thereof, with full power
of substitution, as their true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Trustee or in its own name, from
time to time in CoreStates's discretion, for the purpose of carrying out the
terms of this Agreement to take any and all appropriate action and to execute
any and all documents and instruments which may be reasonably necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, Trustee hereby gives CoreStates the power and
right, on behalf of Trustee, without assent by Trustee to do the following: (i)
to endorse any loss payment or returned premium check and to make, settle, and
release any claim under any insurance policy with respect to the Collateral,
(ii) to file any claim or take any other action or proceeding in any court of
law or equity for the purpose of collecting any and all monies due under any
Collateral; (iii) to receive payment of and receipt for any and all monies,
claims and other amounts due and to become due at any time in respect of or
arising out of any Collateral; and (iv) without notice to Trustee, upon the
occurrence and continuance of any Event of Default under the terms of this
Agreement (A) to apply each payment in respect of the Collateral in payment or
satisfaction of the Indebtedness Hereby Secured; (B) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent
jurisdiction, to collect the Collateral or any part thereof and to enforce any
other right in respect to the Collateral; (C) to settle, compromise or adjust
any suit, action or proceeding described above and, in connection therewith, to
give such discharges or releases as CoreStates may deem appropriate; and (D)
generally to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
CoreStates were the absolute owner thereof for all purposes, and to do, at
CoreStates's option, at any time, or from time to time, all acts and things
which CoreStates deems necessary to protect, preserve or realize upon the
Collateral and CoreStates's security interest therein in order to effect the
intent of this Agreement, all as fully and effectively as Trustee might do;
provided, however, that CoreStates shall not be permitted to take such actions
set forth in clauses (i) - (iii) above unless an Event of Default has occurred
and is continuing and CoreStates has given Trustee thirty (30) days' prior
written notice (unless, in CoreStates' sole discretion, circumstances require
CoreStates to act immediately without such notice to preserve its security
interest). Trustee hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest, shall be irrevocable and shall terminate only upon payment in
full of the Indebtedness
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Hereby Secured. The powers conferred on CoreStates hereunder are solely to
protect CoreStates's interests in the Collateral and shall not impose any duty
upon it to exercise such powers. CoreStates shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to Trustee for any action taken or omitted to be taken in good faith
(any action taken in reliance on the advice of Counsel shall be deemed an action
taken or omitted to be taken in good faith) except only for its own gross
negligence or wilful misconduct, and the foregoing shall not operate to release
CoreStates from any liability arising out of the gross negligence or wilful
misconduct of any of its officers, directors, employees or agents in disposing
of any of the Collateral.
4. Possession and Use of Aircraft. Unless an Event of Default has
occurred and is continuing hereunder, Trustee shall be permitted to remain in
full possession, enjoyment and control of the Aircraft and to manage, operate
and use the same and each part thereof with the rights and franchises
appertaining thereto; provided, always, that the possession, enjoyment, control
and use of the Aircraft shall at all times be subject to the observance and
performance of the terms of this Agreement. It is expressly understood that the
use and possession of the Aircraft by the Lessee under and subject to the
Aircraft Lease or a Lessee under and subject to a Subsequent Lease shall not
constitute a violation of this Section 4. CoreStates agrees that so long as no
default under the Aircraft Lease or a Subsequent Lease has occurred and is
continuing, the Lessee or the lessee under the Subsequent Lease, as the case may
be, shall quietly possess, use and enjoy the Aircraft and the rents, revenues,
profits and income therefrom without hindrance or interruption by CoreStates or
by any other person lawfully claiming under or through CoreStates.
5. Defaults and Other Provisions.
5.1 Event of Default. The term "Event of Default" for the
purpose hereof shall mean:
(a) An Event of Default under the Loan Agreement or any
Financing Document;
(b) Failure to maintain any of the insurance required to be
maintained hereunder;
(c) Any representation or warranty made by Trustee in this
Agreement or any other agreement or document executed and delivered in
connection herewith and therewith or any certificate or report
furnished by Trustee under this Agreement or in any writing furnished
by Trustee to CoreStates in connection with the incurring of the
Indebtedness Secured Hereby, proves to be incorrect in any material
respect as of
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the date when made;
(d) Failure by Trustee to perform or observe any other term,
condition or covenant of this Agreement, or any other agreement or
document delivered pursuant hereto or thereto which shall remain
unremedied for a period of thirty (30) days after written notice
thereof shall have been given to Trustee by CoreStates;
(e) A default by Trustee under the Aircraft Lease or any
Subsequent Lease which is not cured within any cure period provided for
therein;
(f) Any default by the Lessee under the Aircraft Lease (i)
which is not cured by the Lessee or Trustee within the greater of (1)
the cure period, if any, provided for therein or (2) ninety (90) days
following such default, or (ii) unless the Aircraft Lease is terminated
within ninety (90) days following such default;
(g) Any default by the lessee under the Subsequent Lease (i)
which is not cured by the lessee under the Subsequent Lease or Trustee
within the greater of (1) the cure period, if any, provided for therein
or (2) ninety (90) days following such default, or (ii) unless the
Subsequent Lease is terminated within ninety (90) days following such
default;
(h) The occurrence of an Event of Loss (as such term is
defined in the Aircraft Lease whether or not the Aircraft Lease is then
in full force and effect);
(i) Trustee shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent or
bankrupt; petition or apply to any tribunal for the appointment of, or
have appointed in respect of it, a receiver, manager, statutory
manager, custodian, or any trustee for it or a substantial part of its
assets, or shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or an order is made that it be wound up or that a
liquidator or similar officer is appointed in respect of it or it
resolves to wind itself up or otherwise dissolve itself or gives notice
of its intention to do so, except to reconstruct or amalgamate on
terms approved by CoreStates or there shall have been filed any such
petition or application, or any such proceeding shall have been
commenced against it, which remains undismissed for a period of sixty
(60) days or more; or Trustee by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition,
application or proceeding or the appointment of a custodian, receiver,
manager, statutory manager or any
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trustee for it or any substantial part of its assets; or
Trustee shall suffer any custodianship, receivership,
statutory management or trusteeship to continue undischarged
for a period of sixty (60) days or more; or
(2) Trustee shall "generally not pay its debts as such debts
become due," as such term is used under the Federal bankruptcy statute
and the same shall not be cured within sixty (60) days; or
(3) Trustee shall have concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law, or, while
insolvent, shall have made any transfer of its property to or for the
benefit of a creditor to obtain a lien upon any of its property through
legal proceedings or distraint which is not vacated within sixty (60)
days from the date thereof;
(j) The Aircraft Lease or Subsequent Lease was not duly
authorized and executed by the Lessee or the lessee under the
Subsequent Lease, as the case may be, or is not valid and enforceable
against the Lessee or the lessee under the Subsequent Lease, as the
case may be, in accordance with its terms; or
(k) Attachments or other liens except for the security
interests created in favor of CoreStates or as otherwise permitted
hereunder, shall be issued or entered against the Collateral and the
same shall not be released and terminated within sixty (60) days
5.2 Occurrence of Event of Default. In the event that an Event of
Default has occurred and is continuing, CoreStates shall have the rights,
options and remedies of a secured party and Trustee shall have the rights,
options and duties of a debtor under the Code regardless of whether the Code or
law similar thereto has been enacted in the jurisdiction wherein the rights or
remedies are asserted, and without limiting the foregoing, CoreStates may
exercise any one or more or all, and in any order, of the remedies, set forth in
the Aircraft Lease or the Subsequent Lease. In addition, in such event Trustee
shall take all such action with respect to the Aircraft permitted under the
Aircraft Lease or the Subsequent Lease as CoreStates may from time to time in
writing direct.
5.3 Sale of Collateral. Any sale of the Collateral by CoreStates
whether under any power of sale hereby given or by virtue of judicial
proceedings shall operate to divest all right, title, interest, claim and
demand whatsoever, either at law or in
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equity, of Trustee in and to the Collateral sold and shall be a perpetual bar,
both at law and in equity, against Trustee, its successors and assigns, and
against any and all persons claiming the property sold or any part thereof
under, by or through Trustee, its successors or assigns (subject, however, to
the then existing rights, if any, of the Lessee under the Aircraft Lease or any
lessee under a Subsequent Lease).
5.4 Application of Payments or Proceeds of Sale or Loss. Subject to the
provisions of Section 11(c) of the Lease any Payments or the proceeds of sale or
loss of the Collateral or any part thereof, and the proceeds and the avails of
any remedy hereunder shall be paid to and applied as follows:
(a) To pay the interest then accrued on the Loans and
Prepayment Amounts, if any;
(b) To the payment of costs, fees, expenses and indemnities
(including, without limitation, expenses of foreclosure or suit, if
any, and of any sale, and the compensation of the agents, attorneys and
counsel of CoreStates and of all expenses, liabilities and advances
incurred or made hereunder by CoreStates, or the holder of holders of
the Note), and of all taxes, assessments or liens relating to this
Agreement and the Collateral, except any taxes, assessments or other
superior lien subject to which said sale may have been made;
(c) To repay the then outstanding principal amount of the
Loans;
(d) To the payment of any other Indebtedness Hereby Secured;
and
(e) The balance to Trustee or such other party as may be
entitled there to.
5.5 No Waiver. No delay or omission of CoreStates, its successors or
assignees, or of any holder of the Note, to exercise any right or power arising
from any Event of Default on the part of Trustee or shall exhaust or impair any
such right or power or prevent its exercise during the continuance of such
default. No waiver by CoreStates of any right hereunder shall be effective
unless in writing and signed by a duly authorized representative of CoreStates.
No waiver by CoreStates or any holder or holders of the Note of any such Event
of Default, whether such waiver be full or partial, shall extend to or be taken
to affect any subsequent Event of Default, or to impair the rights resulting
therefrom, except as may be otherwise provided herein. Each and every right,
power and remedy herein granted to CoreStates shall be in addition to every
other right, power and remedy herein granted or now or hereafter existing at
law, in equity or by statute.
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6. Recourse. Except as specifically set forth herein it is expressly
understood that each of the obligations, covenants and agreements of the Trustee
herein are made not as personal obligations, covenants and agreements by the
Meridian Trust Company. Meridian Trust Company is entering this Agreement solely
in its capacity as Owner Trustee under the Trust Agreement, and except as
expressly provided herein or in the Lease or the Trust Agreement, Meridian Trust
Company (or any successor owner trustee) shall not be personally liable for or
on account of any of the statements, representations, warranties, covenants or
obligations of Trustee hereunder all such liability, if any, being expressly
waived by CoreStates, who shall look only to the Trust Estate (as defined in the
Trust Agreement) for payment or satisfaction. The Indebtedness Hereby Secured is
without recourse to Trustee or the Meridian Trust Company and any obligation of
Trustee to CoreStates or any holder of the Note shall be payable only from the
Collateral and the proceeds thereof and the indemnification obligations of
Trustee set forth in section 7.7(b) here hereof.
7. Miscellaneous.
7.1 Successors and Assigns. Subject to the provisions of
Section 2.10 of this Agreement, whenever any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party; and all the covenants, promises and agreements in this Agreement
contained by or on behalf of Trustee or by or on behalf of CoreStates shall bind
and inure to the benefit of the respective successors and assigns of such
parties whether so expressed or not.
7.2 Release. CoreStates shall release this Agreement and the
lien hereof by proper instrument or instruments at such time as all Indebtedness
Hereby Secured has been fully paid or satisfied.
7.3 Notices. Notice to any party required to be given at any
time in connection with this Agreement or the pursuit of any of CoreStates's
remedies shall be in writing and shall be reasonably and properly given if
mailed to such party by certified mail, return receipt requested, postage
prepaid, at the address set forth below or such other address as may be
specified by such party by notice to the other parties pursuant to this Section.
Any such notice shall be deemed to have been given, (i) in the case of personal
delivery, on the date of delivery, (ii) in the case of mailing, on the third
business day following that on which the piece of mail containing such notice is
posted and (iii) in the case of delivery by a reputable air courier, on the next
business day following the date on which such notice was delivered to such
carrier.
17
<PAGE> 45
To Trustee at: Meridian Trust Company
35 North Sixth Street
Reading, PA 19601
Attn: Corporate Trust Dept.
With copies to: Pegasus Aircraft Management Corporation
Four Embarcadero Center
Suite 3540
San Francisco, California 94111
and
Air Transport Leasing, Inc.
1200 Harbor Blvd.
5th Floor
Weehawken, NJ 07087
Attn: Clifford B. Wattley
To CoreStates at: CoreStates Bank, N.A.
Leasing Department
Centre Square, 19th Floor
1500 Market Street
Philadelphia, Pennsylvania 19102
7.4 Governing Law. This Agreement shall be interpreted and
enforced between the parties in accordance with the laws of the State of New
York.
7.5 Consent to Jurisdiction. Trustee hereby irrevocably
consents and agrees that any legal action or proceeding arising out of or in any
way connected with this Agreement, or any collateral security related thereto
may be instituted or brought by CoreStates in the courts of the State of New
York sitting in the Borough of Manhattan, City of New York, or the United States
of America for the Southern District of New York, as CoreStates may elect, an by
the execution and delivery of this Agreement Trustee irrevocably submits the
jurisdiction of any such court in any such legal action or proceeding. Trustee
irrevocably consents that service of any summons and/or legal process in any
such legal action or proceeding may be served by the mailing of any such summons
and/or legal process by registered United States mail, postage prepaid to it at
its address as set forth in Section 7.3 hereof or changed in accordance with
said Section, such method of service to constitute, in every respect, sufficient
and effective service of process in any such legal action or proceeding.
18
<PAGE> 46
7.6 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement.
7.7 Indemnification. (a) Trustee, not in its individual
capacity but solely as Owner Trustee, shall indemnify and hold CoreStates
harmless from and against any breach of any representation, warranty or covenant
of Trustee made in this Agreement or any other document executed in connection
therewith with respect to its authority to enter this Agreement, (b) Meridian
Trust Company shall indemnify and hold CoreStates harmless against the fraud or
wilful misconduct of Trustee in connection with this Agreement or any other
document executed in connection therewith, and any embezzlement or
misappropriation by Trustee of any Payment under the Aircraft Lease or other
monies which are payable to CoreStates or which constitute Collateral for the
indebtedness Hereby Secured. The agreements in this Section shall survive the
payment of all amounts payable under the Loan Agreement, the Note and hereunder.
7.8 Non-liability of CoreStates. Trustee acknowledges and
agrees that notwithstanding any other provision of the Loan Agreement or this
Agreement, (i) CoreStates is not, and shall not be construed to be, a partner,
joint venturer, alter ego, manager, controlling person or other business
associate or participant of any kind with Trustee and CoreStates does not intend
ever to assume such status; and (ii) CoreStates shall not be deemed responsible
for or a participant in any acts, omissions or decisions of Trustee.
7.9 Rights Cumulative. This Agreement is given as security in
addition to other collateral security given to CoreStates in secure the
Indebtedness Hereby Secured. All rights and remedies herein conferred may be
exercised as to any or all of the Collateral whether or not any proceedings of
any nature are pending. CoreStates shall not be required to resort first to the
Collateral before resorting to any other security or remedies otherwise
available to CoreStates. The rights and remedies set forth herein are cumulative
and in addition to and not in lieu of any other rights and remedies to which
CoreStates may be entitled, whether under the Loan Agreement, at law or in
equity.
7.10 Termination. The assignments made and the security
interests created hereunder shall terminate with respect to the Collateral when
all of the Indebtedness Hereby Secured shall have been discharged and all
amounts owed hereunder or under the Loan Agreement have been indefeasibly paid
to CoreStates.
7.11 Severability. In the event that any provision of this
Agreement is held to be invalid or unenforceable by a court of
19
<PAGE> 47
competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provisions hereof, and to that end, each provision of
this Agreement is hereby declared to be severable.
7.12 Entire Agreement. This Agreement, together with any and
all other documents referred to herein, constitute the entire agreement between
Trustee and CoreStates pertaining to the subject matter contained herein.
7.13 Amendment; Waiver. This Agreement may not be amended,
changed, modified, altered, or terminated except by a written agreement signed
by CoreStates and Trustee, and CoreStates and Trustee may not waive any right
hereunder except by a signed written instrument.
7.14 Section Headings. The section headings and the sections
and subsections of the Agreement are included for convenience only, and shall
not affect the construction or interpretation of any provision hereof.
7.15 Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
20
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed all as of the day and year
first above written.
MERIDIAN TRUST COMPANY, not in its
individual capacity, but solely as Owner
Trustee under that certain Trust
Agreement dated as of March 31, 1988.
By: /s/ Stephen J. Kaba
-------------------------------------
Name: Stephen J. Kaba
Title: Vice President
CORESTATES BANK, N.A.
By: /s/ Geoffrey D. Minott
------------------------------------
Name: Geoffrey D. Minott
Title: Vice President
21
<PAGE> 49
SCHEDULE 1
to
SECURITY AGREEMENT AND ASSIGNMENT OF LEASE
Aircraft and Engines:
<TABLE>
<CAPTION>
Manufacturer's
Manufacturer Model U.S. Registration No. Serial No.
- ------------ ----- --------------------- ---------------
<S> <C> <C> <C>
McDonnell Douglas DC-9-82 N904TW 49156
Engines: Each of which engines has 750 or more rated takeoff horsepower or
the equivalent thereof.
1) Pratt & Whitney JT8D-217A P709716D
2) Pratt & Whitney JT8D-217A P709717D
</TABLE>
<PAGE> 50
ASSIGNMENT OF COLLATERAL
THIS ASSIGNMENT OF COLLATERAL (the "Collateral Assignment"), is made as
of July 20, 1995 by Pegasus Aircraft Partners, L.P., a Delaware limited
partnership ("Pegasus"), in favor of CoreStates Bank, N.A., a national bank
association ("CoreStates") :
W I T N E S S E T H:
WHEREAS:
A. Pegasus is an owner participant under that certain Trust
Agreement, dated as of March 31, 1988 (the "TWA Trust Agreement") between
Pegasus and Meridian Trust Company ("Trustee"), as owner trustee.
B. Simultaneously herewith CoreStates is amending and
extending a $4,000,000.00 loan facility with Pegasus pursuant to that certain
Amended and Restated Loan Agreement (the "Loan Agreement"), originally dated as
of April 22, 1994 and amended and restated and executed as of the date hereof,
between Pegasus and CoreStates, the loans thereunder to be evidenced by a
Promissory Note, dated as of April 22, 1994, made by Pegasus in favor of
CoreStates (the "Note").
C. It is a condition precedent to CoreStates entering into the
Loan Agreement that Pegasus collaterally assign, as security for its obligation
to pay all amounts and other sums at any time due and owing from or required to
be paid by Pegasus under the terms of the Loan Agreement to or for the benefit
of CoreStates (the "Obligations"), its interest in the TWA Trust Agreement to
CoreStates.
NOW, THEREFORE, in order to induce CoreStates to enter into
the Loan Agreement and in consideration therefor, and in consideration of the
mutual covenants set forth herein, the parties hereto hereby agree as follows:
1. Unless otherwise indicated, each capitalized term used
herein shall have the meaning ascribed thereto in the Loan Agreement.
2. As collateral for all of the Obligations, Pegasus hereby
bargains, sells, transfers, conveys and assigns to the CoreStates all of
Pegasus's rights, title and interest in, to and under:
The Trust (as such term is defined in the Trust Agreement),
together with all estates and interests therein and thereto, and all rights,
powers and privileges thereunder or in respect thereof, and any and all payments
thereunder or in respect thereof to which Pegasus may become entitled (the "TWA
Trust Collateral").
3. Pegasus hereby represents and warrants as follows:
<PAGE> 51
a. The TWA Trust Agreement and the TWA Lease are each in full
force and effect;
b. Pegasus's right, title and interest in, to and under the
TWA Trust Agreement and the TWA Trust Collateral constitute 100% of the
beneficial interest in the estate of the TWA Trust;
c. Neither Pegasus nor anyone acting on its behalf has
directly or indirectly offered an interest in the the TWA Trust Collateral for
sale to, or solicited any offer to acquire the same from, any person which offer
or solicitation would subject the same to registration under the Securities Act
of 1933, as amended, or the Securities and Exchange Act of 1934, or any other
Federal or State securities laws;
d. Except for security interests held by CoreStates in the TWA
Trust Collateral, the TWA Trust Collateral is free and clear of all liens,
security interests, claims, charges and other encumbrances, except those created
hereunder;
e. No action, including any filing or recording of any
document, is necessary in order to afford protection to CoreStates under
applicable law in connection with the creation or enforcement of its security
interest hereunder or to perfect CoreStates' security interest granted hereunder
as a perfected first priority security interest in the TWA Trust Collateral and
the proceeds thereof, other than the filing of Uniform Commercial Code (the
"Code") financing statements with the Secretary of State of California and New
Jersey; and
f. The principal place of business and chief executive office
of Pegasus is located at Four Embarcadero Center, Suite 3540, San Francisco,
California 94111 and 1200 Harbor Blvd. 5th Flr., Weehawken, NJ 07086
4. Pegasus hereby covenants that so long as the Obligations
shall be outstanding and unpaid, in whole or in part, Pegasus will not:
a. Sell, convey or otherwise dispose of the TWA Trust
Collateral, or any portion thereof, nor will Pegasus create, incur or permit to
exist any pledge, mortgage, lien, charge, encumbrance or any security interest
whatsoever with respect to any of the TWA Trust Collateral, or the proceeds
thereof other than that created hereby; or
b. Terminate, amend, or modify the TWA Trust Agreement or any
Financing Document without the prior written consent of CoreStates; or
c. Change its principal place of business or chief executive
office on less than 15 days prior written notice to CoreStates.
5. Pegasus shall defend CoreStates's right, title, special
property and security interest in and to the Trust Collateral against the claims
of any person, firm, corporation or other entity.
6. Pegasus shall execute and deliver all such documents,
2
<PAGE> 52
instruments and agreements and take all such action as CoreStates may request to
effectuate this Collateral Assignment.
7. Upon the occurrence of an Event of Default under the Loan
Agreement, Pegasus does hereby constitute and appoint CoreStates as its true and
lawful attorney, with full power of substitution, in the name of Pegasus or in
the name of CoreStates, at the expense of Pegasus but for the benefit of
CoreStates, to collect, assert or enforce any claims, right or title of any kind
in or to the TWA Trust Collateral, to institute and prosecute all actions, suits
and proceedings which CoreStates deems proper in order to collect, assert or
enforce any such claim, right or title, to defend and compromise all actions,
suits and proceedings in respect of any of the TWA Trust Collateral, and to do
all such acts and things in relation thereto as CoreStates shall deem advisable
and to take all action which CoreStates may deem proper in order to provide for
CoreStates the benefits of or under any of the TWA Trust Collateral where any
required consent of a third party to the assignment therefore to CoreStates
shall not have been obtained, provided, that CoreStates shall be required, at
all times, to act in good faith and shall be subject to Lessee's rights of quiet
enjoyment of the Aircraft as provided in Section 4C of the TWA Lease. Pegasus
acknowledges that such powers as are granted to CoreStates hereunder are coupled
with an interest and shall not be revocable by Pegasus in any manner or for any
reason, including, without limitation, the liquidation or dissolution of Pegasus
and that CoreStates shall be entitled to retain for its own account any amounts
collected pursuant to such powers, including, without limitation, any amounts
payable as interest in respect thereof. CoreStates shall have full and
unqualified authority to delegate any or all of the foregoing powers to any
officers, agents or representatives of CoreStates whom CoreStates shall select.
8. This Collateral Assignment may be signed in any number of
counterparts with the same effect as if the signature thereto and hereto were
upon the same instrument.
9. This Collateral Assignment shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without regard
to principles of conflict of laws.
3
<PAGE> 53
IN WITNESS WHEREOF, this Collateral Agreement is executed as of the
date first above written.
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation
By: /s/ Carol L. Chase
------------------------------------
Name: Carol L. Chase
Title: Senior Vice President, General Counsel
and Secretary
By: Air Transport Leasing
Corporation
By: /s/ Clifford B. Wattley
------------------------------------
Name: Clifford B. Wattley
Title: President
CORESTATES BANK, N.A.
By: /s/ Geoffrey D. Minott
------------------------------------
Name: Geoffrey D. Minott
Title: Vice President
<PAGE> 54
July 20, 1995
Trans World Airlines, Inc.
Attention: Mr. Michael J. Lichty
515 North Sixth Street
St. Louis, MO 63101
Dear Sirs:
Reference is made to that certain Lease (the "Lease"), dated March 20,
1983, as supplemented by Lease Supplement No. 1 and as amended by an Amendment
Agreement dated as of December 15, 1996, Amendments No. 1 dated May 1, 1991,
Amendment No. 2 dated April 15, 1993 and Amendment No. 3 dated as of January 16,
1995, between Meridian Trust Company, not in its individual capacity but solely
as owner trustee ("Trustee") pursuant to that certain Trust Agreement, dated
March 31, 1988, between Trustee and Trans World Airlines, Inc. ("Lessee") (the
"Lease"), relating to one (1) McDonnell Douglas Model DC-9-82 Aircraft bearing
Manufacturer's Serial Number 49156 and FAA Registration Number N904TW (the
"Airframe") and two (2) Pratt & Whitney Model JT8D-217A Aircraft engines with
manufacturer's Serial Numbers P709716D and P709717D, respectively (the
"Engines") the Airframe and the Engines are collectively referred to herein as
the "Aircraft"). All capitalized terms used herein and not otherwise defined
shall have the respective meanings ascribed to them in the Lease.
In order to secure the repayment and the performance of certain
obligations in connection with that certain Restated and Amended Loan Agreement
(the "Loan Agreement"), between Pegasus and CoreStates Bank, N.A.
("CoreStates"), Pegasus is entering into that certain Assignment of Collateral,
with CoreStates (the "Collateral Assignment"), dated as of the date hereof,
pursuant to which Pegasus is making a collateral assignment to CoreStates of its
interests in, among other things, the Aircraft and the Lease.
1. By its execution of a counterpart of this letter, Lessee hereby
confirms, represents, warrants and covenants to CoreStates that:
(i) The Lease is in full force and effect and is a legal,
valid and binding obligation of Lessee enforceable in accordance with its terms;
and all of the representations, warranties and covenants of Lessee under the
Lease were true and correct on the date made;
(ii) All amounts of Basic Rent and Supplemental Rent due and
payable by Lessee under the Lease prior to the date hereof, if any, have been
<PAGE> 55
paid in full, and no amounts of rent due and payable under the Lease after the
date hereof have been prepaid, in whole or in part;
(iii) Except as expressly set forth in the Lease it shall
remain obligated under the Lease during the entire term thereof and that it will
not, without the prior written consent of CoreStates which consent shall not be
unreasonably withheld, amend, modify or terminate the Lease or assign its rights
under the Lease or enter into an agreement to do so, and that any attempted
amendment, modification or termination (other than a termination pursuant to
Section 9 of the Lease) without such consent shall be void;
(iv) To Lessee's knowledge, after having made due inquiry, no
default under the Lease has occurred and is continuing;
(v) Lessee has no claim against Trustee or Pegasus by reason
of the condition of the Aircraft as of the date of Delivery or arising
subsequent thereto;
(vi) No Event of Loss has occurred with respect to the
Aircraft.
2. Lessee hereby acknowledges and consents to the collateral assignment
of the Lease and any and all right, title and interest in the Lease from Pegasus
to CoreStates pursuant to the Collateral Assignment. Such acknowledgement and
consent shall not be deemed to make Lessee a party to such agreements and Lessee
will not be obligated under such agreements except to the extent it is obligated
under the Lease and hereunder.
3. Trustee hereby irrevocably instructs and authorizes Lessee, unless
and until Lessee receives written instructions to the contrary signed by an
authorized officer of CoreStates, to name Corestates as loss payee in lieu of
Trustee and to name CoreStates as additional insured in addition to Trustee and
the Lessee in respect to the insurance referred to in Section 11 of the Lease to
the same extent as Trustee is entitled to be so named pursuant to such Section.
In addition, such insurance shall provide that the insurer shall notify
CoreStates of a cancellation or material change in such coverage at least thirty
(30) days prior to such cancellation or change.
4. Trustee and Pegasus hereby irrevocably notify Lessee that, unless
and until Lessee receives written instructions to the contrary signed by an
authorized officer of CoreStates, all payments under the Lease otherwise payable
to Trustee pursuant to the Lease shall be paid to CoreStates to the following
account; provided, however, that so long as CoreStates shall not have notified
Lessee that an Event of Default has occurred and is continuing under the
Security Agreement Trustee shall be entitled to receive and the Lessee shall be
entitled to pay to Trustee all payments under the Lease other than payments made
in connection with the loss, damage, destruction or sale of the Aircraft, which
loss, damage, destruction or sale payments shall include without limitation any
insurance proceeds, sale proceeds or payments representing stipulated loss
value, termination value and any prepayment of Basic Rent.
<PAGE> 56
Bank : CoreStates Bank, N.A.
ABA No. : 031000011
Attention : Leasing Department
Reference : Pegasus Loan
Account No: 0132-0452
5. Unless an Event of Default under the Lease has occurred and is
continuing, CoreStates agrees that Lessee shall quietly possess, use and enjoy
the Aircraft without hindrance or interruption by CoreStates or by any other
person lawfully claiming under or through CoreStates.
6. This Agreement shall be interpreted and enforced between the parties
in accordance with the laws of the State of New York. This Agreement may be
executed in any number of counterparts and by the parties hereto on separate
counterparts but all counterparts shall together constitute a single instrument.
Please execute and return the enclosed copy of this letter.
MERIDIAN TRUST COMPANY, not in its individual
capacity, except as expressly provided herein, but
solely as Owner Trustee under the certain Trust
Agreement dated as of March 31, 1988 between Trustee
and Pegasus.
By: /s/ Stephen J. Kaba
---------------------------
Name: Stephen J. Kaba
---------------------------
Title: Vice President
---------------------------
3
<PAGE> 57
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation, as Managing General Partner
By: /s/ Carol L. Chase
-------------------------------------
Name: Carol L. Chase
Title: Senior Vice President, General Counsel
and Secretary
By: Air Transport Leasing, Inc.,
as Administrative General Partner
By: /s/ Clifford B. Wattley
-------------------------------------
Name: Clifford B. Wattley
Title: President
CORESTATES BANK, N.A.
By: /s/ Geoffrey D. Minott
-------------------------------------
Name: Geoffrey D. Minott
Title: Vice President
ACCEPTED AND AGREED:
TRANS WORLD AIRLINES, INC.
By: /s/ M.J. Palumbo
------------------------
Name: Michael J. Palumbo
Title: Vice President and Treasurer
4
<PAGE> 58
July 20, 1995
Meridian Trust Company, as Owner Trustee
35 North Sixth Street
Reading, PA 19601
Gentlemen:
Reference is made to (i) that certain Trust Agreement (the "Trust Agreement"),
dated as of March 31, 1988, among Pegasus Aircraft Partners, L.P. ("Pegasus")
and Meridian Trust Company as Owner Trustee ("Trustee"), (ii) that certain Loan
Agreement originally dated April 22, 1994 and Amended and Restated as of July
20, 1995 (the "Loan Agreement") and executed as of the date hereof, between
Pegasus and CoreStates Bank, N.A., a national banking association
("CoreStates"), an office at 1500 Market Street, Philadelphia, Pennsylvania
19102, (iii) that certain Assignment of Collateral (the "Pegasus Assignment"),
dated the date hereof, from Pegasus to CoreStates (substantially in the form of
Exhibit A attached hereto), (iv) that certain Security Agreement and Assignment
of Lease (the "Security Agreement") dated as of July 20, 1995 between Trustee
and CoreStates and (v) that certain Lease and Lease Supplement No. 1 thereto
(the "TWA Lease") between Trustee and Trans World Airlines, Inc. dated as of May
20, 1983, as supplemented and amended. Unless otherwise defined, capitalized
terms used herein shall have the meaning ascribed to them in the Loan Agreement.
Pursuant to Section ___ of the TWA Trust Agreement, Pegasus hereby authorizes
and directs you, in your capacity as Owner Trustee under the TWA Trust
Agreement, to execute and deliver (i) the Security Agreement and (ii) any other
documents or instruments contemplated under the Security Agreement to which you
are a party, and hereby indemnifies you with respect thereto.
Our foregoing authorization and direction shall also constitute an explicit
instruction to Meridian Trust Company as Trustee to make the representations,
warranties, and covenants set forth in Section 2 of the Security Agreement. The
undersigned hereby agree pursuant to Sections 5.03 and 7.01 of the Trust
Agreement that all costs and expenses incurred by the Trustee or Meridian Trust
Company in complying with the representations, covenants and warranties
contained in the Security Agreement shall be included within the indemnity of
the undersigned set forth in said Sections 5.03 and 7.01 of the Trust Agreement.
Without limitation of the foregoing, in particular, any costs or expenses
associated with compliance by the Trustee with Section 2.3(b), 2.4, 2.7, 2.14,
2.16, 2.21(b), and Section 7.7 of the Security
<PAGE> 59
Agreement are hereby explicitly included within the indemnification provisions
contained in Sections 5.03 and 7.01 of the Trust Agreement, and Meridian Trust
Company shall not be required to expend its own funds in performing any of its
foregoing obligations. Upon notice from the Trustee, each of the undersigned
agrees to forward to the Trustee in advance such amount as may be reasonably
demanded by the Trustee to cover the cost and expenses of its performance of the
Trustee's covenants and warranties under the Security Agreement.
In order to secure repayment and the performance of certain obligations in
connection with the Loan Agreement, upon the occurrence of an Event of Default,
Pegasus hereby irrevocably directs you to pay, prior to any disbursements to
Pegasus pursuant to the Trust Agreement and all payments received under the TWA
Lease, received by you to the following account:
Bank : CoreStates Bank, N.A.
ABA No. : 031-0000-11
Attention : Leasing Department
Reference : Pegasus
Account No.: 0132-0452
This letter may be executed in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
By your execution of a counterpart of this letter, you hereby consent to the
transactions contemplated by the Pegasus Assignment and represent, warrant and
agree to comply with the terms set forth herein.
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management Corporation,
as Managing General Partner
By: /s/ Carol L. Chase
-------------------------------------
Name: Carol L. Chase
Title: Senior Vice President, General Counsel
and Secretary
<PAGE> 60
By: Air Transport Leasing, Inc. as
Administrative General Partner
By: /s/ Clifford B. Wattley
------------------------------------
Name: Clifford B. Wattley
Title: President
MERIDIAN TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
By: /s/ Stephen J. Kaba
---------------------------------
Name: Stephen J. Kaba
---------------------------------
Title: Vice President
---------------------------------
<PAGE> 61
July 20, 1995
CoreStates Bank, N.A.
Leasing Department
1500 Market Street
Philadelphia, Pennsylvania 19102
Gentlemen :
Reference is made to (i) that certain Trust Agreement (the "Trust
Agreement"), dated March 31, 1988, between Pegasus Aircrafts Partners, L.P.
("Pegasus") and Meridian Trust Company, as Owner Trustee ("Trustee"), (ii) that
certain Restated and Amended Loan Agreement (the "Loan Agreement"), dated as of
July 20, 1995, and executed as of the date hereof, between Pegasus and
CoreStates Bank, N.A., a national banking association ("CoreStates"), and (iii)
that certain Lease Agreement (the "TWA Lease"), between Trustee (as successor in
interest to DC-9T-I, Inc.) and Trans World Airlines, Inc. dated as of May 20,
1983, as supplemented and amended.
To induce you to enter into the Loan Agreement, the undersigned hereby
represents, warrants and covenants that so long as any obligations of Pegasus
under the Loan Agreement are outstanding, the undersigned will not:
(i) pledge or grant a security interest to any party other
than CoreStates in the TWA Lease or any rights contained therein, including,
without limitation, the right to receive payments thereunder; and
(ii) take any action, or fail to take any action, which would
result in the disruption of the payment in the event of an Event of Default
under the TWA Lease (as defined therein) to CoreStates of the Basic Rent
payments (as defined in the TWA Lease).
MERIDIAN TRUST COMPANY not in its individual
capacity, but solely as Owner Trustee under that
certain Trust Agreement dated March 31, 1988 among
Pegasus and Trustee.
By: /s/ Stephen J. Kaba
---------------------------------
Name: Stephen J. Kaba
---------------------------------
Title: Vice President
---------------------------------
<PAGE> 62
PEGASUS AIRCRAFT PARTNERS, L.P.
By: Pegasus Aircraft Management
Corporation, as Managing General
Partner
By: /s/ Carol L. Chase
-------------------------------------
Name: Carol L. Chase
Title: Senior Vice President, General Counsel
and Secretary
By: Air Transport Leasing, Inc., as
Administrative General Partner
By: /s/ Clifford B. Wattley
------------------------------------
Name: Clifford B. Wattley
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,081,000
<SECURITIES> 0
<RECEIVABLES> 1,534,00
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 74,446,000
<DEPRECIATION> (44,632,000)
<TOTAL-ASSETS> 36,611,000
<CURRENT-LIABILITIES> 5,435,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,611,000
<SALES> 6,076,000
<TOTAL-REVENUES> 6,602,000
<CGS> 5,512,000
<TOTAL-COSTS> 1,090,000
<OTHER-EXPENSES> 210,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 880,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 880,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880,000
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
