EXHIBIT 10.4
SECURITY AGREEMENT AND ENCUMBRANCE AGAINST ALL CARRIER AIRCRAFT
ENGINES, PROPELLERS, APPLIANCES AND SPARE PARTS
[Pursuant to 14 CFR Section 49.51 et seq.]
Aircraft Owner: Great Lakes Aviation, Ltd.
Aircraft Operator: Great Lakes
Spare Parts Locations: See Attached Exhibit C
This Security Agreement And Encumbrance Against Air Carrier
Aircraft Engines, Propellers, Appliances And Spare Parts ("Security
Agreement") is made and entered into on this 11th day of July,
1997, by and between GREAT LAKES AVIATION, LTD., an Iowa
corporation, with its principal place of business at 1965 - 330th
Street, Spencer, Iowa 51301 (hereinafter "Debtor"), and RAYTHEON
AIRCRAFT CREDIT CORPORATION, a Kansas corporation, with its
principal place of business at 10511 East Central, Wichita, Kansas
67206 (hereinafter "Secured Party"). This Security Agreement is
sometimes hereinafter referred to as the "Agreement".
In consideration of the mutual promises, covenants and
representations set forth herein, the Negotiable Promissory Note
executed of even date hereof (hereinafter "New Promissory Note")
and the Agreement Pertaining To Loans And Leases executed of even
date hereof (hereinafter "New Loan Agreement"), the parties hereto
agree as follows:
1. GRANT OF SECURITY INTEREST. To secure the payment of
Debtor's obligation under the New Promissory Note executed in
conjunction with this Security Agreement and dated of even date
hereof, together with any and all other indebtedness owed by Debtor
to Secured Party as described in the New Loan Agreement as well as
Exhibits A and B attached hereto (whether now existing or hereafter
arising), as well as any renewals, extensions or changes in the
form of said obligation or indebtedness, Debtor grants to Secured
Party a security interest in: (a) all of the aircraft engines
identified on Exhibit D attached hereto and incorporated herein by
reference (the "Engines"), which Engines are rated at 750 or more
takeoff horsepower or the equivalent; and (b) all of the air
carrier aircraft engines, propellers, appliances, spare parts,
avionics, accessories, instruments, rotables, equipment (including
ground support equipment), subassemblies, tools, kits, consumables,
components and related items for installation in or use in
connection with Debtor's Beechcraft Model 1900 type airplanes
(hereinafter collectively "Spare Parts") which Debtor owns. Debtor
grants to Secured Party a security interest in all of the aforesaid
Engines and Spare Parts, whether now existing or hereafter
acquired. In order to allow Secured Party to record and perfect its
security interest in the Engines and Spare Parts pursuant to 14 CFR
Section 49.51 et seq., Debtor hereby covenants and agrees that:
(i) Debtor is an air carrier holding a certificate issued
under 40 U.S.C. Section 44705; and
(ii) All of the above-mentioned Spare Parts will at all times
and until installed or used (in the ordinary course of
Debtor's business) in an aircraft belonging to Debtor, be
located and stored at Debtor's facilities or hangars at
the locations listed on Exhibit C. Debtor shall not
warehouse, inventory or store any of the Spare Parts at
any other location without first obtaining the written
consent of Secured Party and without first executing and
filing with the FAA Registry a certificate pursuant to
applicable sections of the Code or Federal Regulations
evidencing such change of location and such other
documents as may be required by Secured Party.
The above-described Engines and Spare Parts in this Section 1
are sometimes hereinafter collectively referred to as the
"Collateral."
2. DEBTOR'S WARRANTY OF TITLE. Except for the security
interest granted herein or previously granted Secured Party, Debtor
warrants that it is (or, to the extent the Collateral is to be
acquired hereafter, will be) the owner of the Collateral free from
any security interest, lien or encumbrance. Debtor further warrants
that it will defend the Collateral against all claims and
demands of any person claiming any interest therein by virtue of
any such security interest, lien or encumbrance.
3. DEBTOR WILL EXECUTE AND DELIVER DOCUMENTS. At Secured
Party's request, Debtor shall promptly furnish such information and
execute and deliver such documents and do all such acts and things
as Secured Party may reasonably request as are necessary or
appropriate to assist Secured Party in establishing and maintaining
a valid security interest in the Collateral and that the security
interest granted hereby is perfected to Secured Party's satisfac-
tion. Debtor will pay the cost of filing all appropriate documents
in all public offices where Secured Party deems such filings
necessary or desirable.
4. OPERATION, MAINTENANCE AND REPAIR. Debtor shall use,
operate, maintain, store and repair the Collateral and retain
actual control and possession thereof in accordance with each of
the following provisions:
(a) Debtor shall use, maintain, store and repair the
Collateral properly, carefully and in complete compliance
with all applicable statutes, ordinances, regulations,
policies of insurance, manufacturer's recommendations and
manufacturer's operating and maintenance manuals and
handbooks.
(b) Debtor shall properly maintain all records pertaining to
the maintenance, operation and repair of the Collateral.
5. INSURANCE. Debtor shall, at all times and at its
sole expense, obtain and carry insurance coverage in an amount not
less than the full insurable value of the Collateral. All policies
of insurance carried in accordance with this section 5 shall name
Secured Party as a loss payee and
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provide that the insurance proceeds from any loss involving the
Collateral shall be payable to Secured Party up to the amount of
the unpaid principal and accrued interest owed by Debtor under the
New Promissory Note or other indebtedness from Debtor to Secured Party.
The policies shall include coverage against the perils of strikes, riots,
civil commotions or labor disturbances, and any act of vandalism, malice,
sabotage, conversion, and theft. The policies shall also specify
that any losses shall be adjusted by the insurer with Secured Party
and Debtor.
All insurance policies maintained by Debtor in accordance with
this section shall also comply with each of the following
requirements:
(1) be issued by insurers of recognized responsibility which
are satisfactory to Secured Party;
(2) provide that if such insurance is canceled for any reason
whatsoever, or any substantial change is made in policy
terms, conditions or coverage, or the policy is allowed
to lapse for nonpayment of premium, such cancellation,
change or lapse shall not be effective as to Secured
Party until thirty (30) days after Secured Party's
receipt of written notice from Debtor's insurers of the
cancellation, change or lapse in policy terms, conditions
or coverage;
(3) provide that in respect of the interest of Secured Party
in such policies, the insurance shall not be invalidated
by any action or inaction of Debtor (or any "Permitted
Lessee" as defined below in Section 11) and shall insure
Secured Party regardless of any breach or violation by
Debtor (or any Permitted Lessee) of any warranty,
declaration or condition contained in such policies;
(4) be primary without right of contribution from any other
insurance which is carried by Secured Party with respect
to its interest in the Collateral;
(5) waive any right of subrogation against Secured Party;
(6) provide that Secured Party shall have no obligation or
liability for premiums, commissions, assessments or calls
in connection with such insurance policies.
Debtor shall furnish to Secured Party evidence of the
aforesaid insurance coverage in certificate form. Evidence of
renewal of each policy shall thereafter be furnished to Secured
Party in certificate form. Debtor covenants that it will not do any
act or voluntarily suffer or permit any act to be done whereby any
insurance required hereunder shall or may be suspended, impaired or
defeated.
6. DEBTOR'S POSSESSION. Debtor may have possession of
the Collateral and use it in any lawful manner not inconsistent
with this Agreement, except when an Event of Default has occurred
and is continuing. In the event Debtor fails to undertake any of
the following actions within five (5) days after receipt of Secured
Party's written demand for such action, Secured Party, at its
option and without assuming any obligation to do so, may discharge
taxes, liens, security interests or other
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encumbrances levied or asserted against the Collateral, may place and
pay for insurance thereon, may order and pay for the repair, maintenance
and preservation thereof, and may pay any necessary filing or recording
fees. Any amounts paid by Secured Party under the preceding
sentence shall be added to the unpaid principal balance under the
Promissory Note, shall be secured by the Collateral, and shall be
payable by Debtor upon demand by Secured Party together with
interest at the rate provided for in the Promissory Note until paid
in full.
7. DEBTOR'S COVENANTS. As long as this Agreement
remains in effect, Debtor shall furnish Secured Party with such
information concerning the location, condition, and use of the
Collateral as Secured Party may reasonably request, and Debtor
shall permit any person(s) designated by Secured Party in writing
to inspect the Collateral, wherever located, and all records and
manuals maintained in connection therewith and to make copies of
such records, and to visit and inspect the properties and
facilities of Debtor, provided such visits do not unreasonably
interfere with the operations of Debtor, and to discuss the
affairs, finances and accounts of Debtor with the principal
financial officers of Debtor, all at such reasonable times and as
often as Secured Party may reasonably request. Secured Party shall
have no duty to make any such inspection and shall not incur any
liability or obligation or be deemed to have waived any right by
reason of not making any such inspection. Debtor shall also furnish
Secured Party with the following:
(a) within sixty (60) days after the end of each fiscal
quarter of Debtor, a balance sheet, a profit and loss
statement and a statement of cash flows as of the close
of such quarter, prepared in accordance with established
accounting principles generally accepted in the United
States (hereafter "GAAP") applied on a basis consistent
with the most recent audited. financial statements of
Debtor, except for changes approved by Debtor's
independent auditors;
(b) as soon as available, but in any event not later than
ninety (90) days after the close of each fiscal year of
Debtor, an audited financial statement of Debtor (includ-
ing a balance sheet, a profit and loss statement and a
statement of cash flows) as of the close of such fiscal
year, as examined and reported on by Debtor's independent
public accountants in accordance with GAAP applied on a
consistent basis as specified above in subsection (a);
(c) concurrently with the delivery of the financial state
ments referred to in subsections (a) and (b) of this
Section 7, an Officer's Certificate stating that, to the
best of such officer's knowledge, Debtor during such period
has observed and performed all of its covenants and other
agreements and satisfied every condition contained in this
Agreement to be observed, performed or satisfied by it and
that such officer has obtained no knowledge of any Event
of Default except as specified in such certificate; and
(d) from time to time, such other information as Secured Party
may reasonably request with respect to the financial condition
and operations of Debtor in order to determine whether the
covenants, terms and provisions of this Agreement have been
complied with by Debtor.
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8. DEBTOR'S DEFAULT. The parties agree that the occurrence
of any of the following events shall constitute an "Event of
Default:"
(a) Debtor's failure to make any timely payment of either
principal, interest, late payment charges or any other
amount required to be paid under the New Promissory Note
and this Security Agreement, or Debtor's failure to pay
any amount required under the New Loan Agreement
(including the Pledge Agreement, Initial Loans, and
Airplane Leases as referenced and stated therein);
(b) Debtor's failure to perform any promise, agreement,
obligation, warranty or covenant made by it herein, in
the New Promissory Note or under the New Loan Agreement
(including but not limited to the Pledge Agreement,
Initial Loans, and Airplane Leases as referenced
therein), if such default is not cured within five (5)
days after Secured Party has given Debtor notice of such
failure;
(c) Debtor's failure to maintain the insurance coverage as
specified above in Section 5;
(d) any material misrepresentation made by Debtor to Secured
Party in connection with the New Promissory Note, the New
Loan Agreement or this Agreement;
(e) entry of a money judgment against Debtor, if such
judgment is nonappealable and remains undischarged or
unstayed for a period in excess of sixty (60) days;
(f) dissolution, termination of existence, insolvency,
business failure, inability to pay debts that arise or
accrue after the date of this Agreement as they mature,
assignment for the benefit of creditors, or the commencement,
with respect to Debtor, of any proceedings (either voluntary
or involuntary) under any bankruptcy or insolvency laws;
(g) appointment of a receiver of any material part or all of
Debtor's assets or the commencement of any involuntary
proceedings against Debtor under any bankruptcy or
insolvency laws, if such appointment or proceeding
continues for a period of more than sixty (60) days;
(h) Debtor entering into any transaction, without the prior
written consent of Secured Party, which consent will not
be unreasonably withheld, whereby all or substantially
all of Debtor's undertakings, property and assets would
become the property of any other company, whether by way
of reconstruction, reorganization, consolidation,
amalgamation, merger, transfer, sale or otherwise;
(i) default in the payment by Debtor of any indebtedness for
borrowed money owed to any creditor other than Secured
Party resulting in the acceleration of a material amount
of indebtedness greater than U.S. $5,000,000.00 that
would reasonably justify Secured Party in deeming itself
insecure;
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(j) Debtor's ceasing to be licensed pursuant to U.S. or other
applicable law to operate a commercial air service; or
Should an Event of Default occur, Secured Party may employ all
remedies allowed by law, including declaring all indebtedness owed
under the New Promissory Note, as well as any other indebtedness or
liability of Debtor owed to Secured Party, immediately due and
payable. Additionally, Secured Party may require Debtor to assemble
the Collateral and make it available to Secured Party at a place to
be designated by Secured Party which is reasonably convenient to
both parties. The requirements of the Kansas Uniform Commercial
Code for reasonable notification to Debtor of the time and place of
any proposed public sale of the Collateral or of the time after
which any private sale or other intended disposition of the
Collateral is to be made shall be met if such notice is mailed,
postage prepaid, to Debtor's address, as specified herein, at least
ten (10) days before the time of the sale or disposition. After
deduction of all reasonable expenses incurred in realizing on this
security interest, and after the payment of all principal, interest
and late payment charges due under the New Promissory Note, the
balance of the proceeds of sale, if any, may be applied to the
payment of any or all other indebtedness which Debtor owes Secured
Party, regardless of whether such indebtedness is due or not.
Debtor shall be liable for any deficiency in its financial
obligation under the New Promissory Note, New Loan Agreement and
this Agreement after application of such proceeds. Debtor agrees to
pay the reasonable attorneys' fees incurred by Secured Party to
repossess the Collateral as well as the attorneys' fees incurred in
pursuing and collecting any deficiency. If, after a default by
Debtor, the Collateral is returned to or recovered by Secured
Party, Debtor agrees that Secured Party may move the Collateral for
purposes reasonably related to a proposed public or private sale or
other disposition of the Collateral.
9. WAIVERS. No waiver of any covenant, warranty or condi
tion of this Agreement, nor of any breach or default hereunder,
shall be effective for any purpose whatsoever unless such waiver is
in writing and signed by an officer of Secured Party. It is
expressly agreed that Secured Party's waiver of any breach or
default by Debtor shall constitute a waiver only as to such
particular breach or default and not a waiver of any future breach
or default.
10. LIENS. Debtor shall not, directly or indirectly,
create, incur, assume or suffer to exist any lien ("Lien") on or
with respect to the Collateral, or any part thereof, except:
(a) the Lien of Secured Party hereunder;
(b) Liens for taxes, assessments or other governmental
charges owing by Debtor, either not yet due or being
contested in good faith (and for the payment of which
adequate reserves have been provided) and by appropriate
proceedings so long as such proceedings do not involve
any material danger of the sale, forfeiture or loss of
the Collateral or any part thereof;
(c) materialmen's, mechanic's, workmen's, repairmen's,
employees' Liens or any Lien of a similar nature arising
in the ordinary course of Debtor's business, which Lien
secures an obligation that is not yet delinquent or is
being contested in good faith (and for the payment of
which adequate reserves have been provided) and by
appropriate proceedings so long as such proceedings do not involve
any material danger of the sale, forfeiture or loss of the Collateral
or any part thereof;
(d) Liens arising out of any judgment or award against Debtor, provided
that the judgment or award secured shall, within sixty (60) days of
entry thereof, have been discharged, vacated, reversed or execution
thereof stayed pending appeal and shall have been discharged,
vacated or reversed within sixty (60) days after the expiration of
such stay; and
(e) any other Lien with respect to which Debtor shall have provided a
bond or other means that precludes the holder of the Lien, in the
reasonable judgment of Secured Party, from taking any recourse
against the Collateral.
Debtor shall promptly, at no expense to Secured Party, take (or cause to be
taken) such action as may be necessary to duly discharge any Lien not
excepted above if the same shall arise at any time with respect to the
Collateral or any part thereof.
14. TAXES. Debtor shall pay or cause to be paid in the manner and at
the time required by applicable law, all federal, state and local taxes
(including sales, property, use, value-added, goods and service taxes),
assessments and governmental charges or levies imposed upon, or in respect
of, the Collateral, this Agreement, any payments made hereunder or under the
New Promissory Note, or upon or in respect of Debtor or Debtor's income or
profits, or upon any property belonging to Debtor prior to the date on which
penalties attach thereto and all lawful claims which, if not paid, become a
Lien upon the property of Debtor (all of the above collectively "Taxes").
Debtor shall indemnify and hold Secured Party harmless from liability for the
payment of any such Taxes.
15. LEGAL, VALID, BINDING AND ENFORCEABLE OBLIGATION. Debtor represents
and warrants to Secured Party that this Agreement, upon execution and
delivery, will constitute the legal, valid and binding obligation of Debtor
and shall be enforceable in accordance with its terms. Debtor agrees to
furnish Secured Party with written legal opinions, satisfactory in form and
substance to Secured Party, verifying the aforesaid representation and
warranty.
16. CHANGES OF ADDRESS AND CHANGE OF BASE. Debtor shall immediately
notify Secured Party in writing of any change of address from that shown in
this Agreement.
17. GOVERNING LAW AND FORUM CHOICE. THIS AGREEMENT WAS MADE AND ENTERED
INTO IN THE STATE OF KANSAS AND THE LAW GOVERNING THIS TRANSACTION SHALL BE
THAT OF THE STATE OF KANSAS AS IT MAY FROM TIME TO TIME EXIST. THE LAW OF THE
STATE OF KANSAS SHALL APPLY TO ANY AND ALL MATTERS ARISING FROM OR RELATED TO
THIS AGREEMENT AND TRANSACTION INCLUDING ANY ACTIONS UNDERTAKEN BY SECURED
PARTY SHOULD AN "EVENT OF DEFAULT" OCCUR. SUCH AS AN ACTION TO OBTAIN
POSSESSION OF AND FORECLOSE UPON THE COLLATERAL, AND ALL OTHER REMEDIES WHICH
MAY BE AVAILABLE INCLUDING SEEKING A DEFICIENCY JUDGMENT AGAINST DEBTOR. THE
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PARTIES AGREE THAT ANY LEGAL PROCEEDING BASED UPON THE PROVISIONS OF THIS
AGREEMENT SHALL BE BROUGHT EXCLUSIVELY IN EITHER THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF KANSAS AT WICHITA, KANSAS, OR IN THE EIGHTEENTH
JUDICIAL DISTRICT COURT OF SEDGWICK COUNTY KANSAS TO THE EXCLUSION OF ALL
OTHER COURTS AND TRIBUNALS. NOTWITHSTANDING THE ABOVE, IN THE EVENT AN "EVENT
OF DEFAULT" SHOULD OCCUR SECURED PARTY (AT ITS SOLE OPTION) MAY INSTITUTE A
LEGAL PROCEEDING IN ANY JURISDICTION AS MAY BE APPROPRIATE IN ORDER FOR
SECURED PARTY TO OBTAIN POSSESSION OF AND FORECLOSE UPON THE COLLATERAL. THE
PARTIES HEREBY CONSENT AND AGREE TO BE SUBJECT TO THE JURISDICTION OF THE
AFORESAID COURTS IN SUCH PROCEEDINGS.
18. ENFORCEABILITY. The provisions of this Agreement shall be
severable and, if any provisions are for any reason determined to be invalid,
void or unenforceable, in whole or in part, the remaining provisions shall
remain in full force and effect; provided that the purpose of the remaining
valid, effective and enforceable provisions is not frustrated; and provided
further that no party is substantially and materially prejudiced thereby.
19. ASSIGNABILITY. Secured Party shall have the absolute right to
assign, transfer or sell any of its rights under this Agreement to any party
of its choosing upon giving written notice thereof to Debtor. Debtor may not
assign or delegate any of its rights or obligations hereunder without the
prior written consent of Secured Party.
20. BINDING AGREEMENT. All obligations of Debtor hereunder shall bind
the heirs, legal representatives, successors and assigns of Debtor. If there
be more than one Debtor hereunder, their liabilities shall be joint and
several. All rights of Secured Party hereunder shall inure to the benefit of
its successors and assigns.
21. MODIFICATION. This Agreement shall not be changed orally, but only
in writing signed by the parties hereto.
22. NOTICES. Any notice pertaining to this Agreement shall be deemed
sufficiently given if personally delivered or sent by registered or certified
mail, return receipt requested, to the party to whom said notice is to be
given, sent via telecopy with oral confirmation from a person at the
receiving office that the transmission has been received, or sent overnight
air carrier. Notices sent by registered or certified mail shall be deemed
given on the third day after the date of postmark. Notices hand delivered
shall be deemed given on the date delivered. Notices forwarded by telecopy
shall be deemed given upon the foregoing oral confirmation that the
transmission has been received. Notices sent overnight air carrier shall be
deemed delivered the day after being forwarded. Until changed by written
notice given by either party, the addresses of the parties shall be as
follows:
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Debtor: Great Lakes Aviation, Ltd.
Attn: Chairman
1965 - 330th Street
Spencer, IA 51301
Telephone: (712) 262-1000
Telecopy: (712) 262-1001
Secured Party: Raytheon Aircraft Credit Corporation
Attn: President
10511 East Central
Wichita, Kansas 67206
Telephone: (316) 676-8471
Telecopy: (316) 676-6975
The designated addresses of both parties must be located within the
United States of America allow for overnight air carrier delivery and be
served by telecopy transmission service twenty-four (24) hours daily.
23. SIGNATORY AUTHORITY. The undersigned officer of Debtor verifies
and warrants that he/she has read this Agreement in its entirety, that he/she
understands its provisions and purpose, and that he/she has full authority to
sign and deliver the same on behalf of Debtor and to bind Debtor, as a
corporation, thereto.
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In witness of the mutual promises, covenants and representa tions set
forth herein, the parties have caused this Agreement to be duly executed and
delivered at Wichita, Kansas, on the day and year first above written.
RAYTHEON AIRCRAFT CREDIT CORPORATION
By: /s/ Daniel K. Smartt
----------------------------------
Daniel K. Smartt
"Secured Party"
GREAT LAKES AVIATION, LTD
By: /s/ Douglas G. Voss
----------------------------------
Douglas Voss, Chairman
"Debtor"
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STATE OF _____________ )
) ss.
COUNTY OF ___________ )
This instrument was acknowledged before me on the 11th day of July,
1997, by Douglas Voss, who is the Chairman of Great Lakes Aviation, Ltd., on
behalf of the corporation.
___________________________________
Notary Public
My Commission Expires:
___________________________________
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EXHIBIT A
INITIAL LOAN DOCUMENTS
CURRENT
TOTAL MONTHLY PAST DUE
SERIAL # DUE PAYMENT AMOUNT
- ----------- ---------------- ----------- ------------
UC-159 $ 2,322,230.95 $ 32,565.58 $194,409.42
UC-152 2,322,225.54 32,565.50 194,409.18
UC-101 2,512,033.72 32,736.58 161,720.26
UC-105 2,271,088.54 32,317.00 161,025.74
UC-126 2,757,713.83 36,123.49 179,904.05
UC-167 2,869,923.52 37,593.33 187,224.23
UC-174 2,815,971.61 36,886.61 183,704.57
UC-122 2,748,572.93 34,976.28 188,817.67
UC-125 2,757,713.83 36,123.49 179,904.05
UC-96 2,344,545.19 30,241.23 150,539.07
UC-141 2,467,133.58 31,637.73 157,486.09
UC-138 2,451,700.76 31,623.38 157,419.34
UC-171 2,842,821.44 37,221.44 185,288.94
UC-145 2,428,710.14 30,966.60 154,140.74
UC-150 2,428,710.14 30,966.60 154,140.74
UC-168 2,876,773.98 37,665.98 187,501.88
UE-94 3,442,799.22 37,207.85 185,112.73
UE-97 3,442,799.22 37,207.85 185,112.73
UE-96 3,451,339.89 37,211.89 179,621.98
UE-100 3,455,614.28 37,213.17 183,726.41
UE-101 3,470,333.01 37,201.66 189,212.63
UE-118 3,506,651.51 38,069.95 168,645.95
120-071 3,552,951.77 80,834.92 403,357.24
$5M Note 5,228,854.16 0.00 5,228,854.16
------------- ---------- ------------
70,769,212.76 847,158.11 9,501,279.80
------------- ---------- ------------
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