<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ -------------
Commission File No. 0-23224
GREAT LAKES AVIATION, LTD.
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(Exact name of registrant as specified in its charter)
IOWA 42-1135319
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1965 330th Street, Spencer, Iowa 51301
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 262-1000
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 NO X
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As of May 14, 1998 there were 7,590,843 shares of Common Stock, par value $.01
per share, issued and outstanding.
1
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<TABLE>
<CAPTION>
INDEX
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION.............................................. 3
ITEM 1.
a) Condensed Consolidated Financial Statements........................ 3
b) Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997............................... 3
c) Condensed Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997......................... 4
d) Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997......................... 5
e) Notes to Condensed Consolidated Financial Statements............... 6
ITEM 2.
a) Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 7
PART II. OTHER INFORMATION.................................................. 13
ITEM 5. Other Information.................................................. 13
ITEM 6. Exhibits........................................................... 14
SIGNATURES......................................................... 17
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1
- ------
FINANCIAL STATEMENTS
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
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(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 6
Restricted funds - interest bearing deposits 1,124 2,247
Accounts Receivable, net allowance for doubtful accounts
of approximately $923 and $923 respectively. 6,488 5,473
Inventories, net 11,660 12,288
Prepaid expenses and other current assets 858 818
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Total Current Assets 20,130 20,832
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PROPERTY AND EQUIPMENT:
Flight Equipment 46,781 46,781
Other Property and Equipment 4,253 4,185
Less - Accumulated Depreciation and Amortization (10,034) (9,656)
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Total Property and Equipment 41,000 41,310
OTHER ASSETS 1,616 1,616
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$ 62,746 $ 63,758
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 13,400 $ 10,306
Accounts Payable 10,596 9,462
Deferred lease payments 1,183 1,367
Accrued liabilities and unearned revenue 4,437 5,291
-------------- -----------------
Total Current Liabilities 29,616 26,426
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LONG-TERM DEBT, net of current maturities 27,783 28,471
DEFERRED LEASE PAYMENTS 3,632 3,247
DEFERRED CREDITS 4,466 4,487
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized, 7,590,843 and 7,589,121 shares issued and
outstanding at March 31, 1998. 76 76
Paid-in Capital 29,577 29,577
Accumulated Deficit (32,404) (28,526)
-------------- -----------------
Total Stockholders' Equity (2,751) 1,127
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$ 62,746 $ 63,758
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</TABLE>
Note: The Balance Sheet at December 31, 1997, has been derived from the audited
financial statements as of that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. See condensed notes to
financial statements.
3
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GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited)
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
For the Three Months Ended March 31
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 15,130 $ 24,377
Public Service 2,772 1,279
Freight, charter and other 959 1,012
--------------- ---------------
Total operating revenues 18,861 26,668
--------------- ---------------
OPERATING EXPENSES:
Salaries, wages and benefits 6,079 7,476
Aircraft fuel 2,846 4,854
Aircraft maintenance materials and repairs 2,446 2,424
Commissions 998 1,835
Depreciation and amortization 547 1,438
Aircraft rental 3,499 3,468
Other rentals and landing fees 1,346 1,793
Other operating expenses 4,121 6,554
--------------- ---------------
Total operating expenses 21,882 29,842
--------------- ---------------
Operating income (loss) (3,021) (3,174)
INTEREST EXPENSE 857 1,613
--------------- ---------------
Loss before income taxes (3,878) (4,787)
INCOME TAX EXPENSE (BENEFIT) - -
--------------- ---------------
NET LOSS $ (3,878) $ (4,787)
--------------- ---------------
--------------- ---------------
BASIC AND DILUTED LOSS PER SHARE $ (.51) $ (.63)
--------------- ---------------
--------------- ---------------
WEIGHTED AVERAGE SHARES OUTSTANDING 7,589,370 7,586,341
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
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GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,878) $(4,787)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 547 1,438
Loss on sale of equipment - 92
Change in current operating items:
Accounts receivable, net (1,015) (625)
Inventories, net 628 (841)
Prepaid expenses and deposits (40) (1,145)
Accounts payable and accrued liabilities 582 3,921
-------- --------
Net cash flows used in operating activities (3,176) (1,947)
-------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment (68) (90)
Proceeds from certificate of deposit 1,123 -
-------- --------
Net cash flows provided by
investing activities 1,055 (90)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and long term debt 3,955 104
Repayment of notes payable and long term debt (1,840) (124)
Proceeds from sale of common stock - 7
-------- --------
Net cash flows used in financing activities 2,115 (13)
-------- --------
NET CHANGE IN CASH (6) (2,050)
CASH:
Beginning of Period 6 6,676
-------- --------
End of Period $ - $ 4,626
-------- --------
-------- --------
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 760 $ 239
-------- --------
-------- --------
Noncash transactions-
Deferred manufacturer's incentives received as:
Property and equipment $ - $ (200)
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
5
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GREAT LAKES AVIATION, LTD.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
GENERAL
The consolidated financial statements included herein have been prepared by
the Great Lakes Aviation, Ltd. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
information furnished in the consolidated financial statements includes
normal recurring adjustments and reflects all adjustments, which are, in the
opinion of management, necessary for a fair presentation of such consolidated
financial statements. The Company's business is seasonal and, accordingly,
interim results are not necessarily indicative of results for a full year.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements for the year ended
December 31, 1997 and the notes thereto included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. The
foregoing financial statements contain an opinion by the Company's
independent public accountants indicating substantial doubt as to the
Company's ability to continue as a going concern.
The consolidated financial statements include the accounts of Great Lakes
Aviation, Ltd. and its wholly owned subsidiary "RDU Inc.", referred to
collectively as the Company. All significant inter-company transactions and
balances have been eliminated in consolidation. RDU, Inc. currently has no
activity and is not being utilized by the Company.
During the first fiscal quarter of 1998, the Company operated scheduled
passenger and airfreight service under two marketing identities. The Company
operates under a cooperative marketing agreement "United Express Agreement"
with United Airlines, Inc. (United). During the first quarter of 1997, the
Company also operated as Midway Connection under a code sharing agreement
with Midway Airlines Corporation, and in the Southwestern United States and
Mexico independently under its own code as Great Lakes Airlines. The service
provided under these two operating identities was discontinued on May 16,
1997, although the Company still operates as Great Lakes Airlines on one
route in the Midwest.
Revenues during the quarter ended March 31, 1998 were derived 96.8% from
United Express operations and 3.2% from Great Lakes Airlines operations.
6
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The discussion and analysis in this section and in the notes to the financial
statements contain certain forward-looking terminology such as "believes,"
"anticipates," "will," and "intends," or comparable terminology. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Potential
purchasers of the Company's securities are cautioned not to place undue
reliance on such forward-looking statements which are qualified in their
entirety by the cautions and risks described herein and in other reports
filed by the Company with the Securities and Exchange Commission.
The Company began providing air charter service in 1979, and has provided
scheduled passenger service in the Upper Midwest since 1981, along the East
Coast from October 1995 to May 1997, and in the Southwest and Mexico from
August 1995 to May 1997. In April 1992, the Company began operating as a
United Express carrier under a cooperative marketing agreement with United
that expired April 25, 1997, but was extended through December 31, 1997. As
of March 31, 1998, the Company served 51 destinations in 11 states with 318
scheduled departures each weekday.
The Company has suffered significant recurring losses and negative cash
flows, which raise substantial doubt about its ability to continue as a going
concern. The Company has no further availability on its $5 million line of
credit with Raytheon. The Company is heavily dependent on Raytheon and
United for its liquidity requirements, however neither Raytheon nor United is
under any current obligation to provide further financing to the Company.
The Company's viability as a going concern depends upon its return to
sustained profitability.
The Company has returned to its historical core route structure with the
primary focus being that of the United Express Marketing Relationship.
Within that relationship the Company is maximizing its operating advantage at
Chicago's O'Hare Airport where the Company controls 74 operating slots and
revenue passenger yields are highest and at United's Denver hub.
ESSENTIAL AIR SERVICE
The Airline Deregulation Act of 1978 ("The Deregulation Act") allowed
airlines great freedom to introduce, increase and generally reduce or
eliminate service to existing markets. Under the Essential Air Service
Program, which is administered by the Department of Transportation (DOT),
certain communities that received scheduled air service prior to the passage
of the Deregulation Act are guaranteed specified levels of "essential air
service." The DOT may authorize federal subsidies to compensate a carrier
providing essential air service in otherwise unprofitable or minimally
profitable markets. If these subsidies are eliminated the Company may
discontinue service to some or all of the subsidized communities.
7
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At March 31, 1998, the Company served 21 essential air service communities on
a subsidized basis. The Company received $6.1 million, $3.5 million and $2.6
million in essential air service subsidies for the years ended December 31,
1997, 1996 and 1995, respectively. An airline serving a community that
qualifies for essential air services is required to give the DOT advance
notice before it may terminate, suspend or reduce service. Depending on the
circumstances, the DOT may require the continuation of existing service until
a replacement carrier is found. The Company has negotiated increases in
rates and added additional cities and flight frequencies for which it
receives subsidy revenue. Subsidy rates in effect at April 14, 1998 are
expected to generate essential air service revenues of approximately $18.6
million on an annualized basis, as follows:
<TABLE>
<CAPTION>
Annual
Subsidy
Rate
Order # (in thousands) Expires
-------- -------------- --------
<C> <S> <C> <C>
Alpena/Sault Ste. Marie, MI 97-09-15 $ 398 12/31/98
Dickinson, ND 98-03-27 330 3/31/00
Fairmont, MN/Brookings, Yankton, SD/
Devils Lake, Jamestown, ND/Norfolk, NE 97-08-09 4,070 7/31/99
Fergus Falls, MN 98-02-04 * 997 **
Ironwood, MI 97-07-06 493 6/30/98
Manistee, MI 96-12-42 159 12/28/98
Mattoon, IL 97-05-03 218 2/28/99
Ottumwa, IA/Sterling-Rock Falls, IL 97-01-14 923 9/30/98
Mount Vernon, IL 96-08-23 246 6/30/98
Lamar, CO/Goodland, KS/Alliance, Chadron
Kearney, MCCook, NE 97-10-10 5,579 6/30/99
Cortez, CO/Dodge City, Garden city, Great
Bend, Hays, Liberal, KS 98-03-32 2,907 9/30/99
Alamosa, CO/Laramie, Rock Springs,
Worland, WY 98-04-25 2,303 4/30/00
--------------
TOTAL $18,623
--------------
--------------
</TABLE>
* Service scheduled to begin in 1998
** Expires two years from date of intial service
8
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The following table sets forth certain financial information regarding the
Company:
<TABLE>
<CAPTION>
For the three Months Ended March 31
----------------------------------------------------
STATEMENT OF OPERATIONS DATA
1998 1997
---------------------------------- ----------------
Cents % increase/ Cents
Amount Per decrease Amount Per
(in 000's) ASM from 1997 (in 000's) ASM
--------- ----------- --------- ---------- ----
<S> <C> <C> <C> <C> <C>
Total operating revenues $18,861 20.3 (29.3)% $26,668 17.2
------- ----- -------
Salaries, wages and benefits 6,079 6.5 (18.7) 7,476 4.8
Aircraft fuel 2,846 3.1 (41.4) 4,854 3.1
Aircraft maintenance materials
and repairs 2,446 2.6 0.9 2,424 1.6
Commissions 998 1.1 (45.6) 1,835 1.2
Depreciation and amortization 547 0.6 (62.0) 1,438 0.9
Aircraft rental 3,499 3.8 0.9 3,468 2.2
Other rentals and landing fees 1,346 1.4 (24.9) 1,793 1.1
Other operating expense 4,121 4.4 (37.1) 6,554 4.2
------- ---- ----- ------- ----
Total operating expenses 21,882 23.5 (26.7) 29,842 19.1
------- ---- ----- ------- ----
Operating loss (3,021) (3.2) 4.8 (3,174) (2.0)
------- ---- ----- ------- ----
------- ---- ----- ------- ----
Interest expense (net) 857 0.9 (46.9) 1,613 1.0
------- ---- ----- ------- ----
</TABLE>
<TABLE>
<CAPTION>
SELECTED OPERATING DATA Increase/(Decrease)
1998 from 1997 1997
----------------------------------------------
<S> <C> <C> <C>
Available Seat Miles (000s) 93,098 (40.0)% 155,038
Revenue Passenger Miles (000s) 42,184 (34.1)% 64,033
Passenger Load Factor 45.3% 3.8 pts 41.5%
Passengers carried 142,427 (32.8)% 212,011
Average Yield per Revenue passenger mile 35.9 CENTS (1.9)% 37.8 CENTS
Revenue per ASM 20.3 CENTS 3.3 CENTS 17.2 CENTS
</TABLE>
OPERATING REVENUES
Operating revenues decreased 29.3% to $18.9 million in the first quarter of
1998 from $26.6 million during the first quarter of 1997. The decrease in
operating revenues resulted from the decrease in revenue passenger miles
flown by 34.1% to 42.2 million in the first quarter of 1998 from 64.0 million
during the first quarter of 1997 in conjunction with a 48.0% decrease in
capacity to 93.1 million ASMs in the first quarter of 1998 from 155.0 million
ASMs during the first quarter of 1997. The decrease in ASMs is primarily a
result of the discontinuation of Great Lakes Airlines service in the
Southwest United States and Mexico, and the termination of service provided
under the Midway Agreement. Corresponding load factor increased 9.2% from
41.5% to 45.3%. The 29.3% decrease in operating revenue was not as sharp as
the decrease in capacity and revenue passenger miles flown due to a 116.7%
increase in public service revenue to $2.8 million in the first quarter of
1998 from $1.3 million during the first quarter of 1997.
9
<PAGE>
OPERATING EXPENSES
Total operating expenses decreased in the first quarter of 1998 to $21.9
million from $29.8 million in the first quarter of 1997. However, the cost
per ASM increased to 23.5 cents per ASM in the first quarter of 1998 from
19.1 cents per ASM in the first quarter of 1997. The increase in cost per
ASM reflects the costs associated with preparing for additional service to be
added in the second quarter of 1998.
Salaries, wages, and benefits expense increased to 6.5 cents per ASM during
the first quarter of 1998, from 4.8 cents per ASM during the first quarter of
1997, due to pay increases incurred as a result of the new labor agreements
with the Company's pilots and mechanics. Substantial increases in labor
expense by Maintenance personnel and Pilot staffing are due to Maintenance's
preparation of aircraft and increased hiring and training of the Pilot group
in preparation for the Denver hub expansion into 14 new cities.
Aircraft fuel expense per ASM was 3.1 cents in the first quarter of 1998 and
3.1 cents in the first quarter of 1997.
Aircraft parts and component repair expenses increased to 2.6 cents per ASM
during the first quarter of 1998 from 1.6 cents per ASM during the first
quarter of 1997. This increase is due to a substantial increase in
maintenance activity in preparation for the service expansion to 14 cities in
the Company's Denver hub that was implemented on April 23, 1998, and the
preparation of 1900C and Brazilia aircraft for disposal.
Other operating expenses increased to 4.4 cents per ASM in the first quarter
of 1998 from 4.2 cents in the first quarter of 1997, due to a lower ASM base
across which to spread costs.
PROVISION FOR INCOME TAXES
In recognition of the Company's financial results of recent periods and the
uncertainties of the airline competitive environment, the Company has ceased
recognizing future tax benefits until it is reasonably assured that such
benefits will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased to $0 at March 31, 1998 from $5,000 at December 31, 1997. Net
cash flows used in operating activities were $3.1 million and $1.9 million in
the first quarter of 1998 and 1997, respectively. The major use of such cash
flows in the first quarter of 1998 was the funding of the Company's $3.9
million loss and an increase in accounts receivable offset by an increase in
accounts payable and accrued expenses, and a reduction in inventory. Accrued
liabilities and unearned revenues include amounts accrued for Brasilia
disposal and lease termination costs in the aggregate amount of $820,000 at
March 31, 1998. Payments of aircraft lease termination costs in the first
quarter of 1998 reduced the remaining liability by $737,000.
10
<PAGE>
Capital expenditures related to aircraft and equipment totaled $68,000 in the
first quarter of 1998 and $90,000 during the first half of 1997. Principal
repayments on notes payable and long-term debt were $1.8 million and new
short term borrowings were $4.0 million in the first quarter of 1998.
Long-term debt, net of current maturities of $2.3 million, totaled $27.8
million at March 31, 1998 compared to $28.4 million, net of current
maturities of $2.1 million, at December 31, 1997.
The Company has suffered significant recurring losses and negative cash
flows, which raise substantial doubt about its ability to continue as a going
concern. The Company has no further availability on its $5 million line of
credit with Raytheon. The Company is heavily dependent on Raytheon and
United for its liquidity requirements, however neither Raytheon nor United is
under any current obligation to provide further financing to the Company.
These matters have raised substantial doubt about its ability to continue as
a going concern and, as a result, the Report of Independent Public
Accountants on the financial statements for the year ended December 31, 1997,
contains a statement to this effect.
Management believes that near term cash requirements will be met by
operations. The previously mentioned increase in Essential Air Service
revenue and the substantial improvement in financial performance of its
Denver hub operations should provide adequate resources to support the
operations of the Company.
Raytheon Aircraft Company and its financing affiliates (collectively,
"Raytheon") is the company's primary aircraft supplier and largest creditor.
The Company has financed its Beechcraft 1900 aircraft and one of its Brasilia
aircraft under related lease and debt agreements with Raytheon, and Raytheon
has also extended the Company a $5 million working capital line of credit,
and a $4 million short term loan. In addition, Raytheon was granted a
warrant for a period of ten years, exercisable commencing July 16, 1998, to
purchase one million shares of Great Lakes common stock at a price of $.75
per share.
On January 1, 1998 Raytheon provided the Company a short-term loan of $1
million. This loan, which was originally due on February 28, 1998, has been
extended to June 30, 1998. The $1 million loan, as well as existing Raytheon
indebtedness, has been collateralized with all previously unpledged Beech
aircraft spare parts and equipment and accounts receivable.
In April 1998, the Company entered into an agreement with another carrier to
lease, on a month to month basis, seven Beech 1900D aircraft. The Company is
currently pursuing a long-term financing agreement with Raytheon on these
aircraft as well as additional Beech 1900D aircraft. As a part of this
agreement the Company intends to trade six of its used 1900C aircraft to the
other carrier. Management does not anticipate any substantial gain or loss
from this transaction.
As discussed in the Company's Form 10-K for the year ended December 31, 1997,
the Company had 12 Brasilia 30-seat aircraft in its fleet as of July 1, 1997.
Two of these Brasilia aircraft were returned to the lessor through the
exercise of the lessor's rights as a result of the
11
<PAGE>
Company's default on the leases for these aircraft in the second quarter of
1997. These aircraft have been transferred by the lessor to another carrier.
The estimated lease termination costs associated with these two returned
aircraft were included in Shutdown, and Other Nonrecurring Expenses in the
fourth quarter of 1997. On March 20, 1998 and April 22, 1998, the Company
disposed of two Brasilia aircraft by an agreed upon termination of the
underlying leases and transferring possession to another carrier. In
connection with the disposition of one of these aircraft, the Company
guaranteed the continued payment of certain purchase incentive payments by an
agency of the Brazilian government to the lessor, which incentive payments
had previously been received by the Company. The Company obtained an opinion
from Brazilian counsel to the effect that the disposition by the Company
would not effect the obligations of the Brazilian Government agency to
continue to make these incentive payments. Accordingly, the Company currently
has eight Brasilia aircraft in its fleet. As also mentioned in the Company's
Form 10-K for the year ended December 31, 1997, the Company entered into an
agreement with another carrier to dispose of its remaining Brasilia aircraft.
This agreement was terminated by a mutual agreement between the Company and
the other carrier. Any further dispositions of the Company's Brasilia
aircraft will be done on an aircraft-by-aircraft basis. The Company included
a charge against fourth quarter 1997 operations in Shutdown and Other
Nonrecurring Expenses for the estimated losses and costs associated with the
disposition of those Brasilia aircraft expected to be sold in 1998.
The company continues to have past due trade accounts. Notes totaling
approximately $1.8 million have been issued to certain of the creditors,
which, in general, require payment over a period of one year or less. The
balance of these notes was $650,000 as of March 31, 1998. The Company
believes that it has reached an appropriate accommodation with its key
suppliers and that it will be able to obtain necessary goods and services on
acceptable terms as long as timely payment is made for current purchases.
UNITED EXPRESS RELATIONSHIP
The code sharing agreement with United expired in December 1997. The Company
believes its relationship with United is satisfactory, as evidenced by
United's recent selection of the Company as the United Express carrier for
additional routes serving the Denver airport. Since December 31, 1997, the
Company has been operating as if the principal day-to-day operational
provisions of the previous code sharing agreement are still effective. The
Company and United have entered into negotiations to renew the code sharing
agreement. The Company anticipates a favorable change in the method of
allocating passenger fares which will increase the Company's share of the
ticket price for passengers traveling a portion of their journey on United.
As part of their negotiations, United has restructured its operating
relationships with certain of its United Express carriers, pursuant to which
the Company began providing service to Denver from fourteen additional cities
effective April 23, 1998 and will begin to provide service to an additional
four cities on June 1, 1998. The effect of this will be that the Company
will become the only United Express carrier providing service with nineteen
seat aircraft at the Chicago and Denver hubs. While the Company expects a new
code sharing agreement to be finalized on a mutually advantageous basis, no
assurance can be given that this actually will be accomplished. Any failure
to enter into a new code sharing agreement with United, any material adverse
change in terms from the prior code sharing agreement, or
12
<PAGE>
any substantial decrease in the number of routes served by the Company under
this agreement could have a material adverse effect on the Company's
business. As a result of the code sharing relationship with United, the
Company's business is sensitive to events and risks affecting United. If
adverse events affect United's business, the Company's business may also be
adversely affected.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
ITEM 5 OTHER INFORMATION
The Company's Common Stock is currently listed on the NASDAQ National Market.
In September 1997, the NASD issued new listing requirements for the NASDAQ
National Market System which became effective February 23, 1998. The changes
increase the standards for continued listing on the NASDAQ National Market.
Companies may qualify for continued listing under two different Continued
Listing Standards. Standard 1 requires, among other things, Net Tangible
Assets greater than $4.0 million, Market Value of Public Float in excess of
$5.0 million, and a minimum Bid price greater than $1 per share. Standard 2
requires, among other things, Market Value of Public Float in excess of $15.0
million, and a minimum Bid price of $5 per share. Currently, the Company may
not be in compliance with the minimum requirements under either of these
standards. Under Standard 1, the Company does not meet the Net Tangible
Assets requirement. It is the Company's position that although not reflected
in the Company's financial statements, if recorded, the value of the
Company's airport slots at Chicago O'Hare would bring it into compliance with
the Net Tangible Assets requirement. The Company has submitted a plan of
compliance to NASDAQ which includes a statement
13
<PAGE>
explaining the Company's position that it believes it is currently in
compliance with the Net Tangible Assets requirement when the value of the
Chicago slots are taken into account. No response has been received from
NASDAQ as of the date of this filing. No assurance can be given that the
Company's position will be accepted by NASDAQ. Should the Common Stock be
suspended from trading privileges on the NASDAQ National Market as a result
of the Company's failure to comply with any of the above, or other applicable
requirements, the Company, prior to re-inclusion, must comply with the
applicable continued listing standards prior to continued listing. However,
should the Common Stock be terminated from trading privileges on the NASDAQ
National Market, the Company, prior to re-inclusion, must comply with the
applicable requirements for initial listing on the NASDAQ National Market,
which are more stringent than the requirements for continued listing. There
can be no assurance that the Common Stock will continue to be listed on the
NASDAQ National Market.
In the event that the Common Stock is delisted from the NASDAQ National
Market and the Company fails other relevant criteria, trading, if any, in
shares of Common Stock would be subject to the full range of the Penny Stock
Rules. Under Exchange Act Rule 15g-8, broker-dealers must take certain steps
prior to selling a penny stock, which steps include: (i) obtaining financial
and investment information from the investor; (ii) obtaining a written
suitability questionnaire and purchase agreement signed by the investor;
(iii) providing the investor a written identification of the shares being
offered and in what quantity; and (iv) deliver to the investor a written
statement setting forth the basis on which the broker or dealer approved the
investor's account for the transaction. If the Penny Stock Rules are not
followed by a broker-dealer, the investor has no obligation to purchase the
shares. Accordingly, delisting from the NASDAQ National Market and the
application of the comprehensive Penny Stock Rules would make it more
difficult for broker-dealers to sell the Common Stock, purchasers of shares
of Common Stock would have difficulty in selling such shares in secondary
transactions and the per share price of such stock would likely be greatly
reduced.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits
10.1 $4,000,000 Negotiable Promissory Note entered into between
registrant and Raytheon Aircraft Credit Corporation, dated
July 11, 1997, and amended July 31, 1997 and January 8,
1998.
10.2 Pledge and Assignment Agreement entered into between
registrant and Raytheon Aircraft Credit Corporation, dated
July 11, 1997.
10.3 Agreement Pertaining to Loans and Leases entered into
between registrant and Raytheon Aircraft Credit
Corporation, dated July 11, 1997.
10.4 Security Agreement and Encumbrance Against All Carrier
Aircraft Engines, Propellers, Appliances and Spare Parts
entered into between registrant and Raytheon Aircraft
Credit Corporation, dated July 11, 1997.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.5 $1,000,000 Negotiable Promissory Note entered into between
registrant and Raytheon Aircraft Credit Corporation, dated
January 1, 1998.
27 Financial Data Schedule
(b) Current Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K for the
quarter ended March 31, 1998.
</TABLE>
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
10.1 $4,000,000 Negotiable Promissory Note entered into between registrant
and Raytheon Aircraft Credit Corporation, dated July 11, 1997, and
amended July 31, 1997 and January 8, 1998.
10.2 Pledge and Assignment Agreement entered into between registrant and
Raytheon Aircraft Credit Corporation, dated July 11, 1997.
10.3 Agreement Pertaining to Loans and Leases entered into between
registrant and Raytheon Aircraft Credit Corporation, dated July 11,
1997.
10.4 Security Agreement and Encumbrance Against All Carrier Aircraft
Engines, Propellers, Appliances and Spare Parts entered into between
registrant and Raytheon Aircraft Credit Corporation, dated July 11,
1997.
10.5 $1,000,000 Negotiable Promissory Note entered into between the
registrant and Raytheon Aircraft Credit Corporation, dated January 1,
1998.
27 Financial Data Schedule.
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized.
GREAT LAKES AVIATION, LTD.
Dated: May 14, 1998 By /s/ Douglas G. Voss
-----------------------
Douglas G. Voss
President and Chief Executive Officer
By /s/ Steven J. Wagner
-----------------------
Steven J. Wagner
Chief Accounting Officer
17
<PAGE>
EXHIBIT 10.1
Principal Sum: U.S. $4,000,000.00
Due Date: July 29, 1997
Done at Wichita, Kansas
NEGOTIABLE PROMISSORY NOTE
On this day of July, 1997, for good and valuable consider-
ation, the receipt and sufficiency of which is hereby acknowledged
GREAT LAKES AVIATION, LTD., an Iowa corporation, with its principal
place of business at 1965 330th Street, Spencer, Iowa 51201
(hereinafter "Debtor"), unconditionally promises to pay to the
order of RAYTHEON AIRCRAFT CREDIT CORPORATION (hereinafter "Secured
Party") or its assigns, the sum of Four Million and 00/100 United
States Dollars (U.S. $4,000,000.0d) (hereinafter "Principal Sum"),
together with accrued interest at the applicable Interest Rate
specified below and such other charges and fees as herein provided.
This Negotiable Promissory Note is sometimes hereinafter referred
to as the "New Promissory Note" or the "Agreement".
For such purpose. as hereinafter specified, the "Commencement
Date" of this New Promissory Note shall be July 11, 1997. The
period of time from the "Commencement Date" through the "Due Date"
is herein referred to as the "Financing Term". The Principal Sum
and accrued interest shall be repaid by Debtor to Secured Party in
one payment on demand or no later than July 29, 1997, hereinafter
"Due Date", in accordance with the terms and subject to the
conditions specified below:
1. INTEREST RATE. In addition to Debtor's repayment of the
Principal Sum, Debtor shall pay interest to Secured Party on the unpaid
balance of the Principal Sum at the applicable rate of interest hereinafter
specified. Debtor's payment of accrued interest shall be made in conjunction
with its payment of principal as specified below in Section 2. The
applicable rate of interest throughout the Financing Term shall be eight
point five percent (8.5%) per annum. All interest shall be calculated on the
basis of a 360-day year and actual days outstanding.
2. PAYMENT OF PRINCIPAL AND INTEREST. The Principal Sum shall be
repaid by Debtor to Secured Party, together with accrued interest at the
applicable Interest Rate specified above in Section 1, in one payment due on
demand or no later than July 29, 1997.
3. REPAYMENT AND PREPAYMENT. The aforesaid payment of principal
and interest shall be made to Secured Party at its office in Wichita, Kansas.
Debtor's payment hereunder, when received, shall be applied first to the
payment of accrued and unpaid interest (computed upon the unpaid balance of
the Principal Sum) and any late payment charges
<PAGE>
owed as of the date such payment is received by Secured Party (if any), and
the remainder of Debtor's payment shall be applied to payment of the unpaid
Principal Sum. The unpaid Principal Sum and all accrued interest must be
paid in full on the Due Date. Debtor may prepay the unpaid balance of the
Principal Sum in part or in full at any time and without any penalty.
4. LATE PAYMENT CHARGE. In the event Debtor is late in making
the payment due hereunder as specified above, a late payment charge in an
amount equal to one and one-half percent (1/2%) of the amount of the delayed
payment shall be assessed against Debtor and added to the amount of the
delayed payment due hereunder for the purpose of defraying Secured Party's
expenses incident to handling the delinquent payment. Any late payment
charge assessed against Debtor shall be immediately due and payable to
Secured Party. The late payment charge shall be in addition to, and not in
lieu of, any other remedy provided to Secured Party in this Agreement for
default by Debtor.
5. SECURED TRANSACTION. To secure the payment of Debtor's
obligation hereunder and any and all other indebtedness owed by Debtor to
Secured Party (whether now existing or hereafter arising), as well as any
renewals, extensions or changes in the form of said obligation or
indebtedness, Debtor has contemporaneously herewith executed a Pledge And
Assignment Agreement (hereinafter "Pledge Agreement") and a Security
Agreement And Encumbrance Against Air Carrier Aircraft Engines, Propellers,
Appliances And Spare Parts (hereinafter "Security Agreement") granting to
Secured Party a security interest in the following property:
All accounts receivable of Debtor, of any kind or nature,
now existing or hereafter arising, whether arising out of
or pertaining in any manner to the business operations of
Debtor, and all proceeds, renewals, replacements,
additions or substitutions thereof, including but not
limited to all of Debtor's right, title and interest in
and to the entire net settlement amounts of passenger
revenue, air freight, nontransportation, IATA, UATP, and
other receipts, payments and revenues which are or shall
be received for the account of and are or shall become
payable to Debtor by Airlines Clearing House, Inc.,
including but not limited to all amounts payable The
Chase Manhattan Bank, N.A., as agent for Airlines
Clearing House, Inc. Any funds received by Debtor from
the Brazilian government every six months shall be
excluded from the foregoing.
All of Debtor's 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
2
<PAGE>
Model 1900 type airplanes now owned or hereinafter
acquired by Debtor (hereinafter collectively
"Spare Parts").
All of the foregoing is collectively referred to as the
"Collateral".
6. PURPOSE OF LOAN. Debtor warrants and represents to Secured
Party that this loan is for business, commercial or agricultural purposes and
not primarily for personal, family or household purposes.
7. DEBTOR'S DEFAULT. The parties agree that Debtor's failure to
pay this New Promissory Note on or before the earlier of demand or the Due
Date shall constitute an "Event of Default". Should an Event of Default
occur, Secured Party may employ all remedies allowed by law, including
declaring all indebtedness or liability of Debtor under this New Promissory
Note or otherwise owed to Secured Party, immediately due and payable. After
the payment of all principal, interest and late payment charges due under
this Agreement, the balance of the proceeds of the Collateral, 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 this
Agreement after application of ~such proceeds. Debtor agrees to pay the
reasonable attorneys' fees incurred by Secured Party.
8. OBLIGATION TO MAKE PAYMENTS. Debtor acknowledges and agrees
that its obligation to make the payment due and owing under the provisions
hereof shall be absolute and unconditional and to the extent permitted by
applicable law shall not be affected by any circumstance whatsoever,
including, without limitation (a) any setoff, counterclaim, defense or other
right which Debtor may have against Secured Party or any other person or
entity for any reason whatsoever; (b) any liens or rights of others with
respect to the Collateral; (c) the invalidity or unenforceability or lack of
due authorization of this Agreement or any lack of right, power or authority
of Debtor or Secured Party to enter into this Agreement; (d) any insolvency,
bankruptcy, reorganization or similar proceedings by or against Debtor or any
other person or entity; or (e) any other cause whether similar or dissimilar
to the foregoing, any present or future law notwithstanding, it being the
intention of the parties hereto that the payment being payable by Debtor
hereunder shall continue to be payable in all events in the manner and at the
time provided herein. Such payment shall not be subject to any abatement,
setoff or reduction for any reason whatsoever, including any present or
future claims by Debtor against Secured Party under this Agreement or
otherwise. To the extent permitted by applicable law, Debtor hereby waives
any rights which it may now have or which may be conferred upon it, by
statute or otherwise, to terminate, cancel, quit or surrender this Agreement
except in accordance with the terms hereof.
3
<PAGE>
9. WAIVERS. Debtor hereby waives any requirements pertain-ing to
presentment, notice of dishonor, and all other notices or demands in
connection with the delivery, acceptance, performance or default of this New
Promissory Note. No waiver of any covenant, warranty or condition 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. LEGAL, VALID, BINDING AND ENFORCEABLE OBLIGATION. Debtor
represents and warrants to Secured Party that this New Promissory Note, 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.
11. CHANGES OF ADDRESS. Debtor shall immediately notify Secured
Party in writing of any change of address from that shown in this Agreement.
12. GOVERNING LAW AND FORUM CHOICE. THIS AGREEMENT WAS MADE AND
ENTERED INTO IN THE STATE OF KANSAS AND IN 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 MATT5RS 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 COLLATERAL, AND ALL OTB R REMEDIES
WHICH MAY BE AVAILABLE INCLUDING SEEKING A DEFICIENCY JUDGMENT AGAINST
DEBTOR. THE 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 COULD AGREE TO BE SUBJECT TO THE
JURISDICTION OF THE AFORESAID COURTS IN SUCH PROCEEDINGS.
4
<PAGE>
13. 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.
14. ASSIGNABILITY. Secured Party shall have the absolute right to
assign, transfer or sell any of its rights under this New Promissory Note 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.
15. 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.
16. MODIFICATION. This Agreement shall not be changed orally, but
only in writing signed by the parties hereto.
17. 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, or sent via telecopy with oral confirmation from a person at the
receiving office that the transmission has been received. 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 required. Notices
sent overnight 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:
Debtor: Great Lakes Aviation, Ltd.
Attn. Chairman
1965 330th Street
Spencer, Iowa 51301
Telephone: (712) 262-1000
Telefax: (712) 262-1001
5
<PAGE>
Secured Party: Raytheon Aircraft Credit Corporation
Attn: President
10511 East Central
Wichita, Kansas 67206
Telephone: (316) 676-8471
Telefax: (316) 676-6975
The designated addresses of both parties must be located within the United
States of America and allow for overnight air carrier delivery and served by
telecopy transmission service twenty-four (24) hours daily.
18. SIGNATORY AUTHORITY. The undersigned officer of Debtor
verifies and warrants that he/she has read this New Promissory Note 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.
In witness of the foregoing, Debtor has caused its duly authorized
officer to execute and deliver this Agreement at Wichita, Kansas on the day
and year herein stated.
GREAT LAKES AVIATION, LTD.
By: /s/ Douglas G. Voss
-------------------------
Douglas G. Voss
Chairman
"Debtor"
6
<PAGE>
STATE OF ____________________)
) ss:
COUNTY OF ___________________ )
This instrument was acknowledged before me on the _____ day of July,
1997, by Douglas G. Voss, who is the Chairman of Great Lakes Aviation, Ltd.,
on behalf of the corporation.
______________________________
Notary Public
______________________________
My Commission Expires:
7
<PAGE>
Raytheon Aircraft Credit Corporation
P.O. Box 85
Wichita, KS 67201-0085
Tclephone: 316-676-7100
Fax: 310-676-6975
Telex 203603 Beech UR
John S. Myers
Vice President
April 17, 1998
Great Lakes Aviation, Ltd..
Attn.: Mr. Doug Voss
1708 38th Ave. W.
Spencer, IA 51301-2544
RE: $4,000,000.00 Negotiable Promissory Note
Dear Mr. Voss:
Reference is made to a certain Negotiable Promissory Note in the amount of
$4,000,000. dated July 11, 1997 and amended July, 31, 1997 and January 1,
1998 between Great Lakes Aviation, Ltd. and Raytheon Aircraft Credit Corp.
(RACC).
RACC hereby extends the due date on the Negotiable Promissory Note from
(1) February 28, 1998 to March 31, 1998;
(2) March 31, 1998 to April 30, 1998;
(3) April 30, 1998 to May 31, 1998 and
(4) May 31, 1998 to June 30, 1998.
Sincerely,
/s/ John S. Myers
Mr. John S. Myers
Vice President
8
<PAGE>
EXHIBIT 10.2
PLEDGE AND ASSIGNMENT AGREEMENT
This Pledge And Assignment Agreement ("Pledge 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
offices at 1965 330th Street, Spencer, Iowa 51301 ("Debtor") and
Raytheon Aircraft Credit Corporation, a Kansas corporation with its
offices at 9709 East Central, Wichita, Kansas 67206 ("Secured
Party").
WHEREAS, Debtor and Secured Party have entered into a certain
Agreement Pertaining To Loans and Leases ("New Loan Agreement")
contemporaneously with the execution of this Pledge Agreement,
under the terms of which Secured Party has agreed, among other
things, to loan the sum of $4,000,000.00 to Debtor in accordance
with the provisions of a certain Negotiable Promissory Note ("New
Promissory Note") appended to the New Loan Agreement as Exhibit
"C".
WHEREAS, in order to provide for and assure the payment of any
claim that Secured Party may have against Debtor for any
principal, interest or other amounts which may be due and owing to
Secured Party under the aforesaid New Loan Agreement and New
Promissory Note as well as under any Aircraft Promissory Note,
Aircraft Lease Agreement, or Negotiable Promissory Note in the
original amount of $5,000,000.00 ("$5M Note") between Debtor and
Secured Party (whether currently existing or hereafter executed) in
the event a breach default or "Event of Default" should occur
thereunder Secured Party and Debtor have agreed to enter into this
Pledge Agreement.
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and agreements set forth herein, and in
consideration of the terms and conditions set forth in the New Loan
Agreement and New Promissory Note Secured Party and Debtor hereby
agree as follows:
1. PLEDGE AND ASSIGNMENT: To secure payment of Debtor's
obligations under the New Loan Agreement (including the
Security Agreement, Initial Loans, and Airplane Leases
referenced therein), the New Promissory Note and other
financial obligations of Debtor to Secured Party (whether
currently existing or hereafter executed), as well as any
renewals, extensions or changes in the form of said
obligations or indebtedness, Debtor hereby transfers, pledges
and assigns to Secured Party all of Debtor's right, title and
interest in and to the entire Passenger Revenue, Air Freight,
non-transportation, IATA, UATP and net settlement amounts
which are or shall be received for the account of and are or
shall become payable to Debtor from Airlines Clearing House,
Inc., and by Chase Manhattan Bank, N.A. as agent for Airlines
Clearing House, Inc. including but not limited to all funds
from such source credited from time to time to the account of
Debtor maintained with The Chase
<PAGE>
Manhattan Bank, N.A., being Account No. 910-2-480119 or such account or
accounts as Debtor may maintain with The Chase Manhattan Bank, N.A. for the
purposes set forth herein. The above-described funds and amounts are
hereinafter collectively referred to as the "Clearing House Funds". This
transfer, pledge and assignment is subject to the conditions set forth below.
2. AGREEMENT ON ASSIGNMENT: In order to give effect to Debtor's
transfer, pledge and assignment of the Clearing House Funds to Secured Party,
Debtor shall obtain written agreement of The Chase Manhattan Bank, N.A. and
Airlines Clearing House, Inc., to have all the Clearing House Funds wired
directly to Secured Party until written authorization is given by Secured
Party to stop such wiring of Clearing House Funds. The form and content of
the foregoing written agreement shall be in form and content acceptable to
Secured Party in its sole discretion. Secured Party agrees to provide written
authorization to The Chase Manhattan Bank, N.A. to stop wiring of the
Clearing House Funds to Secured Party, upon payment in full of the New
Promissory Note obligations, provided Debtor is not otherwise in default
under the New Loan Agreement as well as the Initial Loans, Airplane Leases,
and Security Agreement referenced therein or any other obligation owed by
Debtor to Secured Party. Secured Party agrees to immediately forward to
Debtor all Clearing House Funds received in excess of the total obligation
under the New Promissory Note, provided Debtor is not otherwise in default
under any obligation or agreement with Secured Party.
3. DEBTOR'S DEFAULT: The parties agree that the occurrence of any of
the following events shall constitute an "Event of Default" hereunder:
(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, or Debtor's failure to pay any
amount required under this Pledge Agreement or the New Loan Agreement,
(including the Security Agreement, Initial Loans, and Airplane Leases
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
Security Agreement, Initial Loans and Airplane Leases as referenced
therein), if such default is not cured by Debtor within five (5) days
of receipt of Secured Party's notice specifying such default;
(c) any material misrepresentation made by Debtor to Secured Party in
connection with the New Promissory Note, the New Loan Agreement or
this Pledge Agreement;
2
<PAGE>
(d) 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;
(e) dissolution, termination of existence, insolvency, business failure,
inability to pay debts that arise after the date of this Pledge
Agreement, 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;
(f) 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;
(g) 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;
(h) 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; or
(i) Debtor (or its Permitted Lessee) ceasing to be licensed pursuant to
U.S. or other applicable law to operate a commercial air service.
4. TERM OF PLEDGE: This Pledge Agreement shall continue in force and
effect for as long as Debtor owes any sum of money to Secured Party under the
New Loan Agreement, or New Promissory Note and provided Debtor is not
otherwise in default under the New Promissory Note, the New Loan Agreement
(including the Initial Loans, Airplane Leases and Security Agreement as
referenced therein) or other obligation from Debtor to Secured Party. Debtor
agrees that Secured Party shall be entitled to receive all Clearing House
Funds as described hereinabove until such time as Secured Party is obligated
to stop collection of the Clearing House Funds
5. RECEIPT OF CLEARING HOUSE FUNDS: The parties agree that immediately
upon execution of this Pledge Agreement, Secured Party shall be entitled to
receive the aforesaid
3
<PAGE>
Clearing House Funds directly from The Chase Manhattan Bank N.A. as agent for
Airlines Clearing House, Inc. and Airlines Clearing House, Inc. if applicable.
6. DEBTOR'S SUBORDINATION: In order to facilitate this Pledge Agreement
and give full effect hereto, Debtor hereby subordinates all right, title and
interest which it has or may have in the Clearing House Funds to the full
satisfaction of the claims or Secured Party as provided above. In addition,
Debtor warrants that it will not give or grant to any third party any right
to said Clearing House Funds which is superior to that given to Secured Party
hereunder.
7. ADDITIONAL DOCUMENTS: Debtor shall execute such additional documents
as may be required by Secured Party in order to give full effect to the
intent and purpose of this Pledge Agreement.
8. MISCELLANEOUS: THIS PLEDGE 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 PARTIES AGREE
THAT ANY LEGAL PROCEEDING BASED UPON THE PROVISIONS OF THIS PLEDGE 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. THE PARTIES CONSENT AND AGREE TO
BE SUBJECT TO THE JURISDICTION OF THE AFORESAID COURTS IN ANY SUCH
PROCEEDINGS.
9. NOTICES: Any notice pertaining to this Pledge 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:
Debtor: Great Lakes Aviation, Ltd.
Attn: Chairman
1965 330th Street
Spencer, IA 51301
Telephone: (712) 262-1000
Telecopy: (712) 262-1001
4
<PAGE>
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.
5
<PAGE>
In witness of the mutual promises, covenants and agreements
set forth herein, the parties have caused their duly authorized
officers to execute this Pledge Agreement at Wichita, Kansas on the
day and year first above written.
GREAT LAKES AVIATION, LTD. RAYTHEON AIRCRAFT CREDIT
CORPORATION
By: /s/ Douglas G. Voss By: /s/ Daniel K. Smartt
-------------------- ---------------------
Douglas G. Voss Daniel K. Smartt
Chairman President
"Debtor" "Secured Party"
STATE OF _________________ )
) ss:
COUNTY OF ________________ )
This instrument was acknowledged before me on the day of July,
1997, by Douglas G. Voss, who is the Chairman and Chief Executive
Officer of Great Lakes Aviation, Ltd. on behalf of the corporation.
___________________________
Notary Public
My Commission Expires:
6
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EXHIBIT 10.3
AGREEMENT PERTAINING TO LOANS AND LEASES
(GREAT LAKES)
THIS AGREEMENT PERTAINING TO LOANS AND LEASES (hereinafter
"Agreement") is made this 11th day of July, 1997, by GREAT LAKES
AVIATION, LTD., an Iowa corporation, with its principal place of
business at 1965 330th Street, Spencer, Iowa 51301 (herein called
"Debtor") in favor of RAYTHEON AIRCRAFT CREDIT CORPORATION, whose
principal place of business is 10511 East Central, Wichita, Kansas
67206 (herein called "Secured Party").
RECITALS
A. Secured Party and Debtor have previously entered into
certain financial transactions whereby Debtor is
obligated to Secured Party as evidenced by those certain
documents described on Exhibit "A" attached hereto
(collectively referred to as the "Initial Loans".
B. Debtor is also obligated to Secured Party pursuant to
certain airplane lease agreements with Secured Party, as
specifically described on Exhibit "B" attached hereto
(collectively referred to as the "Airplane Leases").
C. Debtor is in default under the Initial Loans and Airplane
Leases, as well as certain operational obligations owing
to third parties. Secured Party has agreed to loan an
additional Four Million Dollars ($4,000,000.00) to Debtor
to assist in paying certain financial obligations,
subject to the terms, conditions and understandings set
forth herein.
AGREEMENT
NOW, THEREFORE, for valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, Debtor and Secured
Party agree as follows:
1. NEW PROMISSORY NOTE. Secured Party agrees to make a new
loan to Debtor in the sum of Four Million Dollars
($4,000,000.00) to be evidenced by a Negotiable
Promissory Note in the form and content as set forth in
Exhibit "C" attached hereto ("New Promissory Note").
2. SECURITY. The New Promissory Note as well as the
financial obligations under the Initial Loans and
Airplane Leases shall all be secured pursuant to the
terms of a Security Agreement And Encumbrance Against Air
Carrier Aircraft
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Engines, Propellers, Appliances And Spare Parts in the
form and content as attached hereto as Exhibit "D"
("Security Agreement"). The New Promissory Note as well
as all obligations under the Initial Loans and Airplane
Leases shall also be secured pursuant to the terms of
that certain Pledge And Assignment Agreement in
the form and content as attached hereto as Exhibit "E"
("Pledge Agreement"). The Security Agreement and Pledge
Agreement shall grant to Secured Party a first lien
perfected security interest (subject to any prior liens
in favor of Secured Party) in the following property:
All accounts receivable of Debtor, of any kind or
nature, now existing or hereafter arising, whether
arising out of or pertaining in any manner to the
business operations of Debtor, and all proceeds,
renewals, replacements, additions or substitutions
thereof, including but not limited to all of
Debtor's right, title and interest in and to the
entire net settlement amounts of passenger revenue,
air freight, nontransportation, IATA, UATP, and
other receipts, and payments and revenues, which
are or shall be received for the account of and are
or shall become payable to Debtor by Airlines
Clearing House, Inc. including but not limited to
all amounts payable by Chase Manhattan Bank, N.A.
as agent for Airlines Clearing House, Inc.
("Clearing House Funds"). Any funds received by
Debtor from the Brazilian government every six
months shalt be excluded from the foregoing.
All of Debtor's 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 now owned or hereinafter acquired by
Debtor (collectively hereinafter collectively
"Spare Parts").
All of the foregoing is collectively referred to as
the "Collateral."
Debtor hereby covenants and warrants that it holds legal title
to all of the Collateral free and clear of any security
interests, liens or encumbrances of any nature whatsoever
(except prior liens and encumbrances in favor of Secured
Party), and that Debtor has full authority to encumber the
Collateral and grant the aforesaid security interest in favor
of Secured Party. Secured Party acknowledges that certain
off-sets occur automatically to the Clearing House Funds for
payments of transportation and non-transportation charges.
Debtor agrees to cause no portion of said Clearing House Funds
to be offset or used in any manner for non-transportation
charges, including current or future rental obligations owing
to United Airlines, except for those items
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as specifically set forth on Exhibit "F" attached hereto
("Allowed Offsets To Clearing House Funds").
This Agreement, the New Promissory Note, Pledge Agreement,
Security Agreement and other documents referenced in said
documents, are herein referred to collectively as the
"Governing Documents".
3. USE OF LOAN PROCEEDS. It is expressly agreed by the
parties hereto that a portion of the loan proceeds from
the New Promissory Note shall be retained by the Secured
Party and credited toward the payment and satisfaction of
certain current obligations under the Initial Loans and
Airplane Leases in the amounts and for the obligations
enumerated in attached Exhibit UG" along with payment of
attorneys' fees and costs of Secured Party not to exceed
$10,000.00 (in the event Debtor restructures it financial
obligations, without filing for bankruptcy protection,
Secured Party shall refund such attorneys' fees to
Debtor), with the balance of the loan proceeds to be
disbursed to Debtor and utilized for the obligations
specified on attached Exhibit "H". No portion of the loan
proceeds shall be utilized by Debtor for amounts due
secured or unsecured creditors of Debtor, except as
provided in "Exhibit G" or any payments owing to United
Airlines relating in any manner to rent or other
obligations, including but not limited to rental on the
Denver Airport space. Debtor agrees to obtain a
modification to all agreements and amounts past due and
owing to United Airlines, in form and content acceptable
in all respects to Secured Party ("United Airlines
Modification").
4. SPARE PARTS. ACCESSORIES. EQUIPMENT. Debtor will arrange
for Secured Party's representatives to inspect and
inventory the Spare Parts during the month of July, 1997,
at such time(s) as required or requested by Secured
Party. Debtor covenants and warrants it will promptly
furnish such information and execute and deliver such
further documents, including further UCC-1 financing
statements and FAA filings, and do all other such acts
and things as Secured Party may reasonably request in
order to perfect its security interest in all the Spare
Parts and to allow compilation of further detail for a
complete list of all such items and their location, and
to allow updates to the Security Agreement and
accompanying UCC-1 financing statements thereon, and
accompanying FAA filing(s) thereon.
5. REAFFIRMATION OF INDEBTEDNESS/LEASES. Debtor hereby
reaffirms the validity of each of the Initial Loans and
Airplane Leases, acknowledges and agrees that the current
balances owing under each of said Initial Loans and
Airplane Leases are as set forth on Exhibit "A" and
Exhibit "B" (except as to aircraft bearing serial numbers
UC 101 and 105) respectively, that each of the Initial
Loans and Airplane Leases is in full force and effect,
that no off-sets or
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defenses exist as to such amounts and future obligations
thereunder and remain the valid, effective and enforceable
obligations of Debtor. Secured Party hereby acknowledges
and agrees that amounts currently past due and owing under
the Initial Loans and Airplane Leases shall be paid (along
with all default charges, interest and related amounts
thereto) on July 29, 1997.
6. CONDITIONS PRECEDENT TO LOAN CLOSING. The following
conditions are precedent to closing of the New Promissory Note:
a. DIRECT PAYMENT FROM CLEARING HOUSE FUNDS. A written
agreement shall be obtained by Debtor with Airlines
Clearing House, Inc. and Chase Manhattan Bank,
N.A., as agent for Airlines Clearing House, Inc.,
in favor of Secured Party, wherein they shall agree
to cause all Clearing House Funds to be wired
directly to Secured Party on the date normal
disbursements are made thereunder, subject to the
amounts United Airlines shall be entitled to bill
to Airlines Clearing House, Inc. in accordance with
the United Airlines Modification.
b. UNITED AIRLINES MODIFICATION. The written United
Airlines Modification is obtained in form and
content acceptable to Secured Party, which shall
include a restructured payment schedule for
Debtor's obligations to United Airlines and confirm
the subordination from United Airlines as to all
Clearing House Funds, allowing Secured Party to
hold a senior first lien as to said items and
receive direct payment of the Clearing House Funds.
c. PAYMENT OF FEES AND COSTS. Debtor shall pay Secured
Party from the loan proceeds for all fees, costs
and expenses, including attorneys' fees, relating
in any manner to the initial documentation of the
New Promissory Note and related transaction, in an
amount not to exceed $10,000.00.
d. VALID LIENS. The Security Agreement and Pledge
Agreement shall have been fully executed,
appropriate UCC-1 financing statements and FAA
filings have been fully executed.
e. CODE SHARE AGREEMENT. Debtor shall obtain written
confirmation from United Airlines that the code
share agreement shall continue in effect through
August 31, 1997.
f. LEGAL OPINION. A legal opinion from Debtor's
counsel confirming the validity of this Agreement,
the New Promissory Note, the Pledge Agreement, the
Security Agreement and other documents related to this
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transaction, as well as the validity of the
lien interests being created thereby and authority
of the person signing all documents on behalf of
Debtor.
All of the foregoing agreements, documents and confirmations
shall be in such form and content as approved and accepted by
Secured Party, in its sole discretion.
7. CONDITIONS TO BE MET FOLLOWING LOAN CLOSING. Debtor shall
undertake and diligently prosecute in an expeditious and
timely manner, each of the following items following
closing of the New Promissory Note transaction:
a. CREDITOR RESTRUCTURE. Debtor shall obtain a
restructure of all its indebtedness on all aircraft
financing with third parties in order that all
financial obligations owing to said third party for
amounts currently past due and payable shall be
extended in full for a minimum of 120 days from the
date hereof, and shall cause amounts that become
due after the date hereof to include step down
payments in order that not more than 25% of the
first month's payment, 50% of the second month's
payment, and 75% of the third month's payment
accruing hereafter is paid in the first, second and
third months, respectively, from the date of this
Agreement (with the unpaid portion each month to be
extended until after 120 days from the date of this
Agreement. In addition, Debtor shall obtain
uncollateralized notes to all unsecured creditors
for trade payables and otherwise, for each
indebtedness owing to any single creditor in the
amount of $20,000 or more, to allow payoff over a
one year period at an interest rate not to exceed
12% per annum with equal monthly payments of
principal and interest.
b Debtor shall diligently proceed with, and prosecute
enrollment (at competitive market rates) of all
1900 Airliner engines in Pratt & Whitney's Fleet
Maintenance Program and complete such enrollment no
later than October 1, 1997. This provision does not
require Debtor to purchase retroactive enrollment
of the engines.
c Debtor agrees to actively investigate other cash
sources and restructure strategies and update
Secured Party on a weekly basis pursuant to a
written report showing said strategies, cash
sources and other activities of material impact on
the business operations of Debtor.
d Debtor shall issue warrants to Secured Party for
one million common shares of Debtor at a strike
price of 0.75 per share. The warrants shall be
exercisable for a period commencing one year from
the date of issuance and terminating ten (10) years
from such issuance, All
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documents pertaining to said warrants shall be
prepared by Debtor and presented to Secured Party
within two (2) weeks following close of the loan,
and Debtor agrees to negotiate in good faith as to
all requested changes in the language, terms, and
provisions of said warrant documents. Secured Party
shall have no obligation to pay any monies or consideration
for issuance of the warrants, other than the granting
of the New Promissory Note loan to Debtor pursuant
to this Agreement. Debtor hereby acknowledges
receipt of good and valuable consideration for
issuance of the warrants hereunder, and agrees that
the value of issuance of said warrants shall be
$2,000.00.
e. Prior to July 29, 1997, Secured Party and Debtor
shall meet to determine if it is in the best
interests of both parties to (i) extend the date
that certain of Debtor's obligations arising out of
this Agreement are due, for the purpose of allowing
Debtor additional time to restructure its financial
obligations and (ii) revise Secured Party's
security, pledge and other agreements for the
purpose of restructuring the Debtor's financial
obligations.
8. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants to Secured Party that:
a. ORGANIZATION. ETC. Debtor is a corporation duly
organized, validly existing and in good standing
under the laws of the State of Iowa and is
qualified to do business in each jurisdiction where
such qualification is legally required, and is
entitled to own property in the place where such
property is now owned or leased and is empowered to
conduct business as now conducted. Debtor has not
carried on business under any name except United
Express, Midway Connection, Arizona Airways
Express, Great Lakes Airlines and that shown in
this Agreement within five (5) years of the date of
this Agreement.
b. AUTHORITY AND ENFORCEABILITY. Debtor has full power
to enter into and perform its obligations under
this Agreement, the New Promissory Note, Security
Agreement and Pledge Agreement and all other
documents contemplated hereby or executed pursuant
hereto. The execution and delivery of this
Agreement, the New Promissory Note, Security
Agreement, Pledge Agreement and all other documents
contemplated hereby or executed pursuant hereto and
the performance and observance of their terms,
conditions and obligations have been duly authorized
by all necessary action on the part of Debtor. This
Agreement, the New Promissory Note, Security Agreement,
Pledge Agreement and all other documents contemplated
hereby or executed
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pursuant hereto constitute, when executed and
delivered by Debtor to Secured Party, valid and
binding obligations of Debtor enforceable in
accordance with their terms.
c. NO CONFLICT. The execution and delivery of this
Agreement, and other documents contemplated hereby
and thereby, do not and will not conflict with, or
be in contravention of, any law, order, rule or
regulation applicable to Debtor or any agreement or
instrument to which Debtor is a party or by which
any of its property is bound or affected.
d. FINANCIAL CONDITION. Except for the absence of
notes to the monthly Financial Statement, all
Financial Statements furnished to Secured Party for
the purpose of establishing financial
responsibility of Debtor in connection with this
Agreement were prepared in accordance with
generally accepted accounting principles
consistently applied throughout the periods
involved, and fairly present the financial
conditions and results of operation of Debtor for
the period through March 31, 1997. Without limiting
the generality of the foregoing, Debtor does not
know of any material contingent liabilities that it
may have that were not reflected in the Financial
Statements. Since the date of the Financial
Statements there has been no:
i. material adverse change in Debtor's financial
conditions, assets, liabilities or business,
except as has been previously disclosed in
writing to Secured Party and except for the
voluntary suspension on May 16, 1997 of
operations and subsequent consent decree with
the FAA;
ii. damage, destruction or loss, whether covered
by insurance or not so covered, materially
adversely affecting Debtor's properties or
business;
iii. declaration, setting aside or payment of any
dividend or other distribution in respect to
Debtor's equity securities; nor
iv. loans to officers, directors, shareholders,
warrant holders or other equity participants
in Debtor.
e. LITIGATION. There is no action, suit, legal
proceeding or other proceeding pending or, to the
best knowledge of Debtor's officers, directors and
legal counsel, threatened against Debtor or
affecting the properties or assets of Debtor in any
court or before any arbitrator of
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any kind or before or by any governmental body, except
as set forth in Exhibit "I" hereto. Debtor is not in
default with respect to any order of any court,
arbitrator or governmental body, and is not subject
to or a party to any order of any court or
governmental body arising out of any action, suit
or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters. For the
purposes of this section, the term "governmental
body". includes any federal, state, municipal or
other governmental department, commission, bars,
bureau, agency or instrumentality, domestic or
foreign, and the term "order" includes any other,
writ, injunction, decree, judgment, award,
determination, direction or demand.
f. TAXES. Debtor has filed all federal, state and
local tax returns that are required to be filed and
has paid all taxes shown on such returns and on all
assessments received by it to the extent that such
taxes and assessments have become due. All federal
and state income taxes and all other taxes and
assessments of any nature pertaining to Debtor's
business, assets and operations have been paid when
due, including but not limited to payroll,
withholding obligations, and personal property
taxes.
g. TITLE. Title to all Collateral is (or will be,
with respect to Collateral hereafter acquired)
vested solely in Debtor, free and clear of all
liens, encumbrances and other claims whatsoever,
except as otherwise approved in writing by Secured
Party. Debtor has not made any contract or
arrangement of any kind which could give rise to a
lien on the Collateral, except as provided herein,
and the granting of such lien is not contemplated
by Debtor.
h. NO DEFAULT. There is no Event of Default or breach
on the part of Debtor under this Agreement and no
event has occurred which with notice or the passage
of time or both would constitute an Event of
Default or breach hereunder.
i. INFORMATION CORRECT. Except for financial
projections, all information furnished in any
document required to be furnished by Debtor to
Secured Party under or in connection with this
Agreement is accurate and complete in all material
respects.
j. LOANS TO DIRECTORS OR OFFICERS. Debtor has no loans
or leases with any past or present director,
officer or employee, including their spouses
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and any entity in which any said person holds an
equity, officer or director relationship.
k. CLEARING HOUSE FUNDS OFFSETS. Debtor shall cause no
offsets to the Clearing House Funds different from
past operations, and shall allow only the
non-transportation charges to be offset as set
forth on Exhibit "F" attached hereto.
9. AFFIRMATIVE COVENANTS. Until payment or performance in
full of all obligations, Debtor shall:
a. PAY NEW PROMISSORY NOTE. Duly and punctually pay or
cause to be paid the principal and interest on the
New Promissory Note on the date, in the places and
in the manner set forth therein, and perform and
observe all other obligations of Debtor under the
Initial Loans, Airplane Leases, this Agreement, the
Pledge Agreement and the Security Agreement.
b. COMPLIANCE WITH LAWS: Comply promptly with all
laws, rules, regulations, resolutions, ordinances
and codes applicable to the business of Debtor and
keep in effect all permits or approvals obtained in
connection therewith.
c. ACCOUNTS AND RECORDS. Keep and maintain full and
accurate accounts and records of its operations in
accordance with generally accepted accounting
principles applicable to businesses of the type in
which Debtor is engaged and consistent with
principles heretofore applied by Debtor in
preparation of the Financial Statements, and permit
Secured Party by its duly authorized agents to
inspect such accounts and records at any reasonable
time.
d. INSPECTION. Permit Secured Party or its duly
authorized agents to inspect all of Debtor's
property wherever located, whether owned or leased,
at any reasonable time.
e. MAINTAIN EXISTENCE. Maintain and preserve the
corporate existence of Debtor in good standing
under the laws of the State of Iowa and maintain
its right to transact business in all other states
where its activities and ownership of assets is
such that qualification to transact business is
necessary under the laws of such states.
f. NOTIFICATIONS. Promptly notify Secured Party in
writing of the occurrence of:
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i. any Event of Default;
ii. any material adverse change in the business,
property, assets, operations or condition,
financial or otherwise, of Debtor; and
iii. the pendency or threat of any material
litigation, arbitration, or any material tax
deficiency or other proceeding before any
governmental body or official affecting
Debtor.
g. PAYMENT OF TAXES, ETC. Duly and punctually pay and
discharge all taxes, assessments and other charges
against Debtor prior to the date when they shall
become delinquent and all charges for labor,
materials and supplies that if unpaid might become
a lien against any part of the Collateral of
Debtor, unless contested in good faith and by
appropriate proceedings and provided that Debtor
shall have furnished Secured Party with adequate
security for the payment thereof, including without
limitation bonds or similar security.
h. FURTHER ASSURANCES. From time to time record,
register and file all such notices, statements and
other documents and take such other steps,
including but not limited to the amendment of the
Security Agreement and Pledge Agreement, as may be
necessary or advisable to render fully valid and
enforceable under all applicable laws the rights,
liens and priorities furnished under this Agreement
or intended to be so furnished, in each case in
such form and at such times as shall be
satisfactory to Secured Party, and pay all fees and
expenses incident to compliance with this
paragraph.
10 NEGATIVE COVENANTS OF DEBTOR. Until payment and
performance in full of all of the obligations, Debtor
shall not without the prior written consent of Secured
Party:
a. LIENS. Create, assume, incur or suffer to exist any
mortgage, pledge, security interest, lien or other
encumbrance upon the Collateral, without the
written consent of Secured Party.
b. ASSIGNMENT. Assign or attempt to assign any of its
rights or delegate any of its duties hereunder,
under the Security Agreement or the Pledge
Agreement or under the New Promissory Note.
c. CHANGE BUSINESS. Change materially the nature of
the business conducted by Debtor, engage to any
material extent in a kind of business materially
different from that presently conducted or change
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Debtors fiscal year. Debtor shall not enter into
any new business arrangement that expands routes,
or purchase or lease any new aircraft, prior to
notifying Secured Party of such arrangement.
d. LOANS. Make loans or advances from Debtor to its
officers or directors or persons or entities in any
manner related to such officers and directors.
e. EXTENDED LIABILITY. Assume, create, guarantee,
endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any
person, firm or corporation, except by endorsement
of negotiable instruments for deposit or collection
except for business in the ordinary course in
accordance with prior operations, for an amount in
excess of $100,000.00.
11 EVENTS OF DEFAULT AND REMEDIES.
a. EVENTS OF DEFAULT. The occurrence of any one or
more of the following events or existence of one or
more of the following conditions shall constitute
an Event of Default under this Agreement:
i. Debtor's failure to make any timely payment of
either principal, interest, late payment
charges or any other amount required to be
paid hereunder, or Debtor's failure to pay any
amount required under the New Note, Security
Agreement, Pledge Agreement, Initial Loans
and/or Airplane Leases. Secured Party hereby
acknowledges and agrees that amounts currently
due and owing under the Initial Loans and
Airplane Leases, (other than the obligations
being paid out of the loan proceeds hereunder)
shall be deemed extended (along with all
default charges interest and related amounts
thereto), until July 29, 1997;
ii. Debtor's failure to perform any non-monetary
promise, agreement, obligation, warranty or
covenant made by it herein or in the Pledge
Agreement or Security Agreement, if such
default is not cured by Debtor within five (5)
calendar days of receipt of Secured Party's
notice specifying such default;
iii. five (5) calender days after Secured Party
provides Debtor with written notice of any
material misrepresentation made by Debtor to
Secured Party in connection with the Pledge
Agreement, Security Agreement or this
Agreement, provided that Secured Party is
materially prejudiced thereby;
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iv. 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;
v. 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;
vi. 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;
vii. 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;
viii. 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 Debtor in deeming
itself insecure;
ix. Debtor (or its Permitted Lessee) ceasing to be
licensed pursuant to U.S. or other applicable
law to operate a commercial air service; or
x. any representation or warranty made under this
Agreement or otherwise made in writing to
Secured Party, or in connection with the
making of the loan or any certificate,
statement or report made pursuant to this
Agreement by Debtor shall prove at any time to
have been false or misleading in any material
respect when made; however Debtor shall have
five (5) business days following receipt of
notice from Secured Party advising Debtor of a
violation under this paragraph, to cure
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such violation. Furthermore, Debtor may commence
or maintain litigation in good faith
protecting its property, without violating
this provision.
xi. Debtor shall fail to perform or observe any
covenant contained in this Agreement for five
(5) business days after written notice from
Secured Party, or five (5) business days after
Debtor is aware of such failure, if sooner.
b. REMEDIES.
i. Upon the occurrence of any Event of Default
and thereafter, the loan, with all accrued
interest and other amounts payable hereunder,
together with all other obligations of Debtor
to Secured Party, including but not limited to
the obligations under the Initial Loans and
Airplane Leases, shall, at the option of
Secured Party, become immediately due and
payable without presentment, demand, protest
or other notice of any kind, all of which are
expressly waived by Debtor. Secured Party may
proceed with every remedy available at law or
equity or provided for herein or in any
document executed in connection herewith or in
connection with the Initial Loans and the
Airplane Leases, and all expenses incurred by
Secured Party in connection with any remedy
shall be deemed indebtedness of Debtor to
Secured Party and a part of the obligations
hereunder. Secured Party may apply the
proceeds from any Collateral or any other
source against any of the indebtedness from
Debtor to Secured Party as and in any order
Secured Party sees fit.
ii. Without limiting the foregoing, upon the
occurrence of an Event of Default hereunder
Secured Party shall have all the rights
provided in the Governing Documents, as well
as the right to take possession of the
Collateral and take any action it deems
advisable or necessary to protect the
Collateral. Debtor hereby irrevocably
constitutes and appoints Secured Party its
attorney-in-fact with full power and authority
upon the occurrence of an Event of Default to:
(a) take possession of any property covered
hereby;
(b) employ such employees, contractors,
subcontractors, agents and other persons
that Secured Party deems necessary or
desirable to protect the Collateral;
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(c) pay, settle or compromise all existing
invoices, charges and claims relating to
the Collateral for protection of its
interest; and
(d) prosecute and defend all actions and
proceedings in connection with Debtor's
business and to apply the proceeds of any
judgment received by Debtor in any such
action against any of the obligations as
it sees fit.
No delay or failure of Secured Party in the
exercise of any right or remedy provided for
hereunder shall be deemed a waiver of the right by
Secured Party, and no exercise or partial exercise
or waiver of any right or remedy shall be deemed a
waiver of any further exercise of such right or
remedy or of any other right or remedy that Secured
Party may have. The enforcement of any rights of
Secured Party as to any security for the loan shall
not affect the rights of Secured Party to enforce
payment of the New Promissory Note and to recover
judgment for any portion thereof remaining unpaid.
The rights and remedies herein expressed are
cumulative and not exclusive of any right or remedy
that Secured Party shall otherwise have. Further,
nothing contained herein shall obligate Secured
Party to undertake any action unless required by
law.
12 RIGHTS AND DUTIES OF SECURED PARTY.
a. RELATIONSHIP. Nothing herein shall be construed as
establishing a relationship between Secured Party
and any other party except the secured
party-borrower relationship between Secured Party
and Debtor.
b. RIGHT TO ASSIGN. Secured Party may assign,
negotiate, pledge or otherwise hypothecate this
Agreement, the New Promissory Note, Pledge
Agreement and Security Agreement or any of its
rights and security hereunder or thereunder. In
case of such assignment, Debtor will accord full
recognition thereto and hereby agrees that all
rights and remedies of Secured Party in connection
with the interest so assigned shall be enforceable
against Debtor by the assignee thereof.
13 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, or sent via telecopy with
oral confirmation from a person at the receiving
office that the transmission has been received,
14
<PAGE>
or sent overnight 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 carrier shall be deemed delivered
the day after being forwarded.
a. If to Debtor:
Great Lakes Aviation, Ltd.
Attention: President
1965 330th Street
Spencer, Iowa 51301
Telephone Number: (712) 262-1000
Telecopy Number: (712) 262-1001
b. If to Secured Party:
Raytheon Aircraft Credit Corporation
Attention: President
9709 E. Central
Wichita, Kansas 67206
Telephone Number: (316) 676-7673
Telecopy Number: (316) 676-6975
The designated addresses of both parties must be located
within the United States of America and allow for Federal
Express delivery and served by telecopy transmission
service twenty-four (24) hours daily. Any party may
change its address for the giving of notice hereunder by
notice so given.
12 MISCELLANEOUS.
a. AMENDMENTS. No provision or term of this Agreement may be
amended, modified, revoked, supplemented, waived or
otherwise changed except by a written instrument duly
executed by Debtor and Secured Party and designated as an
amendment, supplement or waiver.
b. COUNTING OF DAYS. If any time period ends on other than
a business day, the period shall be deemed to end on the
next succeeding business day.
15
<PAGE>
c. COMPUTATIONS. All computations of interest and fees made
or called for hereunder shall be made on the basis of a
year of 360 days and actual day months.
d. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original.
e. HEADINGS. The paragraph headings herein are for
convenience only and shall not affect the construction
hereof.
f. CONFLICT. If the terms of the Pledge Agreement or
Security Agreement shall conflict with this Agreement,
this Agreement shall govern to the extent of the
conflict.
g. USE OF TERMS. As used herein, words in any gender shall
be deemed to include the other gender and the singular
shall be deemed to include the plural, and vice versa.
h. SEVERABILITY. If any provision in this Agreement shall be
held invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not
be impaired thereby, nor shall the validity, legality or
enforceability of any such defective provisions be in any
way affected or impaired in any other jurisdictions.
i. 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 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 parties agree
that any legal proceeding based upon the provisions of
this Agreement shall be brought exclusively in either the
United States District Court of 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 of an "Event of Default", 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.
16
<PAGE>
j. EXHIBITS. Exhibits "A", "B", "C", "D", "E", "F", "G",
"H", and "I" are attached hereto and incorporated herein.
k. ENTIRE AGREEMENT. The Governing Documents constitute the
entire agreement between Secured Party and Debtor
concerning the subject matter of this Agreement, and
supersede any prior written or oral agreements between
Secured Party and Debtor concerning the subject matter
hereof.
EXECUTED as of the day and year first set forth above.
GREAT LAKES AVIATION, LTD., an Iowa
corporation
By: /s/ Douglas G. Voss
-------------------------------------
President
Date: July 11, 1997
----------------------------------
RAYTHEON AIRCRAFT CREDIT CORPORATION
By: /s/ Daniel K. Smartt
-----------------------------------
President
Date: July 11, 1997
----------------------------------
17
<PAGE>
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:
<PAGE>
(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
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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;
5
<PAGE>
(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
<PAGE>
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
7
<PAGE>
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:
8
<PAGE>
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.
9
<PAGE>
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"
10
<PAGE>
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:
___________________________________
11
<PAGE>
EXHIBIT A
INITIAL LOAN DOCUMENTS
<TABLE>
<CAPTION>
CURRENT
TOTAL MONTHLY PAST DUE
SERIAL # DUE PAYMENT AMOUNT
- ----------- ---------------- ----------- ------------
<S> <C> <C> <C>
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
------------- ---------- ------------
</TABLE>
12
<PAGE>
EXHIBIT 10.5
Principal Sum: U.S. $1,000,000.00
Due Date: February 28, 1998
Done at Wichita, Kansas
NEGOTIABLE PROMISSORY NOTE
On this 1st day of January, 1998, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, GREAT LAKES
AVIATION, LTD., Iowa corporation, with its principal place of business at
1965 - 330th Street, Spencer, Iowa 51201 (hereinafter "Debtor"),
unconditionally promises to pay to the order of RAYTHEON AIRCRAFT CREDIT
CORPORATION (hereinafter "Secured Party") or its assigns, the sum of One
Million and 00/100 United States Dollars (U.S. $1,000,000.00) (hereinafter
"Principal Sum"), together with accrued interest at the applicable Interest
Rate specified below and such other charges and fees as herein provided.
This Negotiable Promissory Note is sometimes hereinafter referred to as the
"New Promissory Note No. 4" or the "Agreement."
For such purposes as hereinafter specified, the "Commencement Date" of
this New Promissory Note No. 4 shall be January lst, 1998. The period of time
from the "Commencement Date" through the "Due Date" is herein referred to as
the "Financing Term." The Principal Sum and accrued interest shall be repaid
by Debtor to Secured Party in one payment on demand or no later than February
28, 1998, hereinafter "Due Date," in accordance with the terms and subject to
the conditions specified below:
1. INTEREST RATE. In addition to Debtor's repayment of the Principal
Sum, Debtor shall pay interest to Secured Party on the unpaid balance of the
Principal Sum at the applicable rate of interest hereinafter specified.
Debtor's payment of accrued interest shall be made in conjunction with its
payment of principal as specified below in Section 2. The applicable rate of
interest throughout the Financing Term shall be eight point five percent
(8.5%) per annum. All interest shall be calculated on the basis of a 360-day
year and actual days outstanding.
2. PAYMENT OF PRINCIPAL AND INTEREST. The Principal Sum shall be
repaid by Debtor to Secured Party, together with accrued interest at the
applicable Interest Rate specified above in Section 1, in one payment due on
demand or no later than February 28, 1998.
3. REPAYMENT AND PREPAYMENT. The aforesaid payment of principal and
interest shall be made to Secured Party at its office in Wichita, Kansas from
Debtor's settlement amounts payable to Debtor by Airlines Clearing House,
Inc. or The Chase Manhattan Bank, N.A., Agent for Airlines Clearing House,
Inc. Debtor's payment hereunder, when received, shall be applied first to
the payment of accrued and unpaid interest (computed upon the
<PAGE>
unpaid balance of the Principal Sum) and any late payment charges owed as of
the date such payment is received by Secured Party (if any), and the
remainder of Debtor's payment shall be applied to payment of the unpaid
Principal Sum. The unpaid Principal Sum and all accrued interest must be
paid in full on the Due Date. Debtor may prepay the unpaid balance of the
Principal Sum in part or in full at any time and without any penalty.
4. LATE PAYMENT CHARGE. In the event Debtor is late in making the
payment due hereunder as specified above, a late payment charge in an amount
equal to one and one-half percent (1 1/2%) of the amount of the delayed
payment shall be assessed against Debtor and added to the amount of the
delayed payment due hereunder for the purpose of defraying Secured Party's
expenses incident to handling the delinquent payment. Any late payment
charge assessed against Debtor shall be immediately due and payable to
Secured Party. The late payment charge shall be in addition to, and not in
lieu of, any other remedy provided to Secured Party in this Agreement for
default by Debtor.
5. SECURED TRANSACTION. To secure the payment of Debtor's obligation
hereunder and any and all other indebtedness owed by Debtor to Secured Party
(whether now existing or hereafter arising), as well as any renewals,
extensions or changes in the form of said obligation or indebtedness, Debtor
executed a Pledge and Assignment Agreement dated July 11, 1997, and Debtor
executed a Security Agreement and Encumbrance Against Air Carrier Aircraft
Engines, Propellers, Appliances and Spare Parts (hereinafter "Security
Agreement") dated August 21, 1997. All of the foregoing is collectively
referred to as the "Collateral."
6. PURPOSE OF LOAN. Debtor warrants and represents to Secured Party
that this loan is for business, commercial or agricultural purposes and not
primarily for personal, family or household purposes.
7. DEBTOR'S DEFAULT. The parties agree that Debtor's failure to pay
this New Promissory Note No. 4 on or before the earlier of demand or the Due
Date shall constitute an "Event of Default." Should an Event of Default
occur, Secured Party may employ all remedies allowed by law, including
declaring all indebtedness or liability of Debtor under this New Promissory
Note No. 4 or otherwise owed to Secured Party, immediately due and payable.
After the payment of all principal, interest and late payment charges due
under this Agreement, the balance of the proceeds of the Collateral, 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
this Agreement after application of such proceeds. Debtor agrees to pay the
reasonable attorneys' fees incurred by Secured Party.
8. OBLIGATION TO MAKE PAYMENTS. Debtor acknowledges and agrees that
its obligation to make the payment due and owing under the provisions hereof
shall be absolute and unconditional and to the extent permitted by applicable
law shall not be affected by any circumstance whatsoever, including, without
limitation (a) any setoff, counterclaim, defense or other right which Debtor
may have against Secured Party or any other person or entity for any reason
whatsoever; (b) any liens or rights of others with respect to the Collateral;
(c) the
2
<PAGE>
invalidity or unenforceability or lack of due authorization of this Agreement
or any lack of right, power or authority of Debtor or Secured Party to enter
into this Agreement; (d) any insolvency, bankruptcy, reorganization or
similar proceedings by or against Debtor or any other person or entity; or
(e) any other cause whether similar or dissimilar to the foregoing, any
present or future law notwithstanding, it being the intention of the parties
hereto that the payment being payable by Debtor hereunder shall continue to
be payable in all events in the manner and at the time provided herein. Such
payment shall not be subject to any abatement, setoff or reduction for any
reason whatsoever, including any present or future claims by Debtor against
Secured Party under this Agreement tor otherwise. To the extent permitted by
applicable law, Debtor hereby waives any rights which it may now have or
which may be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender this Agreement except in accordance with the terms
hereof.
9. WAIVERS. Debtor hereby waives any requirements pertaining to
presentment, notice of dishonor, and all other notices or demands in
connection with the delivery, acceptance, performance or default of this New
Promissory Note No. 4. No waiver of any covenant, warranty or condition 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 beech or default and not a waiver only as to such particular
breach or default and not a waiver of any future breach or default.
10. LEGAL, VALID, BINDING AND ENFORCEABLE OBLIGATION. Debtor
represents and warrants to Secured Party that this New Promissory Note No. 4,
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.
11. CHANGES OF ADDRESS. Debtor shall immediately notify Secured Party
in writing of any change of address from that shown in this Agreement.
12. 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 PARTIES AGREE THAT ANY LEGAL PROCEEDING BASED UPON THE
PROVISIONS OF THIS AGREEMENT SHALL BE BROUGHT EXCLUSIVELY
3
<PAGE>
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.
13. 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.
14. ASSIGNABILITY. Secured Party shall have the absolute right to
assign, transfer or sell any of its rights under this New Promissory Note No.
4 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.
15. 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
it successors and assigns.
16. MODIFICATION. This Agreement shall not be changed orally, but only
in writing signed by the parties hereto.
17. 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, or sent via telecopy with oral confirmation from a person at the
receiving office that the transmission has been received. 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 required. Notices
sent overnight 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:
Debtor: Great Lakes Aviation, Ltd.
Attn: Chairman
1965 - 330th Street
Spencer, Iowa 51301
4
<PAGE>
Telephone: (712) 262-1000
Telefax: (712) 262-1001
Secured Party: Raytheon Aircraft Credit Corporation
Attn: President
10511 East Central
Wichita, Kansas 67206
Telephone:(316) 676-8471
Telefax: (316) 676-6975
The designated addresses of both parties must be located within the United
States of America and allow for overnight air carrier delivery and served by
telecopy transmission service twenty-four (24) hours daily.
18. SIGNATORY AUTHORITY. The undersigned officer of Debtor verifies
and warrants that he/she has read this New Promissory Note No. 4 in is
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.
In witness of the foregoing, Debtor has caused its duly authorized
officer to execute and deliver this Agreement at Wichita, Kansas on the day
and year herein stated.
GREAT LAKES AVIATION, LTD.
By: /s/ Douglas G. Voss
----------------------------------
Douglas G. Voss
Chairman
"Debtor"
5
<PAGE>
STATE OF IOWA )
) ss:
COUNTY OF CLAY )
This instrument was acknowledged before me on the _____ day of January,
1998, by Douglas G. Voss, who is the Chairman of Great Lakes Aviation, Ltd.,
on behalf of the corporation.
-----------------------------------
Notary Public
My Commission Expires:
-----------------------------------
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 1124
<RECEIVABLES> 6488
<ALLOWANCES> 0
<INVENTORY> 11660
<CURRENT-ASSETS> 20130
<PP&E> 51034
<DEPRECIATION> (10034)
<TOTAL-ASSETS> 62746
<CURRENT-LIABILITIES> 29616
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> (2827)
<TOTAL-LIABILITY-AND-EQUITY> 62746
<SALES> 0
<TOTAL-REVENUES> 18861
<CGS> 0
<TOTAL-COSTS> 21882
<OTHER-EXPENSES> 857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 857
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3878)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
