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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 0-23224
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GREAT LAKES AVIATION, LTD.
(Exact name of registrant as specified in its charter)
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IOWA 42-1135319
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
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1022 AIRPORT PARKWAY, CHEYENNE, WY 82001
(Address of principal executive offices)
Registrant's telephone number, including area code: (307)432-7000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of April 10, 2000 was approximately $6,917,570.
As of April 10, 2000, there were 8,647,891 shares of Common Stock of the
registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents listed below have been incorporated by
reference into the indicated part of this Form 10-K.
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DOCUMENT INCORPORATED PART OF FORM 10-K
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Proxy Statement for 2000 Annual Meeting of Shareholders Part III
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FORM 10-K INDEX
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PART I.................................................................... 1
Item 1. BUSINESS.................................................... 1
Item 2. PROPERTIES.................................................. 8
Item 3. LEGAL PROCEEDINGS........................................... 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9
PART II................................................................... 9
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 9
Item 6. SELECTED FINANCIAL DATA..................................... 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 11
Item 7A. QAUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 19
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES..................................... 39
PART III.................................................................. 39
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 39
Item 11. EXECUTIVE COMPENSATION...................................... 39
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 39
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 39
PART IV................................................................... 40
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K....................................................... 40
SIGNATURES................................................................ 43
EXHIBIT INDEX............................................................. 44
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PART I
ITEM 1. BUSINESS
GENERAL
Great Lakes Aviation, Ltd. ("Great Lakes") is a regional airline, which
during 1999 operated under the marketing identity United Express. The Company is
one of several companies operating as United Express under code sharing
agreements with United Air Lines, Inc. ("United"). While the Company does not
compete against other United Express carriers on routes that it serves, it does
compete with them to receive the right to serve additional markets under a
United agreement. On October 1, 1995 the Company began operating as Midway
Connection under a code sharing agreement with Midway Airlines Corporation
("Midway"). The Midway Agreement was terminated on May 16, 1997 and the Company
ceased operating as Midway Connection. On August 8, 1995, the Company began
operations in the Southwest United States and Mexico independently under its own
code as Great Lakes Airlines. This service was discontinued on May 16, 1997
although the Company continued to operate as Great Lakes Airlines on one route
in the Midwest until June 15, 1998. As of December 31, 1999, the Company's fleet
consisted of 40 Beechcraft Model 1900D 19-passenger aircraft and eight Embraer
Brasilia 30-passenger aircraft. The Company also has four Beechcraft Model 1900C
aircraft being used exclusively for freight operations. References herein to the
Company include Great Lakes and its wholly owned subsidiary, RDU, Inc.
RDU, Inc. currently has no activity and is not being utilized by the Company.
UNITED EXPRESS RELATIONSHIP
The United Express operation serves 67 destinations in 14 states located in
the Upper Midwest, with hubs located at Chicago O'Hare, Denver and
Minneapolis/St. Paul, as of December 31, 1999. The Company became a "United
Express" carrier in 1992 under a code sharing agreement with United and is one
of the principal United Express regional carriers.
The code sharing agreement with United expired in December 1997. The Company
believes its relationship with United is satisfactory, as evidenced by United's
selection, during 1998, 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. As
part of their negotiations, United has restructured its operating relationships
with certain of its United Express carriers, pursuant to which the Company has
provided service to Denver from 24 additional cities since April 23, 1998. As a
result of this restructuring, the Company is the only United Express carrier
providing service with 19 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. Certain material provisions of the prior code sharing agreement
and related agreements (the "United Express Agreements") are described herein
because any new code sharing agreement may contain similar terms. 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 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.
The United Express Agreements entitle the Company to use United's "UA"
flight designator code to identify its code sharing flights and fares in
computer reservation systems, United's "Apollo" reservation system (including
United's automated check-in, ticketing and boarding pass, and advance seat
reservation and baggage tracing systems), to use the United Express logo and
aircraft exterior paint schemes and uniforms similar to those of United and to
otherwise advertise and market its association with United. United Express
passengers participate in United's "Mileage Plus" frequent flyer program and are
eligible
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to receive a minimum of 500 United frequent flyer miles for each trip on a
United Express flight. The United Express Agreements also provide for
coordinated schedules and through fares. A through fare is a cost-saving fare
available to a prospective passenger who, in order to reach a particular
destination, transfers between the major carrier and that carrier's code sharing
partner. United establishes all through fares and the Company receives a portion
of the fares on a formula basis, subject to periodic adjustment.
United provides a number of additional services to the Company. These
include publication of the fares, rules and related information that are part of
the Company's contracts of carriage for passengers and freight; publication of
the Company's code sharing flight schedules and related information using the
United "UA" flight designator code and flight numbers assigned by United;
provision of ticket handling services at United's ticketing locations; provision
of airport signage at airports where both the Company and United operate;
provision of United ticket stock and related documents; provision of expense
vouchers, checks and cash disbursements to passengers on code sharing flights of
Great Lakes inconvenienced by flight cancellations, diversions and delays; and
cooperation in the development and execution of advertising, promotion and
marketing efforts featuring United Express and the relationship between United
and the Company. The Company pays United a monthly fee based on the total number
of revenue passengers boarded on all of Great Lakes' United Express flights.
This fee varies depending on whether the passenger travels through United hubs
at Denver and Chicago, is carried to or from other airports served by United or
if the passenger is carried between cities only served by Great Lakes. The
Company also receives an incentive amount for each passenger that connects with
a United flight.
With the exception of certain pre-approved destinations connecting with
Minneapolis/St. Paul or Detroit, the United Express Agreements require the
Company to obtain United's prior consent to operate as a United Express carrier
on all routes. Additionally, the United Express Agreements restrict the
Company's ability to decrease its service to Denver and Chicago O'Hare below
certain minimum levels. Great Lakes has the exclusive right to provide United
Express service to and from Detroit and Minneapolis/St. Paul and on existing
Great Lakes' routes to and from Chicago O'Hare and Denver. The United Express
Agreements, however, had prohibited the Company from entering into a code
sharing agreement with any other airline at Chicago, Denver, Des Moines,
Detroit, Minneapolis/St. Paul or Omaha. The code sharing agreement, however,
does not prohibit United from competing with Great Lakes, by initiating its own
service.
UNITED EXPRESS MARKETS
CHICAGO
The Company's service to the Chicago O'Hare market is anchored by its 64
slots allocated by the FAA. A slot is a 30 minute interval during the period
from 6:45 a.m. to 9:14 p.m. during which an airline may operate either a
take-off or landing. Flights in this market are used primarily to provide
connecting opportunities with United flights. The Company's ability to increase
its passenger volume at Chicago O'Hare is limited by its allocation of slots,
and future increases in passenger volume are expected to come from increased
load factors, the acquisition of additional slots and the concentrated use at
O'Hare of currently operated larger aircraft. See "Slot Allocation" and
"Aircraft." During 1999, approximately 37 percent of the Company's passenger
traffic was carried to or from Chicago. During 1999, approximately 65 percent of
the Company's traffic at Chicago O'Hare connected with United, one percent
connected with other airlines and 34 percent traveled exclusively on a Great
Lakes flight ("on-line"). As of December 31, 1999, Great Lakes had 46 weekday
Chicago O'Hare departures serving 16 destinations located in Iowa, Illinois,
Indiana, Michigan, and Wisconsin.
DENVER
The Company's primary strategy at Denver is to implement service in markets
where United and other major carriers have reduced service and to feed that
traffic to this United hub. The Company is in
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negotiations with United as a part of the United code sharing agreement with
respect to the sharing of the expenses of operating at the new Denver airport.
During 1999, approximately 61 percent of the Company's passenger traffic was
carried to or from Denver. During 1999, approximately 70 percent of the
Company's traffic at Denver connected with United, 2 percent connected with
other carriers and 28 percent were on-line. As of December 31, 1999, the Company
had 94 weekday Denver departures serving 45 destinations located in Colorado,
Iowa, Kansas, Nebraska, North Dakota, South Dakota, Wyoming, New Mexico and
Texas.
MINNEAPOLIS/ST. PAUL
As of December 31, 1999, Great Lakes had four weekday departures serving
four destinations located in Minnesota, North Dakota and South Dakota. During
1998, services in the Minneapolis/St. Paul markets were substantially reduced
and the remaining services are supported by the Essential Air Service Subsidy
program.
ESSENTIAL AIR SERVICE PROGRAM
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.
At December 31, 1999, the Company served 30 essential air service
communities on a subsidized basis. The Company received $16.2 million,
$15.0 million, and $6.1 million in essential air service subsidies for the years
ended December 31, 1999, 1998 and 1997, 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 negotiated increases in rates
which went into effect in 1998, and added additional cities and flight
frequencies for which it receives subsidy revenue.
AIRCRAFT
GENERAL
At December 31, 1999, the Company's fleet consisted of 44 Beechcraft 1900
aircraft and eight Embraer passenger aircraft, of which 40 Beechcraft 1900
aircraft and eight Embraer Brasilia aircraft were operated in scheduled
passenger service. The remaining four Beechcraft 1900C aircraft are being
utilized exclusively for scheduled mail and freight operations. The Beechcraft
1900 aircraft are pressurized, radar equipped and offer a 300-mile per hour
cruising speed for 19 passengers, plus cargo, with a range of 850 miles. The
Beechcraft 1900 aircraft is widely regarded by airlines as an efficient and
reliable aircraft for regional service. As of December 31, 1999, the Company
owned 28 of its Beechcraft 1900 aircraft and leased the remaining 16 under
agreements with remaining terms ranging from monthly to 12 years.
The 30 passenger Embraer Brasilia aircraft are equipped with advanced
avionics, have stand-up cabins, restrooms, are staffed with a flight attendant
and offer a 330 mile per hour cruising speed with a range of 750 miles. As of
December 31, 1999, the Company owned four of its Embraer Brasilia aircraft and
leased the remaining four under agreements with remaining terms ranging from
three to 12 years.
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SUMMARY OF AIRCRAFT ADDITIONS AND DELETIONS
The table below shows the number and type of aircraft operated by the
Company on January 1, 1999 and December 31, 1999 and the number and type of
aircraft acquired or retired from the Company's fleet during the year ended
December 31, 1999.
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DECEMBER 31,
1999
JANUARY 1, DECEMBER 31, -------------------
1999 ADDITIONS RETIREMENTS 1999 OWNED LEASED
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Beechcraft 1900C........................... 5 -- 1 4 -- 4
1900D............................. 40 -- -- 40 28 12
Embraer 120................................ 8 -- -- 8 4 4
-- -- -- -- -- --
Total.................................... 53 -- 1 52 32 20
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As of December 31, 1999, the average ages of the Company's owned and leased
aircraft were 5.3 and 4.2 years, respectively. As of December 31, 1998, the
average ages of the Company's owned and leased aircraft were 5.8 and 3.3 years,
respectively.
AIRCRAFT DEBT AND LEASES
Raytheon Aircraft Corporation together with its financing affiliate
(collectively, "Raytheon") is the Company's primary aircraft supplier and
largest creditor. The Company has financed all of its Beechcraft 1900 aircraft
and one of its Brasilia aircraft under lease and debt agreements with Raytheon.
Raytheon has also provided a $5 million working capital line of credit and a
$5 million short-term loan, both of which are collateralized by all Beechcraft
spare parts and equipment and accounts receivable. The working capital line of
credit is due upon demand by Raytheon. In addition, as part of a short-term
financing in 1997, Raytheon was granted a ten year warrant, exercisable
commencing July 16, 1998, to purchase one million shares of the Company's common
stock at a price of $.75 per share. Raytheon has not exercised the warrant as of
the date of this filing.
The Company has financed seven of its Brasilia aircraft through lease and
debt agreements with other unrelated entities (collectively, the "Brasilia
Agreements"). During 1997, all of the Brasilia Agreements went into default due
to non-payment of scheduled amounts due. All defaults under the Brasilia
Agreements were cured by March 31, 1998. Two Brasilia aircraft which the Company
had in its fleet at January 1, 1997, were returned to the lessor through the
exercise of the lessor's rights as a result of the default. The estimated lease
termination costs associated with these two returned aircraft were included in
Shutdown, and Other Nonrecurring Expenses in 1997. During 1998, the Company
negotiated a final settlement on these aircraft. The final costs are included in
Shutdown and other Nonrecurring Expenses for 1998.
In the second quarter of 1998, the Company purchased six Beechcraft 1900D
aircraft that had been operated under operating leases. Raytheon provided the
financing for these acquisitions. As part of this agreement, Raytheon agreed to
accept the return of up to 14 of the Company's 1900C aircraft. The Company
returned seven leased 1900C aircraft and sold its seven owned Beechcraft 1900C
aircraft to Raytheon. In 1999, the Company returned an additional 1900 C
aircraft, The Company currently leases four 1900C aircraft from Raytheon under
month-to-month leases for use in contracted mail service In July, 1999, the
Company purchased from Raytheon 22 1900D aircraft through the issuance of notes
payable. These aircraft had previously been leased under short term operating
leases.
During the first half of 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
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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. No assurance can be provided, however, the Brazilian
Government will honor its obligations.
MAINTENANCE
The FAA mandates periodic inspection and maintenance of commercial aircraft.
The Company performs most maintenance and inspection of its aircraft and engines
(except engine overhaul) using its own personnel. Heavy maintenance bases are
located at: Huron, South Dakota; Grand Island, Nebraska; and Spencer, Iowa.
Light maintenance is also performed in Denver, Colorado; Chicago, O'Hare; and
Cheyenne, Wyoming. The Company attempts to perform its maintenance at locations
where its aircraft are stored overnight to reduce maintenance costs and promote
a higher level of operating efficiency. Parts and supplies inventories are also
maintained at these locations to promote the mechanical dispatch reliability of
the fleet. The Company also maintains an inventory of spare engines and
propellers for its fleet to allow for minimal downtime during major overhauls.
The Company performs certain major maintenance overhauls to its fleet, which it
believes most other regional airlines have performed by outside contractors.
SLOT ALLOCATION
Under slot rules in effect December 31, 1999 at Chicago O'Hare, scheduled
flights operated between 6:45 a.m. and 9:14 p.m. may be conducted only if an
airline has obtained a slot or slot exemption. As of December 31, 1999, the
Company was utilizing 64 slots and slot exemptions allocated to it by DOT/FAA.
The Company was also leasing slots from United under various short term
agreements.
Outstanding slots at FAA slot-controlled airports are currently freely
exchanged between airlines and other persons, bought or sold (often with gates
or other on-ground assets), or leased. Slot values depend on several factors,
including the airport, the time of day, the number and availability of slots,
and whether they are commuter or air carrier slots. Interests in slots have also
been used by airlines as collateral to secure debt financing and other
obligations. The DOT and FAA must be advised of all slot transfers and must
determine that each such transfer will not be injurious to the Essential Air
Service Program. The transfer of a slot obtained in an FAA-administered lottery
is limited for two years after its acquisition to either transfer for other
lottery slots at the same airport or sales or leases to new entrants or
incumbent slot holders with a small number of slots.
The FAA's slot regulations require the use of each slot at least 80 percent
of the time, measured on a bi-monthly basis. Failure to do so without a waiver
from the FAA (which is granted only in exceptional cases) subjects the slot to
recall by the FAA. In addition, the slot regulations provide that slots do not
represent a property right, but represent an operating privilege subject to FAA
control and that slots may be withdrawn by the FAA at any time without
compensation to meet the DOT's operational needs (such as providing slots for
international or essential air transportation or providing slots for new entrant
carriers).
Since the creation of the slot system in 1968, and subsequent to the
adoption of the FAA's slot allocation, use and transfer regulations in 1985,
there have been and are currently pending several proposals introduced in
Congress and discussions within the DOT and the FAA regarding slots. In
August 1993, the National Commission To Ensure A Strong Competitive Airline
Industry recommended that the "FAA review the rule that limits operations at
'high density' airports with the aim of either removing these artificial limits
or raising them to the highest level consistent with safety requirements.
In March 2000, Congress passed legislation that will phase out slot rules at
Chicago O'Hare by July 1, 2002. Small community air service is designed to be
the primary initial beneficiary of the rule change. The legislation requires the
Secretary of Transportation to use its authority to issue slot exemptions within
60 days of filing requests that meet the specific criteria outlined within the
legislation. Language within this legislation authorizes the Secretary to issue
exemptions for properly filed requests with operational
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authority effective on or after May 1, 2000. The Company intends to utilize the
slot rule change initially to improve timing of service patterns to its existing
Chicago O'Hare markets.
YIELD MANAGEMENT
The Company closely monitors its inventory and pricing of available seats
with a computerized yield management system. This system enables the Company's
revenue control analysts to examine the Company's past traffic and pricing
trends and to estimate the optimal allocation of seats by fare class (the number
of seats made available for sale at various fares). The analysts then monitor
each flight to adjust seat allocations and overbooking levels, with the
objective of maximizing the total revenue for each flight.
MARKETING
The Company's services are marketed primarily by means of listings in
computerized reservation systems and the OFFICIAL AIRLINE GUIDE, advertising and
promotions, and through direct contact with travel agencies and corporate travel
departments. The Company's advertising and promotional programs emphasize the
Company's close affiliation with United, including coordinated flight schedules
and the right of the Company's passengers to participate in United's "Mileage
Plus" frequent flyer program.
COMPETITION
The Company competes primarily with regional and major air carriers and
automobile transportation. The Company's competition from other air carriers
varies from location to location and, in certain areas, comes from regional and
major carriers who serve the same destinations as the Company but through
different hub and spoke systems. The domestic airline industry has undergone
major structural changes since the enactment of the Deregulation Act. Since that
time, there has been substantial consolidation and integration of both major and
regional carriers, including the acquisition or association of most regional
carriers by or with major carriers. Deregulation has made possible the rapid
entry of competitors into the Company's markets, and competitors are able to
adjust fares rapidly to improve their competitive position.
Almost all markets are subject to a high degree of price competition both
from established carriers and low fare jet carriers. The Company believes,
however, that its ability to compete in its market areas is strengthened by its
code sharing relationships with United and United's substantial presence at
Chicago O'Hare and Denver which enhance the importance to Great Lakes of the
United "UA" flight designator code in the Upper Midwest. In May 1997, the
Company's scheduled operations at Minneapolis/St. Paul were substantially
reduced and the resources re-deployed to Chicago and Denver where United's
dominant position will generate considerably greater connecting traffic to the
Company's flights. The Company competes with other airlines by offering frequent
flights, flexible schedules and low fares. In addition, the Company's
competitive position benefits from the large number of participants in United's
"Mileage Plus" frequent flyer programs who fly regularly to or from the markets
served by the Company. The United Express Agreements do not prohibit United from
competing with the Company. The United Express Agreements require the Company to
obtain United's written consent before commencing service as a United Express
carrier on routes other than certain pre-approved routes.
There can be no assurance that the Company will not experience increased
competition from existing competitors or from new entrants on one or more of the
Company's routes.
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FUEL
The Company has not experienced difficulty with fuel availability and
expects to continue to be able to obtain fuel in quantities sufficient to meet
its future requirements. The Company contracts directly with refiners for the
purchase of portions of its fuel. Standard industry contracts generally do not
provide protection against fuel price increases and do not ensure availability
of supply. The Company experienced the impact of rising fuel prices during late
1999 and early 2000. On February 1, 2000, a fuel surcharge was implemented on
passenger tickets that partially mitigates future effects of the Company's
higher fuel costs.
EMPLOYEES
On December 31, 1999, the Company had 1,105 full-time and 238 part-time
employees as follows:
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CLASSIFICATION:
Pilots...................................................... 317
Station personnel........................................... 612
Maintenance personnel....................................... 302
Administrative and clerical personnel....................... 65
Flight attendants........................................... 22
Management.................................................. 25
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Total employees......................................... 1,343
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The Company's pilots are represented by the International Brotherhood of
Teamsters. Effective November 1, 1997, the Company and union reached an
agreement which becomes amendable October 30, 2000. During 1996 the flight
attendants voted to be represented by the Teamsters Union A collective
bargaining agreement was negotiated and became effective April 1, 1999. The
agreement becomes amendable April 1, 2002.
The Company's mechanics are represented by the International Association of
Machinists ("IAM"). The current agreement became effective November 1, 1997 and
becomes amendable on November 1, 2000. During 1998, the Company's maintenance
clerks voted to be represented by IAM. A collective bargaining agreement was
negotiated and became effective March 1, 1999. The agreement becomes amendable
March 1, 2002.
The Company believes that relations with its employees are satisfactory.
CHARTER AND FREIGHT SERVICE
The Company uses available aircraft and from time to time leases four and
six passenger aircraft from an affiliated company to provide charter services to
private individuals, corporations and groups such as collegiate athletic teams.
The Company also carries freight, mail and small packages on most of its
scheduled flights. Revenues from its charter flights and freight deliveries were
4.4 percent, 3.3 percent and 1.8 percent of the Company's total revenues for the
years ended December 31, 1999, 1998 and 1997, respectively.
REGULATION
In accordance with the provisions of the Federal Aviation Act of 1958, as
amended (the "1958 Act"), the Company is an air carrier subject to regulation by
the DOT, primarily with respect to economic matters, and is also subject to
regulation by the FAA with respect to certain safety related matters.
The Deregulation Act eliminated many regulatory constraints so that airlines
became free to set fares and, with limited exceptions, to establish domestic
routes without the necessity of seeking government approval. The DOT is still
authorized to establish consumer protection regulations; to prohibit certain
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pricing practices; to mandate conditions of carriage; and to make ongoing
determinations of a carrier's fitness, willingness and ability to properly and
lawfully provide air transportation. The DOT also has the power to bring
proceedings for the enforcement of its regulations under the 1958 Act, including
the assessment of civil penalties and the revocation of operating authority, and
to seek criminal sanctions.
The Company holds an air carrier-operating certificate issued by the FAA
pursuant to Part 121 of its regulations. The Company, as a commuter air carrier,
is licensed under Part 298 of the Economic Regulations of the DOT. The Company
is subject to the jurisdiction of the FAA with respect to its aircraft
maintenance and operations, including equipment, ground facilities, dispatch,
communications, training, weather observation, flight personnel and other
matters affecting air safety. To ensure compliance with its regulations, the FAA
requires airlines to obtain an operating certificate and operations
specifications for the particular aircraft and types of operations conducted by
the carrier, all of which are subject to suspension or revocation for cause.
The Company is subject to the jurisdiction of the Federal Communications
Commission regarding the use of its radio facilities. Local governments and
authorities in certain markets have adopted regulations governing various
aspects of aircraft operations, including noise abatement and curfews and use of
airport facilities. The Company believes that it is in compliance with all such
regulations.
The FAA regulates the use of landing and take-off slots at Chicago O'Hare.
The FAA has the authority to revoke a carrier's slots for failure to comply with
FAA slot regulations.
INSURANCE
The Company carries the types and amounts of insurance required by the DOT
and customary in the regional airline industry, including coverage for public
liability, property damage, aircraft loss or damage, baggage and cargo liability
and workers' compensation. The United Express Agreements require the Company to
maintain certain specified levels of insurance coverage. The Company believes
that the insurance is adequate as to amounts and risks covered. There can be no
assurance, however, that the limits of the Company's insurance will be
sufficient to cover any catastrophic loss.
ITEM 2. PROPERTIES
The Company leases gate and ramp facilities at 65 airports where ticketing
is handled by Company personnel. Payments to airport authorities for ground
facilities are based on a number of factors, including the amount of space used
and flight volume. The Company also leases aircraft maintenance and hangar space
at four of the locations it serves.
The Company leases approximately 15,000 square feet of space in Spencer,
Iowa for its administrative, flight operations and maintenance offices, in
addition to approximately 35,000 square feet of aircraft maintenance and hangar
space located adjacent thereto. The Company leases an additional 32,000 square
feet of space in Spencer for its certified repair station. Effective January 1,
2000, The Company entered into a lease in Cheyenne, Wyoming, for approximately
42,000 square feet of space for administration and maintenance needs. In 1999,
construction was begun on a leased facility in Cheyenne, Wyoming that the
Company intends to occupy in 2000. The facility will be approximately 54,000
square feet, and will be used for administrative, flight operations and
maintenance offices, maintenance and hangar space. The Company believes that it
has adequate facilities for the conduct of its current and planned operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit arising from the collision of a
small aircraft with one of the Company's Beechcraft 1900 aircraft in Quincy,
Illinois on November 19, 1996. The collision occurred at the intersection of two
runways as the Company's aircraft was landing, and resulted in the death of all
ten passengers and the two crewmembers. The Company's insurance carrier is
providing for the Company's
8
<PAGE>
defense in the lawsuit and the Company believes that all claims arising from the
accident will be adequately covered by insurance.
The Company is a party to several routine pending legal proceedings, none of
which management believes are material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the three-month period ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol "GLUX" on the NASDAQ
SmallCap Market. The Company's Common Stock began trading on January 19, 1994,
the date of its initial public offering. The initial public offering price of
the Company's Common Stock was $11.00 per share. From January 19, 1994 until
August 27, 1998, the Company's Common Stock was listed on the NASDAQ National
Market System. Effective August 28, 1998 the Company's Common Stock is listed on
the NASDAQ SmallCap Market. The Company's Common Stock is currently listed on
the NASDAQ SmallCap Market.
The following table sets forth the range of high and low sale prices for the
Company's Common Stock for each of the fiscal quarters for the past two years as
reported by the National Association of Securities Dealer's Bulletin Board.
These prices represent inter-dealer prices without adjustments for mark-up,
mark-down or commission and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS HIGH LOW
- ---------------- -------- --------
<S> <C> <C>
1999
First quarter............................................. $3.00 $1.88
Second quarter............................................ 3.00 2.06
Third quarter............................................. 3.13 2.25
Fourth quarter............................................ 2.88 1.13
1998
First quarter............................................. $3.94 $1.56
Second quarter............................................ 3.38 2.19
Third quarter............................................. 4.38 2.50
Fourth quarter............................................ 4.00 2.13
</TABLE>
As of April 10, 2000, the Company had approximately 1,800 holders of its
Common Stock. The closing price of its common stock on April 10, 2000, as
reported by the NASDAQ SmallCap Market was $1.88 per share.
The transfer agent for the Company's Common Stock is Norwest Bank Minnesota,
N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738,
telephone: (651) 450-4064.
The Company has not paid any dividends on its Common Stock since its initial
public offering in January 1994 and expects that for the foreseeable future it
will follow a policy of retaining earnings in order to finance the continued
development of its business. Payment of dividends is within the discretion of
the Company's Board of Directors and will depend upon the earnings, capital
requirements and operating and financial condition of the Company, and any
applicable restrictive debt and lease covenants, among other factors.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated statement of operations and consolidated balance
sheet data as of and for each of the years in the five-year period ended
December 31, 1999 are derived from the Company's consolidated financial
statements. The financial statements for the year ended December 31, 1999, 1998
and 1997 have been audited by KPMG LLP, and the financial statements for the
years ended 1996 and 1995 have been audited by Arthur Andersen LLP, independent
public accountants. The consolidated financial statements as of December 31,
1999 and 1998 and for each of the years in the three-year period ended
December 31, 1999 and the report thereon are included elsewhere in this
Form 10-K. The following selected financial data should be read in conjunction
with and are qualified in their entirety by the consolidated financial
statements and the notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Passenger and public service revenues.... $122,890 $108,467 $ 81,335 $107,528 $81,215
Other revenues........................... 8,480 5,565 2,455 2,142 2,981
-------- -------- -------- -------- -------
Total operating revenues............. 131,370 114,032 83,790 109,670 84,196
-------- -------- -------- -------- -------
Operating expenses
Salaries, wages and benefits........... 33,037 29,106 22,091 27,801 21,407
Aircraft fuel.......................... 16,557 13,974 13,206 19,377 14,181
Aircraft repairs....................... 17,478 9,426 7,041 13,248 9,229
Commissions............................ 5,796 5,560 5,553 7,704 6,211
Depreciation and amortization.......... 4,779 3,499 4,192 5,634 6,029
Aircraft Rental........................ 13,194 16,511 10,712 11,643 5,213
Other rentals and landing fees......... 6,504 6,375 5,443 6,794 5,370
Other operating expense................ 25,316 22,922 19,968 25,871 17,315
Shutdown and other non-recurring
expenses............................. -- 146 9,234 -- --
-------- -------- -------- -------- -------
Total operating expenses............. 122,661 107,519 97,440 118,072 84,955
Operating (loss) income.................. 8,709 6,513 (13,650) (8,402) (759)
Interest expense, net.................... 5,974 3,485 4,621 5,875 7,282
Loss on sale of assets................... 7 191 -- -- --
Gain on sale of slots.................... -- -- -- -- 3,850
-------- -------- -------- -------- -------
Income (loss) before income tax
expense................................ 2,728 2.837 (18,271) (14,277) (4,191)
Income tax expense (benefit)............. -- 115 -- (1,454) (1,503)
-------- -------- -------- -------- -------
Net income (loss)........................ $ 2,728 $ 2,722 $(18,271) $(12,823) $(2,688)
======== ======== ======== ======== =======
Net income (loss) per share: Basic....... $ 0.32 $ 0.34 $ (2.41) $ (1.69) $ (0.35)
======== ======== ======== ======== =======
Net income (loss) per share: Diluted..... $ 0.29 $ 0.31 $ (2.41) $ (1.69) $ (0.35)
======== ======== ======== ======== =======
Average number of common shares
outstanding--Basic..................... 8,634 7,925 7,589 7,585 7,579
======== ======== ======== ======== =======
Average number of common shares
outstanding--Diluted................... 9,336 8,703 7,589 7,585 7,579
======== ======== ======== ======== =======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Available seat miles (000s)(1)............ 526,095 489,213 438,272 678,304 566,290
Revenue passengers carried................ 1,057,798 873,186 676,015 1,101,265 805,190
Revenue passenger miles (000s)(2)......... 265,733 250,098 202,689 299,607 248,625
Departures flown.......................... 133,423 122,278 102,722 165,972 147,748
Passenger load factor(3).................. 50.5% 51.1% 46.2% 44.2% 43.9%
Break-even passenger load factor(4)....... 49.1% 49.3% 59.5% 51.5% 49.5%
Average yield per revenue passenger
mile(5)................................. 40.1 CENTS 37.4 CENTS 37.1 CENTS 34.7 CENTS 31.6 CENTS
Operating cost per available seat
mile(6)................................. 23.3 CENTS 22.0 CENTS 22.2 CENTS 17.4 CENTS 15.0 CENTS
Average passenger fare(7)................. $ 100.83 107.26 $111.25 102.69 $ 97.58
Average passenger trip length
(miles)(8).............................. 251 286 300 296 309
Aircraft in service (end of period)....... 52 53 47 54 50
Destinations served (end of period)....... 67 71 51 86 73
BALANCE SHEET DATA:
Working capital (deficit)................... $ (3,112) $(3,025) $(5,595) $ 603 $12,138
Total assets................................ 148,876 72,281 63,758 118,109 140,715
Long-term debt, net of current maturities... 98,701 28,471 28,471 65,986 87,478
Stockholders' equity........................ 8,619 5,850 1,127 18,740 34,202
</TABLE>
- ------------------------
(1) "Available seat miles" or "ASMs" represent the number of seats available for
passengers in scheduled flights multiplied by the number of scheduled miles
those seats are flown.
(2) "Revenue passenger miles" or "RPMs" represent the number of miles flown by
revenue passengers.
(3) "Passenger load factor" represents the percentage of seats filled by revenue
passengers and is calculated by dividing revenue passenger miles by
available seat miles.
(4) "Break-even passenger load factor" represents the percentage of available
seat miles which must be flown by revenue passengers at the average yield
(net of commissions and fees) for airline operations to break even.
(5) "Average yield per revenue passenger mile" represents the average passenger
revenue received for each mile a revenue passenger is carried.
(6) "Operating cost per available seat mile" represents operating expenses
divided by available seat miles.
(7) "Average passenger fare" represents passenger revenue divided by the number
of revenue passengers carried.
(8) "Average passenger trip length" represents revenue passenger miles divided
by the number of revenue passengers carried.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The discussion and analysis throughout this filing contains 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.
11
<PAGE>
The Company began providing air charter service in 1979, and has provided
scheduled passenger service in the Upper Midwest since 1981. In April 1992, the
Company began operating as a United Express carrier under a cooperative
marketing agreement with United. As of December 31, 1999 the Company provided
passenger service to 67 destinations in 14 states with 486 scheduled departures
each weekday.
RESULTS OF OPERATIONS
COMPARISON OF 1999 TO 1998
The following table sets forth certain financial and operating information
regarding the Company for the last three fiscal years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------- --------------------------------- -------------------
% %
CENTS INCREASE CENTS INCREASE CENTS
PER FROM PER FROM PER
AMOUNT ASM 1998 AMOUNT ASM 1997 AMOUNT ASM
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Operating revenues........... $131,370 -- 15.2% $114,032 -- 36.1% $ 83,790 --
-------- ---- -------- ---- -------- ----
Salaries, wages & benefits......... 33,037 6.3 CENTS 13.5 29,107 5.9 CENTS 31.8 22,091 5.0 CENTS
Aircraft fuel...................... 16,557 3.1 18.5 13,974 2.9 5.8 13,206 3.0
Aircraft maintenance
materials and repairs............ 17,478 3.3 85.1 9,426 1.9 33.9 7,041 1.6
Commissions........................ 5,796 1.1 4.2 5,560 1.1 0.1 5,553 1.3
Depreciation and amortization...... 4,779 0.9 36.6 3,499 0.7 (16.5) 4,192 1.0
Aircraft rental.................... 13,194 2.5 (20.1) 16,511 3.4 54.1 10,712 2.4
Other rentals and landing fees..... 6,504 1.2 2.0 6,375 1.3 17.1 5,443 1.2
Other operating expense............ 25,316 4.8 10.5 22,922 4.7 14.8 19,968 4.6
Shutdown and other non-recurring
expenses......................... -- -- -- 146 -- -- 9,234 2.1
-------- ---- ----- -------- ---- ----- -------- ----
Total operating expenses........... 122,661 23.3 14.1 107,519 22.0 10.2 97,440 22.2
-------- ---- ----- -------- ---- ----- -------- ----
Operating income (loss)............ $ 8,709 -- 34.1% $ 6,513 -- -- (13,650) --
======== ==== ===== ======== ==== ===== ======== ====
Interest expense, net.............. $ 5,974 1.1 CENTS 71.4% $ 3,485 0.7 CENTS (29.6)% $ 4,620 1.1 CENTS
======== ==== ===== ======== ==== ===== ======== ====
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM CHANGE FROM
1999 1998 1998 1997 1997
-------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Available seat miles (000's)........ 526,095 7.5% 489,213 11.6% 438,272
Revenue passenger miles (000's)..... 265,733 6.3% 250,098 23.3% 202,689
Passenger load factor............... 50.5% (0.6)pts 51.1% 4.9pts 46.2%
Average yield per revenue passenger
mile.............................. 40.1 CENTS 2.7 CENTS 37.4 CENTS 0.3 CENTS 37.1 CENTS
</TABLE>
OPERATING REVENUES: Operating revenues increased 15.2% to $131.4 million in
1999 from $114.0 million during 1998. The increase in operating revenues
resulted from the increase in revenue passenger miles flown by 6.3% to
265.7 million in 1999 from 250.1 million during 1998 and a 7.2% increase in
average yield per passenger mile to 40.1 CENTS in 1999 from 37.4 CENTS in 1998.
Capacity increased to 526.1 million ASMs in 1999 from 489.2 million ASMs during
1998. The additional capacity is a result of a full year's worth of service from
the expansion of service in the Denver markets in 1998. In addition, public
service revenue increased 8.0% to $16.2 million in 1999 from $15.0 million in
1998.
12
<PAGE>
OPERATING EXPENSES: Total operating expenses increased 14.1% to
$122.7 million, or 23.3 cents per ASM, in 1999 from $107.5 million, or 22.0
cents per ASM in 1998. The increase is due to increasing fuel costs in 1999, as
well as higher maintenance materials and component repairs expense.
Salaries, wages, and benefits expense increased to 6.3 cents per ASM during
1999, from 5.9 cents per ASM during 1998, primarily as a result of higher labor
rates under the union agreements with the Company's mechanics and flight crews
and the higher number of employees needed to support the increased level of
operations.
Aircraft fuel expense per ASM increased to 3.2 cents in 1999 from 2.9 cents
in 1998 due to increasing oil prices during 1999.
Aircraft maintenance and repairs expense increased to 3.3 cents per ASM
during 1999, from 1.9 cents per ASM in 1998. Maintenance materials expense in
1998 was favorably impacted by the use of certain inventoried parts, which had
been partially reserved in prior years. Additionally, certain aircraft acquired
in 1998 were under warranty, resulting in lower maintenance costs.
Depreciation and amortization increased to 0.9 cents per ASM in 1999 from
0.7 cents per ASM in 1998, and aircraft rental decreased to 2.5 cents per ASM in
1999 from 3.4 cents per ASM in 1998 as a result of the purchase in July 1999 of
22 Beechcraft 1900D aircraft that had previously been leased.
Other rentals and landing fee expenses decreased to 1.2 cents per ASM during
1999, from 1.3 cents per ASM in 1998.
Other operating expenses increased to 4.8 cents per ASM in 1999 from 4.7
cents in 1998, reflecting higher general and administrative, marketing and
communications costs.
Interest expense increased to $6.0 million in 1999 from $3.5 million in
1998, primarily as a result of the purchase in July 1999 of 22 additional
aircraft that had previously been financed as operating leases.
INCOME TAX EXPENSE (BENEFIT): No income tax provision was recorded for 1999
due to the fact that the Company is in a loss carry forward position and it is
more likely than not that the benefits will be not realized. The provision for
income taxes in 1998 represents state income taxes.
COMPARISON OF 1998 TO 1997
OPERATING REVENUES: Operating revenues increased 36.1% to 114.0% million in
1998 from $83.8 million during 1997. The increase in operating revenues resulted
from the increase in revenue passenger miles flown by 23.3% to 250.0 million in
1998 from 202.7 million during 1997 and to 489.2 million ASMs in 1998 from
438.3 million ASMs during 1997. The additional capacity is a result of the
expansion of service in the Denver markets. In addition, public service revenue
increased 145.9% to $15.0 million in 1998 from $6.1 million in 1997.
OPERATING EXPENSES: Total operating expenses increased 10.3% to
$107.5 million, or 22.0 cents per ASM, in 1998 from 97.4 million, or 22.2 cents
per ASM in 1197. The increase is due to the expansion of service during 1998
primarily from the Denver hub.
Salaries, wages, and benefits expense increased to 5.9 cents per ASM during
1998, from 5.0 cents per ASM during 1997, primarily as a result of higher labor
rates under the union agreements with the Company's mechanics and flight crews
and the higher number of employees needed to support the increased level of
operations.
Aircraft fuel expense per ASM decreased to 2.9 cents in 1998 from 3.0 cents
in 1997 due to generally lower oil prices during 1998 partially offset by fuel
taxes and into-plane costs at the Denver hub.
Aircraft maintenance and repairs expense increased to 1.9 cents per ASM
during 1998, from 1.6 cents per ASM in 1997 pincipally due to the costs
associated with the introduction of additional aircraft into the fleet in 1998
and the timing of certain maintenance.
13
<PAGE>
Depreciation and amortization decreased to 0.7 cents per ASM during 1998
from 1.0 cents per ASM in 1997, and aircraft rental increased to 3.4 cents per
ASM in 1998 from 2.4 cents per ASM in 1997, due to the transition of the
Beechcraft fleet to the newer model 1900D and the conversion from notes to
leases on certain aircraft in early 1998.
Other rentals and landing fee expenses increased to 1.3 cents per ASM during
1998, from 1.2 cents per ASM in 1997, as a result of higher facility costs at
certain locations that the Company began serving in 1998 as well as increased
costs at Denver due to a higher level of activity.
Other operating expenses increased to 4.7 cents per ASM in 1998 from 4.6
cents in 1997, reflecting higher fixed expenses, including general and
administrative, marketing, and communications associated with the Company's
expansion. In addition, 1998 includes higher United program fees since a higher
percentage of the Company's flying was under the United Code in 1998 versus
1997.
Shutdown and other nonrecurring expenses of 2.1 cents per ASM in 1997
represents the estimated costs associated with the voluntary shutdown and the
special charge for the write-down of the Brasilia aircraft. This expense
includes $7.9 million related to salaries and wages, aircraft maintenance
materials and repairs, aircraft ownership costs, facilities rental, and other
expenses directly related to the shutdown. The remaining $1.3 million for the
Brasilia aircraft elimination represents a reduction of the carrying value of
the aircraft to their estimated net realizable value, accrued estimated future
unrecoverable lease payments, accrued estimated lease termination costs, and a
reduction of the carrying value of the spare part inventories to net realizable
value, accrued estimated future unrecoverable lease payments, accrued estimated
lease termination costs, and a reduction of the carrying value of the spare part
inventories to net realizable value offset by the recognition of related
deferred purchase incentives on these aircraft. The 1998 nonrecurring expense
related to the reversal of an accrual made in 1997 for the disposal of certain
Brasilia aircraft, which was netted against the final settlement on two Brasilia
aircraft that were returned to the lessor in 1997.
Interest expense decreased to $3.5 million in 1998 from $4.6 in 1997,
primarily as a result of the refinancing in late 1997, of the Company's
Beechcraft fleet, increasing the number of aircraft financed under operating
leases and decreasing the number financed under debt instruments.
INCOME TAX EXPENSE (BENEFIT): No income tax benefit was recorded for 1998
considering that the Company is in a loss carry forward position and it is more
likely than not that the benefits will be not realized. The provision for income
taxes in 1998 represents state income taxes estimated to be payable.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had reduced the balance on its Raytheon
short term notes to $8.6 million through cash payments of $282,000 and the
return of spare parts inventory of $945,000. 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 entered into an agreement on January 7, 2000 with Coast
Business Credit to provide the Company a $20 million revolving credit facility,
collateralized by accounts receivable. Under this agreement, Raytheon received
$5 million to be applied to short term notes, and further agreed to receive
certain aircraft parts as payment for the remaining line of credit balance.
The Company's working capital deficit was $3.1 million at December 31, 1999
and $3.0 million at December 31, 1998. Net cash provided by operating activities
improved to $6.6 million in 1999, from a use of $1.8 million in 1998. In 1999,
the Company had used less cash in the current year to fund inventory levels. The
change in inventory along with increases in deferred lease payments and
increased depreciation as a result of aircraft purchases were the primary
contributors in improving operating cash flow.
14
<PAGE>
In late 1999, the Company incurred additional fuel expense due to rising
fuel prices that have carried over into 2000. On February 1, 2000, a fuel
surcharge was implemented on passenger tickets that partially mitigates future
effects of the Company's higher fuel costs.
If the Company maintains its current aircraft fleet, aircraft maintenance
materials and repairs expense is expected to trend higher in the next few years
as the fleet ages.
Raytheon is the Company's primary aircraft supplier and largest creditor.
The Company has financed all of its Beechcraft 1900 aircraft and one of its
Brasilia aircraft under related lease and debt agreements with Raytheon, and
Raytheon has also provided a $5 million working capital line of credit (payable
on demand and a $5 million short-term loan, payable on demand, and
collateralized by Beechcraft spare parts and equipment and accounts receivable.
On January 7, 2000, the Company entered into an agreement with Coast Business
Credit, a division of Southern Pacific Bank, for a $20 million revolving credit
facility. This credit facility bears interest at prime plus 0.5%, payable
monthly, and requires a minimum loan balance of $7,000,000. Borrowings under
this facility are payable on demand and are limited to certain eligible accounts
receivable. The line of credit agreement is effective through December 31, 2002.
The line of credit agreement contains various restrictive covenants which
require the Company to maintain minimum levels of tangible net worth and remain
current on all other outstanding debt obligations, among other matters. The
credit facility also limits additional indebtedness, capital expenditures and
dividends. The Company was in compliance with all such covenants at the
inception of the agreement. In connection with entering into this revolving
credit facility, the Company paid Raytheon $5 million on the short-term loan and
entered into an agreement, whereby, Raytheon would receive certain aircraft
parts as payment for the remaining line of credit balance.
Effective August 31, 1997, the Company restructured its Raytheon aircraft
agreements. The restructuring resulted in a total of 30 Beechcraft 1900 aircraft
under operating leases of various terms with monthly lease payments ranging from
$18,000 to $40,000 per aircraft. The restructuring also cured all of the
defaults with Raytheon. The restructuring resulted in a net deferred gain of
$1.5 million, which will be recognized over the life of the lease agreements.
The Company purchased 22 1900D aircraft through the issuance of notes
payable to Raytheon in July 1999, these aircraft had previously been leased on a
month to month basis. The Company currently leases four 1900C aircraft from
Raytheon under month-to-month leases for use in contracted mail service. In the
second quarter of 1998, the Company purchased six Beechcraft 1900D aircraft that
had been operated under operating leases. Raytheon provided the financing for
these acquisitions. As part of this agreement, Raytheon agreed to accept the
return of up to 14 of the Company's 1900C aircraft. The Company returned seven
leased 1900C aircraft and sold its seven owned Beechcraft 1900C aircraft to
Raytheon.
In addition, the Company has financed seven of its Brasilia aircraft through
lease and debt agreements with other unrelated entities (collectively, the
"Brasilia Agreements"). During 1997, all of the Brasilia Agreements went into
default due to non-payment of scheduled amounts due. All defaults under the
Brasilia Agreements were cured as of March 31, 1998. Two Brasilia aircraft,
which the Company had in its fleet as of January 1, 1997, were returned to the
lessor through the exercise of the lessor's rights as a result of the default.
The lease costs associated with these two returned aircraft were included in
Excess Aircraft, Shutdown, and Other Non-recurring Expenses.
Capital expenditures related to aircraft and equipment totaled
$76.7 million in 1999, $631,000 during 1998, and $1.1 million in 1997.
Long-term debt, net of current maturities of $5.8 million, totaled
$98.7 million at December 31, 1999 compared to $28.5 million net of current
maturities of $3.0 million, at December 31, 1998. Long-term debt increased
$73.0 million from December 31, 1998 to December 31, 1999 principally due to the
purchase of 22 Beechcraft 1900D aircraft in July 1999. As of December 31, 1999,
the Company's long-term debt
15
<PAGE>
instruments bear interest at rates ranging from 7.2 to 9.1 percent and are
payable monthly or quarterly through August 2012. All long-term debt as of
December 31, 1999 relates to the acquisition of aircraft and is collateralized
by 32 related aircraft. There are no financial covenants related to such
long-term debt. At this time, management expects that cash on hand, internally
generated cash flow, and borrowings available under credit agreements will be
adequate to meet the Company's operating and recurring cash needs for
foreseeable periods.
YEAR 2000 IMPACT
Before the rollover of the year from 1999 to 2000, many installed computer
systems and software products were coded to accept only two digit date entries
and were unable to accept four digit date entries to distinguish 21(st) century
dates from the 20(th) century dates. As a result, computer systems and software
used by many companies prior to the rollover date required upgrading or
replacement to comply with such "Year 2000" requirements. The failure of the
Company, its vendors, suppliers or other critical third parties with whom the
Company conducts business to achieve Year 2000 compliance on a timely basis
could materially adversely affect the Company's business.
As of April 10, 2000, the Company has not experienced and does not
anticipate any material adverse effects on its systems and operations as a
result of Year 2000 issues. Business is continuing as usual, and internal
systems will continue to be monitored for any likely disruptions. Further, as of
April 10, 2000, the Company has not experienced any operational difficulties as
a result of Year 2000 issues with its vendors, suppliers or other critical third
parties with whom the Company conducts business. However, Year 2000 compliance
has many elements and potential consequences, some of which may not be
foreseeable or may be realized in future periods. Consequently, there can be not
assurance that unforeseen circumstances may not arise, or that the Company will
not in the future identify equipment or systems which are not year 2000
compliant.
Although the transition to the Year 2000 did not have any significant impact
on the Company or its systems and operations, the Company will continue to
monitor the impact of Year 2000 on its systems and those of its vendors,
suppliers and other critical third parties. The contingency plan s that were
developed for use in the event of Year 2000-related failures will be maintained
and generalized for ongoing business use.
The Company has not spent, and does not anticipate spending in the future,
any material amounts relating to Year 2000 issues.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and all hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities at their fair values. Accounting for
changes in the fair value of a derivative depends on its designation and
effectiveness. For derivatives that qualify as effective hedges, the change in
fair value will have no impact on earnings until the hedged item affects
earnings. For derivatives that are not designated as hedging instruments, or for
the ineffective portion of a hedging instrument, the change in fair value will
affect current period earnings. At December 31, 1999, the Company had no
derivative instruments. This statement will become effective for the Company for
the first quarter ended March 31, 2001.
FREQUENT FLYER PROGRAM
The Company's United Express passengers may earn miles in United's "Mileage
Plus" and frequent flyer program, and passengers may use mileage accumulated in
this program to obtain discounted or free tickets for trips that might include a
flight segment on one of the Company's flights. No revenues are
16
<PAGE>
earned or collected on free tickets awarded to passengers under the program.
Awards earned under the frequent flyers program have an expiration date three
years from the date earned. The program also contains certain restrictions,
including blackout dates and capacity controlled bookings, which substantially
limit the use of awards on certain flights and during the busiest periods. The
Company continually monitors the number of free travel award reservations on its
flight segments to ensure that they are within the capacity restrictions defined
in the "Mileage Plus" program. The Company's yield management program and
related seat restrictions minimize the number of revenue passengers that may be
displaced on any individual flight segment. To date, the Company has not
experienced any material use of "Mileage Plus" and awards to obtain travel on
flights, and the incremental cost to the Company attributable to the exercise of
frequent flyer awards (consisting primarily of a minimal amount of additional
gate and passenger service expenses) has not been material. Awards used on the
Company's flights during the year ended December 31, 1999 represented
approximately 2.3% percent of the Company's total passengers. The Company
expects that this percentage will remain approximately the same for the
foreseeable future. Based on this low percentage, the availability on many of
the Company's flights of otherwise vacant seats, and on the program's
restrictions, the Company believes that the displacement, if any, of revenue
passengers by users of "Mileage Plus" and awards will not become material. The
Company continually monitors the number of awards redeemed and will accrue the
incremental costs associated with the "Mileage Plus" and program if they become
material.
EFFECTS OF INFLATION
In late 1999, the Company incurred additional fuel expense due to rising
fuel prices that carried over into 2000.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
CAUTIONARY FACTORS
The Company wishes to caution shareholders and prospective investors that
the following important factors, among other identified in this Annual Report on
Form 10-K, could affect the Company's actual operating results, and that such
results could differ materially from those expressed in any forward-looking
statements made by the Company. The statements under this caption are intended
to serve as cautionary statements within the meaning of the Private Securities
Litigation Reform Act of 1996. The following information is not intended to
limit in any way the characterization of other statements or information under
other captions as cautionary statements for such purpose. The order in which
such factors appear below should not be construed to indicate their relative
importance or priority.
DEPENDENCE ON RELATIONSHIP WITH UNITED
The Company generated approximately 94.5% of its revenues for the year ended
December 31, 1999 under the United Express Agreements described under
"Business--United Express Relationship". The United Express Agreements expired
on December 31, 1997. A failure to renew the United Express Agreements, any
termination or materially adverse modification of the agreements, or any
substantial decrease in the number of routes served by the Company under the
agreements would have a materially adverse effect on the Company's business. As
a result of the United Express Agreements, the Company's business is sensitive
to events and risks affecting United. If adverse events affect United's
business, the Company's business will also be adversely affected. The United
Express Agreements require the Company to comply with specific operating
performance standards and, with certain limited exceptions, restrict the ability
of the Company to merge with another company or dispose of its assets or
aircraft without first offering United a right of first refusal to acquire the
Company or such assets or aircraft. The United Express Agreements also prohibit
the Company from entering into similar arrangements with other carriers in
Chicago, Denver, Minneapolis-St. Paul, Detroit, Des Moines or Omaha without
United's prior
17
<PAGE>
approval. The United Express Agreements require the Company to obtain United's
prior consent to operate as a United Express carrier in any market, except for
certain pre-approved markets connecting with Minneapolis-St. Paul or Detroit.
EFFECT OF GENERAL ECONOMIC CONDITIONS
The airline industry is significantly affected by general economic
conditions. During recent recessions, most airlines reduced fares in an effort
to increase traffic. Economic and competitive conditions in the airline industry
have contributed to a number of bankruptcies and liquidations among airlines. A
worsening of current economic conditions, or an extended period of recession
nationally or regionally, would have a materially adverse effect on the
Company's operations.
FUEL COSTS
Fuel is a major component of operating expense for all airlines. The
Company's cost of fuel varies directly with market conditions, and the Company
has no guaranteed long-term sources of supply nor has it hedged the cost of its
fuel needs at this time. During late 1999 and early 2000, the industry,
including the Company, experienced increased fuel prices. The Company intends
generally to follow industry trends by raising fares in response to significant
fuel price increases. However, the Company's ability to pass on increased fuel
costs through fare increases may be limited by economic and competitive
conditions. Accordingly, a reduction in the availability or an increase in the
price of fuel could have a materially adverse effect on the Company's cash flow
from operations and profitability.
SEASONALITY
Historically, the Company has experienced lower passenger volumes during the
months of January through April and in November and December. This seasonality
can be attributed primarily to relatively difficult winter weather operating
conditions in the Company's principal area of operations, resulting in fewer
vacations and other discretionary trips and reduced business travel during these
months. These seasonal factors have generally resulted in reduced revenues,
increased operating losses and reduced cash flow for the Company during these
months.
CONTROL BY PRINCIPAL STOCKHOLDER
Mr. Douglas G. Voss beneficially owns or controls approximately 55% of the
outstanding shares of the Company's common stock. On October 22, 1996, Mr. Voss
transferred approximately one-half of the shares of the Company's common stock
owned by him to his ex-spouse, Ms. Gayle R. Brandt, pursuant to the Marital
Dissolution Stipulation and Property Settlement. Ms. Brandt has granted
Mr. Voss an Irrevocable Proxy to vote such securities until June 28, 2010. In
addition, the terms of the United Express Agreements require that Mr. Voss
control at least 51% of the Company's outstanding voting stock. Accordingly,
Mr. Voss will continue to be in a position to control the management and affairs
of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS ASSOCIATED WITH FINANCIAL STATEMENTS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in those factors.
The Company is susceptible to certain risks related to changes in the cost of
aircraft fuel and changes in interest rates. At December 31, 1999, the Company
does not have any derivative financial instruments.
18
<PAGE>
AIRCRAFT FUEL
Airline operators are dependent upon fuel to operate and therefore, are
impacted by changes in aircraft fuel prices. Great Lakes' earnings are affected
by changes in the price and availability of aircraft fuel. Aircraft fuel
represented approximately 14 percent of Great Lakes' operating expenses in 1999.
During 1999, the Company purchased approximately 18 million gallons of fuel at
an average cost per gallon of $.92. A one-cent change in the average cost of
aircraft fuel would impact the Company's aircraft fuel expense by approximately
$180,000 annually.
INTEREST RATES
The Company's operations are very capital intensive, as the vast majority of
assets are flight equipment, which are long lived. Great Lakes' exposure to
market risk associated with changes in interest rates relates to its debt
obligations. The Company does have exposure to changes in cash flows resulting
from changes in interest rates as a significant portion of its long-term debt
has variable interest rates. Additionally, the Company is exposed to changes in
fair values of its debt obligations which carry fixed rates of interest. As
disclosed in Note 4 to the Consolidated Financial Statements the Company has
total long-term debt outstanding of $105 million before unamortized warrant
discount of $0.5 million at December 31, 1999.
<TABLE>
<CAPTION>
FIXED AVERAGE VARIABLE AVERAGE
RATE FIXED RATE VARIABLE
MATURITY AMOUNT RATE AMOUNT RATE
- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C>
2000................................ $1,146,893 8.96% $ 4,704,172 7.55%
2001................................ 1,252,827 8.96 5,846,810 7.55
2002................................ 1,366,482 8.96 4,485,815 7.55
2003................................ 1,454,482 8.96 4,840,766 7.55
2004................................ 620,509 9.08 5,223,930 7.93
Thereafter.......................... 2,023,866 9.08 72,070,669 7.93
</TABLE>
In addition, the Company has a line of credit and other short-term notes
payable in a total amount of $8,573,000 at December 31, 1999. These credit
facilities rates of interest range between 7.75 percent to 8.50 percent.
In January 2000, the Company entered into a 3-year revolving line of credit
agreement with Coast Business Credit. Borrowings under this agreement are
limited to 85% of the eligible accounts receivables to a maximum of
$20 million. This loan bears interest at 0.5% above the prime rate as published
in the Wall Street Journal, adjusted monthly.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company as of December 31, 1999
and 1998 together with Independent Auditors' Report are included in this
Form 10-K on the pages indicated below.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ 20
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 21
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................... 22
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... 24
Notes to Consolidated Financial Statements.................. 26
Supplemental Schedule to Consolidated Financial Statements
Schedule II--Valuation and Qualifying Accounts............ 38
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Great Lakes Aviation, Ltd.:
We have audited the accompanying consolidated balance sheets of Great Lakes
Aviation, Ltd. (an Iowa Corporation) and subsidiary as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the consolidated financial
statements we have also audited the financial statement schedule. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Great Lakes
Aviation, Ltd. and subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
--------------------------------------
KPMG LLP
Des Moines, Iowa
March 10, 2000
20
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 83,957 $ 188,987
Accounts receivable (note 4).............................. 12,575,663 8,374,590
Inventories, net (notes 1 and 4).......................... 17,975,354 18,458,254
Prepaid expenses and other current assets................. 643,443 622,538
------------ ------------
Total current assets.................................... 31,278,417 27,644,369
Property and equipment:
Flight equipment (notes 2 and 4).......................... 122,250,002 45,532,765
Other property and equipment.............................. 5,187,840 4,553,503
Less accumulated depreciation and amortization............ (12,073,477) (7,967,934)
------------ ------------
Total property and equipment............................ 115,364,365 42,118,334
------------ ------------
Other assets................................................ 2,233,234 3,018,555
------------ ------------
$148,876,016 $ 72,781,258
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable and current maturities of long-term debt
(note 4)................................................ $ 14,423,711 $ 13,647,109
Accounts payable.......................................... 12,727,479 12,250,863
Accrued liabilities and unearned revenue.................. 4,783,057 3,750,528
Deferred lease payments................................... 2,456,624 1,020,780
------------ ------------
Total current liabilities............................... 34,390,871 30,669,280
------------ ------------
Long-term debt, net of current maturities (note 4).......... 98,700,724 28,471,122
Deferred credits............................................ 4,627,510 4,936,631
Deferred lease payments..................................... 2,537,529 2,854,329
Stockholders' equity: (note 4)
Common stock, $.01 par value; 50,000,000 shares
authorized, 8,637,440 and 8,590,843 shares issued and
outstanding at December 31, 1999 and 1998............... 86,374 85,908
Paid-in capital........................................... 31,609,841 31,568,800
Accumulated deficit....................................... (23,076,833) (25,804,812)
------------ ------------
Total stockholders' equity............................ 8,619,382 5,849,896
------------ ------------
Commitments and contingencies (notes 3, 4, and 8)
$148,876,016 $ 72,781,258
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Passenger......................................... $106,661,151 $ 93,440,953 $ 75,204,197
Public service.................................... 16,228,491 15,026,050 6,130,964
Freight, charter, and other....................... 8,480,361 5,564,957 2,454,836
------------ ------------ ------------
Total operating revenues........................ 131,370,003 114,031,960 83,789,997
------------ ------------ ------------
Operating expenses:
Salaries, wages, and benefits..................... 33,037,214 29,106,739 22,091,493
Aircraft fuel..................................... 16,557,193 13,973,669 13,206,289
Aircraft maintenance materials and repairs........ 17,477,722 9,425,672 7,040,982
Commissions....................................... 5,796,046 5,559,553 5,552,485
Depreciation and amortization..................... 4,778,770 3,499,409 4,191,856
Aircraft rental (note 3).......................... 13,194,042 16,511,288 10,712,135
Other rentals and landing fees.................... 6,503,750 6,374,889 5,442,825
Other operating expense........................... 25,316,303 22,922,191 19,968,330
Excess aircraft, shutdown and other non-recurring
expenses (note 2)............................... -- 145,805 9,233,839
------------ ------------ ------------
Total operating expenses........................ 122,661,040 107,519,215 97,440,234
------------ ------------ ------------
Operating income (loss)......................... 8,708,963 6,512,745 (13,650,237)
Other expense:
Interest expense, net............................. 5,974,213 3,485,357 4,620,424
Loss on sale of assets and other property......... 6,771 190,578 --
------------ ------------ ------------
Income (loss) before income taxes............... 2,727,979 2,836,810 (18,270,661)
Income tax expense (benefit)........................ -- 115,000 --
------------ ------------ ------------
Net income (loss)............................... $ 2,727,979 $ 2,721,810 $(18,270,661)
============ ============ ============
Net income (loss) per share
Basic............................................. $ 0.32 $ 0.34 $ (2.41)
Diluted........................................... $ 0.29 $ 0.31 $ (2.41)
Average shares outstanding
Basic............................................. 8,634,204 7,924,719 7,588,792
Diluted........................................... 9,335,991 8,702,792 7,588,792
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 7,586,326 $75,863 $28,919,765 $(10,255,961) $ 18,739,667
Issuance of warrants........... -- -- 650,000 -- 650,000
Issuance of common stock....... 2,795 28 7,606 -- 7,634
Net loss....................... -- -- -- (18,270,661) (18,270,661)
--------- ------- ----------- ------------ ------------
Balance at December 31, 1997... 7,589,121 75,891 29,577,371 (28,526,622) 1,126,640
Issuance of common stock....... 1,001,722 10,017 1,991,429 -- 2,001,446
Net income..................... -- -- -- 2,721,810 2,721,810
--------- ------- ----------- ------------ ------------
Balance at December 31, 1998... 8,590,843 85,908 31,568,800 (25,804,812) 5,849,896
Issuance of common stock....... 46,597 466 41,041 -- 41,507
Net income..................... -- -- -- 2,727,979 2,727,979
--------- ------- ----------- ------------ ------------
Balance at December 31, 1999... 8,637,440 $86,374 $31,609,841 $(23,076,833) $ 8,619,382
========= ======= =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)................................... $ 2,727,979 $ 2,721,810 $(18,270,661)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Write down of Brasilia assets and accrued disposal
costs........................................... -- 145,805 1,299,431
Depreciation and amortization..................... 4,778,770 3,499,409 4,888,896
Loss on disposal of assets, net................... (6,771) 190,578 312,291
Change in current operating items:
Accounts receivable, net........................ (4,201,073) (3,822,074) 1,748,979
Inventories, net................................ (965,654) (6,846,326) (1,797,983)
Prepaid expenses and other current assets....... (20,905) 195,249 1,633,016
Deposits on flight equipment.................... -- (34,500) (324,500)
Accounts payable and accrued liabilities........ 1,200,024 2,882,576 (1,582,275)
Deferred lease payments......................... 2,439,351 (738,304) 5,255,598
Other........................................... 606,625 -- --
----------- ----------- ------------
Net cash provided by (used in) operating
activities.................................. 6,558,346 (1,805,777) (6,837,208)
----------- ----------- ------------
Investing activities:
Purchases of flight equipment and other property and
equipment......................................... (1,704,862) (630,542) (1,058,732)
Proceeds from the sale of flight equipment.......... 15,131 3,900 2,246,725
Purchase of certificate of deposit.................. -- -- (2,246,725)
Decrease (increase) in other assets................. 85,321 (490,874) 220,045
Proceeds from certificate of deposit................ -- 2,246,725 --
----------- ----------- ------------
Net cash provided by (used in) investing
activities.................................. (1,604,410) 1,129,209 (838,687)
----------- ----------- ------------
Financing activities:
Proceeds from issuance of debt...................... 20,456 -- 4,300,000
Repayment of long-term debt......................... (3,988,130) (2,200,021) (3,302,288)
Proceeds from short-term note payable and line of
credit............................................ 455,000 7,683,520 --
Payments on short-term note payable and line of
creidt............................................ (1,587,799) (5,625,174) --
Proceeds from sale of common stock.................. 41,507 1,001,446 7,634
----------- ----------- ------------
Net cash provided by (used in) financing
activities.................................. (5,058,966) 859,771 1,005,346
----------- ----------- ------------
Net change in cash............................ (105,030) 183,203 (6,670,549)
Cash:
Beginning of year................................... 188,987 5,784 6,676,333
----------- ----------- ------------
End of year......................................... $ 83,957 $ 188,987 $ 5,784
=========== =========== ============
Supplementary cash flow information:
Cash paid during the year for:
Interest.......................................... $ 5,445,242 $ 3,816,844 $ 4,026,281
Income taxes...................................... -- -- --
=========== =========== ============
</TABLE>
24
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Noncash transactions--
Long-term debt issued in acquisition of Beechcraft
1900D airliners................................. $75,665,924 $ -- $ --
Conversion of deferred lease payments to long-term
debt............................................ 1,320,307 -- --
Inventory returned in exchange for reduction of
line of credit.................................. 944,554 -- --
----------- ----------- ------------
$77,930,785 $ -- $ --
=========== =========== ============
Reduction of notes payable through sale-leaseback
transactions.................................... $ -- $ -- $ 40,633,798
Issuance of warrant............................... -- -- 650,000
Conversion of lease obligation to notes payable... -- -- 528,629
Conversion of accounts payable to notes payable... -- -- 1,798,829
Flight equipment exchanged for payment of notes
payable......................................... -- -- 950,000
----------- ----------- ------------
$ -- $ -- $ 44,561,256
=========== =========== ============
Disposition of Beechcraft 1900C aircraft through
like kind exchange.............................. $ -- $23,724,490 $ --
Cancellation of long-term debt associated with
Beechcrat 1900C aircraft........................ -- 17,337,009 --
Acquisition of Beechcraft 1900D aircraft through
like kind exchange.............................. -- 22,333,455 --
Long-term debt issued in acquisition of Beechcraft
1900D aircraft through like-kind exchange....... -- 20,379,451 --
Common stock issued in exchange for reduction of
accounts payable................................ -- 750,000 --
Common stock issued in exchange for termination of
notes payable................................... -- 250,000 --
----------- ----------- ------------
$ -- $84,774,405 $ --
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS
CORPORATE ORGANIZATION
The consolidated financial statements include the accounts of Great Lakes
Aviation, Ltd. (Great Lakes) and its wholly owned subsidiary, RDU Inc.
(RDU), referred to collectively herein as the Company. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
BUSINESS
The Company operates as United Express under a cooperative marketing agreement
(United Express Agreement) with United Airlines, Inc. (United) and provides
service to 67 destinations in the Upper Midwest and West as of December 31,
1999.
The United Express Agreement expired on December 31, 1997. In 1999 and 1998, the
Company and United have 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 and during 1998 the Company expanded the services
provided as a United Express carrier at United's Denver hub. While the
Company intends to obtain a new code sharing agreement containing
satisfactory terms, no assurance can be given that this actually will be
accomplished. Any failure to enter into a new code sharing agreement, any
material adverse change in the terms from the prior code sharing agreement,
or 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.
In 1997, the Company reported a substantial loss which affected the Company's
liquidity position. Thereafter, the Company restructured and the extended
the repayment terms of lease and debt agreements, and achieved improvements
in its operating results and cash flows. The Company achieved profitable
operating results in 1998 and 1999 and, in January 2000, the Company
restructured the repayment terms of its short-term debt obligations with
Raytheon Aircraft Corporation (see note 4). Additionally, the Company
negotiated definitive agreements for the purchase of 22 Beechcraft 1900D
aircraft that previously has been leased, and reconciled and established
repayment terms on its trade payable account with Raytheon.
A subtantial portion of cash generated from operations is used to service the
Company's outstanding indebtedness and all of the Company's assets have been
pledged to secure this indebtedness. The Company's future operations are
dependent on the attainment of certain objectives, including continued
growth in revenues, net income and positive operating cash flows. There can
be no assurance that these financial objectives will be achieved, and if or
when needed, that the Company will be able to obtain any additional equity
or debt financing, or that such financing, if obtained, would be on terms
favorable to the Company.
Passenger revenues during 1999, 1998, and 1997 were derived 100 percent,
99 percent and 84 percent from United Express operations, 0 percent,
0 percent and 8 percent from Midway Connection and 0 percent, 1 percent and
8 percent from Great Lakes Airlines operations. Approximately 68 percent,
49 percent, and 50 percent of the United Express passengers connected with
United for the years ended December 31, 1999, 1998, and 1997, respectively.
From October 1, 1995 to May 16, 1997, the Company operated as a "Midway
Connection" carrier under a cooperative marketing agreement (Midway
Connection Agreement) with Midway Airlines, Inc. (Midway) and served
Raleigh/Durham from 14 destinations in eight states located along the East
26
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS (CONTINUED)
Coast. From August 1995 to May 16, 1997, the Company served nine destination
in Arizona, New Mexico, and Mexico (collectively, the Southwest) as Great
Lakes Airlines. The Midway Connection and Southwest operations were
terminated on May 16, 1997 after the Company temporarily suspended flight
operations (see note 2).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ACCOUNTS RECEIVABLE
Substantially all accounts receivable balances are due from various airlines,
with approximately 60 percent of the December 31, 1999, balance and
41 percent of the December 31, 1998, balance due from United. All
receivables are pledged as collateral securing a $5,000,000 line of credit
and a $5,000,000 short term note.
INVENTORIES
Inventories consist of flight equipment spare parts and fuel and are stated at
the lower of average cost or market. An allowance for depreciation is
provided at rates which depreciate the cost of flight equipment spare parts,
less estimated residual value, over the estimated useful lives of the
related aircraft. The accumulated allowances were $8,733,827 and $8,057,377,
respectively, at December 31, 1999 and 1998. Expendable parts are charged to
maintenance expense as used. Inventories consisting of Beech aircraft spare
parts and equipment were pledged as collateral securing a $5,000,000 line of
credit and a $5,000,000 short term note.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis for financial reporting purposes over estimated useful lives of
14-20 years for flight equipment and 3-10 years for other property and
equipment. Leasehold improvements are amortized over the shorter of the life
of the lease or the life of the asset. Accelerated methods of depreciation
are used for tax reporting purposes. All owned aircraft are pledged to
collateralize outstanding obligations.
Maintenance and repairs, including periodic aircraft overhauls, are expensed as
incurred.
OTHER ASSETS
Approximately $1,475,500 of long-term deposits on aircraft operating leases at
December 31, 1999 and 1998, were included in other assets.
27
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS (CONTINUED)
DEFERRED LEASE PAYMENTS
During 1997, the Company failed to make scheduled payments on several leases and
subsequently renegotiated substantially all of their lease agreements. The
renegotiated leases contain higher monthly payments and or longer payment
terms than the original agreements. The unpaid rentals have been accrued and
expensed in the period to which they related and are being amortized over
the new lease terms of the aircraft as a reduction in future operating
costs.
DEFERRED CREDITS
The Company has received various incentives in the form of interest rate
subsidies and spares parts in connection with the acquisition of new
aircraft. Incentives are being amortized as a reduction of rent expense or
interest expense over the term of the related agreement.
REVENUE RECOGNITION
Passenger revenues are recorded as income when the respective services are
rendered. Liability for unused tickets issued by the Company is recorded as
unearned revenue. The Company also receives public service subsidy revenues
for serving certain communities that do not generate sufficient traffic to
fully support profitable air service, which are recorded as income as the
agreed upon air service is furnished by the Company.
FREQUENT FLYER AWARDS
The Company operates under a code-sharing agreement with United, and
participates in its frequent flyer program. The Company has not deferred any
revenue or accrued for incremental costs for mileage accumulation relating
to these programs, as the impact has not been material.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date.
INCOME/LOSS PER SHARE
Basic income (loss) per share have been computed by dividing net income (loss)
by the weighted-average number of shares of common stock outstanding during
each of the years presented. Diluted income (loss) per share have been
calculated by also including in the computation the impact of the issuance
of common stock pursuant to the exercise of outstanding warrants and the
effect of those employee stock options granted to employees as potential
common stock that would be dilutive. Since the Company had suffered a net
loss in the year ended December 31, 1997, the effects of potential common
stock issuance's were not included in the calculation, as their effects
would be anti-dilutive.
28
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS (CONTINUED)
STOCK OPTION PLANS
The Company has elected the pro forma disclosure option of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". The Company will continue applying the accounting treatment
prescribed by the provisions of APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Pro forma net income (loss) and pro forma net income
(loss) per share have been provided as if SFAS No. 123 were adopted for all
stock-based compensation plans.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below:
Cash, accounts receivable, accounts payable and accrued liabilities:
The carrying amount approximates fair value because of the short-term nature
of these instruments.
Long-term debt:
Based upon the Company's concentration of long-term debt with the
manufacturer of aircraft, the fair value of long-term debt was not
reasonably determinable.
(2) SHUTDOWN AND OTHER NONRECURRING EXPENSES
Under terms of a consent order (the Order) with the Federal Aviation
Administration (FAA), the Company temporarily suspended its flight
operations on May 16, 1997 and resumed flight operations on a limited basis
on May 23, 1997 (the Shutdown). Under terms of the Order, the Company was
assessed a civil penalty of $1,000,000, of which $700,000 of the civil
penalty was waived since the Company complied with all terms of the Order
for a one year period ending May 23, 1998. The Order, among other things,
required the Company inspect each aircraft and demonstrate to the FAA's
satisfaction that the Company has sufficient equipment, qualified personnel,
manuals, systems and financial resources to safely conduct operations. The
Company's results for 1997 reflect a charge of $300,000 for the penalty
paid.
Subsequent to the Shutdown, the Company incurred continuing operating expenses,
(including significant maintenance expenses, grounded aircraft rental and
depreciation, Brasilia disposal and lease termination costs, employee
related costs and certain other costs) related to the shutdown. When flight
operations were resumed, on a reduced basis on May 23, 1997, the Company
terminated its flight operations as Midway Connection and as Great Lakes
Airlines in the Southeastern and Southwestern United States, respectively.
The costs related to the Shutdown and termination of operations in those
areas in the amount of $9,233,839 are included as shutdown and other
nonrecurring expenses.
In connection with the reduced flight operations discussed above, the Company
identified seven Embraer Brasilia 30 passenger aircraft (Brasilia) as being
excess, which were not needed by the Company to conduct its core United
Express operation. The Company's intent was to dispose of seven Brasilia
aircraft (including two aircraft which were returned to the lessor in
June 1997). Consistent with the intent to dispose of these Brasilia
aircraft, the Company reduced the carrying value of owned aircraft to their
estimated net realizable value, accrued future lease payments estimated to
be unrecoverable,
29
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
(2) SHUTDOWN AND OTHER NONRECURRING EXPENSES (CONTINUED)
accrued estimated lease termination costs, and reduced the carrying value of
the related Brasilia spare part inventories to their net realizable value at
December 31, 1997.
In February 1998, the Company entered into an agreement to sell all of their
remaining Brasilia aircraft and their Brasilia spare part inventories and
began negotiating with the lessors and creditors for release of the Brasilia
aircraft. In April 1998, due to the expanded service into the Denver market,
the Company determined that they had a continued need for five of their
Brasilia aircraft, and began negotiating with the other party for a
modification of the agreement. The agreement to sell all the Brasilia
aircraft was modified and the Company disposed of only two aircraft and
utilizes the remaining Brasilia aircraft in its operations. As a result of
the modification in the agreement to sell Brasilia aircraft, the Company
reversed, in 1998, an accrual of $543,933 that was made in 1997 for the
intended disposal of three Brasilia aircraft that did not occur. Offsetting,
this reversal was an additional accrual of $689,738 needed for a final
settlement reached regarding two Brasilia aircraft that were returned to a
lessor in 1997, resulting in a net non-recurring charge of $145,805 in 1998.
(3) FLIGHT EQUIPMENT AND OTHER LEASE COMMITTMENTS
The Company's airline fleet consisted of Beechcraft Model 1900 (Beechcraft)
19-passenger and Embraer Brasilia 30-passenger aircraft summarized as
follows at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
BEECHCRAFT BEECHCRAFT BEECHCRAFT BEECHCRAFT
1900C 1900D BRASILIA 1900C 1900D BRASILIA
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Owned....................................... -- 28 4 -- 6 4
Operating leases............................ 4 12 4 5 34 4
-- -- -- -- -- --
4 40 8 5 40 8
== == == == == ==
</TABLE>
The Company returned two Brasilia aircraft to a lessor in June 1997. In addition
the Company entered into a short-term note agreement in August 1997 with the
lessor which covered unpaid rentals due at that time. In 1998, the Company's
lease agreement was terminated, and in February 1999, the Company reached an
agreement with the lessor for lease termination costs and the unpaid balance of
the short-term note. The settlement agreement called for a total cash payment of
$850,000 which was paid in 1999.
During 1998, the Company exchanged seven owned Beechcraft 1900C aircraft with
Raytheon for six Beechcraft 1900D aircraft. The transaction was treated as a
non monetary exchange and as such the loss on the disposal of the seven
Beechcraft 1900C aircraft was included in the basis of the six Beechcraft
1900D aircraft. The resulting basis of the six Beechcraft 1900D aircraft did
not exceed their fair market value.
On April 23, 1998, the Company received twenty-two Beechcraft 1900D aircraft
from Raytheon. The Company was paying $30,007 a month for each aircraft as
rent to Raytheon. In July 1999, the Company entered into a written agreement
with Raytheon to purchase these aircraft through the issuance of notes
payable to Raytheon.
30
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) FLIGHT EQUIPMENT AND OTHER LEASE COMMITTMENTS (CONTINUED)
As of December 31, 1999 lease commitments for aircraft and other property were
as follows:
<TABLE>
<CAPTION>
BEECHCRAFT
1990 BRASILIA OTHER TOTAL
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
2000................... $ 6,816,000 $ 2,709,888 $1,505,000 $ 11,030,888
2001................... 6,816,000 2,709,888 334,000 9,859,888
2002................... 6,816,000 2,709,888 229,000 9,754,888
2003................... 6,816,000 2,467,788 211,000 9,494,788
2004................... 6,816,000 1,741,488 168,000 8,725,488
Thereafter............. 43,718,000 14,149,590 -- 57,867,590
----------- ----------- ---------- ------------
$77,798,000 $26,488,530 $2,447,000 $106,733,530
=========== =========== ========== ============
</TABLE>
(4) NOTES PAYABLE AND LONG-TERM DEBT
Raytheon Aircraft Corp. and its financing affiliates (collectively, "Raytheon")
is the Company's primary aircraft supplier and largest creditor. The Company
has financed all of its Beechcraft 1900 aircraft and one of its Brasilia
aircraft and pursuant to lease and debt agreements with Raytheon, and
Raytheon has also extended the Company a total $10 million through a line of
credit and a short-term note payable to finance the Company's operating cash
needs (collectively, the "Raytheon Agreements"). The line of credit and a
short-term note payable as extended, are payable on demand. On January 7,
2000, the Company entered into an agreement with Coast Business Credit for a
$20 million revolving credit facility. In connection with entering into the
revolving credit facility, the Company paid Raytheon $5 million on the
short-term notes and entered into an agreement with Raytheon, whereby
Raytheon would receive certain aircraft parts, valued at the current
replacement cost, as payment for the remaining line of credit balance.
In January 2000, the Company entered into an agreement with a lending
institution for a $20 million revolving credit facility. This credit
facility bears interest at prime plus 0.5%, payable monthly, and requires a
minimum loan balance of $7,000,000. Borrowings under this facility are
payable on demand and are limited to certain eligible accounts receivable
($7,751,000 maximum availability at inception). The line of credit agreement
is effective through December 31, 2002. The line of credit agreement
contains various restrictive covenants which require the Company to maintain
minimum levels of tangible net worth and remain current on all other
outstanding debt obligations, among other matters. The credit facility also
limits additional indebtedness, capital expenditures and dividends. The
Company was in compliance with all such covenants at the inception of the
agreement.
31
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Notes payable and current maturities of long-term debt consist of the following
at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Term note to Raytheon(A)........................... $ 5,000,000 $ 5,000,000
Line of credit with Raytheon(B).................... 3,572,647 4,800,000
Other short-term note(C)........................... -- 850,000
Current maturities of long-term debt............... 5,851,064 2,997,109
----------- -----------
$14,423,711 $13,647,109
=========== ===========
</TABLE>
- ------------------------
(A) The Company entered into a short-term note with Raytheon in July 1997 which
is payable on demand. The interest rate is variable and based on the prime
lending rate. The rate charged at December 31, 1999 and 1998 was
8.50 percent and 8.50 percent, respectively. The note is secured by accounts
receivable and Beech aircraft spare parts and equipment and is
cross-collaterialized with the other Raytheon agreements.
(B) The Company entered into a $2.5 million line of credit with Raytheon that
was later amended and increased to $5.0 million. The line of credit expired
on March 31, 1997, and is due upon demand. The interest rate is variable and
based on the prime lending rate. The rate charged at December 31, 1999 and
1998 was 8.50 percent and 8.50 percent, respectively. The note is secured by
accounts receivable and Beech aircraft spare parts and inventory and is
cross-collaterialized with the other Raytheon agreements.
(C) A short-term note payable relating to aircraft the Company leased in 1997.
The amount was repaid in 1999.
Long-term debt, including unamortized warrant consists of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Raytheon(D)....................................... $ 97,151,706 $22,551,187
Other long-term notes(E).......................... 7,887,582 8,917,044
------------ -----------
105,039,288 31,468,231
Less current maturities of long-term debt......... 5,851,064 2,997,109
------------ -----------
$ 99,188,224 $28,471,122
============ ===========
</TABLE>
- ------------------------
(D) The Raytheon notes consist of 29 term notes in 1999 and seven term notes in
1998. As discussed in note 3, the Company exchanged seven aircraft for six
aircraft during 1998. In connection with this exchange, seven of the term
notes outstanding at December 31, 1997 were terminated and six new term
notes were entered into in 1998. On July 1, 1999, the Company entered into
22 term notes to purchase 22 1900D Beechcraft airliners. The outstanding
notes at December 31, 1999 require monthly payments ranging from $30,000 to
$84,500, including interest, with total payments on these notes
approximating $984,500 per month. The interest rates on the notes range from
7.15 percent to 8.5 percent as of December 31, 1999, and December 31, 1998.
Seven of the term notes bear interest at variable rates and 22 of the term
notes bear a fixed interest rate for 50 months, and become variable
32
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
for the remainder of their term. The notes mature from October 2001 to
August 2012 and are collateralized by aircraft.
(E) Other long-term notes consist of four term notes which require monthly or
quarterly payments including interest. The interest rates on the notes are
approximately 9.05 percent at December 31, 1999 and 1998. Three of these
notes are collateralized by aircraft.
In connection with the refinancing of the Company's long-term notes, short term
note agreements, and the restructuring of the Company's lease agreements,
the Company issued Raytheon a warrant to purchase one million shares of the
Company's stock, at the then current market price of the stock. The warrant
is exercisable for ten years beginning July 16, 1998 at a price of $.75 per
share. Accordingly, the Company has recorded a discount equal to the
estimated fair value of the warrant on the date of issuance ($650,000),
which is being amortized as additional interest expense over the weighted
average life of the debt and lease agreements to which it relates. As of
December 31, 1999, the remaining unamortized discount is $487,500, and is
included above as a component of long-term debt.
During 1998, the Company issued 1,000,000 shares of the Company's common stock
to two investors through a private placement. One investor was an unrelated
party and paid $1,000,000 cash for 500,000 shares of the Company's common
stock. Iowa Great Lakes Flyers (IGLF), an entity controlled by the President
and Chief Executive Officer of the Company received the remaining 500,000
shares of the Company's common stock and $406,721 in cash from the Company
in exchange for cancellation of accounts payable and a note payable totaling
$1,406,721 to IGLF.
As of December 31, 1999, the long-term debt obligations (before unamortized
warrant discount of $487,500) due in the five subsequent years and
thereafter were as follows:
<TABLE>
<CAPTION>
BEECHCRAFT
1900S BRASILIAS OTHER TOTAL
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
2000..................... $ 3,852,365 $ 1,989,789 $ 8,909 $ 5,851,064
2001..................... 4,921,929 2,166,162 11,547 7,099,638
2002..................... 3,717,398 2,136,966 -- 5,854,364
2003..................... 4,840,766 1,454,482 -- 6,295,248
2004..................... 5,223,930 620,509 -- 5,844,439
Thereafter............... 72,070,669 2,023,866 -- 74,094,535
----------- ----------- ------- ------------
$94,627,327 $10,391,505 $20,456 $105,039,288
=========== =========== ======= ============
</TABLE>
(5) INCOME TAXES
Income taxes for the year ended December 31, 1998 consisted of current state
income taxes of $115,000.
33
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES (CONTINUED)
The federal statutory tax rate differs from the Company's effective income tax
rate for the years ended December 31 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate............................... 34.0% 34.0% (34.0)%
State income taxes, net of federal benefit........... -- 4.5 (4.0)
Change in valuation allowance........................ (34.0)% (34.0)% 38.0%
----- ----- -----
--% 4.5% --%
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carry forwards............. $ 10,363,000 $ 9,056,000
Accrued liabilities and other................. 6,190,000 3,850,000
------------ -----------
Total gross deferred tax asset.............. 16,553,000 12,906,000
Less valuation allowance.................... (12,017,000) (9,098,000)
------------ -----------
Total deferred tax asset.................... 4,536,000 3,808,000
Deferred tax liabilities
Property and equipment........................ (4,536,000) (3,808,000)
------------ -----------
Total deferred tax asset (liability)........ $ -- $ --
============ ===========
</TABLE>
The Company has net operating loss carry forwards for federal income tax
purposes totaling approximately $29,608,000 at December 31, 1999, expiring
in years from 2005 through 2019. The net change in total valuation allowance
for the years ended December 31, 1999 and 1998 was a increase (decrease) of
$2,919,000 and $(306,000), respectively.
(6) EMPLOYEE BENEFIT PLANS
401(K)
The Company maintains a qualified 401(k) employee savings plan for the benefit
of substantially all employees. The Company matches up to 4 percent of
participating employees' contributions. Company contributions totaled
$337,000 in 1999, $268,000 in 1998 and $276,000 in 1997.
STOCK OPTION PLANS
The Company has adopted The Great Lakes Aviation, Ltd. Option Plan and the 1993
Director Stock Option Plan (the Plans). The Plans permit the grant of
qualified incentive stock options or non-qualified stock options covering in
the aggregate 600,000 shares of the Company's common stock to be granted to
key employees, officers, and directors of the Company. Options outstanding
under the Plans become exercisable one-fifth in years one through five from
the date of grant. The options expire after ten years from the date of
grant. Options are forfeited upon termination for reasons other than
retirement, death or disability.
34
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations in accounting
for the Plans, both of which are fixed stock option plans. Accordingly, no
compensation cost has been recognized for the Plans. Had compensation cost
for the Company's fixed stock option plans been determined consistent with
SFAS No. 123, the Company's net income (loss) and income (loss) per share
would have been impacted as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
Net income (loss) as reported........... $2,727,979 $2,721,810 $(18,270,661)
Pro forma net income (loss)............. $2,571,000 $2,643,717 $(18,294,508)
Basic income (loss) per share as
reported.............................. $ 0.32 $ 0.34 $ (2.41)
Pro forma basic income (loss) per
share................................. $ 0.30 $ 0.33 $ (2.41)
Diluted income (loss) per share as
reported.............................. $ 0.29 $ 0.31 $ (2.41)
Pro forma diluted income (loss) per
share................................. $ 0.28 $ 0.30 $ (2.41)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted-average
assumptions were applied in determining pro forma compensation cost:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate.......................... 5.10% 5.77% 6.63%
Expected dividend yield.......................... 0% 0% 0%
Expected option life............................. 5 5 5
Expected Stock price volatility.................. 93.20% 89.68% 77.81%
</TABLE>
A summary of the status of the Company's fixed option plans as of December 31,
1999, 1998, and 1997 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 330,000 $3.26 68,000 $6.43 189,500 $4.48
Granted............................. 50,000 $2.75 277,000 $2.77 10,000 $1.41
Forfeited........................... (70,000) $2.82 (15,000) $2.75 (131,500) $3.90
------- -------- --------
Outstanding at end of year.......... 310,000 $3.27 330,000 $3.26 68,000 $5.15
======= ======== ========
Options exercisable at year end..... 90,800 $4.43 40,800 $6.09 28,600 $6.43
Weighted-average fair value of
options granted during the year... $2.03 $2.05 $0.92
</TABLE>
35
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of stock options outstanding and exercisable as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING LIFE AVERAGE EXERCISE NUMBER AVERAGE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
- ------------------------ ----------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.41 10,000 6.5 $ 1.41 4,000 $ 1.41
$2.75 242,000 8.6 $ 2.75 38,400 $ 2.75
$3.875-$5.785 48,000 5.5 $ 4.71 38,400 $ 4.71
$11.00 10,000 3.0 $11.00 10,000 $11.00
------- ------
310,000 90,800
======= ======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan. Under the plan, certain
employees are eligible to purchase an aggregate of not more than 125,000
shares of the Company's common stock at 95 percent of the lower of the fair
market value at the beginning or the end of the calendar year in which the
shares are purchased. In 2000 and 1999, 10,451 and 46,597 shares were
purchased with 1999 and 1998 payroll withholdings, respectively.
(7) INCOME (LOSS) PER SHARE
The following tables provide a reconciliation of the numerators and denominators
of the basic and diluted income per share computations for the periods
presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------- ---------------------------------------- ------------
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE INCOME
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR)
------------ ------------- --------- ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic income (loss) per
share
Net income attributed
to Common
shareholders......... $2,727,979 8,634,204 $0.32 $2,721,810 7,924,719 $0.34 $(18,270,661)
===== =====
Effect of dilutive
securities
Stock warrants......... -- 695,542 -- 754,343 --
Stock options.......... -- 6,245 -- 23,730 --
---------- --------- ---------- --------- ------------
Diluted income (loss) per
share
Net income attributed
to common
shareholders......... $2,727,978 9,335,991 $0.29 $2,721,810 8,702,792 $0.31 $(18,270,661)
========== ========= ===== ========== ========= ===== ============
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997
-------------------------
SHARES PER-SHARE
(DENOMINATOR) AMOUNT
------------- ---------
<S> <C> <C>
Basic income (loss) per
share
Net income attributed
to Common
shareholders......... 7,588,792 $(2.41)
======
Effect of dilutive
securities
Stock warrants......... --
Stock options.......... --
---------
Diluted income (loss) per
share
Net income attributed
to common
shareholders......... 7,588,792 $(2.41)
========= ======
</TABLE>
Antidilutive options excluded from the above calculations totaled 300,000
options at December 31, 1999 (with a weighted average exercise price of
$3.34) and 320,000 options at December 31, 1998 (with a weighted average
exercise price of $3.32).
36
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of the Brasilia aircraft, the Brazilian
government has provided a financing subsidy to the Company in the form of
semiannual payments directly to the Company. The Company has deferred those
payments and amortized the payments over the term of the financing on a
straight-line basis. For those seven Brasilia aircraft which the Company
disposed of, the remaining deferred amount related to those aircraft was
included as a reduction of the net book value of the owned Brasilia aircraft
and as a reduction the estimated lease termination costs on leased Brasilia
aircraft. The Company transferred the right to receive future subsidy
payments in connection with the termination of certain leases. The remaining
subsidy payments are not collaterialized or otherwise secured against the
credit risk of the Brazilian government.
The Company leases certain small aircraft used in its charter operations. In
1999 five Beechcraft Model 1900 19-passenger aircraft used in airline
operations were financed under operating leases from a company owned by
Great Lakes' president and majority stockholder. Total payments under these
leases and other previous leases in prior years that the Company had with
other entities that are owned by the Company's president were $1,232,000 in
1999, $1,186,000 in 1998, and $830,000 in 1997.
LITIGATION
The Company is a defendant in a lawsuit arising from the collision of a small
aircraft with one of the Company's Beechcraft 1900 aircraft in Quincy,
Illinois on November 19, 1996. The collision occurred at the intersection of
two runways as the Company's aircraft was landing, and resulted in the death
of all ten passengers and the two crewmembers. The Company's insurance
carrier is providing for the Company's defense in the lawsuit and the
Company believes that all claims arising from the accident will be
adequately covered by insurance.
The Company is a party to other ongoing legal claims and assertions arising in
the ordinary course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
37
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents selected quarterly unaudited financial data for each of
the years ended December 31, 1999 and 1998 (in thousands, except for per
share information):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1999
- ----------------------------------------------
Operating revenues............................ $30,183 $33,300 $36,694 $31,193 $131,370
Operating income.............................. 145 2,979 5,326 259 8,709
Net income (loss)............................. (747) 2,034 3,412 (1,971) 2,728
======= ======= ======= ======= ========
Net income (loss) per share
Basic....................................... $ (0.09) $ 0.24 $ 0.40 $ (0.23) $ 0.32
Diluted..................................... $ (0.09) $ 0.22 $ 0.36 $ (0.23) $ 0.29
Weighted average shares outstanding
Basic....................................... 8,624 8,624 8,637 8,637 8,634
Diluted..................................... 8,624 9,352 9,365 8,637 9,336
1998
- ----------------------------------------------
Operating revenues............................ $18,861 $27,457 $36,184 $31,530 $114,032
Operating income (loss)....................... (3,021) 2,624 5,782 1,128 6,513
Net (loss).................................... (3,878) 1,793 4,861 (54) 2,722
======= ======= ======= ======= ========
Net income (loss) per share
Basic....................................... $ (0.51) $ 0.24 $ 0.61 $ (0.01) $ 0.34
Diluted..................................... $ (0.51) $ 0.22 $ 0.56 $ (0.01) $ 0.31
Weighted average shares outstanding
Basic....................................... 7,589 7,591 7,917 8,591 7,925
Diluted..................................... 7,589 8,328 8,690 8,591 8,703
</TABLE>
For 1999 and 1998 the first and fourth quarters reflect a net loss, the effect
of stock options and stock warrants are not included in the calculation of
earnings per share because their effects are anti-dulitive. As a result, the
total of the four quarters' diluted earnings per share will not equal the
diluted earnings per share for the year.
The above financial data includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial data. The Company's business is seasonal and,
accordingly, interim results are not indicative of results for a full year.
38
<PAGE>
GREAT LAKES AVIATION LTD. AND SUBSIDIARY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
CLASSIFICATION BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
YEAR ENDED DECEMBER 31 OF PERIOD EXPENSES DESCRIBE(1) DESCRIBE(2) PERIOD
- ---------------------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1999
Inventory Reserves................. $8,057,327 $ 676,500 $ -- $ -- $8,733,827
1998
Inventory Reserves................. $3,513,000 $1,027,817 $3,516,510 $ -- $8,057,327
1997
Inventory Reserves................. $3,082,000 $2,172,000 $ -- $1,741,000 $3,513,000
</TABLE>
- ------------------------
(1) Balance sheet adjustment related to Brasilia aircraft inventory.
(2) Deductions related to scrapped parts and the results of physical
inventories.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted as
not required, not applicable or the information required has been included
elsewhere in the financial statements and related notes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated herein by
reference to the descriptions set forth under the caption "Executive Officers"
and "Election of Directors" in the Proxy Statement for Annual Meeting of
Shareholders to be held May 19, 2000 (the "2000 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference
to the information set forth under the caption "Executive Compensation" in the
2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management of the Company is incorporated herein by reference to the
information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and transactions between the Company
and related parties is incorporated herein by reference to the information set
forth under the caption "Certain Relationships and Related Transactions" in
the 2000 Proxy Statement.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K. During the fourth quarter ended December 31, 1999
and during the period from the end of that quarter to the date of this Annual
Report, the Company filed no reports on Form 8-K with the Securities and
Exchange Commission.
(b) EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
4.1 Specimen Common Stock Certificate.(1)
10.1 Promissory Note payable to Raytheon in the amount of
$3,445,000, dated December 30, 1992, together with related
security agreement.(1)
10.2 Schedule identifying other Promissory Notes payable to
Raytheon Aircraft Credit Corporation, which are
substantially identical in all material respects to
Exhibit 10.1.(1)
10.3 Form of Aircraft Lease Agreement dated March 6, 1990, by and
between Raytheon Aircraft Credit Corporation and the
Company.(1)
10.4 United Express Agreement, dated February 28, 1992, by and
between United Air Lines, Inc. and the Company (certain
portions deleted pursuant to request for confidential
treatment).(1)
10.5 Standard Ground Handling Agreement, dated April 3, 1991, by
and between United Air Lines, Inc. and the Company.(1)
10.6 United Express Fare Revenue Sharing Agreement, dated
February 28, 1992, by and between United Air Lines, Inc.
and the Company (certain portions deleted pursuant to
request for confidential treatment).(1)
10.7 Letter Agreement, dated April 21, 1995, amending the United
Express Agreement (certain portions deleted pursuant to
request for confidential treatment).(2)
10.8 United Express Interline Agreement, dated February 28, 1992,
by and between United Air Lines, Inc. and the Company.(1)
10.9 O'Hare License Agreement, dated April 1, 1991, by and
between United Air Lines, Inc. and the Company (certain
portions deleted pursuant to request for confidential
treatment).(1)
10.10 Hector International Airport Terminal License Agreement,
dated September 8, 1994, by and between United Air Lines,
Inc. and the Company (certain portions deleted pursuant to
request for confidential treatment).(1)
10.11 Airport/Airport Facilities Lease Agreement, dated November
1, 1989, by and between Minneapolis-St. Paul Airport and
the Company.(1)
10.12 Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)
10.13 1993 Director Stock Option Plan.(1)
10.14 Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)
10.15 Facilities Lease Agreement, dated February 18, 1992, by and
between the City of Spencer, Iowa and the Company.(1)
10.16 Agreement in Principle, dated August 29, 1991, by and
between United Air Lines, Inc. and the Company (certain
portions deleted pursuant to request for confidential
treatment).(1)
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
10.17 Fifth Amendment to the Agreement in Principle, dated
November 12, 1993, by and between United Air Lines, Inc.
and the Company (certain portions deleted pursuant to
request for confidential treatment).(1)
10.18 Aircraft Finance Agreement, dated March 1, 1994, by and
between Raytheon Aircraft Credit Corporation and the
Company.(2)
10.19 Aircraft Finance Agreement, dated March 1, 1994, by and
between Raytheon Aircraft Credit Corporation and the
Company.(2)
10.20 Negotiable Promissory Note dated March 30, 1996, from the
Company to Raytheon Aircraft Credit Corporation.(5)
10.21 Negotiable Promissory Note, dated July 31, 1996, from the
Company to Raytheon Aircraft Credit Corporation.(5)
10.22 Consent Order entered into by the Company and the Federal
Aviation Administration on May 23, 1997.(4)
10.23 Warrant Agreement, dated July 23, 1997, by and between
Raytheon Aircraft Credit Corporation and the Company.(3)
10.24 $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.(6)
10.25 Pledge and Assignment Agreement entered into between
registrant and Raytheon Aircraft Credit Corporation, dated
July 11, 1997.(6)
10.26 Agreement Pertaining to Loans and Leases entered into
between registrant and Raytheon Aircraft Credit
Corporation, dated July 11, 1997.(6)
10.27 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.(6)
10.28 $1,000,000 Negotiable Promissory Note entered into between
registrant and Raytheon Aircraft Credit Corporation dated
January 1, 1998.(6)
10.29* Loan and Security Agreement, dated as of December 31, 1999,
between Coast Business Credit, a division of Southern
Pacific Bank and the Company.
10.30* Amendment Number One to Loan and Security Agreement, dated
as of January 7, 2000, between Coast Business Credit, a
division of Southern Pacific Bank and the Company.
10.31* Side Letter, dated as of January 5, 2000, regarding
Representations and Warranties respecting Sections 5.17
and 5.18 of Loan and Security Agreement, dated as of
December 31, 1999, between Coast Business Credit, a
division of Southern Pacific Bank and the Company.
10.32* Security Agreement and Encumbrance Against Air Carrier
Aircraft Spare Parts, dated as of December 31, 1999
between Coast Business Credit, a division of Southern
Pacific Bank and the Company.
10.33* Intercreditor Agreements, dated December 31, 1999, by and
among Coast Business Credit, a division of Southern
Pacific Bank, Raytheon Aircraft Credit Corporation and the
Company.
23.1* Consent of KPMG LLP
27* Financial Data Schedule Statement regarding computation of
per share earnings.
</TABLE>
- ------------------------
* Filed herewith.
41
<PAGE>
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-71180 (the "Form S-1").
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(4) Incorporated by reference to the Company's Form 8-K, File Number 97616934,
filed May 23, 1997.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
GREAT LAKES AVIATION, LTD.
By /s/ DOUGLAS G. VOSS
-----------------------------------------
Douglas G. Voss,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: April 11, 2000
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DOUGLAS G. VOSS
------------------------------------------- President, Chief Executive April 11, 2000
Douglas G. Voss Officer and Director
/s/ THOMAS J. AHMANN
------------------------------------------- Vice President, Chief Financial April 11, 2000
Thomas J. Ahmann Officer
/s/ RICHARD A. HANSON
------------------------------------------- Vice President, Controller April 11, 2000
Richard A. Hanson
/s/ VERNON A. MICKELSON
------------------------------------------- Director April 11, 2000
Vernon A. Mickelson
/s/ GAYLE R. BRANDT
------------------------------------------- Director April 11, 2000
Gayle R. Brandt
/s/ IVAN L. SIMPSON
------------------------------------------- Director April 11, 2000
Ivan L. Simpson
</TABLE>
43
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
4.1 Specimen Common Stock Certificate.(1)
10.1 Promissory Note payable to Raytheon in the amount of
$3,445,000, dated December 30, 1992, together with related
security agreement.(1)
10.2 Schedule identifying other Promissory Notes payable to
Raytheon Aircraft Credit Corporation, which are
substantially identical in all material respects to
Exhibit 10.1.(1)
10.3 Form of Aircraft Lease Agreement dated March 6, 1990, by and
between Raytheon Aircraft Credit Corporation and the
Company.(1)
10.4 United Express Agreement, dated February 28, 1992, by and
between United Air Lines, Inc. and the Company (certain
portions deleted pursuant to request for confidential
treatment).(1)
10.5 Standard Ground Handling Agreement, dated April 3, 1991, by
and between United Air Lines, Inc. and the Company.(1)
10.6 United Express Fare Revenue Sharing Agreement, dated
February 28, 1992, by and between United Air Lines, Inc.
and the Company (certain portions deleted pursuant to
request for confidential treatment).(1)
10.7 Letter Agreement, dated April 21, 1995, amending the United
Express Agreement (certain portions deleted pursuant to
request for confidential treatment).(2)
10.8 United Express Interline Agreement, dated February 28, 1992,
by and between United Air Lines, Inc. and the Company.(1)
10.9 O'Hare License Agreement, dated April 1, 1991, by and
between United Air Lines, Inc. and the Company (certain
portions deleted pursuant to request for confidential
treatment).(1)
10.10 Hector International Airport Terminal License Agreement,
dated September 8, 1994, by and between United Air Lines,
Inc. and the Company (certain portions deleted pursuant to
request for confidential treatment).(1)
10.11 Airport/Airport Facilities Lease Agreement, dated November
1, 1989, by and between Minneapolis-St. Paul Airport and
the Company.(1)
10.12 Great Lakes Aviation, Ltd. 1993 Stock Option Plan.(1)
10.13 1993 Director Stock Option Plan.(1)
10.14 Great Lakes Aviation, Ltd. Employee Stock Purchase Plan.(1)
10.15 Facilities Lease Agreement, dated February 18, 1992, by and
between the City of Spencer, Iowa and the Company.(1)
10.16 Agreement in Principle, dated August 29, 1991, by and
between United Air Lines, Inc. and the Company (certain
portions deleted pursuant to request for confidential
treatment).(1)
10.17 Fifth Amendment to the Agreement in Principle, dated
November 12, 1993, by and between United Air Lines, Inc.
and the Company (certain portions deleted pursuant to
request for confidential treatment).(1)
10.18 Aircraft Finance Agreement, dated March 1, 1994, by and
between Raytheon Aircraft Credit Corporation and the
Company.(2)
</TABLE>
44
<PAGE>
<TABLE>
<C> <S>
10.19 Aircraft Finance Agreement, dated March 1, 1994, by and
between Raytheon Aircraft Credit Corporation and the
Company.(2)
10.20 Negotiable Promissory Note dated March 30, 1996, from the
Company to Raytheon Aircraft Credit Corporation.(5)
10.21 Negotiable Promissory Note, dated July 31, 1996, from the
Company to Raytheon Aircraft Credit Corporation.(5)
10.22 Consent Order entered into by the Company and the Federal
Aviation Administration on May 23, 1997.(4)
10.23 Warrant Agreement, dated July 23, 1997, by and between
Raytheon Aircraft Credit Corporation and the Company.(3)
10.24 $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.(6)
10.25 Pledge and Assignment Agreement entered into between
registrant and Raytheon Aircraft Credit Corporation, dated
July 11, 1997.(6)
10.26 Agreement Pertaining to Loans and Leases entered into
between registrant and Raytheon Aircraft Credit
Corporation, dated July 11, 1997.(6)
10.27 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.(6)
10.28 $1,000,000 Negotiable Promissory Note entered into between
registrant and Raytheon Aircraft Credit Corporation dated
January 1, 1998.(6)
10.29* Loan and Security Agreement, dated as of December 31, 1999,
between Coast Business Credit, a division of Southern
Pacific Bank and the Company.
10.30* Amendment Number One to Loan and Security Agreement, dated
as of January 7, 2000, between Coast Business Credit, a
division of Southern Pacific Bank and the Company.
10.31* Side Letter, dated as of January 5, 2000, regarding
Representations and Warranties respecting Sections 5.17
and 5.18 of Loan and Security Agreement, dated as of
December 31, 1999, between Coast Business Credit, a
division of Southern Pacific Bank and the Company.
10.32* Security Agreement and Encumbrance Against Air Carrier
Aircraft Spare Parts, dated as of December 31, 1999
between Coast Business Credit, a division of Southern
Pacific Bank and the Company.
10.33* Intercreditor Agreement, dated December 31, 1999, by and
among Coast Business Credit, a division of Southern
Pacific Bank, Raytheon Aircraft Credit Corporation and the
Company.
23.1* Consent of KPMG LLP
27* Financial Data Schedule Statement regarding computation of
per share earnings.
</TABLE>
- ------------------------
* Filed herewith.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-71180 (the "Form S-1").
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
45
<PAGE>
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(4) Incorporated by reference to the Company's Form 8-K, File Number 97616934,
filed May 23, 1997.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
46
<PAGE>
- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
GREAT LAKES AVIATION, LTD.,
an Iowa corporation
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
Dated as of December 31, 1999
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Coast Business Credit Loan and Security Agreement
- ------------------------------------------------------------------------------
<S> <C> <C>
TABLE OF CONTENTS
Page
1. DEFINITIONS...................................1
Account Debtor................................1
ACH...........................................1
Affiliate.....................................1
Audit.........................................1
Billed Receivables............................1
Borrower......................................1
Borrower's Address............................1
Business Day..................................1
Change of Control.............................1
Clearinghouse Agreement.......................1
Closing Date..................................2
Coast.........................................2
Code..........................................2
Collateral....................................2
Credit Limit..................................2
Default.......................................2
Deposit Account...............................2
Dollars or $..................................2
Early Termination Fee.........................2
Eligible Foreign Receivables..................2
Eligible Billed Receivables...................2
Eligible Receivables..........................2
Eligible Unbilled Receivables.................3
Equipment.....................................3
Event of Default..............................3
GAAP..........................................3
General Intangibles...........................3
Inventory.....................................4
Investment Property...........................4
Loan Documents................................4
Loans.........................................4
Material Adverse Effect.......................4
Maturity Date.................................4
Maximum Dollar Amount.........................4
Minimum Availability..........................4
Minimum Initial Availability..................4
Minimum Monthly Interest......................4
Obligations...................................4
Permitted Liens...............................4
Person........................................5
Prime Rate....................................5
Receivable Loans..............................6
Receivables...................................6
Renewal Date..................................6
Renewal Fee...................................6
Solvent.......................................6
Slots.........................................6
Spare Parts...................................6
Tangible Net Worth............................6
Unbilled Receivables..........................6
Solvent.......................................6
Solvent.......................................6
Year 2000 Problem.............................6
Other Terms...................................6
2. CREDIT FACILITIES.............................7
2.1 Loans................................7
3. INTEREST AND FEES.............................7
3.1 Interest.............................7
3.2 Fees.................................7
4. SECURITY INTEREST.............................7
5. CONDITIONS PRECEDENT..........................7
5.1 Status of Accounts at Closing........7
5.2 Minimum Availability.................8
5.3 Landlord Waiver......................8
5.4 Executed Agreement...................8
5.5 Opinion of Borrower's Counsel........8
5.6 Priority of Coast's Liens............8
5.7 Insurance............................8
5.8 Borrower's Existence.................8
5.9 Organizational Documents.............8
5.10 Taxes................................8
5.11 Year 2000 Problem Assessment
Certificate..........................8
5.12 Due Diligence........................8
5.13 Other Documents and Agreements.......8
5.14 Intercreditor Agreement - Raytheon...9
5.15 Payment Instructions Regarding
Collections..........................9
5.16 Cash Advances from United............9
5.17 Compliance with Directives/
Regulations and United Agreement.....9
5.18 Air Operator Certificate.............9
5.19 D&O Policy...........................9
5.20 United Agreement.....................9
5.21 Clearinghouse Agreement..............9
5.22 Management Background Checks.........9
5.23 Raytheon Repurchase of Inventory.....9
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE BORROWER.................................10
6.1 Existence and Authority.............10
6.2 Name; Trade Names and Styles........10
6.3 Place of Business; Location of
Collateral..........................10
6.4 Title to Collateral; Permitted
Liens...............................10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
6.5 Maintenance of Collateral...........11
6.6 Books and Records...................11
6.7 Financial Condition, Statements
and Reports.........................11
6.8 Tax Returns and Payments; Pension
Contributions.......................11
6.9 Compliance with Law.................11
6.10 Litigation..........................11
6.11 Use of Proceeds.....................12
6.12 Year 2000 Compliance................12
6.13 Compliance with Directives/Regulations
and United Agreement................12
6.14 Air Operator Certificate............12
6.15 United Agreement....................12
6.16 Borrower Ownership/Control..........12
6.17 Third Party Payroll Service.........12
6.18 ACH Deductions......................12
7. RECEIVABLES..................................13
7.1 Representations Relating to
Receivables.........................13
7.2 Representations Relating to Documents
and Legal Compliance................13
7.3 Schedules and Documents relating to
Receivables.........................13
7.4 Collection of Receivables...........13
7.5 Remittance of Proceeds..............13
7.6 Disputes............................14
7.7 Intentionally Deleted...............14
7.8 Verification........................14
7.9 No Liability........................14
8. ADDITIONAL DUTIES OF THE BORROWER............14
8.1 Financial and Other Covenants.......14
8.2 Insurance...........................14
8.3 Reports.............................14
8.4 Access to Collateral, Books and
Records.............................15
8.5 Negative Covenants..................15
8.6 Litigation Cooperation..............16
8.7 Further Assurances..................16
9. TERM.........................................16
9.1 Maturity Date.......................16
9.2 Early Termination...................16
9.3 Payment of Obligations..............16
10. EVENTS OF DEFAULT AND REMEDIES...............17
10.1 Events of Default...................17
10.2 Remedies ...........................18
10.3 Standards for Determining
Commercial Reasonableness...........19
10.4 Power of Attorney...................19
10.5 Application of Proceeds.............21
10.6 Remedies Cumulative.................21
11. GENERAL PROVISIONS...........................21
11.1 Interest Computation................21
11.2 Application of Payments.............21
11.3 Charges to Accounts.................21
11.4 Monthly Accountings.................21
11.5 Notices.............................21
11.6 Severability........................22
11.7 Integration.........................22
11.8 Waivers.............................22
11.9 No Liability for Ordinary
Negligence..........................22
11.10 Amendment...........................22
11.11 Time of Essence.....................22
11.12 Attorneys Fees, Costs and Charges...22
11.13 Benefit of Agreement................23
11.14 Publicity...........................23
11.15 Paragraph Headings Construction.....23
11.16 Governing Law; Jurisdiction; Venue..23
11.17 Mutual Waiver of Jury Trial.........23
</TABLE>
ii
<PAGE>
COAST
LOAN AND SECURITY AGREEMENT
BORROWER: GREAT LAKES AVIATION, LTD.,
AN IOWA CORPORATION
ADDRESS: 1965 330TH STREET
SPENCER, IOWA 51301
DATE: DECEMBER _, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1400, Los Angeles,
California 90025, and the borrower named above (the "Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to
be a part of this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 1
below.)
1. DEFINITIONS. As used in this Agreement, the following terms have
the following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable or General
Intangible.
"ACH" means the Airlines Clearing House, Inc., a Delaware corporation.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"APPROVED ACH DEDUCTION" means those deductions from the amounts
otherwise payable to Borrower from the ACH, which have been mutually agreed upon
by Borrower and Coast and which are listed on the attached Schedule 6.19.
"AUDIT" means to inspect, audit and copy Borrower's books and
records and the Collateral.
"BILLED RECEIVABLES" means Receivables for services performed which
have been sent to ACH for collection.
"BORROWER" has the meaning set forth in the introduction to this
Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the introduction
to this Agreement.
"BUSINESS DAY" means a day on which Coast is open for business.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time that
Douglas G. Voss beneficially owns (as defined in Rule 13d-3 the Securities
Exchange Act of 1934) and/or controls less than 51% of the total voting power of
all classes of stock or other ownership interests then outstanding of Borrower,
normally entitled to vote in the election of directors or analogous governing
body.
"CLEARINGHOUSE AGREEMENT" means that certain Agreement Relating to the
Settlement of
1
<PAGE>
Interline Accounts through Airlines Clearing House, Inc., dated as
of February 1, 1948, as amended, by and between Borrower and Airlines Clearing
House, Inc., a Delaware corporation.
"CLOSING DATE" date of the initial funding under this Agreement.
"COAST" has the meaning set forth in the introduction to this Agreement.
"CODE" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 4 hereof.
"CREDIT LIMIT" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION FEE" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"ELIGIBLE FOREIGN RECEIVABLES" means Receivables arising from
Borrower's customers located outside the United States which Coast otherwise
approves for borrowing in its sole and absolute discretion. Without limiting the
foregoing, Coast will consider the following in determining the eligibility of
such Receivables: (i) whether the Receivables are backed by an irrevocable
letter of credit satisfactory to Coast (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Coast and is directly
drawable by Coast, or (ii) whether the Borrower's customer is a large or rated
company having a verifiable credit history, or (iii) whether the Borrower's
customer has a twelve (12) month credit history with Borrower, or (iv) whether
Borrower's customer is a foreign subsidiary of a customer of Borrower that is a
company that was formed and has its primary place of business within the United
States, or (v) whether Borrower's customer is a foreign company with a Dun &
Bradstreet rating, or (vi) whether the Receivable is covered by credit insurance
in form and amount, and by insurer, satisfactory to Coast.
"ELIGIBLE BILLED RECEIVABLES" means Eligible Receivables for services
performed which have been sent to ACH for collection.
"ELIGIBLE RECEIVABLES" means Receivables and Eligible Foreign
Receivables arising in the ordinary course of Borrower's business from the sale
of goods or rendition of services, which Coast, in its good faith credit
judgment, shall deem eligible for borrowing, based on such considerations as
Coast may from time to time deem appropriate. Eligible Receivables shall not
include the following:
(a) Billed Receivables that: the Account Debtor has failed to
pay within the earlier to occur of: (i) 60 days past invoice date, or (ii) 30
days from the date the Receivable is sent to ACH;
(b) Unbilled Receivables that: the Account Debtor has failed
to pay within 30 days of invoice date;
(c) Receivables owed by an Account Debtor or its Affiliates
where twenty-five percent (25%) or more of all Receivables owed by that
Account Debtor (or its Affiliates) are deemed ineligible under clauses (a) or
(b) above;
(d) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower, it being understood that United
shall not be deemed an Affiliate or agent of Borrower for purposes of this
paragraph;
(e) Receivables with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and
hold, or other terms by reason of which the payment by the Account Debtor may
be conditional;
(f) Receivables, other than Eligible Foreign Receivables, that
are not payable in Dollars or with respect to which the Account Debtor: (i)
does not maintain its chief executive office in the United States, or (ii) is
not organized under the laws of the United States or any State thereof, or
(iii) is the government of any foreign country or sovereign state, or of any
state, province, municipality, or other political
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subdivision thereof, or of any department, agency, public corporation, or
other instrumentality thereof, unless (y) the Receivable is supported by an
irrevocable letter of credit satisfactory to Coast (as to form, substance,
and issuer or domestic confirming bank) that has been delivered to Coast and
is directly drawable by Coast, or (z) the Receivable is covered by credit
insurance in form and amount, and by an insurer, satisfactory to Coast;
(g) Receivables with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Coast, with the Assignment of
Claims Act, 31 U.S.C. Section 3727 or which are deemed eligible by Coast in
its sole and absolute discretion), or (ii) any State of the United States
(exclusive, however, of Receivables owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(h) Receivables with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Receivables;
(i) Receivables with respect to an Account Debtor (other than
United, its parent, subsidiaries and affiliates) whose total obligations
owing to Borrower exceed ten percent (10%) of all Eligible Receivables, to
the extent of the obligations owing by such Account Debtor in excess of such
percentage, except in the case of Receivables with respect to which the
Account Debtor is the Department of Transportation where such percentage will
be twenty percent (20%);
(j) Receivables with respect to which the Account Debtor is
subject to any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation proceeding, or becomes
insolvent, or goes out of business;
(k) Intentionally Omitted;
(l) Receivables with respect to which the goods giving rise to
such Receivable have not been shipped and billed to the Account Debtor, the
services giving rise to such Receivable have not been performed and accepted
by the Account Debtor, or the Receivable otherwise does not represent a final
sale;
(m) Receivables with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report
or similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of
taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement; and
(n) Receivables that represent progress payments or other
advance billings that are due prior to the completion of performance by
Borrower of the subject contract for goods or services.
"ELIGIBLE UNBILLED RECEIVABLES" means Eligible Receivables for services
performed which have not been sent to ACH for collection.
"EQUIPMENT" means, other than Spare Parts, all of Borrower's present
and hereafter acquired machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts,
dies, jigs, goods and other goods (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 10.1
of this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, investment property, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the goodwill
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of the business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located (including
without limitation all Spare Parts, raw materials, work in process, finished
goods and goods in transit, and including without limitation all farm products),
and all materials and supplies of every kind, nature and description which are
or might be used or consumed in Borrower's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
"INVESTMENT PROPERTY" has the meaning set forth in Section 9115
of the Code as in effect as of the date hereof.
"LOAN DOCUMENTS" means this Agreement, the agreements and documents
listed on Section 5 of the Schedule, and any other agreement, instrument or
document executed in connection herewith or therewith.
"LOANS" has the meaning set forth in Section 2.1 hereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"MATURITY DATE" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 2 of
the Schedule.
"MINIMUM AVAILABILITY" means, as of any date of determination, (i) all
cash of Borrower; PLUS (ii) the applicable Credit Limit; LESS (iii) the
Obligations then outstanding.
"MINIMUM INITIAL AVAILABILITY" means, as of the Closing Date, (i) the
applicable Credit Limit, LESS (ii) the Obligation then outstanding.
"MINIMUM MONTHLY INTEREST" has the meaning set forth in Section 3 of
the Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following:
(a) liens in favor of Coast;
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(b) purchase money security interests in specific items of Equipment
or Inventory;
(c) leases of specific items of Equipment;
(d) liens for taxes, assessments, charges or other governmental
levies not yet delinquent or as to which the period of grace, if any, related
thereto has not expired or which are being contested in good faith by
appropriate proceedings, provided that adequate reserves with respect thereto
are being maintained on the books of the Borrower in substantial conformity
with GAAP;
(e) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(f) security interests being terminated substantially concurrently
with this Agreement;
(g) liens of material-men, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent except for those delinquent obligations
being contested in good faith by appropriate proceedings so long as such
delinquent obligations and liens being contested do not have a Material
Adverse Effect upon Coast's rights in the Collateral or Coast's prospects for
repayment;
(h) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above
in clauses (b) or (c) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien
and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;
(i) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods;
(j) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(k) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of
business; or
(l) liens in favor of third parties who provide materials and/or
services to Borrower involving the overhaul or enhancement of Borrower's
aircraft, airframes and engines or who finance the providing of such overhaul
or enhancement materials and/or services. Such liens will be limited to a
lien against the aircraft receiving the overhaul or enhancement work and the
lien will be limited to an amount equal to the cost of the overhaul or
enhancement services and materials provided. So long as an Event of Default
has not occurred and is continuing, Coast agrees that it will subordinate its
lien against such overhauled or enhanced aircraft in favor of the respective
third party.
Coast will have the right to require, as a condition to its consent under clause
(e) above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Coast's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Coast, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, general
partnership, limited partnership, limited liability partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"PRIME RATE" means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not that rate is the lowest
interest rate charged by said bank. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published in
the Wall Street Journal on the first business day of the applicable month, as
the base rate on corporate loans at large U.S. money center commercial banks.
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"RAYTHEON INTERCREDITOR AGREEMENT" means that certain intercreditor
agreement set forth in Section 5.14 hereof.
"RECEIVABLE LOANS" means the Loans described in Section 2.1 of the
Schedule.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"RENEWAL DATE" shall mean the Maturity Date if this Agreement is
renewed pursuant to Section 9.1 hereof, and each anniversary thereafter that
this Agreement is renewed pursuant to Section 9.1 hereof.
"RENEWAL FEE" means the fee that Borrower must pay Coast upon renewal
of this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"SOLVENT" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"SLOTS" means an interval within a daily time period at a particular
airport during which Borrower may execute either an airplane take off or
landing.
"SPARE PARTS" means all of Borrower's now owned and hereafter acquired
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 Borrower's aircraft.
"TANGIBLE NET WORTH" means consolidated Owner's equity, PLUS
subordinated debt otherwise permitted hereunder, LESS, goodwill, patents,
trademarks, copyrights, franchises, formulas, leasehold interests, leasehold
improvements, non-compete agreements, engineering plans, deferred tax benefits,
organization costs, prepaid items, and any other assets of Borrower that would
be treated as intangible assets on Borrower's balance sheet prepared in
accordance with GAAP.
"UNBILLED RECEIVABLES" means Receivables for services performed which
have not been sent to ACH for collection.
"UNITED" means United Airlines, Inc., a Delaware corporation.
"UNITED AGREEMENT" means the code sharing agreement between Borrower
and United which entitles Borrower, among other things, to be a United Express
carrier.
"YEAR 2000 PROBLEM" means the risk that computer systems, software and
applications used by a Person may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
"OTHER TERMS." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by
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the Code, to the extent such terms are defined therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will make loans to Borrower (the "Loans"), in
amounts and in percentages to be determined by Coast in its good faith credit
judgment, up to the Credit Limit, provided no Default or Event of Default has
occurred and is continuing. In addition, Coast may create reserves against
the Loans which otherwise would be available under this Agreement including,
without limitation, creating reserves for (a) accounts payable which have
become past due pursuant to Sections 5.1 and 6.20 and (b) a Two Hundred
Thousand Dollar ($200,000) reserve for prospective payments due to Raytheon
under the Term Out as described as in Section 5.23 hereof (the "Term Out
Reserve"), with such Term Out Reserve to be released at Coast's sole and
absolute discretion. Lastly, Coast may reduce its advance rates based upon
Eligible Receivables without declaring a Default or an Event of Default if it
determines that there has occurred a Material Adverse Effect.
3. INTEREST AND FEES
3.1 INTEREST. All Loans and all other monetary Obligations shall
bear interest at the rate shown on the Schedule, except where expressly set
forth to the contrary in this Agreement. Interest shall be payable monthly,
on the last day of the month. Interest may, in Coast's discretion, be charged
to Borrower's loan account, and the same shall thereafter bear interest at
the same rate as the other Loans. Regardless of the amount of Obligations
that may be outstanding from time to time, Borrower shall pay Coast Minimum
Monthly Interest during the term of this Agreement with respect to the
Receivable Loans in the amount set forth on the Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
deemed fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when
due, Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing; and all
Spare Parts with respect only to Borrower's Beechcraft Model 1900 type aircraft,
and all proceeds of any of the foregoing (the "Beechcraft 1900 Inventory"). All
of the foregoing, together with all other property in which Coast may now or in
the future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral". As more specifically set forth in the
Raytheon Intercreditor Agreement, Coast's security interest in the Beechcraft
1900 Inventory will continue until the full satisfaction of the Raytheon
Obligations and the termination of Raytheon's security interests in the assets
of Borrower, at which time Coast will terminate its security interest.
Notwithstanding the foregoing, Coast will not obtain a security interest in: (a)
any of Borrower's Slots, and (ii) any of Borrower's Brasilia aircraft, engines,
propellers or Spare Parts which are subject to lease or finance arrangements.
Concurrently with the Closing Date, Coast will perfect its security interest in
Borrower's Deposit Accounts consisting of Borrower's payroll account,
disbursement account and a concentration account maintained with Bank of America
in Spencer, Iowa. Coast does not intend to take further action to perfect its
lien on Borrower's other Deposit Accounts although Coast reserves the right to
do so at any time.
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the
satisfaction, in the sole discretion of Coast, at or prior to the first advance
of funds hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS. On the Closing Date, no accounts payable
shall be due and unpaid sixty (60) days past its due date or ninety (90) days
past its invoice date except for such accounts payable being contested in
good faith in appropriate proceedings and for which documentation has been
provided acceptable to Coast in its sole and absolute discretion.
Notwithstanding the foregoing, Borrower's accounts payable owing to Raytheon
and Pratt &
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Whitney may exceed the above time limitations provided that
Borrower provides Coast with documentation or other assurances, as requested
by Coast in its sole and absolute discretion, that exceeding such time
limitations is in the ordinary course of dealing and trade practice with
these respective creditors provided, however, that any enforcement step taken
by either of these creditors will immediately negate the effectiveness of
this provision. Borrower reaffirms that if such documentation or assurances
are not provided, Coast is entitled to establish reserves as set forth in
Section 2.1 of the Agreement.
5.2 MINIMUM INITIAL AVAILABILITY. Borrower shall have Minimum
Initial Availability immediately following the initial funding in the amount
set forth on the Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed
landlord waivers and access agreements in form and substance satisfactory to
Coast, in Coast's sole and absolute discretion, and, when deemed appropriate
by Coast, in form for recording in the appropriate recording office, with
respect to the leased locations listed on Schedule 5.3.
5.4 EXECUTED AGREEMENT. Coast shall have received this Agreement
duly executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.5 OPINION OF BORROWER'S COUNSEL. Coast shall have received an
opinion of Borrower's counsel, which opines, among other things, that the
expenses (including legal expenses) and claims arising from that certain
aircraft collision involving Borrower, which occurred in Quincy, Illinois on
November 19, 1996, are covered by Borrower's insurance. Said opinion shall be
in form and substance satisfactory to Coast in its sole and absolute
discretion.
5.6 PRIORITY OF COAST'S LIENS. Coast shall have received the results
of "of record" searches satisfactory to Coast in its sole and absolute
discretion, reflecting its Uniform Commercial Code filings against Borrower
indicating that Coast has a perfected, first priority lien in and upon all of
the Collateral, subject only to Permitted Liens.
5.7 INSURANCE. Counsel to Coast shall have reviewed all necessary
insurance requirements imposed upon Borrower by, among others, the Federal
Aviation Administration, the Department of Transportation, any other
governmental entity and United and shall have determined that Borrower is in
compliance with said requirements. Coast shall have received copies of the
insurance binders or certificates evidencing Borrower's compliance with
Section 8.2 hereof, including lender's loss payee endorsements.
5.8 BORROWER'S EXISTENCE. Coast shall have received copies of
Borrower's articles or certificate of incorporation and all amendments
thereto, and a Certificate of Good Standing, each certified by the Secretary
of State of the state of Borrower's organization, and dated a recent date
prior to the Closing Date, and Coast shall have received Certificates of
Foreign Qualification for Borrower from the Secretary of State of each state
wherein the failure to be so qualified could have a Material Adverse Effect.
5.9 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing
the execution and delivery of this Agreement and the other documents
contemplated hereby, and authorizing the transactions contemplated hereunder
and thereunder, and authorizing specific officers of Borrower to execute the
same on behalf of Borrower, in each case certified by the Secretary or other
acceptable officer of Borrower as of the Closing Date.
5.10 TAXES. Coast shall have received evidence from Borrower that
Borrower has complied with all tax withholding and Internal Revenue Service
regulations, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.11 YEAR 2000 PROBLEM ASSESSMENT CERTIFICATE. Coast shall have
received a certificate from the relevant officer of Borrower to the effect
that, after due inquiry made to Borrower's material suppliers, vendors and
customers, Borrower knows of no facts that would cause Borrower to reasonably
believe that the Year 2000 Problem will cause a Material Adverse Effect.
5.12 DUE DILIGENCE. Coast shall have completed its due
diligence with respect to Borrower.
5.13 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such
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other agreements, instruments and documents as Coast may require in
connection with the transactions contemplated hereby, all in form and
substance satisfactory to Coast in Coast's sole and absolute discretion, and
in form for filing in the appropriate filing office, including, but not
limited to, those documents listed in Section 5 of the Schedule.
5.14 INTERCREDITOR AGREEMENT - RAYTHEON. Coast shall have received
an executed intercreditor agreement from Raytheon Aircraft Corporation and
its financing affiliate Raytheon Aircraft Credit Corporation (collectively,
"Raytheon") wherein, among other things, Raytheon agrees to release its liens
against Borrower's Accounts and Inventory as more specifically set forth in
said intercreditor agreement. The form and substance of said intercreditor
agreement shall be acceptable to Coast in its sole and absolute discretion.
5.15 PAYMENT INSTRUCTIONS REGARDING COLLECTIONS. Coast, Borrower and
Chase Manhattan Bank as the "Clearing Bank", shall have established payment
instructions which provide that proceeds of payments on Receivables under the
Clearinghouse Agreement will be remitted directly to Coast, with the form and
content of said payment instructions to be in form and substance satisfactory
to Coast in its sole and absolute discretion.
5.16 CASH ADVANCES FROM UNITED. Coast shall have received an
agreement from United wherein United agrees not to make cash advances to
Borrower under any circumstances including, without limitation, advances
against tickets generated by Borrower's airline operations, with the form and
content of said agreement to be acceptable to Coast in its sole and absolute
discretion.
5.17 COMPLIANCE WITH DIRECTIVES/ REGULATIONS AND UNITED AGREEMENT.
Coast shall have received satisfactory evidence that Borrower is in
compliance with: (1) all directives/regulations of the Federal Aviation
Administration, the Department of Transportation and any other governmental
entities, and (2) all provisions of the United Agreement, where the failure
to comply with same could result in a Material Adverse Effect.
5.18 AIR OPERATOR CERTIFICATE. Coast shall have completed its review
of Borrower's Air Operator Certificate, with the results of said review to be
acceptable to Coast in its sole and absolute discretion.
5.19 D&O POLICY. Coast shall received and reviewed Borrower's
Directors and Officers Liability Policy ("D&O Policy"), with the results of
said review to be acceptable to Coast in its sole and absolute discretion.
5.20 UNITED AGREEMENT. Coast shall have received and Coast's counsel
shall have reviewed the existing United Agreement and any and all other
agreements with United, with the results of said review to be acceptable to
Coast in its sole and absolute discretion. In addition, Borrower shall have
caused United to deliver a letter addressed to Coast confirming the existing
relationship between Borrower and United (the "Letter of Understanding"),
with the form and content of the Letter of Understanding to be acceptable to
Coast in its sole and absolute discretion.
5.21 CLEARINGHOUSE AGREEMENT. Coast shall have received and Coast's
counsel shall have reviewed the Clearinghouse Agreement and associated
documents, with the results of said review to be acceptable to Coast in its
sole and absolute discretion.
5.22 MANAGEMENT BACKGROUND CHECKS. Coast shall have received the
results of a management background check, including without limitation, a
TRW, a tax lien and litigation search, LEXIS/NEXIS search and such other due
diligence as Coast my deem necessary on Douglas G. Voss, with said background
check to be satisfactory to Coast in its sole and absolute discretion.
5.23 RAYTHEON REPURCHASE OF INVENTORY. Borrower and Raytheon shall
have entered into an agreement for the repurchase by Raytheon of Borrower's
Inventory (the "Inventory Return") in an amount sufficient to repay all
indebtedness owing from Borrower to Raytheon under that certain
[Agreement Pertaining to Loans and Leases (Great Lakes)] dated as of
[July 11, 1997] (together with all other instruments entered into in
connection with the transactions contemplated therein (the "Raytheon Loan
Agreement")), with such Inventory Return to be completed by March 31, 2000.
Borrower's repayment of all indebtedness owing under the Raytheon Loan
Agreement will be accomplished through a combination of a Five Million Dollar
($5,000,000) cash payment to Raytheon from the initial advance of funds
hereunder together with
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such Inventory Return. Such agreement between Borrower and Raytheon shall
also provide, that in the event that there does not exist sufficient
Inventory for repurchase to satisfy the indebtedness owing to Raytheon in
full, Raytheon agrees to term out the then remaining Raytheon indebtedness
over a twenty-four month (24) month period (the "Term Out") commencing April
30, 2000 and ending on March 31, 2002. Coast is to be provided with
documentation and other assurances, as required by Coast in its sole and
absolute discretion, evidencing the consummation of such Inventory Repurchase
and Term Out, if any, and the release by Raytheon of its security interest
in, among other things, Borrower's Accounts and Inventory pursuant to the
terms of the Raytheon Intercreditor Agreement. Notwithstanding the foregoing,
Raytheon will retain their lien rights on any aircraft of Borrower which they
are leasing or financing.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be
qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a Material Adverse Effect. The execution,
delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (a) have been duly and validly authorized, (b)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (c) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (d) do not
constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade
names. Borrower shall give Coast thirty (30) days' prior written notice
before changing its name or doing business under any other name. Borrower has
complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name where the failure to
comply could result in a Material Adverse Effect.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The Borrower's chief
executive office is, as of the date hereof, located at 1965 330th Street,
Spencer, Iowa 51301; which chief executive office the Borrower plans to move,
beginning on or about January 1, 2000, to Cheyenne, Wyoming. As of the date
hereof, the Borrower has places of business at the locations set forth on
Schedule 6.3. The Borrower will give Coast at least thirty (30) days' prior
written notice before opening any additional place of business or changing
its chief executive office. As of the date hereof, the Collateral, other than
(i) mobile Equipment, such as aircraft and engines, currently in use in the
ordinary course of business; (ii) Deposit Accounts, Investment Property,
chattel paper, instruments and similar property maintained or held by or on
behalf of the Borrower at other locations in the ordinary course of business;
(iii) Equipment maintained or stored off-site for repair, refurbishment,
maintenance or similar purposes in the ordinary course of business; (iv)
Equipment at other locations with a fair market value of not more than
$1,000,000 in the aggregate, is located only at the Borrower's chief
executive office and at the locations set forth on Schedule 6.3, and the
Borrower will give Coast at least thirty (30) days' prior written notice
before moving any such Collateral to a location other than the Borrower's
chief executive office or the locations set forth on Schedule 6.3.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will
at all times in the future be, the sole owner of all the Collateral, except
for items of Equipment which are leased by Borrower. The Collateral now is
and will remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for Permitted Liens.
Borrower has disclosed the extent of any and all of the Collateral. Borrower
agrees that at all times Coast is to have a first priority and enforceable
security interest in all of the
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Collateral, subject only to the Permitted Liens. Borrower agrees that at all
times it will keep Coast advised as to the extent of the Collateral, will
defend Coast and the Collateral against all claims of others, and will take
any other action necessary, from time to time, that Coast requests to cause
Coast to have such a first priority-perfected and enforceable security
interest. No material part of the Collateral now is or will be affixed to any
real property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral
and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed
of trust, lien or otherwise), Borrower shall, whenever requested by Coast,
use its best efforts to cause such third party to execute and deliver to
Coast, in form acceptable to Coast, such waivers and subordinations as Coast
shall specify, so as to ensure that Coast's rights in the Collateral are, and
will continue to be, superior to the rights of any such third party. Borrower
will comply with all the terms of, any lease of real property where any of
the Collateral now or in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with GAAP (except, in the case of unaudited financial
statements, for the absence of footnotes and subject to normal year-end
adjustments) and now and in the future will fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated.
Between the last date covered by any such statement provided to Coast and the
date hereof, there has been no Material Adverse Effect. Borrower is now and
will continue to be Solvent.
6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by Borrower where the
failure to file or pay could result in a Material Adverse Effect. Borrower
may, however, defer payment of any contested taxes, provided that Borrower
(i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Coast in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other
steps required to keep the contested taxes from becoming a lien upon any of
the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result
in additional taxes becoming due and payable by Borrower. Borrower has paid,
and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
result in any liability of Borrower where such liability could result in a
Material Adverse, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency. Borrower
shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower is presently in compliance, and
will comply, in all material respects, with all provisions of all material
foreign, federal, state and local laws and regulations relating to Borrower,
including, but not limited to, the Fair Labor Standards Act, and those
relating to Borrower's ownership of real or personal property, the conduct
and licensing of Borrower's business, and environmental matters in each case
where to failure to comply could have a Material Adverse Effect.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation,
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proceeding or investigation pending or (to best of Borrower's knowledge)
threatened by or against or affecting Borrower in any court or before any
governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Any and all such presently existing claims, suits, litigation, proceedings or
investigations, set forth in Section 6.10 of the Schedule, are covered by
Borrower's insurance. Borrower will promptly inform Coast in writing of any
claim, proceeding, litigation or investigation in the future threatened or
instituted by or against Borrower involving an amount set forth on the
Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any
"margin stock" (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used
to purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. Upon the earlier to occur of: (1)
December 1, 1999, or (2) when required by United, Borrower shall be Year 2000
compliant and Borrower shall deliver to Coast a Year 2000 Problem Assessment
Certificate which states, among other things, that as the result of a
comprehensive review and assessment undertaken by Borrower of Borrower's
computer systems, software and applications and after due inquiry made of
Borrower's material suppliers, vendors and customers Borrower represents and
warrants that the Year 2000 problem will not result in a Material Adverse
Effect.
6.13 INTENTIONALLY OMITTED.
6.14 COMPLIANCE WITH DIRECTIVES/ REGULATIONS AND UNITED AGREEMENT.
Borrower at all times shall be in compliance with: (1) all
directives/regulations of the Federal Aviation Administration, the Department
of Transportation and any other governmental entities, and (2) all provisions
of the United Agreement, in each case where the failure to comply with same
could result in a Material Adverse Effect.
6.15 AIR OPERATOR CERTIFICATE. Borrower shall at all times maintain
a valid and effective Air Operator Certificate.
6.16 UNITED AGREEMENT. Borrower shall use its good faith best
efforts to renew the existing United Agreement or enter into a new code
sharing agreement with United, with the form and content of either to be
acceptable to Coast in its sole and absolute discretion. Borrower also agrees
that it will provide Coast with any notice of termination of the existing
United Agreement immediately upon its occurrence.
6.17 BORROWER OWNERSHIP/CONTROL. At all times, Douglas G. Voss
("Voss") must beneficially own and/or control at least 51% of Borrower's
voting stock. Notwithstanding the foregoing, a transfer of any ownership
interest of Voss which would result in Voss owning less than 51% of
Borrower's voting stock will be permitted so long as: (a) the transfer is for
bona-fide estate planning purposes, (b) Voss retains control of such
transferred stock including, without limitation the right to vote such stock,
(c) the ultimate ownership, management and control of Borrower remains with
Voss and Voss continues to remain as the active Chairman and Chief Executive
Officer of Borrower, and (d) an Event of Default has not occurred and is
continuing. Borrower agrees that it will provide all documentation and
information requested by Coast so that Coast can determine Borrower's
compliance with the foregoing terms.
6.18 THIRD PARTY PAYROLL SERVICE. At all times, Borrower must
maintain a third party payroll service acceptable to Coast in its sole and
absolute discretion.
6.19 ACH DEDUCTIONS. Borrower agrees that it will make no changes in
the "Approved ACH Deductions" with the ACH without Coast's prior written
approval.
6.20 ONGOING STATUS OF ACCOUNTS. At all times, none of Borrower's
accounts payable shall be due and unpaid sixty (60) days past its due date or
ninety (90) days past its invoice date except for such accounts being
contested in good faith in appropriate proceedings and for which
documentation has been provided acceptable to Coast in its sole and absolute
discretion. Notwithstanding the foregoing, Borrower's accounts payable owing
to Raytheon and Pratt & Whitney may exceed the above time limitations
provided that Borrower provides Coast with documentation or other assurances,
as requested by Coast in its sole and absolute discretion, that exceeding
such time limitations is in the ordinary course of dealing and trade practice
with these
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respective creditors provided, however, that any enforcement step taken by
either of these creditors will immediately negate the effectiveness of this
provision. Borrower reaffirms that if such documentation or assurances are
not provided, Coast is entitled to establish reserves as set forth in Section
2.1 of the Agreement.
6.21 FUTURE ENCUMBRANCE OF BEECHCRAFT 1900 INVENTORY. In the event
that Borrower at any time grants a lien on its Beechcraft 1900 Inventory
(other than the currently existing liens that exist in favor of Coast and
Raytheon as of the Closing Date) for any purpose including, without
limitation, in conjunction with obtaining Inventory financing or in order to
obtain extended payment terms on its obligations, Borrower will concurrently
grant a second priority security interest in favor of Coast in any and all of
its Beechcraft 1900 Inventory.
7. RECEIVABLES
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Coast as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Receivables are and shall be true and correct and
all such invoices, instruments and other documents and all of Borrower's
books and records are and shall be genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Receivable shall fully comply with all applicable laws and governmental
rules and regulations. All signatures and indorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, and schedules of collections, all on
Coast's standard forms; PROVIDED, HOWEVER, that Borrower's failure to execute
and deliver the same shall not affect or limit Coast's security interest and
other rights in all of Borrower's Receivables, nor shall Coast's failure to
advance or lend against a specific Receivable affect or limit Coast's
security interest and other rights therein. Loan requests received after
10:30 A.M. Los Angeles, California time, will not be considered by Coast
until the next Business Day. Borrower shall, from time to time as requested
by Coast, furnish Coast with copies (or, at Coast's request, originals) of
all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave
rise to such Receivables, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Coast an aged accounts receivable
trial balance in such form and at such intervals as Coast shall request. In
addition, Borrower shall deliver to Coast the originals of all instruments,
chattel paper, security agreements, guarantees and other documents and
property evidencing or securing any Receivables, upon receipt thereof and in
the same form as received, with all necessary indorsements, all of which
shall be with recourse. Borrower shall also provide Coast with copies of all
credit memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES. All payments on, and proceeds of,
Receivables shall be remitted directly to Coast from the ACH pursuant to an
agreement between Borrower, Coast and ACH which is acceptable to Coast in its
sole discretion, or shall be deposited by Borrower into a lockbox or blocked
account as Coast may specify. Coast or its designee may, at any time, notify
Account Debtors that Coast has been granted a security interest in the
Receivables. Coast shall promptly apply all payments on, and proceeds of,
Receivables to the Obligations in such order as Coast shall determine, and,
if all Obligations have been repaid in full, Coast agrees to promptly remit
any excess collections on Receivables to Borrower.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the
disposition of any Collateral shall be delivered to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed
to Coast, to be applied to the Obligations in such order as Coast
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shall determine. Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an
express trust for Coast. Nothing in this Section limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
7.6 DISPUTES. During the occurrence and continuance of an Event of
Default, Borrower shall notify Coast promptly of all disputes or claims
relating to Receivables. Absent the occurrence and continuance of an Event of
Default, Borrower will notify Coast of a dispute or claim relating to a
single Receivable in excess of $50,000, or more, or involving Receivables in
an aggregate amount of $200,000 or more. Borrower shall not forgive
(completely or partially), compromise or settle any Receivable for less than
payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (a) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, and in
arm's length transactions, which are reported to Coast on the regular reports
provided to Coast; (b) no Default or Event of Default has occurred and is
continuing; and (c) taking into account all such discounts settlements and
forgiveness, the total outstanding Loans will not exceed the Credit Limit.
Coast may, at any time after the occurrence of an Event of Default, settle or
adjust disputes or claims directly with Account Debtors for amounts and upon
terms which Coast considers advisable in its reasonable credit judgment and,
in all cases, Coast shall credit Borrower's Loan account with only the net
amounts received by Coast in payment of any Receivables.
7.7 INTENTIONALLY DELETED
7.8 VERIFICATION. Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters
relating to the Receivables, by means of mail, telephone or otherwise, either
in the name of Borrower or Coast or such other name as Coast may choose.
7.9 NO LIABILITY. Coast shall not under any circumstances be
responsible for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith in a commercially
reasonable manner for less than the full amount thereof, nor shall Coast be
deemed to be responsible for any of Borrower's obligations under any contract
or agreement giving rise to a Receivable. Nothing herein shall, however,
relieve Coast from liability for its own gross negligence or willful
misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times
comply with the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to Coast, in such form and
amounts as Coast may reasonably require and as required by the Federal
Aviation Administration, the Department of Transportation, any other
governmental entity, and United, and Borrower shall provide evidence of such
insurance to Coast, so that Coast is satisfied that such insurance is, at all
times, in full force and effect. All liability insurance policies of Borrower
shall name Coast as an additional insured, and all property casualty and
related insurance policies of Borrower covering Collateral shall name Coast
as a loss payee thereon and Borrower shall cause a lender's loss payee
endorsement in form reasonably acceptable to Coast. Upon receipt of the
proceeds of any such insurance, Coast shall apply such proceeds in reduction
of the Obligations as Coast shall determine in its sole discretion, except
that, provided no Default or Event of Default has occurred and is continuing,
Coast shall release to Borrower insurance proceeds with respect to Equipment
totaling less than the amount set forth in Section 8 of the Schedule, which
shall be utilized by Borrower for the replacement of the Equipment with
respect to which the insurance proceeds were paid. Coast may require
reasonable assurance that the insurance proceeds so released will be so used.
If Borrower fails to provide or pay for any insurance, Coast may, but is not
obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other
written reports with respect to Borrower (including budgets, sales
projections,
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operating plans and other financial documentation), as Coast shall from time
to time reasonably specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but
not less frequently than quarterly and on one (1) Business Day's notice,
Coast, or its agents, shall have the right to perform Audits. Coast shall
take reasonable steps to keep confidential all confidential information
obtained in any Audit, but Coast shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant
to any subpoena or other legal process. The Audits shall be at Borrower's
expense and the charge for the Audits shall be Seven Hundred Fifty Dollars
($750) per person per day (or such higher amount as shall represent Coast's
then current standard charge for the same), plus reasonable out-of-pocket
expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at
any location other than Borrower's Address, without first notifying Coast of
the same and obtaining the written agreement from such accounting firm,
service bureau or other third party to give Coast the same rights with
respect to access to books and records and related rights as Coast has under
this Loan Agreement. Borrower shall also take all necessary steps to assure
that its material accounting and software, systems and applications, and
those of its accounting firm, service bureau or any other third party vendor
or supplier, will, on a timely basis, adequately and completely address the
Year 2000 Problem in all material respects.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's
prior written consent, do any of the following:
(a) merge or consolidate with another entity, except in a
transaction in which (i) the owners of the Borrower hold at least fifty
percent (50%) of the ownership interest in the surviving entity immediately
after such merger or consolidation, and (ii) the Borrower is the surviving
entity;
(b) acquire any assets, except (i) in the ordinary course of
business, which for purposes of this paragraph shall be deemed to include
aircraft, engines, propellers, Spare Parts and Equipment related thereto,
acquired for use by Borrower in connection with Borrower's business as
presently conducted, or (ii) in a transaction or a series of transactions not
involving the payment of an aggregate amount in excess of the amount set
forth in Section 8 of the Schedule;
(c) except as provided in (n) below; enter into any other
transaction outside the ordinary course of business;
(d) sell or transfer any Collateral, except for: (i) the sale,
in the ordinary course of business, of obsolete or unneeded Equipment and
Spare Parts Inventory (which Borrower will no longer consume and which is
outside Borrower's rotation schedule of Spare Parts used in its aircraft),
and (ii) the sale or transfer of other Collateral with the prior written
consent of Coast.
(e) store any Collateral with any warehouseman or other third
party unless Coast has been provided with a warehouseman/bailee letter,
substantially in the form as the warehouseman/bailee letters attached to this
Agreement as Schedules 8.5(e)1 and 8.5(e)2 , respectively. The acceptability
of such warehouseman/bailee letters will be determined by Coast in its sole
and absolute discretion. Notwithstanding the foregoing, the following will be
excepted from the provisions of this subparagraph: (i) Borrower's Equipment
maintained or stored off-site for repair, refurbishment, maintenance or
similar purposes in the ordinary course of business, and (ii) Equipment with
a fair market value of not more than One Million Dollars ($1,000,000) in the
aggregate.
(f) sell any Collateral on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i)
advances to customers or suppliers in the ordinary course of business, (ii)
travel advances, employee relocation loans and other employee loans and
advances in the ordinary course of business, and (iii) loans to employees,
officers and directors for the purpose of purchasing equity securities of the
Borrower;
(h) except as provided in (n) below; incur any debts, outside
the ordinary course of business, which would have a Material Adverse Effect;
(i) incur any debts with United outside of the ordinary course
of business
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between Borrower and United including, without limitation, obtaining advances
from United against tickets generated by Borrower's airline operations.
(j) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(k) pay or declare any dividends or distributions on the
ownership interests in Borrower (except for dividends or distributions
payable solely in stock form of ownership interests in Borrower);
(l) make any change in Borrower's capital structure which would
have a Material Adverse Effect; or
(m) dissolve or elect to dissolve; or
(n) grant a lien on or security interest in Inventory; except
in connection with and limited to Borrower's obtaining new financing on
Inventory or to secure the extension by an inventory supplier of extended
payment terms, and then, in either case, only upon the granting by Borrower
of a second lien on and security interest in Inventory to Coast, subject to
terms, conditions and documentation acceptable to Coast, in its reasonable
discretion.
Transactions permitted by the foregoing provisions of this Section are
only permitted if no Default or Event of Default is continuing or would occur as
a result of such transaction.
8.6 LITIGATION COOPERATION. Should any third-party suit or
proceeding be instituted by or against Coast with respect to any Collateral
or relating to Borrower, Borrower shall, without expense to Coast, make
available Borrower and its officers, employees and agents and Borrower's
books and records, to the extent that Coast may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request
by Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
9. TERM
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be
extended, and this Agreement shall automatically and continuously renew, for
successive additional terms of one year each, unless one party gives written
notice to the other, not less than ninety (90) days prior to the Maturity
Date or the next Renewal Date, that such party elects to terminate this
Agreement effective on the Maturity Date or such next Renewal Date. In the
event that such ninety (90) day notice is given, the Early Termination Fee
provision set forth in Section 9.2 will not be applicable. If this Agreement
is renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee
in the amount shown in Section 3 of the Schedule. The Renewal Fee shall be
due and payable on the Renewal Date and thereafter shall bear interest at a
rate equal to the rate applicable to the Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under
this Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the
amount shown in Section 3 of the Schedule. The Early Termination Fee shall be
due and payable on the effective date of termination and thereafter shall
bear interest at a rate equal to the rate applicable to the Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether
or not all or any part of such Obligations are otherwise then due and
payable. Notwithstanding any termination of this Agreement, all of Coast's
security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until
all Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the discretion of Coast, Coast
may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations
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have been paid and performed in full. Upon payment and performance in full of
all the Obligations and termination of this Agreement, Coast shall promptly
deliver to Borrower termination statements, requests for reconveyances and
such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement, and
Borrower shall give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading and results in a Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any
interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any
time shall exceed the Credit Limit and Borrower shall fail to cause the
Credit Limit to equal or exceed the total Obligations outstanding within two
(2) days of such imbalance; or
(d) Borrower shall fail to deliver the proceeds of Collateral
to Coast as provided in Section 7.5 above, or shall fail to give Coast access
to its books and records or Collateral as provided in Section 8.4 above, or
shall breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after
written notice from Coast to Borrower pursuant to the provisions of Section
11.5; or
(g) Any levy, assessment, attachment, seizure, lien or
encumbrance (other than a Permitted Lien) is made on all or any part of the
Collateral which is not cured within ten (10) days after the occurrence of
the same; or
(h) any default or event of default, resulting in acceleration
of the underlying obligation, occurs under any obligation secured by a
Permitted Lien, which: (i) is not cured within any applicable cure period;
(ii) is not waived in writing by the holder of the Permitted Lien; or (iii)
is not being contested in good faith by appropriate proceedings; provided,
however, that any such default or Event of Default being contested does not
constitute a Material Adverse Effect on Coast's prospects for repayment and
Coast's rights in the Collateral; or
(i) Borrower breaches any material contract or obligation,
which has or may reasonably be expected to have a Material Adverse Effect.
For the purposes of this paragraph any contract with or obligation owing to
Raytheon will be deemed material; or
(j) Dissolution, termination of existence, insolvency or
business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit
of creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower under
any reorganization, bankruptcy, insolvency, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction, now or
in the future in effect, which is (i) not timely controverted, or (ii) not
cured by the dismissal thereof within forty-five (45) days after the date
commenced; or
(l) Intentionally Omitted.
(m) Intentionally Omitted.
(n) Borrower makes any payment on account of indebtedness or
obligations which has been subordinated to the Obligations, other than as
permitted in an applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement. Coast agrees that, as
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of the Closing Date, there is no subordinated indebtedness or obligations; or
(o) Except as permitted under Section 8.5(a), Borrower shall
suffer or experience any Change of Control without Coast's prior written
consent, which consent shall be in the discretion of Coast in the exercise of
its reasonable business judgment; or
(p) Borrower shall generally not pay its debts as they become
due, or Borrower shall conceal, remove or transfer any part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or
(q) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of
any Event of Default, Coast, at its option, and without notice or demand of
any kind (all of which are hereby expressly waived by Borrower), may do any
one or more of the following:
(a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations
to be immediately due, payable and performable, notwithstanding any deferred
or installment payments allowed by any instrument evidencing or relating to
any Obligation;
(c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on
the premises in exclusive control thereof, without charge for so long as
Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; PROVIDED, HOWEVER,
that should Coast seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement
of any suit or action to recover possession thereof;
(iii) and any requirement that Coast retain possession of,
and not dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral
and make it available to Coast at places designated by Coast which are
reasonably convenient to Coast and Borrower, and to remove the Collateral to
such locations as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling
any Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Coast may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and
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if permissible under applicable law, at any private disposition. Any sale or
other disposition of Collateral shall not relieve Borrower of any liability
Borrower may have if any Collateral is defective as to title or physical
condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's
sole discretion, to grant extensions of time to pay, compromise claims
subject to the provisions of Section 7.9, and settle Receivables and the like
for less than face value; and
(h) Demand and receive possession of any of Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast (including attorneys' fees and expenses incurred in connection
with bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Loans. Without limiting any of Coast's rights and remedies, from and after the
occurrence and during the continuance of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional three percent
per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower
and Coast agree that a sale or other disposition (collectively, "sale") of
any Collateral which complies with the following standards will conclusively
be deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7)
days prior to the sale, and, in the case of a public sale, notice of the sale
is published at least seven (7) days before the sale in a newspaper of
general circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with
or without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00
p.m. Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check
or wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast
may (but is not obligated to) direct any prospective purchaser to ascertain
directly from Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable
power of attorney coupled with an interest, authorizing and permitting Coast
(acting through any of its employees, attorneys or agents) at any time, at
its option, but without obligation, with or without notice to Borrower, and
at Borrower's expense, to do any or all of the following, in Borrower's name
or otherwise, but Coast agrees to exercise the following powers in a
commercially reasonable manner:
(a) Execute on behalf of Borrower any documents that Coast may,
in its sole discretion, deem advisable in order to perfect and maintain
Coast's security interest in the Collateral, or in order to exercise a right
of Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future
agreements;
(b) After and during the continuance of an Event of Default,
execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease
(as lessor or lessee) any real or personal property which is part of Coast's
Collateral or in which Coast has an interest;
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(c) After and during the continuance of an Event of Default,
execute on behalf of Borrower, any invoices relating to any Receivable, any
draft against any Account Debtor and any notice to any Account Debtor, any
proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's,
materialman's or other lien, or assignment or satisfaction of mechanic's,
materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come
into Coast's possession;
(e) Endorse all checks and other forms of remittances received
by Coast;
(f) After and during the continuance of an Event of Default,
pay, contest or settle any lien, charge, encumbrance, security interest and
adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same;
(g) After and during the continuance of an Event of Default,
grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and
other documents in connection therewith;
(h) After and during the continuance of an Event of Default,
pay any sums required on account of Borrower's taxes or to secure the release
of any liens therefor, or both;
(i) After and during the continuance of an Event of Default,
settle and adjust, and give releases of, any insurance claim that relates to
any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any
books or records belonging to, or relating to, Borrower to give Coast the
same rights of access and other rights with respect thereto as Coast has
under this Agreement; and
(k) After and during the continuance of an Event of Default,
take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees
and expenses incurred pursuant to bankruptcy) with respect to the foregoing
shall be added to and become part of the Obligations, and shall be payable on
demand. Coast may charge the foregoing to Borrower's loan account and the
foregoing shall thereafter bear interest at the same rate applicable to the
Loans. In no event shall Coast's rights under the foregoing power of attorney
or any of Coast's other rights under this Agreement be deemed to indicate
that Coast is in control of the business, management or properties of
Borrower. Borrower shall pay, indemnify, defend, and hold Coast and each of
its officers, directors, employees, counsel, agents, and attorneys-in-fact
(each, an "Indemnified Person") harmless (to the fullest extent permitted by
law) from and against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all attorneys fees and
disbursements and other costs and expenses actually incurred in connection
therewith (as and when they are incurred and irrespective of whether suit is
brought), at any time asserted against, imposed upon, or incurred by any of
them in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and
any other Loan Documents or the transactions contemplated herein, and with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related
thereto (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person hereunder with
respect to any Indemnified Liability that: (i) a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person; (ii) relates to claims,
demands, suits, actions, investigations, proceedings, litigation or damages
instituted or asserted by or on behalf of any governmental or supervisory
authority that does not involve misconduct on the part of the Borrower; or
(iii) relates to disputes between or among Coast and its assignees,
participants, syndication lenders or any other Person that does not involve
misconduct on the part of the Borrower. This provision shall survive the
termination of this Agreement and the repayment of the Obligations.
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10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Coast first to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in
the exercise of its rights under this Agreement, second to the interest due
upon any of the Obligations, and third to the principal of the Obligations,
in such order as Coast shall determine in its sole discretion. Any surplus
shall be paid to Borrower or other persons legally entitled thereto; Borrower
shall remain liable to Coast for any deficiency. If, Coast, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Coast shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Coast
of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party in equity, under the Code, and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise
by Coast of one or more of its rights or remedies shall not be deemed an
election, nor bar Coast from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Coast to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been indefeasibly paid and performed.
11. GENERAL PROVISIONS
11.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations two (2)
Business Days after receipt by Coast of immediately available funds, and, for
purposes of the foregoing, any such funds received after 10:30 AM Los
Angeles, California time, on any day shall be deemed received on the next
Business Day. Coast shall be entitled to charge Borrower's account for such
two (2) Business Days of "clearance" or "float" at the rate(s) set forth in
Section 3 of the Schedule on all checks, wire transfers and other items
received by Coast, regardless of whether such two (2) Business Days of
"clearance" or "float" actually occur, and shall be deemed to be the
equivalent of charging two (2) Business Days of interest on such collections.
This across-the-board two (2) Business Day clearance or float charge on all
collections is acknowledged by the parties to constitute an integral aspect
of the pricing of Coast's financing of Borrower. Coast shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Coast in its sole discretion, and Coast may charge
Borrower's loan account for the amount of any item of payment which is
returned to Coast unpaid.
11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all
payments with respect to the obligations may be applied, and in Coast's sole
discretion reversed and re-applied, to the Obligations, in such order and
manner as Coast shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest from the date
due to the date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to this
Agreement. Absent manifest error, such account shall be deemed correct,
accurate and binding on Borrower and an account stated (except for reverses
and reapplications of payments made and corrections of errors discovered by
Coast), unless Borrower notifies Coast in writing to the contrary within
thirty (30) days after each account is rendered, describing the nature of any
alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private
delivery service or by regular first-class mail, facsimile or certified mail
return receipt requested, addressed to Coast or Borrower at the addresses
shown in the heading to this Agreement, or at any other address designated in
writing by one party to the other party. Notices to Coast shall be directed
to the Commercial Finance Division, to the attention of the Division Manager
or the
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Division Credit Manager. All notices shall be deemed to have been
given upon delivery in the case of notices personally delivered, faxed (at
time of confirmation of transmission), or at the expiration of one (1)
Business Day following delivery to the private delivery service, or three (3)
Business Days following the deposit thereof in the United States mail, with
postage prepaid, or the date of delivery as shown on the return receipt,
whichever is later.
11.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in
full force and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS
SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
11.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other present or future agreement between Borrower and Coast shall not
waive or diminish any right of Coast later to demand and receive strict
compliance therewith. Any waiver of any Default shall not waive or affect any
other Default, whether prior or subsequent, and whether or not similar. None
of the provisions of this Agreement or any other agreement now or in the
future executed by Borrower and delivered to Coast shall be deemed to have
been waived by any act or knowledge of Coast or its agents or employees, but
only by a specific written waiver signed by an authorized officer of Coast
and delivered to Borrower. Borrower waives demand, protest, notice of protest
and notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time
held by Coast on which Borrower is or may in any way be liable, and notice of
any action taken by Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party through the ordinary negligence of
Coast, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Coast, but nothing herein shall
relieve Coast from liability for its own gross negligence or willful
misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not
be waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse
Coast for all attorneys' fees (including attorneys' fees and expenses
incurred pursuant to bankruptcy) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Coast, pursuant to,
or in connection with, or relating to this Agreement (whether or not a
lawsuit is filed), including, but not limited to, any attorneys' fees and
costs (including attorneys' fees and expenses incurred pursuant to
bankruptcy) Coast incurs in order to do the following: prepare and negotiate
this Agreement and the documents relating to this Agreement; obtain legal
advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy;
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; examine, audit, copy, and inspect any of the Collateral or any
of Borrower's books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Coast's security interest in, the
Collateral; and otherwise represent Coast in any litigation relating to
Borrower. If either Coast or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its costs and attorneys' fees (including
attorneys' fees and expenses incurred pursuant to bankruptcy), including (but
not limited to) attorneys' fees and
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costs incurred in the enforcement of, execution upon or defense of any order,
decree, award or judgment. Borrower shall also pay Coast's standard charges
for returned checks and for wire transfers, in effect from time to time. All
attorneys' fees, costs and charges (including attorneys' fees and expenses
incurred pursuant to bankruptcy) and other fees, costs and charges to which
Coast may be entitled pursuant to this Agreement may be charged by Coast to
Borrower's loan account and shall thereafter bear interest at the same rate
as the Loans. Coast agrees that it will provide Great Lakes with reasonable
documentation of expenses for which reimbursement is sought provided that
Coast will not be required to provide any documentation which would result in
the waiver of Coast's attorney-client privilege.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall
be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Coast;
provided, however, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Coast, and any
prohibited assignment shall be void. No consent by Coast to any assignment
shall release Borrower from its liability for the Obligations. Coast may
assign its rights and delegate its duties hereunder without the consent of
Borrower provided that any successor to Coast must be a commercial financial
institution. Coast reserves the right to syndicate all or a portion of the
transaction created herein or sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Coast's rights and
benefits hereunder. In connection with any such syndication, assignment or
participation, Coast may, subject to the confidentiality provisions of
Section 11.18, disclose all documents and information which Coast now or
hereafter may have relating to Borrower or Borrower's business. To the extent
that Coast assigns its rights and obligations hereunder to a third Person and
such third person assumes Coast's obligations, Coast thereafter shall be
released from such assigned obligations to Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to
issue appropriate press releases and to cause a tombstone to be published
announcing the consummation of this transaction and the aggregate amount
thereof.
11.15 PARAGRAPH HEADINGS CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that
the headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe,
limit, define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between
the parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any
rule of construction or otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all
acts and transactions hereunder and all rights and obligations of Coast and
Borrower shall be governed by the internal laws of the State of California,
without regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California,
and that the exclusive venue therefor shall be Los Angeles County; (b)
consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or
any other method permitted by law; and (c) waives any and all rights Borrower
may have to object to the jurisdiction of any such court, or to transfer or
change the venue of any such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY
CONDUCT, ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
COAST OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
11.18 CONFIDENTIALITY. Coast will maintain the confidentiality of
any non-public information marked as confidential and relating to the
business operations and methodology of
23
<PAGE>
Borrower and financial performance of Borrower ("Borrower Information")
provided to Coast solely by the Borrower as required under the terms of this
Agreement, and will not disclose Borrower Information to any person, other
than employees, agents, attorneys or accountants of Coast. Coast will not
disclose Borrower information to any other party unless, prior to such
disclosure, Coast obtains an executed acknowledgment binding such party to
maintain the confidentiality of the information, prohibiting its disclosure
except for the purposes permitted under this Agreement, and agreeing that the
information may not be used to complete with the Borrower in any way. In the
event Coast receives a subpoena or other process for any Borrower
Information, it will immediately give notice in writing of the subpoena or
other process, including a copy thereof, to Borrower.
BORROWER:
GREAT LAKES AVIATION, LTD.,
AN IOWA CORPORATION
By /s/ Doug G. Voss
------------------------
President or Vice President
By
------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By /s/ John C. Steiner
------------------------------
Title: VP
-----------------------------
24
<PAGE>
COAST
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: GREAT LAKES AVIATION, LTD.,
AN IOWA CORPORATION
ADDRESS: 1965 330TH STREET
SPENCER, IOWA 51301
DATE: DECEMBER 31, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, a California
corporation and the above-borrower of even date.
- --------------------------------------------------------------------------------
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total amount at any time
outstanding not to exceed the lesser
of Twenty Million Dollars ($20,000,000) at
any one time outstanding (the "Maximum
Dollar Amount"), or an amount not to
exceed 85% of the amount of Borrower's
Eligible Billed Receivables and Eligible
Unbilled Receivables (as defined in
Section 1 of the Agreement).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus
one-half of one percent (.50%) per annum,
calculated on the basis of a 360-day year
for the actual number of days elapsed. The
interest rate applicable to all Loans shall
be adjusted monthly as of the first day of
each month, and the interest to be charged
for each month shall be based on the
highest Prime Rate in effect during the
prior month, but in no event shall the
rate of interest charged on any Loans in
any month be less than 8% per annum.
25
<PAGE>
- --------------------------------------------------------------------------------
SECTION 3.1 - MINIMUM MONTHLY
INTEREST: An amount equal to the interest that would
have accrued had the daily aggregate
outstanding balance of all Loans been
equal to forty percent (40%) of all the
Maximum Dollar Amount.
SECTION 3.2 - LOAN FEE: One percent (1%) of the Maximum Dollar
Amount, such amount being fully earned
on the Closing Date, and payable one
half-percent (.50%) on the Closing Date,
and one-quarter of one percent (.25%) on
the first and second anniversaries of
the Closing Date. The fees payable
pursuant to this provision will survive
notwithstanding an Early Termination of
this Agreement pursuant to Section 9.2 of
the Agreement and will be payable on the
effective date of such Early Termination.
SECTION 3.2 - FACILITY FEE: $3,500, per quarter, payable on the
Closing Date (prorated for any partial
quarter at the beginning of the term of
this Agreement).
SECTION 9.1 - RENEWAL FEE: One-half of one percent (.50%) of the
Maximum Dollar Amount per year.
SECTION 9.2 - EARLY TERMINATION
FEE:
An amount equal to three percent (3%) of
the Maximum Dollar Amount (as defined in
the Schedule), if termination occurs
on or before the first anniversary of
the effective date of this Agreement;
two percent (2%) of the Maximum Dollar
Amount, if termination occurs after
the first anniversary and on or before
the second anniversary of the effective
date of this Agreement; and one percent
(1%) of the Maximum Dollar Amount, if
termination occurs after the second
anniversary and before the Maturity Date.
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM
AVAILABILITY: $1,000,000
SECTION 5.13- OTHER DOCUMENTS
AND AGREEMENTS: 1. UCC-1 financing statements, fixture
filings and termination statements;
2. Security Agreements (including those
covering: (a) copyrights, patents and
trademarks, and (b) the Beechcraft
1900 Inventory);
3. Intercreditor Agreement with Raytheon;
4. Lockbox/TriParty/Blocked Account
Agreements;
26
<PAGE>
- --------------------------------------------------------------------------------
5. Payment Instructions re: Collections
under the Clearinghouse Agreement;
6. Agreement with United Airlines re:
no further cash advances to Borrower;
7. Opinion of Borrower's Counsel;
8. Landlord Waivers and Access Agreements
with respect to the locations set
forth on Schedule 5.3;
9. Year 2000 Problem Assessment
Certificate; and
10. Letter of Understanding from United.
================================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: None.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: RDU, Inc.
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: Great Lakes Airlines
Great Lakes Aviation d/b/a United
Express
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: See attached Schedule 6.3.
SECTION 6.10 - MATERIAL ADVERSE
LITIGATION: None.
SECTION 6.10 - FUTURE CLAIMS AND
LITIGATION: Borrower will promptly inform
Coast in writing of any claim,
proceeding, litigation or
investigation in the future
threatened or instituted by or
against Borrower involving (i) any
single claim of Two Hundred and
Fifty Thousand Dollars ($250,000)
or more, or involving Five Hundred
Thousand Dollar ($500,000) or more
in the aggregate, whether or not
any such claim(s) are insured or
uninsured, and (ii) with respect
to any claims not covered
insurance, any single claim of One
Hundred Thousand Dollars
($100,000) or more, or involving
Two Hundred and Fifty Thousand
Dollars ($250,000) or more in the
aggregate.
================================================================================
27
<PAGE>
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS: 1) Borrower shall have an ongoing
Tangible Net Worth of Seven Million
Dollars ($7,000,000) on the Closing
Date with said amount to be
maintained until the first
anniversary of the Closing Date, at
which time said amount will be
increased to Eight Million Dollars
($8,000,000), with said Tangible Net
Worth to be increased by One Million
Dollars ($1,000,000) on each and
every subsequent anniversary of the
Closing Date. If, as a direct result
of weather problems, verified by
Coast to its sole and absolute
satisfaction, Borrower's available
seat miles decline leading to a
decrease in Borrower's Tangible Net
Worth such that at any time Borrower
fails to maintain the required
Tangible Net Worth, the Interest
Rate applicable to all Loans shall
increase to the Default Rate of
Interest (set forth in Section
10.2 hereof), notwithstanding the
fact that an Event of Default will
not be deemed to have occurred, and
such Default Rate of Interest will
continue until such time as Borrower
is in compliance with the Tangible
Net Worth covenant. Notwithstanding
the foregoing, an Event of Default
shall be deemed to have occurred if
at any time Borrower's Tangible Net
Worth falls below Five Million
Dollars ($5,000,000).
2) Borrower's accounts payable
shall be maintained as required
under Section 6.20 of the Agreement.
SECTION 8.2 - INSURANCE: Subject to the limitations set forth
in Section 8.2 of the Agreement,
Coast shall release to Borrower
insurance proceeds with respect to
Equipment totaling less than Five
Hundred Thousand Dollars ($500,000).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with
the following:
1. Monthly Receivable agings,
aged by invoice date, including
reconciliation to the General
Ledger, within fifteen (15) days
after the end of each month.
2. Monthly accounts payable
agings, aged by invoice date,
including reconciliation to the
General Ledger, and outstanding or
held check registers within fifteen
(15) days after the end of each
month.
3. Monthly internally prepared
financial statements, as soon
as available, and in any event
within thirty (30) days after
the end of each month.
28
<PAGE>
- --------------------------------------------------------------------------------
4. Quarterly internally prepared
financial statements, as soon
as available, and in any event
within forty-five (45) days
after the end of each fiscal
quarter of Borrower.
5. Annual financial statements,
as soon as available, and in
any event within ninety (90)
days following the end of
Borrower's fiscal year,
certified by, an independent
certified public accountant
acceptable to Coast.
6. A copy of Borrower's Form 10Q,
as soon as available, and in
any event within 45 days
following the end of each
fiscal year.
7. A copy of Borrower's Form 10K,
as soon as available, and in
any event within 90 days
following the end of each
fiscal year.
8. Monthly, a copy of the ACH
"recap/settlement sheet" for
the previous month, as soon as
available.
9. Borrower's cooperation in
obtaining third party
confirmation of Borrower's
passenger revenues from the
Airline Tariff Publishing
Company, with said information
to be obtained as requested by
Coast.
SECTION 8.5 - NEGATIVE COVENANTS
(ACQUIRED ASSETS): Two Hundred and Fifty Thousand
Dollars ($250,000) during any
calendar year, with such amount to
be prorated for any partial calendar
year periods during the term of this
Agreement .
================================================================================
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: The last Business Day of the month
three (3) years from the Closing
Date, subject to automatic renewal
as provided in Section 9.1 of the
Agreement, and early termination as
provided in Section 9.2 of the
Agreement.
29
<PAGE>
SCHEDULE 5.3
[Locations for Landlord Waivers]
1) 1965 330th Street
Spencer, Iowa 51301
2) ________________________________
Chicago, Illinois ______________
3) ________________________________
Denver, Colorado _______________
4) ________________________________
Grand Island, North Dakota _____
5) ________________________________
Cheyenne, Wyoming ______________
6) ________________________________
Huron, South Dakota ____________
30
<PAGE>
SCHEDULE 6.3
[Borrower's Locations]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
LOC NAME FED EX ADDRESS
---------- ----------------
- -----------------------------------------------------------------------------------------------
<S> <C>
Alliance, NE 5631 Sarpy Rd., Alliance, NE 69301
- -------------------------------------------------------------------------------------------------
Waterloo, IA 2790 Airport Blvd., Waterloo, IA 50703
- -------------------------------------------------------------------------------------------------
Almosa, CO 2190 State St., Almosa, CO 81101
- -------------------------------------------------------------------------------------------------
Amarillo, TX
- -------------------------------------------------------------------------------------------------
Scottsbluff, NE 250023 Airport Terminal, Scottsbluff, NE 69361
- -------------------------------------------------------------------------------------------------
Bismarck, ND 2301 University Dr., Bismarck, ND 58502
- -------------------------------------------------------------------------------------------------
Brookings, SD 413 2nd St. SW., Brookings, SD 57006
- -------------------------------------------------------------------------------------------------
Burlington, IA 2501 Summer St., Burlington, IA 52601
- -------------------------------------------------------------------------------------------------
Chadron, NE 90 Airport Rd., Chadron, NE 69337
- -------------------------------------------------------------------------------------------------
Cortez, CO Montezoma County Airport, County Rd. G, P.O. Box 1120, Cortez, CO 81321
- -------------------------------------------------------------------------------------------------
Chicago (Meigs), IL 1521 S. Lynn White Dr., Chicago, IL 60605
- -------------------------------------------------------------------------------------------------
Cheyenne, WY 300 E. 8th St. Cheyenne, WY 82001
- -------------------------------------------------------------------------------------------------
Dubuque, IA 11000 Airport Rd., Dubuque, IA 52003
- -------------------------------------------------------------------------------------------------
Dodge City, KS 100 Airport Rd., Dodge City, KS 67801
- -------------------------------------------------------------------------------------------------
Decatur, IL 910 Airport Rd., Decatur, IL
- -------------------------------------------------------------------------------------------------
Denver, CO DIA 8900 Pens Blvd., B-59, Denver, CO 80249-2037
- -------------------------------------------------------------------------------------------------
Denver, CO ***
- -------------------------------------------------------------------------------------------------
Denver, CO ***
- -------------------------------------------------------------------------------------------------
Dickinson, ND RR 4, Box 130D, Dickinson, ND 58601
- -------------------------------------------------------------------------------------------------
Durango, CO 100 Airport Rd., Box 6, Durango, CO 81301
- -------------------------------------------------------------------------------------------------
Devils Lake, ND Devils Lake Airport, Devils Lake, ND 58301
- -------------------------------------------------------------------------------------------------
Kearney, NE 5145 Airport Rd., Kearney, NE 68847
- -------------------------------------------------------------------------------------------------
Eagle/Vale, CO
- -------------------------------------------------------------------------------------------------
Farmington, NM 1300 W. Navajo, Farmington, NM 87401
- -------------------------------------------------------------------------------------------------
Fairmont, MN Fairmont Municipal Airport, Fairmont, MN 56031
- -------------------------------------------------------------------------------------------------
Sioux Falls, SD 2801 Jaycee Ln., Sioux Falls, SD 57104
- -------------------------------------------------------------------------------------------------
Great Bend, KS Rt. 1, Box 103A, Great Bend, KS 67530
- -------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 3
<PAGE>
[Borrower's Locations]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
LOC NAME FED EX ADDRESS
---------- ----------------
- -------------------------------------------------------------------------------------------------
<S> <C>
Gillette, WY 2000 Airport Rd., Gillette, WY 82001
- -------------------------------------------------------------------------------------------------
Garden City, KS 2225 Air Service Rd., Garden City, KS 67846
- -------------------------------------------------------------------------------------------------
Grand Junction, CO
- -------------------------------------------------------------------------------------------------
Goodland, KS Renner Field, 600 E. Airport Rd., Goodland, KS 67735
- -------------------------------------------------------------------------------------------------
Grand Island, NE 3773 N. Skypark, Suite 3, Grand Island, NE 68801
- -------------------------------------------------------------------------------------------------
Gunnison, CO
- -------------------------------------------------------------------------------------------------
Hayden, CO
- -------------------------------------------------------------------------------------------------
Huron, SD 1501 Colorado Ave. NW., Huron, SD 57350
- -------------------------------------------------------------------------------------------------
Hays, KS E. Hwy. 40, Hays, KS 67601
- -------------------------------------------------------------------------------------------------
Iron Mountain, MI 500 Airport Rd., Iron Mountain, MI 49801
- -------------------------------------------------------------------------------------------------
Williston, ND Hwy. 2 & Hwy. 85 N., Williston, ND 58801
- -------------------------------------------------------------------------------------------------
Ironwood, MI 5560 Airport Rd., Ironwood, MI 49938
- -------------------------------------------------------------------------------------------------
Jamestown, ND 1600 21st Ave. NE, Jamestown, ND 58401
- -------------------------------------------------------------------------------------------------
Lamar, CO Lamar Mnn Airport. 3652 County Rd. GG2, Lamar, CO 81052
- -------------------------------------------------------------------------------------------------
Lafayette, IN Term Bldg #104, Airport Rd. W., Lafayette, IN 47906
- -------------------------------------------------------------------------------------------------
Lansing, MI 4100 Capitol City Blvd., Lansing, MI 48906
- -------------------------------------------------------------------------------------------------
Laramie, WY 555 General Braca Rd., Laramie, WY 82070
- -------------------------------------------------------------------------------------------------
North Platte, NE 5400 E. Leebird Dr., Suite #7, North Platte, NE 69101
- -------------------------------------------------------------------------------------------------
Liberal, KS 720 Terminal Ave., P.O. Box 410, Liberal, KS 67901
- -------------------------------------------------------------------------------------------------
Manistee, MI 2323 Airport Rd., Manistee, MI 49660
- -------------------------------------------------------------------------------------------------
McCook, NE Airport Rd., McCook, NE 69001
- -------------------------------------------------------------------------------------------------
Muskegon, MI 101 Simonir Dr., Muskegon, MI 49441
- -------------------------------------------------------------------------------------------------
Minneapolis, MN 4800 Green Ln. Dr., St. Paul, MN 55111
- -------------------------------------------------------------------------------------------------
Minneapolis, MN ***
- -------------------------------------------------------------------------------------------------
Montrose, CO 2100 Airport Road, Montrose, CO 81401
- -------------------------------------------------------------------------------------------------
Mattoon, IL M Airport Rd. ERT 16, Mattoon, IL 61938
- -------------------------------------------------------------------------------------------------
Mt. Vernon, IL Outland Airport, Rt. d Box 721, Mt. Vernon, IL 62864
- -------------------------------------------------------------------------------------------------
Norfolk, NE Kari Stefan Memorial Airport, Rt. 2 Box 382A, Norfolk, NE 68701
- -------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 3
<PAGE>
[Borrower's Locations]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
LOC NAME FED EX ADDRESS
---------- ----------------
- --------------------------------------------------------------------------------------------------
<S> <C>
Chicago, IL O'Hare Int'l Airport, P.O. Box 66389, Chicago, IL 60666
- --------------------------------------------------------------------------------------------------
ORDDZK ***
- --------------------------------------------------------------------------------------------------
Oshkosh, WI 525 W. 20th Ave., Oshkosh, WI 54901
- --------------------------------------------------------------------------------------------------
Ottumwa, IA 14802 Terminal St., Ottumwa, IA 52501
- --------------------------------------------------------------------------------------------------
Pierre, SD 3801 Airport Rd., Pierre, SD 57501-5604
- --------------------------------------------------------------------------------------------------
Pueblo, CO 31385 Bryan Circle, Pueblo, CO 81001
- --------------------------------------------------------------------------------------------------
Rhinelander, WI 3375 Airport Rd., Rhinelander, WI 54501
- --------------------------------------------------------------------------------------------------
Riverton, WY 4800 Airport Rd., P.O. Box 259, Riverton, WY 82501
- --------------------------------------------------------------------------------------------------
Rock Springs, WY Rock Springs Sweetwater County Airport, Hwy. 370, Rock Springs, WY 82901
- --------------------------------------------------------------------------------------------------
Santa Fe, NM 443 B Airport Rd., Santa Fe, NM 87501
- --------------------------------------------------------------------------------------------------
Sheridan, WY 901 W. Brundage, Sheridan, WY 82801
- --------------------------------------------------------------------------------------------------
Salina, KS 3237 Arnold Ave., Salina, KS 67401
- --------------------------------------------------------------------------------------------------
Springfield, IL Rt. 29 JD Jonce Pkwy., Springfield, IL 62707
- --------------------------------------------------------------------------------------------------
Spencer, IA 1965 330th St., Spencer, IA 51301
- --------------------------------------------------------------------------------------------------
Telluride, CO P.O. Box 1807, 1500 Last Dollar Rd., Telluride, CO 81435
- --------------------------------------------------------------------------------------------------
Traverse City, MI 1330 Airport Access Rd., Traverse City, MI 49686
- --------------------------------------------------------------------------------------------------
Quincy, IL Rt. 1 Baldwin Field, Quincy, IL 62301
- --------------------------------------------------------------------------------------------------
Worland, WY 1440 Airport Rd., Worland, WY 82401
- --------------------------------------------------------------------------------------------------
Yankton, SD 700 E. 31st, Yankton, SD 57078
- --------------------------------------------------------------------------------------------------
</TABLE>
Page 3 of 3
<PAGE>
SCHEDULE 6.19
[Approved ACH Deductions]
32
<PAGE>
GREAT LAKES AVIATION, LTD.
Allowed Offsets to Clearinghouse Funds
<TABLE>
<CAPTION>
COMPANIES AVERAGE MONTHLY
BILLING*
GROUND HANDLING
- -----------------
<S> <C>
AIR WISCONSIN 22,677
MESA 2,391
NORTHWEST 2,946
TRANSTATE 1,467
RESERVATION FEES
- ------------------
THE SABRE GROUP INC 83,171
GALILEO INTERNATION 110,994
RADIO COMMUNICATIONS
- ----------------------
AERONAUTICAL RADIO INC 17,517
FARE PUBLISHING
- -----------------
AIRLINES TARIFF PUBLISHING 2,306
PASSENGER SERVICES
- --------------------
UNITED AIRLINES 723,987
(program fees, baggage claims, baggage deliveries
security, ground services)
SPACE RENTALS
- ---------------
UNITED AIRLINES 204,510
CONTINENTAL AIRLINES 1,220
</TABLE>
*BASED ON THE LAST TWELVE MONTHS BILLED
<PAGE>
SCHEDULE 8.5(e)(1)
[Form of Warehouseman's Letter]
COAST BUSINESS CREDIT
_______________________________ _____, 199__
_____________________________
_____________________________
_____________________________
_____________________________
Re: __________________________
Ladies and Gentlemen:
We understand that you now or from time to time may hold on deposit
for hire certain property (the "Warehoused Property") of ______________, a
___________ corporation (hereinafter "__________"). Coast Business Credit, a
division of Southern Pacific Bank ("Coast") has extended and continues to
extend to ________________ significant loans and other financial
accommodations, the repayment of which is secured by substantially all of
_______________'s assets, specifically including the Warehoused Property.
This letter shall serve to confirm the following agreements among
you, ______________, and Coast:
1. You shall, promptly upon receipt of request from Coast,
provide to Coast such information regarding the Warehoused
Property (including, but not limited to, information regarding
storage and other warehouse related charges) as Coast may
request.
2. You are authorized to release and deliver the Warehoused
Property per the instructions of ______________, until such
time as you have been notified to the contrary by Coast.
3. Upon receipt of a written notice from Coast, you shall no
longer deliver any of the Warehoused Property to _____________
or to any other party pursuant to instructions from
_____________. After receipt of such notice from Coast, the
Warehoused Property may only be delivered by you pursuant to
instructions from Coast.
4. You shall, upon Coast's request, deliver to Coast any and
all of the Warehoused Property.
5. Any notice hereby permitted to be given shall be in writing
and may be personally delivered to the respective recipient at
its address set forth herein or sent via facsimile to such
recipient's facsimile number set forth below. Notice properly
transmitted shall be effective upon dispatch.
33
<PAGE>
_______________________
_____________ ___, 199_ Page ___
Please acknowledge your agreement to the foregoing by executing this
letter where appropriate below and returning the original copy of this letter
to Coast at its address set forth below.
COAST BUSINESS CREDIT, a division of
Southern Pacific Bank
By______________________________________
Title:__________________________________
Address for notices:
12121 Wilshire Boulevard
Suite 1400
Los Angeles, California 90925
Facsimile No. (310) 826-2884
____________________________________,
a ______________________ corporation
By:______________________________________
Title:___________________________________
Address for notices:
_________________________________________
_________________________________________
_________________________________________
Facsimile No. (______) _______-__________
ACKNOWLEDGED AND AGREED
ON THIS ____ DAY OF ____________, 199___
[Warehouse]
By__________________________________________
Title:______________________________________
Address for notices:
____________________________________________
____________________________________________
____________________________________________
Facsimile No. (____) ____-_______
34
<PAGE>
SCHEDULE 8.5(e)(2)
[Form of Bailee Letter]
COAST BUSINESS CREDIT
____________________________ __________________ _____, 199__
____________________________
____________________________
____________________________
Re:______________________________("BORROWER")
Ladies and Gentlemen:
We understand that you now or from time to time may be in
possession of certain property ("Property") of Borrower, as a result of your
rendition of services to Borrower.
Coast Business Credit, a division of Southern Pacific Bank
("Coast") has extended and continues to extend to Borrower significant loans
and other financial accommodations, the repayment of which is secured by
substantially all of Borrower's assets, specifically including the Property.
This letter shall serve to confirm the following agreements among
you, Borrower and Coast:
1. You shall, promptly upon receipt from Coast, provide to Coast
such information regarding the Property (including, but not
limited to, information regarding fees, charges, advances, and
other expenses) as Coast my request.
2. You are authorized to release and deliver the Property per
the instructions of Borrower, until such time as you have been
notified to the contrary by Coast.
3. Upon receipt of a written notice from Coast, you shall no
longer deliver any of the Property to Borrower or to any other
parties pursuant to instructions from Borrower. After receipt of
such notice from Coast, the Property may only be delivered by you
pursuant to instructions from Coast.
4. You shall, upon Coast's request, deliver to Coast any and all
of the Property.
5. Any notice hereby permitted to be given shall be in writing
and may be personally delivered to the respective recipient at
its address set forth herein or sent via facsimile to such
recipient's facsimile number set forth below. Notice properly
transmitted shall be effective upon dispatch.
35
<PAGE>
_________________________
___________ ____, 199___ Page ____
Please acknowledge your agreement to the foregoing by executing
this letter where appropriate below and returning the original copy of this
letter to Coast at its address set forth below.
COAST BUSINESS CREDIT, a division of
Southern Pacific Bank
By_________________________________
Title:_____________________________
Address for notices:
12121 Wilshire Boulevard
Suite 1400
Los Angeles, California 90925
Facsimile No. (310) 826-2884
___________________________,
a ______________ corporation
By:________________________________
Title:_____________________________
Address for notices:
___________________________________
___________________________________
___________________________________
Facsimile No. (____) _____-________
ACKNOWLEDGED AND AGREED
ON THIS ____ DAY OF ____________, 199___
________________________
By_____________________________________
Title:_________________________________
Address for notices:
_______________________________________
_______________________________________
_______________________________________
Facsimile No. (______) ______-_________
36
<PAGE>
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as of
January 7, 2000 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of December 31, 1999 (as amended from time to time, the
"Loan Agreement"), by and between GREAT LAKES AVIATION, LTD., an Iowa
corporation ("Borrower"), on the one hand, and COAST BUSINESS CREDIT, a
division of Southern Pacific Bank, a California corporation ("Coast"), on the
other hand. All initially capitalized terms used in this Amendment shall have
the meanings ascribed thereto in the Loan Agreement unless specifically
defined herein.
R E C I T A L S
WHEREAS, Borrower and Coast wish to amend the Loan Agreement pursuant to
the terms and provisions set forth in this Amendment; and
NOW, THEREFORE, the parties hereto agree as follows:
A M E N D M E N T
SECTION 1. AMENDMENT TO SECTION 2.1 OF THE AGREEMENT. The second sentence of
Section 2.1 of the Loan Agreement is hereby amended by deleting such sentence in
its entirety and replacing it with the following sentence:
"In addition, Coast may create reserves against the Loans which
otherwise would be available under this Agreement including, without
limitation, creating reserves for: (a) accounts payable which have
become past due pursuant to Sections 5.1 and 6.20; (b) a Two Hundred
Thousand Dollar ($200,000) reserve for prospective payments due to
Raytheon under the Term Out as described in Section 5.23 hereof (the
"Term Out Reserve"), with such Term Out Reserve to be released at
Coast's sole and absolute discretion; and (c) offsets/contras which are
deducted from the proceeds of Receivables collected on behalf of
Borrower by the ACH (the "ACH Contras"). The ACH Contras arise from and
are paid to other airline carriers/vendors who provide goods and/or
services to Borrower. The reserve for the ACH Contras will be
established in an amount and through means acceptable to Coast in its
sole and absolute discretion.
All other provisions of Section 2.1 remain unchanged.
SECTION 2. AMENDMENT TO SECTION 3.1 OF THE SCHEDULE. Section 3.1 of the
Schedule to the Loan Agreement regarding the "Minimum Interest" is hereby
amended by deleting such Section in its entirety and replacing it with the
following:
"An amount equal to the interest that would have accrued had the daily
aggregate outstanding balance of all Loans been equal to thirty-five
percent (35%) of the Maximum Dollar Amount."
1
<PAGE>
Section 3. AMENDMENT TO SECTION 5.2 OF THE SCHEDULE. Section 5.2 of the
Schedule to the Loan Agreement regarding the "Minimum Availability" is hereby
amended by deleting such Section in its entirety and replacing it with the
following:
"Eight Hundred Thousand Dollars ($800,000)."
Section 4. AMENDMENT TO SECTION 8.1 OF THE SCHEDULE. Section 8.1 of the
Schedule to the Loan Agreement is hereby amended to add the following "Ongoing
Minimum Availability" requirement, which was previously deleted from the Loan
Agreement in error:
"3) Subsequent to the Closing Date, Borrower shall at all times have
Minimum Availability of Three Hundred Thousand Dollars ($300,000)."
Section 5. CONDITION PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the receipt by Coast of an executed copy of this
Amendment executed by Borrower.
Section 6. ENTIRE AGREEMENT. The Loan Agreement, as amended hereby,
embodies the entire agreement and understanding between the parties hereto
and supersedes all prior agreements and understandings relating to the
subject matter hereof. Borrower represents, warrants and agrees that in
entering into the Loan Agreement and consenting to this Amendment, it has not
relied on any representation, promise, understanding or agreement, oral or
written, of, by or with, Coast or any of its agents, employees, or counsel,
except the representations, promises, understandings and agreements
specifically contained in or referred to in the Loan Agreement, as amended
hereby.
Section 7. CONFLICTING TERMS. In the event of a conflict between the
terms and provisions of this Amendment and the terms and provisions of the
Loan Agreement, the terms of this Amendment shall govern. In all other
respects, the Loan Agreement, as amended and supplemented hereby, shall
remain in full force and effect.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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Section 8. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This
Amendment may be executed in any number of counterparts, all of which taken
together shall constitute one agreement, and any party hereto may execute
this Amendment by signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
GREAT LAKES AVIATION, LTD.,
an Iowa corporation
By /s/ Thomas J. Ahmann CFO
----------------------------
President or Vice President
By /s/ Richard Hanson
----------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By /s/ John C. Steinner
-----------------------------
Title VP
--------------------------
3
<PAGE>
GREAT LAKES AVIATION, LTD.,
1965 330TH STREET
SPENCER, IOWA 51301
January 5, 2000
Coast Business Credit
12121 Wilshire Boulevard, Suite 1400
Los Angeles, California 90025
Ladies and Gentlemen:
This letter is provided in connection with the Loan and Security
Agreement, dated as of December 31, 1999, between Great Lakes Aviation, Ltd., an
Iowa corporation ("Borrower") and Coast Business Credit, a division of Southern
Pacific Bank, a California corporation ("Coast') (the "Loan Agreement"). All
initially capitalized terms not otherwise defined herein will have the meanings
given to such terms in the Loan Agreement.
Pursuant to the terms of the Loan Agreement and prior to the first
advance of funds, Borrower is required to fulfill all "Conditions Precedent"
including, without limitation, those described in Sections 5.17 and 5.18 of the
Loan Agreement. This letter is delivered in connection with those certain
Sections 5.17 and 5.18.
With respect to Section 5.17, Borrower represents and warrants that it
is in compliance with: (i) all directives/regulations of the Federal Aviation
Administration, the Department of Transportation and any other governmental
entities, and (ii) all provisions of the United Agreement; where the failure to
comply with same could result in a Material Adverse Effect.
With respect to Section 5.18, Borrower represents and warrants that
its Air Operator Certificate is in good standing and that it has complied in all
material respects with all provisions of federal, state and local laws and
regulations, as applicable, relating to Borrower's maintaining its Air Operator
Certificate in good standing.
Sincerely,
GREAT LAKES AVIATION, LTD.,
an Iowa corporation
By: /s/ Thomas J. Ahmann
-----------------------------------
Name: Thomas J. Ahmann
---------------------------------
Title: CFO
---------------------------------
<PAGE>
SECURITY AGREEMENT AND ENCUMBRANCE AGAINST
AIR CARRIER AIRCRAFT SPARE PARTS
[Pursuant to 14 CFR Section.49.41 et seq.]
Aircraft Owner: Great Lakes Aviation, Ltd.
Aircraft Operator: Great Lakes
Spare Parts Locations: See Attached Exhibit A
This Security Agreement And Encumbrance Against Air Carrier Aircraft
Spare Parts ("Security Agreement") is made and entered into on this 21st day
of December, 1999, 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 COAST BUSINESS CREDIT, a
division of Southern Pacific Bank, a California corporation, with its
principal place of business at 12121 Wilshire Boulevard, Suite 1400, Los
Angeles, California 90025 (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, and the Loan and Security Agreement, together with any and
all other agreements, instruments and documents executed in connection
therewith, all executed of even date hereof (collectively, hereinafter "Loan
Agreement"), the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST. To secure the payment of Debtor's
obligation under the Loan Agreement 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 Loan
Agreement, 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 all of the air carrier aircraft engines, propellers, appliances,
spare parts, avionics, accessories, instruments, rotables, equipment
(including ground support equipment), subassemblies, tools, kits,
consummables, components and related items for installation in or use in
connection with Debtor's Beechcraft Model 1900 type aircraft (hereinafter
collectively "Spare Parts") which Debtor owns. Debtor grants to Secured Party
a security interest in all of the aforesaid Spare Parts, whether now existing
or hereafter acquired. In order to allow Secured Party to record and perfect
its security interest in the Spare Parts pursuant to 14 CFR Section. 49.41 et
seq., Debtor hereby covenants and agrees that:
(i) Debtor is an air carrier holding a certificate issued under 49
U.S.C. Section 44705; and
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(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 A. Debtor shall not warehouse, inventory or store any
of the Spare Parts (other than Spare Parts maintained off-site
for repair, refurbishment, maintenance or similar purposes in the
ordinary course of business) 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 of Federal Regulations
evidencing such change of location and such other documents as
may be required by Secured Party.
The above-described 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 to Raytheon Aircraft Credit Corporation pursuant
to that certain Security Agreement and Encumbrances Against Air Carrier
Aircraft Engines, Propellers, Appliances and Spare Parts dated July 11, 1997,
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. Notwithstanding the foregoing, Debtor may sell, in the ordinary
course of business, obsolete or unneeded Spare Parts which Debtor will no
longer consume and which are outside of Debtor's rotation schedule of Spare
Parts used in its aircraft.
3. DEBTOR WILL EXECUTE AND DELIVER DOCUMENTS; POWER OF ATTORNEY. 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 satisfaction. Debtor will pay the cost of filing all
appropriate documents in all public offices where Secured Party deems such
filings necessary or desirable. In addition, Debtor grants to Secured Party
an irrevocable power of attorney coupled with an interest, authorizing and
permitting Secured Party (acting through any of its employees, attorneys or
agents) at any time after the occurrence of an Event of Default, at its
option, but without obligation, with or without notice to Debtor, and at
Debtor's expense, to do any or all of the following, in Debtor's name or
otherwise: (a) Execute on behalf of Debtor any documents that Secured Party
may, in its sole and absolute discretion, deem advisable in order to perfect,
maintain or improve Secured Party's security interest in the Collateral or
other property intended to constitute Collateral, or in order to exercise a
right of Debtor or Secured Party, or in order to fully consummate all the
transactions contemplated under this Security Agreement, and all other
present and future agreements; (b) Execute on behalf of Debtor any document
2
<PAGE>
exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any property which is
part of Secured Party's Collateral or in which Secured Party has an interest;
(c) Execute on behalf of Debtor, any proof of claim in bankruptcy, any Notice
of Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in
any manner of any cash or non-cash items of payment or proceeds of
Collateral; endorse the name of Debtor upon any instruments, or documents,
evidence of payment or Collateral that may come into Secured Party's
possession; (e) Pay, contest or settle any lien, charge, encumbrance,
security interest and adverse claim in or to any of the Collateral, or any
judgment based thereon, or otherwise take any action to terminate or
discharge the same; (f) Pay any sums required on account of Debtor's taxes or
to secure the release of any liens therefor, or both; (g) Settle and adjust,
and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (h) Take any action or pay any sum
required of Debtor pursuant to this Security Agreement and any other present
or future agreements. Any and all sums paid and any and all costs, expenses,
liabilities, obligations and attorneys' fees incurred by Secured Party with
respect to the foregoing shall be added to and become part of the Obligations
(as defined in the Loan Agreement), shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any
of the Obligations. In no event shall Secured Party's rights under the
foregoing power of attorney or any of Secured Party's other rights under this
Security Agreement be deemed to indicate that Secured Party is in control of
the business, management or properties of Debtor.
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 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 Loan Agreement 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.
3
<PAGE>
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 of the insurer 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, Secured Party, at its option
and without assuming any obligation to do so, may discharge taxes, liens,
security interests or other 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
4
<PAGE>
principal balance under the Loan Agreement, 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 Loan Agreement 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 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, and to discuss the
affairs, finances and accounts of Debtor with the principal financial
officers of Debtor, all at such times and as often as Secured Party may
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 from time to time, such other information as Secured Party may
request with respect to the operations of Debtor in order to determine
whether the covenants, terms and provisions of this Agreement have been
complied with by Debtor.
8. DEBTOR'S DEFAULT. The parties agree that the occurrence of any of
the following events shall constitute an "Event of Default":
(a) An Event of Default shall occur under the Loan Agreement; and
(b) Debtor's failure to maintain the insurance coverage as specified
above in Section 5.
Should an Event of Default occur, Secured Party may employ all remedies
allowed by law, including declaring all indebtedness owed under the Loan
Agreement, 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. The requirements of the
California 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 seven (7) days
before the time of the sale or disposition. After deduction of all expenses
incurred in realizing on this security interest, and after the payment of all
principal, interest and late payment charges due under the Loan Agreement,
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 Loan Agreement and this
Agreement after application of such proceeds. Debtor agrees to pay the
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
5
<PAGE>
recovered by Secured Party, Debtor agrees that Secured Party may move the
Collateral for purposes related to a proposed public or private sale or other
disposition of the Collateral.
9. WAIVERS. 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 of 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, the Lien of Raytheon set forth
in Section 2 hereinabove and other Permitted Liens (as defined in the
Loan Agreement);
(b) Liens for taxes, assessments or other governmental charges owing by
Debtor, either not yet due or being contested in good faith (and for
the payment of which adequate reserves have been provided) and by
appropriate proceedings so long as such proceedings do not involve
any material danger of the sale, forfeiture or loss of the Collateral
or any part thereof;
(c) materialmen's, mechanic's, workmen's , repairmen's, employees' Liens
or any Lien of a similar nature arising in the ordinary course
of Debtor's business, which Lien secures an obligation that is not
yet delinquent or is being contested in good faith (and for the
payment of which adequate reserves have been provided) and by
appropriate proceedings so long as such proceedings do not involve
any material danger of the sale, forfeiture or loss of the Collateral
or any part thereof;
(d) Liens arising out of any judgment or award against Debtor, provided
that the judgment or award secured shall, within ten (10) days of
entry thereof, have been discharged, vacated, reversed or execution
thereof stayed pending appeal and shall have been discharged, vacated
or reversed within ten (10) days after the expiration of such stay;
and
(e) any other Lien with respect to which the 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.
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<PAGE>
11. 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
Loan Agreement, 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.
12. 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.
13. 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.
14. GOVERNING LAW AND FORUM CHOICE. THIS AGREEMENT WAS MADE ENTERED INTO,
AND DELIVERED IN THE STATE OF CALIFORNIA AND THE LAW GOVERNING THIS
TRANSACTION SHALL BE THAT OF THE STATE OF CALIFORNIA AS IT MAY FROM TIME TO
TIME EXIST. THE LAW OF THE STATE OF CALIFORNIA 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 IN COURTS LOCATED
WITHIN CALIFORNIA, AND THAT THE EXCLUSIVE VENUE THEREFOR SHALL BE LOS ANGELES
COUNTY, 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.
15. 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
7
<PAGE>
of the remaining valid, effective and enforceable provisions is not
frustrated; and provided further that no party is substantially and
materially prejudiced thereby.
16. 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.
17. 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.
18. MODIFICATION. This Agreement shall not be changed orally, but only in
writing signed by the parties hereto.
19. 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:
Debtor: Great Lakes Aviation,
Attn: Chairman
1965 330th Street
Spencer, IA 51301
Telephone: (712) 262-1000
Telecopy: (712) 262-1001
Secured Party: Coast Business Credit
Attn: Division Manager, Commercial
Finance Division
12121 Wilshire Boulevard, Suite 1400
Los Angeles, California 90025
Telephone: (310) 820-6681
Telecopy: (310) 979-7289
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.
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20. 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.
21. MUTUAL WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SECURED PARTY AND DEBTOR,
OR ANY CONDUCT, ACTS OR OMISSIONS OF SECURED PARTY OR DEBTOR OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH SECURED PARTY OR DEBTOR, IN ALL OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
In witness of the mutual promises, covenants and representations set
forth herein, the parties have caused this Agreement to be duly executed and
delivered at Los Angeles, California, on the day and year first above written.
Secured Party:
COAST BUSINESS CREDIT
a division of Southern Pacific Bank
By: /s/ John Steiner
--------------------------------
Name: John L. Steiner
------------------------------
Title: VP
-----------------------------
Debtor:
GREAT LAKES AVIATION, LTD.
an Iowa corporation,
By: /s/ Doug G. Voss
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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EXHIBIT "A"
[Spare Parts Locations]
1965 330th Street
Spencer, Iowa 51301
O'Hare International Airport
P.O. Box 66389
Chicago, Illinois 60666
DIA 8900 Pena Blvd.
B-59
Denver, Colorado 80249-2037
3773 N. Skypark
Suite 3
Grand Island, Nebraska 68801
300 E. 8th Street
Cheyenne, Wyoming 82001
1501 Colorado Avenue N.W.
Huron, South Dakota 57350
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INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT (this "Agreement") is entered into this 31
day of December, 1999, by and among COAST BUSINESS CREDIT, a division of
Southern Pacific Bank ("Coast"), RAYTHEON AIRCRAFT CREDIT CORPORATION, a
Kansas corporation ("Raytheon"), and GREAT LAKES AVIATION, LTD., an Iowa
corporation ("Borrower"), in light of the following:
R E C I T A L S
WHEREAS, Coast has agreed to make certain financial accommodations to
Borrower pursuant to the terms of that certain Loan and Security Agreement,
of even date herewith, by and between Borrower and Coast (the "Coast Loan
Agreement").
WHEREAS, pursuant to the terms of the Coast Loan Instruments, repayment
of the Coast Obligations are to be secured, inter alia, by a first priority
lien and security interest in all present and future Coast Primary Collateral
and a second priority lien and security interest in all present and future
Coast Inventory Collateral, together with the proceeds of all of the
foregoing.
WHEREAS, Raytheon and Borrower have previously entered into that certain
Agreement Pertaining to Loans and Leases (Great Lakes), dated as of July 11,
1997 (the "Raytheon Loan Agreement"), pursuant to which Raytheon agreed to
make certain financial accommodations to Borrower.
WHEREAS, pursuant to the terms of the Raytheon Loan Instruments,
repayment of the Raytheon Obligations are secured, inter alia, by a first
priority lien and security interest in all present and future Raytheon
Primary Collateral, and all proceeds of all of the foregoing.
WHEREAS, pursuant to the terms of the Raytheon Loan Instruments, the
Raytheon Obligations are also secured by a first priority lien and security
interest in Borrower's Accounts and Accounts Proceeds, with said lien and
security interest to be immediately terminated pursuant to the terms of this
Agreement in favor of Coast.
WHEREAS, Borrower and Raytheon have agreed that repayment of the Raytheon
Obligations will be accomplished through Borrower's payment of Five Million
Dollars ($5,000,000) in cash (the "Paydown"), with the source of such Paydown
funds being the financial accommodations provided by Coast to Borrower under
the Coast Loan Agreement. In addition, Raytheon Aircraft Parts Inventory &
Distribution Company ("RAPID") has agreed to purchase up to $5,000,000 in new
or certified overhauled 19000 C or D aircraft parts. The return of the parts
is subject to the conditions described in a November 10, 1999 letter from
Raytheon Aircraft Credit Corporation and RAPID to Mr. Richard Hanson of
Borrower (the "Inventory Return"). The proceeds from the return of the parts
shall be applied to the Raytheon Obligations. The Inventory Return is to be
completed by March 31, 2000. In the event there is insufficient inventory to
return for credit to satisfy the Raytheon Obligations, then Raytheon agrees
to term out the then existing and remaining Raytheon Obligations over a
twenty-four (24) month period
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(the "Term Out"). Payments under the Term Out will commence on April 30, 2000
and will continue each and every month thereafter until a final payment due
on March 31, 2002.
WHEREAS, Borrower, Raytheon, and Coast have agreed that until the
Raytheon Obligations are satisfied in full, Raytheon will continue to have a
first priority lien and security interest in the Raytheon Primary Collateral
and Coast will have a second priority lien and security interest with respect
only to the Raytheon Primary Collateral consisting of Beechcraft Model Type
1900 Engines, Propellers and Spare Parts. At all relevant times, Raytheon's
first priority lien and security interest in the Raytheon Primary Collateral
(other than Embraer Brasilia collateral) will be limited to the amount of the
outstanding Raytheon Obligations after receipt of the Paydown. Upon payment in
full of the Raytheon Obligations, Raytheon and Coast each agree that they
will release their liens and security interests in the Raytheon Primary
Collateral.
WHEREAS, as a condition precedent to Coast's entering into the Coast Loan
Agreement, Coast has required that the parties hereto execute this Agreement.
NOW THEREFORE, the parties hereto agree as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth above are hereby
incorporated by reference.
2. DEFINITIONS. When used herein, the following terms shall have the
following meanings (such meanings to be applicable equally both to the
singular and plural terms defined):
"ACCOUNTS", "CHATTEL PAPER", "DOCUMENTS", "EQUIPMENT", "FIXTURES",
"GENERAL INTANGIBLES", "INSTRUMENTS", and "INVENTORY" shall have the meanings
assigned to them under the UCC.
"ACCOUNTS PROCEEDS" shall mean all proceeds of Accounts including,
without limitation, all of Borrower'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 of revenues,
which are or shall be received for the account of and are or shall become
payable to Borrower by Airlines Clearing House, Inc. or otherwise.
"COAST INVENTORY COLLATERAL" shall mean all of Borrower's now existing
and hereafter acquired Inventory which secures indebtedness incurred by
Borrower, and all proceeds of the foregoing, other than the Beechcraft Model
1900 type aircraft owned by Borrower in which a purchase money security
interest exists in favor of Raytheon.
"COAST LOAN INSTRUMENTS" shall mean all of the instruments executed by
and among Borrower and Coast in connection with the transactions contemplated
by the Coast Loan Agreement.
"COAST OBLIGATIONS" shall mean the obligations owed by Borrower to Coast
pursuant to the Coast Loan Instruments.
2
<PAGE>
"COAST PRIMARY COLLATERAL" shall mean all of Borrower's Accounts, Chattel
Paper, Documents, Equipment, Fixtures, General Intangibles and Instruments,
and the proceeds thereof other than (a) the Raytheon Primary Collateral and
the Raytheon Purchase Money Collateral, (b) any of Borrower's Slots (as
defined in the Coast Loan Agreement) and (iii) any of Borrower's Brasilia
aircraft, engines, propellers or spare parts which are subject to lease or
finance arrangements. More specifically, included within the Coast Primary
Collateral are Borrower's Accounts Proceeds, and the proceeds thereof.
"COLLATERAL" shall mean, collectively, the Coast Primary Collateral and
the Raytheon Primary Collateral.
"DEBT INSTRUMENTS" shall mean, collectively, the Coast Loan Instruments
and the Raytheon Loan Instruments.
"ENGINES" shall mean all aircraft engines which are rated at 750 or more
takeoff horsepower or the equivalent of that horsepower.
"LENDERS" shall mean, collectively, Raytheon and Coast.
"OBLIGATIONS" shall mean, collectively, the Coast Obligations and the
Raytheon Obligations.
"PROPELLERS" shall mean all aircraft propellers which are capable of
absorbing 750 or more rated shaft horsepower.
"RAYTHEON PRIMARY COLLATERAL" shall mean all of Borrower's now existing
and hereafter acquired Engines, Propellers and Spare Parts with respect to
Borrower's Beechcraft Model 1900 type aircraft and Borrower's Embraer
Brasilia type aircraft, and the proceeds thereof.
"RAYTHEON LOAN INSTRUMENTS" shall mean a negotiable promissory note in
the amount of Five Million Dollars ($5,000,000) dated July 31, 1996, a
negotiable promissory note in the amount of Four Million Dollars ($4,000,000)
dated July 11, 1997, and a negotiable promissory note in the amount of One
Million Dollars ($1,000,000) dated January 1, 1998, as well as any and all
security agreements, pledge and assignment agreements and other documentation
associated therewith.
"RAYTHEON OBLIGATIONS" shall mean the obligations owed by Borrower to
Raytheon pursuant to the Raytheon Loan Instruments.
"RAYTHEON PURCHASE MONEY COLLATERAL" shall mean all of Borrower's now
existing and hereafter acquired aircraft, engines and propellers which secured
indebtedness incurred by Borrower to finance all or part of the purchase
price of such property, and all proceeds of the foregoing.
"SPARE PARTS" shall mean all air carrier aircraft engines (other than
Engines), propellers (other than Propellers), appliances, spare parts,
avionics, accessories, instruments, rotables, equipment (including ground
support equipment), subassemblies, tool, kits,
3
<PAGE>
consumables, components and related items maintained by or on behalf of
Borrower for installation in or use in connection with Borrower's currently
owned or hereafter acquired aircraft.
"UCC" shall mean the Uniform Commercial Code as adopted in the State of
Iowa.
3. TERMINATION OF RAYTHEON LIEN AND SECURITY INTEREST AGAINST ACCOUNTS
AND ACCOUNTS PROCEEDS. Upon receipt of the Paydown, Raytheon agrees to
immediately terminate its lien and security interest in all of Borrower's
assets (including but not limited to the Accounts and the Accounts Proceeds),
other than the Raytheon Primary Collateral and the Raytheon Purchase Money
Collateral. Raytheon agrees to execute and deliver to Coast such terminations
or other instruments as may be required by Coast to give effect to said
termination including, without limitation, providing executed UCC termination
statements with respect to the financing statements set forth on Exhibit A
hereto.
4. PRIORITY OF LIENS. Notwithstanding the date, manner or order of
perfection or attachment of the security interests and liens granted by
Borrower to Raytheon or the priority provisions of the UCC or any other
applicable law, Coast shall have a first priority and only security interest
in and lien upon the Coast Primary Collateral (including, without limitation,
the right to go upon the premises of Borrower in order to collect and take
possession of such Coast Primary Collateral in accordance, with the
provisions of the Coast Loan Instruments) and Raytheon shall have no lien or
security interest in the Coast Primary Collateral. Notwithstanding the date,
manner or order of perfection or attachment of the security interests and
liens granted to by Borrower to Coast or the priority provisions of the UCC
or any other applicable law, Raytheon shall have a first priority security
interest in and lien upon the Raytheon Primary Collateral and the Raytheon
Purchase Money Collateral (including, without limitation, the right to go
upon the premises of Borrower in order to collect and take possession of such
Raytheon Primary Collateral and the Raytheon Purchase Money Collateral in
accordance, with the provisions of the Raytheon Loan Instruments and the loan
instruments evidencing the Raytheon Purchase Money Collateral Indebtedness)
and Coast shall have a subordinate security interest and lien therein (with
the exceptions of the Raytheon Primary Collateral consisting of Embraer
Brasilia Type Engines, Propellers and Spare Parts and the Raytheon Purchase
Money Collateral), subject to the provisions of paragraph 6 hereof.
5. TERMINATION OF LIENS AND SECURITY INTERESTS IN THE RAYTHEON PRIMARY
COLLATERAL. Upon full satisfaction of the the Raytheon Obligations as a
result of the Paydown, the Inventory Repurchase and the Term Out, if
applicable, Raytheon and Coast each agree that they will release their liens
and security interests in the Raytheon Primary Collateral and the Coast
Inventory Collateral. Raytheon and Coast each agree that they will execute
and deliver to Borrower such terminations or other instruments as may be
required by Borrower to give effect to said terminations.
6. INSURANCE PROCEEDS. Notwithstanding the foregoing, proceeds of
insurance shall be paid as follows:
4
<PAGE>
(a) insurance proceeds with respect to the Coast Primary Collateral
shall be paid (i) first, to Coast until the Coast Obligations are paid in
full and all commitments on the part of Coast to make loans to Borrower are
terminated, and (ii) second, to Borrower:
(b) insurance proceeds with respect to the Raytheon Primary
Collateral (other than Embraer Brasilia collateral) shall be paid (i) first,
to Raytheon until the Raytheon Obligations are paid in full and all
commitments on the part of Raytheon to make loans to Borrower are terminated,
(ii) second, to Coast until the Coast Obligations are paid in full and all
commitments on the part of Coast to make loans to Borrower are terminated,
and (iii) third, to Borrower.
(c) insurance proceeds with respect to the Coast Inventory Collateral
shall be paid (i) first, to the party holding the first security interest in
such property until the indebtedness secured by such security interest is
paid in full and commitments on the part of such secured party to makes loans
to Borrower are terminated, (ii) second, to Coast until the Coast Obligations
are paid in full and all commitments on the part of Coast to make loans to
Borrower are terminated, and (iii) third, to Borrower.
Notwithstanding the foregoing, the Borrower and Coast agree that, in the
event of a conflict between the terms of this Paragraph 7 and the Coast Loan
Agreement, the provisions of the Coast Loan Agreement shall control with
respect to insurance proceeds to be paid to Coast or the Borrower.
7. LIEN ENFORCEMENT ACTIONS.
(a) COAST. Nothing contained herein shall restrict Coast's right to
enforce its liens or security interests and exercise any other right or
remedy with respect to the Coast Primary Collateral or Coast Inventory
Collateral in accordance with the provisions of the Coast Loan Instruments
and applicable law. Prior to the payment in full of the Raytheon Obligations,
Coast shall not, without the prior written consent of Raytheon, take any
action to enforce its liens and security interests with respect to the
Raytheon Primary Collateral.
(b) RAYTHEON. Nothing contained herein shall restrict Raytheon's
right to enforce its liens and security interests or exercise any other right
or remedy with respect to the Raytheon Primary Collateral or Raytheon
Purchase Money Collateral in accordance with the provisions of the Raytheon
Loan Instruments, the agreements and instruments evidencing purchase money
debt of the Borrower to Raytheon, and applicable law.
(c) NOTICE OF LIEN ENFORCEMENT ACTION. Simultaneously with the
commencement by either party hereto of any action to enforce its liens and
security interests in any of the Collateral, such party shall send to the
other party written notice of its commencement of such action; provided,
however, that the failure to give such notice for any reason whatsoever shall
not be deemed to be a breach of this Agreement and shall not affect the
rights of the parties hereunder in any way whatsoever.
8. CONTINUED EFFECTIVENESS OF THIS AGREEMENT. The terms of this
Agreement and the rights and obligations of the Lenders arising hereunder
shall not be affected, modified or impaired in any manner or to any extent
by: (a) any amendment, modification or termination of
5
<PAGE>
or supplement to any Debt Instrument; (b) the validity or enforceability of
any Debt Instrument; (c) any exercise or nonexercise of any right, power or
remedy under or in respect of any of the Obligations, or the Debt Instruments
or arising at law; or (d) any waiver, consent, release, indulgence,
extension, renewal, modification, delay or other action, inaction or omission
in respect thereof, whether or not any of the parties hereto shall have
consented thereto.
9. Miscellaneous.
(a) DEFAULTS. Concurrently with the providing of written notice to
Borrower of its failure to pay the applicable Obligations owed to such Lender
pursuant to the applicable Debt Instruments, such Lender will provide the
other Lender with a copy of such written notice to Borrower; provided,
however, that the failure to give such notice for any reason whatsoever shall
not be deemed to be a breach of this Agreement and shall not affect the
rights of the parties hereunder in any way whatsoever.
(b) CONFLICTS. In the event of any conflict between any term,
covenant or condition of this Agreement and any term, covenant or condition
of any of the Debt Instruments, and except as provided in Paragraph 7 hereof,
the provisions of this Agreement shall govern and be controlling.
(c) NOTICES. Any notices required or permitted to be given
hereunder shall be validly given if set forth in writing and delivered by
telecopy, by hand or commercial messenger against receipt or mailed, either
by overnight express carrier or by certified mail, postage prepaid, return
receipt requested, addressed to the parties hereto at their respective
addresses as set forth on the signature page of this Agreement. Any notice
hereunder shall be deemed given (i) on the day which it is delivered by
telecopy, by hand or such commercial messenger service, (ii) if sent by
overnight express carrier, on the business day immediately after the day sent
or, if such day is not a business day, on the next business day, or (iii) if
sent by mail, on the earlier of actual receipt by the receipt by the
recipient or three (3) business days after the day deposited in the mails,
postage prepaid. Any party hereto may designate any other address to which
any notices shall be given by notice duly given hereunder; provided, however,
that any such notice of other address shall be deemed to have been given
hereunder only when actually received by the party to which addressed.
(d) AMENDMENT OF AGREEMENT; ENTIRE AGREEMENT, ETC. This Agreement
may be amended or modified by written instrument only, signed by each of the
parties hereto. No waiver of any term or provision of this Agreement shall be
effective unless it is in writing, making specific reference to this
Agreement and signed by the party against which such waiver is sought to be
enforced. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and assigns.
This Agreement may be signed in one or more counterparts which, when taken
together, shall constitute one and the same document.
(e) TRANSFER OF OBLIGATIONS; EXECUTION OF IDENTICAL AGREEMENT.
Prior to the consummation of any sale, assignment, disposition or other
transfer of any of the Obligations, the transferor of such Obligations as a
condition precedent to the rights of any transferee to succeed to such
transferor's position, shall cause such transferee to execute and
6
<PAGE>
deliver to the other parties to this Agreement an agreement (substantially
identical to this Agreement or otherwise in form and substance satisfactory
to such parties) providing for the continued effectiveness of all of the
rights of such other parties under this Agreement.
(f) TERMINATION; EFFECT. This Agreement shall terminate upon
payment in full of the Obligations owing to either Lender, provided that all
commitments on the part of such Lender to make further loans to Borrower have
been terminated.
This Agreement has been executed and delivered by each of the parties
hereto by a duly authorized officer of each such party on the date first set
forth above.
RAYTHEON:
RAYTHEON AIRCRAFT CREDIT CORPORATION,
a Kansas corporation
By: /s/ John S. Myers
-------------------------------------------
Title: VP
----------------------------------------
Address: 9709 E. Central
Wichita, Kansas 67206
COAST:
COAST BUSINESS CREDIT, a division
of Southern Pacific Bank
By: /s/ John C. Steiner
-------------------------------------------
Title: CFO
----------------------------------------
Address: 12121 Wilshire Boulevard, Suite 1400
Los Angeles, California 90025
BORROWER:
GREAT LAKES AVIATION, LTD.,
an Iowa corporation
By: /s/ Thomas J. Ahmann
-------------------------------------------
Title: CFO
----------------------------------------
Address: 1965 330th Street
Spencer, Iowa 51301
7
<PAGE>
EXHIBIT "A"
[Raytheon Financing Statements to be Terminated]
<TABLE>
<CAPTION>
Filing Number Location
- ------------- --------
<S> <C>
K758078 Iowa Secretary of State
3716398 Illinois Secretary of State
738440 Nebraska Secretary of State
19972059196 Colorado Secretary of State
</TABLE>
8
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
To Great Lakes Aviation, Ltd.:
We consent to incorporation by reference in the registration statement No.
33-90926 on Form S-8 of Great Lakes Aviation, Ltd. of our report dated March
10, 2000 relating to the consolidated balance sheets of Great Lakes Aviation,
Ltd. and subsidiary as of December 31, 1999 and 1998, the related statements
of operations, stockholders' equity, and cash flows, and related financial
statement schedule for each of the years in the three-year period ended
December 31, 1999, which report appears in the December 31, 1999 Form 10-K of
Great Lakes Aviation, Ltd.
KPMG LLP
Des Moines, Iowa
April 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 83,957
<SECURITIES> 0
<RECEIVABLES> 12,575,663
<ALLOWANCES> 0
<INVENTORY> 17,975,354
<CURRENT-ASSETS> 31,278,417
<PP&E> 115,364,365
<DEPRECIATION> (12,073,477)
<TOTAL-ASSETS> 148,876,016
<CURRENT-LIABILITIES> 34,390,871
<BONDS> 0
0
0
<COMMON> 86,374
<OTHER-SE> 8,533,008
<TOTAL-LIABILITY-AND-EQUITY> 148,876,016
<SALES> 0
<TOTAL-REVENUES> 131,370,003
<CGS> 0
<TOTAL-COSTS> 122,661,040
<OTHER-EXPENSES> 6,771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,974,213
<INCOME-PRETAX> 2,727,979
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,727,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,727,979
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.30
</TABLE>
