EXHIBIT 10.7
RESTRUCTURING AGREEMENT
As of this 31st day of December, 2002, this Agreement ("Agreement") is
made by and between Great Lakes Aviation, Ltd., an Iowa corporation with its
principal place of business at 0000 Xxxxxxx Xxxxxxx, Xxxxxxxx, Xxxxxxx 00000
("Great Lakes"), and Raytheon Aircraft Credit Corporation, a Kansas corporation
with its principal place of business at 00000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxx,
Xxxxxx 00000 ("RACC").
RECITALS
A. Great Lakes currently owns or leases under finance leases thirty-seven
(37) Beech Model 1900D Airliners that have been financed or leased by
RACC and leases from RACC under operating leases two (2) Beech Model
1900C Airliners. These aircraft are identified and grouped as follows:
(1) the seven (7) 1900D Airliners having Manufacturer's Serial
Numbers XX-00, XX-000, XX-000, XX-000, XX-000, XX-000 and UE-260
(collectively and individually, the "Group A Aircraft");
(2) the thirty (30) 1900D Airliners having Manufacturer's Serial
Numbers XX-00, XX-00, XX-000, XX-000, XX-000, XX-000, XX-000,
XX-000, XX-000, XX-000, XX-000, XX-000, XX-000, XX-000, XX-000,
XX-000, XX-000, XX-000, XX-000, XX-000, XX-000, XX-000, XX-000,
XX-000, XX-000, XX-000, XX-000, XX-000, XX-000 and UE-261
(collectively and individually, the "Group B Aircraft"); and
(3) the two (2) 1900C Airliners having Manufacturer's Serial Numbers
UC-101 and UC-122 (collectively and individually, the "Group C
Aircraft," and, together with the Group A Aircraft and the Group
B Aircraft, the "Aircraft").
B. Subject to the terms and conditions contained herein, RACC has agreed to
(i) accept the return of the Group A Aircraft and extinguish the debt
and or lease obligations on each Group A Aircraft upon such return, (ii)
restructure its financing of the Group B Aircraft, and (iii) reduce the
lease payments on the Group C Aircraft and Great Lakes has agreed to
issue to RACC shares of Great Lakes' common stock, a deferral note, a
senior note, and a subordinated note.
C. This Agreement, taken together with the Transaction Documents (as
defined herein) to be executed in connection herewith, constitute the
entire
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agreement between RACC and Great Lakes concerning the subject matter
hereof and supercede and merge any prior written or oral agreements
between RACC and Great Lakes concerning the subject matter hereof.
D. The parties hereto have reached further agreement as to certain matters
relating to the Aircraft and certain related obligations between the
parties, and desire to set forth the terms of such agreement herein.
AGREEMENT
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Great Lakes and RACC agree as follows:
1. Recitals Incorporated. The parties hereto hereby incorporate the
Recitals as if fully set forth herein.
2. Group A Aircraft. The following applies to all Group A Aircraft.
(A) Return Conditions. The Group A Aircraft, including engines,
shall be returned by Great Lakes to RACC to destinations within
the United States selected by RACC in accordance with the
schedule attached hereto as Schedule 1. The Group A Aircraft are
to be returned in accordance with the following terms and
conditions (the "Return Conditions"): (i) all engines, engine
life cycle fatigue components, propellers, airframe and other
time/life components shall be at a minimum of half-life
remaining, as defined in accordance with the aircraft
manufacturer's maintenance manual or, in the case of engines, as
set forth in Xxxxx & Whitney's engine overhaul recommendations.
With regards to the half life requirement RACC may waive this
requirement on a case by case basis in economic consideration of
the component time remaining and for consideration that certain
components may be returned with better than half life remaining.
In all cases the decision of the RACC representative will be
final. (ii) all originally installed equipment shall be in
working order, (iii) such Group A Aircraft shall be airworthy,
and immediately prior to return have a complete 1-6 detail
inspection, and no structural inspections due within 5% of the
structural inspection schedule. Any structural inspection that
is due within 5% of the inspection schedule will be completed
prior to the return of the aircraft. This 5% requirement may be
waived on a case by case basis as agreed to by the GLA Director
of Maintenance and the RACC representative. All required
inspections shall be completed by an FAA Authorized Part 145
Certified Repair Station. (CRS) The aircraft shall be in
compliance with all Airworthiness Directives issued by the FAA
pertaining to such Group
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A Aircraft, and the manufacturers published maintenance
specifications and Mandatory Service Bulletins (iv) such Group A
Aircraft shall be delivered ready for Commuter use under part
121 and/or Part 91. RACC shall promptly perform an inspection of
each Group A Aircraft and attached engines, airframe and other
time/life components that is returned to it so as to determine
whether all of the Return Conditions have been satisfied. In the
event that RACC determines that any Group A Aircraft is not in
compliance with any of the Return Conditions, RACC shall
promptly notify Great Lakes in writing of such determination and
RACC shall have the option of either requesting that Great Lakes
(1) remedy such noncompliance in a manner reasonably
satisfactory to RACC within thirty (30) days or (2) return a
substitute Group B Aircraft designated by RACC in compliance
with the Return Conditions within thirty (30) days, in which
case such substitute Group B Aircraft shall be deemed to be a
Group A Aircraft for purposes of this Agreement and such
noncompliant Group A Aircraft shall be deemed to be a Group B
Aircraft for purposes of this Agreement. If RACC requests, Great
Lakes shall store and maintain any Group A Aircraft accepted by
RACC for a period not to exceed thirty (30) days.
(B) Delivery of Aircraft Records, Etc. Great Lakes shall deliver to
RACC, as an additional Return Condition, all of the following
items related to each of the Group A Aircraft:
(1) All records of maintenance, preventative maintenance,
alterations and repairs relating to such Group A
Aircraft. All major repairs and alteration documentation
shall be in the form of either FAA Form 337 or FR-CO
(FAA Approved Field Repairs).
(2) All airframe, engine and propeller logbooks endorsed for
current total time and cycles for the airframe, total
time and cycles for each engine and engine life cycle
fatigue components and an entry for total time and
cycles since overhaul and hot section inspection for
each engine, and total time since new and time since
overhaul for each propeller. The airframe logbook must
include all appropriate endorsements (i.e., maintenance
releases) verifying that the avionics have been
periodically tested and inspected in accordance with 14
CFR Section 91.411 and Section 91.413 and Chapters 4 and
5 of the Beechcraft Maintenance Manual.
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(3) A current written summary certified by Great Lakes'
inspection authority listing the status of all
applicable airworthiness directives and service
bulletins for the airframe, engines, propellers and
appliances.
(4) A written summary certified by Great Lakes' authorized
inspection authority of the current status of life
limited and/or overhauled components for the airframe,
engines (in accordance with the Manufacturer's
recommended intervals), engine accessories and
appliances as defined in the most current revision(s) of
all Beechcraft maintenance publications applicable to
such Group A Aircraft. The aforesaid summary shall be
organized in the chapter order specified by the Air
Transport Association.
(5) Great Lakes must provide the following documentation and
data for each component having an overhaul or inspection
requirement or life limit, which components are
identified in Chapter 4 and/or Chapter 5 of Beechcraft
Maintenance Manual applicable to such Group A Aircraft,
as follows: (i) an airworthiness release certificate or
maintenance release tag, (ii) the vendor work order or
copy thereof verifying the details of each component's
overhauls, and (iii) an appropriate record certifying
the date and expended time status of the components when
installed (i.e., copy of log or inspection squawk card).
The three (3) items identified in the preceding sentence
must be properly organized and provided on-board such
Group A Aircraft.
(6) Great Lakes must provide written verification that Xxxxx
& Whitney has approved all of the Group A Aircraft
engines as being eligible for enrollment in a Xxxxx &
Whitney engine fleet maintenance program.
(7) For each Group A Aircraft that is not leased from RACC
and for each engine that is not leased but is on a Group
A Aircraft that is leased, Great Lakes shall deliver to
RACC an executed FAA Xxxx of Sale for such Group A
Aircraft or, in the case of an engine, an appropriate
document of conveyance.
Great Lakes acknowledges that each of the items
described above in subsections (1) through (6) must be
provided to RACC upon return of each Group A Aircraft
regardless of whether Great Lakes has conducted its
periodic inspections of such
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Group A Aircraft pursuant to Chapter 5 of the Beechcraft
Maintenance Manual or in accordance with an inspection
program approved by the FAA pursuant to 14 CFR Section
91.4099(f).
(C) Suspension of Payments; Extinguishment of Debt. Payments due
from Great Lakes to RACC under the existing aircraft lease or
secured promissory note, as applicable (each a "Existing Finance
Agreement" and collectively, the "Existing Finance Agreements")
for each of the Group A Aircraft shall be suspended for the
period commencing on the Effective Date through the applicable
deadline for the return of such Aircraft set forth on Schedule 1
hereto (the "Group A Cut-Off Date"). If any Group A Aircraft has
not been returned by Great Lakes to RACC in accordance with the
terms of this Agreement on or before the applicable Group A
Cut-Off Date, debt and/or lease payments due on such Group A
Aircraft will resume for the period from such Group A Cut-Off
Date until such time as such Aircraft is so returned, with such
payments to be made in accordance with the terms of the related
Existing Finance Agreement without modification by this
Agreement. Upon the return of any Group A Aircraft in accordance
with the terms of this Agreement, all payments and other amounts
owed at such time of return under the related Existing Finance
Agreement shall be cancelled and extinguished, except for any
payments that become due after the applicable Group A Cut-Off
Date.
(D) Financing of Costs of Return Conditions. RACC agrees to provide
financing to Great Lakes with respect to each Group A Aircraft
in the form of advances (the "Advances") in an amount not to
exceed seventy-five percent (75%) of the reasonable
out-of-pocket costs incurred by Great Lakes (exclusive of any
costs associated with the labor of any Great Lakes' employees)
in refurbishing and repairing such Group A Aircraft so as to
meet the Return Conditions for which (1) the nature of the work
to be done, estimated cost and identity of the service provider
have been pre-approved by RACC in writing and (2) copies of the
related purchase orders and invoices have been provided to RACC,
provided that the aggregate amount of the Advances to be
provided with respect to all of the Group A Aircraft shall not
exceed $3,000,000. The Advances shall be evidenced by a
promissory note executed by Great Lakes payable to RACC (the
"Group A Return Conditions Note," the form of which is attached
hereto as Exhibit A), which shall have a bullet maturity on the
fourth anniversary of issue (December 31, 2006) and bear
interest at the rate of LIBOR plus 500 basis points. "LIBOR"
shall mean the rate of interest determined by RACC at which
Dollar deposits for ninety (90) days are offered based on
information provided
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in The Wall Street Journal on the second business day prior to
the date of the issuance of the Group A Return Conditions Note
or the first day of January, April, July and October, as
applicable, provided, however, that if the rate described above
does not appear in The Wall Street Journal on any applicable
interest determination date, LIBOR shall be the rate determined
by RACC in good faith based on the offered rates for deposits in
Dollars for ninety (90) days that are then offered by major
banks in the London interbank market. LIBOR shall be adjusted on
the first business day of each calendar quarter to reflect any
increase or decrease in LIBOR as of that date.
3. Group B Aircraft. The Existing Finance Agreements on the Group B
Aircraft and all amounts owed thereunder as of the Effective Date shall
be restructured in their entirety by the issuance of amended and
restated promissory notes or, with respect to the Existing Finance
Agreements that are aircraft leases, promissory notes executed by Great
Lakes payable to RACC (each "Group B Note" and collectively, the "Group
B Notes," the form of which is attached hereto as Exhibit B). In
addition, with respect to Existing Finance Agreements that are aircraft
leases, RACC shall transfer title of the related Group B Aircraft to
Great Lakes and Great Lakes shall execute and deliver to RACC aircraft
security agreements and, with respect to Existing Finance Agreements
that are promissory notes, Great Lakes shall execute and deliver to RACC
amended and restated aircraft security agreements (each such aircraft
security agreement or amended and restated aircraft security agreement
to be executed and delivered by Great Lakes is referred to herein as a
"Group B Security Agreement" and are collectively referred to as the
"Group B Security Agreements"), the form of which is attached as Exhibit
C. Each of the Group B Notes shall bear interest at LIBOR plus 375 basis
points (subject to adjustment as set forth below), shall have an
original principal amount of $2,500,000 and provide for initial monthly
payments as set forth on Schedule 2 hereto payable in arrears starting
on January 31, 2003, with the amount of the monthly payment to be
adjusted quarterly, on the first day of each calendar quarter as
described in Section 2(D), based on changes in the underlying interest
rate. The principal balances of the Group B Notes shall amortize as set
forth on Schedule 2 hereto, with a final maturity on December 31, 2012.
Schedule 1 to the Group B Notes shall incorporate a credit pricing
matrix to reduce the interest rate upon Great Lakes' meeting specific
debt service coverage targets. The Group B Notes shall be fully
assignable and Great Lakes agrees to cooperate with RACC to facilitate
any such assignment, with RACC agreeing to pay Great Lakes' actual
reasonable out-of-pocket costs of such assignment.
4. Group C Aircraft. RACC agrees, as of the Effective Date, to reduce the
monthly rental payments due from Great Lakes pursuant to each of the
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airliner lease agreements for the Group C Aircraft (the "Group C
Leases") from $22,000 per month to $17,000 per month pursuant to an
amendment to each of the Group C Leases (each a "Group C Lease
Amendment", and collectively, the "Group C Lease Amendments"), the form
of which is attached hereto as Exhibit D, to reflect this change in
rental payments. In addition, all unpaid monetary lease obligations on
the Group C Aircraft will be extinguished provided that the payment
referred to in Section 14(B)(23) has been made pursuant to the letter
dated November 25, 2002 from RACC to Great Lakes, and all such payments
not addressed in the letter are current as of the Effective Date.
5. Intentionally Omitted.
6. Deferral Note. The (i) $800,000 payment that was due to paid by Great
Lakes to RACC on October 15, 2002 and (ii) the $400,000 balance of the
payment that was due to paid by Great Lakes to RACC on November 15,
2002, both of which were not paid and deferred by RACC, shall be the
subject of a promissory note (the "Deferral Note"), the form of which is
attached hereto as Exhibit E. The interest rate on the Deferral Note
shall be LIBOR plus 375 basis points. Interest on the Deferral Note
shall be payable quarterly in arrears on the last day of each calendar
quarter commencing on March 31, 2003. Amortization of the Deferral Note
shall be in quarterly payments on the last day of each calendar quarter
beginning on June 30, 2003. In 2003, there will be three principal
payments on June 30, September 30 and December 31 of $133,333.33 each,
in 2004, there shall be four quarterly payments of $125,000 each and in
2005, there shall be four quarterly payments of $75,000 each.
7. Extinguishment of Non-Aircraft Debt; Certain Deposits. The indebtedness
owing from Great Lakes to RACC and evidenced by certain Negotiable
Promissory Notes dated November 1, 2000, June 29, 2001 and December 1,
2001 issued by Great Lakes to RACC (the "Existing Promissory Notes")
shall be extinguished and cancelled by RACC as of the "Effective Date"
(as hereinafter defined in Section 14). The outstanding principal amount
of this indebtedness as of the Effective Date is approximately
$13,750,000, and the amount of the past due interest obligation will be
approximately $1,000,000, for a total approximate obligation of
$14,750,000. Great Lakes acknowledges that $1,100,000 that it previously
has paid to RACC as lease deposits for certain leased aircraft has been
applied in connection with the restructuring pursuant to this Agreement
and that Great Lakes no longer has any rights to such funds.
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8. Receipt of Equity.
(A) Grant of Shares. In partial consideration of RACC's
extinguishing and restructuring certain indebtedness owing to it
from Great Lakes, RACC shall obtain equity in Great Lakes. On
the Effective Date, Great Lakes shall deliver to RACC a stock
certificate issued in the name of RACC evidencing 5,371,980
shares (the "RACC Shares") of common stock, par value $.01 per
share, of Great Lakes (the "Common Stock"), representing 36% of
outstanding post-restructuring shares of Common Stock on a
fully-diluted, as if fully exercised, basis. Such shares of
Common Stock shall be duly authorized, fully paid and
nonassessable.
(B) Anti-Dilution. Except for (i) the issuance of options to
purchase up to 1,000,000 shares of Common Stock pursuant to
Great Lakes' 1993 Stock Option Plan, (ii) the issuance of
options to purchase up to 300,000 shares of Common Stock
pursuant to Great Lakes' 1993 Director Stock Option Plan, (iii)
the issuance of options for new management of Great Lakes hired
subsequent to the effectiveness of this Agreement to purchase up
to 400,000 shares of Common Stock pursuant to an additional
equity incentive plan to be implemented in the near future
provided that all recipients of options pursuant to such
additional equity incentive plan sign lockup agreements as set
forth in Section 14(B)(31), (iv) the issuance of up to 2,300,000
shares of Common Stock in connection with the exercise of any of
the foregoing options, and (v) the issuance of up to 150,000
shares of Common Stock pursuant to Great Lakes' Employee Stock
Purchase Plan, if, at any time or from time to time Great Lakes
issues any shares of, or options or warrants to purchase or
other securities convertible into, Common Stock (an "Additional
Issuance"), Great Lakes shall provide not less than five (5)
days' prior written notice of such Additional Issuance to RACC,
and RACC shall be entitled to receive, on the date of each such
issuance (an "Additional Issuance Date"), by giving Great Lakes
notice within thirty (30) days of its receipt of Great Lakes'
notice of such Additional Issuance, at a price per share equal
to the price per share payable in connection with such
Additional Issuance or, in the case of an option or warrant to
purchase Common Stock, at a price per share equal to the price
per option, if any, payable in connection with such Additional
Issuance plus the per share exercise price thereunder, a number
of additional shares of Common Stock (the "Anti-Dilution
Shares") as is equal to the product of (i) fifty-six and 25/100
(56.25) multiplied by (ii) the number of shares of Common Stock
issued or issuable in connection with such Additional Issuance,
determined on a fully-diluted basis. The Anti-Dilution Shares,
when issued, shall be duly authorized, fully paid and
nonassessable shares of Common Stock. The certificates for the
Anti-Dilution Shares shall be issued in
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the name of RACC (or RACC's transferee or designee), and
delivered to such person within three (3) business days after
the Additional Issuance Date. Issuance of certificates for
Anti-Dilution Shares shall be made without charge to RACC (or
RACC's transferee or designee) for any issue or transfer taxes
or other incidental expenses in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by
Great Lakes. This Section 8(B) shall expire upon the earlier of
(1) the Debt Service Ratio (as defined in Section 15(A)) as at
the end of any two consecutive fiscal quarters being greater
than or equal to 3.0:1.0 or (2) the Free Cash Flow (as defined
on Schedule 5) as at the end of any fiscal year is greater than
or equal to $15,000,000 (the date of such earlier occurrence is
referred to as the "Limited Termination Date") provided that
Great Lakes is in compliance with this Agreement, each of the
other Transaction Documents (as defined below) and any other
agreement between itself and RACC.
(C) Restrictions on Transfers to Competitors. Great Lakes shall have
the right of first refusal with respect to any proposed sale by
RACC of all or any portion of the RACC Shares or any
Anti-Dilution Shares received by RACC (collectively, the
"Shares") to any regional commuter airline that competes
directly with Great Lakes and is listed on Schedule 3 hereto.
Prior to accepting any bona fide offer for purchase of any
Shares, RACC shall give to Great Lakes notice in writing (the
"Offer Notice") disclosing the price and the terms at which RACC
proposes to sell such Shares pursuant to such bona fide offer,
and within twenty (20) days after such notice has been given
Great Lakes shall give RACC notice (the "Reply Notice") of its
intention to purchase or not to purchase at the price and on the
terms specified in the Offer Notice accompanied by a bona fide
third party lender's proposal for the financing of any such
purchase (a "Financing Proposal"). Within thirty (30) days after
providing the Reply Notice and Financing Proposal, Great Lakes
shall provide RACC with evidence of such lender's firm
commitment to provide the financing referenced in the Financing
Proposal (the "Financing Commitment"). Upon receipt of a
Financing Commitment, Great Lakes shall pay to RACC a good faith
purchase deposit in an amount mutually acceptable to each of
RACC and Great Lakes. If Great Lakes gives notice of its
intention to purchase in the Reply Notice and provides RACC with
the Financing Proposal and the Financing Commitment in
accordance with the terms hereof, RACC will sell to Great Lakes
or its nominee such Shares on the same terms and conditions set
forth in the Offer Notice. If (i) Great Lakes notifies RACC in
the Reply Notice of its intention not to purchase at such price
and on such terms, (ii) or if no Reply Notice, Financing
Proposal or Financing Commitment is given by Great Lakes in
accordance with the
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terms hereof or (iii) if Great Lakes fails to close the purchase
of such Shares within twenty (20) days after its delivery of a
Financing Commitment, RACC shall be free to sell such Shares
described in the Offer Notice, within 120 days after the Offer
Notice has been given, to the competitor named in the Offer
Notice free and clear of Great Lakes' right of first refusal as
provided in this Agreement, but at a price not lower than, and
on terms not substantially different from, the price and terms
specified in the Offer Notice. However, no sale to the
competitor named in the Offer Notice shall be made after 180
days following the date of the Offer Notice without Great Lakes
having again given RACC an Offer Notice and again complied in
full with the terms of this Section 8(C).
9. Additional Notes. In partial consideration of RACC's extinguishing and
restructuring certain indebtedness owing to it from Great Lakes:
(A) Senior Note. RACC shall receive from Great Lakes a senior
promissory note with a face amount of $5,000,000 (the "Senior
Note"), the form of which is attached hereto as Exhibit F. The
interest rate on the Senior Note shall be eight and one quarter
percent (8.25%) per annum. Interest shall accrue on the
outstanding principal amount under the Senior Note and shall be
capitalized and added to principal on the last day of each
calendar quarter commencing on March 31, 2003. Commencing on
March 31, 2005, interest on the Senior Note shall be payable
quarterly in arrears on the last day of each calendar quarter.
The outstanding principal balance of the Senior Note outstanding
on March 31, 2005 shall amortize in equal quarterly payments
payable on the last day of each calendar quarter beginning on
March 31, 2005 with a final maturity on December 31, 2009.
(B) Subordinated Note. RACC shall receive from Great Lakes a
subordinated promissory note with a face amount of $5,000,000
(the "Subordinated Note" and, collectively with the Group A
Return Conditions Note, the Group B Notes, the Deferral Note,
and the Senior Note, the "Notes"), the form of which is attached
hereto as Exhibit G. The interest rate on the Subordinated Note
shall be six percent (6%) per annum. For the first three years
after the date of issuance of the Subordinated Note, interest
shall accrue on the outstanding principal amount under the
Subordinated Note and shall be capitalized and added to
principal on the last day of each calendar quarter commencing on
March 31, 2003. Interest shall be payable in cash quarterly in
arrears on the last day of each calendar quarter commencing on
March 31, 2006 with a bullet maturity of the outstanding
principal on September 30, 2007. The Subordinated Note
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shall contain covenants (financial and otherwise) and other
terms and conditions typical for debt of this type.
10. Engine Fleet Maintenance Program.
(A) Subject to (i) the establishment of the engine management team
as set forth in Section 10(B) below, and (ii) the EMP
requirement set forth in Section 10(C) below, RACC hereby
consents to Great Lakes continued operation of the engines on
the Aircraft on an "On Condition" basis. In the event that the
FAA withdraws its approval of Great Lakes' "On Condition"
TBO/CBO, then RACC's consent given hereunder shall automatically
terminate.
(B) On or before January 30, 2003, Great Lakes agrees to establish
an engine management team comprised of qualified maintenance
personnel approved by RAAS, in its reasonable discretion, to
manage Great Lakes' "On Condition" TBO/CBO program currently
approved by the FAA. The engine management team shall consist of
no less than two (2) persons. The engine management team shall
be exclusively responsible for making all maintenance decisions
with respect to the engines, including the necessity or
frequency of hot section inspections and overhauls. The engine
management team shall be responsible for timely providing to
RACC any and all information RACC may request with respect to
the engines.
(C) On or before April 30, 2003, Great Lakes will enter into an
engine maintenance plan with a third-party vendor approved by
RACC ("EMP"), which EMP shall include at least the following
requirements:
(1) Each individual engine shall be enrolled in the EMP
immediately following its next scheduled or unscheduled
overhaul. Great Lakes shall be responsible to cause a
complete engine (both a gas generator module and a power
section module) to be overhauled simultaneously, so as
to produce a complete zero (0) time/cycle engine to be
enrolled in the EMP.
(2) The EMP shall be a "mature rate" plan. As such, (i) the
EMP shall be tracked on an individual engine basis, (ii)
the EMP shall require that EMP payments are made for
each engine sufficient to pay to the vendor for parts
and labor to complete the next overhaul.
(3) The EMP, and any engine balances within the EMP, shall
be fully assignable and transferable with the engine. As
such, the
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party succeeding in interest to the engine (including,
without limitation, RACC) shall be entitled to the full
benefit of any EMP engine balances, without claim by
Great Lakes.
(4) Any default by Great Lakes of the terms and conditions
of the EMP shall constitute a default under all
applicable promissory notes, security agreements,
finance leases and/or operating leases. Great Lakes
agrees to execute appropriate amendments or other
agreements evidencing the addition of this requirement
to the promissory notes, security agreements, finance
leases and operating leases.
11. Prepayments.
(A) Mandatory Prepayments. Not later than the earlier of ninety (90)
days after the end of each fiscal year end of Great Lakes or the
filing of Great Lakes' Form 10-K with the Securities and
Exchange Commission ("Form 10-K") for such fiscal year, Great
Lakes shall prepay amounts outstanding under the Notes in an
aggregate amount equal to fifty percent (50%) of the Excess Cash
Flow for such fiscal year, accompanied by a certificate of the
chief financial officer of Great Lakes setting forth in
reasonable detail the calculation of Excess Cash Flow for such
fiscal year. "Excess Cash Flow" shall mean cash flow from
operations as determined in accordance with generally accepted
accounting principles less capital expenditures less all
payments in respect of funded indebtedness of Great Lakes for or
made during such fiscal year less $250,000.
(B) Voluntary Prepayment. Great Lakes may prepay its obligations in
whole or in part under this Agreement or any of the Transaction
Documents (as defined below) at any time without penalty.
(C) Application of Prepayments. All prepayments made pursuant to
Section 11(A) or 11(B) shall be applied in the following order:
first, to the Group A Return Conditions Note until such time as
it has been paid in full, with such prepayments being applied to
principal, interest and other amounts owing under the Group A
Return Conditions Note in such order or preference as RACC may
determine; second, to the Deferral Note until such time as it
has been paid in full, with such prepayments being applied to
principal, interest and other amounts owing under the Deferral
Note in such order or preference as RACC may determine; third,
to the Senior Note until such time as it has been paid in full,
with such prepayments being applied to principal, interest and
other amounts owing under the Senior Note in such order or
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preference as RACC may determine; fourth, to the Subordinated
Note until such time as it has been paid in full, with such
prepayments being applied to principal, interest and other
amounts owing under the Subordinated Note in such order or
preference as RACC may determine; and fifth, to the Group B
Notes until such time as they have been paid in full, with such
prepayments being applied to principal, interest and other
amounts owing under the Group B Notes in such order or
preference as RACC may determine; with all such prepayments to
be applied to reduce the then-remaining installments due
thereunder in the inverse order of scheduled maturity and, in
the case of prepayments in respect of the Group B Notes, applied
thereto on a pro rata basis.
12. Other Agreements.
(A) Management. On or before the Effective Date (i) Xxxxxxx X. Xxxx
shall assume the role of traditional Chairman of the Board of
Directors of Great Lakes, (ii) Xxxxxxx X. Xxxxxx shall have been
appointed Chief Executive Officer of Great Lakes, (iii) Xxxxx X.
Xxxxxxx shall assume the duties of Chief Financial Officer for
at least one hundred twenty (120) days following the Effective
Date or until an appropriate replacement has been hired and
given an opportunity to transition into the position, (iv)
within one hundred twenty (120) days following the Effective
Date, Great Lakes shall have found and have in place a qualified
Chief Financial Officer with demonstrated experience and airline
expertise and (v) Great Lakes shall have entered into management
contracts in form and substance reasonably acceptable to RACC
for a period of not less than twenty-four months with
appropriate incentives with Xx. Xxxxxx and, within one hundred
twenty (120) days following the Effective Date, with the new
Chief Financial Officer described in clause (iv).
(B) Board Observer Rights. RACC shall have unlimited observer rights
for the Great Lakes Board of Directors, subject only to being
excused if either Great Lakes or RACC reasonably believes that
participation would involve a conflict of interest for RACC.
These observer rights shall not allow RACC to vote or enter into
any discussions at any Board of Directors meeting. Without in
any way limiting the foregoing, Great Lakes agrees to provide
RACC with prior written notice (consistent with the notice given
other directors) of the time, place and subject matter of any
proposed meeting (or action by written consent) of the Board of
Directors of Great Lakes, such notice to include true and
complete copies of all documents furnished to any director in
connection with such meeting or consent, provided there is
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no conflict of interest as provided above. Any two (2) of RACC's
officers or authorized representatives will be entitled to
attend as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein. Great
Lakes also agrees to provide RACC with copies of the official
minutes of every meeting of the Great Lakes Board of Directors
or of resolutions taken by unanimous written consent within
fifteen (15) days following such meeting or unanimous written
consent, provided there is no conflict of interest as provided
above. This Section 12(B) shall expire on the Limited
Termination Date provided that Great Lakes is in compliance with
this Agreement, each of the other Transaction Documents (as
defined below) and any other agreement between itself and RACC.
Great Lakes also agrees to hold actual shareholder meetings at
least annually at such time and at such location as the Great
Lakes Board of Directors may determine.
(C) Independent Directors. Great Lakes agrees to cause two new
independent directors who are unaffiliated with RACC and Great
Lakes and reasonably acceptable to RACC to be appointed to the
Great Lakes Board of Directors by no later than March 15, 2003.
RACC acknowledges that Mr. Xxxx Xxxxxxx is acceptable to it as
one of the two directors.
13. Collateral Security of Borrower. All indebtedness, obligations and
liabilities of Great Lakes to RACC, existing on the Effective Date or
arising thereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, arising
or incurred under this Agreement, the Corporate Security Documents (as
defined below), the Notes, the Group C Leases as amended by the Group C
Lease Amendments, the Group B Security Agreements and any other notes,
security agreements, leases or other agreements in favor of RACC or to
which RACC is a party (such documents, as amended and in effect from
time to time, are referred to collectively as the "Transaction
Documents"), including, without limitation, all such indebtedness,
obligations and liabilities that would become due but for the operation
of the automatic stay pursuant to section 362(a) of the Federal
Bankruptcy Code and the operation of sections 502(b) and 506(b) of the
Federal Bankruptcy Code and including, without limitation, post-petition
interest (such indebtedness, obligations and liabilities are
collectively referred to as the "Obligations") shall be secured by a
first priority perfected lien on all accounts receivable, inventory and
(subject only to historic liens and liens entitled to priority under
applicable law) other assets, including, without limitation, real
estate, of Great Lakes, whether now owned or hereafter acquired,
pursuant to the terms of a security agreement (the "Security
Agreement"), the form of which is attached as Exhibit H hereto, the
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Security Agreement and Encumbrance Against Aircraft Carrier Engines,
Propellers, Appliances and Spare Parts dated August 21, 1997, as amended
and as to be further amended pursuant to a Third Amendment to Security
Agreement (the "Security Agreement Amendment"; such Security Agreement
as amended and to be amended by the Security Agreement Amendment is
referred to as the "FAA Security Agreement"), the form of which is
attached as Exhibit I hereto, the Amended and Restated Security
Agreement for the Embraer model EMB-120ER aircraft with manufacturer's
serial number 120-071 (the "120-071 Security Agreement"), the form of
which is attached as Exhibit J hereto, and all other instruments and
documents, including without limitation Uniform Commercial Code
financing statements, required to be executed or delivered pursuant to
the Security Agreement or any other document to which Great Lakes is a
party (collectively, the "Corporate Security Documents"). The Corporate
Security Documents shall terminate on the Limited Termination Date
provided that Great Lakes is in compliance with this Agreement, each of
the other Transaction Documents and any other agreement between itself
and RACC.
14. Effective Date; Conditions to Effectiveness.
(A) Effective Date. This Agreement shall become effective if, and
only if, on or before 5:00 P.M. Eastern time on December 31,
2002, each of the conditions precedent contained in this section
has been satisfied (the first date as of which all of these
conditions precedent shall have been satisfied is referred to
herein as the "Effective Date").
(B) Conditions to Effectiveness. The effectiveness of this Agreement
as a contract shall be subject to the occurrence or delivery of
the following:
(1) This Agreement, executed by Great Lakes and RACC;
(2) The Group A Return Conditions Note, executed by Great
Lakes;
(3) The thirty (30) Group B Notes, executed by Great Lakes;
(4) The thirty (30) Group B Security Agreements, executed by
Great Lakes and RACC for the Group B Aircraft;
(5) FAA Bills of Sale, executed by RACC for the nine (9)
Group B Aircraft (UE-169, XX-000, XX-000, XX-000,
XX-000, XX-000, XX-000, XX-000 and UE-254) that are
currently subject to Existing Finance Agreements that
are leases;
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(6) FAA Xxxx of Sale, executed by Iowa Great Lakes Flyers,
Inc. ("IGLF") for UE-225;
(7) The Deferral Note, executed by Great Lakes;
(8) The Senior Note, executed by Great Lakes;
(9) The Subordinated Note, executed by Great Lakes;
(10) A stock certificate in the name of RACC evidencing the
RACC Shares;
(11) The two (2) Group C Lease Amendments, executed by each
of Great Lakes and RACC;
(12) Security Agreement, executed by Great Lakes and RACC;
(13) The Security Agreement Amendment, executed by Great
Lakes and RACC;
(14) The 120-071 Security Agreement, executed by Great Lakes
and RACC;
(15) All UCC-1 Financing Statements required by the Corporate
Security Documents, naming Great Lakes as Debtor and
RACC as Secured Party;
(16) A copy of the resolutions of the Board of Directors of
Great Lakes approving this Agreement and the other
Transaction Documents (as defined below) to be delivered
by it hereunder and the transactions contemplated
thereby, certified by an officer to be true and correct
and in full force and effect as of the Effective Date;
(17) A copy of (i) the charter and (ii) the by-laws of Great
Lakes, each certified by an officer to be true and
correct and in full force and effect as of the Effective
Date;
(18) Corporate and tax good standing certificates for Great
Lakes in (i) its jurisdiction of incorporation, (ii) the
jurisdiction where its chief operating office is
located, and (iii) any jurisdiction where its material
assets are located;
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(19) Legal opinions of Xxxxxx and Xxxxxx, P.A., counsel to
Great Lakes, and of Xxxxx, Brown, Koehn, Shors &
Xxxxxxx, P.C., special Iowa counsel to Great Lakes, with
respect to corporate authority, enforceability,
perfection (UCC and FAA) and such other matters as
RACC's counsel may reasonably request;
(20) Perfection certificate, executed by Great Lakes;
(21) Copies of the executed employment agreements between
Great Lakes and each of Messrs. Xxxxxxx Xxxxxx and
Xxxxxxx Xxxx;
(22) Great Lakes shall have paid all of RACC's legal and
out-of-pocket expenses incurred through the Effective
Date as set forth on Schedule 4 hereto;
(23) All outstanding amounts that are then due and payable on
or before the Effective Date by Great Lakes under the
Existing Finance Agreements relating to the Aircraft,
including, without limitation, the $800,000 payment that
is due on December 15, 2002 and a $400,000 payment for
the period from December 15, 2002 until the Effective
Date (provided that such $400,000 payment may be paid by
not later than January 15, 2003);
(24) Great Lakes shall provide to RACC reasonably
satisfactory evidence that UCC-3 termination statements
have been filed with respect to Coast Business Credit;
and
(25) Letters substantially in the form of Exhibit K attached
hereto executed and delivered to RACC by each of Xxxxxxx
X. Xxxx, Xxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx and IGLF
confirming that such shareholder or option holder agrees
(i) not to transfer any of its Common Stock or any
options to purchase Common Stock or (ii) purchase any
additional shares of Common Stock or exercise any
options to purchase shares, whether now in existence or
hereafter granted, for a period of three (3) years
commencing on the Effective Date; provided, however,
that Xx. Xxxxxx shall be permitted to purchase publicly
traded shares of Common Stock on the open market so long
as such purchase does not result in such purchaser
becoming a five percent (5%) owner of Great Lakes. Such
letter shall further provide for that the lockup
agreements shall be released upon the earlier to occur
of (y) an ownership change of Great Lakes for purposes
of Section 382 of the Internal Revenue Code of 1986 such
that the utilization of its Net Operating Loss (as
defined in Section
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16(A)(6)) is restricted for tax purposes or (z) delivery
by Great Lakes of an opinion issued by KPMG LLP or other
tax advisers mutually acceptable to RACC and Great Lakes
in form and substance reasonably acceptable to RACC
stating that release of the lockup agreements will not
jeopardize the ability of Great Lakes to utilize its Net
Operating Loss or have the potential to jeopardize the
ability of Great Lakes to utilize its Net Operating
Loss; provided, however, that the letter executed and
delivered by Xxxxx X. Xxxxxx shall also permit sale of
$50,000 worth of Common Stock per year, consistent with
the terms of her and Xx. Xxxx' divorce decree.
15. Great Lakes Covenants. As partial consideration for the settlements and
agreements of RACC contained herein, until such time as all Obligations
shall be paid in full in cash, Great Lakes agrees as follows:
(A) Great Lakes Indebtedness. Great Lakes will not create, incur,
assume, guarantee or be or remain liable, contingently or
otherwise, with respect to any Indebtedness other than: (1) the
Obligations; (2) Indebtedness existing on the Effective Date and
described on Schedule 5; and (3) other Indebtedness incurred in
the ordinary course of business provided that at the time of the
incurrence of any such Indebtedness the aggregate amount of
Indebtedness outstanding pursuant to this clause (4) shall not
exceed the Permitted Amount then in effect. The "Permitted
Amount" at any time shall be the amount based on the most recent
financial statements of Great Lakes delivered pursuant to
Section 15(D) and calculated quarterly based on the Debt Service
Ratio as follows, provided, however, that on and after the
occurrence of the Limited Termination Date, the Permitted Amount
shall be $5,000,000:
PERMITTED AMOUNT OF
DEBT SERVICE RATIO INDEBTEDNESS
-----------------------------------------------------
Less than 2.2:1.0 $ 1,500,000
-----------------------------------------------------
Greater than 2.2:1.0 but less
than or equal to 2.5:1.0 $ 2,500,000
-----------------------------------------------------
Greater than 2.5:1.0 $ 3,500,000
-----------------------------------------------------
"Indebtedness" means, whether on or off balance sheet for
purposes of with generally accepted accounting principles
("GAAP"): (a) all obligations for borrowed money or other
extensions of credit, whether secured or unsecured, absolute or
contingent, including, without limitation, unmatured
reimbursement obligations with respect to letters of credit or
guarantees issued for the account of or on behalf of
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Great Lakes, all obligations representing the deferred purchase
price of property, other than accounts payable arising in the
ordinary course of business, and all obligations arising under
capitalized leases, synthetic leases, operating leases and
securitization transactions, (b) all obligations evidenced by
bonds, notes, debentures or other similar instruments, (c) all
obligations secured by liens on property owned or acquired by
Great Lakes whether or not the obligations secured thereby shall
have been assumed, and (d) all guaranties by such entity of any
of the foregoing for the benefit of another person. "Debt
Service Ratio" shall be defined as provided in the attached
Schedule 6.
(B) Payment of Dividends and Distributions. Great Lakes shall not
declare or make any dividend or other distributions to any
holder of any Common Stock or any other capital stock of Great
Lakes, except for dividends declared or made in the form of
Common Stock, redeem or purchase any Common Stock or any other
capital stock of Great Lakes or make any loan or other payments
to any affiliate or holder of Common Stock or any other capital
stock of Great Lakes, at any time during the period from and
after the Effective Date to and including December 31, 2005.
Thereafter, payment of dividends or other distributions shall be
permitted provided that no Event of Default shall then exist or
arise as a result of any such dividend or distribution.
(C) Cost Reduction Program. Great Lakes shall fully implement by not
later than March 31, 2003 a cost reduction program (the "Cost
Reduction Program"). For fiscal year 2003, the Cost Reduction
Program shall result in a an overall annual cost reduction of
not less than $550,000. For fiscal year 2004 and beyond, the
Cost Reduction Program shall result in an overall annual cost
reduction of not less than $730,000. Evidence of the overall
annual cost reduction under the Cost Reduction Program shall be
set forth in reasonable detail as part of Great Lakes' annual
officer's certificate to be delivered pursuant to Section
15(D)(3). Great Lakes also agrees to provide evidence reasonably
satisfactory to RACC of the closing of Great Lakes' Chicago hub
by not later than January 30, 2003.
(D) Provision of Financial Statements.
(1) Quarterly Financial Statements. As soon as available
and, in any event, within forty-five (45) days after the
end of each of the first three (3) quarters of each
fiscal year, Great Lakes shall furnish to RACC copies of
its financial statements, consisting of at least a
balance sheet as at the close of such quarter and
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statements of earnings for such quarter and for the
period from the beginning of the fiscal year to the
close of such quarter, in each case in conformity with
GAAP, duly certified by the principal financial officer
of Great Lakes.
(2) Annual Financial Statements. As soon as available and,
in any event, within ninety (90) days after the end of
each fiscal year, Great Lakes shall furnish to RACC
copies of its audited financial statements, consisting
of at least a balance sheet of Great Lakes for such year
and statements of earnings and cash flows, in each case
in conformity with GAAP setting forth in each case in
comparative form corresponding figures from the
preceding fiscal year, with all such financial
statements to be certified without qualification, except
for any qualifications so given in the past, by Great
Lakes' certified public accountants.
(3) Officer's Certificate. At the time of delivery of the
financial statements of Great Lakes provided for in
Section 15(D)(1) and (2), a certificate of the Chief
Financial Officer of Great Lakes (I) to the effect that
no Default or Event of Default exists or, if any Default
or Event of Default does exist, specifying the nature
and extent thereof and what action Great Lakes proposes
to take with respect thereto; (II) calculating the
Permitted Amount, the Debt Service Ratio, Quarterly Free
Cash Flow and its various components as set forth on
Schedule 6 as at the end of such fiscal period; (III)
setting forth a detailed variance analysis showing how
such financial statements differ from the business plan
delivered by Great Lakes to RACC on December 12, 2002
(the "Financial Plan"); and (IV) outline in reasonable
detail, and accompanied by supporting documentation, in
a manner reasonably satisfactory to RACC, demonstrating
Great Lakes' compliance with the Cost Reduction Program
requirements set forth in Section 15(C).
(E) Confidentiality and Non-Disclosure. This Agreement is
confidential between the parties. Great Lakes agrees not to
disclose the provisions of this Agreement to any person without
the prior written consent of RACC, except (i) as may be required
by Great Lakes in order to restructure its current debt with
existing aircraft creditors, provided that Great Lakes may
disclose solely the fact that its obligations to RACC are being
restructured and the terms of the restructured debt, including,
without limitation, RACC's receipt of the RACC Shares, but Great
Lakes may not disclose any other details of this Agreement, (ii)
to its legal and financial advisers and its
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independent public accountants (on the condition that they agree
not to disclose such provisions) and (iii) as may be required by
applicable law, including applicable securities law.
(F) No Material Transactions. Great Lakes shall not become a party
to or agree to or effect any merger, amalgamation or
consolidation, asset acquisition, stock acquisition, disposition
of any of its assets or create or permit to exist any subsidiary
unless, as a result of such disposition, all Obligations shall
be contemporaneously paid in full in cash. This Section 15(F)
shall expire on the Limited Termination Date provided that Great
Lakes is in compliance with this Agreement, each of the other
Transaction Documents and any other agreement between itself and
RACC.
(G) Affiliate Transactions. Great Lakes shall not engage in any
transaction with any affiliate, including any contract,
agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from
any such affiliate or, to the knowledge of Great Lakes, any
corporation, partnership, trust or other entity in which any
such affiliate has a substantial interest or is an officer,
director, trustee or partner, on terms more favorable to such
person than would have been obtainable on an arm's-length basis
in the ordinary course of business.
(H) Equity Issuances. Except for issuances pursuant to the equity
incentive plans as described in Section 8(B) above and the
issuance of Common Stock dividends pursuant to Section 15(B)
above, Great Lakes shall not issue any capital stock or any
warrants, options or other rights to acquire any of its capital
stock or any other form of equity capital unless the terms of
each such issuance are reasonably acceptable to RACC. Capital
stock does not include preferred stock as described in Section
1504(a)(4) of the Internal Revenue Code of 1986 and regulations
thereunder, interpretations thereof and rulings applying or
interpreting such Section.
(I) Further Assurances. Great Lakes will promptly furnish such
information and execute and deliver such further documents, and
do all other such acts as RACC may reasonably request to further
implement the provisions contained in this Agreement, including,
without limitation, its obligation to cooperate with RACC to
facilitate any assignment of any of the Group B Notes pursuant
to Section 3.
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(J) Shelf Registration. Great Lakes shall, simultaneously with the
completion of its Form 10-K for its 2002 fiscal year, file with
the Securities and Exchange Commission a Shelf Registration as
to the RACC Shares and any Anti-Dilution Shares and shall use
its best efforts thereafter to obtain and maintain the
effectiveness of the Shelf Registration. "Shelf Registration"
means the shelf registration pursuant to Rule 145 promulgated
under the Securities Act of 1933, as amended, by Great Lakes of
the sale by RACC (which sale, at the option of RACC in its sole
and absolute discretion, may be through an underwriter) of the
RACC Shares and any Anti-Dilution Shares held by RACC. In the
event of the issuance of any Anti-Dilution Shares, Great Lakes
will promptly either (i) amend the Shelf Registration to include
such Anti-Dilution Shares or (ii) or file an additional Shelf
Registration with respect to such Anti-Dilution Shares. Great
Lakes shall not allow the effectiveness of the Shelf
Registration to lapse at any time after its initial
effectiveness as a result of events within Great Lakes' control.
If, at any time after its initial effectiveness, the Shelf
Registration shall cease to be effective as the result of events
beyond Great Lakes' control, Great Lakes shall at all times
thereafter use its best efforts to reinstate the effectiveness
of the Shelf Registration.
(K) Incentive Compensation Plan. Great Lakes shall not adopt any
incentive compensation plan for any of its officers that
provides for the possibility of aggregate payments thereunder to
any officers in any fiscal year in excess of such officer's
current annual base salary without the prior written approval of
RACC.
(L) Press Release. On or about the Effective Date, Great Lakes shall
have issued a press release relating to the transactions
contemplated hereby substantially in the form of Exhibit L
attached hereto.
(M) Quarterly Free Cash Flow. Quarterly Free Cash Flow shall not be
less than $(500,000).
(N) Debt Service Threshold. The Debt Service Threshold shall be
calculated and maintained as set forth on Schedule 6 to this
Agreement.
(O) Net Debt to EBITDA. The Net Debt to EBITDA Threshold shall be
calculated and maintained as set forth on Schedule 6 to this
Agreement. "Net Debt" means on balance sheet Indebtedness of
Great Lakes, including current maturities, minus cash on hand.
"EBITDA" means with respect to any rolling four quarter period,
an amount equal
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to the sum of (a) net income of Great Lakes for such fiscal
period, plus (b) in each case to the extent deducted in the
calculation of Great Lakes' net income and without duplication,
(i) depreciation and amortization for such period, plus (ii)
income tax expense for such period, plus (iii) the aggregate
amount of interest required to be paid or accrued by Great Lakes
during such period on all Indebtedness of the Great Lakes and
its subsidiaries outstanding during all or any part of such
period, whether such interest was or is required to be reflected
as an item of expense or capitalized, including payments
consisting of interest in respect of any capitalized lease or
any synthetic lease, and including commitment fees, agency fees,
facility fees, balance deficiency fees and similar fees or
expenses in connection with the borrowing of money, plus (iv)
other noncash charges for such period, all as determined in
accordance with GAAP.
(P) Capital Expenditures. Great Lakes shall not make Capital
Expenditures that exceed, in the aggregate, $1,000,000 for its
2003 fiscal year and $800,000 for each fiscal year thereafter,
provided, however, that for each fiscal year commencing after
the occurrence of the Limited Termination Date, Great Lakes
shall be allowed up to $1,100,000 in Capital Expenditures per
year. "Capital Expenditures" means amounts paid or Indebtedness
incurred by Great Lakes in connection with the purchase or lease
by Great Lakes of fixed assets, both tangible (such as land,
buildings, fixtures, machinery and equipment) and intangible
(such as patents, copyrights, trademarks, franchises and good
will), that would be required to be capitalized and shown on its
balance sheet in accordance with GAAP, provided that this
Section 15(P) shall not include any item customarily charged
directly to expense or depreciated over a useful life of twelve
(12) months or less in accordance with GAAP.
(Q) Restructuring of Other Aircraft Indebtedness. As a condition to
the effectiveness of this Agreement, Great Lakes was to have
delivered to RACC written evidence reasonably satisfactory to
RACC that Great Lakes' Indebtedness owing to other similarly
situated aircraft creditors (specifically, Finova Capital, CIT
and Boeing Capital) shall have been restructured such that none
of these creditors shall be paid more than RACC (on a relative
basis). Great Lakes has entered into term sheets with regard to
restructuring its Indebtedness and other obligations with each
of its aircraft creditors, copies of which were provided to RACC
on December 26, 2002, the terms of which are acceptable to RACC.
Great Lakes agrees to implement such restructurings pursuant to
the term sheets provided to RACC, and RACC agrees to allow Great
Lakes to implement such restructurings so long as such
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restructurings follow, in a manner reasonably satisfactory to
RACC, the term sheets provided to RACC on December 26, 2002. The
failure of Great Lakes to enter into restructurings that follow
these term sheets in a manner reasonably satisfactory to RACC
shall constitute an Event of Default, as set forth in Section
17(A)(3).
16. Representations and Warranties.
(A) By Great Lakes. Great Lakes represents and warrants to RACC as
of the date hereof that:
(1) Authority and Enforceability. Great Lakes has the full
power to enter into and perform its respective
obligations under this Agreement, including, without
limitation, the issuance of the RACC Shares and any
issuance of Anti-Dilution Shares that may be required by
Great Lakes to RACC and all other Transaction Documents
contemplated hereby or executed pursuant hereto to which
Great Lakes is a party. The execution and delivery of
this Agreement, the Notes, the Group B Security
Agreements, the Security Agreement, the Security
Agreement Amendment and all other Transaction Documents
contemplated hereby or executed pursuant hereto to which
Great Lakes is a party and the performance and
observance of their terms, conditions and obligations
have been duly authorized by all necessary action on the
part of Great Lakes. This Agreement, the Notes, the
Group B Security Agreements, the Security Agreement, the
Security Agreement Amendment and all other Transaction
Documents contemplated hereby or executed pursuant
hereto constitute, when executed and delivered by Great
Lakes to RACC, will be valid and binding obligations of
Great Lakes enforceable in accordance with their terms
(subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting
creditors' rights generally and general principles of
equity).
(2) No Conflict. The execution, delivery and performance of
this Agreement, the Notes, the Group B Security
Agreements, the Security Agreement, the Security
Agreement Amendment and all other Transaction Documents
to which Great Lakes is a party and the consummation of
the transactions herein contemplated on the part of
Great Lakes, including, without limitation, the issuance
to RACC of the RACC Shares and any Anti-Dilution Shares,
will not result in a breach or violation of any of the
terms or provisions of, or constitute a default under,
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any statute, rule or regulation applicable to, or order
of any governmental body or agency or any court having
jurisdiction over Great Lakes or any of its properties,
or any agreement or instrument to which Great Lakes is a
party or by which Great Lakes is bound or to which any
of the properties of Great Lakes is subject, or the
charter or by-laws of Great Lakes.
(3) Capitalization. As of the Effective Date, the authorized
capital stock of Great Lakes consists solely of
50,000,000 shares of Common Stock and 25,000,000 shares
of preferred stock, par value $.01 per share (the
"Preferred Stock"), of Great Lakes. On the Effective
Date, Great Lakes will have no outstanding capital stock
other than 8,680,186 shares of Common Stock, all of
which shall be owned as set forth in Schedule 7 hereto
and shall be duly authorized, validly issued, fully paid
and non-assessable. Upon the issuance of any RACC Shares
in accordance with the terms of Section 8, such shares
of Common Stock shall be duly authorized, validly
issued, fully paid and non-assessable.
(4) Options, Etc. Other than as disclosed on Schedule 8
hereto, there are no outstanding rights (either
preemptive or other) or options to subscribe for or
purchase from Great Lakes and no warrants or other
agreements providing for or requiring the issuance by
Great Lakes of any capital stock of Great Lakes. The
issuance of the RACC Shares or any Anti-Dilution Shares
shall not be subject to pre-emptive rights in favor of
any present or future stockholders of Great Lakes.
(5) Litigation. Except as set forth on Schedule 9 hereto,
there are no actions, suits, proceedings or
investigations of any kind pending or threatened against
Great Lakes before any governmental authority, that, (a)
if adversely determined, might, either in any case or in
the aggregate, (i) have a material adverse effect on the
business, properties, prospects, condition (financial or
otherwise), assets, operations or income of Great Lakes,
or (ii) materially impair the right of Great Lakes to
carry on business substantially as now conducted by
them, or result in any substantial liability not
adequately covered by insurance, or for which adequate
reserves are not maintained on the consolidated balance
sheet of Great Lakes, or (b) which question the validity
of this Agreement or any of the other Transaction
Documents, or any action taken or to be taken pursuant
hereto or thereto.
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(6) Net Operating Loss. The net operating loss carryover
("Net Operating Loss Carryover" or "Net Operating
Loss"), as that term is defined by section 172 of the
Internal Revenue Code of 1986 as currently in effect
(the "Code"), of Great Lakes available for use by Great
Lakes (subject to adjustment upon audit) in computing
its federal income tax liability for the year ending
December 31, 2002, calculated as of the beginning of
such year based on the tax provision for the year ended
December 31, 2001, is $80,308,934. Based on the
reasonable judgment of Great Lakes' management, the
amount of the Net Operating Loss for the year ended
December 31, 2002, after taking into account the
transactions contemplated under this Agreement, is
projected to be at least $70,000,000 (subject to
adjustment upon audit), but this amount cannot be
determined with certainty as of the date hereof because
of certain unknown variables, including (1) the fact
that the accounting and tax operating results for the
year ending December 31, 2002 are not finalized and (2)
the impact of Great Lakes restructuring its indebtedness
with other creditors is not known.
(B) By RACC. RACC represents and warrants to Great Lakes that it has
the full power to enter into and perform its obligations under
this Agreement and all other documents contemplated hereby or
executed pursuant hereto. The execution and delivery of this
Agreement and all other Transaction Documents contemplated
hereby or executed pursuant hereto and the performance and
observance of their terms, conditions and obligations have been
duly authorized by all necessary action on the part of RACC.
This Agreement and all other Transaction Documents contemplated
hereby or executed pursuant hereto constitute, when executed and
delivered by RACC to Great Lakes, valid and binding obligations
of RACC, respectively, enforceable in accordance with their
terms (subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors'
rights generally and general principles of equity).
17. Events of Default and Remedies.
(A) The following events shall constitute "Events of Default" under
this Agreement:
(1) The failure by any party to perform any promise,
agreement, obligation, warranty or covenant made by it
herein or in any other Transaction Document, if such
default is not cured by Great Lakes, on the one hand, or
RACC, on the other, within
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thirty (30) calendar days of receipt of notice from any
party specifying such default; provided, however, that
(i) there shall be no cure period, except as otherwise
specifically set forth in the applicable Transaction
Document, with respect to any payment default by Great
Lakes in respect of any of the Obligations and (ii)
there shall be no notice or cure period with respect to
failure to comply with Section 12(A)(iv) and (v) of this
Agreement;
(2) Any "Event of Default" as defined in any of the
Transaction Documents shall have occurred; or
(3) If Great Lakes fails to implement restructurings with
each of its aircraft creditors (Finova Capital, Boeing
Capital and CIT) on final terms that, in a manner
reasonably satisfactory to RACC, implement the financial
and other terms set forth in the term sheets provided to
RACC on December 26, 2002.
(B) Remedies. Upon the occurrence of any Event of Default, a
non-defaulting party may proceed with every remedy available at
law or equity or provided for herein, or, in the case of RACC
upon the occurrence of any Event of Default by Great Lakes, in
any Transaction Document or document executed in connection
herewith. No delay or failure of any party in the exercise of
any right or remedy provided for hereunder shall be deemed a
waiver of the right by such party, and no exercise or partial
exercise or waiver of any right or remedy shall be deemed a
waiver of any further exercise of such right or remedy or of any
other right or remedy that RACC may have. The rights and
remedies herein expressed are cumulative and not exclusive of
any right or remedy that any party shall otherwise have.
Further, nothing contained herein shall obligate any party to
undertake any action unless required by law.
(C) Default Interest Rate. Upon the occurrence and during the
continuance of any Event of Default, the outstanding principal
under each of the Notes shall bear interest at the Default
Interest Rate. The "Default Interest Rate" is defined as LIBOR
plus 600 basis points.
18. Notices. Any notice pertaining to or required by this Agreement shall be
deemed sufficiently given if personally delivered or sent by registered
or certified mail, return receipt requested, to the party to whom said
notice is to be given, or sent via telecopier with oral confirmation
from a person at the receiving office that the transmission has been
received, or sent via overnight carrier. Notices sent by registered or
certified mail shall be deemed given on the third day after the date of
postmark. Notices hand-delivered shall be
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deemed given on the date delivered. Notices forwarded by telecopier
shall be deemed given upon the foregoing oral confirmation that the
transmission has been received. Notices sent by overnight carrier shall
be deemed delivered the day after being forwarded. Until changed by
written notice given by any of the noted parties, the addresses of the
parties shall be as follows:
Great Lakes: Great Lakes Aviation, Limited
Attention: President
0000 Xxxxxxx Xxxxxxx
Xxxxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to: Xxxxxx and Xxxxxx, P.A.
Attention: Xxxxxxx X. Xxxxxxxx
0000 XXX Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
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RACC: Raytheon Aircraft Credit Corporation
Attention: President
00000 X. Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to: Raytheon Company
Attention: Xxxxxxx X. Xxxxxx
Vice President and Treasurer
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx 00000
Telephone: (000) 000-0000
(000) 000-0000
and Xxxxx X. Xxxxxxxx, Esq.
Xxxxxxx XxXxxxxxx LLP
0000 00xx Xxxxxx, XX, Xxxxx 000
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
19. Miscellaneous.
(A) Amendments. No provision or term of this Agreement may be
amended, modified, revoked, supplemented, waived or otherwise
changed except by a written instrument duly executed by Great
Lakes and RACC and designated as an amendment, supplement or
waiver.
(B) Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original.
(C) Headings. The paragraph headings herein are for convenience only
and shall not affect the construction hereof.
(D) Use of Terms. As used herein, words in any gender shall be
deemed to include the other gender and the singular shall be
deemed to include the plural, and vice versa.
(E) Severability. If any provision in this Agreement shall be held
invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining
provisions of this Agreement shall not be impaired thereby, nor
shall the validity, legality or enforceability of
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any such defective provision be in any way affected or impaired
in any other jurisdiction.
(F) Governing Law and Informed Choice. THIS AGREEMENT WAS MADE AND
ENTERED INTO IN THE STATE OF KANSAS AND THE LAW GOVERNING THIS
TRANSACTION SHALL BE THAT OF THE STATE OF KANSAS AS IT MAY FROM
TIME TO TIME EXIST. THE LAWS OF THE STATE OF KANSAS SHALL APPLY
TO ANY AND ALL MATTERS ARISING FROM OR RELATED TO THIS
AGREEMENT. THE PARTIES AGREE THAT ANY LEGAL PROCEEDING BASED
UPON THE PROVISIONS OF THIS AGREEMENT OR, UNLESS OTHERWISE
EXPRESSLY PROVIDED THEREIN, ANY OTHER TRANSACTION DOCUMENT,
SHALL BE BROUGHT EXCLUSIVELY IN EITHER THE UNITED STATES
DISTRICT COURT OF THE DISTRICT OF KANSAS AT WICHITA, KANSAS OR
IN THE EIGHTEENTH JUDICIAL DISTRICT COURT OF SEDGWICK COUNTY,
KANSAS TO THE EXCLUSION OF ALL OTHER COURTS AND TRIBUNALS.
NOTWITHSTANDING THE ABOVE, RACC (AT ITS SOLE OPTION) MAY
INSTITUTE A LEGAL PROCEEDING IN ANY JURISDICTION AS MAY BE
APPROPRIATE IN ORDER FOR RACC TO OBTAIN POSSESSION OF AND
FORECLOSE UPON THE PROPERTY OR ASSET IN WHICH IT HAS A SECURED
OR OWNERSHIP INTEREST. THE PARTIES CONSENT AND AGREE TO BE
SUBJECT TO THE JURISDICTION OF THE AFORESAID COURTS IN SUCH
PROCEEDING.
(G) Damages. To the extent that any party hereto is subject to
liability for any breach under this Agreement or any of the
other Transaction Documents, the liability of such party shall
be limited to the actual and direct monetary damages caused by
such breach. In no event shall any party hereto be liable for
indirect, special, consequential, multiple or punitive damages,
or any damage deemed to be of an indirect or consequential
nature arising out of or related to its performance hereunder,
whether based upon breach of contract, warranty, negligence and
whether grounded in tort, contract, civil law or other theories
of liability, including strict liability. To the extent that
this limitation of liability conflicts with any other
provision(s) in this Agreement or any of the other Transaction
Documents, said provision(s) shall be regarded as amended to
whatever extent required to make such provision(s) consistent
with this Section 19(G).
(H) Successors and Assigns. This Agreement shall be binding upon and
enure to the benefit of RACC and Great Lakes and their
respective successors and assigns, provided that Great Lakes may
not assign any
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rights, duties or obligations hereunder. Each of the Notes and
related Transaction Documents may be fully transferred by RACC
at any time to any person.
(I) Exhibits and Schedules. All exhibits and schedules referred to
herein and attached hereto are hereby incorporated by reference
as an integral part of this Agreement, subject to the terms and
conditions set forth herein.
(J) Entire Agreement. This Agreement, taken together with the
additional Transaction Documents to be executed in connection
herewith (as set forth herein), constitute the entire agreement
between RACC and Great Lakes concerning the subject matter
hereof and supersede and merge any prior written or oral
agreements between RACC and Great Lakes concerning the subject
matter hereof. The parties hereby acknowledge and agree that the
Limited Recourse Guaranty of Xxxxxxx X. Xxxx, the Limited
Recourse Guaranty of IGLF, the Stock Pledge Agreement by and
among Xxxxxxx X. Xxxx, IGLF and RACC, and the Irrevocable Proxy
of Xxxxxxx X. Xxxx in favor of RACC, each dated as of May 14,
2002, are terminated in their entirety.
(K) Time of Essence. Time is of the essence with respect to all of
the provisions of this Agreement.
(L) Termination of Agreement. This Agreement shall terminate upon
the indefeasible payment in full in cash of all of the
Obligations.
[The remainder of this page intentionally left blank.]
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In witness of the mutual promises, covenants and agreements set forth herein,
the parties have caused their duly authorized officers to execute this Agreement
on the day and year set forth beneath their signatures hereto.
GREAT LAKES AVIATION, LTD., an Iowa
corporation
By: /s/ Xxxxxxx X. Xxxxxx XX
-----------------------------
Its CEO
-----------------------------
Date: 12-31-02
---------------------------
RAYTHEON AIRCRAFT CREDIT CORPORATION,
a Kansas corporation
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------
Its President
-----------------------------
Date: 12/31/02
---------------------------
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Group A Return Conditions Note
Exhibit B Form of Group B Note
Exhibit C Form of Group B Security Agreement
Exhibit D Form of Group C Lease Amendment
Exhibit E Form of Deferral Note
Exhibit F Form of Senior Note
Exhibit G Form of Subordinated Note
Exhibit H Form of Security Agreement
Exhibit I Form of Security Agreement Amendment
Exhibit J Form of 120-071 Security Agreement
Exhibit K Form of Shareholder or Option Holder Letter
Exhibit L Form of Press Release
Schedule 1 Group A Aircraft Return Schedule
Schedule 2 Group B Notes Payment and Amortization Schedule
Schedule 3 List of Great Lakes' Direct Competitors
Schedule 4 RACC's Legal and Out-of-Pocket Expenses
Schedule 5 Existing Indebtedness of Great Lakes
Schedule 6 Debt Service Covenant
Schedule 7 Great Lakes Capitalization
Schedule 8 Outstanding Rights and Options to Purchase Capital Stock
of Great Lakes
Schedule 9 Litigation
