**Exhibit 4.2**

 

 
| **** | **C#: 44097  L#: 44098  Ls#: 8800021448** |
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**SecurityAgreement**
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**THISSECURITY AGREEMENT** (this "Agreement" or"Security Agreement") dated as of January       , 2002 is made by and between AIRNETSYSTEMS, INC., an Ohio corporation having its chief executive office at 3939INTERNATIONAL GATEWAY, COLUMBUS, OH 43219 (the "Borrower"), and **KeyEquipment Finance, a Division of Key Corporate Capital Inc.**andassigns, having an office at 66 South Pearl Street, Post Office Box 1865,Albany, NY 12207-1865 ("KEF").

 

**W I T N E S S E T H****:**

 

**1.             Grant of Security Interest in the Equipment**.  In consideration of one or more loans,advances or other financial accommodations at any time before, at or after thedate hereof, made or extended by KEF to or for the account of the Borrower,directly or indirectly, as principal, guarantor or otherwise and to secure theprompt payment and performance in full when due, whether by lapse of time,acceleration or otherwise, of the Secured Obligations, the Borrower hereby pledges,assigns, transfers hypothecates to KEF and grants to KEF a security interestin, and acknowledges and agrees that this Agreement shall create a continuingsecurity interest in, all of Borrower’s right, title and interest in and to theCollateral.

 

TheSecured Obligations of the Borrower are absolute, irrevocable and unconditionalunder any and all circumstances whatsoever and shall not be subject to anyright of set-off, counterclaim, deduction, defense or other right which theBorrower may have for any reason against any vendor, supplier, manufacturer,KEF or any other party.  All obligationsof Borrower hereunder shall survive the expiration, cancellation or othertermination of this Agreement.

 

**2.             Definitions**.  Unless the context otherwiserequires, as used in this Agreement, the following terms shall have therespective meanings indicated below and shall be equally applicable to both thesingular and the plural forms thereof:

“Alteration” shall have the meaning specified inSection 6 hereof.

“Applicable Law" shall mean all applicableFederal, state, local and foreign laws, ordinances, judgments, decrees,injunctions, writs, rules, regulations, orders, licenses and permits of anyGovernmental Authority.

"Authorized Signer" shall mean anyofficer of Borrower, set forth on an incumbency certificate (in form andsubstance satisfactory to KEF) delivered by Borrower to KEF, who is authorizedand empowered to execute the Loan Documents.

"Certificate of Acceptance" shall meana certificate of acceptance, in form and substance satisfactory to KEF,executed and delivered by Borrower in accordance with Section 3 hereof.

“Collateral” shall mean the Equipment and any andall substitutions, replacements or exchanges therefor, and any and all proceeds(both cash and non-cash) receivable or received from the sale, lease, license,collection, use, exchange or other disposition of the Collateral, includinginsurance proceeds, thereof (including, without limitation, claims of theBorrower against third parties for Loss or Damage to any such collateral).

“Collateral Schedule” shall mean each collateralschedule now or hereafter attached hereto and made a part hereof, insubstantially the form of Schedule 1 hereto.

"Default" shall mean any event orcondition which, with the passage of time or the giving of notice, or both,would constitute an Event of Default.

"Default Rate" shall mean an annualinterest rate equal to the lesser of 18% or the maximum interest rate permittedby Applicable Law.

"Equipment" shall mean an item or itemsof personal property which are described on the Collateral Schedule, togetherwith all replacement parts, additions and accessories incorporated therein oraffixed thereto including,

 

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without limitation, any software that is a component orintegral part of, or is included or used in connection with, any Item ofEquipment, but with respect to such software, only to the extent of Borrower’sinterest therein, if any. 

"Equipment Location" shall mean thelocation of the Equipment, as set forth on Schedule 1, or such other location(approved in writing by KEF) as Borrower shall from time to time specify inwriting.

"Event of Default" shall have themeaning specified in Section 16 hereof.

“GAAP” shall have the meaning specified inSection 22(g) hereof.

"Governmental Action" shall mean allauthorizations, consents, approvals, waivers, filings and declarations of anyGovernmental Authority, including, without limitation, those environmental andoperating permits required for the ownership, lease, use and operation of theEquipment.

"Governmental Authority” shall mean anyforeign, Federal, state, county, municipal or other governmental authority,agency, board or court.

"Guarantor" shall mean any guarantor ofthe Secured Obligations.

"Installment(s)" shall mean theperiodic payments due to repay the Note, and, where the context hereofrequires, all such additional amounts as may from time to time be payable underany provision of the Loan Documents.

"Item of Equipment" shall mean eachitem of the Equipment.

"Liability" shall have the meaning setforth in Section 18 hereof.

"Loan Documents" shall mean,collectively, this Agreement, the Note, and all other documents prepared by KEFand now or hereafter executed in connection therewith.

"Lien" shall mean all mortgages,pledges, security interests, liens, encumbrances, claims or other charges ofany kind whatsoever, except the security interest of KEF created by thisAgreement.

“Loss or Damage” shall mean any loss, theft,destruction, disappearance or any condemnation, expropriation or requisition ofor damage to any Item of Equipment.

"Note" shall mean that certainPromissory Note in the original principal amount of $1,248,530.00 executed inconnection herewith, together with any extensions, modifications, renewals, refinancingsor other restructurings thereof.

“Secured Obligations” means all of the followingobligations of Borrower, whether direct or indirect, absolute or contingent,matured or unmatured, originally contracted with KEF or another party, and nowor hereafter owing to or acquired in any manner partially or totally by KEF orin which KEF may have acquired a participation, contracted by Borrower alone orjointly or severally: (a) any and all indebtedness, obligations, liabilities,contracts, indentures, agreements, warranties, covenants, guaranties,representations, provisions, terms, and conditions of whatever kind, nowexisting or hereafter arising, and however evidenced, that are now or hereafterowed, incurred or executed by Borrower to, in favor of, or with KEF (including,without limitation, those as are set forth or contained in, referred to,evidenced by, or executed with reference to the Loan Documents, any letter ofcredit agreements, advance agreements, indemnity agreements, guaranties, linesof credit, mortgage deeds, security agreements, assignments, pledge agreements,hypothecation agreements, instruments, and acceptance financing agreements),and including any partial or total extension, restatement, renewal, amendment,and substitution thereof or therefor; (b) any and all claims of whatever kindof KEF against Borrower, now existing or hereafter arising, including, withoutlimitation, any arising out of or in any way connected with warranties made byBorrower to KEF in connection with any instrument purchased by KEF; and (c) anyand all of KEF’s fees, costs and expenses related to the foregoing.

"Supplier" shall mean the manufactureror the vendor of the Equipment, as set forth on each Collateral Schedule.

“Term” shall mean the term of the Note.

“UCC” shall have the meaning set forth in Section16(b)(2) hereof.  Where applicable andexcept as otherwise defined herein, terms used in this Agreement shall have themeaning assigned to them in the UCC.

“Upgrade” shall have the meaning specified in Section8 hereof.

 

**3.             Delivery and Acceptance**.  Concurrently with executionof the Collateral Schedule hereunder, Borrower shall execute and deliver to KEFa Certificate of Acceptance for the Equipment described on such CollateralSchedule.  **KEF SHALL HAVE NO OBLIGATION TO ADVANCEANY FUNDS TO BORROWER UNLESS AND UNTIL KEF SHALL HAVE RECEIVED A CERTIFICATE OFACCEPTANCE RELATING TO THE EQUIPMENT EXECUTED BY BORROWER.**  Such Certificate of Acceptance shallconstitute Borrower's acknowledgment that such Equipment (a) was received byBorrower, (b) is satisfactory to Borrower in all respects,

 

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(c) is suitable for Borrower's purposes, (d) is in goodorder, repair and condition, (e) has been installed and operates properly, and(f) is subject to all of the terms and conditions of the Loan Documents.Borrower's execution and delivery of a Certificate of Acceptance shall beconclusive evidence as between KEF and Borrower that the Items of Equipmentdescribed therein are in all of the foregoing respects satisfactory toBorrower, and Borrower shall not assert any claim of any nature whatsoeveragainst KEF based on any of the foregoing matters; provided, however,that nothing contained herein shall in any way bar, reduce or defeat any claimthat Borrower may have against the Supplier or any other person (other thanKEF). 

 

**4.             Payments**.  Borrower shall pay the Noteon the terms set forth therein.  AllInstallments shall be payable when due whether or not Borrower has received anyadditional notice that such Installments are due.  All Installments shall be paid to KEF at 66 South Pearl Street,Post Office Box 1865, Albany, NY 12207-1865, or as otherwise directed by KEF inwriting. 

 

**5.             Location; Inspection; Labels**.  The Equipment shall bedelivered to the Equipment Location and shall not be removed therefrom withoutKEF's prior written consent.  Borrowershall maintain possession and control of the Equipment at all times. Borrowerwill promptly give written notice to KEF of any change in the identity orlocation of any Item of Equipment which might require new filings or otheraction to assure continued perfection of the security interest of KEF grantedhereby.  The Borrower owns, and willcontinue to own, all Equipment Locations except as otherwise indicated onSchedule 1. KEF shall have the right toenter upon the Equipment Location and inspect the Equipment at any reasonabletime.  At KEF's request, Borrower shallaffix permanent labels evidencing KEF's interest in the Equipment in aprominent place on the Equipment and shall keep such labels in good repair andcondition.

 

**6.             Use; Alterations**.  Borrower shall use theEquipment only in the course of its business for commercial purposes (and shallnot permanently discontinue use of the Equipment), and in compliance withApplicable Law and the requirements of any applicable insurance policies, andonly in the manner for which it was designed and intended and so as to subjectit only to ordinary wear and tear. Borrower shall comply with all Applicable Law with respect to theEquipment.  Borrower shall immediatelynotify KEF in writing of any existing or threatened investigation, claim oraction by any Governmental Authority in connection with any Applicable Law orGovernmental Action which could adversely affect the value of the Equipment orthe perfection or priority of the security interest of KEF in the Collateral.Borrower shall not make any material alterations, additions, modifications orimprovements (each, an “Alteration”) to the Equipment without KEF's priorwritten consent; provided that Borrower, at its own expense, shall makeAlterations as may be required from time to time to meet the requirements ofApplicable Law or Governmental Action. All such Alterations immediately, and without further act, shall bedeemed to constitute Items of Equipment and fully be subject to the securityinterest granted to KEF hereunder.

 

**7.             Repairs and Maintenance**.  Borrower, at Borrower's owncost and expense, shall (a) keep the Equipment in good repair, operatingcondition and working order and in compliance with the manufacturer'sspecifications and Borrower’s standard practices (but with respect to thelatter, in no event less than industry practices) and (b)  maintain, service and repair the Equipmentas otherwise required herein.  Borrower,at its own cost and expense and within a reasonable period of time, shallreplace any part of any Item of Equipment that is unfit or unavailable for usefrom any cause with a replacement part of the same manufacture, value,remaining useful life and utility as the replaced part immediately precedingthe replacement (assuming that such replaced part was in the condition requiredby this Agreement).  Such replacementpart shall be free and clear of all Liens and upon installation, attachment orincorporation in, on or into such Item of Equipment, such replacement partimmediately, and without further act, shall be deemed to constitute an Item ofEquipment and fully be subject to the security interest granted to KEFhereunder. If KEF repossesses the Equipment pursuant to its rights under thisAgreement and at that time, in the opinion of KEF, any Item of Equipment failsto meet the standards set forth above, Borrower agrees to pay on demand allcosts and expenses incurred in connection with repairing or restoring such Itemof Equipment so as to meet such standards and/or assembling and delivering suchItem of Equipment.

 

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**8.             Equipment Upgrades/Attachments**.  In addition to therequirements of Section 6 hereof, Borrower, at its own expense, may fromtime to time add or install upgrades or attachments (each, an “Upgrade”) to theEquipment; provided, that such Upgrades are readily removable withoutcausing material damage to the Equipment, and do not materially adverselyaffect the fair market value of the Equipment. Any such Upgrades shall be owned by Borrower, shall become subject tothe security interest created by this Agreement and shall be kept free and clearof all Liens so long as attached to the Equipment.

 

**9.             Lease and Assignment**.  **(a) WITHOUT KEF’S PRIOR WRITTEN CONSENT, BORROWER SHALL NOT (1) ASSIGN,TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF, THE EQUIPMENT OR ANYINTEREST THEREIN, OR ASSIGN OR DELEGATE ITS RIGHTS OR OBLIGATIONS UNDER THELOAN DOCUMENTS, OR (2) LEASE OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENTTO BE USED BY, ANYONE OTHER THAN BORROWER.**

 

(b)  KEF, at anytime with or without notice to Borrower, may sell, transfer, grantparticipations in, assign and/or grant a security interest in any or all ofKEF’s right, title and interest in and to the Loan Documents, or in KEF’ssecurity interest in any Item of Equipment. In any such event, any such purchaser, transferee, assignee or securedparty shall have and may exercise all of KEF's rights hereunder or thereunder,and **BORROWERSHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECUREDPARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT BORROWER MAY HAVE AGAINST KEF.**  Borrower agrees that upon written notice toBorrower of any such sale, transfer, assignment and/or security interest,Borrower shall acknowledge receipt thereof in writing and shall comply with thereasonable directions and demands of such purchaser, transferee, assignee orsecured party.

 

(c)  Subject tothe foregoing, all covenants and agreements contained herein shall be bindingupon, and inure to the benefit of, KEF and its successors and permitted assignsand Borrower and its successors and permitted assigns.  

 

**10.          Loss of or Damage to Equipment**.  (a) In the event of Loss orDamage to any Item of Equipment, Borrower shall immediately notify KEF of sameand, at the option of Borrower, Borrower shall within thirty (30) days, unlessotherwise agreed by KEF in writing, following such Loss or Damage: (1) placesuch Item of Equipment in good condition and repair, in accordance with theterms hereof; (2) replace such Item of Equipment with replacement equipment(acceptable to KEF) in as good condition and repair, and with the same orbetter fair market value as such replaced Item of Equipment immediatelypreceding the Loss or Damage (assuming that such replaced Item of Equipment wasin the condition required by this Agreement), which replacement equipment shallimmediately, and without further act, be deemed to constitute Items ofEquipment and be fully subject to this Agreement and the security interestgranted to KEF as if originally pledged as Collateral hereunder and shall befree and clear of all Liens; or (3) pay to KEF any unpaid Installmentsand other charges due prior to the payment date specified in such notice plusan amount, with respect to an Item of Equipment, equal to the pro rata portionof the Installments attributable to such Item of Equipment under the LoanDocuments after discounting such Installments to present worth as of thepayment date specified in such notice on the basis of a per annum rate ofdiscount equal to five percent (5%) from the respective dates upon which suchInstallments would have been paid but for the operation of this clause.  

 

(b)Upon KEF's receipt of the payment requiredunder clause (3) above, KEF shall release its security interest in such Item ofEquipment. If Borrower fails to either restore or replace the Item of Equipmentpursuant to clauses (1) or (2) above, respectively, Borrower shall make thepayment under clause (3) above.

 

**11.          Insurance**.  (a)  Borrower, at Borrower's own cost and expense, shall maintain (1)insurance against all risks of physical loss or damage to the Equipment (whichshall include theft and collision for Equipment consisting of motor vehicles,and shall not exclude loss resulting from flood or earthquake) in an amount notless than the full replacement value thereof and (2) comprehensive publicliability insurance including blanket contractual liability for personal andbodily injury and property damage in an amount satisfactory to KEF.

 

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(b)  Allinsurance policies required hereunder shall (1) require 30 days' prior writtennotice to KEF of cancellation or material change in coverage (any suchcancellation or change, as applicable, not being effective until the thirtieth(30th) day after the giving of such notice); (2) name “KeyCorp and itssubsidiaries and affiliated companies, including Key Equipment Finance, aDivision of Key Corporate Capital Inc., their successors and assigns” as soleloss payee under the property insurance policies; (3) not require contributionsfrom other policies held by KEF; (4) waive any right of subrogation againstKEF; (5) in respect of any liability of KEF, except for the insurers' salvagerights in the event of a Loss or Damage, waive the right of such insurers toset-off, to counterclaim or to any other deduction, whether by attachment orotherwise, to the extent of any monies due KEF under such policies; (6) notrequire that KEF pay or be liable for any premiums with respect to suchinsurance covered thereby; (7) be in full force and effect  throughout any geographical areas at anytime traversed by any Item of Equipment; and (8) contain breach of warrantyprovisions providing that, in respect of the interests of KEF in such policies,the insurance shall not be invalidated by any action or inaction of Borrower orany other person (other than KEF) and shall insure KEF regardless of any breachor violation of any warranty, declaration or condition contained in suchpolicies by Borrower or by any other person (other than KEF).  Prior to funding the Note, and thereafternot less than 15 days prior to the expiration dates of the expiring policiestheretofore delivered pursuant to this Section, Borrower shall deliver to KEF aduplicate original of all policies (or in the case of blanket policies,certificates thereof issued by the insurers thereunder) for the insurancemaintained pursuant to this Section. 

 

(c)  Proceeds ofinsurance with respect to physical loss or damage to the Equipment shall beapplied, at the option of KEF, to repair or replace the Equipment or to reduceor satisfy (as applicable) the Secured Obligations.

 

**12.          Taxes**.  Borrower shall pay when dueany and all taxes, fees, levies, imposts, duties, assessments and public andprivate charges levied or assessed on or with respect to the Equipment, on the usethereof, or on this Agreement or any of the other Loan Documents.

 

**13.          KEF's Right to Perform for Borrower**.  If Borrower fails to performany of its obligations contained in the Loan Documents, KEF may (but shall notbe obligated to) itself perform such obligations, and the amount of thereasonable costs and expenses of KEF incurred in connection with suchperformance, together with interest on such amount from the date paid by KEFuntil the date repaid by Borrower to KEF, at the Default Rate, shall be payableby Borrower to KEF upon demand.  No suchperformance by KEF shall be deemed a waiver of any rights or remedies of KEF,or be deemed to cure the default of Borrower hereunder.  All such sums and amounts so expended byKEF shall be repayable by the Borrower immediately without notice or demand,shall constitute additional Secured Obligations and shall bear interest fromthe date said amounts are expended at the Default Rate.

 

**14.          Delinquent Payments; Interest**.  If Borrower fails to pay anyof the Installments on the date when the same becomes due, Borrower shall payto KEF a late charge equal to five percent (5%) of such delinquent amount.  Such late charge shall be payable byBorrower upon demand by KEF and shall be deemed part of the Secured Obligations.  In no event shall such late charge exceedthe maximum amounts permitted under Applicable Law.

 

**15.          Personal Property; Liens; Warrantyof Title**.  The Borrower is, and will continue to be,the sole owner of the Equipment, free from any Lien.  KEF and Borrower hereby agree that the Equipment is, and shall atall times remain, personal property notwithstanding the fact that any Item ofEquipment may now be, or hereafter become, in any manner affixed or attached toreal property or any improvements thereon. Borrower shall at all times keep the Equipment free and clear from allLiens, and the Borrower shall obtain and deliver to KEF (to be recorded at theBorrower’s expense) from each person having a Lien on any Equipment Locationwaivers of any Lien which such person might have or hereafter obtain or claimwith respect to the Equipment.  Borrowershall (a) give KEF immediate written notice of any Lien on the Collateral, (b)promptly, at Borrower's sole cost and expense, take such action as may benecessary to discharge any such Lien, and (c) indemnify and hold KEF, on anafter-tax

 

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basis, harmless from and against any loss or damagecaused by any such Lien. Borrower warrants that it has good, validand marketable title to the Equipment, and that (1) the security interest inthe Collateral granted to KEF hereunder, when properly perfected by filing,shall constitute a valid and perfected first priority security interest in theCollateral and, (2) the Collateral is not subject to, and Borrower will notgrant or permit to exist, any Liens or claims on or against the Collateral,whether senior, superior, junior, subordinate or equal to the security interestgranted to KEF hereby, or otherwise.

 

**16.          Events of Default; Remedies**.  (a)  As used herein, the term "Event of Default" shall meanany of the following events:  (1) Borrowerfails to pay any Installment within ten (10) days after the same shall havebecome due and payable; (2) Borrower or anyGuarantor becomes insolvent or makes an assignment for the benefit of itscreditors; (3) a receiver, trustee, conservator or liquidator of Borrower orany Guarantor or of all or a substantial part of Borrower's or such Guarantor'sassets is appointed with or without the application or consent of Borrower orsuch Guarantor, respectively; (4) a petition is filed by or against Borrower orany Guarantor under any bankruptcy, insolvency or similar legislation; (5)Borrower or any Guarantor violates or fails to perform any provision of eitherthe Loan Documents or any other loan, lease or credit agreement or anyacquisition or purchase agreement with KEF or any other party; (6) Borrowerviolates or fails to perform any covenant or representation made by Borrower inthe Loan Documents; (7) any representation or warranty made herein or in any ofthe Loan Documents, certificates, financial statements or other statementsfurnished to KEF (or KEF’s parent, subsidiaries or affiliates) shall prove tobe false or misleading in any material respect as of the date on which the samewas made; (8) Borrower makes a bulk transfer of furniture, fixtures or otherequipment or inventory; (9) there is a material adverse change in Borrower's orany Guarantor's financial condition; (10) Borrower merges or consolidates withany other corporation or entity, or sells, leases or disposes of all orsubstantially all of its assets without the prior written consent of KEF; (11)without the written consent of KEF, which consent shall not be unreasonablywithheld,  a change in control occurs inBorrower or any Guarantor; (12) the death or dissolution of Borrower or anyGuarantor; (13) any of the liens created or granted hereby, or intended to begranted or created hereby, to KEF shall fail to be valid, first priorityperfected liens subject to no prior or equal lien; or (14) an additional Lienattaches to the Equipment or the Equipment becomes subject to risk of seizureor forfeiture.

 

(b)           (1)Upon the occurrence of an Event of Default, KEF, at itsoption, may declare any or all of the Secured Obligations, including, withoutlimitation, the Note, to be immediately due and payable, without demand ornotice to Borrower or any Guarantor. The obligations and liabilities accelerated thereby shall bear interest(both before and after any judgment) until paid in full at the DefaultRate.  Should there occur a Default andif a voluntary or involuntary petition under the United States Bankruptcy Codeis filed by or against Borrower while such Default remains uncured, the SecuredObligations automatically shall be accelerated and due and payable and interestthereon at the Default Rate automatically shall apply as of the date of thefirst occurrence of the Default, without any notice, demand or action of anytype on the part of KEF (including any action evidencing the acceleration orimposition of the Default Rate).  Thefact that KEF has, prior to the filing of the voluntary or involuntary petitionunder the United States Bankruptcy Code, acted in a manner which is inconsistentwith the acceleration and imposition of the Default Rate shall not constitute awaiver of this provision or estop KEF from asserting or enforcing KEF’s rightshereunder.

 

(2)Furthermore, upon the occurrence of an Event of Default, KEF shall have, in additionto the rights and remedies provided herein, in the other Loan Documents or bylaw, the rights and remedies of a secured party under the Uniform CommercialCode under the laws of the State of New York (the "UCC") (regardlessof whether the UCC is the law of the jurisdiction where the rights and remediesare asserted and regardless of whether the UCC applies to the affectedCollateral), and further KEF may do any one or more of the following as KEF inits sole discretion may elect, with or without judicial process or the aid andassistance of others:  (a) enter andremain on any premises on which any of the Equipment may be located and,without resistance or interference by the Borrower, without liability to KEF byreason of such entry or taking possession, take possession of the Equipment,(b)  prepare for sale and sell orotherwise dispose of any Equipment on any such premises, (c) require theBorrower to assemble and make available to KEF at Borrower’s expense any

 

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Equipmentat any place and time designated by KEF, (d) remove any Equipment from any suchpremises for the purpose of effecting sale or other disposition thereof, (e)without demand and without advertisement, notice, hearing or process of law,all of which the Borrower hereby waives, at any place and time or times, selland deliver any or all Equipment held by or for it at public or private sale,by one or more contracts, in one or more parcels, for cash, upon credit orotherwise, at such prices and upon such terms as KEF deems advisable, in itssole discretion, or (f) lease all or any portion of the Equipment on such termsand conditions as KEF in its sole discretion may determine. In addition to all other sums due KEF hereunder, the Borrower shall payKEF all reasonable costs and expenses incurred by KEF, including reasonableattorneys' fees and court costs, in obtaining or liquidating the Collateral, inenforcing payment of Secured Obligations, or in the prosecution or defense ofany action or proceeding by or against KEF or the Borrower concerning anymatter arising out of or connected with the Loan Documents, the Collateral orthe Secured Obligations, including without limitation any of the foregoingarising in, arising under or related to a case under the United StatesBankruptcy Code.  

 

**(3) *Borrower’swaivers regarding disposition of the equipment.*IF AN EVENT OF DEFAULT OCCURS, BORROWER HEREBYWAIVES ANY DEFENSES, RIGHTS, OFFSETS OR CLAIMS AGAINST KEF ARISING OUT OF THEREPOSSESSION, RETENTION, SALE, MANNER OR METHOD OF SALE OR DISPOSITION OF ANY ITEMS OFEQUIPMENT. THE BORROWER AGREES THAT ANY REQUIREMENT OF REASONABLE NOTICESHALL BE MET IF SUCH NOTICE IS PERSONALLY SERVED ON OR MAILED, POSTAGE PREPAID,TO THE BORROWER IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF AT LEAST 10DAYS BEFORE THE TIME OF SALE OR OTHER EVENT GIVING RISE TO THE REQUIREMENT OFSUCH NOTICE. KEF SHALL NOT BE OBLIGATED TO MAKE ANY SALE OR OTHER DISPOSITIONOF THE EQUIPMENT REGARDLESS OF NOTICE HAVING BEEN GIVEN. KEF MAY BE THEPURCHASER AT ANY SUCH SALE. THE BORROWER HEREBY WAIVES ALL OF ITS RIGHTS OFREDEMPTION FROM ANY SUCH SALE. KEF MAY POSTPONE OR CAUSE THE POSTPONEMENT OFTHE SALE OF ALL OR ANY PORTION OF THE EQUIPMENT BY ANNOUNCEMENT AT THE TIME ANDPLACE OF SUCH SALE, AND SUCH SALE MAY, WITHOUT FURTHER NOTICE, BE MADE AT THETIME AND PLACE TO WHICH THE SALE WAS SCHEDULED. NONE OF KEF'S RIGHTS OR REMEDIES HEREUNDER ARE INTENDED TO BEEXCLUSIVE OF, BUT EACH SHALL BE CUMULATIVE AND IN ADDITION TO, ANY OTHER RIGHTOR REMEDY REFERRED TO HEREUNDER OR OTHERWISE AVAILABLE TO KEF OR ITS ASSIGNS ATLAW OR IN EQUITY, AND MAY BE PURSUED SINGLY, SUCCESSIVELY OR CONCURRENTLY ATTHE SOLE DISCRETION OF LENDER AND MAY BE EXERCISED AS OFTEN AS OCCASIONTHEREFOR SHALL OCCUR.  THE FAILURE TOEXERCISE, OR ANY DELAY IN THE EXERCISE OF, ANY RIGHT OR REMEDY SHALL IN NOEVENT BE CONSTRUED AS A WAIVER, RELEASE OR EXHAUSTION OF ANY SUCHREMEDIES.  NO EXPRESS OR IMPLIED WAIVERBY KEF OF ANY EVENT OF DEFAULT SHALL CONSTITUTE A WAIVER OF ANY OTHER EVENT OFDEFAULT OR A WAIVER OF ANY OF KEF'S RIGHTS UPON THE REOCCURRENCE OF ANY SUCHEVENT OF DEFAULT.**

 

(c)           The Borrower hereby authorizes KEF,upon the occurrence and during the continuation of any Event of Defaulthereunder, at KEF's option to adjust, compromise and settle any losses underany insurance afforded, and the Borrower does hereby irrevocably constitute KEFand each of its designees, as its attorneys-in-fact, with full power andauthority, upon the occurrence and during the continuation of any Event ofDefault hereunder, to effect such adjustment, compromise and/or settlement andto endorse any drafts drawn by an insurer of the Equipment or any part thereofand to do everything necessary to carry out such purposes and to receive and receiptfor any unearned premiums due under policies of such insurance; but unless oruntil KEF elects to adjust, compromise or settle losses as aforesaid, suchinsurance proceeds shall be subject to the lien and security interest of KEFhereunder.

 

(d)           Upon the occurrence, and during thecontinuance, of an Event of Default hereunder, any payments in respect of theSecured Obligations and any proceeds of the Collateral, when received by KEF incash or its equivalent, will be applied first to costs of collection and,thereafter, in reduction of the Secured Obligations in such order and manner asKEF may direct in its sole discretion, and the Borrower irrevocably waives theright to direct the application of such payments and proceeds and acknowledgesand agrees that KEF shall have the

 

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continuingand exclusive right to apply any and all such payments and proceeds in KEF’ssole discretion, notwithstanding any entry to the contrary upon any of itsbooks and records.  The Borrower shallremain liable to KEF for any deficiency. Any surplus remaining after the full payment and satisfaction of theSecured Obligations shall be returned to the Borrower or to whomsoever a courtof competent jurisdiction shall determine to be entitled thereto.

 

(e)           To the extent that any of the SecuredObligations are now or hereafter secured by property other than the Collateral,or by a guarantee, endorsement or property of any other person, then KEF alsoshall have the right to proceed against such other property, guarantee orendorsement upon the occurrence of a default hereunder, and KEF shall have theright, in its sole discretion, to determine which rights, liens, securityinterests or remedies KEF shall at any time pursue, relinquish, subordinate ormodify, without in any way affecting the Secured Obligations or any of KEF'srights under this Agreement.

 

**17.         ****Notices****.**  All notices and other communications hereunder shall be in writing andshall be transmitted by hand, overnight courier or certified mail (returnreceipt requested), postage prepaid. Such notices and other communications shall be addressed to therespective party at the address set forth above or at such other address as anyparty may from time to time designate by notice duly given in accordance withthis Section.  Such notices and othercommunications shall be effective upon the earlier of receipt or three (3) daysafter mailing if mailed in accordance with the terms of this section.

 

**18.          General Indemnification**.  Borrower shall pay, and shallindemnify and hold KEF and its directors, officers, employees, counsel, agentsand advisors harmless on an after-tax basis from and against, any and allliabilities, causes of action, claims, suits, penalties, damages, losses, costsor expenses (including attorneys' fees), obligations, liabilities, demands andjudgments, and Liens, of any nature whatsoever (collectively, a"Liability") arising out of or in any way related to: (a) the LoanDocuments, (b) a failure to comply fully with Applicable Law and (c) Borrower'sfailure to perform any covenant, or breach of any representation or warrantyunder the Loan Documents; provided, that the foregoing indemnity shallnot extend to the Liabilities to the extent resulting solely from the grossnegligence or willful misconduct of KEF. Borrower shall promptly deliver to KEF copies of any documents receivedfrom the United States Environmental Protection Agency or to any state, countyor municipal environmental or health agency concerning the Equipment or itsoperation and copies of any documents submitted by Borrower or any of itssubsidiaries to the United States Environmental Protection Agency or any state,county or municipal environmental or health agency concerning the Equipment orits operation.  Borrower further agreesto indemnify KEF against and hold it harmless from all present and futurestamp, transfer, documentary and other such taxes, levies, fees, assessments orother charges made by any jurisdiction by reason of the execution, delivery,performance and enforcement of the Loan Documents.

 

**19.          Severability; Captions**.  Whenever possible, eachprovision of this Agreement shall be interpreted in such manner as to beeffective and valid under Applicable Law. If, however, any provision of this Agreement or any of the LoanDocuments shall be prohibited or unenforceable in any jurisdiction, it shall,as to such jurisdiction, be deemed modified to conform to the minimumrequirements of such law, or if for any reason it is not deemed so modified, itshall be ineffective only to the extent of such prohibition or unenforceabilitywithout affecting the remaining provisions hereof, and any such prohibition orunenforceability shall not invalidate or render unenforceable such provision inany other jurisdiction.  Captions areintended for convenience or reference only, and shall not be construed todefine, limit or describe the scope or intent of any provisions hereof. 

 

**20.         ****Financial and Other Data**.  During the Term hereof,Borrower shall furnish KEF (a) as soon as available, and in any event within120 days after the last day of each fiscal year, financial statements ofBorrower and each Guarantor and (b) from time to time as KEF may reasonablyrequest, other financial reports, information or data (including federal andstate income tax returns) and quarterly or interim financial statements ofBorrower and each Guarantor. All such information shall be audited (or ifaudited information is not available, compiled or reviewed) by an independent certifiedpublic accountant.

 

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**21.          [RESERVED]**

 

**22.          Representations and Warranties ofBorrower**.  Borrower represents and warrants that: (a)  Borrower is a corporation duly organized andvalidly existing in good standing under the laws of the state of itsincorporation; (b)  the execution,delivery and performance of this Agreement and all related instruments anddocuments:  (1) have been dulyauthorized by all necessary corporate action on the part of Borrower, (2) donot require the approval of any stockholder, partner, trustee, or holder of anyobligations of Borrower except such as have been duly obtained, and (3) do notand will not contravene any law, governmental rule, regulation or order nowbinding on Borrower, or the charter or by-laws of Borrower, or contravene theprovisions of, or constitute a default under, or result in the creation of anylien or encumbrance upon the property of Borrower under, any indenture,mortgage, contract or other agreement to which Borrower is a party or by whichit or its property is bound; (c) the LoanDocuments, when entered into, will constitute legal, valid and bindingobligations of Borrower enforceable against Borrower in accordance with theterms thereof; (d) there are no pending actions or proceedings to whichBorrower is a party, and there are no other pending or threatened actions orproceedings of which Borrower has knowledge, before any court, arbitrator oradministrative agency, which, either individually or in the aggregate, wouldadversely affect the financial condition of Borrower, or the ability ofBorrower to perform its obligations under the Loan Documents; (e) Borrower isnot in default under any obligation for the payment of borrowed money, for thedeferred purchase price of property or for the payment of any installmentsunder any lease agreement which, either individually or in the aggregate, wouldhave the same such effect; (f) under the laws of the state(s) in which theEquipment is to be located, the Equipment consists solely of personal propertyand not fixtures; (g) the financial statements of Borrower (copies of whichhave been furnished to KEF) have been prepared in accordance with generallyaccepted accounting principles consistently applied ("GAAP"), andfairly present Borrower's financial condition and the results of its operationsas of the date of and for the period covered by such statements, and since thedate of such statements there has been no material adverse change in suchconditions or operations; (h) the address stated above is the chief place ofbusiness and chief executive office, or in the case of individuals, the primaryresidence, of Borrower; (i) except as set forth on Collateral Schedule 1attached hereto, Borrower does not conduct business under a trade, assumed orfictitious name, except as set forth in Schedule 1; (j) this Agreementcreates a valid first priority security interest in the Collateral securingpayment and performance of the Secured Obligations and all filings and otheraction necessary to perfect such security interest have been taken or shall bepromptly taken; (k)  Borrower has filedor has caused to have been filed all Federal, state and local tax returnswhich, to the knowledge of Borrower, are required to be filed, and has paid orcaused to have been paid all taxes as shown on such returns or on anyassessment received by it, to the extent that such taxes have become due,unless and to the extent only that such taxes, assessments and governmentalcharges are currently contested in good faith and by appropriate proceedings byBorrower and adequate reserves therefor have been established as required underGAAP and, to the extent Borrower believes it advisable to do so, Borrower hasset up reserves which are believed by Borrower to be adequate for the paymentof additional taxes for years which have not been audited by the respective taxauthorities; (l) except as previouslydisclosed in writing to KEF, neither Borrower nor any of its officers ordirectors (if a corporation), partners (if a partnership) or members ormanagers (if a limited liability corporation) has, directly or indirectly, anyfinancial interest in the Supplier; and (m) Borrower is not in violationof any Applicable Law, the violation of which would have a material adverseeffect on the conduct of its business, and Borrower has obtained any and alllicenses, permits, franchises or other governmental authorizations necessaryfor the ownership of its properties and the conduct of its business; and (n) noneof the proceeds of the loan made by KEF will be used, directly or indirectly,by Borrower for the purpose of purchasing or carrying, or for the purpose ofreducing or retiring any indebtedness which was originally incurred to purchaseor carry any  “margin stock” within themeaning of Regulation U (12 CFR Part 221), of the Board of Governors of theFederal Reserve System (herein called “margin stock”) or for any other purposewhich might make the transactions contemplated herein a “purpose credit” withinthe meaning of Regulation U, or cause this Agreement to violate any otherregulation of the Board of Governors of the Federal Reserve System or theSecurities Exchange Act of 1934 or the Small Business Investment Act of 1958,as amended, or any rules or regulations promulgated under any of such statutes.

 

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**23.          Further Covenants of Borrower**. The Borrower further covenants and agrees that it will notchange its legal name, be a party to a merger, consolidation or other change instructure or use a trade name in its business without at least 30 days' priorwritten notice to KEF; and shall execute and deliver to KEF (to be filed atBorrower’s expense) all UCC statements as may be required by KEF in connectionwith such event.

 

**24.          Miscellaneous**.  Time is of the essence withrespect to this Agreement**.  ANY FAILUREOF KEF TO REQUIRE STRICT PERFORMANCE BY BORROWER OR ANY WAIVER BY KEF OF ANYPROVISION HEREIN SHALL NOT BE CONSTRUED AS A CONSENT OR WAIVER OF ANY PROVISIONOF THIS AGREEMENT.**  None ofthe Loan Documents may be amended except by a writing signed by KEF andBorrower. This Agreement will be binding upon KEF only if executed by a dulyauthorized officer or representative of KEF at KEF's principal place ofbusiness as set forth above. This Agreement and all other Loan Documents shallbe executed on Borrower's behalf by Authorized Signers of Borrower.  The Borrower hereby waives presentment,notice of dishonor and protest of all instruments included in or evidencing anySecured Obligations, and all other notices and demands whatsoever (except asexpressly provided herein).  **THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORKAND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATEOF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCEWITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAWS PROVISION ORRULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULDCAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OFNEW YORK.**

 

**25.          Jury Trial Waiver**.  **KEF AND BORROWER HEREBY EACH WAIVE THEIRRESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPONOR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THETRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION OR PROCEEDING TOWHICH KEF OR BORROWER MAY BE PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,TORT CLAIMS, OR OTHERWISE, INCLUDING WITHOUT LIMITATION ANY ACTION,COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGETHE VALIDITY OR ENFORCEABILITY, OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTSOR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY KEF AND THEBORROWER WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANYINDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY ORNULLIFY ITS EFFECT.  THIS WAIVER SHALLAPPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TOTHIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.**

 

**26.          More than One Borrower**.  If more than one person orentity executes this Agreement, each of the other Loan Documents, and alladdenda or other documents executed in connection herewith or therewith, as"Borrower," the obligations of "Borrower" contained hereinand therein shall be deemed joint and several and all references to"Borrower" shall apply both individually and jointly.

 

**27.          Entire Agreement**. This Agreement, together with the other Loan Documents, collectivelyconstitute the entire understanding or agreement between KEF and Borrower withrespect to the financing of the Equipment, and there is no understanding oragreement, oral or written, which is not set forth herein or therein.  This Agreement shall not be modified exceptby the written agreement of KEF and Borrower.

 

**28.          Execution in Counterparts**.  This Agreement may beexecuted in any number of counterparts and by different parties hereto inseparate counterparts, each of which when so executed shall be deemed to be anoriginal and all of which taken together shall constitute but one and the sameinstrument.

 

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**29.          Power of Attorney; UCC Filings**.  **BORROWER SHALL EXECUTE AND DELIVER TOKEF CONCURRENTLY WITH THE EXECUTION OF THIS AGREEMENT, AND AT ANY TIME FROMTIME TO TIME THEREAFTER, ALL FINANCING STATEMENTS, AMENDMENTS TO FINANCINGSTATEMENTS, CHATTEL MORTGAGES, ASSIGNMENTS, AND ALL OTHER INSTRUMENTS, IN FORMSATISFACTORY TO KEF, AND TAKE ALL OTHER ACTION AS KEF MAY REASONABLY REQUIRE,TO PERFECT AND CONTINUE PERFECTED, MAINTAIN THE PRIORITY OF OR PROVIDE NOTICEOF KEF’S SECURITY IN THE COLLATERAL. BORROWER HEREBY APPOINTS KEF, OR ITS ASSIGNEE, AND ANY OF KEF’S OR ASSIGNEE’SOFFICERS OR EMPLOYEES AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY ANDCOUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF BORROWER ALL UCCFINANCING STATEMENTS WHICH IN KEF'S SOLE DISCRETION ARE NECESSARY OR PROPER TOSECURE KEF'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS**.  Borrower hereby ratifies, to the extentpermitted by law, all that KEF shall lawfully and in good faith do or cause tobe done by reason of and in compliance with this paragraph

 
| **Lender:**                                                     | **Borrower:**        |
|-----------------------------------------------------------------|----------------------|
|                                                            |                 |
| Key Equipment Finance,  a Division of Key Corporate Capital Inc | AIRNET SYSTEMS, INC. |
|                                                            |                 |
|                                                            |                 |
|                                                            | ***X***              |   |   |
| By:                                                             |                 |   | Name: |
| Name:                                                           | Title:               |
| Title:                                                          |                 |
|                                                                 |                      |  |  |  |  |

 

**COUNTERPART NO. 3 OF 3 SERIALLYNUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THEUNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THETRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.**

 

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**COLLATERAL SCHEDULE**

 

**Schedule 1**

 
| **BORROWER  TRADE NAMES**                         |
|---------------------------------------------------|
|                                              |   |   |
| AIRNET  EXPRESS                                   |   |   |
|                                              |   |   |
| **DESCRIPTION  OF EQUIPMENT**                     |
|                                              |   |   |
| Airframe  Make and Model:                         |   | Cessna  Cargomaster Caravan Model 208B |
| United States Registration Number:                |   | N102AN |
| Airframe Manufacturer’s Serial Number:       |   | 208B0906 |
| Engine Make and Model:                            |   | Pratt & Whitney PT6A-114A {Under 750 Horsepower} |
| Engine Manufacturer’s Serial Number:         |   | PCE-PC0892 |
|                                              |   |   |
| **AVIONICS**                                      |   |   |
|                                              |   |   |
| Seats  – Dakota Leather Slate Blue           |   | KMA-24H70  Audio Console |
| Floor  Covering – Trophy Beige               |   | KX-165  Nav/Com |
| Sidewalls  – Slate Blue Vinyl                |   | KX-165  Nav/Com with KI-206 Indiactor |
| Recorder,  Flight Hour                            |   | KR-87  ADF W KI-227-01 Indicator |
| Abrasion  Boot Instl. Radar Pod                   |   | KN-63  DME with KDI-572 Indicator |
| Valve,  Oil Quick Drain w/ Elect. Standby         |   | KT-70  Mode S Transponder |
| Ventilation  System, Fan Driven                   |   | KFC-225  Autopilot/Flight Director |
| Step,  Cabin Entrance, Retractable (RH Crew Door) |   | RDR-2000  Color Radar |
| Net.  Partition (cargo area)                      |   |   |
| Cargo  Tie-Down Fittings Instl. (100 lb. Rating)  |   |   |
| Aft  Air Stair Door                               |   |   |

 

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