**Exhibit 4.5**

 

 
| **** | **C#: 44097  L#: 44098  Ls#: 8800021447** |
|------|-------------------------------------------|

 

**SecurityAgreement**

**___________________________________________________________________________________________________________**

 

**THIS SECURITY AGREEMENT** (this “Agreement”or “Security Agreement”) dated as of January    , 2002 ismade by and between AIRNET SYSTEMS, INC., an Ohio corporation having its chiefexecutive office at 3939 INTERNATIONAL GATEWAY, COLUMBUS, OH 43219 (the“Borrower”), and **Key Equipment 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”).

 

**WITNESSETH:**

 

**1.             Grant of Security Interest inthe Equipment**.  Inconsideration of one or more loans, advances or other financial accommodationsat any time before, at or after the date hereof, made or extended by KEF to orfor the account of the Borrower, directly or indirectly, as principal,guarantor or otherwise and to secure the prompt payment and performance in fullwhen due, whether by lapse of time, acceleration or otherwise, of the SecuredObligations, the Borrower hereby pledges, assigns, transfers hypothecates toKEF and grants to KEF a security interest in, and acknowledges and agrees thatthis Agreement shall create a continuing security interest in, all ofBorrower’s right, title and interest in and to the Collateral.

 

The Secured Obligations of the Borrower are absolute,irrevocable and unconditional under any and all circumstances whatsoever andshall not be subject to any right of set-off, counterclaim, deduction, defenseor other right which the Borrower may have for any reason against any vendor,supplier, manufacturer, KEF or any other party.  All obligations of Borrower hereunder shall survive theexpiration, cancellation or other termination of this Agreement.

 

**2.             Definitions**.  Unlessthe context otherwise requires, as used in this Agreement, the following termsshall have the respective meanings indicated below and shall be equallyapplicable to both the singular and the plural forms thereof:

“Alteration” shall have the meaningspecified in Section 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 any officerof Borrower, set forth on an incumbency certificate (in form and substancesatisfactory to KEF) delivered by Borrower to KEF, who is authorized andempowered to execute the Loan Documents.

“Certificate of Acceptance” shall mean acertificate of acceptance, in form and substance satisfactory to KEF, executedand delivered by Borrower in accordance with Section 3 hereof.

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

“Collateral Schedule” shall mean eachcollateral schedule 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 items ofpersonal property which are described on the Collateral Schedule, together withall replacement parts, additions and accessories incorporated therein oraffixed thereto including,

 

----

 

without limitation, any software that is acomponent or integral part of, or is included or used in connection with, anyItem of Equipment, but with respect to such software, only to the extent ofBorrower’s interest 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 the meaningspecified 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 the periodicpayments due to repay the Note, and, where the context hereof requires, allsuch additional amounts as may from time to time be payable under any provisionof the Loan Documents.

“Item of Equipment” shall mean each itemof 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 KEF and now orhereafter executed in connection therewith.

“Lien” shall mean all mortgages, pledges,security interests, liens, encumbrances, claims or other charges of any kindwhatsoever, except the security interest of KEF created by this Agreement.

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

“Note” shall mean that certain PromissoryNote in the original principal amount of $1,720,000.00 executed in connectionherewith, together with any extensions, modifications, renewals, refinancingsor other restructurings thereof.

“Secured Obligations” means all of thefollowing obligations of Borrower, whether direct or indirect, absolute orcontingent, matured or unmatured, originally contracted with KEF or anotherparty, and now or hereafter owing to or acquired in any manner partially ortotally by KEF or in which KEF may have acquired a participation, contracted byBorrower alone or jointly or severally: (a) any and all indebtedness,obligations, liabilities, contracts, indentures, agreements, warranties,covenants, guaranties, representations, provisions, terms, and conditions ofwhatever kind, now existing or hereafter arising, and however evidenced, thatare now or hereafter owed, incurred or executed by Borrower to, in favor of, orwith KEF (including, without limitation, those as are set forth or containedin, referred to, evidenced by, or executed with reference to the Loan Documents,any letter of credit agreements, advance agreements, indemnity agreements,guaranties, lines of credit, mortgage deeds, security agreements, assignments,pledge agreements, hypothecation agreements, instruments, and acceptancefinancing agreements), and including any partial or total extension,restatement, renewal, amendment, and substitution thereof or therefor; (b) anyand all claims of whatever kind of KEF against Borrower, now existing orhereafter arising, including, without limitation, any arising out of or in anyway connected with warranties made by Borrower to KEF in connection with anyinstrument purchased by KEF; and (c) any and all of KEF’s fees, costs andexpenses related to the foregoing.

“Supplier” shall mean the manufacturer orthe 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 inSection 16(b)(2) hereof.  Whereapplicable and except as otherwise defined herein, terms used in this Agreementshall have the meaning assigned to them in the UCC.

“Upgrade” shall have the meaning specifiedin Section 8 hereof.

 

**3.             Deliveryand Acceptance**.  Concurrently with execution of theCollateral Schedule hereunder, Borrower shall execute and deliver to KEF a Certificateof Acceptance for the Equipment described on such Collateral Schedule.   **KEF SHALL HAVE NO OBLIGATION TO ADVANCE ANY FUNDS TOBORROWER UNLESS AND UNTIL KEF SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCERELATING 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,

 

2

----

 

(c) is suitable for Borrower’s purposes, (d) isin good order, repair and condition, (e) has been installed and operatesproperly, and (f) is subject to all of the terms and conditions of the LoanDocuments. Borrower’s execution and delivery of a Certificate of Acceptance shallbe conclusive 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 Note on the terms set forth therein.  All Installments shall be payable when duewhether or not Borrower has received any additional notice that suchInstallments are due.  All Installmentsshall be paid to KEF at 66 South Pearl Street, Post Office Box 1865, Albany, NY12207-1865, or as otherwise directed by KEF in writing.

 

**5.             Location;Inspection; Labels**.  The Equipment shall be delivered to theEquipment Location and shall not be removed therefrom without KEF’s priorwritten consent.  Borrower shallmaintain 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 the Equipment only in thecourse of its business for commercial purposes (and shall not permanentlydiscontinue use of the Equipment), and in compliance with Applicable Law andthe requirements of any applicable insurance policies, and only in the mannerfor which it was designed and intended and so as to subject it only to ordinarywear and tear.  Borrower shall complywith all Applicable Law with respect to the Equipment.  Borrower shall immediately notify KEF inwriting of any existing or threatened investigation, claim or action by anyGovernmental Authority in connection with any Applicable Law or GovernmentalAction which could adversely affect the value of the Equipment or theperfection 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 security interestgranted to KEF hereunder.

 

**7.             Repairsand Maintenance**.  Borrower, at Borrower’s own cost andexpense, shall (a) keep the Equipment in good repair, operating condition andworking order and in compliance with the manufacturer’s specifications andBorrower’s standard practices (but with respect to the latter, in no event lessthan industry practices) and (b) Maintain, service and repair the Equipment asotherwise required herein.  Borrower, atits own cost and expense and within a reasonable period of time, shall replaceany part of any Item of Equipment that is unfit or unavailable for use from anycause with a replacement part of the same manufacture, value, remaining usefullife and utility as the replaced part immediately preceding the replacement(assuming that such replaced part was in the condition required by thisAgreement).  Such replacement part shallbe free and clear of all Liens and upon installation, attachment orincorporation in, on or into such Item of Equipment, such replacement part immediately,and without further act, shall be deemed to constitute an Item of Equipment andfully be subject to the security interest granted to KEF hereunder. If KEFrepossesses the Equipment pursuant to its rights under this Agreement and atthat time, in the opinion of KEF, any Item of Equipment fails to meet thestandards set forth above, Borrower agrees to pay on demand all costs andexpenses incurred in connection with repairing or restoring such Item ofEquipment so as to meet such standards and/or assembling and delivering suchItem of Equipment.

 

3

----

 

**8.             EquipmentUpgrades/Attachments**.  In addition to the requirements of Section6 hereof, Borrower, at its own expense, may from time to time add orinstall upgrades or attachments (each, an “Upgrade”) to the Equipment; provided,that such Upgrades are readily removable without causing material damage to theEquipment, and do not materially adversely affect the fair market value of theEquipment.  Any such Upgrades shall beowned by Borrower, shall become subject to the security interest created bythis Agreement and shall be kept free and clear of all Liens so long asattached to the Equipment.

 

**9.             Leaseand Assignment**.  **(a)  WITHOUTKEF’S PRIOR WRITTEN CONSENT, BORROWER SHALL NOT (1) ASSIGN, TRANSFER, PLEDGE,HYPOTHECATE OR OTHERWISE DISPOSE OF, THE EQUIPMENT OR ANY INTEREST THEREIN, ORASSIGN OR DELEGATE ITS RIGHTS OR OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR (2)LEASE OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONEOTHER THAN BORROWER.**

 

(b)  KEF, at any time with or without notice to Borrower, may sell,transfer, grant participations in, assign and/or grant a security interest inany or all of KEF’s right, title and interest in and to the Loan Documents, orin KEF’s security interest in any Item of Equipment.  In any such event, any such purchaser, transferee, assignee orsecured party shall have and may exercise all of KEF’s rights hereunder orthereunder, and **BORROWER SHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE,ASSIGNEE OR SECURED PARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT BORROWER MAYHAVE 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 to the foregoing, all covenants and agreements containedherein shall be binding upon, and inure to the benefit of, KEF and itssuccessors and permitted assigns and Borrower and its successors and permittedassigns.

 

**10.          Loss ofor Damage to Equipment**.  (a) In the event of Loss or Damage to anyItem of Equipment, Borrower shall immediately notify KEF of same and, at theoption of Borrower, , Borrower shall within thirty (30) days, unless otherwiseagreed by KEF in writing, following such Loss or Damage: (1) place such Item ofEquipment in good condition and repair, in accordance with the terms hereof;(2) replace such Item of Equipment with replacement equipment (acceptable toKEF) in as good condition and repair, and with the same or better fair marketvalue as such replaced Item of Equipment immediately preceding the Loss orDamage (assuming that such replaced Item of Equipment was in the conditionrequired by this Agreement), which replacement equipment shall immediately, andwithout further act, be deemed to constitute Items of Equipment and be fullysubject to this Agreement and the security interest granted to KEF as iforiginally pledged as Collateral hereunder and shall be free and clear of allLiens; or (3)  pay to KEF any unpaid Installments and other chargesdue prior to the payment date specified in such notice plus an amount, withrespect to an Item of Equipment, equal to the pro rata portion of theInstallments attributable to such Item of Equipment under the Loan Documentsafter discounting such Installments to present worth as of the payment datespecified in such notice on the basis of a per annum rate of discount equal tofive percent (5%) from the respective dates upon which such Installments wouldhave been paid but for the operation of this clause.

 

(b) Upon KEF’sreceipt of the payment required under clause (3) above, KEF shall release itssecurity interest in such Item of Equipment. If Borrower fails to eitherrestore or replace the Item of Equipment pursuant to clauses (1) or (2) above,respectively, Borrower shall make the payment under clause (3) above.

 

**11.          Insurance**. (a)  Borrower, at Borrower’s owncost and expense, shall maintain (1) insurance against all risks of physicalloss or damage to the Equipment (which shall include theft and collision forEquipment consisting of motor vehicles, and shall not exclude loss resultingfrom flood or earthquake) in an amount not less than the full replacement valuethereof and (2) comprehensive public liability insurance including blanketcontractual liability for personal and bodily injury and property damage in anamount satisfactory to KEF.

 

4

----

 

(b)  All insurance policies required hereunder shall (1) require 30days’ prior written notice to KEF of cancellation or material change incoverage (any such cancellation or change, as applicable, not being effectiveuntil the thirtieth (30th) day after the giving of such notice); (2) name“KeyCorp and its subsidiaries and affiliated companies, including Key EquipmentFinance, a Division of Key Corporate Capital Inc., their successors andassigns” as sole loss payee under the property insurance policies; (3) notrequire contributions from other policies held by KEF; (4) waive any right ofsubrogation against KEF; (5) in respect of any liability of KEF, except for theinsurers’ salvage rights in the event of a Loss or Damage, waive the right ofsuch insurers to set-off, to counterclaim or to any other deduction, whether byattachment or otherwise, to the extent of any monies due KEF under suchpolicies; (6) not require that KEF pay or be liable for any premiums with respectto such insurance 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 such policiesby Borrower or by any other person (other than KEF).  Prior to funding the Note, and thereafter not less than 15 daysprior to the expiration dates of the expiring policies theretofore deliveredpursuant to this Section, Borrower shall deliver to KEF a duplicate original ofall policies (or in the case of blanket policies, certificates thereof issuedby the insurers thereunder) for the insurance maintained pursuant to thisSection.

 

(c)  Proceeds of insurance with respect to physical loss or damage tothe Equipment shall be applied, at the option of KEF, to repair or replace theEquipment or to reduce or satisfy (as applicable) the Secured Obligations.

 

**12.          Taxes**. Borrower shall pay when due any and all taxes, fees, levies, imposts,duties, assessments and public and private charges levied or assessed on orwith respect to the Equipment, on the use thereof, or on this Agreement or anyof the other Loan Documents.

 

**13.          KEF’sRight 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 expendedby KEF 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.          DelinquentPayments; Interest**.  If Borrower fails to pay any of theInstallments on the date when the same becomes due, Borrower shall pay to KEF alate 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 SecuredObligations.  In no event shall suchlate charge exceed the maximum amounts permitted under Applicable Law.

 

**15.          PersonalProperty; Liens; Warranty of Title**.  The Borrower is, and willcontinue to be, the sole owner of the Equipment, free from any Lien.  KEF and Borrower hereby agree that theEquipment is, and shall at all times remain, personal property notwithstandingthe fact that any Item of Equipment may now be, or hereafter become, in anymanner affixed or attached to real property or any improvements thereon.  Borrower shall at all times keep theEquipment free and clear from all Liens, and the Borrower shall obtain anddeliver to KEF (to be recorded at the Borrower’s expense) from each personhaving a Lien on any Equipment Location waivers of any Lien which such personmight have or hereafter obtain or claim with respect to the Equipment.  Borrower shall (a) give KEF immediate writtennotice of any Lien on the Collateral, (b) promptly, at Borrower’s sole cost andexpense, take such action as may be necessary to discharge any such Lien, and(c) indemnify and hold KEF, on an after-tax

 

5

----

 

basis, harmless from and against any loss ordamage caused by any such Lien. Borrower warrants that it has good,valid and marketable title to the Equipment, and that (1) the security interestin the 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.          Eventsof Default; Remedies**.  (a) As used herein, the term “Event of Default” shall mean any of thefollowing 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) Borrower violatesor fails to perform any covenant or representation made by Borrower in the LoanDocuments; (7) any representation or warranty made herein or in any of the LoanDocuments, certificates, financial statements or other statements furnished toKEF (or KEF’s parent, subsidiaries or affiliates) shall prove to be false ormisleading in any material respect as of the date on which the same was made;(8) Borrower makes a bulk transfer of furniture, fixtures or other equipment orinventory; (9) there is a material adverse change in Borrower’s or anyGuarantor’s financial condition; (10) Borrower merges or consolidates with anyother 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 in Borrower or any Guarantor; (12) thedeath or dissolution of Borrower or any Guarantor; (13) any of the lienscreated or granted hereby, or intended to be granted or created hereby, to KEFshall fail to be valid, first priority perfected liens subject to no prior orequal lien; or (14) an additional Lien attaches to the Equipment or theEquipment becomes subject to risk of seizure or forfeiture.

 

(b)           (1) Upon the occurrence of an Event of Default,KEF, at its option, may declare any or all of the Secured Obligations,including, without limitation, the Note, to be immediately due and payable,without demand or notice to Borrower or any Guarantor.  The obligations and liabilities acceleratedthereby shall bear interest (both before and after any judgment) until paid infull at the Default Rate.  Should thereoccur a Default and if a voluntary or involuntary petition under the UnitedStates Bankruptcy Code is filed by or against Borrower while such Defaultremains uncured, the Secured Obligations automatically shall be accelerated anddue and payable and interest thereon at the Default Rate automatically shallapply as of the date of the first occurrence of the Default, without anynotice, demand or action of any type on the part of KEF (including any actionevidencing the acceleration or imposition of the Default Rate).  The fact that KEF has, prior to the filingof the voluntary or involuntary petition under the United States BankruptcyCode, acted in a manner which is inconsistent with the acceleration andimposition of the Default Rate shall not constitute a waiver of this provisionor estop KEF from asserting or enforcing KEF’s rights hereunder.

 

(2) Furthermore, upon the occurrence of an Event ofDefault, KEF shall have, in addition to the rights and remedies providedherein, in the other Loan Documents or by law, the rights and remedies of asecured party under the Uniform Commercial Code under the laws of the State ofNew York (the “UCC”) (regardless of whether the UCC is the law of thejurisdiction where the rights and remedies are asserted and regardless ofwhether the UCC applies to the affected Collateral), and further KEF may do anyone or more of the following as KEF in its sole discretion may elect, with orwithout judicial process or the aid and assistance of others:  (a) enter and remain on any premises onwhich any of the Equipment may be located and, without resistance or interferenceby the Borrower, without liability to KEF by reason of such entry or takingpossession, take possession of the Equipment, (b)  prepare for sale and sell or otherwise dispose of any Equipmenton any such premises, (c) require the Borrower to assemble and make availableto KEF at Borrower’s expense any

 

6

----

 

Equipment at any place and time designated by KEF, (d) remove anyEquipment from any such premises for the purpose of effecting sale or otherdisposition thereof, (e) without demand and without advertisement, notice,hearing or process of law, all of which the Borrower hereby waives, at anyplace and time or times, sell and deliver any or all Equipment held by or forit at public or private sale, by one or more contracts, in one or more parcels,for cash, upon credit or otherwise, at such prices and upon such terms as KEFdeems advisable, in its sole discretion, or (f) lease all or any portion of theEquipment on such terms and conditions as KEF in its sole discretion maydetermine.  In addition to all other sums due KEF hereunder, the Borrowershall pay KEF all reasonable costs and expenses incurred by KEF, includingreasonable attorneys’ fees and court costs, in obtaining or liquidating the Collateral,in enforcing payment of Secured Obligations, or in the prosecution or defenseof any 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’s waivers regarding disposition of theequipment***.****IF AN EVENT OF DEFAULTOCCURS, BORROWER HEREBY WAIVES ANY DEFENSES, RIGHTS, OFFSETS OR CLAIMS AGAINSTKEF ARISING OUT OF THE REPOSSESSION, RETENTION, SALE, MANNER OR METHOD OF SALEOR DISPOSITION OF ANY ITEMS OF EQUIPMENT. THE BORROWER AGREES THAT ANYREQUIREMENT OF REASONABLE NOTICE SHALL BE MET IF SUCH NOTICE IS PERSONALLYSERVED ON OR MAILED, POSTAGE PREPAID, TO THE BORROWER IN ACCORDANCE WITH THENOTICE PROVISIONS HEREOF AT LEAST 10 DAYS BEFORE THE TIME OF SALE OR OTHEREVENT GIVING RISE TO THE REQUIREMENT OF SUCH NOTICE. KEF SHALL NOT BE OBLIGATEDTO MAKE ANY SALE OR OTHER DISPOSITION OF THE EQUIPMENT REGARDLESS OF NOTICEHAVING BEEN GIVEN. KEF MAY BE THE PURCHASER AT ANY SUCH SALE. THE BORROWERHEREBY WAIVES ALL OF ITS RIGHTS OF REDEMPTION FROM ANY SUCH SALE. KEF MAYPOSTPONE OR CAUSE THE POSTPONEMENT OF THE SALE OF ALL OR ANY PORTION OF THEEQUIPMENT BY ANNOUNCEMENT AT THE TIME AND PLACE OF SUCH SALE, AND SUCH SALEMAY, WITHOUT FURTHER NOTICE, BE MADE AT THE TIME AND PLACE TO WHICH THE SALEWAS SCHEDULED. NONE OF KEF’S RIGHTS ORREMEDIES HEREUNDER ARE INTENDED TO BE EXCLUSIVE OF, BUT EACH SHALL BECUMULATIVE AND IN ADDITION TO, ANY OTHER RIGHT OR REMEDY REFERRED TO HEREUNDEROR OTHERWISE AVAILABLE TO KEF OR ITS ASSIGNS AT LAW OR IN EQUITY, AND MAY BEPURSUED SINGLY, SUCCESSIVELY OR CONCURRENTLY AT THE SOLE DISCRETION OF LENDERAND MAY BE EXERCISED AS OFTEN AS OCCASION THEREFOR SHALL OCCUR.  THE FAILURE TO EXERCISE, OR ANY DELAY IN THEEXERCISE OF, ANY RIGHT OR REMEDY SHALL IN NO EVENT BE CONSTRUED AS A WAIVER, RELEASEOR EXHAUSTION OF ANY SUCH REMEDIES.   NOEXPRESS OR IMPLIED WAIVER BY KEF OF ANY EVENT OF DEFAULT SHALL CONSTITUTE AWAIVER OF ANY OTHER EVENT OF DEFAULT OR A WAIVER OF ANY OF KEF’S RIGHTS UPONTHE REOCCURRENCE OF ANY SUCH EVENT OF DEFAULT.**

 

(c)           TheBorrower hereby authorizes KEF, upon the occurrence and during the continuationof any Event of Default hereunder, at KEF’s option to adjust, compromise andsettle any losses under any insurance afforded, and the Borrower does herebyirrevocably constitute KEF and each of its designees, as its attorneys-in-fact,with full power and authority, upon the occurrence and during the continuationof any Event of Default hereunder, to effect such adjustment, compromise and/orsettlement and to endorse any drafts drawn by an insurer of the Equipment or anypart thereof and to do every­thing necessary to carry out such purposes and toreceive and receipt for any unearned premiums due under policies of suchinsurance; but unless or until KEF elects to adjust, compromise or settlelosses as aforesaid, such insurance proceeds shall be subject to the lien andsecurity interest of KEF hereunder.

 

(d)           Uponthe occurrence, and during the continuance, of an Event of Default hereunder,any payments in respect of the Secured Obligations and any proceeds of theCollateral, when received by KEF in cash or its equivalent, will be appliedfirst to costs of collection and, thereafter, in reduction of the SecuredObligations in such order and manner as KEF may direct in its sole discretion,and the Borrower irrevocably waives the right to direct the application of suchpayments and proceeds and acknowledges and agrees that KEF shall have the

 

7

----

 

continuing and exclusive right to apply any and all such payments andproceeds in KEF’s sole discretion, notwithstanding any entry to the contraryupon any of its books and records.  TheBorrower shall remain liable to KEF for any deficiency.  Any surplus remaining after the full paymentand satisfaction of the Secured Obligations shall be returned to the Borroweror to whomsoever a court of competent jurisdiction shall determine to beentitled thereto.

 

(e)           Tothe extent that any of the Secured Obligations are now or hereafter secured byproperty other than the Collateral, or by a guarantee, endorsement or propertyof any other person, then KEF also shall have the right to proceed against suchother property, guarantee or endorsement upon the occurrence of a defaulthereunder, and KEF shall have the right, in its sole discretion, to determinewhich rights, liens, security interests or remedies KEF shall at any timepursue, relinquish, subordinate or modify, without in any way affecting theSecured Obligations or any of KEF’s rights under this Agreement.

 

**17.          Notices**.Allnotices and other communications hereunder shall be in writing and shall betransmitted by hand, overnight courier or certified mail (return receiptrequested), postage prepaid.  Suchnotices and other communications shall be addressed to the respective party atthe address set forth above or at such other address as any party may from timeto time designate by notice duly given in accordance with this Section.  Such notices and other communications shallbe effective upon the earlier of receipt or three (3) days after mailing ifmailed in accordance with the terms of this section.

 

**18.          GeneralIndemnification**.  Borrower shall pay, and shall indemnify andhold KEF and its directors, officers, employees, counsel, agents and advisorsharmless on an after-tax basis from and against, any and all liabilities,causes of action, claims, suits, penalties, damages, losses, costs or expenses(including attorneys’ fees), obligations, liabilities, demands and judgments,and Liens, of any nature whatsoever (collectively, a “Liability”) arising outof or in any way related to: (a) the Loan Documents, (b) a failure to complyfully with Applicable Law and (c) Borrower’s failure to perform any covenant,or breach of any representation or warranty under the Loan Documents; provided,that the foregoing indemnity shall not extend to the Liabilities to the extentresulting solely from the gross negligence or willful misconduct of KEF.  Borrower shall promptly deliver to KEFcopies of any documents received from the United States Environmental ProtectionAgency or to any state, county or municipal environmental or health agencyconcerning the Equipment or its operation and copies of any documents submittedby Borrower or any of its subsidiaries to the United States EnvironmentalProtection Agency or any state, county or municipal environmental or healthagency concerning the Equipment or its operation.  Borrower further agrees to indemnify KEF against and hold itharmless from all present and future stamp, transfer, documentary and othersuch taxes, levies, fees, assessments or other charges made by any jurisdictionby reason of the execution, delivery, performance and enforcement of the LoanDocuments.

 

**19.          Severability;Captions**.  Whenever possible, each provision of thisAgreement shall be interpreted in such manner as to be effective and validunder Applicable Law.  If, however, anyprovision of this Agreement or any of the Loan Documents shall be prohibited orunenforceable in any jurisdiction, it shall, as to such jurisdiction, be deemedmodified to conform to the minimum requirements of such law, or if for anyreason it is not deemed so modified, it shall be ineffective only to the extentof such prohibition or unenforceability without affecting the remainingprovisions hereof, and any such prohibition or unenforceability shall notinvalidate or render unenforceable such provision in any otherjurisdiction.  Captions are intended forconvenience or reference only, and shall not be construed to define, limit ordescribe the scope or intent of any provisions hereof.

 

**20.          Financial and Other Data**.  Duringthe Term hereof, Borrower shall furnish KEF (a) as soon as available, and inany event within 120 days after the last day of each fiscal year, financialstatements of Borrower and each Guarantor and (b) from time to time as KEF mayreasonably request, other financial reports, information or data (includingfederal and state income tax returns) and quarterly or interim financialstatements of Borrower and each Guarantor. All such information shall be audited(or if audited information is not available, compiled or reviewed) by anindependent certified public accountant.

 

8

----

 

**21.          [RESERVED]**

 

**22.          Representationsand Warranties of Borrower**.  Borrower represents andwarrants that: (a)  Borrower is acorporation duly organized and validly existing in good standing under the lawsof the state of its incorporation; (b) the execution, delivery and performance of this Agreement and allrelated instruments and documents:  (1)have been duly authorized by all necessary corporate action on the part ofBorrower, (2) do not require the approval of any stockholder, partner, trustee,or holder of any obligations of Borrower except such as have been dulyobtained, and (3) do not and will not contravene any law, governmental rule,regulation or order now binding on Borrower, or the charter or by-laws ofBorrower, or contravene the provisions of, or constitute a default under, orresult in the creation of any lien or encumbrance upon the property of Borrowerunder, any indenture, mortgage, contract or other agreement to which Borroweris a party or by which it or its property is bound; (c) the Loan Documents, when entered into, will constitute legal,valid and binding obligations of Borrower enforceable against Borrower inaccordance with the terms thereof; (d) there are no pending actions orproceedings to which Borrower is a party, and there are no other pending orthreatened actions or proceedings of which Borrower has knowledge, before anycourt, arbitrator or administrative agency, which, either individually or inthe aggregate, would adversely affect the financial condition of Borrower, orthe ability of Borrower to perform its obligations under the Loan Documents;(e) Borrower is not in default under any obligation for the payment of borrowedmoney, for the deferred purchase price of property or for the payment of anyinstallments under any lease agreement which, either individually or in theaggregate, would have the same such effect; (f) under the laws of the state(s)in which the Equipment is to be located, the Equipment consists solely ofpersonal property and not fixtures; (g) the financial statements of Borrower(copies of which have been furnished to KEF) have been prepared in accordancewith generally accepted accounting principles consistently applied (“GAAP”),and fairly present Borrower’s financial condition and the results of itsoperations as of the date of and for the period covered by such statements, andsince the date of such statements there has been no material adverse change insuch conditions or operations; (h) the address stated above is the chief placeof business and chief executive office, or in the case of individuals, theprimary residence, of Borrower; (i) except as set forth on Collateral Schedule1 attached 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 filed orhas caused to have been filed all Federal, state and local tax returns which,to the knowledge of Borrower, are required to be filed, and has paid or causedto have been paid all taxes as shown on such returns or on any assessmentreceived by it, to the extent that such taxes have become due, unless and tothe extent only that such taxes, assessments and governmental charges arecurrently contested in good faith and by appropriate proceedings by Borrowerand adequate reserves therefor have been established as required under GAAPand, to the extent Borrower believes it advisable to do so, Borrower has set upreserves which are believed by Borrower to be adequate for the payment ofadditional taxes for years which have not been audited by the respective taxauthorities; (l) except as previously disclosedin writing to KEF, neither Borrower nor any of its officers or directors (if acorporation), partners (if a partnership) or members or managers (if a limitedliability corporation) has, directly or indirectly, any financial interest inthe Supplier; and (m) Borrower is not in violation of any ApplicableLaw, the violation of which would have a material adverse effect on the conductof its business, and Borrower has obtained any and all licenses, permits,franchises or other governmental authorizations necessary for the ownership ofits properties and the conduct of its business; and (n) none of the proceeds ofthe loan made by KEF will be used, directly or indirectly, by Borrower for thepurpose of purchasing or carrying, or for the purpose of reducing or retiringany indebtedness which was originally incurred to purchase or carry any  “margin stock” within the meaning ofRegulation U (12 CFR Part 221), of the Board of Governors of the FederalReserve System (herein called “margin stock”) or for any other purpose whichmight make the transactions contemplated herein a “purpose credit” within themeaning 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.

 

9

----

 

**23.          FurtherCovenants of Borrower**.The Borrower further covenants and agrees that it will not change itslegal name, be a party to a merger, consolidation or other change in structureor use a trade name in its business without at least 30 days’ prior writtennotice to KEF; and shall execute and deliver to KEF (to be filed at Borrower’sexpense) all UCC statements as may be required by KEF in connection with suchevent.

 

**24.          Miscellaneous**.  Time isof the essence with respect to this Agreement**. ANY FAILURE OF KEF TO REQUIRE STRICT PERFORMANCE BY BORROWER OR ANY WAIVERBY KEF OF ANY PROVISION HEREIN SHALL NOT BE CONSTRUED AS A CONSENT OR WAIVER OFANY PROVISION OF THIS AGREEMENT.** None of the Loan Documents may be amended except by a writing signed byKEF and Borrower. This Agreement will be binding upon KEF only if executed by aduly authorized 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 waivespresentment, notice of dishonor and protest of all instruments included in orevidencing any Secured Obligations, and all other notices and demandswhatsoever (except as expressly provided herein).  **THIS AGREEMENT IS BEING DELIVERED IN THE STATE OF NEWYORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OFTHE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY ANDPERFORMANCE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAWSPROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THESTATE OF NEW YORK.**

 

**25.          JuryTrial Waiver**.  **KEF AND BORROWER HEREBY EACH WAIVE THEIR RESPECTIVERIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISINGOUT 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 OR NULLIFYITS EFFECT.  THIS WAIVER SHALL APPLY TOANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THISAGREEMENT AND THE OTHER LOAN DOCUMENTS.**

 

**26.          Morethan One Borrower**.  If more than one person or entity executesthis Agreement, each of the other Loan Documents, and all addenda or otherdocuments executed in connection herewith or therewith, as “Borrower,” theobligations of “Borrower” contained herein and therein shall be deemed jointand several and all references to “Borrower” shall apply both individually andjointly.

 

**27.          EntireAgreement**.  This Agreement, together with the other LoanDocuments, collectively constitute the entire understanding or agreementbetween KEF and Borrower with respect to the financing of the Equipment, and thereis no understanding or agreement, oral or written, which is not set forthherein or therein.  This Agreement shallnot be modified except by 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.

 

10

----

 

**29.          Powerof Attorney; UCC Filings**.  **BORROWER SHALL EXECUTE AND DELIVER TO KEF CONCURRENTLYWITH THE EXECUTION OF THIS AGREEMENT, AND AT ANY TIME FROM TIME TO TIMETHEREAFTER, ALL FINANCING STATEMENTS, AMENDMENTS TO FINANCING STATEMENTS,CHATTEL MORTGAGES, ASSIGNMENTS, AND ALL OTHER INSTRUMENTS, IN FORM SATISFACTORYTO KEF, AND TAKE ALL OTHER ACTION AS KEF MAY REASONABLY REQUIRE, TO PERFECT ANDCONTINUE PERFECTED, MAINTAIN THE PRIORITY OF OR PROVIDE NOTICE OF KEF’SSECURITY IN THE COLLATERAL.  BORROWERHEREBY APPOINTS KEF, OR ITS ASSIGNEE, AND ANY OF KEF’S OR ASSIGNEE’S OFFICERSOR EMPLOYEES AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLEDWITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF BORROWER ALL UCC FINANCINGSTATEMENTS WHICH IN KEF’S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECUREKEF’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:                                                           |                 |
|                                                                  |                      |  |  |  |  |

 

**COUNTERPARTNO. 3 OF 3 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS.  TO THE EXTENT THAT THIS DOCUMENT CONSTITUTESCHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BECREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THANCOUNTERPART NO. 1.**

 

 

 

 

**COLLATERAL SCHEDULE**

 

**Schedule 1**

 
| **BORROWER  TRADE NAMES**                    |
|----------------------------------------------|
|                                         |   |   |
| AIRNET EXPRESS                               |   |   |
|                                         |   |   |
| **DESCRIPTION  OF EQUIPMENT**                |
|                                         |   |   |
| Airframe Make and  Model:                    |   | 1978 Lear 35A |
| United States  Registration Number:          |   | N56EM |
| Airframe Manufacturer’s  Serial Number: |   | 144 |
| Engine Make and Model:                       |   | TFE-731-2—2B (Garrett)  {Over 750 Horsepower} |
| Engine Manufacturer’s  Serial Numbers:  |   | P74478 & P74315 |
|                                         |   |   |

 

11

----

 
| **AVIONICS**                            |   |                                                            |
|-----------------------------------------|--------|-----------------------------------------------------------------|
|                                    |   |                                                            |
| Trimble 2101 Approach Plus GPS Receiver |   | COLLINS VHF-20A Com Transceiver                                 |
| ICARUS 3000C Altitude Serializer        |   | COLLINS VHF-20B Com Transceiver                                 |
| Dual JET VG-205 Vertical Gyro           |   | Dual COLLINS VIR-30A Nav. Transceiver                           |
| Dual JET DG106 Dir Gyro                 |   | Dual COLLINS ADF-60A ADF                                        |
| Dual JET DN-101 Directisyn              |   | Dual DMF-40 DME                                                 |
| Dual JET RG-227 Rate Gyro               |   | COLLINS ALT-50A Radio Altimeter                                 |
| JET AD-102 Air Data Sensor              |   | Inter. Cont. Dynamics Radio Altimeter with V.T.A.  (Pilot Side) |
| COLLINS TDR-90 Transponder              |   | Collins 718U-5 HF                                               |
| Dual COLLINS 332C-10 RMI                |   | FAIRCHILD GA 100 CVR                                            |
| COLLINS FD 108Y Flight Director         |   | Cargo Door                                                      |
| RCA Primus 400                          |   |                                                            |

 

12

----