EXHIBIT 10.2
Execution Version
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ENGINE MORTGAGE AND SECURITY AGREEMENT
Dated as of September 3, 2004
between
AMERICA WEST AIRLINES, INC.
and
XXXXX FARGO BANK NORTHWEST, NATIONAL ASSOCIATION,
as Security Trustee
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TABLE OF CONTENTS
Page
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ARTICLE 1. DEFINITIONS................................................................................ 1
Section 1.01. Certain Definitions............................................................... 1
Section 1.02. Certain Rules of Construction..................................................... 1
ARTICLE 2. SECURITY................................................................................... 1
Section 2.01. Grant of Security Interest........................................................ 1
ARTICLE 3. COVENANTS OF THE COMPANY................................................................... 4
Section 3.01. Liens............................................................................. 4
Section 3.02. Possession, Operation and Use, Maintenance and
Registration...................................................................... 5
Section 3.03. Replacement and Pooling of Parts; Alterations,
Modifications and Additions.................................................. 12
Section 3.04. Event of Loss and Release of Engines.............................................. 14
Section 3.05. Insurance......................................................................... 20
Section 3.06. Filings........................................................................... 21
Section 3.07. [Intentionally Left Blank]........................................................ 21
Section 3.08. Notice of Change of the Company's Location........................................ 21
Section 3.09. Inspection........................................................................ 21
ARTICLE 4. REMEDIES OF THE SECURITY TRUSTEE UPON AN EVENT
OF DEFAULT............................................................................. 22
Section 4.01. Remedies with Respect to Collateral............................................... 22
Section 4.02. Remedies Cumulative............................................................... 25
Section 4.03. Discontinuance of Proceedings..................................................... 25
Section 4.04. Allocation of Payments............................................................ 25
ARTICLE 5. INTENTIONALLY LEFT BLANK.................................................................. 27
ARTICLE 6. SECURITY FUNDS
Section 6.01. Investment of Security Funds...................................................... 27
ARTICLE 7. MISCELLANEOUS.............................................................................. 27
Section 7.01. Termination of Mortgage........................................................... 27
Section 7.02. Alterations to Mortgage........................................................... 28
Section 7.03. No Legal Title to Collateral...................................................... 28
Section 7.04. Sale of the Engines by Security Trustee Is Binding................................ 28
Section 7.05. Benefit of Mortgage............................................................... 28
Section 7.06. Section 1110 of the Bankruptcy Code............................................... 28
Section 7.07. Notices........................................................................... 28
Section 7.08. Severability...................................................................... 29
Section 7.09. Separate Counterparts............................................................. 29
Section 7.10. Successors and Assigns............................................................ 29
(i)
Section 7.11. Headings.......................................................................... 29
Section 7.12. Governing Law..................................................................... 29
APPENDIX A Definitions
APPENDIX B Insurance
EXHIBIT A Mortgage Supplement
EXHIBIT B Form of Letter of Credit
SCHEDULE I List of Permitted Countries
(ii)
ENGINE MORTGAGE AND SECURITY AGREEMENT
This ENGINE MORTGAGE AND SECURITY AGREEMENT, dated as of September
3, 2004 (the "Mortgage") between AMERICA WEST AIRLINES, INC., a Delaware
corporation (the "Company"), and XXXXX FARGO BANK NORTHWEST, NATIONAL
ASSOCIATION, as Security Trustee (the "Security Trustee").
W I T N E S S E T H :
WHEREAS, the Lenders have agreed, pursuant and subject to the
terms and conditions of the Loan Agreement, to make the Loan to the Company
secured by a Lien on the Collateral; and
WHEREAS, the Company desires by this Mortgage, among other
things, to grant to the Security Trustee for the benefit of the Secured Parties
a first priority perfected Lien on the Collateral in accordance with the terms
hereof, as security for the Obligations; and
WHEREAS, all things necessary to make this Mortgage a legal,
valid and binding obligation of the Company and the Security Trustee, for the
uses and purposes herein set forth, in accordance with its terms, have been done
and performed and have occurred;
NOW, THEREFORE, to secure the due and punctual payment of the
Obligations, it is hereby covenanted and agreed by and between the parties
hereto as follows.
ARTICLE 1.
DEFINITIONS
Section 1.01. Certain Definitions. Unless otherwise defined
herein or the context requires otherwise, capitalized terms used herein shall
have the meanings set forth in Appendix A hereto.
Section 1.02. Certain Rules of Construction. The defined
terms and the other provisions of this Mortgage shall be construed in accordance
with the rules of construction set forth under the heading "General Provisions"
in Appendix A hereto.
ARTICLE 2.
SECURITY
Section 2.01. Grant of Security Interest. In order to secure
(i) the prompt payment when due of the Obligations and (ii) the performance and
observance by the Company of all agreements, covenants and provisions contained
herein and in the other Operative Documents to the extent same relate to the
Obligations and in consideration of the premises and
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of the covenants herein contained, and of other good and valuable consideration,
the receipt of which is hereby acknowledged, the Company has granted, bargained,
sold, assigned, transferred, conveyed, mortgaged, pledged and confirmed and does
hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and
confirm unto the Security Trustee, its successors in trust and assigns, for the
security and benefit of the Secured Parties, a first priority security interest
in, and mortgage lien on, all right, title and interest of the Company in, to
and under the following described properties, rights, interests and privileges
(which, collectively, including all property hereafter specifically subjected to
the lien of this Mortgage by any instrument supplemental hereto, are referred to
herein as the "Collateral"):
(a) the Engines, each of which Engines has 750 or more
rated takeoff horsepower or the equivalent of such horsepower (as more
particularly described in each Mortgage Supplement executed and delivered
in connection herewith), as the same is now and will hereafter be
constituted, whether now owned or hereafter acquired, and whether or not
any such Engine from time to time is installed on an airframe, together
with (a) all Parts of whatever nature, which are from time to time
included within the definition of "Engines", whether now owned or
hereafter acquired, including all substitutions, renewals and replacements
of and additions, improvements, accessions and accumulations to the
Engines and (b) all Engine Documents;
(b) all warranty rights with respect to the Engines or
any Part thereof that the Company may have to the extent that such
warranty rights are assignable (the "Warranties") (it being understood
that the Company has no obligation to obtain an assignment or consent or
to take any further action with respect to the security interest granted
pursuant to this clause (other than to include such Collateral in any UCC
financing statements and continuation statements) notwithstanding any
obligation of the Company in any Operative Document (including the last
paragraph of this Section 2.01) to execute and deliver further instruments
and documents or provide other further assurances, except that, if an
Event of Default shall have occurred and be continuing, the Company will
take reasonable action requested by the Security Trustee for the
assignment of material Warranties with respect to an Engine to any person
acquiring such Engine pursuant to Article 4); in each case together with
all rights, powers, privileges, options and other benefits of the Company
thereunder with respect to the Engines, including, without limitation, the
right to make claims thereunder, and to do any and all other things which
the Company is or may be entitled to do thereunder;
(c) each assigned Lease (to the extent assigned under
any Lease assignment), and including, without limitation, all rents or
other payments of any kind made under such assigned Lease, all collateral
security or credit support with respect to such assigned Lease (in the
nature of a guarantee, letter of credit, credit insurance, Lien on or
security interest in any property or otherwise) for the obligations of the
lessee thereunder (if any), and all rights of the Company to execute any
election or option or to give any notice, consent, waiver, or approval
under or with respect to any thereof or to accept any surrender of any
Engine or any part thereof as well as any rights, powers or remedies on
the part of the Company, whether arising under such assigned Lease or by
statute or at law or in equity, or otherwise, arising out of any default
under such assigned Lease (it being understood that, so long as no Event
of Default shall have occurred and be
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continuing, the Company shall retain all rights as lessor under such
Lease, including to receive all such payments thereunder, to hold, dispose
of, or relinquish any such collateral or credit support and to take or
refrain from taking all actions thereunder) (to the extent assigned under
such Lease assignment);
(d) all proceeds with respect to the requisition of
title to the Engines or any part thereof, and all insurance proceeds with
respect to the Engines or any part thereof, but excluding any insurance
maintained by the Company and not required under Section 3.05;
(e) all Eligible Accounts; all cash, Permitted
Investments and other financial assets held therein by the Security
Trustee or an Eligible Institution or otherwise paid or deposited to or
with the Security Trustee or an Eligible Institution and held or required
to be held by the Security Trustee or an Eligible Institution hereunder;
and all security entitlements (as defined in Article 8 of the New York
UCC) with respect thereto; and
(f) all proceeds of the foregoing;
PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions of this
Section 2.01, so long as no Event of Default shall have occurred and be
continuing, (i) the Company shall have the right, to the exclusion of the
Security Trustee, to quiet enjoyment of the Engines and the other Collateral,
and peaceably and quietly, without hindrance or molestation, to possess, use,
retain and control the Engines and the other Collateral, and (ii) the Company
shall have the right, to the exclusion of the Security Trustee, with respect to
the Warranties, to exercise in the Company's name all rights and powers as the
beneficiary of the Warranties and to retain any recovery or benefit resulting
from the enforcement of any warranty or indemnity under the Warranties;
TO HAVE AND TO HOLD the Collateral unto the Security Trustee, its
successors and assigns, forever, upon the terms herein set forth, for the
benefit, security and protection of the Security Trustee, and for the uses and
purposes and subject to the terms and provisions set forth in this Mortgage.
It is expressly agreed that anything herein contained to the
contrary notwithstanding, the Company shall remain liable under any assigned
Lease and the Warranties to perform all of the obligations assumed by it
thereunder, all in accordance with and pursuant to the terms and provisions
thereof, and the Security Trustee shall have no obligation or liability under
any assigned Lease and the Warranties by reason of or arising out of the
assignment hereunder, nor shall the Security Trustee be required or obligated in
any manner to perform or fulfill any obligations of the Company under any
assigned Lease and the Warranties, or, except as herein expressly provided, to
make any payment, or to make any inquiry as to the nature or sufficiency of any
payment received by it, or present or file any claim, or take any action to
collect or enforce the payment of any amounts which may have been assigned to it
or to which it may be entitled at any time or times.
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The Company does hereby irrevocably constitute and appoint the
Security Trustee the true and lawful attorney of the Company (which appointment
is coupled with an interest) with full power (in the name of the Company or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all moneys and claims for moneys (in each case including insurance and
requisition proceeds) and all other property which now or hereafter constitutes
part of the Collateral, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or to take any action or to
institute any proceeding which the Security Trustee may deem to be necessary or
advisable to collect such property which constitutes Collateral; provided that
the Security Trustee shall not exercise any such rights except upon the
occurrence and during the continuance of an Event of Default. Without limiting
the provisions of the foregoing, during the continuance of any Event of Default,
but subject to the terms hereof and any mandatory requirements of applicable
Law, the Security Trustee shall have the right under such power of attorney in
its discretion to file any claim or to take any other action or proceedings,
either in its own name or in the name of the Company or otherwise, that the
Security Trustee may reasonably deem necessary or appropriate to protect and
preserve the right, title and interest of the Security Trustee in and to the
security intended to be afforded hereby. The Company hereby agrees that promptly
on receipt thereof, except as otherwise contemplated by the Operative Documents,
it will transfer to the Security Trustee any and all moneys from time to time
received by the Company constituting part of the Collateral, for distribution by
the Security Trustee pursuant to this Mortgage.
The Company does hereby warrant and represent that it has not sold
or assigned, and hereby covenants that it will not sell or assign, so long as
this Mortgage shall remain in effect and the Lien hereof shall not have been
released pursuant to the provisions hereof, any of its estate, right, title or
interest hereby assigned, to any Person other than the Security Trustee, except
as expressly permitted herein, in any other Operative Document or in the
Subordinated Mortgage.
The Company agrees that at any time and from time to time, upon the
written request of the Security Trustee, the Company will promptly and duly
execute and deliver or cause to be duly executed and delivered any and all such
further instruments and documents as the Security Trustee may reasonably deem
necessary to perfect and protect the priority of the security interests and
assignments created hereby and to obtain the full benefits of the security
interest granted hereunder and of the rights and powers herein granted.
ARTICLE 3.
COVENANTS OF THE COMPANY
Section 3.01. Liens. The Company will not directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to the
Company's interest in the Collateral, except:
(a) the Lien of this Mortgage and the Subordinated Mortgage;
(b) the rights of others under agreements or arrangements to
the extent permitted by Section 3.02 hereof;
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(c) Liens for Taxes of the Company (or any Lessee) and its
U.S. Federal tax law consolidated group either not yet due or payable or
being contested in good faith by appropriate proceedings so long as such
Liens and such proceedings do not involve any material risk of the sale,
forfeiture or loss (including loss of use) of any Engine or any interest
therein or any discernible risk of criminal liability or any material risk
of civil penalty against any Secured Party or impair the Lien of this
Mortgage;
(d) materialmen's, mechanic's, workmen's, repairmen's,
employees' or other like Liens arising in the ordinary course of business
(including those arising under maintenance agreements entered into in the
ordinary course of business) securing obligations that are not overdue for
more than 60 days or are being contested in good faith by appropriate
proceedings so long as such Liens and such proceedings do not involve any
material risk of civil penalty or any discernible risk of criminal
liability against any Secured Party or any material risk of the sale,
forfeiture or loss of any Engine or adversely affect the Lien of this
Mortgage;
(e) Liens arising out of any judgment or award against the
Company (or against any Lessee), so long as such judgment or award shall,
within sixty (60) days after the entry thereof, have been discharged or
vacated, or execution thereof stayed pending appeal or shall have been
discharged, vacated or reversed within sixty (60) days after the
expiration of such stay and so long as during any such 60-day period there
is not, or any such judgment or award does not involve, any material risk
of the sale, forfeiture or loss (including loss of use) of any Engine, or
any interest therein or any discernible risk of criminal liability or any
material risk of civil penalty against any Secured Party or impair the
Lien of this Mortgage;
(f) salvage or similar rights of insurers under policies of
insurance maintained by the Company under Section 3.05 hereof;
(g) any other Lien with respect to which the Company (or any
Lessee) shall have provided a bond, cash collateral or other security
adequate in the reasonable opinion of the Security Trustee;
(h) Liens attributable to the Security Trustee; and
(i) Liens approved in writing by the Security Trustee.
Liens described in clauses (a) through (i) above are referred to herein as
"Permitted Liens." The Company shall promptly, at its own expense, take such
action as may be necessary to duly discharge (by bonding or otherwise) any such
Lien on the Collateral other than a Permitted Lien arising at any time.
Section 3.02. Possession, Operation and Use, Maintenance and
Registration.
(a) Possession. Except as expressly provided herein, the Company
shall not, without the prior written consent of the Security Trustee, sell,
lease or otherwise in any manner deliver, transfer or relinquish possession of
any Engine; provided that if and for so long as all approvals, consents or
authorizations required in connection with any such lease or such
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delivery, transfer or relinquishment of possession by the FAA (or, if at the
time thereof, the Engine is installed on an airframe registered with any
non-U.S. Government Entity, such other Government Entity) have been obtained and
remain in full force and effect, then the Company may, without the prior written
consent of the Security Trustee:
(i) so long as no Event of Default shall have occurred and be
continuing, subject or permit any Lessee to subject any Engine to normal
interchange, pooling or borrowing, or similar arrangements with persons
who are domiciled in the United States, in each case for no more than six
months and customary in the airline industry and entered into in writing
by the Company (or any Lessee) in the ordinary course of its business;
provided that (A) no such agreement or arrangement shall contemplate,
require or result in the transfer of title to such Engine, (B) if the
Company's title to any Engine shall be divested under any such agreement
or arrangement, such divestiture shall be deemed to be an Event of Loss
with respect to such Engine and the Company shall comply with Section
3.04(a) hereof in respect thereof, and (C) the Company (or a Lessee) shall
not relinquish possession of an Engine pursuant to this clause (i) for a
period longer than 180 consecutive days;
(ii) deliver or permit any Lessee to deliver possession of any
Engine or any Part (A) to the manufacturer thereof or to any FAA certified
third-party maintenance provider (or certified by a foreign authority so
long as work performed on such Engine or Part shall comply with Section
3.02(c)), for testing, service, repair, maintenance or overhaul work on
such Engine or Part or to the extent required or permitted by the terms of
Section 3.03(d) for alterations or modifications in or additions to such
Engine or Part or (B) to licensed or bonded common carriers qualified in
the shipping and transport of items such as such Engine or Part for the
purpose of transport to a Person referred to in the preceding clause (A);
provided that, if an Event of Default shall have occurred and be
continuing, then, prior to delivering (permitting delivery of) possession
of any Engine or Part to any Person described in clause (A), the Company
shall put into place such measures as are reasonably satisfactory to the
Security Trustee to ensure that such Person shall not assert a Lien
against such Engine or Part and shall not have any other right of
detention of such Engine or Part;
(iii) install or permit any Lessee to install an Engine on an
airframe owned by the Company (or such Lessee) free and clear of all
Liens, except: (A) those of the type permitted under clauses (c), (d), (e)
and (f) of Section 3.01 and those that apply only to the engines (other
than Engines) and/or only to parts, appliances, instruments,
appurtenances, accessories, furnishings and other equipment (other than
Parts), and (B) the rights of third parties under normal interchange,
pooling or borrowing, or similar arrangements which would be permitted
under clause (i) above;
(iv) install or permit any Lessee to install an Engine on an
airframe leased to the Company (or such Lessee) or owned by the Company
(or such Lessee) subject to a mortgage, conditional sale or other security
agreement; provided that (x) such airframe is free and clear of all Liens,
except: (A) the rights of the parties to the lease or conditional sale or
other security agreement covering such airframe, or their assignees, and
(B) Liens of the type permitted by subclauses (A) and (B) of clause (iii)
of this Section 3.02(a) and
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(y) the Company or Lessee, as the case may be, shall have received from
the lessor, mortgagee, secured party or conditional seller, in respect of
such airframe, a written agreement (which may be a copy of the lease,
mortgage, security agreement, conditional sale or other agreement covering
such airframe), whereby such Person agrees that neither such Person nor
its successors or assigns will acquire or claim any right, title or
interest in, or Lien on, such Engine by reason of such Engine being
installed on such airframe at any time while such Engine is subject to the
Lien of this Mortgage;
(v) so long as no Event of Default shall have occurred and be
continuing, install or permit any Lessee to install an Engine on an
airframe leased to the Company (or such Lessee) or owned by the Company
(or such Lessee) subject to a mortgage, conditional sale or other security
agreement under circumstances where neither clause (iii) nor clause (iv)
of this Section 3.02(a) is applicable; provided that such Engine shall be
deemed to have suffered an Event of Loss as of the date of such
installation and the Company shall (or shall cause such Lessee to) comply
with Section 3.04(a) hereof in respect thereof (it being understood that
until Section 3.04(a) has been fully complied with the Lien of this
Mortgage on any such Engine shall continue in full force and effect);
(vi) transfer possession of any Engine to the U.S. Government
pursuant to the Civil Reserve Air Fleet Program or any similar program, so
long as the Company shall promptly notify the Security Trustee thereof
and, in the case of a transfer pursuant to the Civil Reserve Air Fleet
Program, provide the Security Trustee with the name, address and telephone
number of the Contracting Office Representative for the Air Mobility
Command of the United States Air Force to whom notice must be given
pursuant to Section 4.01(a);
(vii) so long as no Special Default or Event of Default shall have
occurred and be continuing, enter into a lease with the U.S. Government
under which the lessee's obligations are guaranteed or supported by the
full faith and credit of the United States, but only if such lease
complies, or the Company shall comply, as the case may be, with the
requirements of subclauses (A) (to the extent practicable), (C)(i) (other
than with respect to insurance), (C)(ii)-(iii), and (J) of Section
3.02(a)(viii); or
(viii) so long as no Special Default or Event of Default shall have
occurred and be continuing, enter into any lease with respect to any
Engine with any Permitted Air Carrier, but only if:
(A) the Company shall provide at least 15 days' advance
written notice to the Security Trustee;
(B) At the time that the Company enters into such lease, such
Permitted Air Carrier shall not be insolvent (it being agreed that,
for purposes hereof, "insolvent" shall mean not paying its debts as
they become due) or subject to any bankruptcy, insolvency,
liquidation, reorganization, dissolution or similar proceeding,
shall not be seeking any reorganization or any readjustment of its
debts and shall not be, and shall not have substantially all of its
property, in the possession of any liquidator, trustee, receiver or
similar person;
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(C) Any such lease (i) shall include provisions for the
maintenance, operation, possession, inspection and insurance of such
Engine that are substantially the same as, or (from a lessor's
perspective) more favorable than, the applicable provisions of
Sections 3.02(a), 3.02(b), 3.02(c), 3.05 and 3.09 and (ii) shall
provide that such Permitted Air Carrier may not further lease or
transfer its interests (except transfers of the type permitted in
clauses (i) through (vi), inclusive, of Section 3.02(a)) in such
Engine;
(D) In connection with a lease to a Permitted Air Carrier
which is not a U.S. Air Carrier, all necessary governmental
approvals, if any, required for such Engine to be imported to, and
exported from (upon repossession thereof by the Security Trustee or
other termination or expiration of such lease), the applicable
jurisdiction shall have been obtained prior to commencement of any
such lease, and any foreign exchange permits necessary to allow all
rent and other payments provided for under such lease shall be in
full force and effect; and the Company shall have provided to the
Security Trustee a power-of-attorney, reasonably satisfactory in
form and substance to the Security Trustee and, to the extent
permitted by applicable Law, valid and enforceable in the applicable
jurisdiction, permitting the Security Trustee to exercise all rights
of the Company under such lease in such jurisdiction, upon the
occurrence and continuation of an Event of Default;
(E) In connection with a lease to a Permitted Air Carrier
which is not a U.S. Air Carrier, (aa) either the jurisdiction in
which such Permitted Air Carrier is based maintains normal
diplomatic relations with the United States, or such Permitted Air
Carrier is based in Taiwan, Republic of China (which shall be deemed
an acceptable jurisdiction notwithstanding the absence of normal
diplomatic relations with the United States), and (bb) the Company
shall have furnished the Security Trustee a favorable opinion of
counsel, reasonably satisfactory to the Security Trustee, in the
country of domicile of such Permitted Air Carrier, in form and
substance reasonably satisfactory to the Security Trustee, that,
subject to customary exceptions and qualifications: (i) the terms of
such lease and this Mortgage are the legal, valid and binding
obligations of the parties thereto enforceable under the Laws of
such jurisdiction, (ii) it is not necessary for any Secured Party to
register or qualify to do business in such jurisdiction, if not
already so registered or qualified, as a result, in whole or in
part, of the proposed lease, (iii) the Security Trustee's Lien in
respect of such Engine will be recognized in such jurisdiction and
the Security Trustee shall have a first priority perfected security
interest (subject to Permitted Liens) in the Engines subject to such
Lease under the Laws of such jurisdiction, (iv) the Laws of such
jurisdiction of domicile require fair compensation by the government
of such jurisdiction, payable in a currency freely convertible into
Dollars, for the loss of use of or title to such Engine in the event
of the requisition by such government of such use or title (unless
the Company shall provide insurance in the amounts required with
respect to hull insurance under Section 3.05 covering the
requisition of use of or title to such Engine by the government of
such jurisdiction so long as such Engine is subject to such lease)
and (v) the agreement of such Permitted Air Carrier that
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its rights under the lease are subject and subordinate to all the
terms of this Mortgage is enforceable against such Permitted Air
Carrier under applicable Law and the Security Trustee shall be able
to repossess such Engine, and return it to the United States,
without undue expense, penalty or delay, upon the occurrence and
continuation of an Event of Default;
(F) The Company shall furnish to the Security Trustee evidence
reasonably satisfactory to the Security Trustee that the insurance
required by Section 3.05 remains in effect;
(G) All necessary action, if any, shall have been taken to
continue in full force and effect (i) the perfection of the Security
Trustee's first-priority perfected Lien on such Engine (subject to
Permitted Liens) and (ii) the Security Trustee's rights under this
Mortgage;
(H) All necessary documents shall have been duly filed,
registered or recorded in such public offices as may be required
fully to preserve the priority of the interest of the Security
Trustee in such Engine;
(I) Each such lease shall be assigned by the Company to the
Security Trustee as security for the performance of all of the
Company's obligations under this Mortgage (with the Company
retaining all rights of lessor thereunder, to the extent consistent
with this Section 3.02(a)(viii), if and for so long as there shall
not have occurred and be continuing an Event of Default), with the
express consent of such Permitted Air Carrier;
(J) The Company shall furnish to the Security Trustee a
written confirmation (which may be contained in any relevant
operative agreement) from the lessee and any owner, lessor or
mortgagee of any aircraft on which such Engine is installed by such
Lessee that each such party shall recognize the Company's rights and
interests in, and the rights and interests of the Security Trustee
in the leased Engine and, notwithstanding any contrary provisions of
applicable Laws, its rights and benefits under which are hereby
waived to the extent in conflict with this provision, no such party
shall claim, as against the Company or the Security Trustee, any
right, title or interest in such Engine as a result of such Engine
being subject to such lease or installed on any aircraft as a result
of such lease; and
(K) The Company shall reimburse the reasonable out-of-pocket
fees and expenses, including, without limitation, reasonable fees
and disbursements of counsel, incurred by the Security Trustee in
connection with any such lease.
Notwithstanding anything to the contrary in this Section 3.02(a),
the rights of any Lessee or other transferee who receives possession of an
Engine by reason of a transfer permitted by this Section 3.02(a) (other than the
transfer of an Engine which is deemed an Event of Loss) shall be subject and
subordinate to, and any lease permitted by this Section 3.02(a) shall include a
provision that makes it expressly subject and subordinate to, all the terms of
this Mortgage and
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to the Lien of this Mortgage, including, without limitation, (i) the Security
Trustee's rights to foreclosure and possession pursuant to Section 4.01, (ii)
the Security Trustee's right to terminate and avoid such lease, delivery,
transfer or relinquishment of possession upon the occurrence and continuation of
an Event of Default and (iii) the right to require such person to forthwith
deliver such Engine subject to such transfer upon the occurrence and
continuation of an Event of Default. The Company shall remain primarily liable
hereunder for the performance of all of the terms of this Mortgage to the same
extent as if such lease or transfer had not occurred, and, except as otherwise
provided herein, the terms of any such lease shall not permit any Lessee to take
any action not permitted to be taken by the Company in this Mortgage with
respect to the Engines. No pooling arrangement, lease or other relinquishment of
possession of any Engine or Engine Documents shall in any way discharge or
diminish any of the Company's obligations to the Security Trustee hereunder or
constitute a waiver of the Security Trustee's rights or remedies hereunder.
Except as otherwise provided herein and without in any way relieving the Company
from its primary obligation for the performance of its obligations under this
Mortgage, the Company may in its sole discretion permit a Lessee to exercise any
or all rights which the Company would be entitled to exercise under Article III,
and may cause a Lessee to perform any or all of the Company's obligations under
Article III (provided that a Lessee may not lease or otherwise in any manner
deliver, transfer or relinquish possession of an Engine except as expressly
permitted by this Mortgage), and the Security Trustee agrees to accept actual
and full performance thereof by a Lessee in lieu of performance by the Company.
Any Wet Lease shall not constitute a delivery, transfer or relinquishment of
possession for purposes of Section 3.02(a) and shall not be prohibited by the
terms hereof. Any event that constitutes or would, with the passage of time,
constitute an Event of Loss under paragraph (c), (d) or (e) of the definition of
such term (as set forth in Appendix A) shall not be deemed to violate the
provisions of this Section 3.02.
(b) Operation and Use. The Company shall not, and shall not allow
any other person to, operate, use, maintain, service, repair or overhaul the
Engines (i) in violation of any Law binding on or applicable to the Company or
to any Engine, or any of the Engine Documents, or to the operation, use,
maintenance, service, repair or overhaul of, or similar dealings in, any Engine,
or (ii) in violation of any airworthiness certificate, license or registration
of any Government Entity relating to the Company or to any Engine, except (1)
immaterial or non-recurring violations with respect to which corrective measures
are taken promptly by the Company or a Lessee, as the case may be, upon
discovery thereof, and (2) to the extent the Company or any Lessee is contesting
the validity or application of any such Law, rule, regulation, order,
certificate, license or registration in good faith in any reasonable manner
which does not involve any material risk of the sale, forfeiture or loss
(including loss of use) of any Engine or any of the Engine Documents or any
interest therein or any discernible risk of criminal liability or any material
risk of civil penalty against any Secured Party or impair the lien of the
Mortgage. The Company agrees not to operate, use or locate any Engine, or allow
any Engine to be operated, used or located (A) in any area excluded from
coverage by any insurance required by the terms of Section 3.05, except in the
case of a requisition by the U.S. Government where the Company obtains an
indemnity in lieu of such insurance from the U.S. Government, or insurance from
the U.S. Government, covering such area, in accordance with Section 3.05(c) or
(B) in any recognized or threatened area of hostilities unless fully covered in
accordance with Appendix B by war-risk insurance as required by the terms of
Section 3.05 (including, without limitation, Section 3.05(c)), unless the Engine
is only temporarily located in such area as a result
11
of an emergency, equipment malfunction, navigational error, hijacking, weather
condition or other similar unforeseen circumstances, so long as the Company
diligently and in good faith proceeds to remove the Engine from such area
immediately.
(c) Maintenance. The Company, at its own cost and expense, shall (or shall
cause a Lessee to) maintain, service, repair and overhaul (or cause to be
maintained, serviced, repaired and overhauled) each Engine in accordance with
the requirements of an FAA or JAA approved maintenance program so as to keep
each Engine serviceable (except when undergoing overhaul) and in as good
operating condition as when initially subjected to the Lien hereof, ordinary
wear and tear excepted, and as may be necessary and required under applicable
Law, including the Federal Aviation Act, airworthiness directives, and other
applicable rules, regulations and requirements by any government authority,
utilizing, except during any period that a Lease is in effect, the same manner
and standard of maintenance, service, repair or overhaul used by the Company
with respect to engines similar to such Engine operated by the Company and
utilizing, during any period that a Lease is in effect, the same manner and
standard of maintenance, service, repair or overhaul used by the Lessee with
respect to engines similar to such Engine operated by the Lessee. The Company
further agrees that the Engines will be maintained, used, serviced, repaired,
overhauled or inspected in compliance with applicable Laws with respect to the
maintenance of the Engines and in compliance with each applicable airworthiness
certificate, license and registration of any Government Entity, including the
FAA, relating to any Engine, other than minor or nonrecurring violations with
respect to which corrective measures are taken upon discovery thereof and except
to the extent the Company or Lessee is contesting in good faith the validity or
application of any such Law or requirement relating to any such certificate,
license or registration in any reasonable manner which does not create a risk of
sale, loss or forfeiture of any Engine or the interest of the Security Trustee
therein, any material risk of civil liability or any risk of criminal liability.
If an Engine becomes unserviceable, the Company shall commence the restoration
process with respect to such Engine in due course; provided, however, that the
Company shall not be responsible for any delays by a third-party maintenance
provider unless such delay is caused by a breach of an obligation of the Company
to the third-party maintenance provider. If an Engine is not installed on an
airframe for a period in excess of thirty consecutive days and is not undergoing
maintenance during such period, the Company (or a Lessee) shall store such
Engine in accordance with the requirements of the Company's (or, if applicable,
a Lessee's) FAA or JAA approved maintenance program. The Company agrees that an
Engine may only be serviced, overhauled and repaired in an FAA-approved
maintenance facility. The Company agrees that it will commence the restoration
process with respect to any Engine that is not in serviceable condition on a
timely basis. The Company shall maintain or cause to be maintained all Engine
Documents in respect of each Engine in accordance with the requirements of the
Company's (or if such Engine is subject to a Lease, Lessee's) FAA or JAA
approved maintenance program.
(d) Identification of Security Trustee's Interest. As promptly as
possible, and in any case within 180 days following the Closing Date, the
Company agrees to affix and maintain (or cause to be affixed and maintained), at
its expense, on each Engine a nameplate (which shall be provided to the Company
by the Security Trustee) bearing the inscription:
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"THIS ENGINE IS SUBJECT TO A MORTGAGE AND SECURITY AGREEMENT IN
FAVOR OF XXXXX FARGO BANK NORTHWEST, NATIONAL ASSOCIATION, AS
SECURITY TRUSTEE"
(such nameplate to be replaced if there is a successor Security Trustee). Such
nameplate may be removed temporarily in the course of maintenance of an Engine.
Section 3.03. Replacement and Pooling of Parts; Alterations,
Modifications and Additions.
(a) Replacement of Parts. So long as an Engine is subject to the
Lien of this Mortgage, the Company, at its own cost and expense, will promptly
replace or cause to be replaced all Parts which may from time to time be
incorporated or installed in or attached to any Engine and which may from time
to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in Section 3.03(d) hereof or if an Engine to which
a Part relates has suffered an Event of Loss. In addition, the Company (or any
Lessee) may, at its own cost and expense, remove in the ordinary course of
maintenance, service, repair, overhaul or testing, any Parts, whether or not
worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use; provided that the Company (or such Lessee),
except as otherwise provided in Section 3.03(d) hereof, will, at its own cost
and expense, replace such Parts as promptly as practicable. All replacement
Parts shall be free and clear of all Liens (except Permitted Liens, pooling
arrangements to the extent permitted by Section 3.03(c) and except in the case
of replacement property temporarily installed on an emergency basis) and shall
be in good operating condition, and shall have a value and utility (without
regard to hours and cycles) at least equal to, the Parts replaced (assuming such
replaced Parts were in the condition and repair required to be maintained by the
terms hereof); provided that each replacement Part shall have at least enough
remaining hours, cycles and calendar life (as applicable) at the time of its
installation on the relevant Engine to last until the next expected maintenance
event of such Engine. Notwithstanding anything to the contrary set forth
elsewhere in this Section 3.03(a), (x) no removal and replacement of Parts
pursuant to this Section 3.03(a) shall be permitted for the purpose of
diminishing the value, utility or remaining useful life of any Engine, and (y)
neither the Company nor any Lessee shall be permitted to remove or replace any
Parts pursuant to this Section 3.03(a) in any manner, for any reason, or on any
basis that would discriminate against the interests of the Security Trustee in
any Engine (as compared to other aircraft engines of the same type owned, leased
or operated by the Company or any Lessee, as the case may be).
(b) Parts Subject to Lien. Except as otherwise provided in Section
3.03(d) hereof, all Parts at any time removed from any Engine shall remain
subject to the Lien of this Mortgage, no matter where located, until such time
as such Parts shall be replaced by Parts that have been incorporated or
installed in or attached to such Engine and which meet the requirements for
replacement Parts specified in Section 3.03(a) hereof. Immediately upon any
replacement part becoming incorporated or installed in or attached to an Engine
as provided in Section 3.03(a) hereof, without further act (subject only to
Permitted Liens and except in the case of replacement property temporarily
installed on an emergency basis), (i) the replaced Part shall thereupon be free
and clear of the Lien of this Mortgage and all rights of the Security Trustee
and
13
shall no longer be deemed a Part hereunder and (ii) the replacement part shall
be deemed a Part hereunder and such replacement Part shall become subject to the
Lien of this Mortgage and be deemed part of such Engine for all purposes hereof
to the same extent as the Parts originally incorporated or installed in or
attached to such Engine.
(c) Pooling of Parts. Any Part removed from any Engine as provided
in Section 3.03(a) hereof may be subjected by the Company (or any Lessee) to a
normal pooling arrangement customary in the commercial airline industry of which
the Company (or any Lessee) is a party entered into in the ordinary course of
the Company's (or such Lessee's) business; provided that the Part replacing such
removed Part shall be incorporated or installed in or attached to such Engine in
accordance with Sections 3.03(a) and 3.03(b) hereof as promptly as practicable
after the removal of such removed Part. In addition, any replacement Part when
incorporated or installed in or attached to any Engine in accordance with
Section 3.03(a) hereof may be owned by any third party subject to such a normal
pooling arrangement; provided that the Company (or any Lessee), at its expense,
as promptly thereafter as practicable, either (i) causes such replacement Part
to become subject to the Lien of this Mortgage, free and clear of all Liens
except Permitted Liens, at which time such temporary replacement Part shall
become a Part or (ii) replaces such replacement Part by incorporating or
installing in or attaching to such Engine a further replacement Part which is
subject to the Lien of this Mortgage, free and clear of all Liens except
Permitted Liens.
(d) Alterations; Modifications and Additions. The Company, at its
own expense, will make or cause to be made such alterations and modifications in
and additions to any Engine as may be required to be made from time to time to
meet the applicable standards of the FAA or JAA, to the extent made mandatory in
respect of the Engines; provided, however, that the Company in good faith and by
appropriate proceedings may contest the validity or application of any such
mandatory modification in any reasonable manner which does not involve any risk
of loss, sale or forfeiture of any Engine, or result in any risk of criminal
liability or material civil liability to any Secured Party or materially
adversely affect the Security Trustee's interest in such Engine. In addition,
the Company, at its own expense, may, or may permit a Lessee at its own cost and
expense to, from time to time make or cause to be made such alterations and
modifications in and additions to any Engine (each an "Optional Modification")
as the Company or such Lessee may deem desirable in the proper conduct of its
business including, without limitation, removal of Parts which the Company deems
are obsolete or no longer suitable or appropriate for use in such Engine;
provided, however, that (i) no such Optional Modification shall materially
diminish the value, utility, or useful life of any Engine below its value,
utility or useful life immediately prior to such Optional Modification (assuming
such Engine was in the condition required by the Mortgage immediately prior to
such Optional Modification) and (ii) such Optional Modification shall have been
approved by the applicable Engine Manufacturer or the FAA or JAA, as applicable.
Except as otherwise expressly provided herein, all Parts incorporated or
installed in or attached or added to any Engine as the result of any such
alteration, modification or addition (the "Additional Parts") shall become
subject to the Lien of this Mortgage. Notwithstanding the foregoing sentence,
the Company (or any Lessee) may remove or suffer to be removed any Additional
Part; provided that such Additional Part (i) is in addition to, and not in
replacement of or in substitution for, any Part originally incorporated or
installed in or attached to such Engine on the date that the Company originally
acquired such Engine or any Part in replacement of, or in substitution for, any
such Part, (ii) is not required to
14
be incorporated or installed in or attached or added to such Engine pursuant to
the terms of Section 3.02(c) hereof, the terms of the insurance policies
required to be carried hereunder or any applicable law or the first sentence of
this Section 3.03(d), and (iii) can be removed from such Engine without
materially diminishing the value, utility or remaining useful life which such
Engine would have had at the time of removal had such alteration, modification
or addition not occurred, assuming that such Engine was in the condition and
repair required to be maintained by the terms hereof. Upon the removal by the
Company (or any Lessee) of any such Part as above provided, such Part shall,
without further act, be free and clear of the Lien of this Mortgage and all
rights of the Security Trustee and such Part shall no longer be deemed a Part
hereunder.
Section 3.04. Event of Loss and Release of Engines.
(a) Event of Loss With Respect to an Engine. Upon the occurrence of
an Event of Loss with respect to an Engine, the Company shall promptly (and in
any event within ten (10) Business Days after such occurrence) give the Security
Trustee written notice of such Event of Loss. The Company shall, within thirty
(30) days after the occurrence of an Event of Loss with respect to an Engine
give the Security Trustee written notice of its election to perform one of the
following options (it being agreed that, if the Company shall not have given
notice of such election within such 30-day period, the Company shall be deemed
to have elected the option in clause (i) of the next sentence). The Company may
elect either to (i) repay a principal amount of the Loan in an amount equal to
the Stipulated Loss Value of such Engine (or the Termination Value of such
Engine, if Section 3.04(h)(3)(ii) is applicable), plus accrued interest thereon
and any other amounts in accordance with Section 1.1(d) of the Loan Agreement,
on or prior to the earlier of (A) the sixty-first (61st) day following the Event
of Loss and (B) the third Business Day following the receipt of insurance
proceeds with respect to such occurrence (but in any event not earlier than the
date of the Company's election under the preceding sentence of this Section to
make payment under this clause (i)), or (ii) cause to be subjected to the Lien
of this Mortgage in replacement thereof not later than the sixtieth (60th) day
following the occurrence of such Event of Loss, a Replacement Engine, owned by
the Company and free and clear of all Liens except Permitted Liens; provided
that if the Company does not perform its obligation to effect such replacement
in accordance with this Section 3.04(a) during the period of time provided
herein, then the Company shall be deemed to have elected to make the payment
contemplated by clause (i) of this sentence within the period of time specified
therein. The Company shall not be entitled to elect the replacement option
pursuant to clause (ii) of the preceding sentence if, at the time the Company
gives notice pursuant to the preceding sentence there shall have occurred and be
continuing a Special Default or an Event of Default. A Replacement Engine for an
Engine suffering an Event of Loss must meet each of the following conditions:
(1) be of the same model as the Engine to be replaced thereby, or an
improved model, manufactured by the same Engine Manufacturer;
(2) have a value, utility and remaining useful life at least equal
to and be in at least as good operating condition as, the Engine to be
replaced thereby (assuming that such Engine was of the value and utility
and in the condition and repair required by the terms hereof immediately
prior to the occurrence of the Event of Loss);
15
(3) have been first placed in service after October 22, 1994, or, if
different, meet whatever conditions or requirements as may be required in
order for the Security Trustee to be entitled to the benefits of Section
1110 of the Bankruptcy Code with respect to such Replacement Engine in the
event of a case under Chapter 11 of the Bankruptcy Code in which the
Company is a debtor; provided, however, that the requirement set forth in
this subclause (3) shall not apply (A) with respect to the first Engine to
suffer an Event of Loss, or (B) if, after giving effect to the replacement
of the Engine suffering the Event of Loss by the Replacement Engine
proposed by the Company, the ratio (both by number of Engines and by
value) of Engines for which the Security Trustee is entitled to the
benefits of Section 1110 of the Bankruptcy Code in the event of a case
under Chapter 11 of the Bankruptcy Code in which the Company is a debtor
to all Engines then subject to the Lien of this Mortgage is equal to or
greater than the ratio of the Specified Engines to all Engines subject to
the Lien of this Mortgage as of the Closing Date.
(b) Effect of Replacement or Repayment. Upon the Company having
provided a Replacement Engine as provided in Section 3.04(a) above, the Lien of
this Mortgage shall attach to such Replacement Engine as though no Event of Loss
had occurred. Upon the Company having provided a Replacement Engine or having
made a repayment of the Loan pursuant to Section 3.04(a), the Security Trustee
shall, at the cost and expense of the Company, release from the Lien of this
Mortgage the Engine subject to such Event of Loss, and all Engine Documents and
Warranties relating to such Engine, by executing and delivering to the Company
such documents and instruments as the Company may reasonably request to evidence
such release and shall assign without recourse or representation to the Company
all claims it may have against any other Person arising from the Event of Loss
and the Company shall receive all insurance proceeds and other proceeds from any
award in respect of condemnation, confiscation, seizure or requisition,
including all investment interest thereon, to the extent not previously applied
to the purchase price of the Replacement Engine as provided in Sections
3.04(d)(i) and 3.05 hereof.
(c) Conditions to Engine Replacement. The Company's right to make a
replacement under Section 3.04(a) hereof shall be subject to the fulfillment, at
the Company's cost and expense, of the following conditions precedent:
(1) On the date that the Replacement Engine is made subject to the
Lien of this Mortgage (the "Replacement Closing Date"), no Special Default
or Event of Default shall have occurred and be continuing;
(2) On the Replacement Closing Date, an executed counterpart of each
of the following shall have been delivered to the Security Trustee, in
each case in form and substance reasonably satisfactory to the Security
Trustee:
(A) a Mortgage Supplement covering the Replacement Engine
(which shall be filed for recordation pursuant to the Federal
Aviation Act);
(B) such Uniform Commercial Code financing statements covering
the Lien created by this Mortgage as deemed necessary by the
Security Trustee to protect the security interests of the Security
Trustee in the Replacement Engine;
16
(C) a certificate of a qualified aircraft engineer (who may be
an employee of the Company) or, if the Security Trustee makes
written request to the Company within five Business Days after the
Company shall have furnished to the Security Trustee the information
referred to in Section 3.04(c)(5)(C), an independent appraiser
specified in such request (provided such appraiser is reasonably
acceptable to the Company), whose fees and expenses shall be paid by
the Security Trustee if the appraiser's report supports the
certificate delivered by the Company's aircraft engineer pursuant to
this Section 3.04(c)(2)(C) and paid by the Company in all other
circumstances, certifying that such Replacement Engine meets all of
the requirements set forth in subclauses (1), (2) and (3) of
Section 3.04(a), as applicable; and
(D) a copy of a xxxx of sale, manufacturer's invoice or other
evidence of the Company's title with respect to the Replacement
Engine.
(3) The Security Trustee shall have received evidence satisfactory
to the Security Trustee as to the due compliance with Section 3.05 hereof
with respect to the Replacement Engine;
(4) On the Replacement Closing Date, the Company shall be the owner
of the Replacement Engine and shall cause the Replacement Engine to be
subjected to the Lien of this Mortgage, free and clear of Liens (other
than Permitted Liens);
(5) The Security Trustee shall, at the expense of the Company, have
received (A) an opinion addressed to the Security Trustee, reasonably
satisfactory to the Security Trustee, to the effect that (i) the
Replacement Engine has been made subject to the Lien of this Mortgage,
(ii) the Security Trustee will be entitled to the benefits of Section 1110
of the Bankruptcy Code (or any successor or replacement statute) with
respect to the Replacement Engine to the extent that the benefits of
Section 1110 of the Bankruptcy Code (or any successor or replacement
statute) are required to be available to the Security Trustee with respect
to such Replacement Engine in accordance with Section 3.04(a)(3) and (iii)
to such further effect as the Security Trustee may reasonably request
(including, if the Replacement Engine will be subject to a Lease to a
Permitted Air Carrier which is not a U.S. Air Carrier upon effectiveness
of such replacement, to the effect provided in clause (iii) of Section
3.02(a)(viii)(E)), (B) an opinion of FAA counsel addressed to the Security
Trustee, reasonably satisfactory to the Security Trustee, respecting the
due filing for recordation with the FAA of the Mortgage Supplement with
respect to such Replacement Engine, the perfection and priority of the
Lien of this Mortgage thereon and as to such other matters concerning the
Federal Aviation Act as the Security Trustee may reasonably request and
(C) at least six Business Days before the Replacement Closing Date the
information specified in Section 4.1(e) of the Loan Agreement with respect
to the Replacement Engine as of a date within 30 days prior to the date
such information is furnished to the Security Trustee; and
(6) The Company shall have taken such other actions and furnished
such other certificates and documents as the Security Trustee shall have
reasonably requested in order that such Replacement Engine be duly and
properly subjected to the Lien of this
17
Mortgage to the same extent as initially required under the Operative
Documents with respect to the Engine so replaced.
(d) Payments Received on Account of an Event of Loss. As between the
Security Trustee and the Company, any payments on account of an Event of Loss
(other than insurance proceeds or other payments the application of which is
provided for in Section 3.05 hereof, or elsewhere in this Mortgage, as the case
may be, or payments in respect of damage to the business or property of the
Company) with respect to an Engine received at any time by the Security Trustee
or by the Company from any Government Entity or other Person will be applied as
follows:
(i) if such payments are received with respect to an Event of Loss
as to an Engine and such Engine is being replaced by the Company pursuant
to Section 3.04(a) hereof, such payments shall be paid over to, or
retained by, the Security Trustee as security; and upon completion of such
replacement (or upon the closing therefor) and compliance with the
provisions of Section 3.04(a) and (c) with respect to the Event of Loss
for which such payments are made, all such payments, including all
investment earnings thereon shall be promptly paid over to, or retained
by, the Company; and
(ii) if the Company has elected or is deemed to have elected to make
the repayment referred to in clause (i) of the third sentence of Section
3.04(a), such payments shall be applied as follows:
first, if the sum described in such clause (i) has not then been
paid in full by the Company, such payments shall be deposited with the
Security Trustee as cash collateral up to the amount required to be paid
under such clause (i), and the Security Trustee shall apply such deposit
to payment under clause (i) on such date in compliance with clause (i) as
the Company shall specify to the Security Trustee or, if no such date has
been specified, on the last date available for repayment in compliance
with such clause (i); and
second, the balance, if any, shall be paid to, or retained by, the
Company.
(e) Requisition of Use. In the event of a requisition for use by a
Government Entity of such Engine not constituting an Event of Loss, any payments
received by the Security Trustee or the Company (or any Lessee of the applicable
Engine) from such government with respect to such requisition shall be retained
by or paid to the Company (or such Lessee, as the case may be).
(f) Application of Payments During Existence of Event of Default.
Any amount referred to in this Section 3.04 or Section 3.05 which is payable to
or retainable by the Company (or any Lessee) shall not be paid to or retained by
the Company (or such Lessee), if at the time of such payment or retention a
Special Default or an Event of Default shall have occurred and be continuing,
but shall be held by or paid over to the Security Trustee as security for the
Obligations. Upon the earlier of (a) such time as there shall not be continuing
any such Special Default or Event of Default or (b) the termination of this
Mortgage in accordance with Section 7.01, such amount, and any interest realized
thereon pursuant to Section 6.01 hereof, shall be paid over to the Company (or
such Lessee) to the extent not previously applied in
18
accordance with the preceding sentence, provided that if at the time of the
termination of this Mortgage a "Special Default" or "Subordinated Event of
Default" (as such terms are defined in the Subordinated Mortgage) has occurred
and is continuing, then such amount, and any such interest, not so previously
applied shall be held or paid over to the Subordinated Trustee as security under
the Subordinated Mortgage.
(g) Engine Exchange. Upon not less than ten (10) Business Days'
prior written notice from the Company to the Security Trustee, provided no
Special Default or Event of Default shall have occurred and be continuing, and
subject to compliance with Section 3.04(i) hereof if the final sentence of such
Section is then applicable, the Security Trustee shall release from the Lien of
this Mortgage pursuant to Section 3.04(b) one or more Engines specified in such
notice (herein, the "Released Engines") upon the replacement of such Engines
with other engines (the "Exchanged Engines") meeting the requirements of Section
3.04(a). Any such Exchanged Engine shall be deemed to be a "Replacement Engine"
and the Security Trustee and the Company shall comply with the provisions of
Section 3.04 with regard to the Exchanged Engine and the Released Engine,
provided that if the Security Trustee requests a certificate of an independent
appraiser pursuant to Section 3.04(c)(2)(C), then, notwithstanding anything to
the contrary in Section 3.04(c)(2)(C), the fees and expenses of such appraiser
shall be paid by the Security Trustee if the Security Trustee does not have a
reasonable basis for requesting such appraisal and the appraisal supports the
report of the Company's aircraft engineer, and such fees and expenses shall be
paid by the Company in all other circumstances.
(h) Permitted Dispositions. Upon not less than ten (10) Business
Days' prior written notice from the Company to the Security Trustee, provided no
Special Default or Event of Default shall have occurred and be continuing, the
Security Trustee shall release from the Lien of this Mortgage pursuant to
Section 3.04(b) one or more Engines specified in such notice (the "Disposed
Engines") that the Company is disposing, or intends to dispose, in the ordinary
course of its business (a "Permitted Disposition") (treating such Disposed
Engines, for the purposes of Sections 3.04(a) and (b) as Engines having suffered
an Event of Loss) if, but only if, each of the following conditions is
satisfied:
(1) the Company delivers to the Security Trustee an Officer's
Certificate certifying that (i) each of the Disposed Engines is surplus to
the operational needs of the Company and is not required to meet the fleet
planning needs of the Company in the ordinary course of its business, and
(ii) the Company has not, and does not intend to, acquire by any means
whatsoever any replacement for any of the Disposed Engines as support for
the Company's operations (it being expressly understood that any purchase,
lease or sublease of one or more other engines and any other arrangement
permitting the Company access to or use of one or more other engines would
all be considered a replacement of the Disposed Engines within the meaning
of this Section 3.04(h)(1)(ii));
(2) except with respect to the first Disposed Engine to be disposed
of by the Company and released from the Lien of this Mortgage pursuant to
this Section 3.04(h) during the term of this Mortgage (for which it is
agreed that the condition set forth in this subclause (2) shall not
apply), after giving effect to the disposal of the Disposed Engines, the
ratio (both by number of Engines and by value) of remaining Engines for
which the Security Trustee is entitled to the benefits of Section 1110 of
the Bankruptcy Code in the
19
event of a case under Chapter 11 of the Bankruptcy Code in which the
Company is a debtor to all Engines then remaining subject to the Lien of
this Mortgage is equal to or greater than the ratio of the Specified
Engines to all Engines subject to the Lien of this Mortgage as of the
Closing Date;
(3) the Security Trustee shall have received, in immediately
available funds, a prepayment of the principal amount of the Loan (plus
accrued interest thereon and any other amounts payable therewith in
accordance with Section 1.1(d) of the Loan Agreement) in an amount equal
to (i) with respect to any such disposition occurring on or after the
Designated Date, and any such disposition of up to four Disposed Engines
at any time prior to the Designated Date (provided that if all such
Disposed Engines are manufactured by CFM International, Inc., up to five
Disposed Engines prior to the Designated Date), the Stipulated Loss Value
of the Disposed Engine, and (ii) with respect to any such disposition of a
Disposed Engine as to which the preceding clause (i) does not apply, the
Termination Value of the Disposed Engine.
(i) Additional Collateral. If (i) the Company exercises its
right to make one or more Exchanged Engines subject to the Lien of this
Mortgage, (ii) any such Exchanged Engine has fewer hours or cycles or less
calendar time remaining to the next expected major overhaul than the
corresponding Released Engine (any such Exchanged Engine being referred to
herein as a "Short Time Engine") and (iii) at any time thereafter two
consecutive quarterly engine reports (prepared in accordance with Section 4.1(e)
of the Loan Agreement) indicate that all of the Engines subject to the Lien of
this Mortgage have on average less than 4,393 hours or less than 2,899 cycles
remaining until the next expected major overhaul, then the Company shall, within
five (5) Business Days following the due date of the second of such quarterly
engine reports, comply with all of the following requirements:
(1) With respect to all such Short Time Engines, the Company shall
furnish the Security Trustee with a certificate of an independent
appraiser selected by the Security Trustee and reasonably satisfactory to
Company certifying as to difference in value, if any, set forth in
dollars, based on the difference in hours, cycles and calendar time since
last shop visit or since new, as applicable, as of the date of such
exchange, between each such Short Time Engine and the corresponding
Released Engine (the cumulative aggregate amount of any and each such
deficiency in value between a Short Time Engine and the corresponding
Released Engine being referred to herein as the "Exchange Shortfall
Amount"); and
(2) If the independent appraiser's report prepared pursuant to
Section 3.04(i)(1) hereof sets forth an Exchange Shortfall Amount, the
Company shall provide the Security Trustee with a letter of credit that is
in an amount equal to the Exchange Shortfall Amount and that otherwise
meets all of the following requirements (each such letter of credit, a
"Letter of Credit"):
(i) Such Letter of Credit must be issued and payable by a
Pre-Approved Bank or another bank acceptable to the Security Trustee
in its sole and absolute discretion and in substantially the form of
Exhibit B or in another form and substance acceptable to the
Security Trustee in its sole and absolute
20
discretion, and, if not issued by a Pre-Approved Bank or the New
York branch of a major international bank acceptable to the Security
Trustee in its sole and absolute discretion from time to time, will
be confirmed by and payable at a Pre-Approved Bank or the New York
branch of a major international bank acceptable to the Security
Trustee in its sole and absolute discretion from time to time, and
shall remain in full force and effect and may be drawn down by the
Security Trustee upon demand at any time or times following the
occurrence of an Event of Default until the Required LC Expiry Date.
(ii) Such Letter of Credit may have a validity period or
periods ending prior to the Required LC Expiry Date, provided that
(i) the Letter of Credit shall, in each case, be renewed, extended
or reissued and delivered to the Security Trustee not later than
sixty (60) days prior to its expiry; and (ii) a Letter of Credit
shall remain in force at all times up to the Required LC Expiry
Date.
(iii) If at any time while the Lien of this Mortgage remains
in effect, the Security Trustee determines in its sole and absolute
discretion that the current issuing or confirming bank for the
Letter of Credit is no longer an acceptable issuing or confirming
bank (whether by virtue of a material adverse change in its
financial condition, a decrease in any credit rating of its
long-term unsecured debt obligations or for any other reason) the
Security Trustee shall notify the Company of such fact and the
Company shall within five (5) Business Days after the date of such
notice cause the Letter of Credit to be replaced by a Letter of
Credit issued by a Pre-Approved Bank or another bank acceptable to
the Security Trustee in its sole and absolute.
Provided that no Special Default or Event of Default shall have occurred and is
continuing, the Security Trustee shall release and return to the Company each
such Letter of Credit at such time as the Short Time Engine to which such Letter
of Credit relates has completed a major overhaul. The proceeds of any drawing
upon a Letter of Credit for any reason other than the occurrence of an Event of
Default shall be held by the Security Trustee as cash collateral in accordance
with Section 6.01 hereof. If the Company proposes to exercise its right to
provide a Short Time Engine hereunder at any time when a Letter of Credit is in
place with respect to a prior exercise of such right, the Company shall provide
the report described in clause (1) above with respect to the proposed exchange
and, if such report shows a further Exchange Shortfall Amount, the Company shall
comply with clause (2) above as a condition to making such exchange.
Section 3.05. Insurance.
(a) Obligation to Insure. The Company shall comply with, or
cause to be complied with, each of the provisions of Appendix B, which
provisions are hereby incorporated by this reference as if set forth in
full herein.
(b) Insurance for Own Account. Nothing in Section 3.05 shall
limit or prohibit (a) the Company from maintaining the policies of
insurance required under Appendix B with higher limits than those
specified in Appendix B, or (b) the Security Trustee or any Lender from
obtaining insurance for its own account (and any proceeds
21
payable under such separate insurance shall be payable as provided in the
policy relating thereto); provided, however, that no insurance may be
obtained or maintained that would limit or otherwise adversely affect the
coverage of any insurance required to be obtained or maintained by the
Company pursuant to this Section 3.05 and Appendix B.
(c) Indemnification by Government in Lieu of Insurance.
Security Trustee agrees to accept, in lieu of insurance against any risk
with respect to any Aircraft or Engine described in Appendix B,
indemnification from, or insurance provided by, the U.S. Government, or
upon the written consent of Security Trustee, other Government Entity,
against such risk in an amount that, when added to the amount of insurance
(including permitted self-insurance), if any, against such risk that the
Company (or any Lessee) may continue to maintain, in accordance with this
Section 3.05, shall be at least equal to the amount of insurance against
such risk otherwise required by this Section 3.05.
(d) Application of Insurance Proceeds. All proceeds of
insurance required to be maintained by the Company, in accordance with
Section 3.05 and Section B of Appendix B, in respect of any property
damage or loss, whether or not constituting an Event of Loss, shall be
adjusted, paid and applied in the manner specified in Section B of
Appendix B.
Section 3.06. Filings. The Company will take, or cause to be taken,
at the Company's cost and expense, such action with respect to the recording,
filing, re-recording and re-filing of this Mortgage, each Mortgage Supplement
and any financing statements or other instruments as are necessary, or
reasonably requested by the Security Trustee and appropriate, to maintain, so
long as this Mortgage is in effect, the perfection and priority of the Lien
created by this Mortgage, or will furnish to the Security Trustee timely notice
of the necessity of such action, together with such instruments, in execution
form, and such other information as may be required to enable the Security
Trustee to take such action. In addition, the Company will pay any and all
recording, stamp and other similar taxes payable in the United States, in
connection with the execution, delivery, recording, filing, re-recording and
refiling of this Mortgage or any such financing statements or other instruments.
Section 3.07. [Intentionally Left Blank].
Section 3.08. Notice of Change of the Company's Location. The
Company will notify the Security Trustee of any change in the location of the
Company (within the meaning of Section 9-307 of the Uniform Commercial Code)
promptly after making such change and in any event within a reasonable period of
time prior to the date by which it is necessary under applicable Law to make any
filing in order to prevent the lapse of perfection (absent refiling) of
financing statements filed under or with respect to this Mortgage.
Section 3.09. Inspection.
(a) At reasonable times (but, so long as no Default has occurred and
is continuing, no more frequently than once in any 12-month period), the
Security Trustee and its authorized representatives (the "Inspecting Parties")
may inspect the Engines (including without
22
limitation, the Engine Documents) and the Company shall cooperate, and shall
cause any Lessee to cooperate, with the Inspecting Parties in connection with
any such inspection (including, without limitation, permitting any such
Inspecting Party to make copies of Engine Documents not reasonably deemed
confidential by the Company or such Lessee) at its own cost and expense.
(b) Any inspection of the Engines hereunder shall be limited to a
visual inspection, shall be in compliance with the Company's work and safety
rules and shall not include the disassembling, or opening of any components, of
any Engine, and no such inspection shall interfere with the Company's or any
Lessee's maintenance or use of any Engine.
(c) With respect to such rights of inspection, the Security Trustee
shall not:
(i) have any duty or liability to make, or any duty or liability
arising out of, any such visit, inspection or survey or failure to make
any such visit, inspection or survey; or
(ii) so long as no Event of Default has occurred and is continuing,
exercise its inspection rights hereunder other than on reasonable notice
and, whether or not an Event of Default has occurred and is continuing, so
as not to unreasonably interfere with the Company's or any Lessee's
maintenance and operation of the Aircraft and Engines.
(d) Each person inspecting the Engines hereunder shall bear its own
expenses in connection with any such inspection, unless an Event of Default
shall have occurred and be continuing, in which case the Company shall bear all
such expenses.
(e) If requested by the Security Trustee, the Company shall provide,
or shall cause any Lessee to provide, to the Security Trustee the date(s), if
then scheduled, upon which any Engine undergoes its next scheduled maintenance
visit and next major check and next off-the-wing maintenance, and shall advise
the Security Trustee of the name and location of the relevant maintenance
performer, if then selected, and shall, if requested by the Security Trustee in
connection with a major check, at least 5 days prior to commencement of such
major check or maintenance, make available for inspection by the Security
Trustee all relevant Engine Documents at the Company's records facility in the
United States, or at such Lessee's records facility, or at the premises of the
maintenance performer.
ARTICLE 4.
REMEDIES OF THE SECURITY TRUSTEE UPON AN EVENT OF DEFAULT
Section 4.01. Remedies with Respect to Collateral.
(a) Remedies Available. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, the Security
Trustee may do one or more of the following; provided, however, that during any
period an Engine is subject to the Civil Reserve Air Fleet Program in accordance
with the provisions of Section 3.02(a) hereof and in possession of the U.S.
Government, the Security Trustee shall not, on account of any Event of
23
Default, be entitled to exercise any of the following remedies in such manner as
to limit the Company's control under this Mortgage of such Engine, unless at
least sixty (60) days' (or such other period as may then be applicable under the
Civil Reserve Air Fleet Program) written notice of such Event of Default
hereunder shall have been given by the Security Trustee by registered or
certified mail to the Company (and any Lessee) with a copy addressed to the
Contracting Office Representative for the Air Mobility Command of the United
States Air Force under any contract with the Company (or by Lessee) relating to
such Engine:
(i) cause the Company, upon the written demand of the Security
Trustee, at the Company's expense, to deliver promptly, and the Company
shall deliver promptly, all or any of the Engines constituting the
Collateral at such location designated by the Security Trustee within the
continental United States of America, together in each case with the
Engine Documents for such Engine(s) as the Security Trustee may so demand,
to the Security Trustee or its order, or the Security Trustee, at its
option, may peaceably enter upon the premises where all or any of such
Engine(s) and/or Engine Documents are located and take immediate
possession (to the exclusion of the Company and all Persons claiming under
or through the Company) of and remove the same by summary proceedings;
(ii) sell all or any part of the Collateral at public or private
sale, whether or not the Security Trustee shall at the time have
possession thereof, as the Security Trustee may determine, or lease or
otherwise dispose of all or any part of the Collateral as the Security
Trustee, in its sole discretion, may determine, all free and clear of any
rights or claims of whatsoever kind of the Company; provided, however,
that the Company shall be entitled at any time prior to any such
disposition to redeem the Collateral by paying in full all of the
Obligations;
(iii) draw upon any Letters of Credit then held and apply such
amounts as provided in Section 4.04 hereof; or
(iv) exercise any or all of the rights and powers and pursue any and
all remedies of a secured party under applicable Law.
Upon every such taking of possession of Collateral under this
Section 4.01, the Security Trustee may, from time to time, make all such
expenditures for maintenance, insurance, repairs, replacements, alterations,
additions and improvements to and of the Collateral, as it may deem proper. In
each such case, the Security Trustee shall have the right to maintain, store,
lease, control or manage the Collateral and to exercise all rights and powers of
the Company relating to the Collateral in connection therewith, as the Security
Trustee shall deem best, including the right to enter into any and all such
agreements with respect to the maintenance, insurance, storage, leasing,
control, management or disposition of the Collateral or any part thereof as the
Security Trustee may determine; and the Security Trustee shall be entitled to
collect and receive directly all tolls, rents, revenues, issues, income,
products and profits of the Collateral and every part thereof, without
prejudice, however, to the right of the Security Trustee under any provision of
this Mortgage to collect and receive all cash held by, or required to be
deposited with, the Security Trustee hereunder. Such tolls, rents, revenues,
issues, income, products and profits shall be applied to pay the expenses of
storage, leasing, control,
24
management or disposition of the Collateral, and of all maintenance, repairs,
replacements, alterations, additions and improvements, and to make all payments
which the Security Trustee may be required or may elect to make, if any, for
taxes, assessments, insurance or other proper charges upon the Collateral or any
part thereof (including the employment of engineers and accountants to examine,
inspect and make reports upon the properties and books and records of the
Company), and all other payments which the Security Trustee may be required or
authorized to make under any provision of this Mortgage, as well as compensation
for the services of the Security Trustee, and of all Persons engaged and
employed by the Security Trustee. If the income and proceeds of the Collateral
shall not be sufficient to pay in full the Obligations, the Company shall be
liable for any deficiency.
In addition, the Company shall be liable for all reasonable legal
fees and other costs and expenses incurred by reason of the occurrence of any
Event of Default or the exercise of the Security Trustee's remedies with respect
thereto, including, without limitation, all costs and expenses incurred in
connection with the retaking or return of any Engine in accordance with the
terms hereof or under applicable Law, which amounts shall, until paid, be
secured by the Lien of this Mortgage.
If an Event of Default shall have occurred and be continuing, at the
request of the Security Trustee the Company shall promptly execute and deliver
to the Security Trustee such instruments of title and other documents as the
Security Trustee may deem necessary or advisable to enable the Security Trustee
or an agent or representative designated by the Security Trustee, at such time
or times and place or places as the Security Trustee may specify, to obtain
possession of all or any part of the Collateral to which the Security Trustee
shall at the time be entitled hereunder. If the Company shall for any reason
fail to execute and deliver such instruments and documents after such request by
the Security Trustee, the Security Trustee may obtain a judgment conferring on
the Security Trustee the right to immediate possession of the Collateral and
requiring the Company to execute and deliver such instruments and documents to
the Security Trustee, to the entry of which judgment the Company hereby
specifically consents to the fullest extent it may lawfully do so.
The Company agrees that if an Event of Default has occurred and is
continuing, and only for so long as the Security Trustee is exercising its
foreclosure rights with respect to the Engines and requires use of an engine
stand owned by the Company for transporting an Engine, the Company shall permit
the Security Trustee or its agents or representatives to use such an engine
stand suitable for use with such Engine, available at the location of such
Engine and which is not otherwise being used by the Company, for the sole
purpose of transporting such Engine. The Security Trustee shall return each such
engine stand to the location from which it was taken promptly after it has
transported such Engine using such engine stand. The Security Trustee further
agrees to return each such engine stand to the Company in as good condition as
when furnished to the Security Trustee (or its agents or representatives),
ordinary wear and tear excepted, and the Security Trustee acknowledges that it
has no security interest in any such engine stand. The costs of the Security
Trustee in transporting an engine stand and restoring the condition of an engine
stand pursuant to this paragraph shall be an expense of the Lenders, and the
Company shall have no obligation to reimburse such expense (directly or from the
proceeds of the sale of any Collateral).
25
The Company agrees that if an Event of Default has occurred and is
continuing and only for so long as the Security Trustee is exercising its
foreclosure rights with respect to the Engines and requires use of the Company's
engine stands for transporting such Engines, the Company shall provide the
Security Trustee or its agents or representatives with full and complete access
to the use of the engine stands owned by the Company on which any Engines are
then installed or those which are not otherwise being utilized at the time of
such foreclosure. The Security Trustee agrees to return each such engine stand
used by it promptly after it has transported an Engine using such engine stand
and acknowledges that it has no security interest in any such engine stand.
(b) Notice of Sale. The Security Trustee shall give the Company at
least fifteen (15) days' prior written notice of the date fixed for any public
sale of any Engine or of the date on or after which any private sale will be
held, which notice the Company hereby agrees is reasonable notice, and any such
public sale shall be conducted in general so as to afford the Company a
reasonable opportunity to bid.
Section 4.02. Remedies Cumulative. Each and every right, power and
remedy herein specifically given to the Security Trustee or otherwise in this
Mortgage shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law,
in equity or by statute, and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by the Security
Trustee, and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to exercise at the
time or thereafter any other right, power or remedy. No delay or omission by the
Security Trustee in the exercise of any right, remedy or power or in the
pursuance of any remedy shall impair any such right, power or remedy or be
construed to be a waiver of any default on the part of the Company or to be an
acquiescence therein.
Section 4.03. Discontinuance of Proceedings. If the Security Trustee
shall have proceeded to enforce any right, power or remedy under this Mortgage
by foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, then and in every such case the
Company and the Security Trustee shall be restored to their former positions and
rights hereunder with respect to the property, subject to the Lien of this
Mortgage, and all rights, remedies and powers of the Security Trustee shall
continue, as if no such proceedings had been undertaken (but otherwise without
prejudice).
Section 4.04. Allocation of Payments. Notwithstanding any other
provisions of the Loan Agreement to the contrary, after the occurrence and
during the continuance of an Event of Default, all amounts collected or received
by the Security Trustee or any Lender on account of the Obligations shall be
paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees and
expenses actually incurred) of the Security Trustee in connection with
enforcing the rights of the Security Trustee under the Operative
Documents;
SECOND, to payment of any fees owed to any Transaction Agent;
26
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees and
expenses actually incurred) of each of the Lenders in connection with
enforcing its rights under the Operative Documents or otherwise with
respect to the Obligations owing to such Lender (it being understood,
however, that (i) the Original Series A Lender, the Original Series B
Lender and their respective Affiliates shall use joint counsel, and (ii)
all other Lenders shall use reasonable endeavors to select joint counsel,
but may retain separate counsel if in the reasonable judgment of such
other Lenders joint counsel would not be able to provide effective
representation, whether due to conflicts of interest among such Lenders, a
conflict of interest between the proposed joint counsel's representation
of any Lender and its representation of any other client, or for any other
reason);
FOURTH, to all other Obligations (other than as covered by Clause
"FIFTH", "SIXTH" and "SEVENTH" below) which shall have become due and
payable under the Operative Documents or otherwise and not repaid pursuant
to clauses "FIRST" through "THIRD" above; and
FIFTH, to the payment of all accrued interest on the Obligations;
SIXTH, to the payment of LIBOR Breakage Costs, if any, due under the
Loan Agreement in respect of the Loan;
SEVENTH, to the payment of the outstanding principal amount of the
Loan;
EIGHTH, so long as the Lien of the Subordinated Mortgage has not
been discharged, to the Subordinated Trustee to be held as security under
the Subordinated Mortgage; and
NINTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category and (ii) if amounts available are insufficient to pay all
amounts due within any category, such available amounts shall be paid pro rata
to the parties entitled thereto based upon the amount due under such category to
each such party or, in the case of Clauses FOURTH, FIFTH and SIXTH, applied
among the parties entitled thereto in accordance with written instructions of
the Administrative Agent (as defined in the Loan Agreement).
27
ARTICLE 5.
INTENTIONALLY LEFT BLANK
ARTICLE 6.
SECURITY FUNDS
Section 6.01. Investment of Security Funds. Any monies paid to or
received by the Security Trustee as cash collateral or which are required to be
paid to the Company or applied for the benefit of the Company (including,
without limitation, amounts payable to the Company under Sections 3.04(d),
3.04(f) and 3.05(d) hereof), but which the Security Trustee is entitled to hold
under the terms hereof pending the occurrence of some event or the performance
of some act (including, without limitation, the remedying of an Event of
Default), shall, until paid to the Company or applied as provided herein, be
invested by the Security Trustee at the written authorization and direction of
the Company (or, if an Event of Default shall have occurred and be continuing,
the Security Trustee) from time to time at the sole expense and risk of the
Company in Permitted Investments. All Permitted Investments held by the Security
Trustee pursuant to this Section 6.01 shall either be (a) registered in the name
of, payable to the order of, or specially endorsed to, the Security Trustee or
(b) held in an Eligible Account. At the time of such payment or application,
there shall be remitted to the Company any gain (including interest received)
realized as the result of any such investment (net of any fees, commissions,
other expenses or losses, if any, incurred in connection with such investment)
unless an Event of Default shall have occurred and be continuing. The Security
Trustee shall not be liable for any loss relating to a Permitted Investment made
pursuant to this Section 6.01. The Company will promptly pay to the Security
Trustee, on demand, the amount of any loss (net of any gains, including interest
received) realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in connection with such
investment).
ARTICLE 7.
MISCELLANEOUS
Section 7.01. Termination of Mortgage. Upon (or at any time after)
payment in full of the unpaid principal of, and accrued interest on, the Loans
and all other Obligations then due and payable (and regardless of whether any
Default or Event of Default shall have occurred and be continuing), the Security
Trustee shall, upon the written request of the Company execute and deliver to,
or as directed in writing by, the Company an appropriate instrument (in due form
for recording) releasing the Engines and the balance of the Collateral from the
Lien of this Mortgage and, in such event, this Mortgage shall terminate and this
Mortgage shall be of no further force or effect, provided that the Security
Trustee shall have no obligation to release such Engines and Collateral from the
Lien of this Mortgage or otherwise terminate this Mortgage prior to such payment
in full. Upon any release of an Engine from the Lien of this Mortgage in
accordance with the terms of this Mortgage, the Parts, Engine Documents and
other Collateral referred to in subsections (b), (c), (d) and (e) of Section
2.01 relating to such Engine shall also be released.
28
Section 7.02. Alterations to Mortgage. This Mortgage shall not be
varied except in accordance with the Loan Agreement.
Section 7.03. No Legal Title to Collateral. No Secured Party shall
have legal title to any part of the Collateral. No transfer, by operation of Law
or otherwise, of a Note or any right, title and interest of any Secured Party in
and to the Collateral or this Mortgage shall operate to terminate this Mortgage
or entitle any successor or transferee to an accounting or to the transfer to it
of legal title to any part of the Collateral.
Section 7.04. Sale of the Engines by Security Trustee Is Binding.
Any sale or other conveyance of the Collateral, or any part thereof or any
interest therein by the Security Trustee made pursuant to and in accordance with
the terms of this Mortgage shall bind the Secured Parties, and shall be
effective to transfer or convey all right, title and interest of the Security
Trustee, the Secured Parties and the Company, in and to such Collateral, or such
part thereof or interest therein. No purchaser or other grantee shall be
required to inquire as to the authorization, necessity, expediency or regularity
of such sale or conveyance or as to the application of any sale or other
proceeds with respect thereto by the Security Trustee.
Section 7.05. Benefit of Mortgage. Nothing in this Mortgage, whether
express or implied, shall be construed to give to any Person other than the
Company, the Secured Parties and the Security Trustee any legal or equitable
right, remedy or claim under or in respect of this Mortgage.
Section 7.06. Section 1110 of the Bankruptcy Code. It is the
intention of the parties hereto that the security interest created hereby
entitles the Security Trustee on behalf of the Lenders to all of the benefits of
Section 1110 of Chapter 11 of the Bankruptcy Code in respect of the Specified
Engines in the event the Company becomes a debtor under such Chapter.
Section 7.07. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, any notice or other communication herein required
or permitted to be given shall be in writing and may be personally served or
sent by telefacsimile, United States mail, courier service or overnight delivery
and shall be effective when received addressed:
(i) if to the Company, at its office at
America West Airlines, Inc.
0000 Xxx Xxxxxx Xxxx.
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Vice President and Treasurer
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
email:xxx.xxxx@xxxxxxxxxxx.xxx
29
(ii) if to the Security Trustee, at its office at
MAC: U1228-120
000 Xxxxx Xxxx Xxxxxx,
00xx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Corporate Trust Services
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
email: xxxxxxx.xxxxxx@xxxxxxxxxx.xxx
(iii) if to any Lender, at its address for notices to it provided
under the Loan Agreement,
or, as to any party, at such other address as such party shall from
time to time designate by written notice to the other parties in
accordance with this Section 7.07.
Section 7.08. Severability. Should any one or more provisions of
this Mortgage be determined to be illegal or unenforceable by a court of any
jurisdiction, such provision shall be ineffective to the extent of such
illegality or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provisions in any
other jurisdiction. The Company and the Security Trustee agree, as to such
jurisdiction and to the extent permitted by such jurisdiction's Laws, to replace
any provision of this Mortgage which is so determined to be illegal or
unenforceable by a valid provision which has as nearly as possible the same
effect; provided that such replacement provision shall not expand the Company's
or the Security Trustee's obligations hereunder.
Section 7.09. Separate Counterparts. This Mortgage may be executed
in any number of counterparts (and each of the parties hereto shall not be
required to execute the same counterpart). Each counterpart of this Mortgage
executed by a party hereto shall be an original counterpart of this Mortgage,
and all of such counterparts together shall constitute one instrument.
Section 7.10. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the Company
and its successors and permitted assigns, and the Security Trustee and its
successors and permitted assigns, all as herein provided.
Section 7.11. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 7.12. Governing Law. THIS MORTGAGE IS BEING DELIVERED IN THE
STATE OF NEW YORK AND SHALL IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
30
YORK. The provisions of Sections 9.11 and 9.12 of the Loan Agreement are
incorporated herein by reference, mutatis mutandis.
[Remainder of this page is blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Mortgage to
be duly executed by their respective officers, as the case may be, thereunto
duly authorized, as of the day and year first above written.
AMERICA WEST AIRLINES, INC.
By: /s/ Xxxxxx X. Xxxx
____________________________________
Name: Xxxxxx X. Xxxx
Title: Vice President and Treasurer
XXXXX FARGO BANK NORTHWEST, NATIONAL
ASSOCIATION, as Security
Trustee
By: /s/ Xxxxxxx X. Xxxxxx
____________________________________
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
APPENDIX A
DEFINITIONS RELATING TO THE
MORTGAGE AND SECURITY AGREEMENT
General Provisions
(a) Unless otherwise expressly provided, a reference to:
(i) each of "the Company," "Security Trustee" or any other person
includes, without prejudice to the provisions of any Operative
Document, any successor in interest to it and any permitted
transferee or permitted assignee of it;
(ii) words importing the plural include the singular and words importing
the singular include the plural;
(iii) any agreement, instrument or document, or any annex, schedule or
exhibit thereto, or any other part thereof, includes, without
prejudice to the provisions of any Operative Document, that
agreement, instrument or document, or annex, schedule or exhibit, or
part, respectively, as amended, modified or supplemented from time
to time in accordance with its terms and in accordance with the
Operative Documents, and any agreement, instrument or document
entered into in substitution or replacement therefor;
(iv) any provision of any Law includes any such provision as amended,
modified, supplemented, substituted, reissued or reenacted prior to
the Closing Date, and thereafter from time to time;
(v) the words "Mortgage," "this Mortgage," "hereby," "herein," "hereto,"
"hereof" and "hereunder" and words of similar import when used in
the Mortgage refer to the Mortgage as a whole and not to any
particular provision of the Mortgage;
(vi) the words "including," "including, without limitation," "including,
but not limited to," and terms or phrases of similar import when
used in the Mortgage, with respect to any matter or thing, mean
including, without limitation, such matter or thing; and
(vii) a "Section," an "Exhibit," an "Appendix," an "Annex" or a "Schedule"
referred to in the Mortgage, or in any annex thereto, is a reference
to a section of, or an exhibit, an appendix, an annex or a schedule
to, the Mortgage or such annex, respectively.
(b) Each exhibit, appendix, annex and schedule to the Mortgage is incorporated
in, and shall be deemed to be a part of, the Mortgage.
(c) Headings used in the Mortgage are for convenience only and shall not in
any way affect the construction of, or be taken into consideration in
interpreting, the Mortgage.
APPENDIX A
2
(d) The occurrence and continuance of a Default, Special Default or Event of
Default referred to in Section 7.1 of the Loan Agreement shall not be
deemed to prohibit the Company from taking any action or exercising any
right that is conditioned on no Default, Special Default or Event of
Default having occurred and be continuing if such Default, Special Default
or Event of Default consists of the institution of reorganization
proceedings with respect to the Company under Chapter 11 of the Bankruptcy
Code and the trustee or debtor-in-possession in such proceedings shall
have agreed to perform its obligations under the Mortgage with the
approval of the applicable court and thereafter shall have continued to
perform such obligations in accordance with Section 1110 of the Bankruptcy
Code.
Definitions
"Additional Parts" has the meaning specified in Section 3.03(d) of
the Mortgage.
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling, controlled by or under common control with
such person. For purposes of this definition, "control" means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting securities or
by contract or otherwise and "controlling," "controlled by" and "under common
control with" have correlative meanings.
"Aircraft" means an airframe on which an Engine is then installed.
"Bankruptcy Code" means Title 11 of the United States Code.
"Business Day" means any day except Saturday, Sunday and any day
which shall be in New York City or Phoenix, Arizona a day on which banking
institutions are authorized or required by Law to close.
"Certificated Air Carrier" means a Person holding an air carrier
operating certificate issued by the Secretary of Transportation pursuant to
Chapter 447 of Title 49, United States Code, for aircraft capable of carrying
ten or more individuals or 6,000 pounds or more of cargo.
"Citizen of the United States" has the meaning specified in Section
40102(a)(15) of Title 49 of the United States Code.
"Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet
Program, currently administered by the United States Air Force Military Command
pursuant to Executive Order No. 11490, as amended, or any substantially similar
program.
"Closing Date" means the date on which the Loan is made pursuant to
the Loan Agreement.
"Collateral" has the meaning given such term in Section 2.01 of the
Mortgage.
APPENDIX A
3
"Company" means America West Airlines, Inc., a Delaware corporation.
"Default" means any event which, with the giving of notice, lapse of
time or both would become an Event of Default.
"Designated Date" has the meaning given such term in the Loan
Agreement.
"Disposed Engine" has the meaning set forth in Section 3.04(h).
"Dollars" and "$" means the lawful currency of the United States of
America.
"Eligible Account" means an account established by and with an
Eligible Institution at the request of the Security Trustee, which institution
agrees, for all purposes of the New York UCC including Article 8 thereof, that
(a) such account shall be a "securities account" (as defined in Section 8-501 of
the New York UCC), (b) such institution is a "securities intermediary" (as
defined in Section 8-102(a)(14) of the New York UCC), (c) all property (other
than cash) credited to such account shall be treated as a "financial asset" (as
defined in Section 8-102(9) of the New York UCC), (d) the Security Trustee shall
be the "entitlement holder" (as defined in Section 8-102(7) of the New York UCC)
in respect of such account, (e) it will comply with all entitlement orders
issued by the Security Trustee to the exclusion of the Company, (f) it will
waive or subordinate in favor of the Security Trustee all claims (including
without limitation, claims by way of security interest, lien or right of set-off
or right of recoupment), and (g) the "securities intermediary jurisdiction"
(under Section 8-110(e) of the New York UCC) shall be the State of New York.
"Eligible Institution" means (a) the Security Trustee, acting solely
in its capacity as a "securities intermediary" (as defined in Section 8-102(14)
of the New York UCC), or (b) a depository institution organized under the Laws
of the United States of America or any of the states thereof or the District of
Columbia (or any U.S. branch of a foreign bank), which has a long-term unsecured
debt rating from Moody's and Standard & Poor's of at least A3 or its equivalent.
"Engine" means (a) each of the engines listed in Annex A to each
Mortgage Supplement executed and delivered by the Company pursuant to the Loan
Agreement and (b) any and all Parts. Upon substitution of a Replacement Engine
or an Exchanged Engine in accordance with Section 3.04 of this Mortgage, any
such Replacement Engine or Exchanged Engine shall become subject to the Mortgage
and shall be an "Engine" for all purposes of this Mortgage and the Loan
Agreement. Upon substitution of a Replacement Engine or an Exchanged Engine in
accordance with Section 3.04 of the Mortgage, the Engine released pursuant to
such Section shall no longer be subject to the Mortgage, and such released
Engine shall cease to be an "Engine." Each Engine shall be bare and shall not
include parts associated with any Aircraft.
"Engine Documents" means all technical data, manuals and log books,
and all inspection, modification and overhaul records and other service, repair,
maintenance and technical records that are required by the Company's (or, in the
case of any Engine subject to a Lease, such Lessee's) maintenance program in
accordance with the requirements of the FAA or the JAA, as the case may be, to
be maintained with respect to the Engines or Parts, and such term
APPENDIX A
4
shall include all additions, renewals, revisions and replacements of any such
materials from time to time made, or required to be made, in accordance with FAA
or JAA, as the case may be, regulations, and in each case in whatever form and
by whatever means or medium (including, without limitation, microfiche,
microfilm, paper or computer disk) such materials may be maintained or retained
by or on behalf of the Company (provided, that all such materials shall be
maintained in the English language).
"Event of Default" has the meaning given such term in the Loan
Agreement.
"Event of Loss" means, with respect to any Engine, any of the
following circumstances, conditions or events with respect to such Engine, for
any reason whatsoever:
(a) the destruction of such Engine, damage to such Engine beyond
practical or economic repair or rendition of such Engine permanently unfit
for normal use by the Company;
(b) the actual or constructive total loss of such Engine or any
damage to such Engine, or requisition of title or use of such Engine,
which results in an insurance settlement with respect to such Engine on
the basis of a total loss or constructive or compromised total loss;
(c) any theft, hijacking or disappearance of such Engine for a
period of 180 consecutive days or more;
(d) any seizure, condemnation, confiscation, or taking of, or
requisition of title to, such Engine by any Government Entity or purported
Government Entity (other than a requisition of use by the U.S. Government)
for a period exceeding 180 consecutive days;
(e) any seizure, condemnation, confiscation, taking or requisition
of use of such Engine that continues until the earliest of (i) the date
upon which such Engine is modified, altered or adapted in such a manner as
would render conversion of such Engine for use in normal commercial
passenger service impractical or uneconomical, (ii) the date on which such
Engine is operated or located in any area excluded from coverage by any
insurance policy required to be maintained in respect of such Engine
pursuant to the Mortgage (unless an indemnity in lieu of insurance is
provided to the Security Trustee in accordance with Section 3.05(c) of the
Mortgage) or (iii) the date that is 180 days following the commencement of
such loss of use (unless such loss of use results from action by the U.S.
Government, in which case this clause (iii) shall not apply to such loss
of use); and
(f) as a result of any Law, rule, regulation, order or other action
by the FAA, the use of such Engine in the normal course of the Company's
(or any Lessee's) business of passenger air transportation is prohibited
for a period expiring on the date that is 180 days following commencement
of such prohibition, provided that if the Company (or such Lessee), prior
to the expiration of such 180-day period, shall have undertaken and shall
be diligently carrying forward all steps which are necessary or desirable
to permit the normal use of such Engine by the Company, then the date that
is 18 months
APPENDIX A
5
following commencement of such prohibition; provided that no Event of Loss
shall be deemed to have occurred if such prohibition has been applicable
to the Company's (or such Lessee's) entire U.S. fleet of such property and
the Company (or such Lessee), prior to the expiration of such 18-month
period, shall have conformed at least one unit of such property in its
fleet to the requirements of any such law, rule, regulation, order or
other action and commenced regular commercial use of the same in such
jurisdiction and shall be diligently carrying forward, in a manner which
does not discriminate against such property in so conforming such
property, steps which are necessary or desirable to permit the normal use
of such Engine by the Company (or such Lessee), but in any event if such
use shall have been prohibited for a period of three years.
The date of such Event of Loss shall be the date of such loss, damage, insurance
settlement, seizure, condemnation, confiscation, taking or requisition of title
or use or prohibition, except that, for purposes of clauses (c), (d), (e) and
(f) above, no Event of Loss shall be deemed to have occurred until the date of
expiration of the applicable period referred to therein.
"Exchange Shortfall Amount" has the meaning set forth in Section
3.04(i).
"Exchanged Engine" has the meaning set forth in Section 3.04(g).
"Federal Aviation Act" means Part A of Subtitle VII of Xxxxx 00,
Xxxxxx Xxxxxx Code.
"Federal Aviation Administration" and "FAA" mean the United States
Federal Aviation Administration, and any agency or instrumentality of the United
States government succeeding to its functions.
"Funding Date" has the meaning given to such term in the Loan
Agreement.
"Government Entity" means (a) any federal, state, provincial or
similar government, and any body, board, department, commission, court,
tribunal, authority, agency or other instrumentality of any such government or
otherwise exercising any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other government entity
having jurisdiction over any matter contemplated by the Operative Documents or
relating to the observance or performance of the obligations of any of the
parties to the Operative Documents.
"JAA" means the European Joint Aviation Authorities, and any agency
or instrumentality succeeding to its functions.
"Law" means (a) any constitution, treaty, statute, law, decree,
regulation, order, rule or directive of any Government Entity, and (b) any
judicial or administrative interpretation or application of, or decision under,
any of the foregoing.
"Lease" means any lease permitted by the terms of Section
3.02(a)(vii) or (viii) of the Mortgage.
"Lender" has the meaning given to that term in the Loan Agreement.
APPENDIX A
6
"Lessee" means any lessee permitted by the terms of Section
3.02(a)(vii) or (viii) of the Mortgage.
"Letter of Credit" has the meaning set forth in Section 3.04(i).
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
or security interest affecting the title to or interest in property.
"Loan" has the meaning given to that term in the Loan Agreement.
"Loan Agreement" means the Loan Agreement [Engines], dated as of
September 3, 2004 among the Company, General Electric Capital Corporation, the
Security Trustee and the Lenders from time to time party thereto.
"Maximum Self-Insurance Amount" has the meaning set forth in
Schedule 4 to the Loan Agreement.
"Minimum Liability Amount" has the meaning set forth in Schedule 4
to the Loan Agreement.
"Moody's" means Xxxxx'x Investors Service, Inc.
"Mortgage" means the Engine Mortgage and Security Agreement covering
the Collateral dated as of September 3, 2004, between the Company and the
Security Trustee.
"Mortgage Supplement" means any supplement to the Mortgage from time
to time executed and delivered.
"New York UCC" means the Uniform Commercial Code as in effect in the
State of New York.
"Note" has the meaning given to that term in the Loan Agreement.
"Obligations" means the principal of and interest on the Loan, any
LIBOR Breakage Costs (as defined in the Loan Agreement), the Prepayment Fee (as
defined in the Loan Agreement), if applicable, and all other obligations of
every nature of the Company from time to time owed to the Security Trustee, the
other Secured Parties or any of them under the Loan Agreement or any other
Operative Document.
"Officer's Certificate" means, as to any company, a certificate
signed by the Chairman, any Vice Chairman, the President, any Executive Vice
President, any Senior Vice President, any Vice President, any Assistant Vice
President, the Treasurer, any Assistant Treasurer, the Secretary, or any
Assistant Secretary of such company.
"Operative Documents" means the Loan Agreement, each Note, the
Restructure Letter, the Mortgage and each Mortgage Supplement.
APPENDIX A
7
"Parts" means any and all appliances, parts, instruments,
appurtenances, modules, accessories, and other equipment of whatever nature
which may from time to time be incorporated or installed in or attached to any
Engine or removed therefrom unless the Lien of the Mortgage shall not be
applicable to such Parts in accordance with Section 3.03 of the Mortgage.
"Permitted Air Carrier" means any U.S. Air Carrier or any air
carrier with its principal executive offices in a country listed on Schedule I
to the Mortgage and which is authorized to conduct commercial airline operations
and to operate jet aircraft under the applicable Laws of such country.
"Permitted Disposition" has the meaning set forth in Section
3.04(h).
"Permitted Investments" means (i) securities issued or directly and
fully guaranteed by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), the Federal Home Loan Mortgage
Corporation, the Student Loan Marketing Association and the Federal National
Mortgage Association, in all cases having a maturity of not more than 90 days
or, in the case of auction rate notes issued by any of the foregoing, having an
action reset interval of not more than 30 days; (ii) certificates of deposit,
bankers' acceptances, repurchase agreements or time deposits issued or accepted
or guaranteed by any bank, trust company or national banking association
incorporated under the Laws of the United States of America or one of the states
thereof having combined capital and surplus and retained earnings as of its last
report of condition of at least $500,000,000 and having a rating of Aa or better
by Moody's or AA or better by Standard & Poor's and having a final maturity of
90 days or less from date of purchase thereof; and (iii) commercial paper of any
holding company of a bank, trust company or national banking association
described in (ii) and commercial paper of any corporation or finance company
incorporated or doing business under the Laws of the United States of America or
any state thereof having a rating assigned to such commercial paper of A1 by
Standard & Poor's or P1 by Moody's and having a final maturity of 90 days or
less from the date of purchase thereof; provided that the aggregate amount at
any one time invested in certificates of deposit issued by any one bank shall
not be in excess of 5% of such bank's capital and surplus.
"Permitted Liens" has them meaning given such term in Section 3.01
of the Mortgage.
"Person" has the meaning given to such term in the Loan Agreement.
"Pre-Approved Bank" means any bank organized under the laws of the
United States or any State thereof, or the New York branch of a major
international bank, in each case for only so long as its long-term Dollar
denominated unsecured debt (or if it does not have long-term unsecured Dollar
denominated debt, its parent corporation's long-term unsecured Dollar
denominated debt) carries a rating from Standard & Poor's of A or better.
"Released Engines" has the meaning set forth in Section 3.04(g).
"Replacement Closing Date" has the meaning given such term in
Section 3.04(c) of the Mortgage.
APPENDIX A
8
"Replacement Engine" means an engine substituted for an Engine
pursuant to Section 3.04 of the Mortgage.
"Required LC Expiry Date" means the day that is the ninety-first
(91st) day following the Maturity Date of the Notes issued pursuant to the Loan
Agreement.
"Restructure Letter" means the Restructure Letter [Engines], dated
as of September 3, 2004 between General Electric Capital Corporation and the
Company.
"Secured Parties" means the Lenders, the Security Trustee and the
parties (except the Company) from time to time party to the Restructure Letter.
"Security Trustee" means Xxxxx Fargo Bank Northwest, National
Association, in its capacity as security trustee under the Mortgage.
"Short Time Engine" has meaning set forth in Section 3.04(i).
"Special Default" has the meaning given to that term in the Loan
Agreement.
"Standard & Poor's" has the meaning given to such term in the Loan
Agreement.
"Stipulated Loss Value" means, in the case of each Engine, (i)
Stipulated Loss Value-A" for such Engine (or the Engine that such Engine
replaced) on Schedule 2 to the Loan Agreement, with respect to an Event of Loss
that occurs prior to the Designated Date, and (ii) the "Stipulated Loss Value-B"
for such Engine (or the Engine that such Engine replaced) on Schedule 2 to the
Loan Agreement, with respect to an Event of Loss that occurs on or after the
Designated Date.
"Subordinated Mortgage" has the meaning given to that term in the
Loan Agreement.
"Subordinated Trustee" means the "Security Trustee" as defined in
the Subordinated Mortgage.
"Taxes" has the meaning given to that term in the Loan Agreement.
"Termination Value" means, in the case of each Engine, the
"Termination Value" for such Engine (or the Engine that such Engine replaced) on
Schedule 2 to the Loan Agreement.
"Threshold Amount" has the meaning set forth in Schedule 4 to the
Loan Agreement.
"Transaction Agents" has the meaning given to that term in the Loan
Agreement.
"UCC" or "Uniform Commercial Code" means the Uniform Commercial Code
as in effect in any applicable jurisdiction.
"U.S. Air Carrier" means any Certificated Air Carrier as to which
there is in force an air carrier operating certificate issued pursuant to Part
121 of the regulations under the
APPENDIX A
9
Federal Aviation Act, or which may operate as an air carrier by certification or
otherwise under any successor or substitute provisions therefor or in the
absence thereof.
"U.S. Government" means the federal government of the United States,
or any instrumentality or agency thereof the obligations of which are guaranteed
by the full faith and credit of the federal government of the United States.
"Warranties"" has the meaning given to that term in Section 2.01 of
the Mortgage.
"Wet Lease" means any arrangement whereby the Company or a Lessee
agrees to furnish an Aircraft to a third party pursuant to which such Aircraft
(including any Engines attached thereto) shall at all times be in the
operational control of, and insured by, the Company or such Lessee, provided
that the Company's obligations under the Mortgage shall continue in full force
and effect notwithstanding any such arrangement.
APPENDIX B
INSURANCE
Capitalized terms used but not defined herein shall have the
respective meanings set forth or incorporated by reference in Appendix A to the
Mortgage.
A. BODILY INJURY LIABILITY AND PROPERTY DAMAGE LIABILITY INSURANCE.
1. Except as provided in paragraph 2 of this Section A, and subject
to the self insurance to the extent permitted by Section D hereof, the Company
will at all times carry and maintain or cause to be carried and maintained, at
no expense to the Security Trustee, on a non-discriminatory basis, comprehensive
airline liability insurance, including passenger legal liability, bodily injury
liability, products liability, property damage liability and contractual
liability (exclusive of manufacturer's product liability insurance) with respect
to the Aircraft and the Engines (a) in an amount per occurrence not less than
the greater of (x) the amount of comprehensive airline legal liability insurance
from time to time applicable to aircraft owned or leased and operated by the
Company of the same type and operating on similar routes as the Aircraft and (y)
the Minimum Liability Amount, (b) of the type and covering the same risks as
from time to time applicable to aircraft operated by the Company (or any lessee
to whom such Engine is leased under and in accordance with Section 3.02(a)(viii)
hereof, a "Permitted Lessee") of the same type which comprise the Company's (or
such Permitted Lessee's) fleet and (c) which is maintained in effect with
insurers or reinsurers of recognized responsibility. The Company shall maintain
cargo liability insurance in an amount not less than the amount of cargo
liability insurance maintained for other aircraft operated by the Company. Such
insurance shall in any event include cover for war risks and allied perils
liability insurance in accordance with London form AVN52D as in effect on
September 1, 2004 or its substantive equivalent, or in the case that such
coverage is maintained through the FAA, Chapter 443 of Title 49 of the United
States Code as in effect on September 1, 2004, and such war risks and allied
perils liability insurance shall be for an amount not less than the greater of
(i) the Minimum Liability Amount and (ii) the amount carried by the Company in
respect of similar aircraft owned or otherwise operated by the Company.
2. During any period that the Aircraft or an Engine is on the ground
and not in operation, the Company may carry or cause to be carried, in lieu of
the insurance required by paragraph 1 above, and subject to the self-insurance
to the extent permitted by Section D hereof, insurance otherwise conforming to
the provisions of said paragraph 1 except that (a) the amounts of coverage shall
not be required to exceed the amounts of bodily injury liability and property
damage liability insurance from time to time applicable, in the case of the
Aircraft, to aircraft owned or leased by the Company (or any Permitted Lessee)
of the same or similar type as the Aircraft which comprise the Company's (or
such Permitted Lessee's) fleet, or, in the case of an Engine, to engines owned
or operated by the Company (or such Permitted Lessee) of the same type as such
Engine, and in any such case which are on the ground and not in operation and
(b) the scope of the risks covered and the type of insurance shall be consistent
with industry practice for airlines operating only similarly-sized equipment on
similar routes and the same as from time to time shall be applicable, in case of
Aircraft, to aircraft owned or leased by the Company (or any Permitted Lessee)
of the same or similar type which comprise the Company's (or such Permitted
Lessee's) fleet, or in the case of an Engine, to engines owned or operated by
APPENDIX B
2
the Company (or such Permitted Lessee) of the same type as such Engine, and in
any case which are on the ground and not in operation.
B. INSURANCE AGAINST LOSS OR DAMAGE TO THE AIRCRAFT OR THE ENGINES.
1. Except as provided in paragraph 2 of this Section B, and subject
to the provisions of Section D hereof permitting self-insurance, the Company
shall at all times carry and maintain or cause to be carried and maintained in
effect with insurers or reinsurers of recognized responsibility (i) "all risk"
aircraft hull insurance covering the Aircraft and the Engines, (ii) fire,
transit and extended coverage of Engines and Parts while removed from the
Aircraft and not replaced by similar components, and (iii) war risk and allied
perils insurance, including governmental confiscation and expropriation (other
than by the government of registry of the Aircraft) and hijacking insurance
(collectively, "WAR RISK INSURANCE") as contained in London form LSW 555B or its
substantive equivalent, or in the case that such insurance is maintained through
the FAA, Chapter 443 of Ttile 49 of the United States Code as in effect on
September 1, 2004; provided, further, that the foregoing insurance shall at all
times while the Engines are subject to this Mortgage be for an amount (taking
into account self-insurance to the extent permitted by Section D) in the
aggregate applicable to all the Engines not less than the Stipulated Loss Value
of the Engines, and that when any Engine is installed on an Aircraft, the agreed
value of that Aircraft under the relevant policy shall be automatically
increased by the amount of the Stipulated Loss Value of such Engine.
All losses will be adjusted with the insurers by the Company (giving
due regard to the interest of the Security Trustee). However, in the event an
Event of Default has occurred and is continuing, all losses will be adjusted
among the Company, the insurers and the Security Trustee.
As between the Security Trustee and the Company, the insurance
payments for any property damage loss to any Engine not constituting an Event of
Loss with respect thereto shall be paid, to the extent such proceeds are not
paid by the insurer(s) directly to the person effecting the repair, as follows:
all proceeds less than or equal to the Threshold Amount shall be paid to the
Company (or any Permitted Lessee if directed by the Company), and all proceeds
greater than the Threshold Amount shall be paid to the Security Trustee, to be
held as collateral security for the Obligations, and applied to reimburse the
Company for accomplishing repairs and/or replacements as required, or to pay
suppliers directly for such repairs and/or replacements as directed by the
Company (or any Permitted Lessee if directed by the Company). In the case of any
payment to the Security Trustee (other than in respect of an Event of Loss of an
Engine), the Security Trustee shall, upon receipt of evidence reasonably
satisfactory to it that the damage giving rise to such payment shall have been
repaired or that such payment shall then be required to pay for repairs then
being made, pay the amount of such payment, and any interest or income earned
thereon, to the Company or its order.
2. During any period that an Aircraft or an Engine is on the ground
and not in operation, the Company may carry or cause to be carried, in lieu of
the insurance required by paragraph 1 above, and subject to the self-insurance
to the extent permitted by Section D hereof, insurance otherwise conforming with
the provisions of said paragraph 1 except that the scope of the risks and the
type of insurance shall be consistent with industry practice for airlines
operating
APPENDIX B
3
only similar-sized equipment on similar routes the same as from time to time
applicable to aircraft and engines owned or leased and operated by the Company
(or any Permitted Lessee) of the same or similar type which comprise the
Company's (or such Permitted Lessee's) fleet similarly on the ground and not in
operation, provided that, subject to the self-insurance to the extent permitted
by Section D hereof, the Company shall maintain or cause to be maintained
insurance against risk of loss or damage to each Engine in an amount at least
equal to the Stipulated Loss Value of such Engine during such period that such
Engine is on the ground and not in operation.
C. Reports, Etc. The Company will furnish, or cause to be furnished,
to the Security Trustee on or before the Closing Date and annually on or before
the renewal dates of the Company's (or the Permitted Lessee's) relevant
insurance policies required hereunder, a report, signed by any reputable
recognized independent firm of insurance brokers selected by the Company, which
brokers may be regularly retained by the Company or any Permitted Lessee (the
"INSURANCE BROKER"), describing in reasonable detail the hull and liability
insurance then carried and maintained with respect to the Aircraft and the
Engines and stating the opinion of such firm that, to its knowledge, such
insurance complies with the terms of this Appendix B. Such information shall
remain confidential as provided in Section 9.9 of the Loan Agreement. The
Company will cause such Insurance Broker to agree to advise the Security Trustee
in writing of any default in the payment of premium and to advise the Security
Trustee at least thirty (30) days (seven (7) days in the case of War Risk
Insurance and ten (10) days in the case of nonpayment of premium) prior to the
cancellation or material adverse change of any insurance maintained pursuant to
this Appendix B, provided that, in respect of the War Risk Insurance, the
Insurance Broker shall provide for such shorter period as may be obtainable in
the international insurance market. In the event that the Company shall fail to
maintain or cause to be maintained insurance as herein provided, the Security
Trustee may, at its sole option, provide such insurance and, in such event, the
Company shall, upon demand, reimburse the Security Trustee for the cost thereof.
D. Self-Insurance. The Company may self-insure, by way of
deductible, premium adjustment provisions in insurance policies, or otherwise,
under a program applicable to all aircraft in the Company's fleet, the risks
required to be insured against pursuant to Sections A and B hereof but in no
case shall the self-insurance with respect to all of the aircraft in the
Company's fleet (including, without limitation, the Aircraft and the Engines)
exceed the lesser of (x) 50% of the largest replacement value of any single
aircraft in the Company's fleet or (y) 1.5% of the average aggregate insurable
value (during the preceding calendar year) of all aircraft on which the Company
carries insurance, unless the Insurance Broker shall certify that the standard
among major U.S. airlines is a higher level of self-insurance, in which case the
Company may self-insure the Aircraft and the Engines to such higher level.
Notwithstanding the foregoing, the insurance required by Section B.1(i) hereof
may be subject to a per occurrence deductible. With respect to the Aircraft and
the Engines when on-wing, such deductible shall be no greater than the Maximum
Self-Insurance Amount for any one occurrence. Said deductible shall not apply in
the case of a total loss of the Aircraft.
E. Terms of Insurance Policies. Any policies carried in accordance
with Sections A and B hereof covering the Aircraft and the Engines, and any
policies taken out in substitution or replacement for any such policies, as
applicable, (1) shall name the Security
APPENDIX B
4
Trustee and each other Secured Party (the "Additional Insureds") as additional
insureds, as their interests may appear, (2) in the case of hull insurance,
shall name the Security Trustee as sole loss payee to the extent provided in
clause (12) below, (3) may provide for self-insurance to the extent permitted in
Section D, (4) shall provide that if the insurers cancel such insurance for any
reason whatsoever, or the same is allowed to lapse for nonpayment of premium or
if any material change is made in the insurance which adversely affects the
interest of any Additional Insured, such cancellation, lapse, or change shall
not be effective as to the Additional Insureds for thirty (30) days (or ten (10)
days in the case of nonpayment of premium) after issuance to (but, in the case
of War Risk Insurance, seven (7) days after sending to) the Additional Insureds
of written notice by such insurers of such cancellation or change, provided,
however, that if, the Company's War-Risk Insurance provider does not provide for
provision of direct notice to Additional Insureds of cancellation, change or
lapse in the insurance required hereunder, the Company hereby agrees that, upon
receipt of notice (including any notice by publication, if applicable) of any
cancellation, change or lapse thereof from such insurance provider it shall give
the Additional Insureds immediate notice of each cancellation or lapse and
prompt notice of each change of such insurance, (5) shall provide that in
respect of the Additional Insureds' respective interests in such policies the
insurance shall not be invalidated by any action or inaction of the Company (or
any Permitted Lessee) and shall insure the respective interests of the
Additional Insureds regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the Company (or any
Permitted Lessee), (6) in the case of liability insurances, shall be primary
without any right of contribution from any other insurance which is carried by
any Additional Insured, (7) in the case of liability insurances, shall expressly
provide that all of the provisions thereof, except the limits of liability,
shall operate in the same manner as if a separate policy covered each insured,
(8) shall waive any right of subrogation of the insurers or any right of the
insurers to set-off or counterclaim or any other deduction, whether by
attachment or otherwise, in respect of any liability of any Additional Insured,
(9) shall provide that losses (other than for total loss of an Engine) shall be
adjusted with the Company (or, if an Event of Default or Special Default shall
have occurred which is continuing, with the Security Trustee), (10) shall
provide that the Additional Insureds are not liable for any insurance premiums,
(11) shall be effective with respect to both domestic and international
operations, (12) shall provide that (i) except as specified in clause (iii)
below, in the event of a loss involving proceeds in excess of the Threshold
Amount, all proceeds in respect of such loss up to the amount of Stipulated Loss
Value for an affected Engine shall, to the extent such proceeds are not paid by
the insurer(s) directly to the person effecting the repair, be payable to the
Security Trustee to be held by the Security Trustee (whether such payment is
made to the Company (or any Permitted Lessee) or any third party), it being
understood and agreed that in the case of any payment to the Security Trustee
otherwise than in respect of an Event of Loss of the Engine, the Security
Trustee shall, upon receipt of evidence reasonably satisfactory to it that the
damage giving rise to such payment shall have been repaired or that such payment
shall then be required to pay for repairs then being made or the replacement of
the Engine suffering the Event of Loss, pay the amount of such payment, and any
interest or income earned thereon, to the Company or its order, (ii) except as
specified in the following clause (iii), all proceeds equal to or less than the
Threshold Amount (regardless of the total amount of proceeds resulting from such
loss) and any proceeds of any loss in excess of Stipulated Loss Value for the
Engine suffering such loss shall be paid to the Company or its order and (iii)
notwithstanding anything to the contrary contained in the preceding clauses (i)
and (ii), if a Special Default shall have
APPENDIX B
5
occurred and be continuing and the insurers have been notified thereof by the
Security Trustee, all proceeds of loss (other than in excess of the Stipulated
Loss Value) shall be paid to the Security Trustee, (13) if separate hull and war
risk coverage is maintained, shall contain a 50/50 clause in accordance with AVS
103, (14) shall operate on a worldwide basis subject to certain territorial
restrictions which are usual and customary in the War Risks market from time to
time and (15) shall contain a provision entitling the Security Trustee to
initiate a claim if an Event of Default shall be continuing.
F. Reinsurance. The Company shall procure that in respect of insurances
maintained by the Company in accordance with the provisions in this Appendix B
the insurers shall maintain, if such insurances do not provide for direct
coverage in the markets hereafter referred to, reinsurance covering identical
subject matter and risk for an amount which shall not be less than 100% of the
coverage amount under Sections A and B hereof in Lloyd's of London or other
internationally recognized aviation insurance and/or reinsurance markets. Such
reinsurance shall contain a customary "cut-through" endorsement and shall
provide that any payment by the reinsurers shall be made notwithstanding any
bankruptcy, insolvency or liquidation of the original insurer and/or that the
original insurer has made no payment under the original policies.
EXHIBIT A
MORTGAGE AND SECURITY
AGREEMENT SUPPLEMENT NO. __
Mortgage and Security Agreement Supplement No. __ dated _________,
20__ ("MORTGAGE SUPPLEMENT") of AMERICA WEST AIRLINES, INC. (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Engine Mortgage and Security Agreement, dated as of
September 3, 2004 (the "MORTGAGE"), between the Company and Xxxxx Fargo Bank
Northwest, National Association (the "SECURITY TRUSTEE"), provides for the
execution and delivery of supplements thereto substantially in the form hereof
which shall particularly describe the Engines (such term and other defined terms
in the Mortgage being used herein with the same meanings);
NOW, THEREFORE, this Mortgage Supplement WITNESSETH that the Company
hereby confirms that the Lien of the Mortgage on the Collateral covers all of
the Company's right, title and interest in and to the property described on
Annex A hereto.
To have and to hold all and singular the aforesaid property unto the
Security Trustee, its successors and assigns, for the benefit, security and
protection of the Security Trustee, and for the uses and purposes and subject to
the terms and provision set forth in the Mortgage.
This Mortgage Supplement shall be construed as supplemental to the
Mortgage and shall form a part thereof, and the Mortgage is hereby incorporated
by reference herein and is hereby ratified, approved and confirmed.
IN WITNESS WHEREOF, the Company has caused this Mortgage Supplement
No. __ to be duly executed by one of its duly authorized officers, as of the day
and year first above written.
AMERICA WEST AIRLINES, INC.
By:________________________________________________
Name:
Title:
EXHIBIT A
This Letter of Credit is transferable and constitutes an obligation to make
payment against documents.
(1) Except as provided above, this Letter of Credit is issued subject to the
Uniform Customs and Practice for Documentary Credits (1993 Revision)
International Chamber of Commerce Publication No. 500 and is governed by New
York law. Unless you otherwise require, any disputes arising out of or in
connection with this letter of credit shall be resolved before the United States
District Court for the Southern District of New York and any New York state
court sitting in the County of New York, New York, and all related appellate
courts.
All bank charges, including, but not by way of limitation, fees or commissions,
shall be for the applicant's account.
--------------
(1) Alternatively where bank wants to use ISP 98: Except as provided above, this
Letter of Credit is issued subject to the International Standby Practices 1998
and is governed by New York law. Unless you otherwise require, any disputes
arising out of or in connection with this letter of credit shall be resolved
before the United States District Court for the Southern District of New York
and any New York state court sitting in the County of New York, New York, and
all related appellate courts.
ANNEX A TO
MORTGAGE SUPPLEMENT
DESCRIPTION OF ENGINES
ENGINES
Manufacturer Model Manufacturer's Serial No.
Each engine is of 750 or more "rated take-off horsepower" or the equivalent of
such horsepower.
EXHIBIT B
EXHIBIT B
FORM OF LETTER OF CREDIT
Xxxxx Fargo Bank Northwest, National Association,
as Security Trustee
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxxx Xxxx Xxxx, XX 00000
Dated _________
This Letter of Credit is provided pursuant to the Engine Mortgage and Security
Agreement dated as of September 3, 2004 between America West Airlines, Inc. ,
and Xxxxx Fargo Bank Northwest, National Association, as Security Trustee (the
"SECURITY TRUSTEE"). This letter of credit however creates primary obligations
on us and is independent from the mortgage.
On the instructions of America West Airlines, Inc. and for its account, we
hereby establish this irrevocable Letter of Credit to authorize the Security
Trustee, to draw on [APPROPRIATE BRANCH/DEPARTMENT DETAILS/ADDRESS OF ISSUING
BANK] an amount or amounts not exceeding a total of USD [AMOUNT IN FIGURES
(AMOUNT IN WORDS] United States Dollars) upon receipt by us of a signed demand
certificate from you in the following format (with the square bracketed sections
completed):
"The undersigned as an authorized signatory or representative of the Security
Trustee hereby draws upon your irrevocable Letter of Credit dated [DATE OF THIS
LETTER OF CREDIT] and instructs you to transfer US$ [AMOUNT IN FIGURES] ([AMOUNT
IN WORDS] United States Dollars) to [INSERT APPROPRIATE BANK DETAILS]
immediately."
We will honor drawings under this Letter of Credit upon our receipt of such a
demand certificate (by facsimile to fax number: [BANK FAX NUMBER], mail, courier
service or by hand) and will make payment to the account specified in the demand
certificate, for value no later than close of business on the next succeeding
banking day following our receipt of the demand certificate. If any drawing
hereunder does not conform with these terms, we shall promptly notify you of
that, state the reason(s) why and hold the document(s) presented at your
disposal (or return them to you if you so request).
Partial drawings are permitted.
This letter of credit expires on [INITIAL EXPIRY DATE] ("Expiry Date") but shall
be automatically extended, without the need for amendment, for one year from the
said Expiry Date and annually thereafter unless at least 60 days prior to the
then applicable Expiry Date we have notified you by registered mail that we will
not renew the letter of credit for the following year.
SCHEDULE I
PERMITTED COUNTRIES
Argentina Indonesia Poland
Australia Ireland Portugal
Austria Italy*
Singapore
Bahamas Jamaica Slovakia*
Belgium Japan South Africa
Brazil Jordan South Korea
Sweden
Canada Kuwait Switzerland
Chile
Cyprus* Luxembourg Trinidad and Tobago
Czech Republic Tunisia
Malaysia
Denmark Malta United Kingdom
Mexico Uruguay*
France
Netherlands* Venezuela*
Germany New Zealand
Greece Norway
Hungary Paraguay*
People's Republic of China
Iceland Philippines
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*Notwithstanding anything to the contrary set forth elsewhere in this Mortgage,
a lease of any Engine to an operator domiciled in any of these jurisdictions
shall be permitted only if (i) the Company and International Aero Engines, Inc.
(IAE) shall have entered into a lease with respect to such Engine that is fully
recourse to IAE, and (ii) the lease of such Engine to the operator is a sublease
from IAE to such operator. For the avoidance of doubt, with respect to any such
arrangement, IAE, and not the operator, would be deemed the "Lessee" or
"Permitted Lessee" as such terms are used in this Mortgage.
