EXECUTION COPY
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION IN A CONFIDENTAL TREATMENT REQUEST UNDER RULE 24b-2 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE SYMBOL "[***]" IN THIS EXHIBIT INDICATES THAT
INFORMATION HAS BEEN OMITTED.
MORTGAGE AND SECURITY AGREEMENT
Dated as of February 14, 2003
made by
Frontier Airlines, Inc.
in favor of
Xxxxx Fargo Bank Northwest, N.A.,
as the Collateral Agent
TABLE OF CONTENTS
Page
Article 1 DEFINITIONS..............................................................................6
Section 1.01 Definitions...................................................................6
Article 2 COVENANTS OF THE COMPANY................................................................12
Section 2.01 Maintenance and Operation; Possession; Insignia....................... ......12
Section 2.02 Replacement and Pooling of Parts; Alterations, Modifications and Additions...17
Section 2.03 Use, Possession and Designated Locations of Spare Parts and Pledged
Equipment....................................................................18
Section 2.04 Insurance....................................................................20
Section 2.05 Inspection...................................................................24
Section 2.06 Pledged Equipment/Tax Receivable.............................................25
Section 2.07 Liens........................................................................26
Section 2.08 Further Assurances...........................................................26
Article 3 EVENT OF LOSS...........................................................................26
Section 3.01 Event of Loss; Application of Payments and Proceeds..........................26
Article 4 REMEDIES................................................................................31
Section 4.01 Remedies Available to Collateral Agent.......................................31
Section 4.02 Expenses.....................................................................34
Section 4.03 Waiver of Claims.............................................................35
Section 4.04 Discontinuance of Proceedings................................................35
Article 5 TERMINATION OF SECURITY AGREEMENT.......................................................36
Section 5.01 Termination of Security Agreement............................................36
Article 6 MISCELLANEOUS...........................................................................36
Section 6.01 Notices......................................................................36
Section 6.02 Governing Law................................................................37
Section 6.03 Execution in Counterparts....................................................37
Section 6.04 Amendments...................................................................37
Section 6.05 Documentation................................................................37
Section 6.06 Prepayment Account...........................................................37
Section 6.07 Cash Collateral..............................................................38
EXHIBITS
Exhibit A1........Form of Mortgage and Security Agreement Supplement (Spare Engine)
Exhibit A2........Form of Mortgage and Security Agreement Supplement (Spare Parts)
Exhibit B.........Schedule of Spare Engines
Exhibit C.........Designated Locations
Exhibit D.........Schedule of Countries Authorized for Domicile of Permitted Lessees
MORTGAGE AND SECURITY AGREEMENT
This MORTGAGE AND SECURITY AGREEMENT (as amended, modified, restated or otherwise
supplemented from time to time in accordance with the terms hereof, this "Security Agreement")
dated as of February 14, 2003 is made by Frontier Airlines, Inc., a Colorado corporation (the
"Company") in favor of Xxxxx Fargo Bank Northwest, N.A., acting solely in its capacity as
Collateral Agent for the Board, the Lenders and the Supplemental Guarantors (as such terms are
defined in the Loan Agreement (as defined below)) and as directed by the Board and the Lenders
(the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, all capitalized terms used and not otherwise defined herein shall have the
respective meanings set forth or referred to in ARTICLE 1 hereof;
WHEREAS, the Company is an air carrier certificated under Sections 41102 and 44705 of
Title 49 of the United States Code and holds air carrier operating certificates;
WHEREAS, the Company, the Lenders, BearingPoint, Inc., as Loan Administrator, the
Collateral Agent, WestLB AG, as Agent, and Air Transportation Stabilization Board are parties
to a Loan Agreement dated as of February 14, 2003 (as amended, modified, restated or otherwise
supplemented from time to time in accordance with its terms, the "Loan Agreement") providing,
subject to the terms and conditions thereof, for a single term loan (the "Loan") to be made by
such lenders;
WHEREAS, it is a condition precedent to the making of the Loan that the Company shall
have executed and delivered to the Collateral Agent this Security Agreement;
WHEREAS, the Company wishes to execute this Security Agreement to satisfy the
condition described in the preceding paragraph and to grant certain first priority perfected
security interests in the Collateral in favor of the Collateral Agent for the ratable benefit
and security of the Board and the Lenders; and
WHEREAS, all things necessary to make this Security Agreement the legal, valid and
binding obligation of the Company and the Collateral Agent, for the uses and purposes herein
set forth, in accordance with its terms, have been done and performed and have happened;
GRANTING CLAUSE
NOW, THEREFORE, THIS MORTGAGE AND SECURITY AGREEMENT WITNESSETH, that, to secure the
prompt payment of the principal of, interest on, and all other amounts due with respect to, the
Loan and to secure the performance and observance by the Company under the Loan Agreement of
all the agreements, covenants and provisions contained herein, in the Loan Agreement and in the
other Loan Documents, and the prompt payment of any and all amounts from time to time owing
hereunder, under the Loan Agreement and the other Loan Documents, and for the uses and purposes
and subject to the terms and provisions hereof, and in consideration of the premises and of the
covenants herein contained, and of other good and valuable consideration the receipt and
adequacy whereof are 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 Collateral Agent, its
successors and assigns, for the ratable security and benefit of the Board, the Lenders and the
Supplemental Guarantors, a security interest in and mortgage Lien on all estate, right, title
and interest of the Company in, to and under the following described property, rights,
interests and privileges ownership of which is now held or hereafter acquired by the Company,
and wherever located (which collectively, including all property hereafter specifically
subjected to the Lien of the Security Documents by any instrument supplemental hereto, are
herein called the "Collateral"):
(1) each Spare Engine (each such Spare Engine having 750 or more rated
take-off horsepower or the equivalent thereof) as the same is now and will hereafter
be constituted, whether now owned or hereafter acquired, and whether or not any such
Spare Engine shall be installed in or attached to any airframe and all substitutions
or replacements therefor, as provided in this Security Agreement, together with all
Parts of whatever nature which are from time to time included in the "Spare Engines",
whether now owned or hereafter acquired, and all renewals, substitutions,
replacements, additions, improvements, accessories and accumulations with respect to
any of the foregoing;
(2) all Spare Parts, whether now owned or hereafter acquired by the
Company, including any replacements, substitutions or renewals therefor, and
accessions thereto, including but not limited to those spare parts located at the
Designated Locations described on Exhibit C attached hereto and incorporated herein by
reference or any supplement or amendment thereto supplied hereunder or in any Security
Agreement Supplement (Spare Parts) executed and delivered from time to time hereunder;
(3) without limiting the generality of the foregoing, all requisition
proceeds (including, without limitation, all payments and proceeds or other revenues
or income under the Civil Reserve Air Fleet Program) with respect to any Spare Engine,
any Spare Part or any Part thereof and all insurance proceeds with respect to any loss
of or damage to any Spare Engine, any Spare Part or any Part thereof from insurance
required to be maintained by the Company under SECTION 2.04, but excluding any
insurance maintained by the Company and not required under SECTION 2.04 and all
proceeds from the sale or disposition of any Spare Engine, Spare Part or any Part
thereof or any other property described in any paragraph of this Granting Clause;
(4) the Purchase Agreements and the Warranty Bills of Sale;
(5) the rights of the Company under any warranty, indemnity or agreement,
express or implied, regarding title, materials, workmanship, design or patent
infringement or related matters in respect of any Spare Part, Spare Engine or any Part
thereof (other than a warranty, indemnity or other such agreement which, by its terms,
cannot be transferred or encumbered without resulting in its termination or causing a
default or breach thereunder);
(6) all repair, maintenance and inventory records, logs, manuals and all
other documents and materials similar thereto (including, without limitation, any such
records, logs, manuals, documents and materials that are in electronic format or are
computer print-outs) at any time maintained, created or used by the Company, and all
records, logs, documents and other materials required at any time to be maintained by
the Company pursuant to the FAA or under the Federal Aviation Act, in each case with
respect to any Spare Engine or any Part thereof or any of the Spare Parts ("Records");
(7) all Pledged Equipment, in each case, whether now owned or existing or
hereafter acquired or arising, and all proceeds, products, accessions, rents, profits,
income, benefits, indemnification and insurance proceeds, substitutions and
replacements of and to any of such Collateral and, to the extent related to such
Collateral, all books, correspondence, credit files, records, invoices and other
papers (including, without limitation, all tapes, cards, computer runs and other
papers and documents in the possession or under the control of the Company or any
computer bureau or service company from time to time acting for the Company);
(8) all moneys and securities now or hereafter paid or deposited or
required to be paid or deposited to or with the Collateral Agent by or for the account
of the Company pursuant to any term hereof or of any other Loan Document and held or
required to be held by the Collateral Agent hereunder or thereunder;
(9) the Pledged Tax Receivable;
(10) all right, title, interest, claims and demands of the Company, in, to
and under any lease of any Spare Engines (other than indemnity claims thereunder
personal to the Company as lessor and proceeds of insurance with respect to
third-party liability claims);
(11) the Prepayment Account and all monies, Cash Equivalents and other
amounts on deposit therein, and earnings thereon; and
(12) all proceeds (including, without limitation, Proceeds) of the
foregoing (other than proceeds or Proceeds of insurance maintained by the Company and
not required under SECTION 2.04).
HABENDUM CLAUSE
TO HAVE AND TO HOLD all and singular the aforesaid property unto the Collateral Agent,
its successors and assigns, and for the uses and purposes and subject to the terms and
provisions set forth in this Security Agreement.
(1) It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Company shall remain liable under each of the Assigned Documents to which
it is a party to perform all of the obligations assumed by it thereunder, all in accordance
with and pursuant to the terms and provisions thereof, and the Collateral Agent shall have no
obligation or liability under any of the Assigned Documents by reason of or arising out of the
assignment hereunder, nor shall the Collateral Agent be required or obligated in any manner to
perform or fulfill any obligations of the Company under any of the Assigned Documents to which
the Company is a party, 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.
(2) The Company does hereby constitute the Collateral Agent as its true and
lawful attorney, irrevocably, for good and valuable consideration and coupled with an interest
and with full power of substitution (in its name or otherwise) subject to the terms and conditions
of this Security Agreement, to ask, require, demand, receive, xxx for, compound and give
acquittance for any and all moneys and claims for moneys due and to become due to it under or
arising out of the Loan Documents, to endorse any checks or other instruments or orders in
connection therewith, to file any claims or take any action or institute any proceedings which
the Collateral Agent may deem to be necessary or advisable in the premises as fully as the
Company itself could do; provided that the Collateral Agent shall not exercise any of such
rights except upon the occurrence and during the continuance of an Event of Default.
(3) The Company agrees that at any time and from time to time, at its sole
cost and expense, upon the written request of the Collateral Agent, it will promptly and duly
execute, deliver, file and record (as applicable) any and all such further agreements,
certificates, instruments and documents as may be necessary or desirable or which the
Collateral Agent may reasonably request in order to create, preserve, perfect, confirm or
validate the security interests in the Collateral or to enable the Collateral Agent to obtain
the full benefits of this Security Agreement and the other Security Documents or to enable the
Collateral Agent lawfully to enforce any of its rights, powers, and remedies hereunder or
thereunder with respect to any of the Collateral, including, without limitation, to enable the
Collateral Agent to comply with 31 X.X.X.xx. 3727 in respect of an assignment of the Pledged Tax
Receivable to the Collateral Agent, it being acknowledged and agreed that the Collateral Agent
is expressly authorized to unilaterally exercise or cause to be exercised any and all rights of
a secured party hereunder or under applicable law, including the filing of UCC financing
statements (or amendment thereto) in respect of any of the Collateral. Notwithstanding any
contrary provision in this Security Agreement or the other Security Documents, the Company
shall not be obligated to perfect the security interest of the Collateral Agent in Motor
Vehicles for which the Company has a certificate of title and which are a part of the Pledged
Equipment except as follows: the Company will cause the Lien of the Collateral Agent to be
perfected on any Motor Vehicle acquired: (a) after the date of this Security Agreement at a
cost in excess of $50,000; (b) at any time while the aggregate book value of all of Motor
Vehicles on which the Collateral Agent does not have a perfected Lien, net of depreciation and
as determined in accordance with GAAP, exceeds $200,000 or (c) while an Event of Default or
Specified Default exists. In addition, the Company, at the request of the Collateral Agent
made at any time after the occurrence of and during the continuance of any Event of Default or
Specified Default, shall cause the Lien of the Collateral Agent to be perfected on all Motor
Vehicles.
(4) The Company does hereby warrant and represent that (a) it has not
assigned or pledged, and hereby covenants that it will not (i) assign or pledge to any Person
other than the Collateral Agent, so long as the Lien of the Security Documents has not been
discharged in accordance with the terms hereof, any of its rights, titles or interests hereby assigned
(including, with respect to the Pledged Tax Receivable, any rights of the Company under any
supporting obligation, instrument or other document evidencing or supporting its right to
payment in respect of the Pledged Tax Receivable) and (ii) subject to the provisions of the
Loan Agreement, except as provided hereunder or except in a manner that does not adversely
affect the Collateral Agent, the Board and the Lenders, (A) enter into any agreement amending
or supplementing any Assigned Document, (B) execute any waiver or modification of, or consent
under, the terms of, or during the continuance of an Event of Default, exercise any rights,
powers or privileges under, any Assigned Document, or (C) during the continuance of an Event of
Default, settle or compromise any claim arising under any Security Document, submit or consent
to the submission of any dispute, difference or other matter arising under or in respect of any
Security Document, or to arbitration thereunder; (b) all of the Spare Parts are or will (upon
becoming subject to the Lien of the Security Documents) be maintained by or on behalf of the
Company at the Designated Locations, subject to SECTION 2.03 hereof; (c) Exhibit C sets forth a
true and complete list of all locations at which the Company maintains Spare Parts; (d) the
Company has full power, authority and legal right to assign and pledge all of the Collateral,
and the Company owns and has good and marketable title to the Collateral now subject to the
Lien of the Security Documents, free and clear of any Liens, except for Permitted Liens; (e)
the Company's location (as such term is used in Section 9-307 of the UCC) is Colorado, and the
full and correct legal name and mailing address of the Company are correctly set forth in Annex
A to the Loan Agreement; (f) except for (x) the filing of a UCC-1 financing statement with the
Secretary of State of Colorado naming the Company as Debtor and the Collateral Agent as Secured
Party in respect of the Collateral, (y) the filing for recordation of this Agreement with the
FAA and (z) in respect of any Motor Vehicle, endorsing on the certificate of title therefor the
Lien of the Collateral Agent thereon, no registration, recordation or filing with any
Governmental Authority is required in connection with the execution and delivery of this
Security Agreement and the other Security Documents or is necessary for the validity or
enforceability hereof or thereof or for the perfection or enforcement of the security interests
created hereunder or thereunder; and (g) upon the filing of the UCC-1 financing statement
referred to in clause (f)(x) above, the filing for recordation of this Security Agreement with
the FAA and the endorsement on the certificate of title in respect of any Motor Vehicle the
Lien of the Collateral Agent thereon, subject to the penultimate sentence of Habendum Clause
(3), the security interest granted to the Collateral Agent herein in and to the Collateral will
constitute a first priority perfected security interest therein prior to the rights of all
other Persons and subject to no other Liens other than Permitted Liens not of record.
(5) It is hereby further agreed that any and all property described or
referred to in the Granting Clause hereof which is hereafter acquired by the Company shall ipso
facto, and without any other conveyance, assignment or act on the part of the Company or the
Collateral Agent, become and be subject to the Lien herein granted as fully and completely as though
specifically described herein.
IT IS HEREBY FURTHER COVENANTED AND AGREED by and among the parties hereto as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01 DEFINITIONS.
(a) For all purposes of this Security Agreement, except as otherwise expressly provided or unless the
context otherwise requires:
(i) each of the "Company", "Collateral Agent", or any other Person includes, without prejudice to the
provisions of any Loan Documents, any successor in interest to it and any permitted
transferee, permitted purchaser or permitted assignee of it;
(ii) the terms defined in this ARTICLE 1 have the meanings assigned to them in this ARTICLE 1, and include
the plural as well as the singular;
(iii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles in the United States;
(iv) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Security
Agreement as a whole and not to any particular Article, Section or other subdivision;
(v) all references in this Security Agreement to Articles, Sections and Exhibits refer to Articles, Sections
and Exhibits of this Security Agreement; and
(vi) all references in this Security Agreement to Exhibits refer to such Exhibits as such Exhibits may be
amended, supplemented or otherwise modified from time to time in accordance with the
terms hereof.
(b) The terms "aircraft", "aircraft engine", "appliance" and "cargo" shall have the respective meanings
ascribed thereto in Section 40102 of Chapter 401 of Title 49 of the United States Code and the
term "engine" shall include an "aircraft engine" as defined therein.
(c) The term "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of New
York; provided, however, that if by reason of mandatory provisions of law, the perfection or
the effect of perfection or non-perfection of any security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York,
then for purposes of the provisions hereof relating to such perfection or the effect of
perfection or non-perfection of any security interest the term "UCC" shall mean the Uniform
Commercial Code as in effect in such other jurisdiction and references to Article 9 of the UCC
shall include such Article however numbered in any relevant jurisdiction.
(d) The terms "Equipment", "Fixtures" and "Proceeds" shall have the respective meanings ascribed thereto in
Article 9 of the UCC.
(e) For all purposes of this Security Agreement, the following capitalized terms have the following
respective meanings:
"Acceptable Alternate Spare Engine" means a Xxxxx & Xxxxxxx JT8D or CFM56
engine or an engine of either such or another manufacturer of equivalent or greater
value and utility (without regard to hours and cycles); provided that such engine
shall be an engine of a type then being utilized by the Company on other Boeing or
Airbus aircraft, as applicable, then being operated by the Company.
"Additional Insured" means each Lender, the Board, the Collateral Agent, the
Agent, the Loan Administrator and each of their respective Affiliates, successors and
permitted assigns, and the respective directors, officers and employees of each of the
foregoing.
"Appliances" means an instrument, equipment, apparatus, a part, an
appurtenance, or an accessory used, capable of being used, or intended to be used in
operating or controlling aircraft in flight, including a parachute, communication
equipment, and another mechanism installed in or attached to aircraft during flight,
and not part of an aircraft or engine.
"Assigned Documents" means the Purchase Agreements and Warranty Bills of Sale,
collectively.
"Available Engine" has the meaning assigned thereto in SECTION 3.01(A)(V).
"Bankruptcy Default" means any event or condition which is or upon notice,
lapse of time or both would, unless cured or waived, become an Event of Default under
clause (f), (g), (n) or (o) of Section 7.1 of the Loan Agreement.
"Certificated Air Carrier" means a Person holding an air carrier operating
certificate issued by the Secretary of Transportation of the United States pursuant to
Chapter 447 of Title 49 of the United States Code or any analogous successor provision
of the United States Code, for aircraft capable of carrying ten or more individuals or
6,000 pounds or more of cargo.
"Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet Program
administered by the United States Government pursuant to Executive Order No. 11490, as
amended, or any substantially similar program.
"Collateral" has the meaning assigned thereto in the Granting Clause hereof.
"Company" has the meaning assigned thereto in the preamble to this Agreement.
"Designated Locations" means the locations in the United States designated
from time to time by the Company at which it may keep Spare Parts, which initially
shall be the locations set forth in Exhibit C and shall include the additional
locations designated by the Company pursuant to SECTION 2.03 hereof.
"Event of Loss" means, with respect to any Spare Engine, any Spare Part or any
Pledged Equipment, as applicable, any of the following events with respect to such
property: (i) the loss of such property or of the use thereof due to the destruction
of or damage to such property which renders repair uneconomic or which renders such
property permanently unfit for normal use for any reason whatsoever; (ii) any damage
to such property which results in an insurance settlement with respect to such
property on the basis of a total loss or a constructive or compromised total loss;
(iii) the theft or disappearance of such property for the lesser of (A) a period in
excess of sixty (60) consecutive days, (B) the period to the date when the Net
Insurance Proceeds with respect to such property are paid to the Collateral Agent, or
(C) the period to the date when the Company has confirmed to the Collateral Agent in
writing that it cannot recover such property; (iv) (x) the confiscation, condemnation
or seizure of, or requisition of, title to such property by any Governmental Authority
or purported Governmental Authority or (y) the confiscation, condemnation or seizure
of, or requisition of, use of such property by any Governmental Authority or purported
Governmental Authority, which shall have resulted in the loss of possession of such
property by the Company for a period in excess of six months; and (v) any other event
which constitutes an Event of Loss hereunder.
"Expendables" means those Spare Parts of a type normally used only once and
thereby consumed or otherwise discarded including all Parts which have a limited life
and are not classified as fixed assets in accordance with GAAP.
"FAA" means the United States Federal Aviation Administration or any successor
thereto administering the functions of the Federal Aviation Administration under the
Federal Aviation Act.
"Federal Aviation Act" means Subtitle VII of Title 49 of the United States
Code relating to aviation, as amended from time to time, or any similar legislation of
the United States enacted to supersede, amend or supplement such Subtitle.
"Insurance Brokers" has the meaning assigned thereto in SECTION 2.04(C).
"Insured Amount" for any Spare Engine or Spare Part as of any date of
determination means an amount equal to its replacement value.
"Insurers" has the meaning assigned thereto in SECTION 2.04(A)(I).
"Loss Payment Date" has the meaning assigned thereto in clause (B)(1) of
SECTION 3.01(A)(I).
"Manufacturer" means with respect to each Spare Engine and Spare Part, the
manufacturer thereof, and its successors and assigns.
"Minimum Liability Insurance Amount" means $750,000,000.
"Motor Vehicle" means any vehicle the ownership of which is governed by a
certificate of title statute.
"Parts" means, in respect of any Spare Engine or any Spare Part, any and all
parts, instruments, appurtenances, accessories and other equipment of whatever nature
(other than complete Spare Engines or engines) which may from time to time be
incorporated or installed in or attached to such Spare Engine or such Spare Part.
"Passenger Convenience Equipment" means severable components or systems
installed on or affixed to any airframe that are used to provide individual
telecommunications or electronic entertainment to passengers aboard an aircraft.
"Payment Default" means any event or condition which is or upon notice, lapse
of time or both would, unless cured or waived, become an Event of Default under
Section 7.1(a) of the Loan Agreement.
"Permitted Lease" means a lease permitted under the terms of SECTION
2.01(B)(I)(H).
"Permitted Lessee" means the lessee under a Permitted Lease.
"Permitted Liens" means (i) those Liens permitted under clauses (i) and (ii)
of the definition of Permitted Encumbrances contained in the Loan Agreement, (ii) the
Lien of this Agreement and (iii) rights of third parties in respect of the Collateral
to the extent permitted hereby (including rights under Capital Leases or title
retention or security agreements).
"Pledged Equipment" means all of the Company's Equipment, including, without
limitation, any maintenance tools, ground equipment and vehicles (including Motor
Vehicles), computer equipment and furniture; provided, that to the extent (i) any such
property owned by the Company on the date hereof, is, on the date hereof, subject to,
or (ii) any such property acquired by the Company after the date hereof, is acquired
subject to, a Capital Lease or title retention or security agreement and cannot be
transferred or encumbered by the Company without resulting in the termination of such
agreement or causing a default thereunder, then the grant of a security interest
therein in accordance with this Security Agreement shall exclude such Pledged
Equipment.
"Pledged Tax Receivable" means the receivable of any income tax refund payable
to the Company by the Internal Revenue Service for the Company's taxable year ending
March 31, 2003, including any adjustment to such refund amount thereafter payable to
the Company.
"Prepayment Account" means the deposit account or subaccount in the name of
the Collateral Agent established for the purpose of depositing cash in satisfaction of
the Company's prepayment obligations under Sections 2.6 and 2.10 of the Loan
Agreement.
"Purchase Agreements" means, collectively, with respect to each Spare Engine,
the agreement between the Company and the applicable Manufacturer or other seller
relating to the purchase by the Company of such Spare Engine as originally executed or
as modified, amended or supplemented in accordance with the terms thereof, but only
insofar as the foregoing relates to such Spare Engine and to such Manufacturer's
warranty obligations (if applicable) with respect thereto.
"Records" has the meaning assigned thereto in paragraph (6) of the Granting
Clause hereof.
"Replacement Engine" means any engine or engines substituted for a Spare
Engine in accordance with SECTION 2.01(D) and SECTION 3.01(A) hereof.
"Rotables" means those Spare Parts that can be repeatedly overhauled and
repaired.
"Security Agreement" or "this Agreement" means this Mortgage and Security
Agreement.
"Security Agreement Supplement (Spare Engine)" means a supplement to this
Security Agreement in the form of Exhibit A1.
"Security Agreement Supplement (Spare Parts)" means a supplement to this
Security Agreement in the form of Exhibit A2.
"Security Documents" means, collectively, this Security Agreement, any
Security Agreement Supplement (Spare Engine), any Security Agreement Supplement (Spare
Parts), and any additional pledge agreements, security agreements, supplements or
other agreements delivered pursuant to the Loan Documents to secure the obligations of
the Company thereunder, and each certificate, instrument, financing statement or other
document executed, delivered, filed or recorded by, on behalf, or in respect of (as
applicable) the Company, in connection with or pursuant to the foregoing.
"Similar Carriers" has the meaning assigned thereto in SECTION 2.04(A)(I).
"Spare Engine" means (i) each of the engines listed by Manufacturer's serial
number on Exhibit B hereto and on any Security Agreement Supplement (Spare Engine)
executed and delivered from time to time hereunder, and whether or not either
initially or from time to time installed on any airframe; (ii) any Replacement Engine
which may from time to time be substituted for any of such Spare Engines pursuant to
the terms hereof; and (iii) in either case, any and all Parts which are from time to
time incorporated or installed in or attached to any such engine and any and all Parts
removed therefrom, unless the Lien of the Security Documents shall not apply to such
Parts in accordance with SECTION 2.02.
"Spare Part" means an accessory, appurtenance, Appliance, instrument or part,
of whatever nature (including, without limitation, Passenger Convenience Equipment),
relating to an aircraft (except an engine), engine, spare engine or Appliance owned by
the Company that is to be installed at a later time on an aircraft, engine or
Appliance if the same is (i) Expendable or Rotable and suitable for installation in or
on a Boeing 737-200 or Boeing 737-300 aircraft or a Xxxxx & Xxxxxxx JT8D or CFM56
engine (or any other engine) installed or intended to be installed on a Boeing 737-200
or 737-300 aircraft, or (ii) Expendable and suitable for installation in or on an
Airbus aircraft or an engine installed or intended to be installed on an Airbus
aircraft, and, in the case of clause (i), without regard to whether any such Spare
Parts are appropriate for installation or use on, in or with any other type or model
of Boeing aircraft or engine utilized thereon (it being understood that Rotables which
are suitable for installation on an Airbus aircraft or an engine installed or intended
to be installed thereon are excluded from the definition of Spare Parts); provided,
however, that the following Spare Parts shall be excluded from the Lien of the
Granting Clause of this Security Agreement: (a) any Spare Part so long as it is
incorporated in, installed on or attached or appurtenant to an aircraft or engine, and
(b) any Spare Part to the extent (x) it is owned by the Company on the date hereof
subject to, or (y) is acquired by the Company after the date hereof subject to, a
Capital Lease or title retention or security agreement and cannot be transferred or
encumbered by the Company without resulting in the termination of such agreement or
causing a default thereunder (including Passenger Convenience Equipment subject to a
security interest, license or other interest of a party other than the Company or an
affiliate of the Company).
"Specified Default" means a Payment Default or a Bankruptcy Default.
"Tax Receivable Debtor" means each Person obligated to pay the Company in
respect of the Pledged Tax Receivable.
"Tracking System" means, collectively, the Company's [***] centralized
computer system for tracking its Spare Parts and the [***] system for tracking its
Spare Engines and Pledged Equipment, and any and all improvements, upgrades,
substitutes or replacement systems.
"United States" or "U.S." means the United States of America.
"United States Government" means the federal government of the United States
or any instrumentality or agency thereof.
"Warranty Bills of Sale" means, collectively, each full warranty xxxx of sale
delivered to the Company from the applicable Manufacturer (or other seller) in respect
of each Spare Engine.
"Wet Lease" means any arrangement whereby the Company (or any Permitted
Lessee) agrees to furnish an aircraft on which a Spare Engine is installed to a third
party pursuant to which such aircraft (i) shall remain in the operational control of
the Company (or such Permitted Lessee) and (ii) shall be maintained, insured and
otherwise used and operated in accordance with the provisions hereof.
(f) Capitalized terms which are defined in the Loan Agreement and which are not otherwise defined
herein shall have the meanings assigned to such terms in the Loan Agreement.
ARTICLE 2
COVENANTS OF THE COMPANY
The Company covenants and agrees as follows:
SECTION 2.01 MAINTENANCE AND OPERATION; POSSESSION; INSIGNIA.
(a) Maintenance and Operation of Spare Engines.
(i) The Company, at its own cost and expense, shall: (A) maintain, service, repair, and overhaul
(or cause to be maintained, serviced, repaired, and overhauled) each Spare Engine and each of
the Spare Parts (x) so as to keep the Spare Engines in an airworthy condition and
suitable for installation and operation on a Boeing 737 airframe in accordance with
any applicable maintenance program and in compliance with all applicable airworthiness
directives; and (y) so as to maintain the Spare Parts in good working order and
condition and shall perform all maintenance thereon necessary for that purpose and in
accordance with the requirements of each of the Manufacturer's manuals and mandatory
service bulletins, excluding Spare Parts that have become worn out or obsolete or
unfit for use and are not reasonably repairable; and (B) maintain or cause to be
maintained all Records, logs and other materials required to be maintained by the FAA
or any other applicable regulatory agency or body in respect of each Spare Engine and
each of the Spare Parts.
(ii) The Company will not (or permit any Permitted Lessee to) maintain, use, store, service,
repair, overhaul or operate any Spare Engine in material violation of any law, rule, regulation,
treaty, order or certificate of any government or Governmental Authority (domestic or
foreign) having jurisdiction, or in violation of any airworthiness certificate or
material violation of any license or registration relating to such Spare Engine issued
by any such authority. In the event that any such law, rule, regulation, treaty,
order, certificate, license or registration requires alteration of any Spare Engine,
the Company will, at its sole cost and expense, conform thereto or obtain conformance
therewith. Notwithstanding the foregoing, the Company or any Permitted Lessee may
contest in good faith the validity or application of any such law, rule, regulation,
treaty, order, certificate, license or registration in any reasonable manner which
does not materially adversely affect the Collateral Agent, the Board or any Lender, or
any of their respective legal and economic interests in or to any of the Spare Engines
or any Loan Documents, including the Lien of the Security Documents. In every case,
operation, use, storage, maintenance, servicing, repair or overhaul of each Spare
Engine is subject to compliance by the Company with the provisions of SECTION 2.04.
If the indemnities or insurance from the United States Government specified in SECTION
2.04(F), or some combination thereof in amounts equal to amounts required by SECTION
2.04, have not been obtained (unless indemnities or insurance in amounts so required
are available in the commercial aviation insurance market and are obtained), the
Company will not operate or locate any Spare Engine in or to any area excluded from
coverage by any insurance required to be maintained by the terms of SECTION 2.04;
provided, however, that the failure of the Company to comply with the provisions of
this SECTION 2.01(A)(II) shall not give rise to an Event of Default where such failure
is attributable to a hijacking, medical emergency, equipment malfunction, weather
conditions, navigational error or act of terrorism and the Company is taking all
reasonable steps to remedy such failure as soon as practicable.
(b) Possession of Spare Engines.
(i) The Company will not, without the prior written consent of the Collateral Agent, lease or
otherwise in any manner deliver, transfer or relinquish possession of any Spare Engine
or install or permit any Spare Engine to be installed on any airframe; provided that,
so long as (x) no Specified Default or Event of Default shall have occurred and be continuing
at the time of such delivery, transfer or relinquishment of possession or installation
and (y) such action shall not deprive the Collateral Agent of the first priority
perfected Lien of the Security Documents on any Spare Engine, the Company or any
Permitted Lessee (except with respect to clause (H)) may, without the prior written
consent of Collateral Agent:
(A) subject any Spare Engine to normal pooling or similar arrangements, in each case customary
in the airline industry and entered into by the Company in the ordinary course of
its business; provided, that (1) no such arrangement contemplates or requires the
transfer of title to any Spare Engine and (2) if the Company's title to any
Spare Engine shall be divested under any such arrangement, such divestiture
shall be deemed to be an Event of Loss with respect to such Spare Engine, and
the Company shall comply with SECTION 3.01 hereof in respect thereof;
(B) deliver possession of any Spare Engine to the Manufacturer thereof or to any other Person
for testing, service, repair, maintenance or overhaul work on such Spare Engine or
any part thereof or for alterations or modifications in or additions to such Spare
Engine to the extent required or permitted by the terms hereof;
(C) install a Spare Engine on an airframe registered in the United States owned by the Company
which airframe is free and clear of all Liens, except: (1) Permitted Liens and
those which apply only to the engines (other than Spare Engines), Appliances,
parts, instruments, appurtenances, accessories, furnishings and other
equipment (other than Parts) installed on such airframe (but not to the
airframe as an entirety), (2) the rights of third parties under interchange
agreements customary in the airline industry and entered into by the Company
in the ordinary course of its business, provided that Company's title to such
Spare Engine shall not be divested as a result thereof and (3) mortgage Liens
or other security interests, provided, that (as regards this clause (3)), such
mortgage Liens or other security interests effectively provide that such Spare
Engine shall not become subject to the Lien of such mortgage or security
interest, notwithstanding the installation thereof on such airframe;
(D) install a Spare Engine on an airframe registered in the United States leased to the Company
(or a Permitted Lessee) or purchased by the Company (or a Permitted Lessee) subject
to a conditional sale or other security agreement, provided that (1) such
airframe is free and clear of all Liens, except: (x) the rights of the
parties to the lease or conditional sale or other security agreement covering
such airframe, or their assignees, and (y) Liens of the type permitted by
clause (C) of this SECTION 2.01(B)(I) and (2) such lease, conditional sale or
other security agreement effectively provides that such Spare Engine shall not
become subject to the Lien of such lease, conditional sale or other security
agreement, notwithstanding the installation thereof on such airframe;
(E) install a Spare Engine on an airframe registered in the United States owned by the Company
(or a Permitted Lessee), leased to the Company or purchased by the Company subject
to a conditional sale or other security agreement under circumstances where
neither clause (C) nor clause (D) of this SECTION 2.01(B)(I) is applicable,
provided that any divestiture of title to such Spare Engine resulting from
such installation shall be deemed an Event of Loss with respect to such Spare
Engine, and the Company shall comply with SECTION 3.01(A) hereof in respect
thereof, the Collateral Agent not intending hereby to waive any right or
interest it may have to or in such Spare Engine under applicable law until
compliance by the Company with such SECTION 3.01(A);
(F) transfer (or permit any Permitted Lessee to transfer) possession of any Spare Engine to the
United States of America or any instrumentality oragency thereof pursuant to the
Civil Reserve Air Fleet Program so long as the Company shall notify the
Collateral Agent (1) prior to transferring possession of any such Spare Engine
to the United States of America or any agency or instrumentality thereof
pursuant to the Civil Reserve Air Fleet Program and (2) of the name and the
address 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) hereof;
(G) transfer possession of any Spare Engine to the United States of America or any instrumentality
or agency thereof pursuant to a lease, contract or other instrument, a copy of which
shall be provided to the Collateral Agent; or
(H) enter into a lease of any Spare Engine with (1) a Certificated Air Carrier, (2) any airline
domiciled and principally located in a country listed on Exhibit D hereto, or (3)
any other Person approved in writing by the Collateral Agent; provided that (I) no
such lease shall be permitted to a lessee that is subject to a proceeding or
final order under applicable bankruptcy, insolvency or reorganization laws on
the date the lease is entered into, (II) in the case of a lease under
subclause (2) or (3) above, on the date of such lease or any renewal or
extension thereof, the United States and the country in which such lessee is
domiciled and principally located maintain normal diplomatic relations (which
for purposes of this clause (H) shall include Taiwan), (III) in the case only
of a lease to any Person under subclause (3) above, the Collateral Agent
receives at the time of such lease an opinion of counsel (in form and from
counsel reasonably satisfactory to the Collateral Agent) to the effect that
(w) the terms of the proposed lease will be legal, valid, binding and (subject
to customary exceptions in foreign opinions generally that are of a nature
accepted by financiers) enforceable in accordance with its terms against the
proposed lessee in the country in which the proposed lessee is principally
based, (x) there exist no possessory rights in favor of the lessee under such
lease under the laws of such lessee's country of domicile that would, upon
bankruptcy or insolvency of or other default by the Company and assuming at
such time such lessee is not insolvent or bankrupt, prevent the return or
repossession of such Spare Engine in accordance with the lease and when
permitted by the terms of ARTICLE 4 upon the exercise by the Collateral Agent
of its remedies pursuant to such Article, (y) the laws of such lessee's
country of domicile require fair compensation by the government of such
jurisdiction payable in currency freely convertible into Dollars for the loss
of use of such Spare Engine in the event of the requisition by such government
of such use, and (z) the laws of such lessee's country of domicile would give
recognition to the Company's title to the Spare Engine, to the registration of
the Spare Engine (if such country maintains a registry for engines) in the
name of the Company (or the proposed lessee, as "lessee", as appropriate), and
to the Lien of the Security Documents, (IV) if the lessee under such lease is
a governmental entity, such lessee has waived all rights of sovereign
immunity, and (V) if the lessee is a Certificated Air Carrier, the Company
will be entitled as lessor to the benefits of Section 1110 of the Bankruptcy
Code with respect to such Spare Engine in connection with a proceeding under
Chapter 11 of the Bankruptcy Code in which the lessee is the debtor.
(ii) The rights of any transferee (other than a transferee where the transfer is of a Spare
Engine which is to be an Event of Loss) shall be (and the assignment or other transfer
document under which such transfer is governed shall explicitly provide that) during the
period of such possession, subject and subordinate to, all the terms of the Security Docu-
ments, including, without limitation, the covenants contained in this ARTICLE 2, including
the inspection rights contained in SECTION 2.05 and the Collateral Agent's right to
repossess such Spare Engine. No pooling agreement, Permitted Lease or other
relinquishment of possession of any Spare Engine shall in any way discharge or
diminish any of the Company's obligations to the Collateral Agent under the Security
Documents or constitute a waiver of Collateral Agent's rights or remedies hereunder or
thereunder.
(iii) In connection with any Permitted Lease, all necessary action shall be taken by the Company
at its expense which is required to continue the Collateral Agent's security interest in the
applicable Spare Engine, and such Permitted Lease and all other necessary documents
shall be duly filed, registered or recorded in such public offices as may be required
to fully preserve the priority of the security interest of the Collateral Agent in
such Spare Engine. Any Wet Lease shall not constitute a delivery, transfer or
relinquishment of possession for purposes of this SECTION 2.01. The Collateral Agent
acknowledges that any consolidation or merger of the Company or conveyance, transfer
or lease of all or substantially all of the Company's assets, in each case as
permitted by the Loan Documents, shall not be prohibited by this SECTION 2.01. No
Permitted Lease entered into pursuant to this SECTION 2.01(B) shall permit any
subleasing of the Spare Engines.
(iv) Any Permitted Lease having a term in excess of one (1) year shall be assigned by the
Company to the Collateral Agent as additional Collateral hereunder; provided that,
except upon the occurrence and during the continuance of a Specified Default or Event of
Default, (A) the Company shall be entitled to retain the rental payments made to the
Company under such Permitted Lease, and (B) the rights as lessor under any Permitted Lease
shall not vest (to the exclusion of the Company as lessor thereunder) in the Collateral
Agent. Upon the occurrence of a default under such Permitted Lease, both the Company and
the Collateral Agent shall have the right, acting separately or together, to enforce the
terms of such Permitted Lease; provided, however, that upon the occurrence and during
the continuance of a Specified Default or Event of Default, the Collateral Agent shall
have the exclusive right to enforce the terms of such Permitted Lease. In the event
of the expiration or termination of the Permitted Lease, at the Company's request, the
Collateral Agent shall release its interest in such Permitted Lease.
(c) Insignia. Within ninety (90) days after (x) the Closing Date (with respect to Spare
Engines covered by the Lien of the Security Documents as of the Closing Date), and (y) the date
on which any Security Agreement Supplement (Spare Engine) is delivered (with respect to such
additional Collateral), and so long as any Spare Engines are subject to the Lien of the Security
Documents, the Company agrees to affix and maintain (or cause to be affixed and maintained) on
each Spare Engine a nameplate bearing the inscription:
THIS ENGINE IS MORTGAGED TO
XXXXX FARGO BANK NORTHWEST, N.A.,
AS COLLATERAL AGENT
(such nameplate to be replaced, if necessary, with a nameplate reflecting the name of any
successor collateral agent, in each case as permitted under the Loan Documents). Except as
above provided, the Company will not allow the name of any Person other than the Company to be
placed on any Spare Engine as a designation that might be interpreted as a claim of ownership
or of any rights therein.
(d) Substitution of Spare Engines. The Company may at any time, at its sole cost and
expense, replace any Spare Engine subjected to the Lien hereof by causing one or more Acceptable
Alternate Spare Engines to be substituted for such Spare Engine hereunder in accordance with the
provisions of SECTION 3.01(A) hereof to the same extent as if an Event of Loss has occurred with
respect to such Spare Engine; provided, that the terms of SECTION 3.01(A)(V) shall not apply
to any such substitution.
SECTION 2.02 REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS.
(a) Replacement of Parts. The Company, at its own cost and expense, will promptly
replace or cause to be replaced all Parts of each Spare Engine that 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 2.02(C).
All replacement parts shall be owned by the Company free and clear of all Liens (except Permitted
Liens, pooling arrangements permitted by SECTION 2.02(B) hereof and replacement parts
temporarily installed on an emergency basis) and shall be in as good an operating condition as,
and shall have a value and utility 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. All
Parts at any time removed from any Spare Engine shall remain the property of the Company and
subject to the Lien of the Security Documents, no matter where located, until such time as such
Parts shall be replaced by parts which meet the requirements for replacement parts specified
above. Immediately upon any replacement part becoming incorporated or installed in or attached
to any Spare Engine, without further act (subject only to Permitted Liens and any pooling
arrangement permitted by SECTION 2.02(B) hereof and except any replacement part temporarily
installed on an emergency basis), (i) such replacement part shall become the property of the
Company and subject to the Lien of the Security Documents and be deemed a Part for all purposes
hereof to the same extent as the Part originally incorporated or installed in or attached to
such Spare Engine and (ii) the replaced Part shall be free and clear of all rights of the
Collateral Agent and shall no longer be deemed a Part hereunder.
(b) Pooling of Parts. Any Part removed from any Spare Engine as provided in SECTION 2.02(A)
hereof may be subjected by the Company to a pooling arrangement of the type which is permitted by
clause (A) of SECTION 2.01(B)(I) hereof; provided, that the part replacing such removed Part shall be
incorporated or installed in or attached to such Spare Engine in accordance with SECTION
2.02(a) as promptly as practicable after the removal of such removed Part. In addition, any
replacement part when incorporated or installed in or attached to a Spare Engine in accordance
with such Section may be owned by any third party subject to such a pooling arrangement,
provided, that the Company (or any Permitted Lessee), at its expense, as promptly thereafter as
practicable, either (i) causes such replacement part to become subject to the Lien of the
Security Documents, free and clear of all Liens other than Permitted Liens or (ii) replaces
such replacement part with a further replacement part owned by the Company (or any Permitted
Lessee) which shall become the property of the Company and subject to the Lien of the Security
Documents, free and clear of all Liens other than Permitted Liens.
(c) 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 the Spare Engines
as may be required to be made from time to time so as to comply with any law, rule, regulation or
order of any regulatory agency or body of any jurisdiction in which any aircraft may then be
registered; provided, however, that the Company (or any Permitted Lessee) or any may, in good
faith, and by appropriate proceedings contest the validity or application of any such law,
rule, regulation or order in any reasonable manner which does not materially adversely affect
the Collateral Agent, the Board or any Lender or any of their respective legal and economic
interests in or to such Spare Engine, or subject any such Person to risk of any material civil
or any criminal penalties or involve any material risk of loss or forfeiture of title to such
Spare Engine. In addition, the Company (or any Permitted Lessee), at its own expense, may from
time to time make such alterations and modifications in and additions to any Spare Engine as
the Company (or any Permitted Lessee) may deem desirable in the proper conduct of its business,
including removal of Parts which the Company (or any Permitted Lessee) deems to be obsolete or
no longer suitable or appropriate for use on such Spare Engine (such parts, "Obsolete Parts");
provided that no such alteration, modification, removal or addition impairs the condition or
airworthiness of such Spare Engine, or materially diminishes the value or utility of such Spare
Engine below the condition, airworthiness, value or utility thereof immediately prior to such
alteration, modification, removal or addition assuming such Spare Engine was then in the
condition required to be maintained by the terms of this Security Agreement. In addition, the
value (but not the utility, condition or airworthiness) of any Spare Engine may be reduced by
the value, if any, of Obsolete Parts which shall have been removed so long as the aggregate
fair market value of all Obsolete Parts which shall have been removed and not replaced shall
not exceed 1.5% of the then Appraised Value of such Spare Engine (as shown in the most recent
Appraisal Report delivered on or prior to such date). All Parts incorporated or installed in
or attached or added to a Spare Engine as the result of such alteration, modification or
addition (except those parts which are excluded from the definition of Parts or which may be
removed by the Company pursuant to the next sentence) (the "Additional Parts") shall, without
further act, become subject to the Lien of the Security Documents. Notwithstanding the
foregoing sentence, the Company may, at its own expense, so long as no Event of Default shall
have occurred and be continuing, 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 substitution for,
any Part originally incorporated or installed in or attached to any Spare Engine at the time of
delivery thereof hereunder or any part in replacement of or substitution for any such Part,
(ii) is not required to be incorporated or installed in or attached or added to any Spare
Engine pursuant to the first sentence of this paragraph (c) and (iii) can be removed from such
Spare Engine without diminishing the condition, airworthiness, value or utility of such Spare
Engine which such Spare Engine would have had at such time had such alteration, modification or
addition not occurred. Upon the removal thereof as provided above, such Additional Part shall
no longer be deemed to be subject to the Lien of the Security Documents or part of the Spare
Engine from which it was removed.
SECTION 2.03 USE, POSSESSION AND DESIGNATED LOCATIONS OF SPARE PARTS AND PLEDGED EQUIPMENT.
(a) The Company shall have the right, at any time and from time to time at its own cost and
expense, without any release from or consent by the Collateral Agent, to deal with the Spare Parts
and the Pledged Equipment in any manner consistent with the Company's ordinary course of business,
including without limitation any of the following:
(i) with respect to the Spare Parts, to incorporate in, install on or attach or make appurtenant
to any aircraft, engine or Appliance leased to or owned by the Company (whether or not
subject to any Lien) any Spare Part, free from the Lien of the Security Documents;
(ii) with respect to the Spare Parts or the Pledged Equipment, to dismantle any Spare Part or
Pledged Equipment that has become worn out or obsolete or unfit for use, and to sell or
dispose of any such Spare Part or Pledged Equipment or any salvage resulting from such
dismantling, free from the Lien of the Security Documents; and
(iii) with respect to the Spare Parts, to transfer any or all of the Spare Parts located at one
or more Designated Locations to one or more other Designated Locations.
(b) Without the prior consent of the Collateral Agent, the Company will not sell, lease,
transfer or relinquish possession of any Spare Part or any Pledged Equipment to any Person, except
as permitted by the provisions of this SECTION 2.03 and except that the Company shall have the
right in the ordinary course of business, (i) to transfer possession of any Spare Part or any
Pledged Equipment to the Manufacturer thereof or any service provider for testing, overhaul,
repairs, maintenance, alterations or modifications purposes, (ii) to sell any of the same in
the ordinary course of business or (iii) to subject any Spare Part to an interchange or
pooling, exchange, borrowing or maintenance servicing arrangement customary in the airline
industry and entered into in the ordinary course of business; provided, however, that in the
case of any sale or if the Company's title to any such Spare Part shall be divested under any
such agreement or arrangement, such divestiture shall be deemed to be an Event of Loss with
respect to such Spare Part subject to the provisions of SECTION 3.01(B). So long as no
Specified Default or Event of Default shall have occurred and be continuing, and subject to the
Company's obligations under SECTION 3.01 hereof and Section 2.6(c) of the Loan Agreement, the
Company shall be entitled to retain all payments received by it in respect of any warranty,
indemnity or similar agreement relating to Spare Parts, Pledged Equipment and Spare Engines and
deal with the counterparties to such agreements with respect to its rights thereunder in such
manner as the Company deems appropriate.
(c) The Company shall maintain and keep the Spare Parts at one or more of the Designated
Locations, except as otherwise permitted under this SECTION 2.03. If (x) any Spare Part, at any
time and for any reason, is stored at any other than a Designated Location or (y) the Company wishes
to subject additional unencumbered spare parts of a type which are similar to the Spare Parts pledged
hereunder (including, without limitation, spare parts suitable for installation in or on an
Airbus aircraft or an engine utilized thereon) to the Lien of the Security Documents, the
Company will promptly furnish to the Collateral Agent the following:
(i) a Security Agreement Supplement (Spare Parts) duly executed by the Company, describing the
additional unencumbered spare parts which are being subjected to the Lien of the Security
Documents (if applicable) and/or identifying each location that is to become a
Designated Location and specifically subjecting the Spare Parts (or spare parts) at
such location to the Lien of the Security Documents;
(ii) a legal opinion from counsel (which opinion and counsel shall be reasonably satisfactory
to the Collateral Agent), dated the date of execution of said Security Agreement Supplement
(Spare Parts), stating that said Security Agreement Supplement (Spare Parts) has been
duly filed for recording in accordance with the provisions of the Federal Aviation
Act, and either: (A) no other filing or recording is required in any other place
within the United States in order to perfect the Lien of the Security Documents on the
Spare Parts (or spare parts) held at the Designated Locations specified in such
Security Agreement Supplement (Spare Parts) under the laws of the United States, or
(B) if any such filing or recording shall be required that said filing has been
accomplished in such other manner and places, which shall be specified in such legal
opinion, as are necessary to perfect the Lien of the Security Documents; and
(iii) an Officer's Certificate stating that in the opinion of the officer executing the Officers'
Certificate, all conditions precedent provided for in this Security Agreement relating to the
subjection of such property to the Lien of the Security Documents have been complied
with.
The Company shall, on an ongoing basis, effect any filings or recordings (or
amend any existing filings or recordings) which are necessary or desirable to perfect the
security interest of the Collateral Agent in the Spare Parts and the Pledged Equipment which
are being subjected to the Lien hereof in accordance with this SECTION 2.03 and shall promptly
deliver copies of any such filings or recordings to the Collateral Agent.
SECTION 2.04 INSURANCE.
(a) Public Liability and Property Damage Insurance.
(i) Except as provided in clause (II) of this SECTION 2.04(A), the Company will carry or cause
to be carried with respect to each Spare Engine at its expense (A) comprehensive airline
liability (including, without limitation, passenger, contractual, bodily injury, and property
damage liability and product liability) insurance (exclusive of Manufacturer's product
liability insurance) and (B) war risk, hijacking and allied perils liability
insurance, in each case (I) in an amount per occurrence not less than the greater of
(x) the amounts of comprehensive airline liability insurance from time to time
applicable per occurrence to engines owned or leased and operated by the Company of
the same type as such Spare Engines and (y) the Minimum Liability Insurance Amount,
(II) of the same type and covering at least the same risks as from time to time are
applicable to engines owned or leased and operated by similarly situated U.S. Air
Carriers owning and operating similar aircraft and engines ("Similar Carriers"), (III)
which is maintained in effect with insurers of internationally recognized reputation
and reasonably believed to be financially sound ("Insurers") and (IV) in the case of
war risk, hijacking and allied perils coverage, of a scope then being carried by
Similar Carriers, at least in the Minimum Liability Amount, which may be effected by
combining insurance available in commercial insurance markets with coverage of the
type described in SECTION 2.04(F) (it being agreed that the Company's obligations
under this clause (IV) shall be subject in any event and at all times to whether such
coverage is available on commercially reasonable terms through a combination of
commercial insurance coverage and coverage of the type described in SECTION 2.04(F)).
(ii) During any period that a Spare Engine is on the ground and not in operation, the Company
may carry or cause to be carried as to such non-operating property, in lieu of the insurance
required by clause (I) above, insurance by Insurers otherwise conforming with the
provisions of clause (I) except that (A) the amounts of coverage shall not be required
to exceed the amounts of comprehensive airline liability insurance from time to time
applicable to property owned or leased by the Company of the same type as such
non-operating property and which is on the ground and not in operation; and (B) the
scope of the risks covered and the type of insurance shall be the same as from time to
time shall be applicable to property owned or leased by Similar Carriers of the same
type as such non-operating property and which is on the ground and not in operation.
(iii) The Company will carry or cause to be carried at all times, (x) with respect to the Spare
Parts, comprehensive airline liability insurance, including, without limitation, property
damage liability insurance and (y) with respect to the Pledged Equipment,
comprehensive property damage liability insurance, in each case, which is (A) of
amount and scope as may be customarily maintained by Similar Carriers for property
similar to the Spare Parts and Pledged Equipment and (B) maintained in effect with
Insurers.
(b) Insurance Against Loss or Damage to a Spare Engine, etc. The Company shall
maintain or cause to be maintained in effect, at its (or a Permitted Lessee's) expense, (A) with
Insurers, "all-risk" coverage of Spare Engines (while such Spare Engines are either (x) installed
on any airframe or (y) not installed on an airframe) and Spare Parts and (B) with insurers of
nationally recognized reputation and reasonably believed to be financially sound, "all-risk" coverage
with respect to Pledged Equipment, in each case in such forms as are customarily maintained with
respect to similar property owned or operated by Similar Carriers and in an amount of coverage
not less than the Insured Amount therefor. In addition, the Company shall maintain in respect
of the Spare Engines war risk, hijacking and allied perils insurance of a scope carried by
Similar Carriers in an amount equal to the Insured Amount therefor, unless and to the extent
that SECTION 2.04(A)(II) shall apply (it being agreed that the Company's obligations under this
sentence shall be subject in any event and at all times to whether such coverage is available
on commercially reasonable terms through a combination of commercial insurance coverage and
coverage of the type described in SECTION 2.04(F)). All losses will be adjusted by the Company
(giving due regard to the interest of the Collateral Agent) with the insurers; provided,
however, that during a period when any Specified Default or Event of Default shall have occurred
and be continuing, the Company shall not agree to any such adjustment without the prior written
consent of the Collateral Agent. As between the Collateral Agent and the Company, it is agreed
that all proceeds of insurance maintained in compliance with the preceding paragraph and
received as the result of the occurrence of an Event of Loss will be applied in accordance with
SECTION 3.01.
(c) Reports, Certificates, etc. The Company will furnish, or cause to be furnished,
to the Collateral Agent on or before the Closing Date, and each annual renewal of the applicable
insurances, (i) a report, signed by a recognized independent firm of insurance brokers reasonably
acceptable to the Collateral Agent which brokers may be regularly retained by the Company (the
"Insurance Brokers"), describing in reasonable detail the property and liability insurance
then carried and maintained with respect to the Collateral and stating the opinion of such firm
that (A) such insurance complies with the terms hereof, (B) all premiums in connection with such
insurance then due have been paid and (C) such insurance together with any self-insurance
permitted hereby provides coverages against risks that are customarily insured against by
Similar Carriers and that such coverages are in substantially similar forms, are of such types
and have limits as are customarily carried by Similar Carriers; and (ii) a certificate of
insurance evidencing the due compliance with the terms of this SECTION 2.04 relating to
insurance with respect to the Collateral. To the extent that the insurance obligations of this
SECTION 2.04 are satisfied in part with the coverage described in SECTION 2.04(F), the
Insurance Broker's report and certificate need not certify such coverage but may instead refer
to the FAA Certificate of Insurance (which the Insurance Broker shall attach to its report).
The Company will cause such Insurance Broker to agree to advise the Collateral Agent in writing
of any default in the payment of any premium and of any act or omission on the part of the
Company of which it has knowledge and which might invalidate or render unenforceable, in whole
or in part, any insurance on the applicable Collateral and to advise the Collateral Agent in
writing at least thirty (30) days (twenty (20) days in the case of lapse for nonpayment of
premiums and seven (7) days in the case of war risk and allied perils coverage) prior to the
cancellation (but not expiration), lapse for non-payment of premium or material adverse change
of any insurance maintained pursuant to this SECTION 2.04; provided that if the war risk notice
period specified above is not reasonably obtainable, the Company will cause the Insurance
Broker to provide for as long a period of prior notice as shall then be reasonably obtainable.
In the event that the Company shall fail to maintain or cause to be maintained insurance as
herein provided, the Collateral Agent may, at its sole option, but shall be under no duty to,
procure such insurance on behalf of the Company and, in such event, the Company shall, upon
demand, reimburse the Collateral Agent for the cost thereof to the Collateral Agent, together
with interest on such cost at the Overdue Rate from the date of such payment by the Collateral
Agent to the date of reimbursement without waiver of any other rights the Collateral Agent may
have; provided, however, that no exercise by the Collateral Agent of said option shall affect
the provisions of this Security Agreement or the other Loan Documents, including the provisions
that failure by the Company to maintain the prescribed insurance shall constitute an Event of
Default. Upon receipt of any notices or reports, the Collateral Agent shall as promptly as
practicable forward copies of the same to the Agent, the Loan Administrator, the Board and each
of the Lenders. The Collateral Agent shall have no responsibility for independently verifying
the accuracy or completeness of any information contained in any report or certificate provided
by the Insurance Brokers.
(d) Self-Insurance. The Company (but no Permitted Lessee) may self-insure the risks
required to be insured against pursuant to this SECTION 2.04 under a program applicable to all
aircraft and engines (whether owned or leased) in the Company's fleet, but in no case shall the
aggregate amount of such self-insurance in regard to SECTION 2.04(A) and SECTION 2.04(B) hereof for
any calendar year, with respect to all of the aircraft and engines (whether owned or leased) in the
Company's fleet, exceed $1,000,000. In addition to the foregoing right to self-insure, the
Company may self-insure the risks required to be insured against pursuant to this SECTION 2.04
in an amount equal to any applicable minimum per occurrence (or, if applicable, annual (or
other) period) deductible imposed by its property or liability Insurer, which are commensurate
with the standard deductibles in the aircraft insurance industry.
(e) Additional Insurance by the Company. The Company may at its own expense carry
insurance with respect to its interest in the Spare Engines and Spare Parts in amounts in excess
of that required to be maintained by this SECTION 2.04; provided, however, that such insurance does
not prevent the Company from carrying the insurance required or permitted by this SECTION 2.04
or adversely affect such insurance or the cost thereof; and provided, further, that the
proceeds of such insurance shall be subject to Section 2.6(c) of the Loan Agreement.
(f) Indemnification by Government in Lieu of Insurance. Notwithstanding any provisions
of this SECTION 2.04 requiring insurance, the Collateral Agent agrees to accept, in lieu of insurance
required by the terms of this SECTION 2.04, indemnification from, or insurance provided by, the United
States Government, against such risk in an amount which, when added to the amount of insurance
against such risk maintained by the Company shall be at least equal to the amount of insurance
against such risk otherwise required by this SECTION 2.04 (taking into account self-insurance
permitted by SECTION 2.04(D) hereof). Any such indemnification or insurance provided by the
United States Government shall provide substantially similar protection as the insurance
required by this SECTION 2.04 (other than SECTION 2.04(G) to the extent that any of the
provisions of such section are generally unavailable from the United States Government). The
Company shall furnish to the Collateral Agent a copy of any FAA Certificate of Insurance (if
such certificates are then being furnished by the FAA), and at the request of the Collateral
Agent, an Officer's Certificate confirming in reasonable detail the amount and scope of such
indemnification or insurance and certifying that such indemnification or insurance complies
with the terms of this SECTION 2.04(F).
(g) Terms of Insurance Policies. Any policies carried in accordance with SECTION
2.04(A) and SECTION 2.04(b) hereof covering the applicable Collateral, and any policies taken out
in substitution or replacement for any such policies, (i) shall name the Additional Insureds as
additional insureds, as their respective interests may appear (but without imposing on any such
party liability to pay premiums with respect to such insurance), (ii) shall name the Collateral
Agent as sole loss payee in respect of insurances maintained pursuant to SECTION 2.04(B);
provided, Default, in respect of any casualty occurrence the insurance proceedsof which
are less than $2,000,000, such insurance proceeds shall be paid directly to the Company, (iii)
may provide for self-insurance to the extent permitted in SECTION 2.04(D) hereof, (iv) shall
provide that if the insurers cancel such insurance for any reason whatever, or if the same is
allowed to lapse for non-payment of premium or if any material change is made in the insurance
which adversely affects the interest of any Additional Insured, such lapse, cancellation or change
shall not be effective as to any Additional Insured for thirty (30) days (twenty (20) days in
the case of lapse for non-payment of premiums and seven (7) days in the case of war risk and
allied perils coverage) after receipt by such Additional Insured of written notice by such
insurers of such lapse, cancellation or change; provided, however, that if the war risk notice
period specified above is not reasonably obtainable, such policies shall provide for as long a
period of prior notice as shall then be reasonably obtainable, (v) shall provide that in
respect of the respective interests of each Additional Insured in such policies the insurance
shall not be invalidated by any action or inaction of the Company or any other Person and shall
insure the respective interests of the Additional Insureds, as they appear, regardless of any
breach or violation of any warranty, declaration or condition contained in such policies by the
Company or by any other Person, (vi) shall be primary without any right of contribution from
any other insurance which is carried by any Additional Insured, (vii) shall expressly provide
that all of the provisions thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each Additional Insured, (viii) shall waive
any right of the insurers to set-off, recoupment or counterclaim or any other deduction,
whether by attachment or otherwise, in respect of any liability of any Additional Insured, (ix)
shall waive any right of the insurers to subrogation against any Additional Insured, and (x)
shall provide for a 50/50 claims settlement per AVS 103 or its equivalent, except that if
coverage required under this SECTION 2.04 is then being provided under SECTION 2.04(F), such
claims settlement shall be made pursuant to provisions then generally in effect with respect to
commercial aviation insurance.
(h) Application of Payments During Existence of a Specified Default or an Event of Default.
Any amount referred to in this SECTION 2.04 which is payable to or retainable by the Company (or
any Permitted Lessee) shall not be paid to or retained by the Company (or any Permitted Lessee)
if at the time of such payment or retention a Specified Default or an Event of Default shall have
occurred and be continuing, but shall, so long as such Specified Default or an Event of Default
is continuing, be held by or paid over to the Collateral Agent and, at the direction of the
Board (or if the Board Guarantee is no longer in effect, the Requisite Lenders), subject to
applicable law, be applied against the obligations of the Company under the Loan Documents. At
such time as there shall not be continuing any such Specified Default or Event of Default, such
amount shall be paid to the Company to the extent not previously applied in accordance with the
preceding sentence. Prior to remitting any such funds to the Company, the Collateral Agent
shall be authorized to request and receive an Officer's Certificate from the Company certifying
that no Specified Default or Event of Default has occurred and is continuing.
SECTION 2.05 INSPECTION.
(a) Subject to subsection (B), at reasonable times but not more often than once in any twelve
(12) month period, and upon at least ten (10) days prior written notice to the Company (provided,
however, that if an Event of Default shall have occurred and be continuing, any such inspection
shall be at reasonable times without any limit on the number of times and upon at least one (1)
Business Day's prior written notice to and at the expense of the Company), the Collateral Agent or
the Board or their respective authorized representatives may inspect the Spare Engines, Spare Parts
and Pledged Equipment, inspect and make copies of the books and records of the Company relating
to such Collateral, including books and records required to be maintained by the FAA or other
applicable regulatory agency or body, and access (with assistance from Company personnel) the
Tracking System (at the Company's risk and expense). Any such inspection of Pledged Equipment,
Spare Engine or any Spare Part shall be subject to the Company's safety and security rules
applicable at the location of such Collateral and, so long as no Specified Default or Event of
Default shall have occurred and be continuing, no exercise of such inspection right shall
interfere with the normal operation or maintenance of such Collateral by, or the normal
business operations of, the Company. Neither the Collateral Agent nor the Board shall have any
duty to make any such inspection and shall incur no liability or obligation by reason of not
making any such inspection.
(b) The Company shall at all times maintain the Tracking System in at least as favorable
a condition as the condition as at the Closing Date and its perpetual inventory procedures for
the Spare Engines, Spare Parts and Pledged Equipment that provide a continuous internal audit of
the Spare Engines, Spare Parts and the Pledged Equipment. Notwithstanding subsection (A), at any
time during normal business hours and upon reasonable notice to the Company (without any limit on
the number of times), the Collateral Agent shall be entitled to inspect the Tracking System
relating to the Collateral to ensure the Company's compliance with the terms hereof. Such
inspection right shall not be exercised in a manner which is unduly disruptive to the normal
operation or maintenance of the Tracking System or the normal business operations of the
Company.
SECTION 2.06 PLEDGED EQUIPMENT/TAX RECEIVABLE. The Company shall:
(a) upon the occurrence and during the continuance of an Event of Default and upon the request
of the Collateral Agent, promptly (i) notify the Tax Receivable Debtor in respect of the Pledged Tax
Receivable that the Pledged Tax Receivable has been assigned to the Collateral Agent hereunder,
and that any payments due or to become due in respect thereof are to be made directly to the
Collateral Agent or its designee (it being understood and agreed that the foregoing shall not
limit the rights of the Collateral Agent upon the occurrence and during the continuance of an
Event of Default to so notify the Tax Receivable Debtor without giving prior notice to or
making a demand upon the Company including, without limitation, any notices required to be
given under the Anti-Assignment Act (31 X.X.X.xx. 3727)) and (ii) transfer to the Collateral
Agent or its designee all funds received by it from or on behalf of the Tax Receivable Debtor
in respect of the Pledged Tax Receivable (it being acknowledged and agreed that the Company
shall be deemed to be holding all such funds as trustee for the Collateral Agent and, as such,
shall not commingle such funds with other funds of the Company); and in furtherance of the
rights of the Collateral Agent's described in the parenthetical to clause (i) above, the
Company shall deliver to the Collateral Agent on the Closing Date an executed undated power of
attorney in favor of the Collateral Agent and such other documents or agreements reasonably
requested by the Collateral Agent (in form and substance reasonably acceptable to it) to enable
the Collateral Agent to comply, upon the occurrence and during the continuance of an Event of
Default, with the terms of the Anti-Assignment Act (31 U.S.C.ss.3727);
(b) upon the acquisition after the date hereof by the Company of any additional or replacement
Motor Vehicle, other than a Motor Vehicle described in the proviso to the definition of Pledged
Equipment or a Motor Vehicle as to which the Company need not perfect the security interest of
the Collateral Agent thereon pursuant to clause (a) of the penultimate sentence of paragraph
(3) of the Habendum Clause, cause the Collateral Agent to be listed as the lienholder on such
certificate of title and take such other steps as may be required under the law applicable to
perfection of a security interest in such property to perfect such security interest, and
within 30 days of the acquisition thereof deliver evidence of the same to the Collateral Agent;
(c) use commercially reasonable efforts to cause to be collected from the Tax Receivable Debtor,
as and when due all amounts owing under or on account of the Pledged Tax Receivable (including,
without limitation, a Pledged Tax Receivable which is delinquent, which shall be collected in
accordance with lawful collection procedures) and shall apply forthwith upon receipt thereof
all such amounts as are so collected to the outstanding balance of the Pledged Tax Receivable;
(d) keep the Pledged Equipment in good working order and repair, and not use such Collateral
in violation of law or any policy of insurance thereon; and
(e) not change (i) its name, identity or corporate structure in any manner, (ii) its "location"
(as such term is defined in Article 9 of the UCC) from Colorado, (iii) the location of its chief
executive office or (iv) its jurisdiction of organization in any manner, unless (in the case of
any event described in clause (i) through (iv)) it shall have given the Collateral Agent at
least thirty (30) days' prior written notice thereof.
SECTION 2.07 LIENS. The Company will not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to any Collateral, except Permitted Liens. The Company
shall promptly, at its own expense, take such action as may be necessary to duly discharge any Lien
(other than a Permitted Liens) arising at any time.
SECTION 2.08 FURTHER ASSURANCES. The Company agrees that it will promptly correct any
defect or error that may be discovered in any document delivered in connection with the Security
Documents to which it is a party or in the execution, acknowledgment or recordation thereof.
ARTICLE 3
EVENT OF LOSS
SECTION 3.01 EVENT OF LOSS; APPLICATION OF PAYMENTS AND PROCEEDS.
(a) Event of Loss with Respect to a Spare Engine.
(i) Upon the occurrence of an Event of Loss with respect to any Spare Engine, the Company shall:
(A) forthwith (and in any event, within five (5) Business Days after such occurrence) give the
Collateral Agent written notice of such Event of Loss; and
(B) not later than the earlier of (x) 60 days after the occurrence of such Event of Loss or
(y) the fifth (5th) Business Day following notification to the Company of receipt
by the loss payee of the insurance proceeds with respect to such Event of Loss, give
the Collateral Agent written notice of its election to perform one of the
following options (it being understood that the failure to give such notice
shall be deemed to be an election of the option set forth in subclause (1)
below):
(1) Not later than the earlier of (x) the Business Day next succeeding the ninetieth (90th)day
following the occurrence of such Event of Loss or (y) the first Interest
Payment Date that is at least three (3) Business Days after receipt
by the loss payee of the insurance proceeds with respect to such
Event of Loss (but not earlier than the first Business Day next
succeeding the thirtieth (30th) day following the occurrence of such
Event of Loss) (the applicable day being the "Loss Payment Date"),
the Company shall, to the extent not paid to the Collateral Agent as
insurance proceeds, pay or cause to be paid to the Collateral Agent
the proceeds of insurance required to be maintained under SECTION
2.04 in respect of such Event of Loss. Upon receipt of such
insurance proceeds from the Company or the relevant insurance
provider, the Collateral Agent shall apply such insurance proceeds on
behalf of the Company as a prepayment of the Loan in accordance with
Section 2.6(c) of the Loan Agreement (without regard to whether the
aggregate amount of all Net Insurance Proceeds and Net Condemnation
Proceeds received by the Company or any of its Subsidiaries in such
Fiscal Year, including the insurance proceeds received in respect of
such Event of Loss, exceeds the threshold amount set forth in the
first sentence of such Section 2.6(c)). If such insurance proceeds
are less than the Insured Amount, the Company shall pay or cause to
be paid to the Collateral Agent the difference between the Insured
Amount and the amount of such proceeds (which payment shall also be
applied on behalf of the Company as a prepayment of the Loan in
accordance with Section 2.6(c) of the Loan Agreement); or
(2) Not later than the Business Day next succeeding the ninetieth (90th) day following the
occurrence of such Event of Loss, the Company shall substitute one or
more Acceptable Alternate Spare Engines (subject to subsection (A)(V)
below), free and clear of all Liens (other than Permitted Liens) and
cause such Acceptable Alternate Spare Engines to be subjected to the
Lien of the Security Documents, provided that if (x) a Specified
Default or Event of Default shall have occurred and be continuing as
of such election date or (y) the Company shall have elected to make a
substitution under this clause (2) and shall fail for any reason to
make such substitution in accordance with the terms hereof, then the
Company shall make the payments required by clause (1) above on such
date.
(ii) At such time as the Company shall have complied fully with the provisions of clause (1) above,
the Collateral Agent shall release from the Lien of the Security Documents such Spare
Engine by executing and delivering to the Company all documents and instruments,
prepared at the Company's sole cost and expense, as the Company may reasonably request
to evidence such release.
(iii) The Company's right to substitute any Replacement Engine as provided in clause (B)(2) of
SECTION 3.01(A)(I) shall be subject to the fulfillment (which may be simultaneous with such
replacement), at the Company's sole cost and expense, of the following conditions
precedent:
(A) on the date when any Replacement Engine is subjected to the Lien of the Security Documents
(such date being referred to in this SECTION 3.01 as the "Replacement Closing Date"),
the following documents shall have been duly authorized, executed and delivered by
the respective party or parties thereto and shall be in full force and effect,
and an executed counterpart of each thereof shall have been delivered by the
Company to the Collateral Agent:
(I) a Security Agreement Supplement (Spare Engine) covering such Replacement Engine, which shall
have been duly filed for recordation pursuant to the Federal Aviation Act; and
(II) UCC financing statements covering such Replacement Engine, which shall have been duly filed
for recordation in such places as shall be required;
(B) each Replacement Engine shall be an Acceptable Alternate Spare Engine (subject to subsection
(A)(V) below), and the Collateral Agent shall have received an Appraisal Report from
an Appraiser of such Replacement Engine (together with any other Replacement
Engines that are replacing a Spare Engine), dated within ten (10) Business
Days of the Replacement Closing Date, evidencing that such Replacement Engine
is of at least the same value as the replaced Spare Engine at the time of
replacement (assuming the replaced Spare Engine was in the condition and state
of repair required by this Security Agreement) (provided, that if the Company
is pledging an Available Engine in accordance with subsection (A)(V) below
such Appraisal Report shall set forth the Appraised Value of the Available
Engine and shall not be required to state that such Available Engine is of at
least the same value as the replaced Spare Engine at the time of replacement);
(C) the Collateral Agent shall have received satisfactory evidence as to the compliance with
SECTION 2.04 with respect to such Replacement Engine;
(D) the Collateral Agent, at the expense of the Company, shall have received (acting directly
or by authorization to its special counsel) (I) an opinion of counsel to the Company
(which opinion and counsel shall be reasonably satisfactory to the Collateral
Agent), addressed to the Collateral Agent, to the effect that each Replacement
Engine has been made subject to the Lien of the Security Documents, that all
required action has been taken in order to maintain, and such action shall
maintain, the effectiveness and perfection (to the extent the same existed
immediately prior to the occurrence of such Event of Loss, assuming the
Company was in compliance with all relevant terms hereof) of the security
interests in such Spare Engine and title thereto created by this Security
Agreement and that, except as may have been effected by a change in law, the
protections afforded to the Collateral Agent by Section 1110 of the Bankruptcy
Code will not be less than such protections immediately prior to the
occurrence of such Event of Loss (assuming the Company was in compliance with
all relevant terms hereof) and (II) an opinion of qualified FAA counsel (or
counsel in any jurisdiction outside the United States where the Replacement
Engine and/or the aircraft of which such Replacement Engine is a part is
required to be registered in accordance with applicable law (which opinion and
counsel shall be reasonably satisfactory to the Collateral Agent), addressed
to the Collateral Agent, stating, in the case of FAA counsel, that the
Security Agreement Supplement (Spare Engine) and all other documents or
instruments the recordation of which is necessary to perfect and protect the
rights of the Collateral Agent in each such Replacement Engine have been duly
recorded and that each such Replacement Engine is free and clear of any liens,
security interests and encumbrances of record with the FAA, in the case of
counsel in another jurisdiction, that all action necessary has been taken in
such jurisdiction for such purposes;
(E) the representation contained in Section 4.5 of the Loan Agreement with respect to such Replacement
Engine shall be true and correct; and
(F) the Collateral Agent shall have received an Officer's Certificate of the Company stating that all
conditions precedent provided for in this SECTION 3.01(A) relating to such
replacement have been complied with and representing that any such Replacement
Engine is an Acceptable Alternate Spare Engine and authorizing the Collateral
Agent to rely on such Officer's Certificate.
(iv) Upon satisfaction of all conditions to such substitution, (x) the Collateral Agent shall
execute and deliver to the Company such documents and instruments, prepared by the Company
at the Company's sole cost and expense, as the Company shall reasonably request to evidence
the release of each such replaced Spare Engine from the Lien of the Security
Documents, (y) the Collateral Agent shall assign to the Company all claims it may have
against any other Person relating to any Event of Loss giving rise to such
substitution and (z) subject to Section 2.6(c) of the Loan Agreement (to the extent
that less than 100% of the insurance proceeds received in respect of the Event of Loss
giving rise to such replacement were used to acquire such Replacement Engine), the
Company shall receive all insurance proceeds and other proceeds in respect of any
Event of Loss giving rise to such replacement. For all purposes hereof, each such
Replacement Engine so substituted shall be deemed to be subjected to the Lien of the
Security Documents and shall be deemed a "Spare Engine" as defined herein.
(v) Anything to the contrary contained in this SECTION 3.01(A) notwithstanding, in the event that,
following an Event of Loss, (x) the only unencumbered engines owned by the Company are engines
which do not meet the criteria for Acceptable Alternate Spare Engines (each such
engine, an "Available Engine"), or (y) the Company does not then own any unencumbered
engines, and in the case of each of (x) and (y), the Company does not intend to use
the proceeds received in connection with such Event of Loss to acquire an Acceptable
Alternate Spare Engine, then in lieu of pledging an Acceptable Alternate Spare Engine
in accordance with this SECTION 3.01(A), the Company shall be entitled to do the
following on or prior to the date set forth in SECTION 3.01(A)(I)(B)(2):
(A) in the case of (x) above, pledge to the Collateral Agent in accordance with the terms hereof
(1) such Available Engines or (2) such Available Engine(s) and unencumbered spare
parts (of a type which are similar to the Spare Parts pledged hereunder), in each
case which have an aggregate value at least equal to the most current
Appraised Value of the Spare Engine being replaced; and
(B) in the case of (y) above, pledge to the Collateral Agent in accordance with the terms hereof
unencumbered spare parts (of a type which are similar to the Spare Parts
pledged hereunder) which have an aggregate value at least equal to the most
current Appraised Value of the Spare Engine being replaced;
so long as, on or prior to such date, the Company shall have (I) satisfied the
conditions precedent set forth in SECTION 3.01(A)(III), in connection with the pledge
of any Available Engine, (II) satisfied the conditions precedent set forth in SECTION
2.03(C)(I) through (III), in connection with the pledge of such spare parts, and (III)
in the Officer's Certificate delivered pursuant to SECTION 3.01(A)(III)(F) or SECTION
2.03(C)(III), as the case may be, included a certification that the Company does not
intend to use the proceeds received in connection with such Event of Loss to acquire
an Acceptable Alternate Spare Engine. Upon satisfaction of the terms and conditions
of this subsection (A)(V), the Company shall be deemed to have satisfied its
obligations under SECTION 3.01(A)(I)(B)(2) to pledge an Acceptable Alternate Spare
Engine in place of the Spare Engine subject to such Event of Loss.
The parties acknowledge and agree that this subsection (A)(V) shall not be applicable
to a substitution of a Spare Engine effected pursuant to SECTION 2.01(D).
(b) Event of Loss with Respect to Spare Parts or Pledged Equipment. As between
the Company and the Collateral Agent, all insurance proceeds received in respect of Spare Parts or
Pledged Equipment, whether as a result of the occurrence of an Event of Loss, or property damage or
loss not constituting an Event of Loss, under policies required to be maintained by the Company
pursuant to SECTION 2.04 and all proceeds of a transfer of title to Spare Parts or Pledged
Equipment contemplated by the terms of SECTION 2.03(B) will be applied in accordance with the
provisions of Section 2.6(c) of the Loan Agreement.
(c) Application of Payments from Governmental Authorities for Requisition of Title, etc.
Any payments (other than insurance proceeds the application of which is provided for elsewhere in this
SECTION 3.01) received at any time by the Collateral Agent or by the Company from any
Governmental Authority or other Person with respect to an Event of Loss, other than a
requisition for use by the United States Government or other government of registry of an
aircraft or any instrumentality or agency of any thereof not constituting an Event of Loss,
will be applied in accordance with Section 2.6(c) of the Loan Agreement.
(d) Requisition for Use of a Spare Engine by the United States Government or the Government of
Registry of an Aircraft. In the event of the requisition for use of a Spare Engine by the United
States Government or any other government of registry of the applicable aircraft or any agency or
instrumentality of any thereof (other than in the circumstances contemplated by subsection
(e)), any payments received by Collateral Agent or the Company from such government with respect
to such requisition shall be paid over to, or retained by the Company.
(e) Application of Payments During Existence of Specified Defaults and Events of Default.
Any amount referred to in this SECTION 3.01 which is payable to or retainable by the Company (or
any Permitted Lessee) shall not be paid to or retained by the Company (or any Permitted Lessee)
if at the time of such payment or retention a Specified Default or any Event of Default shall have
occurred and be continuing, but shall be held by or paid over to Collateral Agent and, at the
direction of the Board (or if the Board Guarantee is no longer in effect, the Requisite
Lenders), subject to applicable law, be applied against the obligations of the Company under
the Loan Documents. At such time as there shall not be continuing any such Specified Default
or Event of Default, such amount shall be paid to the Company to the extent not previously
applied in accordance with the preceding sentence. Prior to remitting any such funds to the
Company, the Collateral Agent shall be authorized to request and receive an Officer's
Certificate from the Company certifying that no Specified Default or Event of Default has
occurred and is continuing.
(f) Treatment of Insurance Proceeds in Accordance with Loan Agreement. Notwithstanding
anything to the contrary contained herein, any insurance proceeds and any proceeds received in
connection with a requisition of title by any Governmental Authority payable to the Company or the
loss payee as a result of an Event of Loss with respect to all or any portion of the Collateral
shall be subject to Section 2.6(c) of the Loan Agreement (including the threshold set forth in the
first sentence thereof for proceeds not applied to repair, restore or replace the asset from which
such proceeds derived) without regard to whether the Company elects pursuant to this SECTION
3.01 to substitute an Acceptable Alternate Spare Engine in respect of the Spare Engine which
has suffered an Event of Loss.
ARTICLE 4
REMEDIES
SECTION 4.01 REMEDIES AVAILABLE TO COLLATERAL AGENT.
(a) For the purpose of enforcing any and all rights and remedies under this Security Agreement,
after an Event of Default shall have occurred and so long as such Event of Default shall be continuing:
(i) upon the written demand of the Collateral Agent and at the Company's expense, the Company
shall give the Collateral Agent immediate access to the Tracking System (together with Company
personnel necessary to operate the Tracking System) and promptly deliver possession of any
Collateral as the Collateral Agent may so demand to the Collateral Agent or its designee in the
manner and condition required by, and otherwise in accordance with all the provisions of, this
Security Agreement, or the Collateral Agent at its option may enter upon the premises where all
or any part of the Collateral is located and take immediate possession of and remove the same
by summary proceedings or otherwise (and at the Collateral Agent's option, store the same at
the Company's premises until disposal thereof by the Collateral Agent), all without liability
accruing to the Collateral Agent (other than that caused by the Collateral Agent's willful
misconduct or gross negligence as actually and finally determined by a final, non-appealable
judgment of a court of competent jurisdiction) for or by reason of such entry or taking of
possession or removing whether for the restoration of damage to property caused by such action
or otherwise; and (ii) the Company shall, at the request of the Collateral Agent, promptly
execute and deliver to the Collateral Agent such instruments or other documents as may be
necessary or advisable to enable the Collateral Agent or an agent or representative designated
by the Collateral Agent, at such time or times and place or places as the Collateral Agent may
specify, to obtain possession of all or any part of the Collateral the possession of which the
Collateral Agent shall at the time be entitled to hereunder; provided, that during any period
any aircraft on which a Spare Engine is installed is activated under the Civil Reserve Air
Fleet Program in accordance with the provisions of SECTION 2.01(B)(I)(F) hereof and in the
possession of the government of the United States of America or an instrumentality or agency
thereof, the Collateral Agent shall not, on account of any Event of Default, be entitled to
exercise any of its rights under this SECTION 4.01 against the Collateral in such manner as to
limit the Company's control of the associated aircraft, unless at least sixty (60) days' (or
such lesser period as may then be applicable under the Air Mobility Command program of the
United States Government) prior written notice of Default hereunder shall have been given by
the Collateral Agent to the Company with a copy addressed to the Contracting Office
Representative for the Air Mobility Command of the United States Air Force under the contract
with the Company relating to such aircraft.
(b) After an Event of Default shall have occurred and so long as such Event of Default shall
be continuing, then and in every such case the Collateral Agent, as holder of a security interest
in the Collateral may, and when required pursuant to the provisions of Section 7.2 of the Loan
Agreement shall, exercise, any or all of the rights and powers and pursue any and all of the
remedies accorded to a secured party under the UCC and under any other applicable law, may
recover judgment in its own name as Collateral Agent against the Collateral and may take
possession of all or any part of the Collateral and may exclude the Company and all Persons
claiming under any of them wholly or partly therefrom. Any proceeds received or realized by
the Collateral Agent at any time pursuant to the exercise of remedies hereunder shall be
promptly transferred by the Collateral Agent to the account of the Agent specified in Section
2.9(a) of the Loan Agreement for application in accordance with the priority of payments set
forth in Section 2.9(e) of the Loan Agreement.
(c) So long as an Event of Default shall have occurred and be continuing, the Collateral Agent
may, if at the time such action may be lawful and always subject to compliance with any mandatory
legal requirements, either with or without taking possession, and either before or after taking
possession and without instituting any legal proceedings whatsoever, and having first given
notice of such sale by registered mail to the Company, at least 20 days prior to the date of
such sale, and any other notice which may be required by law, sell and dispose of the
Collateral, or any part thereof, or interest therein, at public auction or private sale, in one
lot as an entirety or in separate lots, and either for cash or on credit and on such terms as
the Collateral Agent may determine, and at any place (whether or not it be the location of the
Collateral or any part thereof) and time designated in the notice above referred to.
(d) Any such sale may be adjourned from time to time by announcement at the time and place
appointed for such sale, or for any such adjourned sale, without further notice, and the Collateral
Agent or any Lender may bid and become the purchaser at any such sale and each Lender shall be entitled
at any public auction sale to credit against any purchase price bid at such public auction sale
by such Lender all or any part of any unpaid obligations owing to such Lender secured by the
Lien of the Security Documents.
(e) If an Event of Default has occurred and is continuing, the Collateral Agent shall also be
entitled to pursue all or any part of the Collateral wherever it may be found and may enter any of the
premises of the Company or any other Person wherever the Collateral may be or be supposed to be
and search for the Collateral and take possession of any item of the Collateral pursuant to
this SECTION 4.01(E). The Collateral Agent may, from time to time, at the expense of the
Company, make all such expenditures for the collection, maintenance, insurance, repairs,
replacements, alterations, additions and improvements to and of the Collateral, as it may deem
proper. In each such case, the Collateral Agent shall have the right to collect, maintain,
use, insure, operate, store, lease, control or manage the Collateral, and to carry on business
and exercise all rights and powers of the Company relating to the Collateral as the Collateral
Agent shall deem appropriate, including the right to enter into any and all such agreements
with respect to the collection, maintenance, use, insurance, operation, storage, leasing,
control or management of the Collateral or any part thereof. The Collateral Agent shall be
entitled to collect, xxx for and receive directly all monies due or to become due, tolls,
rents, issues, profits, products, revenues or other income pursuant to this SECTION 4.01(E).
In accordance with the terms of this SECTION 4.01(E), such monies due or to become due, tolls,
rents, issues, profits, products, revenues and other income shall be applied to pay the
expenses of collecting, using, operating, storing, leasing, controlling or managing the
Collateral, and of all maintenance, insurance, repairs, replacements, alterations, additions
and improvements, and to make all payments which the Collateral Agent 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 Collateral Agent may be required or authorized to make under
any provision of this Security Agreement, including this SECTION 4.01(E), as well as just and
reasonable compensation for the services of the Collateral Agent, and of all persons properly
engaged and employed by the Collateral Agent.
(f) Subject to SECTION 4.01(C), the Collateral Agent may proceed to protect and enforce this
Security Agreement by suit or suits or proceedings in equity, at law or in bankruptcy, and whether
for the specific performance of any covenant or agreement herein contained or in execution or aid
of any power herein granted; or for foreclosure hereunder, or for the appointment of a receiver
or receivers for the Collateral or any part thereof, or for the recovery of judgment for the
indebtedness secured by the Lien created under this Security Agreement or for the enforcement
of any other proper, legal or equitable remedy available under applicable law.
(g) Each and every right, power and remedy herein given to the Collateral Agent specifically
or otherwise in this Security Agreement 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 in such order as may be
deemed expedient by the Collateral Agent, 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 same
time or thereafter any other right, power or remedy. No delay or omission by the Collateral
Agent in the exercise of any right, remedy or power or in pursuing 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.
(h) Upon and during the continuance of an Event of Default the Collateral Agent shall be
entitled to undertake an acceptance of all or a part of the Collateral in satisfaction of all or a
specified part of the Obligations pursuant to and in accordance with the provisions of Sections
9-620 and 9-621 of the UCC and the Company's rights thereunder, none of which are waived herein
notwithstanding the terms of SECTION 4.03, and, if pursuant to such Sections and after such
Event of Default the Company consents to such acceptance, which consent shall not be
unreasonably withheld, then the Company shall execute and deliver such deeds of conveyance,
assignments and other documents or instruments (including any notices or applications to the
FAA or any other Governmental Authority having jurisdiction over the Collateral subject to such
conveyance) as shall be reasonably required to effectuate the transfer of such Collateral,
together with the certificates, if any, representing the same and any other rights of the
Company with respect thereto, to the Collateral Agent or any designee or designees selected by
the Collateral Agent.
SECTION 4.02 EXPENSES. The Company agrees that it will upon demand pay to the Collateral Agent:
(a) the amount of any taxes (other than income taxes) payable by reason of the Collateral Agent's
security interests in respect of the Collateral or to free any of the Collateral from any Lien thereon;
and
(b) the amount of any and all reasonable out-of-pocket expenses, including, but not limited to,
any excise, property, transfer, sales and use taxes imposed by any state, federal or other local
authority on any of the Collateral, and reasonable fees and disbursements of counsel and of any other
experts payable in connection with the enforcement of this Security Agreement after and during
the continuance of any Event of Default, including such expenses as are incurred in connection
with:
(i) the collection, sale or other disposition of the Collateral;
(ii) any action taken by the Collateral Agent to effect compliance on behalf of the Company in
respect of a failure by the Company to comply with the provisions of this Security Agreement
which results (or is likely to result) in the diminution of the value of the Collateral or
the validity, perfection, rank or value of the Collateral Agent's security interest in
the Collateral;
(iii) protecting, storing, warehousing, appraising, insuring, handling, maintaining, shipping,
overhauling and repairing the Collateral; or
(iv) the exercise by the Collateral Agent of any of the rights or powers conferred upon it hereunder.
Any such amount not paid to the Collateral Agent on demand shall bear interest for
each day until paid at a rate per annum equal to the rate specified in Section 2.7(g) of the
Loan Agreement.
SECTION 4.03 WAIVER OF CLAIMS.
(a) Except as otherwise provided in this Security Agreement, the Company hereby waives, to the
maximum extent permitted by applicable law, notice and judicial hearing in connection with the
Collateral Agent's taking possession, retention, disposition or sale of any Collateral,
including any and all prior notice and hearing for any prejudgment remedy or remedies and any
such right which the Company would otherwise have under any applicable law, and the Company
hereby further waives, to the maximum extent permitted by law:
(i) provided that the actions taken comply, in all material respects, with applicable law,
including but not limited to all applicable provisions of the UCC, all claims, damages and
demands against the Collateral Agent, the Board and the Lenders arising out of such taking of
possession, retention, disposition or sale of the Collateral except such claims,
damages and demands as may arise out of such Person's own gross negligence or willful
misconduct as actually and finally determined by a final non-appealable judgment of a
court of competent jurisdiction and only to the extent of direct (as opposed to
special, indirect, consequential or punitive) damages;
(ii) all other requirements as to the time, place and terms of sale or other requirements with
respect to the enforcement of the Collateral Agent's rights hereunder; and
(iii) all rights of appraisal, valuation, stay, extension or moratorium (but not redemption) now
or hereafter in force under any applicable law in order to prevent or delay the enforcement
of this Security Agreement or the absolute sale or other disposition of any part of the
Collateral, and the Company, for itself and all who may claim under it, insofar as it
or they now or hereafter lawfully may, hereby waives the benefit of all such laws;
provided, however, that the actions taken by the Collateral Agent as described in this
SECTION 4.03 herein comply, in all material respects, with applicable law, including
but not limited to all applicable provisions of the UCC.
(b) The Company, for itself and all who claim through it, hereby waives all right to have the
Collateral marshaled upon any foreclosure hereof and agrees that any court having jurisdiction to
foreclose this Security Agreement may order the sale of the Collateral as an entity.
SECTION 4.04 DISCONTINUANCE OF PROCEEDINGS. In case the Collateral Agent shall have
instituted any proceeding to enforce any right, power or remedy under this Security Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned
for any reason or shall have been determined adversely to the Collateral Agent, then and in every
such case the Company, the Collateral Agent and each Lender shall be restored to their former
positions and rights hereunder with respect to the Collateral subject to the security interest
and Lien created under the Security Documents and all rights, remedies and powers of the
Collateral Agent shall continue as if no such proceeding had been instituted.
ARTICLE 5
TERMINATION OF SECURITY AGREEMENT
SECTION 5.01 TERMINATION OF SECURITY AGREEMENT. This Security Agreement shall terminate
upon payment and performance in full of all of the Obligations and, as to any item of Collateral,
upon the transfer or disposition of such Collateral as permitted herein. Upon termination, the
Company shall direct, at the Company's sole cost and expense, the Collateral Agent to execute and
deliver, at the Company's sole cost and expense, to or as directed in writing by the Company
appropriate instruments reasonably required to release all the property included in the
Collateral (or such item of Collateral, as the case may be) from the Lien of the Security
Documents and the Collateral Agent shall execute and deliver such instruments as aforesaid;
provided, however, that this Security Agreement shall earlier terminate and this Security
Agreement shall be of no further force or effect upon any sale or other final disposition by
the Collateral Agent of all property constituting part of the Collateral and the final
distribution by the Collateral Agent of all monies or other property or proceeds constituting
part of the Collateral in accordance with the terms hereof. Except as aforesaid otherwise
provided, this Security Agreement shall continue in full force and effect in accordance with
the terms hereof.
ARTICLE 6
MISCELLANEOUS
SECTION 6.01 NOTICES. All notices and other communication provided for herein shall be
in writing and shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy as follows:
if to the Company, to:
Frontier Airlines, Inc.
0000 Xxxxx Xxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Vice President-Administration and General Counsel
Phone: (000) 000-0000
Facsimile: (000) 000-0000
if to the Collateral Agent, to:
Xxxxx Fargo Bank Northwest, N.A.
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx X. Xxxx
Phone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other party hereto. All notices and other
communications given to either party hereto in accordance with the provisions of this Security
Agreement shall be deemed to have been given on the date of receipt.
SECTION 6.02 GOVERNING LAW. THIS SECURITY AGREEMENT IS BEING DELIVERED IN THE STATE
OF NEW YORK. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK; PROVIDED THAT IN THE EVENT THE BOARD BECOMES A LENDER PURSUANT TO THE
BOARD GUARANTEE, THE RIGHTS AND OBLIGATIONS OF THE BOARD HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE FEDERAL LAW OF THE UNITED STATES OF AMERICA, IF AND TO THE
EXTENT SUCH FEDERAL LAW IS APPLICABLE, AND OTHERWISE IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK. THE PROVISIONS OF SECTION 10.11 OF THE LOAN AGREEMENT ARE INCORPORATED HEREIN
MUTATIS MUTANDIS, AS IF FULLY SET FORTH HEREIN.
SECTION 6.03 EXECUTION IN COUNTERPARTS. This Security Agreement may be executed in any
number of counterparts, each of which shall be an original but such counterparts shall together
constitute but one instrument.
SECTION 6.04 AMENDMENTS. This Security Agreement may be amended in accordance with the
provisions set forth in Section 10.1 of the Loan Agreement.
SECTION 6.05 DOCUMENTATION. The Company shall provide the Collateral Agent with copies
of all documents executed in connection with the Security Documents.
SECTION 6.06 PREPAYMENT ACCOUNT. Any amounts which the Company may be required to pay
to the Agent as a prepayment in accordance with Section 2.6 or 2.10 of the Loan Agreement on a day
that is other than an Interest Payment Date may, in lieu of being paid by the Company as a prepayment
on the due date thereof, be deposited in the Prepayment Account if, by virtue of such prepayment,
the Company would be obligated to make a payment in accordance with Section 2.10(e) of the Loan
Agreement. To the extent the Company elects to deposit cash in the Prepayment Account as
provided in the preceding sentence, the Collateral Agent shall apply any amounts so deposited
in the Prepayment Account to prepay the Loans on the last day of the then current Interest
Period. The Company shall be deemed to have satisfied the prepayment requirements of Section
2.6 or 2.10, as applicable, upon deposit of immediately available funds in the Prepayment
Account in an amount equal to the amount of the prepayment then due pursuant to such Section
2.6 or 2.10, as applicable. The Collateral Agent shall, at the request of the Company and in
accordance with SECTION 6.07 hereof, invest amounts on deposit in the Prepayment Account in
Cash Equivalents maturing on or prior to the last day of the then current Interest Period with
any interest thereon remitted to the Company concurrently with the application of the amounts
so deposited on the date of prepayment; provided, that no such remittance shall be made if and
so long as a Specified Default or Event of Default shall have occurred and be continuing. The
parties hereby acknowledge and agree that the Prepayment Account is, and is intended to be, a
deposit account (as such term is defined in Section 9-102 of the UCC), and that the Collateral
Agent shall at all times during the term of this Agreement have control of such Prepayment
Account (within the meaning of Section 9-104 of the UCC).
SECTION 6.07 CASH COLLATERAL.
(a) Any amounts held by the Collateral Agent pursuant to the provisions of this Agreement
shall be invested by the Collateral Agent from time to time in Cash Equivalents as directed in an
Officer's Certificate from the Company so long as the Collateral Agent may acquire the same using
commercially reasonable efforts. The parties hereto agree that the Collateral Agent and/or an
Affiliate of the Collateral Agent may charge and/or collect fees and expenses in connection
with the purchase of Cash Equivalents or for other services rendered to the parties hereto
(provided that such charges, fees and expenses are on terms consistent with terms negotiated at
arm's length). Neither the Collateral Agent nor any of its Affiliates shall be required to
account for any profits or benefits described in the preceding sentence. All Cash Equivalents
held by the Collateral Agent pursuant to this SECTION 6.07 shall be registered in the name of,
payable to the order of, or specially endorsed to, the Collateral Agent. Except as otherwise
provided in SECTION 6.06, any income realized as a result of any such investment, net of the
Collateral Agent's reasonable fees and expenses in making such investment, shall be held and
applied by the Collateral Agent in the same manner as the principal amount of such investment
is to be applied and any losses, net of earnings and such reasonable fees and expenses, shall
be charged against the principal amount invested. All taxes on any income so realized shall be
charged to the Company. The Collateral Agent shall not be liable for any loss resulting from
any investment to be made by it under this Agreement other than by reason of its willful
misconduct or gross negligence as actually and finally determined in a final, non-appealable
judgment of a court of competent jurisdiction.
(b) Neither the Collateral Agent nor any of its Affiliates assume any duty or liability for
monitoring the rating of the selected investment. In the event an investment selection is not made,
the amounts held by the Collateral Agent pursuant to the provisions of this Security Agreement
shall not be invested and the Collateral Agent shall not incur any liability for interest or
income thereon.
(c) The Collateral Agent shall have no obligation to invest or reinvest amounts to be held by
the Collateral Agent if all or a portion of such amounts are deposited with the Collateral Agent
after 11:00 a.m. (New York time) on the day of the deposit. Instructions to invest or reinvest that
are received after 11:00 a.m. (New York time) will be treated as if received on the following
Business Day in New York.
(d) The Collateral Agent shall have the power to sell or liquidate the foregoing investments
whenever the Collateral Agent shall be required to distribute the amounts held pursuant to the terms
of this Security Agreement or as otherwise contemplated in this Security Agreement. Requests or
instructions received after 11:00 a.m. (New York time) by the Collateral Agent to liquidate
such amounts will be treated as if received on the following Business Day in New York.
(e) The Collateral Agent shall have no responsibility for any investment losses resulting from
the investment, reinvestment or liquidation of the amounts held by the Collateral Agent pursuant to
the terms of this Security Agreement provided that the Collateral Agent has made such
investment, reinvestment or liquidation of the trust assets in accordance with the terms, and
subject to the conditions, of this Security Agreement.
(f) Each of the parties to this Security Agreement acknowledge that non-deposit investment products
are not obligations of, or guaranteed by, Xxxxx Fargo Bank, N.A. or any of their affiliates; are not
FDIC insured; and are subject to investment risks, including the possible loss of principal
amount invested in one of the money market funds made available by the Collateral Agent and
selected by the Company.
(g) Any investment direction contained herein may be executed through an affiliated broker or
dealer of the Collateral Agent and any such affiliated broker or dealer shall be entitled to such
broker's or dealer's usual and customary fees for such execution.
(h) The Cash Equivalents may be held by the Collateral Agent directly or through any clearing
agency or depository (collectively, the "Clearing Agency") including, without limitation,
the Federal Reserve/Treasury Book-Entry System for United States and federal agency securities,
and The Depository Trust Company. The Collateral Agent shall not have any responsibility or liability
for the actions or omissions to act on the part of any Clearing Agency.
(i) Notwithstanding anything contained herein to the contrary, the parties hereto hereby agree
and acknowledge that due to the potential conflict of interest, the Collateral Agent will not
purchase the commercial paper of Xxxxx Fargo Bank, N.A. or any affiliate (collectively,
"Paper") unless the Collateral Agent is specifically instructed to purchase Paper in an
Officer's Certificate from the Company. Any instruction for the purchase of Paper must be given
by the Company on a transaction by transaction basis in the manner set forth in the preceding
sentence.
* * *
IN WITNESS WHEREOF, the parties to hereto have caused this Mortgage and Security
Agreement to be duly executed by their respective officers thereunto duly authorized.
FRONTIER AIRLINES, INC.
By: By:
Name: Name:
Title: Title:
Witnesses: Witnesses:
By: By:
Name Name
By: By:
Name Name
STATE OF COLORADO ) STATE OF COLORADO )
) ss.: ) ss.:
COUNTY OF DENVER ) COUNTY OF DENVER )
I, , a Notary I, , a
Public of the County of Denver, State Notary Public of the County of
of Colorado, do hereby certify that the Denver, State of Colorado, do hereby
above-referenced officer of Frontier certify that the above-referenced
Airlines, Inc., a Colorado corporation, officer of Frontier Airlines, Inc.,
personally appeared before me and a Colorado corporation, personally
acknowledged the due execution of the appeared before me and acknowledged
foregoing instrument for and on behalf the due execution of the foregoing
of said company. instrument for and on behalf of said
company.
WITNESS my hand and official stamp or
seal. WITNESS my hand and official stamp
or seal.
Notary Public
Notary Public
My Commission
Expires: My Commission
Expires:
XXXXX FARGO BANK NORTHWEST, N.A.,
as Collateral Agent
By:
Name:
Title:
Witnesses:
By:
Name
By:
Name
STATE OF UTAH )
) ss.:
COUNTY OF SALT LAKE )
I, , a Notary Public of the County of Salt Lake, State of Utah, do
hereby certify that the above-referenced officer of Xxxxx Fargo Bank Northwest, N.A.,
personally appeared before me and acknowledged the due execution of the foregoing instrument
for and on behalf of said company.
WITNESS my hand and official stamp or seal.
Notary Public
My Commission Expires:
EXHIBIT A1
to Mortgage and
Security Agreement
MORTGAGE AND SECURITY AGREEMENT
SUPPLEMENT (SPARE ENGINE) NO. ( )
This MORTGAGE AND SECURITY AGREEMENT SUPPLEMENT (SPARE ENGINE) NO. ( ) dated
(herein called this "Security Agreement Supplement") made by Frontier Airlines,
Inc., a Colorado corporation (herein called the "Company"), in favor of Xxxxx Fargo Bank
Northwest, N.A., as Collateral Agent for, and directed by, the Board, the Lenders and the
Supplemental Guarantors (each as defined in the Loan Agreement (as defined in the Security
Agreement (as defined below))) (the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the Company has heretofore executed and delivered to the Collateral Agent a
Mortgage and Security Agreement dated as of February 14, 2003 (as amended, modified, restated
or otherwise supplemented from time to time in accordance with its terms, the "Security
Agreement"), covering, inter alia, Spare Engines of the Company;
WHEREAS, terms that are defined in the Security Agreement or the Loan Agreement (as
such term is defined in the Security Agreement) and which are not otherwise defined herein
shall have the meanings assigned to such terms in the Security Agreement or the Loan Agreement;
WHEREAS, the Security Agreement and Security Agreement Supplement (Spare Engine) No.
dated , have been duly recorded pursuant to Subtitle VII of Title 49
of the United States Code on , , as one document and have been assigned
Conveyance No. ; and
WHEREAS, the Security Agreement provides for the execution and delivery from time to
time of Mortgage and Security Agreement Supplements, each substantially in the form hereof, for
the purpose of subjecting engines to the Lien of the Security Agreement.
NOW, THEREFORE, this Security Agreement Supplement Witnesseth, that to secure the
prompt payment of the principal of, interest on and all other amounts due with respect to the
Loan and to secure the performance and observance by the Company of all the agreements,
covenants and provisions contained in the Security Agreement, in the Loan Agreement and in the
other Loan Documents and the prompt payment of any and all amounts from time to time owing
hereunder, under the Loan Agreement and the other Loan Documents and for the uses and purposes
and subject to the terms and provisions of the Security Agreement, and in consideration of the
premises and of the covenants contained in the Security Agreement, and of other good and
valuable consideration the receipt and adequacy whereof are 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 Collateral Agent, its successors and assigns, for the security and benefit of
the Board and the Lenders, a first priority security interest in and first priority mortgage
Lien on the following described property:
AIRCRAFT ENGINES
[ ] aircraft engines, each such engine having 750 or more rated take-off horsepower
or the equivalent thereof, whether or not such engines shall be installed in or attached to any
aircraft or airframe, identified as follows:
Manufacturer Model Manufacturer's
Serial Number
together with all Parts which are from time to time incorporated or installed in or attached
thereto or which have been removed therefrom, unless the Lien of the Security Agreement shall
not be applicable to such Part pursuant to the provisions of the Security Agreement.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the Collateral Agent,
its successors and assigns, for the uses and purposes and subject to the terms and provisions
set forth in the Security Agreement.
This Security Agreement Supplement shall be construed as a supplemental Security
Agreement and shall form a part thereof, and the Security Agreement is hereby incorporated by
reference herein and is hereby ratified, approved and confirmed.
* * *
IN WITNESS WHEREOF, the Company has caused this Mortgage and Security Agreement
Supplement (Spare Engine) No. ( ) to be duly executed by one of its officers, thereunto duly
authorized, on the day and year first above written.
FRONTIER AIRLINES, INC.
By:
Name:
Title:
EXHIBIT A2
to Mortgage and
Security Agreement
MORTGAGE AND SECURITY AGREEMENT
SUPPLEMENT (SPARE PARTS) NO. ( )
This MORTGAGE AND SECURITY AGREEMENT SUPPLEMENT (SPARE PARTS) NO. ( ) dated
(herein called this "Security Agreement Supplement") made by Frontier Airlines,
Inc., a Colorado corporation (herein called the "Company"), in favor of Xxxxx Fargo Bank
Northwest, N.A., as Collateral Agent for, and directed by, the Board, the Lenders and the
Supplemental Guarantors (as defined in the Loan Agreement (as defined in the Security Agreement
(as defined below))) (the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the Company has heretofore executed and delivered to the Collateral Agent a
Mortgage and Security Agreement dated as of February 14, 2003 (as amended, modified, restated
or otherwise supplemented from time to time in accordance with its terms, the "Security
Agreement"), covering, inter alia, certain Spare Parts, Appliances and Expendables of the
Company;
WHEREAS, terms that are defined in the Security Agreement or the Loan Agreement (as
such term is defined in the Security Agreement) and which are not otherwise defined herein
shall have the meanings assigned to such terms in the Security Agreement or the Loan Agreement;
WHEREAS, the Security Agreement and Security Agreement Supplement (Spare Parts) No.
dated , have been duly recorded pursuant to Subtitle VII of Title 49 of
the United States Code on , , as one document and have been assigned
Conveyance No. ; and
WHEREAS, the Security Agreement provides for the execution and delivery from time to
time of Mortgage and Security Agreement Supplements, each substantially in the form hereof, for
the purpose of subjecting spare parts, appliances and expendables to the Lien of the Security
Agreement.
NOW, THEREFORE, this Security Agreement Supplement Witnesseth, that to secure the
prompt payment of the principal of, interest on and all other amounts due with respect to the
Loan and to secure the performance and observance by the Company of all the agreements,
covenants and provisions contained in the Security Agreement, in the Loan Agreement and in the
other Loan Documents and the prompt payment of any and all amounts from time to time owing
hereunder, under the Loan Agreement and the other Loan Documents and for the uses and purposes
and subject to the terms and provisions of the Security Agreement, and in consideration of the
premises and of the covenants contained in the Security Agreement, and of other good and
valuable consideration the receipt and adequacy whereof are 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 Collateral Agent, its successors and assigns, for the security and benefit of
the Board and the Lenders, a first priority security interest in and first priority mortgage
Lien on the following described property:
SPARE PARTS
[Describe]
The Spare Parts described above are located, as of the date hereof, at [specify
locations] (each such location to be included as a Designated Location).
TO HAVE AND TO HOLD all and singular the aforesaid property unto the Collateral Agent,
its successors and assigns, for the uses and purposes and subject to the terms and provisions
set forth in the Security Agreement.
The Company hereby represents and warrants that it holds an air carrier operating
certificate issued by the Secretary of Transportation of the United States pursuant to Chapter
447 of Title 49 of the United States Code or any analogous successor provision of the United
States Code, for aircraft capable of carrying ten or more individuals or 6,000 pounds or more
of cargo.
This Security Agreement Supplement shall be construed as a supplemental Security
Agreement and shall form a part thereof, and the Security Agreement is hereby incorporated by
reference herein and is hereby ratified, approved and confirmed.
* * *
IN WITNESS WHEREOF, the Company has caused this Mortgage and Security Agreement
Supplement (Spare Parts) No. (__) to be duly executed by one of its officers, thereunto duly
authorized, on the day and year first above written.
FRONTIER AIRLINES, INC.
By:
Name:
Title:
EXHIBIT B
to Mortgage and
Security Agreement
SCHEDULE OF SPARE ENGINES
One (1) [***] engine bearing manufacturer's serial number [***], which has seven hundred and
fifty (750) or more rated takeoff horsepower or its equivalent.
EXHIBIT C
to Mortgage and
Security Agreement
DESIGNATED LOCATIONS
Continental Hangar
Frontier Area
00000 X. 000xx Xxx.
Xxxxxx, Xxxxxxxx 00000
00000 Xxxx 00xx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Denver International Airport
Concourse X
Xxxx 00
Xxxxxx, Xxxxxxxx 00000
0000 Xxxxxxxxxx Xxxxxx
Xxxx X
Xxxxxx, Xxxxxxxx 00000
Frontier Airlines/ELP Station
0000 Xxxxxxx Xx., Xxxxx X
Xx Xxxx, Xxxxx 00000
Sky Harbor Airport
0000 Xxx Xxxxxx Xxxx.
Terminal 3, Gate 20
Xxxxxxx, Xxxxxxx 00000
Albuquerque International Airport
0000 Xxxxxxx Xxxx
Xxxxxxxxxxx, XX 00000
EXHIBIT D
to Mortgage and
Security Agreement
SCHEDULE OF COUNTRIES AUTHORIZED
FOR DOMICILE OF PERMITTED LESSEES
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Iceland
Ireland
Italy
Japan
Netherlands
Norway
Sweden
Switzerland
United Kingdom
