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EXHIBIT 10.90
 
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT.  THE SYMBOL “[***]” HAS BEEN INSERTED IN PLACE OF THE PORTIONS SO
OMITTED.
 
*
 
EQUIPMENT MORTGAGE AND
SECURITY AGREEMENT
 
dated as of June 24, 2011
 
made by
 
MESABA AVIATION, INC.,
as Grantor
 
in favor of
 
C.I.T. LEASING CORPORATION,
as Collateral Agent
 

     

 
 
 

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TABLE OF CONTENTS
 
Page
 

ARTICLE 1
DEFINITIONS 
5

 
 
Section 1.01.
Definitions 
5

 
 
ARTICLE 2
COVENANTS OF THE GRANTOR 
9

 
 
Section 2.01.
Maintenance and Operation of Engines and Possession; Insignia 
9

 
Section 2.02.
Replacement and Pooling of Parts; Alterations, Modifications and Additions 
13

 
Section 2.03.
Insurance 
14

 
Section 2.04.
Inspection 
15

 
Section 2.05.
Other Representations, Warranties and Covenants 
16

 
Section 2.06.
Pledged Spare Parts 
18

 
 
ARTICLE 3
EVENT OF LOSS 
21

 
 
Section 3.01.
Event of Loss with Respect to an Engine 
21

 
Section 3.02.
Event of Loss with Respect to a Pledged Spare Part 
23

 
 
ARTICLE 4
REMEDIES 
25

 
 
Section 4.01.
Event of Default 
25

 
Section 4.02.
Remedies with Respect to Collateral 
25

 
Section 4.03.
Waiver of Appraisement, Etc 
27

 
Section 4.04.
Application of Proceeds 
28

 
Section 4.05.
Remedies Cumulative 
28

 
Section 4.06.
Discontinuance of Proceedings 
28

 
 
ARTICLE 5
TERMINATION OF MORTGAGE 
28

 
 
Section 5.01.
Termination of Mortgage 
28

 
 
ARTICLE 6
MISCELLANEOUS 
29

 
 
Section 6.01.
No Legal Title to Collateral in Lender 
29

 
Section 6.02.
Sale of Collateral by Collateral Agent is Binding 
29

 
Section 6.03.
Benefit of Mortgage 
29

 
Section 6.04.
Notices 
29

 
Section 6.05.
Governing Law 
29

 
Section 6.06.
Grantor’s Duties 
30

 
Section 6.07.
Counterparts 
30

 
Section 6.08.
Waiver; Amendment 
30

 
Section 6.09.
Obligations Absolute 
30

 
Section 6.10.
Successors and Assigns 
31

 
Section 6.11.
Conflicts with Other Financing Documents 
31

 
 
ARTICLE 7
COLLATERAL AGENT 
31

EXHIBITS
Exhibit A
Form of Mortgage Supplement
Exhibit B
Insurance Provisions

 
 
 

 
 
 

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EQUIPMENT MORTGAGE AND
SECURITY AGREEMENT
 
THIS EQUIPMENT MORTGAGE AND SECURITY AGREEMENT dated as of June 24, 2011 (this
“Mortgage”) is made by MESABA AVIATION, INC., a Minnesota corporation (the
“Grantor”), in favor of C.I.T. LEASING CORPORATION, acting as administrative
agent and collateral agent (in such capacity, the “Collateral Agent”) for the
Lenders.
 
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 or, if not
defined in Article 1, in the Credit Agreement;
 
WHEREAS, all things necessary to make this Mortgage the legal, valid and binding
obligation of the Grantor, for the uses and purposes herein set forth, in
accordance with its terms, have been done and performed and have happened;
 
WHEREAS, pursuant to that certain Credit Agreement dated as of July 30, 2009 (as
amended, restated, amended and restated, modified, supplemented, renewed or
replaced from time to time, the “Credit Agreement”) among Grantor, Pinnacle
Airlines, Inc., Colgan Air, Inc., the Loan Parties party thereto, the Lenders
party thereto, the Collateral Agent, as administrative agent and collateral
agent, the Lenders have agreed to make certain Loans to the Borrowers
thereunder; and
 
WHEREAS, in order to induce the Secured Parties to enter into that certain Third
Amendment to Credit Agreement dated as of June 24, 2011 and the other Financing
Documents and in order to induce the Lenders to make the Loans as provided for
in the Credit Agreement, the Grantor has agreed to execute and deliver this
Mortgage to the Collateral Agent for the ratable benefit of the Lenders (the
Collateral Agent, Lenders and the Administrative Agent collectively referred to
herein as the “Secured Parties”).
 
GRANTING CLAUSE
 
NOW, THEREFORE, THIS EQUIPMENT MORTGAGE AND SECURITY AGREEMENT WITNESSETH, that,
to secure the prompt and complete payment and performance when due of the
Obligations of the Grantor and each Borrower under the Credit Agreement and each
of the other Financing Documents, to secure the performance and observance by
the Grantor and each Borrower of all the agreements, covenants and provisions
contained herein and in the Financing Documents to which they are a party for
the benefit of the Collateral Agent on behalf of the Secured Parties and each of
the other Indemnitees, 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 to the parties to
the Financing Documents, the receipt and adequacy whereof are hereby
acknowledged, the Grantor has granted, bargained, sold, assigned, transferred,
conveyed, mortgaged, pledged and confirmed, and do hereby grant, bargain, sell,
assign, transfer, convey,
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 mortgage, pledge and confirm, unto the Collateral Agent, its successors and
assigns, for the security and benefit of the Secured Parties, a first priority
continuing security interest in and first priority mortgage Lien on all estate,
right, title and interest of the Grantor in, to and under the following
described property, rights, interests and privileges whether now or hereafter
acquired and subject to the Lien hereof (which collectively, including all
property hereafter specifically subjected to the Lien of this Mortgage by any
instrument supplemental hereto, are herein called the “Collateral”):
 
(1)           each Engine (each such Engine having 550 or more rated take-off
horsepower or the equivalent thereof) as the same is now and will hereafter be
constituted, whether now or hereafter acquired and subjected to the Lien hereof,
and whether or not any such Engine shall be installed in or attached to any
airframe and all substitutions or replacements therefor, as provided in this
Mortgage, together with all Parts of whatever nature which are from time to time
included in any “Engine”, whether now or hereafter acquired and subjected to the
Lien hereof, and all renewals, substitutions, replacements, additions,
improvements, accessories and accumulations with respect to any of the
foregoing, and all records, logs, manuals, maintenance data and inspection,
modification and overhaul records and other related materials with respect to
any of the foregoing (as may be required to be maintained by the Grantor under
an FAA (or similar aviation authority) approved maintenance program);
 
(2)           all Spare Parts currently owned or hereafter acquired by the
Grantor, including, without limitation, Repairables, Rotables, Expendables and
Life Limited Parts, and all substitutions or replacements therefor
(collectively, the “Qualified Spare Parts”); provided; however, that any
Qualified Spare Part that is incorporated in, installed on, attached or
appurtenant to, or being used on, an aircraft, engine or spare part that is so
incorporated, installed, attached, appurtenant or being used shall be excluded
from the Lien of this Mortgage (such Qualified Spare Parts, giving effect to
such exclusions, the “Pledged Spare Parts”);
 
(3)           the rights of the Grantor under any warranty or indemnity, express
or implied, regarding title, materials, workmanship, design or patent
infringement or related matters in respect of the Pledged Spare Parts;
 
(4)           (i) the Engine Warranties and (ii) any relevant purchase agreement
related to the Engines, in each case to the extent the same relate to continuing
rights of the Grantor in respect of any warranty, indemnity or agreement,
express or implied, as to title, materials, or workmanship, with respect to an
Engine, together in each case under this clause 4 with all rights, powers,
privileges, options and other benefits of the Grantor thereunder with respect to
such Engine, including, without limitation, the right to make all waivers and
agreements, to give and receive all notices and other instruments or
communications, to take such action upon the occurrence of a default thereunder,
including the commencement, conduct and consummation of legal, administrative or
other proceedings, as shall be permitted thereby or by law, and to do any and
all other things which the Grantor is or may be entitled to do thereunder;
 
(5)           all proceeds with respect to the requisition of title to or use of
each Engine or any Part thereof, or any Pledged Spare Parts, all insurance
proceeds or indemnity payments with respect to any of the foregoing and any
other proceeds of any kind resulting from an Event of Loss;
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

(6)           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 Grantor pursuant to the terms hereof and held or required to be
held by the Collateral Agent hereunder;
 
(7)           any and all property that may, from time to time hereafter, in
accordance with the provisions of the Financing Documents, by delivery or by
Mortgage Supplement or by other writing of any kind, for the purposes hereof be
in any way subjected to the Lien and security interest hereof or be expressly
conveyed, mortgaged, assigned, transferred, deposited hereunder, in which a
security interest may be granted by the Grantor and/or pledged by the Grantor,
or any Person authorized to do so on its behalf or with its consent, to and with
the Collateral Agent, who is hereby authorized to receive the same at any and
all times as and for additional security hereunder;
 
(8)           all rents, issues, profits, revenues and other income of the
property subjected or required to be subjected to the Lien of this Mortgage;
 
(9)           all right, title, interest, associated rights, claims and demands
of the Grantor, in, to and under any interchange agreement, pooling agreement or
similar contract related to any Engine or Pledged Spare Part or otherwise in
respect of any of same;
 
(10)           all records, logs, manuals, maintenance data and inspection,
modification and overhaul records and other related materials with respect to
any of the Pledged Spare Parts (as may be required to be maintained by the
Grantor under an FAA (or similar aviation authority) approved maintenance
program;
 
(11)           any relevant software license or other intellectual property
related to the use and/or operation by Holdings, the Grantor or any other Person
of the Tracking System, including, without limitation, the AeroSoft Systems
Inc./Canada inventory management software associated with the Tracking System;
and
 
(12)           all proceeds of the foregoing, including, without limitation, all
causes of action, claims, associated rights and warranties now or hereafter held
by the Grantor in respect of any of the items listed above and, to the extent
related to any property described in said clauses or such proceeds, all books,
correspondence, credit files, records, invoices and other papers.
 
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 Mortgage.
 
1.           It is expressly agreed that anything herein contained to the
contrary notwithstanding, the Grantor shall remain liable under each of the
contracts and agreements included in the Collateral 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 neither the Collateral
Agent nor any of the Secured Parties shall have any obligation or liability
under any such contracts and agreements to which the Grantor is a party by
reason of or arising out of
 

 
 
 

 
 
3

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[Equipment Mortgage and Security Agreement]
 

 the assignment hereunder, nor shall the Collateral Agent or any Secured Party
be required or obligated in any manner to perform or fulfill any obligations of
the Grantor, or 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 Grantor does hereby designate the Collateral Agent the true and
lawful attorney-in-fact of the Grantor, irrevocably, for good and valuable
consideration and coupled with an interest and with full power of substitution
(in the name of the Grantor or otherwise), subject to the terms and conditions
of this Mortgage, to ask, require, demand, receive, sue for, compound and give
acquittance for any and all moneys and claims for moneys due (in each case
including insurance and requisition proceeds and indemnity payments) and to
become due to the Grantor under or arising out of the Collateral, 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
Grantor itself could do generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral, as fully
and completely as though the Collateral Agent were the absolute owner thereof
for all purposes, and to do, at the Collateral Agent’s option and the Grantor’s
expense, at any time, or from time to time, all acts and things which the
Collateral Agent deems necessary to protect, preserve or realize upon the
Collateral and to effect the intent of this Mortgage; provided, that the
Collateral Agent shall not exercise any such rights except upon the occurrence
and during the continuance of an Event of Default.  Without limiting the
foregoing, during the continuance of any Event of Default, but subject to the
terms hereof and any mandatory requirement of applicable law, the Collateral
Agent shall have the right under such power of attorney in its discretion to
file any claim or take any other action or proceedings, either in its own name
or in the name of the Grantor or otherwise, which the Collateral Agent may
reasonably deem necessary or appropriate to protect and preserve the right,
title and interest of the Collateral Agent in and to the security intended to be
afforded hereby.  The Grantor agrees that after the occurrence and during the
continuance of an Event of Default, promptly upon receipt thereof, it will
transfer to the Collateral Agent any and all moneys from time to time received
by the Grantor constituting part of the Collateral, for distribution by the
Collateral Agent pursuant to the Credit Agreement and this Mortgage.
 
3.           The Grantor agrees that at any time and from time to time upon the
written request of the Collateral Agent, the Grantor, at its sole cost and
expense, will promptly and duly execute and deliver or cause to be duly executed
and delivered any and all such further instruments and documents as the
Collateral Agent may reasonably deem desirable in obtaining the full benefits of
the assignment hereunder and/or intended to be effected hereunder and of the
rights and powers herein granted and/or intended to be granted hereunder
including, without limitation, taking such steps as may be required to
establish, maintain or enforce the Lien intended to be granted hereunder in full
force and effect (whether under the UCC, Title 49, the Cape Town Convention or
the law of any other jurisdiction under which any Engine, any Pledged Spare Part
or other portion of the Collateral may be registered).
 

 
 
 

 
 
4

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[Equipment Mortgage and Security Agreement]
 

4           The Grantor does hereby warrant and represent that none of the
Collateral is currently subject to any assignment, pledge or other Lien (other
than Permitted Liens), and hereby covenants that it will not otherwise assign or
pledge, so long as the Lien of this Mortgage has not been discharged in
accordance with the terms hereof, any of its rights, title or interests hereby
assigned to any Person other than the Collateral Agent.
 
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
Grantor shall ipso facto, and without any other conveyance, assignment or act on
the part of the Grantor 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 Mortgage, except as
otherwise expressly provided or unless the context otherwise requires:
 
(1)           each of the “Grantor,” “Collateral Agent,” any “Lender” or any
other Person includes any successor in interest to it and any permitted
transferee, permitted purchaser or permitted assignee of it;
 
(2)           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;
 
(3)           all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, as in effect from time to time;
 
(4)           the words “herein”, “hereof” and “hereunder” and other words of
similar import refer to this Mortgage as a whole and not to any particular
Article, Section or other subdivision;
 
(5)           all references in this Mortgage to Articles, Sections and Exhibits
refer to Articles, Sections and Exhibits of this Mortgage; and
 
(6)           the terms “international interest” and “prospective international
interest” shall have the meaning given to them in (or as appropriate, shall be
construed in accordance with) the Cape Town Convention.
 
(b) For all purposes of this Mortgage, the following capitalized terms have the
following respective meanings:
 

 
 
 

 
 
5

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[Equipment Mortgage and Security Agreement]
 

“Additional Insured” shall mean each Lender, the Collateral Agent, the
Administrative Agent, each other “Secured Party” under the Credit Agreement and
each of their respective Affiliates, successors and permitted assigns, and the
respective directors, officers and employees of each of the foregoing.
 
“Bankruptcy Code” shall mean The Bankruptcy Reform Act of 1978, as heretofore
and hereafter amended, and codified as 11 U.S.C. Section 101 et seq.
 
“Cape Town Convention” means, collectively, The Convention on International
Interests in Mobile Equipment, concluded in Cape Town, South Africa, on
November 16, 2001 (utilizing the English-language version thereof as in effect
in the United States on the Closing Date), together with the Protocol and all
regulations and rules promulgated thereunder.
 
“Certificated Air Carrier” shall mean a Citizen of the United States holding an
air carrier operating certificate issued by the Secretary of Transportation of
the United States pursuant to Chapter 447 of Title 49 for aircraft capable of
carrying ten or more individuals or 6,000 pounds or more of cargo or that
otherwise is certified or registered to the extent required to fall within the
purview of Section 1110 of the Bankruptcy Code or any analogous provision of the
Bankruptcy Code.
 
“Citizen of the United States” shall have the meaning given to such term in
Section 40102(a)(15) of Title 49 and as that statutory provision has been
interpreted by the United States Department of Transportation pursuant to its
policies.
 
“Closing Date” shall mean the date of the initial Mortgage Supplement.
 
“Collateral” shall have the meaning assigned thereto in the Granting Clause
hereof but shall not include the Excluded Collateral.
 
“Collateral Agent” shall have the meaning given to that term in the first
paragraph of this Mortgage.
 
“Engine” shall mean (i) those specific engines owned by the Grantor which is
listed by Manufacturer, model and Manufacturer’s serial number in any Mortgage
Supplement, and whether or not either initially or from time to time installed
on an airframe; (ii) any Replacement Engine owned by the Grantor which may from
time to time be substituted for any of such 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 this Mortgage shall not apply to such
Parts in accordance with Section 2.02.
 
“Engine Warranties” means all warranties and assurances, including rights to
intellectual property necessary for the operation of an Engine, relating to such
Engine and related equipment manufactured by the relevant engine manufacturer.
 
“Equipment” shall mean, individually or collectively, as the context may
require, the Engines and the Pledged Spare Parts which are the subject of this
Mortgage and deemed to be “Collateral” hereunder.
 

 
 
 

 
 
6

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[Equipment Mortgage and Security Agreement]
 

“Equipment Mortgage and Security Agreement” or “this Agreement” or “this
Mortgage” shall mean this Equipment Mortgage and Security Agreement, as the same
may from time to time be amended, restated, amended and restated, supplemented
or otherwise modified.
 
“Event of Default” has the meaning specified in the Credit Agreement.
 
“Event of Loss” shall mean, with respect to any item of Equipment, 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 by the Grantor 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, hijacking or disappearance of such property, or the
confiscation, condemnation, or seizure of, or requisition or taking of title to,
or use of, such property by any governmental or purported governmental authority
(other than a requisition for use by the United States Government), which in the
case of any event referred to in this clause (iii) shall have resulted in the
loss of title or possession of such property by the Grantor for a period in
excess of 30 consecutive days; (iv) as a result of any law, rule, regulation,
order or other action by the FAA or other governmental body having jurisdiction,
use of such property in the normal course of the business of air transportation
shall have been prohibited for a period in excess of 180 consecutive days;
(v) the requisition for use by any government of registry of the relevant Engine
(other than the United States government) or any instrumentality or agency
thereof; and (vi) any divestiture of title to an Engine treated as an Event of
Loss pursuant to Sections 2.01(b)(i) and 3.01 hereof.
 
“Excluded Collateral” means all assets of the Grantor other than Engines,
Pledged Spare Parts and the related items of Collateral described in clauses (1)
to (12) of the definition of Collateral.
 
“Expendables” means a Spare Part that, once used, cannot be reused and, if not
serviceable, generally cannot be overhauled or repaired.
 
“FAA” shall mean the Federal Aviation Administration (or any successor agency
thereto).
 
“Grantor” shall have the meaning given to that term in the first paragraph of
this Mortgage.
 
“Indemnitees” shall have the meaning specified therefor in the Credit Agreement.
 
“International Registry” shall have the meaning specified in the Cape Town
Convention.
 
“Lien” shall have the meaning specified therefor in the Credit Agreement.
 
“Life Limited Parts” means a Spare Part that (i) has a finite operating life
that is defined by hours, cycles or calendar limit and (ii) cannot be overhauled
or repaired when it reaches its life limit.
 

 
 
 

 
 
7

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[Equipment Mortgage and Security Agreement]
 

“Manufacturer” shall mean, with respect to any item of Equipment, the
manufacturer thereof, and its successors and assigns.
 
“Mortgage Supplement” shall mean any supplement to this Mortgage which is
delivered from time to time pursuant to the terms hereof in the form of
Exhibit A hereto.
 
“Parts” shall mean, with respect to an Engine, any and all appliances, parts,
instruments, appurtenances, accessories, rotables, avionics, furnishings, seats,
and other equipment of whatever nature (other than (a) complete Engines or
engines, (b) any items leased by the Grantor from a third party, so long as
title thereto shall remain vested in such third party and (c) cargo containers)
which may from time to time be incorporated or installed in or attached to such
Engine or which have been removed therefrom, unless the Lien of this Mortgage
shall not be applicable to such Part in accordance with Section 2.02.  For the
avoidance of doubt, a Pledged Spare Part shall not constitute a Part unless and
until it shall have been incorporated or installed in or attached to an Engine
or which may thereafter be removed therefrom unless the Lien of this Mortgage
shall not be applicable thereto in accordance with Section 2.02.
 
“Permitted Liens” shall have the meaning specified therefor in the Credit
Agreement.
 
“Pledged Spare Parts” has the meaning set forth in clause (2) of the Granting
Clauses of this Mortgage.
 
“Protocol” means The Protocol to the Convention on International Interests in
Mobile Equipment on Matters Specific to Aircraft Equipment, concluded in Cape
Town, South Africa, on November 16, 2001 (utilizing the English-language version
thereof).
 
“Repairable” means a Spare Part that can be economically restored to a
serviceable condition, but has a life that is materially shorter than the life
of the flight equipment to which it relates (for the avoidance of doubt, a
Repairable cannot be a Rotable and vice versa).
 
“Replacement Engine” shall mean any engine substituted for an Engine in
accordance with Section 3.01 hereof.
 
“Rotable” means a Spare Part that wears over time and can be repeatedly restored
to a serviceable condition over a period approximating the life of the flight
equipment to which it relates.
 
“Spare Parts” shall mean any and all appliances, engines, parts, instruments,
appurtenances, accessories, rotables, furnishings, avionics, seats and other
equipment of whatever nature (including, but not limited to, “spare parts”, as
defined at 49 U.S.C.§ 40102(a)(43) and “appliances” as defined at 49 U.S.C.§
40102(a)(11)) (other than complete airframes, Engines, engines or propellers,
unless being surveyed) which are now or hereafter maintained as spare parts or
appliances by or on behalf of the Grantor at the Spare Parts Locations described
in the initial Mortgage Supplement or in any subsequent Mortgage Supplement.
 

 
 
 

 
 
8

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[Equipment Mortgage and Security Agreement]
 

“Spare Parts Locations” means any of the locations described in the initial
Mortgage Supplement, and any subsequent Mortgage Supplement at which Pledged
Spare Parts are held by or on behalf of the Grantor.
 
“Title 49” shall mean Title 49 of the United States Code, as amended and in
effect from time to time, and the regulations promulgated pursuant thereto.
 
“Tracking System” shall mean the Grantor’s (or the Grantor’s vendor’s, as the
case may be) computer system for identifying, monitoring and tracking the
location, condition and status of the Pledged Spare Parts on a per unit basis,
and any and all improvements, upgrades or replacement systems.
 
“UCC” shall mean the Uniform Commercial Code (or any similar equivalent
legislation) as in effect in any applicable jurisdiction.
 
“United States” or “U.S.” shall mean the United States of America.
 
“United States Government” shall mean the federal government of the United
States or any instrumentality or agency thereof.
 
                    ARTICLE 2                      
 
COVENANTS OF THE GRANTOR
 
The Grantor hereby represents, warrants and covenants, which representations,
warranties and covenants shall survive execution and delivery of this Mortgage,
as follows:
 
Section 2.01. Maintenance and Operation of Engines and Possession; Insignia.
 
(a) (1) Maintenance.  The Grantor, at its own cost and expense, shall:
(i) maintain, service, repair, test and overhaul (or cause to be maintained,
serviced, repaired, tested and overhauled) each Engine (w) in accordance with
the Grantor’s FAA-approved maintenance program for the make and model of the
asset in question, (x) so as at all times to keep such Engine in as good an
operating condition as when initially subjected to the Lien hereof, ordinary
wear and tear excepted and (y) in the same or better manner as the Grantor
maintains, services, repairs or overhauls similar engines owned or operated by
the Grantor in similar circumstances; (ii) maintain or cause to be maintained in
English all records, logs and other materials required to be maintained in
respect of such Engines by the FAA; and (iii) promptly furnish or cause to be
furnished to the Collateral Agent such information as may be required to enable
the Collateral Agent to file any reports required to be filed by the Collateral
Agent with any governmental authority because of such Persons’ interest in such
Collateral hereunder.
 
(2) Operation.  The Grantor shall not maintain, use, service, repair, overhaul
or operate any Engine in violation of any law or any rule, regulation, treaty,
order or certificate of any Governmental Authority, aviation authority in any
foreign country or airport authority having jurisdiction, or in violation of any
airworthiness certificate, license or registration relating to such Engine
issued by any such authority.
 

 
 
 

 
 
9

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[Equipment Mortgage and Security Agreement]
 

In the event that any such law, rule, regulation, treaty, order, certificate,
license or registration requires alteration of any Engine, the Grantor will
conform thereto or obtain conformance therewith at no expense to the Collateral
Agent.  Notwithstanding the foregoing, the Grantor may contest in good faith the
validity or application of any such law, rule, regulation, treaty, order,
certificate, license, registration or violation in any reasonable manner which
does not involve any material danger of the sale, forfeiture, or loss of any
Engine, any danger of criminal liability or material civil penalty for the
Collateral Agent or any Secured Party or impair the Collateral Agent’s or any
Secured Party’s interest in such Engine or any Financing Document, including the
Lien of this Mortgage.  If the indemnities or insurance from the United States
Government specified in Section 2.03, or some combination thereof in amounts
equal to amounts required by Section 2.03, have not been obtained, the Grantor
will not operate or locate an Engine, or permit any other Person to operate or
locate an Engine, in or to any area excluded from coverage by any insurance
required to be maintained by the terms of Section 2.03; provided, however, that
the failure of the Grantor to comply with the provisions of this sentence shall
not give rise to an Event of Default if such failure is attributable solely to a
hijacking, medical emergency, equipment malfunction, weather conditions,
navigational error or other isolated extraordinary event beyond the control of
the Grantor and the Grantor is taking all reasonable steps to remedy such
failure as soon as practicable.
 
(b) Possession.  The Grantor shall not, without the prior written consent of the
Collateral Agent, lease (whether by way of a finance lease, operating lease, or
otherwise) or otherwise in any manner deliver, transfer or relinquish possession
of any Engine; provided that, so long as no Event of Default shall have occurred
and be continuing at the time of such delivery, transfer or relinquishment of
possession or installation and so long as such action shall not deprive the
Collateral Agent of the perfected and enforceable Lien of this Mortgage on such
Engine, and subject in all cases to any limitations or requirements set forth in
the Credit Agreement, the Grantor may, without the prior written consent of the
Collateral Agent, so long as the Grantor shall comply with any other applicable
requirements of this Mortgage:
 
(i) subject such Engine to normal interchange or pooling agreements or similar
arrangements, in each case customary in the commercial airline industry and
entered into by the Grantor in the ordinary course of its business with any
Certificated Air Carrier; provided, that (A) no transfer of the registration of
any airframe on which such Engine is installed shall be effected in connection
therewith, (B) no such interchange or pooling agreement or arrangement
contemplates, requires or results in the transfer of title to such Engine,
(C) if the Grantor’s title to such Engine shall be divested under any such
agreement or arrangement, such divestiture shall be deemed to be an Event of
Loss with respect to such Engine, and the Grantor shall comply with Section 3.01
hereof in respect thereof and (D) upon entering into such arrangement, the
Grantor shall provide notice thereof to the Collateral Agent and shall furnish
copies of the relevant agreements associated therewith to the Collateral Agent;
 
(ii) deliver possession of such Engine to the Manufacturer thereof or to any
other Person for testing, service, repair, maintenance or overhaul work on such
Engine or any part of any thereof or for alterations or modifications therein or
additions thereto to the extent required or permitted by the terms hereof;
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 
(iii) install an Engine on an airframe owned by the Grantor which airframe is
free and clear of all Liens, except:  (A) Permitted Liens and those which apply
only to the engines (other than 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), (B) the
rights of Certificated Air Carriers under interchange agreements which would be
permitted under clause (i) above, provided that Grantor’s title to such Engine
shall not be divested as a result thereof and (C) mortgage Liens or other
security interests, provided, that (as regards this clause (C)), (x) such
mortgage Liens or other security interests effectively provide that such Engine
shall not become subject to the Lien of such mortgage or security interest,
notwithstanding the installation thereof on such airframe, and (y) the Grantor
shall use commercially reasonable efforts to obtain an acknowledgment within ten
(10) Business Days of such installation in form and substance satisfactory to
the Collateral Agent from the relevant secured party in respect of such
airframe, that such secured party recognizes the Collateral Agent’s security
interest in, and agrees not to assert a lien or other claim in respect of, such
Engine (the parties hereto agree that to the extent that the Grantor is unable
to obtain such acknowledgment, the Collateral Agent shall determine whether the
Outstanding Term Loan exceeds the Maximum Availability pursuant to the Credit
Agreement, and the Grantor and the Collateral Agent shall discuss alternative
collateral arrangements in accordance with Section 2.1(b) of the Credit
Agreement);
 
(iv) install an Engine on an airframe leased to the Grantor or purchased by the
Grantor subject to a conditional sale or other security agreement, provided that
(x) such airframe is free and clear of all Liens, except:  (A) the rights of the
parties to the lease or conditional sale or other security agreement covering
such airframe, or their assignees and (B) Liens of the type permitted by
subparagraph (iii) of this Section 2.01(b), and (y) such lease, conditional sale
or other security agreement effectively provides that such Engine shall not
become subject to the Lien of such lease, conditional sale or other security
agreement or any other right, title or interest of such lessor, seller or
secured party, notwithstanding the installation thereof on such airframe, and
the Grantor shall use commercially reasonable efforts to obtain an
acknowledgment within ten (10) Business Days of such installation in form and
substance satisfactory to the Collateral Agent from the relevant lessor, seller
or secured party in respect of such airframe, that such lessor, seller or
secured party recognizes the Collateral Agent’s security interest in, and agrees
not to assert a lien or other claim in respect of, such Engine (the parties
hereto agree that to the extent that the Grantor is unable to obtain such
acknowledgment, the Collateral Agent shall determine whether the Outstanding
Term Loan exceeds the Maximum Availability pursuant to the Credit Agreement, and
the Grantor and the Collateral Agent shall discuss alternative collateral
arrangements in accordance with Section 2.1(b) of the Credit Agreement);
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 
(v) transfer possession of such Engine to the United States of America or any
instrumentality or agency thereof pursuant to the Civil Reserve Air Fleet
Program so long as the Grantor shall promptly notify the Collateral Agent
(x) upon transferring possession of such Engine to the United States of America
or any agency or instrumentality thereof pursuant to this clause (v) and (y) in
the case of a transfer involving the Civil Reserve Air Fleet Program, of the
name and the address of the Contracting Office Representative for the Military
Airlift Command of the United States Air Force to whom notice must be given;
 
(vi) transfer possession of such 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 Collateral Agent and provided
that the Collateral Agent is provided prompt written notice thereof; or
 
(vii) provided that no Event of Default has occurred and is continuing, and to
the extent expressly permitted by the Credit Agreement, sell or dispose of such
Engine, with the proceeds of such sale or disposition being distributed in the
manner specified in the Credit Agreement and with such Engine being released
from the terms hereof.
 
The rights of any transferee who receives possession by reason of a transfer
permitted by this Section 2.01(b) shall be during the period of such possession,
subject and subordinate to, all the terms of this Mortgage, including, without
limitation, the covenants contained in this Article 2, including the inspection
rights contained in Section 2.04, and the Collateral Agent’s right to repossess
an Engine, as applicable, and to avoid and terminate any such arrangement upon
such repossession (and the Collateral Agent may require specific subordinations
of said interest be obtained and filed or registered to perfect the same), and
the Grantor shall remain primarily liable for the performance of all of the
terms of this Mortgage, and the terms of any such arrangement shall not permit
any Person to take any action not permitted to be taken by the Grantor in this
Mortgage with respect to such Engine.  No interchange agreement, pooling
agreement or other relinquishment of possession of an Engine shall in any way
discharge or diminish any of the Grantor’s obligations to the Collateral Agent
under this Mortgage or constitute a waiver of the Collateral Agent’s rights or
remedies hereunder or under any Financing Document, and the Grantor shall in all
cases comply with Section 5.1(k) of the Credit Agreement by notifying the
Collateral Agent of the location of each Engine within eighteen (18) days after
the end of each fiscal month.
 
In the case of any arrangement entered into pursuant to this Section 2.01(b),
the Grantor will include in the documentation relating thereto appropriate
provisions which make such arrangement expressly subject and subordinate to this
Mortgage, including the Collateral Agent’s and each Lender’s right to avoid or
otherwise terminate such arrangement in the exercise of its rights to
repossession hereunder.  No such arrangement shall be entered into unless the
Grantor shall reimburse the Collateral Agent for all of its reasonable
out-of-pocket fees and expenses (including reasonable fees and disbursements of
counsel) incurred in connection therewith.
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

The Collateral Agent acknowledges that any consolidation or merger of the
Grantor or conveyance, transfer or lease of all or substantially all of the
Grantor’s assets permitted by and in conformance with the Credit Agreement shall
not be prohibited by this Section 2.01.
 
Any arrangement entered into pursuant to this Section 2.01(b) shall not permit
any further leasing of the applicable Engine.
 
(c) Placard.  On or prior to the Closing Date, or as soon thereafter as
practicable (and, in any event, within sixty (60) days of the Closing Date), the
Grantor agrees to affix and maintain (or cause to be affixed and maintained), at
its expense, a placard bearing the inscription:
 
“THIS ENGINE IS MORTGAGED TO
 
C.I.T. LEASING CORPORATION, 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
Financing Documents).
 
Except as above provided, the Grantor will not allow the name of any Person to
be placed on any Engine as a designation that might be interpreted as a claim of
ownership.
 
Section 2.02. Replacement and Pooling of Parts; Alterations, Modifications and
Additions.
 
(a) Replacement of Parts.  The Grantor, at its own cost and expense, will
promptly replace or cause to be replaced all Parts which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever, except
as otherwise provided in Section 2.02(c).  All replacement Parts shall be owned
by the Grantor 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 Engine shall remain the property of the Grantor and subject to the Lien
of this Mortgage, no matter where located, and shall be used, maintained,
overhauled and/or repaired, as the case may be, in accordance with Section
2.06(c) hereof.  Immediately upon any replacement Part becoming incorporated or
installed in or attached to an Engine, without further act (subject only to
Permitted Liens and any pooling arrangement permitted by Section 2.02(b) hereof
and except replacement parts temporarily installed on an emergency basis), such
replacement Part shall become the property of the Grantor and subject to the
Lien of this Mortgage and be deemed a Part for all purposes hereof to the same
extent as the Parts originally incorporated or installed in or attached to such
Engine.
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 
(b) Pooling of Parts.  Any Part removed from any Engine as provided in
Section 2.02(a) hereof may be subjected by the Grantor to a pooling arrangement
of the type which is permitted by, and in accordance with the terms of,
Section 2.01(b)(i) hereof; provided that, the Grantor shall in all cases comply
with Section 5.1(k) of the Credit Agreement by notifying the Collateral Agent of
the location of such Part within eighteen (18) days after the end of each fiscal
month.  In addition, any replacement Part when incorporated or installed in or
attached to an Engine in accordance with such Sections may be owned by any
Certificated Air Carrier subject to such a pooling arrangement, provided, that
the Grantor, at its expense, as promptly thereafter as practicable, either
(i) causes such replacement Part to become subject to the Lien of this Mortgage,
free and clear of all Liens other than Permitted Liens or (ii) replaces or
causes to be replaced such replacement Part with a further replacement Part
owned by the Grantor which shall become the property of the Grantor and subject
to the Lien of this Mortgage, free and clear of all Liens other than Permitted
Liens.
 
(c) Alterations, Modifications and Additions.  The Grantor, at its own expense,
will make (or cause to be made) such alterations and modifications in and
additions to each Engine as may be required to be made from time to time so as
to comply with any law, rule, regulation or order of any Governmental Authority
of any jurisdiction in which any Engine may be located; provided, however, that
the Grantor may, in good faith, and by appropriate proceedings contest the
validity or application of any such law, rule, regulation or order (commencement
of such contest to occur within 45 days of the date on which the Grantor is
required to make such alterations or modifications) in any reasonable manner
which does not materially adversely affect the Collateral Agent or any Secured
Party or any of their respective legal and economic interests in or to such
Engine, subject any such Person to material risk of any civil or any criminal
penalties, or involve any material risk of loss or forfeiture of title to any
Engine.  In addition, subject to the last sentence of this Section 2.02(c), the
Grantor, at its own expense, may from time to time make such alterations and
modifications in and additions to any Engine as the Grantor may deem desirable
in the proper conduct of its business, including removal of Parts which the
Grantor deems to be obsolete or no longer suitable or appropriate for use on
such Engine; provided that no such alteration, modification, removal or addition
impairs the condition or airworthiness of such Engine, or materially diminishes
the utility of such Engine below the condition, airworthiness, or utility
thereof immediately prior to such alteration, modification, removal or addition
assuming such Engine was then in the condition required to be maintained by the
terms of this Mortgage; provided further that if any such alteration,
modification, removal or addition materially diminishes the current market value
of such Engine below the current market value thereof immediately prior to such
alteration, modification, removal or addition, then the Grantor shall promptly
notify the Collateral Agent thereof.  All Parts incorporated or installed in or
attached or added to an 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 Grantor pursuant to the next sentence) (the
“Additional Parts”) shall, without further act, become subject to the Lien of
this Mortgage.  Notwithstanding the foregoing sentence, the Grantor 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
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 Part originally incorporated or installed in or attached to such Engine or any
Part in replacement of or substitution for any such Part and (ii) is not
required to be incorporated or installed in or attached or added to such Engine
pursuant to the first sentence of this paragraph (c).  Upon the removal thereof
as provided above, such Additional Part shall no longer be deemed to be subject
to the Lien of this Mortgage or part of such Engine from which it was removed
and may be sold or otherwise disposed of by the Grantor in the ordinary course
of its business.
 
Section 2.03. Insurance.
 
(a) Obligation to Insure.  The Grantor shall comply with, or cause to be
complied with, each of the provisions of Exhibit B hereto, which provisions are
hereby incorporated by reference as if set forth in full herein.
 
(b) Insurance for Own Account.  Nothing in this Section 2.03 shall limit or
prohibit (x) the Grantor from maintaining the policies of insurance required
under Exhibit B with higher limits than those specified in Exhibit B or other
insurance for its own account or (y) the Collateral Agent or any Additional
Insured from obtaining insurance for its own account (and any proceeds payable
under such separate insurance shall be payable as provided in the policy
relating thereto); provided, however, that no insurance may be obtained or
maintained that would limit or otherwise adversely affect the coverage of any
insurance required to be obtained or maintained by the Grantor pursuant to this
Section 2.03 and Exhibit B.
 
(c) Application of Insurance Proceeds.  As between the Grantor and the
Collateral Agent, it is agreed that all insurance proceeds will be distributed
in accordance with the terms of Exhibit B.  If either the Collateral Agent or
the Grantor receives a payment of such insurance proceeds in excess of its
entitlement pursuant to this Mortgage, it shall promptly pay such excess to the
other party.
 
(d) Indemnification by Government in Lieu of Insurance.  Notwithstanding any
provisions of this Section 2.03 requiring insurance, the Collateral Agent agrees
to accept, in lieu of insurance against any risk, indemnification from, or
insurance provided by, the government of the United States of America or any
agency or instrumentality thereof the obligations of which are supported by the
full faith and credit of the government of the United States of America, against
such risk in an amount which, when added to the amount of insurance against such
risk maintained by the Grantor shall be at least equal to the amount of
insurance against such risk otherwise required by this Section 2.03.  The
Grantor shall furnish to the Collateral Agent and to the Additional Insureds, in
advance of attachment of such indemnity or insurance, a certificate of a
responsible financial or legal officer of the Grantor confirming in reasonable
detail the amount and scope of such indemnification or insurance and that such
indemnification or insurance complies with the preceding sentence.
 
(e) Application of Payments During Existence of an Event of Default.  Any amount
described in this Section 2.03 that is payable or creditable to, or retainable
by, the Grantor shall not be paid or credited to, or retained by, the Grantor if
at the time such payment, credit or retention would otherwise occur, an Event of
Default shall have occurred and be continuing, but shall instead be held by or
paid over to the Collateral Agent as security for the
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 obligations of the Grantor under this Mortgage and the Financing Documents.  At
such time as there shall not be continuing any Event of Default, such amount
shall be paid to the Grantor to the extent not previously applied in accordance
with this Mortgage.
 
Section 2.04. Inspection.  At reasonable times and on at least fifteen (15)
days’ prior written notice to the Grantor, the Secured Party or its authorized
representatives may (but not more than once per calendar year in respect of an
Engine or the Pledged Spare Parts; provided that such limitation shall not be
applicable if an Event of Default has occurred and is continuing) inspect any
Engine or Pledged Spare Parts and inspect and make copies of the books, logs and
records of the Grantor relating to the maintenance of such Engine or Pledged
Spare Parts and shall keep any information or copies obtained thereby
confidential on the same terms set forth in Section 10.12 of the Credit
Agreement.  Any such inspection of the Pledged Spare Parts or any Engine shall
be during normal business hours and shall be limited to a visual, walk-around
inspection, but shall not include opening any panels, bays or the like without
the express written consent of the Grantor; provided that, so long as no Event
of Default shall have occurred and be continuing, no exercise of such inspection
right shall interfere with the normal operation or maintenance of the Pledged
Spare Parts or any Engine by, or the business of, the Grantor.  Upon the written
request of any Secured Party, the Grantor will give such Secured Party notice of
the next scheduled overhaul or other maintenance visit with respect to an Engine
and afford such Person an opportunity to be present at the same without
interfering (so long as no Event of Default has occurred and is continuing) in
any material respect with the maintenance, operations or business of the
Grantor.  The Secured Parties shall not have any duty to make any such
inspection nor shall any such Persons incur any liability or obligation by
reason of not making any such inspection.
 
Section 2.05. Other Representations, Warranties and Covenants.
 
(a) Title.  The Grantor hereby represents and warrants, as to itself, as
applicable, that (i) it has good and marketable title to (x) each item of
Equipment listed on each Mortgage Supplement executed and delivered on the
Closing Date and will have good and marketable title to each item of Equipment
listed on each subsequent Mortgage Supplement at the time of execution and
delivery thereof; (y) each of the Pledged Spare Parts on the Closing Date;
(ii) it will have good title to any other Collateral which is subject to this
Mortgage or which becomes subject to this Mortgage from time to time hereafter;
and (iii) any Engines covered hereby from time to time are correctly described
by Manufacturer, model and serial number as set forth on the Manufacturer’s
serial plate for said items of Equipment, in each case subject to Permitted
Liens.
 
(b) Necessary Filings.  Upon (x) the filing of this Mortgage with the FAA in
accordance with Title 49 and the regulations thereunder and with any applicable
Governmental Authority in any other jurisdiction as deemed necessary or
advisable by the Collateral Agent, (y) the appropriate registrations with the
International Registry and (z) the filing of financing statements (and
continuation statements at periodic intervals) with respect to the security and
other interests created hereby under the UCC as in effect in any applicable
jurisdiction and affixing the placard referred to in Section 2.01(c) herein,
(i) all filings, registrations and recordings (including, without limitation,
the filing of financing statements under the UCC)
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 necessary under the laws of the United States (or any state thereof) or any
other jurisdiction to create, preserve, protect and perfect the security
interest granted by the Grantor to the Collateral Agent hereby in respect of the
Collateral have been accomplished or, as to Collateral to become subject to the
security interest of this Mortgage as provided herein from time to time after
the date hereof, will be filed simultaneously with such Collateral being subject
to the Lien of this Mortgage, and (ii) the security interest granted to the
Collateral Agent pursuant to this Mortgage in and to the Collateral will
constitute a perfected security interest therein prior to the rights of all
other Persons therein, but subject to no other Liens (other than Permitted
Liens), and is entitled to all the rights, priorities and benefits afforded by
Title 49, and other relevant U.S. law and any applicable Laws as enacted in any
other relevant jurisdiction to perfected security interests or Liens.
 
(c) No Liens.  The Grantor is, and as to Collateral acquired by it from time to
time after the date hereof will be, the owner of all Collateral free from any
Lien, or other right, title or interest of any Person (other than Permitted
Liens), and the Grantor shall promptly, at its own expense, (i) defend the
Collateral against all claims and demands of all Persons (other than Persons
claiming by, through or under the Collateral Agent) at any time claiming the
same or any interest therein adverse to the Collateral Agent and (ii) take such
action as may be necessary to duly discharge any Lien (other than a Permitted
Lien) arising at any time.
 
(d) Other Financing Statements.  There is no financing statement (or similar
statement or instrument of encumbrance under the law of any jurisdiction)
covering or purporting to cover any interest of any kind in the Collateral
(other than Permitted Liens and other than any financing statements or FAA
filings that relate to transactions for which all obligations have been paid in
full and for which there is no commitment on the part of any Person to advance
funds or perform any obligation that would otherwise be secured by any
collateral described in such financing statement), and so long as any of the
Obligations remain unpaid, the Grantor will not execute or authorize or permit
to be filed in any public office any financing statement or statements (or
similar statement or instrument of encumbrance under the law of any
jurisdiction) relating to the Collateral other than with respect to Permitted
Liens.
 
(e) Without limiting the generality of the Grantor’s obligations under
Section 6.9 of the Credit Agreement, the Grantor:  (a) represents and warrants,
as of the Closing Date, that the Grantor and each of its Subsidiaries are in
compliance with the provisions described therein, (b) covenants that the Grantor
and each of its Subsidiaries shall be and remain in compliance with such
provisions at all times while the Lien of this Mortgage is in effect, and
(c) further covenants that neither the Grantor nor any of its Subsidiaries shall
not enter into any agreement with respect to any item of Equipment secured
hereby which would place the Grantor or any of its Subsidiaries in violation of
such provisions.
 
(f) Recourse.  This Mortgage is made with full recourse to the Grantor and
pursuant to and upon all the representations, warranties, covenants and
agreements on the part of the Grantor contained herein, in the other Financing
Documents and otherwise in writing in connection herewith or therewith.
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 
(g) Filings.  The Grantor will take, or cause to be taken, at its sole cost and
expense, such action with respect to (x) the recording, filing, re-recording and
re-filing of this Mortgage and each Mortgage Supplement in the office of the
FAA, pursuant to Title 49, and in such other places as may be required under any
applicable Law or regulation (in the U.S. or elsewhere), (y) the appropriate
registrations of any and all “prospective international interests” or
“international interests” (as such terms are defined in the Cape Town
Convention) created hereby or thereby with the International Registry and
(z) any financing statements or other instruments as are necessary, appropriate
or reasonably requested by the Collateral Agent, in order to maintain so long as
this Mortgage is in effect, the perfection and preservation of the Lien created
by this Mortgage, and will furnish to the Collateral Agent timely notice of the
necessity of such action, together with, if requested by the Collateral Agent,
such instruments, in execution form, and such other information as may be
reasonably required to enable the Collateral Agent to take such action or
otherwise reasonably requested by the Collateral Agent.  To the extent permitted
by applicable law, the Grantor hereby authorizes the Collateral Agent to execute
and file financing statements or continuation statements without the Grantor’s
signature appearing thereon.  The Grantor shall pay the costs of, or incidental
to, any recording or filing, including, without limitation, any filing of
financing or continuation statements, concerning the Collateral.
 
(h) Section 1110 of the Bankruptcy Code.  The Collateral Agent is entitled to
the benefits of Section 1110 of the Bankruptcy Code, subject to the Grantor’s
rights thereunder, with respect to the right to take possession of any of the
Engines and the Pledged Spare Parts and to enforce any of its other rights or
remedies as provided in this Mortgage in the event of a case under Chapter 11 of
the Bankruptcy Code in which the Grantor is a debtor, all subject to the
provisions and limitations of the Bankruptcy Code.  The Grantor hereby confirms
to the Collateral Agent that all Engines and Pledged Spare Parts subjected to
the Lien of this Mortgage shall have been first placed in service after October
22, 1994.
 
(i) Certificated Air Carrier.  The Grantor hereby confirms that it is a
Certificated Air Carrier under Section 44705 of Title 49, and the Pledged Spare
Parts are maintained by or on behalf of the Grantor at the Spare Parts
Locations.
 
(j) Guards and Representatives.  If a Default or an Event of Default shall have
occurred and is continuing, the Grantor shall (or the Grantor shall cause the
relevant Person to) permit the Collateral Agent to station guards and
representatives, selected by the Collateral Agent in its sole discretion and
acting on behalf of the Collateral Agent and the Lenders, with authority to
ensure the safekeeping of all Collateral, at each of the Spare Parts Locations.
 
Section 2.06. Pledged Spare Parts.
 
(a) Tracking System.  The Grantor shall at all times maintain the Tracking
System in at least as favorable a condition as the condition it was in as at the
Closing Date and its perpetual inventory procedures for Pledged Spare Parts that
provide a continuous internal audit of Pledged Spare Parts.  Notwithstanding the
limitations in Section 2.04, at reasonable times during normal business hours
and upon reasonable notice to the Grantor (as often as may be reasonably
requested), the Collateral Agent shall be entitled to access and inspect the
Tracking
 

 
 
 

 
 
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[Equipment Mortgage and Security Agreement]
 

 System to monitor the types, quantities and locations of any Pledged Spare
Parts and to ensure the Grantor’s compliance with the terms hereof.  Such
inspection right shall not be exercised in a manner which is unduly disruptive
to the operation or maintenance of the Tracking System or the business
operations of the Grantor.  If requested by the Collateral Agent, the Grantor
will use commercially reasonable efforts to obtain a written acknowledgment of
the Collateral Agent’s access and inspection rights hereunder from any third
party which owns or operates the Tracking System.
 
(b) Spare Parts Locations.  The Grantor represents, warrants and agrees that
prior to any utilization or disposition thereof which is permitted hereunder or
under the Credit Agreement, the Pledged Spare Parts shall be maintained by or on
behalf of the Grantor at one or more of the Spare Parts Locations, and that the
nature of its interest in and to each such location (e.g., owner, leasehold,
tenant) is and shall remain as described to the Collateral Agent pursuant to the
Financing Documents.  The Grantor will promptly notify the Collateral Agent in
writing if any of the representations, warranties or agreements contained in the
preceding sentence become inaccurate in any respect with respect to any of the
Pledged Spare Parts or its interest therein.  The Grantor will not change or
permit the change any of the Spare Parts Locations from their respective
locations on the date hereof without reasonable advance written notice to the
Collateral Agent of such change.  Except as otherwise permitted under this
Mortgage, the Grantor shall keep and maintain all Pledged Spare Parts at one or
more of the Spare Parts Locations and shall not suffer or permit any Pledged
Spare Part to be stored at any other location unless, in each case, the Grantor
provides prior written notice to the Collateral Agent.  The Grantor shall ensure
that each Spare Parts Location is a secure facility, adequate for warehousing
and storing the Pledged Spare Parts and is at all times covered by property,
casualty and premises liability coverage reasonably acceptable and evidenced to
the Collateral Agent.  Upon adding a location that is to become a Spare Parts
Location in accordance herewith, and upon request of the Collateral Agent, the
Grantor will furnish to the Collateral Agent, at Grantor’s sole expense:
 
(i) a Mortgage Supplement duly executed by the Grantor, identifying each
location that is to become a Spare Parts Location and specifically subjecting
the Pledged Spare Parts at such location to the Lien of this Mortgage.
 
(ii) if requested by the Collateral Agent, an opinion of counsel to the Grantor,
dated the date of execution of such Mortgage Supplement, in form and substance
satisfactory to the Collateral Agent, addressed to the Secured Parties, stating
that such Mortgage Supplement has been duly filed for recording, in accordance
with the provisions of any applicable Laws, and, if requested by the Collateral
Agent, either:  (i) no other filing or recording is required, under any
applicable Law, in any other place within the United States (or other applicable
jurisdiction) in order to perfect the Lien of this Mortgage on the Pledged Spare
Parts held at the pertinent Spare Parts Location or (ii) if any such other
filing or recording shall be required that said filing or recording has been
accomplished in such other manner and places, which shall be specified in such
opinion of counsel, as are necessary to perfect the Lien of this Mortgage with
respect to such Pledged Spare Parts; and
 

 
 
 

 
 
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(iii) a certificate from an authorized officer of the Grantor stating that, in
the opinion of such officer, all conditions precedent provided for in this
Mortgage relating to the subjection of such property to the Lien of this
Mortgage have been complied with.
 
(c) Possession, Use and Maintenance.
 
(i) Possession.  Without the prior written consent of the Collateral Agent, the
Grantor may not sell, lease (whether by way of a finance lease, operating lease
or otherwise), transfer or relinquish possession of any Pledged Spare Part to
anyone except as permitted by the provisions of Section 2.06(c)(ii) of this
Mortgage and except that the Grantor shall have the right, in the ordinary
course of business, (x) to transfer possession of any Pledged Spare Part to the
manufacturer thereof or any other organization for testing, overhaul, repairs,
maintenance, alterations or modifications (to the extent required or permitted
by the terms hereof) or to any Person for the purpose of transport to any of the
foregoing, (y) to subject any Pledged Spare Part to a maintenance servicing
agreement arrangement entered into in the ordinary course of business or (z) to
transfer any Pledged Spare Part between any Spare Parts Locations.
 
(ii) Use; Modifications.
 
(A) Use.  The Grantor shall have the right, at any time and from time to time at
its own cost and expense, without the necessity of any release from or consent
by the Collateral Agent, to:
 
(1) incorporate in, install on, attach or make appurtenant to, or use in, any
aircraft, engine, spare part or appliance leased to or owned by the Grantor, any
Pledged Spare Part, free from the Lien of this Mortgage;
 
(2) dismantle any Pledged Spare Part that has become worn out or obsolete or
unfit for use, and to scrap, sell or dispose of any such Pledged Spare Part or
any salvage resulting from such dismantling, free from the Lien of this
Mortgage; and
 
(3) in each event described in the foregoing (1) and (2), any such Pledged Spare
Part shall cease to be a “Pledged Spare Part” hereunder.
 

 
 
 

 
 
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(B) Permitted Sales and Modifications. Provided that no Event of Default has
occurred and is continuing and to the extent expressly permitted by the Credit
Agreement, the Grantor may sell or dispose of Pledged Spare Parts, with the
proceeds of such sale or disposition being applied in the manner specified in
the Credit Agreement and with such Pledged Spare Parts being released from the
terms hereof.  In addition, the Grantor may modify or alter any Pledged Spare
Part as the Grantor may deem appropriate in the proper conduct of its business,
so long as the Grantor remains in compliance at all times with the requirements
of Section 2.06(c)(iii) below, after giving effect to any such modification or
alteration.
 
(iii) Maintenance.  The Grantor:
 
(A) shall maintain, or cause to be maintained, at all times the Pledged Spare
Parts in accordance with, all applicable Laws and regulations issued by the FAA
and all applicable laws issued by any other Governmental Authority having
jurisdiction over the Grantor or any such Pledged Spare Parts, including making
any modifications, alterations, replacements and additions necessary therefor,
and shall utilize, or cause to be utilized, the same manner and standard of
maintenance with respect to each model of Spare Part included in the Pledged
Spare Parts as is utilized for such model of Spare Part owned by the Grantor and
not included in the Pledged Spare Parts;
 
(B) shall maintain, or cause to be maintained in English, all records, logs and
other materials required by the FAA or under applicable Laws to be maintained in
respect of the Pledged Spare Parts and shall not modify its record retention
procedures in respect of the Pledged Spare Parts unless such modification is
consistent with the Grantor’s FAA approved maintenance program; provided
however, that such modification shall not materially diminish the value of the
Pledged Spare Parts, taken as a whole; and
 
(C) shall maintain, or cause to be maintained on a timely basis, the Pledged
Spare Parts in good working order (other than during periods of maintenance,
repair, inspection and testing) and condition and shall perform all maintenance
thereon necessary for that purpose, excluding Spare Parts that have become worn
out or unfit for use, beyond economic repair or become obsolete or
scrap.  Notwithstanding anything herein to the contrary, all Rotables and
Repairables that are Pledged Spare Parts and, to the extent customary, all
Expendables and Life Limited Parts that are Pledged Spare Parts, located at
Spare Parts Locations other than as excluded above, shall have a current and
valid serviceable tag and shall be in compliance with such tag, in each case in
compliance with applicable FAA regulations.
 

 
 
 

 
 
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     ARTICLE 3      
                
EVENT OF LOSS
 
Section 3.01. Event of Loss with Respect to an Engine.  Upon the occurrence of
an Event of Loss (or an event or circumstance which, with the passage of time,
would constitute an Event of Loss) with respect to an Engine the Grantor shall
forthwith (and in any event, within ten (10) days after such occurrence) give
the Collateral Agent written notice thereof and deposit (or, in the event the
Collateral Agent, as sole loss payee, shall receive any such amounts, shall pay
over) 100% of the net cash proceeds of any insurance claim, indemnity payments
or other amounts received in respect thereof immediately upon receipt of such
amounts with the Collateral Agent, which amounts shall, subject to the
following, be used to prepay a portion of the Loans in accordance with
Section 2.9(d) of the Credit Agreement.  Notwithstanding the foregoing, in the
case of an Event of Loss with respect to an Engine prior to the occurrence of an
Event of Default, or an event under Section 7.1(a) or 7.1(b) of the Credit
Agreement which upon notice or lapse of time or both would constitute an Event
of Default, the Grantor may, on the date of receipt of the net cash proceeds
from the occurrence of such Event of Loss, notify the Collateral Agent that the
Grantor intends to apply such net cash proceeds to replace such Engine, and
within two (2) Business Days of such date, the Grantor shall use commercially
reasonable efforts to cause the Insurance Broker to wire (or to the extent that
the Insurance Broker will not wire such funds, the Grantor shall wire) such net
cash proceeds necessary to replace such Engine to an account established and
maintained by the Collateral Agent in its name at a banking institution or trust
company designated by the Collateral Agent (the “Replacement Account”) (it being
understood and agreed that the Collateral Agent shall have the sole right to
direct the disposition of the funds in the Replacement Account).  The Grantor
may substitute an engine that is reasonably satisfactory to the Collateral
Agent, which has a CMV at least equal to the CMV of the Engine subject to the
Event of Loss prior to such Event of Loss, free and clear of all Liens (other
than Permitted Liens) in order that such engine shall be subjected to the Lien
of this Mortgage.  Such Replacement Engine shall have at least the value,
utility and remaining useful life and shall be in as good an operating condition
as the Engine subject to such Event of Loss (assuming that such Engine had been
maintained in accordance with the terms of this Mortgage), and such Replacement
Engine shall be of the same or improved make and model as the Engine being
replaced.  Any insurance proceeds, indemnity payments or other amounts received
during the aforementioned periods in the Replacement Account (the “Engine
Replacement Proceeds”) shall be held by the Collateral Agent in the Replacement
Account for a period of thirty (30) days after receipt thereof.  So long as the
above conditions and the conditions precedent specified below have been
satisfied, the Collateral Agent shall wire the Engine Replacement Proceeds to
the Grantor or its designee upon such replacement.  To the extent that the
Engine Replacement Proceeds are not paid to the Grantor or its designee in
connection with an engine replacement within thirty (30) days after receipt
thereof by the Collateral Agent, the Engine Replacement Proceeds shall be used
to prepay a portion of the Loans in accordance with Section 2.9(d) of the Credit
Agreement.  In addition, the Grantor’s right to make a replacement hereunder
shall be subject to the fulfillment (which may be simultaneous with such
replacement) of the following
 

 
 
 

 
 
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 conditions precedent at the Grantor’s sole cost and expense and the Collateral
Agent agrees to make reasonable efforts to cooperate with the Grantor to the
extent reasonably necessary to enable it to timely satisfy such conditions:
 
(a) the following documents shall be duly authorized, executed and delivered by
the respective party or parties thereto, and an executed counterpart of each
shall be delivered to the Collateral Agent:
 
(i) a Mortgage Supplement covering the Replacement Engine, which shall have been
duly filed for recordation pursuant to Title 49 or such other applicable Law of
the jurisdiction other than the United States in which the aircraft of which
such Replacement Engine is a part is registered, as the case may be;
 
(ii) an officer’s certificate of the Grantor stating that each of the conditions
with respect to such Replacement Engine have been satisfied;
 
(iii) UCC financing statements covering the security interests created by this
Mortgage (and any similar statements or other documents required to be filed or
delivered pursuant to the laws of the jurisdiction in which such aircraft may be
registered) as are deemed necessary or desirable by counsel for the Collateral
Agent to protect the security interests of the Collateral Agent in the
Replacement Engine;
 
(iv) a certificate, reasonably satisfactory to the Collateral Agent, in form and
substance, of a qualified independent aircraft appraiser certifying that such
Replacement Engine has at least the value, utility and remaining useful life and
is in as good an operating condition as the Engine subject to such Event of Loss
(assuming that such Engine had been maintained in accordance with the terms of
this Mortgage); and that the Replacement Engine is of the same or improved make
and model as initially mortgaged hereunder;
 
(v) upon request by the Collateral Agent, the Grantor shall furnish the
Collateral Agent with (1) upon recordation, an opinion of qualified FAA counsel,
as to the due recordation of the Mortgage Supplement as a first priority Lien on
the Replacement Engine, stating that the Replacement Engine is free from Liens
of records (except Permitted Liens), and (2) such evidence of compliance with
the insurance provisions of Section 2.03 hereof with respect to such Replacement
Engine as the Collateral Agent may reasonably request; and
 
(vi) the Grantor shall have delivered to the Collateral Agent (1) a copy of the
bill of sale respecting such Replacement Engine or other evidence of the
Grantor’s ownership of such Replacement Engine, reasonably satisfactory to the
Collateral Agent and (2) appropriate instruments assigning to the Collateral
Agent the benefits, if any, of all manufacturer’s and vendor’s warranties
generally available and permitted to be assigned by the Grantor with respect to
such Replacement Engine;
 

 
 
 

 
 
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(b) registrations (which may, at a Collateral Agent’s request, include the
registration of a prospective international interest) covering the Replacement
Engine shall be made with the International Registry covering (A) the
international interest evidenced by this Mortgage and (B) the “contract of sale”
(as such term is used in the Cape Town Convention) evidenced by a bill of sale
delivered pursuant to clause (a)(vi) above; and
 
(c) the Grantor shall have satisfied any additional conditions to replacement as
shall reasonably be specified by the Collateral Agent, acting reasonably
(including, without limitation, the delivery of a satisfactory appraisal in
relation to any Replacement Engine), at the Grantor’s sole cost and expense.
 
For all purposes hereof, each such Replacement Engine shall be deemed to be
subjected to the Lien of this Mortgage and shall be deemed an “Engine”.
 
Section 3.02. Event of Loss with Respect to a Pledged Spare Part.  Upon the
occurrence of an Event of Loss (or an event or circumstance which, with the
passage of time, would constitute an Event of Loss) with respect to a Pledged
Spare Part under circumstances in which there has not occurred an Event of Loss
with respect to the related Engine (if any) and the CMV of the Pledged Spare
Parts subject to such Event of Loss is equal to or less than ***, the Grantor
shall forthwith (and in any event, within ten (10) Business Days (or, to the
extent that such Event of Loss relates to more than twenty-five percent (25%) of
the Pledged Spare Parts at a particular Spare Parts Location, two (2) Business
Days) after such occurrence) give the Collateral Agent written notice thereof
and deposit (or, in the event the Collateral Agent, as sole loss payee, shall
receive any such amounts, shall pay over) 100% of the net cash proceeds of any
insurance claim, indemnity payments or other amounts received in respect thereof
immediately upon receipt of such amounts with the Collateral Agent, which
amounts shall, subject to the following, be used to prepay a portion of the
Loans in accordance with Section 2.9(d) of the Credit
Agreement.  Notwithstanding the foregoing, in the case of an Event of Loss with
respect to a Pledged Spare Part prior to the occurrence of an Event of Default,
or an event under Section 7.1(a) or 7.1(b) of the Credit Agreement which upon
notice or lapse of time or both would constitute an Event of Default, and where
the CMV of the Pledged Spare Parts subject to such Event of Loss is greater than
***, the Grantor may, on the date of receipt of the net cash proceeds from the
occurrence of such Event of Loss, notify the Collateral Agent that the Grantor
intends to apply such net cash proceeds to replace such Pledged Spare Part, and
within two (2) Business Days of such date, the Grantor shall use commercially
reasonable efforts to cause the Insurance Broker to wire (or to the extent that
the Insurance Broker will not wire such funds, the Grantor shall wire) such net
cash proceeds necessary to replace such Pledged Spare Part to the Replacement
Account.  The Grantor may substitute a spare part that is reasonably
satisfactory to the Collateral Agent, which has a CMV at least equal to the CMV
of the Pledged Spare Part subject to the Event of Loss prior to such Event of
Loss, free and clear of all Liens (other than Permitted Liens) in order that
such spare part shall be subjected to the Lien of this Mortgage.  Any insurance
proceeds, indemnity payments or other amounts received during the aforementioned
periods in the Replacement Account (the “Spare Part Replacement Proceeds”)
 

 
 
 

 
 
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 shall be held by the Collateral Agent in the Replacement Account for a period
of thirty (30) days after receipt thereof.  So long as the above conditions and
the conditions precedent specified below have been satisfied, the Collateral
Agent shall wire the Spare Part Replacement Proceeds to the Grantor or its
designee upon such replacement.  To the extent that the Spare Part Replacement
Proceeds are not paid to the Grantor or its designee in connection with a spare
part replacement within thirty (30) days after receipt thereof by the Collateral
Agent, the Spare Part Replacement Proceeds shall be used to prepay a portion of
the Loans in accordance with Section 2.9(d) of the Credit Agreement.  In
addition, the Grantor’s right to make a replacement hereunder shall be subject
to the fulfillment (which may be simultaneous with such replacement) of the
following conditions precedent at the Grantor’s sole cost and expense and the
Collateral Agent agrees to make reasonable efforts to cooperate with the Grantor
to the extent reasonably necessary to enable it to timely satisfy such
conditions:
 
(a) the following documents shall be duly authorized, executed and delivered by
the respective party or parties thereto, and an executed counterpart of each
shall be delivered to the Collateral Agent:
 
(i) if so requested by the Collateral Agent, a Mortgage Supplement covering the
replacement item of Equipment, which shall have been duly filed for recordation
pursuant to Title 49 or, if applicable such other applicable Law of the
jurisdiction other than the United States;
 
(ii) an officer’s certificate of the Grantor stating that such replacement
Pledged Spare Part is located at a Spare Parts Location, and each of the
conditions with respect to such replacement Pledged Spare Part have been
satisfied; and
 
(iii) UCC financing statements (and any similar statements or other documents
required to be filed or delivered pursuant to any applicable Laws) as are deemed
necessary or desirable by counsel for the Collateral Agent to protect the
security interests of the Collateral Agent in such replacement Pledged Spare
Part shall have been duly filed;
 
(b) the Grantor shall furnish the Collateral Agent with (A) upon recordation, an
opinion of qualified FAA counsel, or if applicable, qualified counsel in any
other relevant jurisdiction, addressed to the Secured Parties (in each case
which opinion of counsel shall be reasonably satisfactory to the Collateral
Agent) as to the due recordation of the Mortgage Supplement as a first priority
Lien on the replacement Pledged Spare Part, if any, stating that such
replacement item of Equipment is free from Liens of record (except Permitted
Liens) and (B) such satisfactory evidence of compliance with the insurance
provisions of Section 2.03 hereof with respect to such replacement item of
Equipment as the Collateral Agent may reasonably request;
 

 
 
 

 
 
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(c) the Grantor shall have delivered to the Collateral Agent (A) a copy of the
bill of sale respecting such replacement Pledged Spare Part, if any, or other
evidence of the Grantor’s ownership of such replacement Pledged Spare Part,
reasonably satisfactory to the Collateral Agent and (B) appropriate instruments
assigning to the Collateral Agent the benefits, if any, of all manufacturer’s
and vendor’s warranties generally available and permitted to be assigned by the
Grantor with respect to such replacement Pledged Spare Part; and
 
(d) the Grantor shall have satisfied any additional conditions to replacement as
shall reasonably be specified by the Collateral Agent, acting reasonably, at the
Grantor’s sole cost and expense.
 
(e) For all purposes hereof, each such replacement Pledged Spare Part shall be
deemed to be subjected to the Lien of this Mortgage and shall be deemed a
“Pledged Spare Part”.
 
                      ARTICLE 4                      
 
REMEDIES
 
Section 4.01. Event of Default.  It shall be an Event of Default hereunder if
under the Credit Agreement an “Event of Default” shall occur and be continuing
thereunder.
 
Section 4.02. Remedies with Respect to Collateral.
 
(a) Remedies Available.  Upon the occurrence and continuance of any Event of
Default, the Collateral Agent may do one or more of the following, in each case
subject to Article VII of the Credit Agreement; provided, however, that during
any period that an Engine is subject to the Civil Reserve Air Fleet Program in
accordance with the provisions of Section 2.01(b)(v) hereof and in possession of
the United States Government or an agency or instrumentality of the United
States, the Collateral Agent shall not, on account of any Event of Default, be
entitled to exercise any of the remedies specified in the following clauses (i),
(ii) and (iii) in relation to such Engine in such manner as to limit the
Grantor’s control under this Mortgage of the relevant Engine, 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 Air Force) written notice of
default hereunder shall have been given by the Collateral Agent by registered or
certified mail to the Grantor with a copy addressed to the Contracting Office
Representative for the Air Mobility Command of the United States Air Force under
any contract with the Grantor relating to such Engine:
 

 
 
 

 
 
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(i) cause the Grantor, upon the written demand of the Collateral Agent, at the
Grantor’s expense, to deliver promptly, and the Grantor shall deliver promptly,
all or such part of the items of Equipment as the Collateral Agent may so demand
to the Collateral Agent or its order, or the Collateral Agent, at its option,
may access the Tracking System (and demand the assistance of the Grantor’s
personnel necessary to utilize the Tracking System) and enter upon the premises
where all or any part of any items of Equipment or other Collateral are located
and take immediate possession (to the exclusion of the Grantor and all Persons
claiming under or through the Grantor) of and remove the same by summary
proceedings or otherwise, and/or station guards and representatives on such
premises pursuant to Section 2.05(j) hereof;
 
(ii) sell all or any part of any items of Equipment or other Collateral at
public or private sale, whether or not the Collateral Agent shall at the time
have possession thereof, as the Collateral Agent may determine, or otherwise
dispose of, hold, use, operate, lease to others or keep idle all or any part of
any items of Equipment or other Collateral as the Collateral Agent, in its sole
discretion, may determine, all free and clear of any rights or claims of
whatsoever kind of the Grantor, any person claiming by, through or under the
Grantor and any person holding an interest subordinate to the interests of the
Collateral Agent hereunder; provided, however, that the Grantor shall be
entitled at any time prior to any such disposition to redeem the Collateral by
paying in full all of the Obligations; or
 
(iii) exercise any or all of the rights and powers and pursue any and all
remedies of a secured party under the UCC of the State of New York (whether or
not in effect in the jurisdiction in which enforcement is sought) or by any
other applicable law (including the Cape Town Convention, to the extent
applicable), or proceed by appropriate court action to enforce the terms or to
recover damages for the breach hereof.
 
Upon every taking of possession of Collateral under this Section 4.02, the
Collateral Agent may, from time to time, at the expense of the Grantor, make all
such expenditures for maintenance, insurance, repairs, replacements,
alterations, additions and improvements to and of the Collateral as it may deem
proper.  In each such case, the Collateral Agent shall have the right to
maintain, use, insure, operate, store, lease, control or manage the Collateral
and to carry on business and to exercise all rights and powers of the Grantor
relating to the Collateral in connection therewith, as the Collateral Agent
shall deem appropriate, including the right to enter into any and all such
agreements with respect to the maintenance, use, insurance, operation, storage,
leasing, control, management or disposition of the Collateral or any part
thereof as the Collateral Agent may determine; and the Collateral Agent shall be
entitled to collect and receive directly all tolls, rents, revenues, issues,
income, products, proceeds and profits of the Collateral and every part thereof,
without prejudice, however, to the right of the Collateral Agent under any
provision of this Mortgage to collect and receive all cash held by, or required
to be deposited with, the Collateral Agent hereunder.  Such tolls, rents,
revenues, issues, income, products, proceeds and profits shall be applied to pay
the expenses of using, operating, storage, leasing, control, management or
disposition of the Collateral, and of all maintenance,
 

 
 
 

 
 
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 insurance, repairs, replacement, 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 Grantor), and all other payments which the Collateral Agent
may be required or authorized to make under any provision of this Mortgage, as
well as just and reasonable compensation for the services of the Collateral
Agent, and of all Persons engaged and employed by the Collateral Agent.
In addition, the Grantor shall be liable for all legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or the
exercise of the Collateral Agent’s remedies with respect thereto, including all
costs and expenses incurred in connection with the retaking, return or sale of
any items of Equipment or other Collateral in accordance with the terms hereof,
which amounts shall, until paid, be secured by the Lien of this Mortgage.
 
If any Event of Default shall have occurred and be continuing, or the Loans
shall have been declared forthwith due and payable pursuant to the Credit
Agreement, at the direction of the Secured Parties, the Collateral Agent shall
at any time thereafter while any Event of Default shall be continuing, without
notice of any kind to the Grantor (except as provided herein) to the extent
permitted by law, carry out or enforce any one or more of the actions and
remedies provided in this Article 4 or elsewhere in this Mortgage or otherwise
available to a secured party under applicable law, whether or not any or all of
the Collateral is subject to the jurisdiction of such UCC and whether or not
such remedies are referred to in this Article 4.
 
Nothing in the foregoing shall affect the right of each Secured Party to receive
all payments of principal of, and interest on, the Obligations held by such
Secured Party and all other amounts owing to such Secured Party as and when the
same may be due.
 
(b) Notice of Sale.  The Collateral Agent shall give the Grantor at least ten
(10) days’ prior written notice of the date fixed for any public sale of any
item of Equipment or the date on or after which any private sale will be held,
which notice the Grantor hereby agrees is reasonable notice.
 
(c) Receiver.  If any Event of Default shall occur and be continuing, to the
extent permitted by law, the Collateral Agent shall be entitled, as a matter of
right as against the Grantor, without notice or demand and without regard to the
adequacy of the security for the Obligations or the solvency of the Grantor,
upon the commencement of judicial proceedings by it to enforce any right under
this Mortgage, to the appointment of a receiver of the Collateral or any part
thereof and of the tolls, rents, revenues, issues, income, products and profits
thereof for the recovery of judgment for the indebtedness secured by the Lien
created under this Mortgage or for the enforcement of any other proper, legal or
equitable remedy available under applicable law.
 

 
 
 

 
 
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(d) Concerning Sales.  At any sale under this Article 4, any Secured Party may
bid for and purchase the property offered for sale, may make payment on account
thereof as herein provided, and, upon compliance with the terms of sale, may
hold, retain and dispose of such property without further accountability
therefor.  Any purchaser shall be entitled, for the purpose of making payment
for the property purchased, to deliver any of the Obligations in lieu of cash in
the amount which shall be payable thereon as principal or interest.  Said
Obligations, in case the amount so payable to the holders thereof shall be less
than the amounts due thereon, shall be returned to the holders thereof after
being stamped or endorsed to show partial payment.
 
Section 4.03. Waiver of Appraisement, Etc.  To the full extent that it may
lawfully so agree, the Grantor agrees that it will not at any time insist upon,
plead, claim or take the benefit or advantage of, any appraisement, valuation,
stay, extension, or redemption law now or hereafter in force, in order to
prevent or hinder the enforcement of this Mortgage or the absolute sale of the
Collateral, or any part thereof, or the possession thereof by any purchaser at
any sale under this Article 4; but the Grantor, for itself and all who may claim
under it so far as it or they now or hereafter lawfully may, hereby waives the
benefit of all such laws.  The Grantor, for itself and all who may claim under
it, waives, to the extent that it lawfully may, all right to have the property
in the Collateral marshalled upon any foreclosure hereof, and agrees that any
court having jurisdiction to foreclosure under this Mortgage may order the sale
of the Collateral as an entirety.
 
Section 4.04. Application of Proceeds.  After the exercise of remedies pursuant
to Section 4.02 hereof, any payments in respect of the Obligations and any
proceeds (as defined in the UCC) of the Collateral, when received by the
Collateral Agent or any Secured Party in cash or its equivalent, will be applied
in the order set forth in and in accordance with the Credit Agreement and the
Financing Documents.
 
Section 4.05. Remedies Cumulative.  Each and every right, power and remedy
hereby specifically given to the Collateral Agent or otherwise in this Mortgage
shall be cumulative and shall be in addition to every other right, power and
remedy specifically given under this Mortgage or the other Financing Documents
or now or hereafter existing at law, in equity or by statute or treaty and each
and every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time or simultaneously and as often and
in such order as may be deemed expedient by the Collateral Agent.  All such
rights, powers and remedies shall be cumulative and the exercise or the
beginning of the exercise of one shall not be deemed a waiver of the right to
exercise any other or others.  No delay or omission of the Collateral Agent in
the exercise of any such right, power or remedy and no renewal or extension of
any of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Event of Default or an acquiescence therein.  No
notice to or demand on the Grantor in any case shall entitle it to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of any of the rights of the Collateral Agent to any other or further
action in any circumstances.  In the event that the Collateral Agent shall bring
any suit to enforce any of its rights hereunder and shall be entitled to
judgment, then in such suit the Collateral Agent may recover reasonable
expenses, including attorneys’ fees, and the amounts thereof shall be included
in such judgment.
 

 
 
 

 
 
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Section 4.06. Discontinuance of Proceedings.  In case the Collateral Agent shall
have instituted any proceeding to enforce any right, power or remedy under this
Mortgage 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 Grantor, the
Collateral Agent and each holder of any of the Obligations shall be restored to
their former positions and rights hereunder with respect to the Collateral
subject to the security interest created under this Mortgage, and all rights,
remedies and powers of the Collateral Agent shall continue as if no such
proceeding had been instituted (but otherwise without prejudice).
 
                    ARTICLE 5                      
 
TERMINATION OF MORTGAGE
 
Section 5.01. Termination of Mortgage.  (a) This Mortgage shall terminate upon
payment and performance in full of the Obligations hereby secured and shall be
released as to an Engine or other Collateral to the extent expressly permitted
hereby and by the Credit Agreement.  Upon termination, the Grantor may request,
at its sole cost and expense, the Collateral Agent to execute and deliver to or
as directed in writing by the Grantor an appropriate instrument reasonably
required to release the Collateral from the Lien of this Mortgage and the
Collateral Agent shall execute and deliver such instrument as aforesaid at the
Grantor’s expense.  Except as aforesaid otherwise provided, this Mortgage and
the trusts created hereby shall continue in full force and effect in accordance
with the terms hereof.
 
(b) At any time that the Grantor desires that the Collateral be released as
provided in the foregoing Section 5.01(a), it shall deliver to the Collateral
Agent a certificate signed by an authorized officer stating that the release of
the respective Collateral is permitted pursuant to Section 5.01(a) hereof and
the Credit Agreement.  The Collateral Agent shall have no liability whatsoever
to any Secured Party as the result of any release of Collateral by it as
permitted by Section 5.01(a) hereof.
 
                     ARTICLE 6                      
 
MISCELLANEOUS
 
Section 6.01. No Legal Title to Collateral in Lender.  No Secured Party shall
have legal title to any part of the Collateral.  No transfer, by operation of
law or otherwise, of any portion of the Loans or other right, title and interest
of a Secured Party in and to the Collateral or this Mortgage shall operate to
terminate this Mortgage or entitle any successor or transferee of such Secured
Party to an accounting or to the transfer to it of legal title to any part of
the Collateral.
 
Section 6.02. Sale of Collateral by Collateral Agent is Binding.  Any sale or
other conveyance of any item of Equipment or other Collateral or any interest
therein by the Collateral
 

 
 
 

 
 
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 Agent made pursuant to the terms of this Mortgage shall bind the Secured
Parties and the Grantor, and shall be effective to transfer or convey all right,
title and interest of the Collateral Agent, the Grantor, and the other Secured
Parties therein.  No purchaser or other grantee shall be required to inquire as
to the authorization, necessity, expediency or regularity of such sale or
conveyance or as to the application of any sale or other proceeds with respect
thereto by the Collateral Agent.
 
Section 6.03. Benefit of Mortgage.  Nothing in this Mortgage, whether express or
implied, shall be construed to give to any Person other than the Grantor, the
Collateral Agent and the Secured Parties any legal or equitable right, remedy or
claim under or in respect of this Mortgage.
 
Section 6.04. Notices.  All notices and other communications provided for herein
or required hereunder shall be in writing and shall be delivered in the manner
described, and to each party at the addresses set forth in Section 10.1 of the
Credit Agreement.  Each party hereto may change its address or telecopy number
for notices and other communications hereunder by notice to the other parties
hereto.  All notices and other communications given to either party hereto in
accordance with the provisions of this Mortgage shall be deemed to have been
given on the date of receipt.
 
Section 6.05. Governing Law.  THIS MORTGAGE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW
YORK GENERAL OBLIGATIONS LAW).  EACH PARTY TO THE AGREEMENT HEREBY IRREVOCABLY
AND UNCONDITIONALLY SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR RELATED DOCUMENTS, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN
NEW YORK COUNTY, NEW YORK.  THE GRANTOR AND THE COLLATERAL AGENT IRREVOCABLY
WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY
FINANCING DOCUMENT OR OTHER DOCUMENT RELATED THERETO.  THE GRANTOR AND THE
COLLATERAL AGENT WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE.
 
Section 6.06. Grantor’s Duties.  It is expressly agreed, anything herein
contained to the contrary notwithstanding, that the Grantor shall remain liable
to perform all of the obligations, if any, assumed by them with respect to the
Collateral and neither the Collateral Agent nor any Secured Party shall have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of this Mortgage, nor shall the Collateral Agent nor any Secured
Party be required or obligated in any manner perform or fulfill any of the
obligations of the Grantor under or with respect to any Collateral.
 

 
 
 

 
 
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Section 6.07. Counterparts.  This Mortgage may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
 
Section 6.08. Waiver; Amendment.  (a) No waiver of any provisions of this
Mortgage or consent to any departure by the Grantor therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.  No notice to or demand on the Grantor in
any case shall entitle the Grantor to any other or further notice or demand in
similar or other circumstances.
 
(b) Neither this Mortgage nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Collateral Agent and the Grantor with respect to which such waiver,
amendment or modification is to apply.
 
Section 6.09. Obligations Absolute.  The obligations of the Grantor hereunder
shall remain in full force and effect without regard to, and shall not be
impaired by, (a) any exercise or non-exercise, or any waiver of, any right,
remedy, power or privilege under or in respect of this Mortgage or any other
Financing Document, except as specifically set forth in a waiver granted in
accordance with Section 6.08; or (b) any amendment to or modification of any
Financing Document or any security for any of the Obligations; whether or not
the Grantor shall have notice or knowledge of any of the foregoing, except as
specifically set forth in an amendment or modification executed in accordance
with Section 6.08.
 
Section 6.10. Successors and Assigns.  This Mortgage shall be binding upon the
Grantor and each of its respective successors and permitted assigns and shall
inure to the benefit of the Collateral Agent and each of the Secured Parties and
their respective successors and assigns; provided, that the Grantor may not
transfer or assign any or all of its rights or obligations hereunder without the
prior written consent of the Collateral Agent.  All agreements, statements,
representations and warranties made by the Grantor herein or in any certificate
or other instrument delivered by the Grantor or on its behalf under this
Mortgage shall be considered to have been relied upon by the Secured Parties and
shall survive the execution and delivery of this Mortgage and the other
Financing Documents regardless of any investigation made by the Secured Parties
or on their behalf.
 
Section 6.11. Conflicts with Other Financing Documents.  Unless otherwise
expressly provided in this Mortgage, if any provision contained in this Mortgage
conflicts with any provision of any other Financing Document, the provision
contained in this Mortgage shall govern and control, provided, that the
inclusion of supplemental rights or remedies in favor of the Collateral Agent or
the Secured Parties in any other Financing Document shall not be deemed a
conflict with this Mortgage.
 

 
 
 

 
 
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                      ARTICLE 7                      
 
COLLATERAL AGENT
 
The provisions of Article VIII of the Credit Agreement are hereby incorporated
by reference, mutatis mutandis, as though fully set forth herein, with all
references therein to “Administrative Agent” deemed to be references to
“Collateral Agent.”
 
*  *  *
 

 
 
 

 
 
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IN WITNESS WHEREOF, the Grantor and the Collateral Agent have caused this
Equipment Mortgage and Security Agreement to be duly executed by their
respective officers thereunto duly authorized as of the date first written
above.
 
GRANTOR:
MESABA AVIATION, INC.
 
 
By:                                                                
Ron Kay
Vice President and Treasurer

     

 
 
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COLLATERAL AGENT:
C.I.T. LEASING CORPORATION
 
 
By:                                                                
John Heskin
Vice President

     

 
 
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EXHIBIT A
 
EQUIPMENT MORTGAGE AND
SECURITY AGREEMENT SUPPLEMENT NO. 1
 
THIS EQUIPMENT MORTGAGE AND SECURITY AGREEMENT SUPPLEMENT NO. 1 dated
__________ __, ____ (this “Mortgage Supplement”) made by MESABA AVIATION,
INC., a Minnesota corporation (the “Grantor”), in favor of C.I.T. LEASING
CORPORATION, acting as administrative agent and collateral agent (in such
capacity, the “Collateral Agent”).
 
W I T N E S S E T H:
 
WHEREAS, the Equipment Mortgage and Security Agreement, dated as of June 24,
2011 (herein called the “Mortgage”; capitalized terms used herein but not
defined shall have the meaning ascribed to them (whether by reference to another
document or otherwise) in the Mortgage), between the Grantor and the Collateral
Agent, provides for the execution and delivery of supplements thereto
substantially in the form hereof, which shall particularly describe certain
collateral, and shall specifically mortgage the same to the Collateral Agent;
 
WHEREAS, the Mortgage was entered into between the Grantor and the Collateral
Agent in order to secure the Obligations of the Grantor and each of the
Borrowers under that certain Credit Agreement dated as of July 30, 2009 (as
amended, restated, amended and restated, modified, supplemented, renewed or
replaced from time to time, the “Credit Agreement”) among Grantor, Pinnacle
Airlines, Inc., Colgan Air, Inc., the Loan Parties party thereto, the Lenders
party thereto and the Collateral Agent, as administrative agent and collateral
agent;
 
WHEREAS, the Mortgage relates to the items of Equipment described in Exhibit 1
hereto, and a counterpart of the Mortgage is attached hereto and made a part
hereof and this Mortgage Supplement, together with such counterpart of the
Mortgage, is being filed for recordation on the date hereof with the FAA, as one
document;
 
NOW, THEREFORE, this Mortgage Supplement witnesseth, that to secure the prompt
and complete payment and performance when due of the Obligations of the Grantor
and each Borrower under the Credit Agreement and each of the other Financing
Documents, to secure the performance and observance by the Grantor and each
Borrower of all the agreements, covenants and provisions contained in the
Mortgage and in the Financing Documents to which they are a party for the
benefit of the Collateral Agent on behalf of the Secured Parties and each of the
other Indemnitees, and for the uses and purposes and subject to the terms and
provisions of the Mortgage, and in consideration of the premises and of the
covenants contained in the Mortgage, and of other good and valuable
consideration the receipt and adequacy whereof are hereby acknowledged, the
Grantor 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
respective successors and assigns, for the security and benefit of the Secured
Parties and such other Persons, a first priority continuing security interest in
and first priority mortgage Lien on the following described property:
 

     

 
 
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1.           The Engines described on Exhibit 1 hereto (each such engine having
550 or more rated take-off horsepower or the equivalent thereof, whether or not
such engines shall be installed in or attached to any airframe) in each case,
together with all Parts which are from time to time incorporated or installed in
or attached thereto or which shall be removed therefrom, unless the Lien of the
Mortgage shall not be applicable to such Part pursuant to the provisions of the
Mortgage; and
 
2.           The Pledged Spare Parts maintained by or on behalf of the Grantor
at the Spare Parts Locations described in Exhibit 1 hereto.
 
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 Mortgage.
 
This Mortgage Supplement shall be construed as a supplemental Mortgage and shall
form a part thereof, and the Mortgage is hereby incorporated by reference herein
and is hereby ratified, approved and confirmed.
 
*  *  *
 

     

 
 
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IN WITNESS WHEREOF, the Grantor has caused this Mortgage Supplement to be duly
executed by one of its officers, thereunto duly authorized, on the day and year
first above written.
 

 
MESABA AVIATION, INC., as Grantor
 
 
By:
Name:
Title:

       

 
 
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EXHIBIT 1
TO
EQUIPMENT MORTGAGE AND
SECURITY AGREEMENT SUPPLEMENT NO. 1
 
DESCRIPTION OF EQUIPMENT
 
ENGINES:
 
Manufacturer
Manufacturer’s Model
Serial Number
                                   

DESCRIPTION OF SPARE PARTS LOCATIONS:

       

 
 
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EXHIBIT B
TO
EQUIPMENT MORTGAGE AND
SECURITY AGREEMENT
 
INSURANCE PROVISIONS

A.  LIABILITY INSURANCE FOR PLEDGED SPARE PARTS.
 
The Grantor will carry or cause to be carried at all times, at no expense to any
Additional Insured, commercial general and/or airline liability insurance with
respect to the Pledged Spare Parts, which is (i) of an amount and scope as may
be customarily maintained by the Grantor and other U.S. airlines for equipment
similar to the Pledged Spare Parts and (ii) maintained in effect with insurers
of nationally or internationally recognized responsibility (such insurers being
referred to herein as “Approved Insurers”).
 
B.  PROPERTY INSURANCE FOR PLEDGED SPARE PARTS.
 
The Grantor will carry or cause to be carried at all times, at no expense to any
Additional Insured, with Approved Insurers insurance covering all risk physical
damage insurance including flood and earthquake, as applicable, to the Pledged
Spare Parts in an amount not less than the replacement cost of such Pledged
Spare Parts.
 
Any policies of insurance carried in accordance with this Exhibit B covering the
Pledged Spare Parts and any policies taken out in substitution or replacement
for any such policies shall provide that (A) (i) all insurance proceeds paid
under such policies as a result of the occurrence of an Event of Loss with
respect to any Pledged Spare Parts or (ii) any insurance proceeds paid under
such policies not involving an Event of Loss with respect to any Pledged Spare
Parts and of an amount in excess of $50,000 shall be applied in accordance with
Section 3.02 of the Mortgage, and (B) any insurance proceeds not involving an
Event of Loss with respect to any Pledged Spare Parts and of an amount equal to
or less than $50,000 will be applied in payment (or to reimburse the Grantor)
for repairs or for replacement property, and any balance remaining after such
repairs or replacement with respect to such damage or loss shall, subject to the
terms of the Credit Agreement, be paid over to, or retained by, the Grantor.
 
C.  INSURANCE RELATING TO ENGINES.
 
(a)           In connection with any Engine, the Grantor shall also maintain or
cause to be maintained, at no expense to any Additional Insured, in respect of
such Engine the following insurances:
 
(i)           Liability:  Airline liability insurance for bodily injury and
property damage, including passenger legal liability, war risk and allied perils
liability per AVN 52E plus such excess coverage for a $300,000,000 limit
(“Liability War Risk Insurance”), contractual liability and products liability
(exclusive of manufacturer’s product liability insurance) with respect to the
Engine (x) in an amount not less than the greater of (i) the amount which the
Grantor may carry from time to time on other similar engines in its fleet
(whether owned or leased) and (ii) $300,000,000 per occurrence and (y) with
Approved Insurers.
 

     

 
 
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(ii)           Property:  (A) ”All-Risk” ground and flight and ingestion
aircraft hull insurance covering each Aircraft on which any Engine is installed
and such Engine while so installed thereon and such aircraft coverage shall
automatically increase by the full  replacement cost for such Engine,
(B) all-risk property damage insurance including flood and/or earthquake, as
applicable, covering such Engine while removed from any airframe, and (C) war
risk and allied perils insurance, including war, confiscation, expropriation (or
appropriation), nationalization and seizure (collectively, “Hull War Risk
Insurance”, and collectively, with Liability War Risk Insurance, “War Risk
Insurance”) at all times (even when such Engine is grounded or in storage) in an
amount not less than the full replacement cost for such Engine.  Such insurance
shall be of the type usually carried by the Grantor with respect to similar
engines and covering risks of the kind customarily insured against by the
Grantor.
 
(b)           As between the Grantor and the Collateral Agent, (i) all insurance
proceeds received as a result of the occurrence of an Event of Loss with respect
to any Engine or (ii) any insurance proceeds received not involving an Event of
Loss with respect to any Engine and of an amount in excess of $250,000 under
policies required to be maintained by the Grantor pursuant to the Mortgage will
be applied in accordance with Section 3.01 of this Mortgage.  All proceeds of
insurance required to be maintained by the Grantor in respect of any property
damage or loss not constituting an Event of Loss with respect to any Engine and
of an amount equal to or less than $250,000 will be applied in payment (or to
reimburse the Grantor) for repairs or for replacement property, and any balance
remaining after such repairs or replacement with respect to such damage or loss
shall, subject to the terms of the Credit Agreement, be paid over to, or
retained by, the Grantor.
 
D.  GENERAL PROVISIONS.
 
Any policies of insurance carried in accordance with Sections A, B, and C
including any policies taken out in substitution or replacement for such
policies:
 
(i)           shall name the Additional Insureds as additional insureds, as
their respective interests may appear;
 
(ii)           shall provide that, in respect of the interests of the Additional
Insureds in such policies, the insurance shall not be invalidated or impaired by
any act or omission (including misrepresentation and nondisclosure) by the
Grantor or any other Person and shall insure the Additional Insureds regardless
of any breach or violation of any representation, warranty, declaration, term or
condition contained in such policies by the Grantor;
 
(iii)           shall provide that, if such insurance is cancelled for any
reason whatsoever, or if the same is allowed to lapse for nonpayment of premium,
or if any material change is made in the insurance which adversely affects the
interest of any of the Additional Insureds, such cancellation, lapse or change
shall not be effective as to the Additional Insureds for 30 days (or such lesser
period in the case of War Risk Insurance) after receipt by the Additional
Insureds of written notice by such insurers of such cancellation, lapse or
change, provided that if any notice
 

     

 
 
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 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;
 
(iv)           shall waive any right of recourse, subrogation, setoff,
recoupment, counterclaim or other deduction against any Additional Insured;
 
(v)           shall be primary without right of contribution from any other
insurance that may be available to any Additional Insured;
 
(vi)           shall provide that all of the liability insurance provisions
thereof, except the limits of liability, shall operate in all respects as if a
separate policy had been issued covering each party insured thereunder;
 
(vii)           shall provide that none of the Additional Insureds shall be
liable for any insurance premium, warranties or representations to insurers;
 
(viii)           deductible amounts shall be subject to Collateral Agent’s
approval and certificates of insurance shall be in such form and contain detail
as reasonably acceptable to Collateral Agent; and
 
(ix)           in respect of insurances covering the Engines, the Grantor may
procure endorsements to the relevant insurance policies required to be
maintained pursuant to Section 2.03 and Section C of this Exhibit B so as to
incorporate the terms of AVN67B, or any successor provision, into such policies,
in which event, to the extent that any provision of any such AVN67B endorsement
conflicts or is otherwise inconsistent with the requirements of Section 2.03 or
Exhibit B (including Sections C and D), then such endorsement shall be deemed to
satisfy such requirements to the extent covered by such endorsement.  If the
terms of AVN67B are incorporated into such policies, the Grantor will cause its
insurance broker to issue an undertaking letter to the Additional Insureds
confirming that the insurance broker will promptly advise the Additional
Insureds upon becoming aware of the cancellation of or any material change in
such insurance policies.
 
E.  REPORTS AND CERTIFICATES; OTHER INFORMATION.
 
On or prior to the Closing Date and on or prior to each renewal date of the
insurance policies required hereunder, the Grantor will furnish or cause to be
furnished to the Collateral Agent insurance certificates describing in
reasonable detail the insurance maintained by the Grantor hereunder and a
report, signed by the Grantor’s regularly retained independent insurance broker
(the “Insurance Broker”), stating the opinion of such Insurance Broker that all
premiums in connection with the insurance then due have been paid and that the
insurance terms are in compliance with the requirements of Section 2.03, this
Exhibit B and the Credit Agreement.  The Grantor will request the Insurance
Broker to agree to advise the Collateral Agent in writing of any default in the
payment of any premium and of any other act or omission on the part of the
Grantor of which it has knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance on the Pledged Spare Parts or
any Engines, if applicable, or cause the cancellation, termination or
interruption of such insurance; and, if the Insurance Broker does not
 

     

 
 
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 so agree, the Grantor shall advise the Collateral Agent in writing of any such
default in payment at least 30 days (or such lesser period in the case of War
Risk Insurance) prior to the cancellation lapse, or material adverse change of
any insurance maintained pursuant to this Exhibit B).
 
F.  RIGHT TO PAY PREMIUMS.
 
Notwithstanding subparagraph D(vii) above, in the event of cancellation of any
insurance due to the nonpayment of premiums, the Collateral Agent shall have the
option, in its sole discretion, to pay any such premium in respect of the
Pledged Spare Parts or any Engine, if applicable, that is due in respect of the
coverage pursuant to the Mortgage and to maintain such coverage, as the
Collateral Agent may require, until the scheduled expiry date of such insurance
and, in such event, the Grantor shall, upon demand, reimburse the Collateral
Agent for amounts so paid by it.
 
G.  SELF-INSURANCE.
 
For the avoidance of doubt, with respect to the Pledged Spare Parts, the Grantor
shall not be entitled to self insure the risks required to be insured against
pursuant to Section 2.03 and this Exhibit B.  With respect to any Engine, the
Grantor shall not be entitled to self insure the risks required to be insured
against pursuant to Section 2.03 and this Exhibit B other than an acceptable
deductible pursuant to subparagraph D(viii) above.

     

 
 
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