Exhibit 10.5


 


EXECUTION COPY


 


 


AIRCRAFT ASSET

SECURITY AGREEMENT


 


 


Dated as of April 26, 2006


 


among


 


AEROTURBINE, INC., as Borrower


 


 


THE SUBSIDIARY GUARANTORS OF AEROTURBINE,
INC.


PARTY HERETO, as Subsidiary Guarantors


 


 


THE TRUSTS PARTY HERETO, as Trusts


 


 


and


 


 


CALYON New York Branch,


as Collateral Agent


 


 






 


Covering

Aircraft Assets Owned by the Borrower,

the Subsidiary Guarantors and the Trusts.


 






 

















 


AIRCRAFT ASSET SECURITY AGREEMENT


 


AIRCRAFT
ASSET SECURITY AGREEMENT, dated as of April 26, 2006 (the “Security Agreement”) among AeroTurbine, Inc., a Delaware
corporation (the “Borrower”), each
Subsidiary Guarantor of the Borrower a party hereto (the “Subsidiary Guarantors”), each Trust
established by or for the benefit of the Borrower or a Subsidiary a party
hereto (the “Trusts”) and CALYON
New York Branch, as Collateral Agent (the “Collateral
Agent”).


 


W I T N E S S E T H:


 


WHEREAS, the Borrower (as successor by
merger to AerCap AT, Inc.), the Senior Lenders (as defined below) and CALYON
New York Branch, as administrative agent for the Senior Lenders (the “Senior Agent”), are parties to a Senior
Credit Agreement dated as of the date hereof (the “Senior Credit Agreement”) providing for the making of certain
Senior Loans to the Borrower (the “Senior
Loans”);


 


WHEREAS, the Borrower, the Junior Lenders
(as defined below) and CALYON, Head Office, as agent for the Junior Lenders
(the “Junior Agent”), are parties
to a Junior Credit Agreement dated as of the date hereof (the “Junior Credit Agreement”; and, collectively
with the Senior Credit Agreement, the “Credit
Agreements”) providing for the making of certain Junior Loans to the
Borrower (the “Junior Loans”);


 


WHEREAS, the Borrower is willing to secure
its obligations under the Credit Agreements and certain other obligations
described herein by granting Liens on certain of its assets to the Collateral
Agent as provided in the Security Documents;


 


WHEREAS, the Borrower is willing to cause
each of the Subsidiary Guarantors and each of the Trusts to guarantee the foregoing
obligations of the Borrower and to secure its guarantee thereof by granting
Liens on certain of its assets to the Collateral Agent as provided in the
Security Documents;


 


WHEREAS, the Senior Lenders and the Junior
Lenders (each a “Lender”, and collectively,
the “Lenders”) are not willing to
make financial accommodation available under the Credit Agreements unless (i)
the foregoing obligations of the Borrower are secured and guaranteed as
described above and (ii) each guarantee thereof is secured by Liens on assets
of the Subsidiary Guarantors as provided in the Security Documents;


 


WHEREAS, each Lender has agreed, pursuant
and subject to the terms and conditions of the Credit Agreements, to make a
loan to the Borrower in the amount of its Commitment (the (the Senior Loans,
collectively with the Junior Loans, the “Loans”),
in connection with the financing of certain aircraft and engines owned by the
Borrower;


 


WHEREAS, the parties desire by this
Security Agreement, among other things, to grant to the Collateral Agent a Lien
on the Collateral in accordance with the terms hereof, in trust as security for
the Borrower’s obligations to the Lenders, for the equal and ratable benefit
and security of the Lenders;


 

















 


WHEREAS, all things have been done to make
the Loans, when executed by the Borrower and authenticated and delivered by the
Collateral Agent hereunder, the legal, valid and binding obligations of the
Borrower; and


 


WHEREAS, all things necessary to make this
Security Agreement a legal, valid and binding obligation of the Borrower and
the Collateral Agent for the uses and purposes herein set forth, in accordance
with its terms, have been done and performed and have occurred:


 


GRANTING CLAUSE


 


NOW, THEREFORE, the Borrower, in order to
secure the Obligations, and each Subsidiary Guarantor listed on the signature
pages hereof, in order to secure its Secured Guarantee, and each Trust listed
on the signature pages hereof, in order to secure the Obligations of its
beneficiary, grants to the Collateral Agent for the benefit of the Agents and
the Lenders a continuing security interest in all the following property of
such Borrower or such Subsidiary Guarantor or Trust, as the case may be,
whether now owned or existing or hereafter acquired or arising and regardless
of where located:


 


(a)                                  each
Aircraft (including the constituent Airframe and the Engines and all
replacements thereof and substitutions therefor as provided herein) and each
Engine, all as more particularly described in a Security Agreement Supplement
or any such replacements or substitutions therefor, as provided in this
Security Agreement and all records, logs and manuals maintained with respect
thereto and modification and maintenance records maintained with respect
thereto;


 


(b)                                 each
Lease, all as more particularly set forth in an Assignment of Lease;


 


(c)                                  all
insurance and requisition proceeds with respect to the Aircraft and the Engines
and the Inventory including but not limited to the insurance required under
Section 2.07 hereof, but excluding any insurance maintained by the Borrower and
not required under Section 2.07 hereof;


 


(d)                                 all
monies and securities from time to time deposited or required to be deposited
with the Collateral Agent pursuant to any terms of this Security Agreement or
required hereby to be held by the Collateral Agent hereunder; and


 


(e)                                  all
proceeds of the foregoing.


 


TO
HAVE AND TO HOLD all and singular the aforesaid property unto the Collateral
Agent, and its successors and assigns, in trust for the benefit and security of
the Lenders, and for the uses and purposes and in all cases and as to all
property specified in paragraphs (a) through (e) inclusive above, subject
to the terms and provisions set forth in this Security Agreement.


 


The
Borrower does hereby constitute the Collateral Agent the true and lawful
attorney of the Borrower, irrevocably, granted for good and valuable
consideration and coupled with an interest and with full power of substitution,
and with full power (in the name of the Borrower or otherwise) to ask for,
require, demand and receive any and all monies and claims for monies


 


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(in each case including insurance and requisition
proceeds) due and to become due under or arising out of the property which now
or hereafter constitutes part of the Collateral, to endorse any checks or other
instruments or orders in connection therewith and to file any claims or to take
any action or to institute any proceedings which the Collateral Agent may deem
to be necessary or advisable in the premises; provided
that the Collateral Agent shall not exercise any such rights except upon the
acceleration of the Loans pursuant to Section 8 of the Senior Credit Agreement.


 


The
Borrower agrees that at any time and from time to time, upon the written
request of the Collateral Agent, the Borrower 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 necessary
or desirable to perfect, preserve or protect the mortgage, security interests
and assignments created or intended to be created hereby or to obtain for the
Collateral Agent the full benefits of the assignment hereunder and of the
rights and powers herein granted.


 


IT IS
HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:


 


ARTICLE I



DEFINITIONS


 


Section
1.01.                         Unless
otherwise defined herein, capitalized terms used herein shall have the meanings
assigned thereto in Appendix I of each Credit Agreement. In addition, the
following terms shall have the following meanings:


 


“Aircraft”  means each Airframe together with the Engines
specified on a Security Agreement Supplement as relating to such Airframe as “Related
Engines” (or any Replacement Engine therefor) (“Related Engines”), whether or not any such Related Engines may
from time to time be installed on such Airframe or may be installed on any
other airframe or on any other aircraft.


 


“Airframe”  means (i) each aircraft (except Engines
or engines from time to time installed thereon) identified by aircraft
manufacturer and model, registration mark and manufacturer’s serial number in a
Security Agreement Supplement and any aircraft (except Engines or engines from
time to time installed thereon) which may from time to time be substituted for
such aircraft (except Engines, Engines or engines from time to time installed
thereon) pursuant to clause (ii) of the first paragraph of Section 2.06(a)
of this Security Agreement; and (ii) any and all related Parts (other than
Engines or engines).


 


“Assignment of Lease” means an
Assignment of Lease substantially in the form of Exhibit B, signed and
delivered to the Collateral Agent for the purpose of assigning a Lease pursuant
to Section 2.04.


 


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“Aviation Authority” means, in respect of an Aircraft, any
Governmental Authority which under the laws of the State of Registration may
from time to time:


 


(a) have
control or supervision of civil aviation in the State of Registration; or


 


(b) have
jurisdiction over the registration, airworthiness or operation of, or other
similar matters relating to that Aircraft.


 


“Collateral” or “Aircraft Asset Collateral” means all
property, whether now owned or hereafter acquired, on which a Lien is granted
or purports to be granted to the Collateral Agent pursuant to this Agreement.


 


“Deregistration Power of Attorney”
means, in respect of an Aircraft, a deregistration power of attorney issued by
the relevant Lessee in favor of the Borrower (or, if such Aircraft is leased by
a Subsidiary Guarantor or a Trust, such Subsidiary Guarantor or Trust) in the
form provided for by the Cape Town Convention (if the Cape Town Convention is
applicable) or in the form approved by the Collateral Agent acting reasonably.


 


“Engine” means (i) each Related Engine
and (ii) each engine, which is not a Related Engine, which is specified in a
Security Agreement Supplement.


 


“Exempt Aircraft” means an Aircraft owned by a Special
Purpose Leasing Subsidiary which Aircraft is (i) leased to a Lessee pursuant to
a lease with a stated term (together with all stated renewals) of 16 months or
less and (ii) registered in the name of the Lessee in a State of Registration
which is not the United States.


 


“Federal Aviation Act” means that
portion of the United States Code comprising those provisions formerly referred
to as the Federal Aviation Act of 1958, as amended, or any subsequent
legislation that amends, supplements or supersedes such provisions.


 


“Federal Aviation Administration” and “FAA” mean the United States Federal
Aviation Administration and any agency or instrumentality of the United States
government succeeding to their functions.


 


“Lease” means any lease permitted by the
terms of Section 2.04(c) of this Security Agreement.


 


“Lessee” means any Person for so long,
but only so long, as such Person is in possession of an Airframe and/or any
Engine pursuant to the terms of a Lease which is then in effect pursuant to
Section 2.04(c) of this Security Agreement.


 


“Lien Grantors” means, collectively,
(i) the Borrower, each Subsidiary listed on the signature pages hereof
under the caption “Subsidiary Guarantors”, and each Trust listed on the
signature pages hereof under the caption “Trusts” and their respective successors,
and (ii) each Subsidiary or Trust that shall, at any time after the date
hereof, become a Lien Grantor pursuant to Section 10.01, and “Lien Grantor”
means any of the foregoing.


 


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“Parts” means all appliances, parts,
instruments, appurtenances, accessories, furnishings and other equipment of
whatever nature (other than (a) complete Engines or engines, and
(b) any items leased by the Borrower from a third party that would
constitute an Additional Part that may be removed pursuant to the penultimate
sentence of Section 2.06 of this Security Agreement ) which may from time to
time be incorporated or installed in or attached to any Airframe or any Engine
or removed therefrom (until replaced).


 


“Permitted Lien” means any Lien referred
to in clauses (a) through (h) of Section 2.01 of this Security Agreement.


 


“Prohibited Country” means, with respect
to an Aircraft or an Engine, any country to which the export and/or use of such
Aircraft or Engine is not permitted under (a) any United Nations sanctions, (b)
the Council Regulation (EC) No. 149/2003 which updates and amends Council
Regulation (EC) 1334/2000, (c) the United States Export Administration Act 1979
(as amended) or any successor legislation and/or the Export Administration
Regulations promulgated there under, (d) where applicable, the various
regulations administered from time to time by the Office of Foreign Assets
Control of the U.S. Treasury Department, (e) any similar or corresponding
legislation then in effect in the United States or (f) any subsequent United
Nations Sanctions Orders the effect of which prohibits or restricts the export
and/or use of Aircraft or Engines to such country.


 


“Security Agreement” means this Aircraft
Asset Security Agreement, between the Borrower, the Subsidiary Guarantors and
the Collateral Agent, as it may from time to time be supplemented or amended as
herein provided, including supplementing by a Security Agreement Supplement
pursuant thereto.


 


“Security Agreement Supplement” means a
Security Agreement Supplement, substantially in the form of Exhibit A,
signed and delivered to the Collateral Agent for the purpose of adding a
Subsidiary of the Borrower or a Trust as a party hereto pursuant to
Section 10.01 and/or adding additional property to the Collateral.


 


“Special Purpose Leasing Subsidiary”
means a Subsidiary of the Borrower or a Subsidiary Guarantor (x) which has been
organized as a Special Purpose Vehicle for the purpose of leasing one or more
Aircraft and/or Engines to a single Lessee and (y) the Capital Stock of which
has been pledged to the Collateral Agent pursuant to Section 7 of the Guarantee
and Collateral Agreement. 


 


“State of Registration” means, in
relation to an Aircraft, any state or territory in which an Aircraft may for
the time being be registered pursuant to a Lease or pursuant to this Agreement
(as the case may be).


 


“Trust” means an owner trust organized
by and for the benefit of the Borrower or a Subsidiary Guarantor under the laws
of one of the States of the United States for the purpose of owning an Aircraft
to be registered with the FAA on the basis of “citizenship”, provided that the
owner trustee shall be a bank or trust company which


 


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customarily
acts as an owner trustee in aircraft financings and the owner trust shall meet
the Special Purpose Vehicle Criteria.


 


“War Risk Insurance”  means, for any Aircraft, (i) Hull War Risk
Insurance and (ii) war risk, hijacking and related perils insurance covering
liability risks in respect of such Aircraft.


 


ARTICLE II



COVENANTS OF THE BORROWER


 


Section
2.01.                         Liens. Neither the Borrower nor any
Subsidiary Guarantor nor any Trust will directly or indirectly create, incur,
assume or suffer to exist any Lien on or with respect to any Collateral, title
thereto or any interest therein, except:


 


(a)                                  the
Lien of this Security Agreement, and any other rights existing pursuant to the
Loan Documents;


 


(b)                                 the
rights of others under agreements or arrangements to the extent permitted by
the terms of Section 2.04 hereof;


 


(c)                                  Liens
for taxes of the Borrower or a Subsidiary Guarantor or Trust (or any Lessee)
either not yet due or being contested in good faith by appropriate proceedings
so long as such proceedings do not involve any material risk of the sale,
forfeiture or loss of any of the Collateral;


 


(d)                                 materialmens’,
mechanics’, workmens’, repairmens’, employees’ or other like Liens arising in
the ordinary course of the Borrower’s or Subsidiary Guarantor’s or Trust’s (or,
if a Lease is then in effect, Lessee’s) business (including those arising under
maintenance agreements entered into in the ordinary course of business)
securing obligations that are not overdue for a period of more than
sixty (60) days or are being contested in good faith by appropriate
proceedings so long as such proceedings do not involve any material danger of
the sale, forfeiture or loss of any item of Collateral or any interest therein;


 


(e)                                  Liens
arising out of any judgment or award against the Borrower or any Subsidiary
Guarantor or any Trust (or any Lessee), unless the judgment secured shall not,
within sixty (60) days after the entry thereof, have been discharged,
vacated, reversed or execution thereof stayed pending appeal or shall not have
been discharged, vacated or reversed within sixty (60) days after the
expiration of such stay;


 


(f)                                    Liens
for the fees or charges of any airport or air navigation authority arising in
the ordinary course of the Borrower’s or Subsidiary Guarantor’s or Trust’s (or,
if a Lease is then in effect, Lessee’s) business by statute or by operation of
law, in each case for amounts the payment of which is either not yet due or
being contested in good faith by appropriate proceedings so long as such
proceedings do not involve any material risk of the sale, forfeiture or loss of
any of the Collateral, provided that, notwithstanding the foregoing, the
Borrower, any Subsidiary Guarantor or any Trust may suffer to exist such Liens
for such fees


 


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and charges (“Basket Liens”) in an aggregate amount
not to exceed $4,000,000 for the Borrower, its Subsidiary Guarantors and
Trusts, provided, further, that the Borrower, its Subsidiary
Guarantors and Trusts shall use all commercially reasonable efforts to require
the payment of such Basket Liens by the applicable Lessees whose operations
resulted in the occurrence of such Basket Liens which are then due and payable;


 


(g)                                  any
other Lien with respect to which the Borrower or any Subsidiary Guarantor or
Trust (or any Lessee) shall have provided a bond, cash collateral or other
security adequate in the reasonable opinion of the Collateral Agent; or


 


(h)                                 Liens
approved in writing by the Collateral Agent.


 


The Borrower will promptly, at its own
expense, take (or cause to be taken) such actions as may be necessary duly to
discharge any such Lien not excepted above if the same shall arise at any time.


 


Section
2.02.                         Registration
of Aircraft.


 


(a)                                  Registration in the Name of the Borrower. Except
as otherwise permitted in clause (b) hereof, Borrower, at its own cost and
expense, shall cause each Aircraft to be duly registered in its name (or the
name of a Subsidiary Guarantor or a Trust, as the case may be), and to remain
duly registered in the name of the Borrower (or the name of a Subsidiary
Guarantor or a Trust, as the case may be) in the United States, Ireland, the
Netherlands or the United Kingdom and shall cause this Security Agreement (or,
if required by the laws of Ireland, the Netherlands or the United Kingdom, a
local law mortgage containing substantially the terms and conditions of this
Security Agreement) to be duly recorded or registered in the aircraft mortgage
register of the applicable State of Registration as a first mortgage on such
Aircraft and is duly registered as an “international interest” on the
International Registry with no prior “international interests”.


 


(b)                                 Registration in the Name of a Lessee. The
Borrower may cause an Aircraft to be registered in the name of a Lessee during
the term of a Lease of such Aircraft in any country, provided, that:


 


(i)                                     Such
country is not a Prohibited Country;


 


(ii)                                  Registration
under the laws of such country is either required by the Aviation Authority of
such country or is customary for aircraft leases entered by major international
aircraft lessors with air carriers organized under the laws of such country;


 


(iii)                               The ownership interest
of the Borrower (or Subsidiary Guarantor or Trust, as the case may be) is
registered, recorded and noted in the register maintained by the Aviation
Authority of such country to the fullest extent possible in accordance with any
Requirement of Law of such country (it being understood and agreed that certain
countries do not have a registry for ownership interests and that registration
of the Aircraft may be in the name of the Lessee with a notation as to the
lessor’s interest);


 


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(iv)                              Subject
to clause (c) below, this Security Agreement (or, if required by the laws of
such country, a local law mortgage containing substantially the terms and
conditions of this Security Agreement) is duly recorded or registered in the
aircraft mortgage register of such country as a first mortgage on such Aircraft
and is duly registered as an “international interest” on the International
Registry with no prior “international interests”;


 


(v)                                 If
required by Section 2.04, the Lease has been assigned to the Collateral Agent
pursuant to an Assignment of Lease and a Lessee Consent to Assignment has been
obtained; and


 


(vi)                              If
customarily obtained in connection with aircraft leases entered by major
international aircraft lessors with air carriers organized under the laws of
such country a Deregistration Power of Attorney, together with such other
documents and/or authorizations as may be necessary or advisable as a
Requirement of Law of such country to ensure the de-registration of such
Aircraft on the expiry or earlier termination of such Lease.


 


(c)                                  Mortgage Exceptions. If the State of Registration
is not the United States, the Borrower shall not be required to cause this
Security Agreement (or, if required by the laws of such country, a local law
mortgage containing substantially the terms and conditions of this Security
Agreement) to be duly recorded or registered in the aircraft mortgage register
of the State of Registration as a first mortgage on such Aircraft if:


 


(i)                                     Such
Aircraft is an Exempt Aircraft; or


 


(ii)                                  the
Taxes, fees, costs and expenses which would be incurred in connection with the
recordation or registration of this Security Agreement or a local law mortgage
would exceed $10,000, then, unless the Collateral Agent shall elect to pay the
amount by which such Taxes, fees, costs and expenses exceed $10,000.


 


(d)                                 Opinion prior to Change in Registration. Except
in the case of Aircraft with respect to which a mortgage is not required to be
recorded or registered in reliance on the exceptions set forth in Section
2.01(c), prior to a change in the registration of an Aircraft, the Collateral
Agent shall have received an opinion of local counsel (such counsel to be
reasonably acceptable to the Collateral Agent) as to the steps (including the
making or giving of any notices, filings, recordations and registrations)
necessary or advisable (x) to perfect the Borrower’s or such Subsidiary
Guarantor’s or such Trust’s ownership interest therein and the Collateral Agent’s
security interest therein under the Laws of the State of Registration and (y)
otherwise to protect its interest therein as a matter of local law or customary
practice (such as the procurement of a deregistration power of attorney and any
necessary permits to import or export such aircraft from the applicable
jurisdiction), and all such steps, if customarily taken by major international
aircraft lessors in such jurisdictions, shall have been duly taken in a manner
reasonably satisfactory to the Collateral Agent.


 


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(e)                                  Engine Mortgage. Borrower, at its own cost
and expense, shall cause this Security Agreement to be duly recorded with the
FAA as a first mortgage with respect to each Engine and duly registered with
respect to each Engine as an “international interest” on the International
Registry with no prior “international interests”.


 


Section
2.03.                         Insignia. On
or prior to the date each Airframe or Engine becomes subject to the Lien of
this Security Agreement, or as soon as practicable thereafter, the Borrower
agrees to affix and maintain (or cause to be affixed and maintained), at its
expense, in the cockpit of each Airframe adjacent to the airworthiness
certificate therein and on each Engine, a nameplate bearing the inscription:


 


Mortgaged To



CALYON New York Branch

as Collateral Agent


 


(such
nameplate to be replaced, if necessary, with a nameplate reflecting the name of
any successor Collateral Agent as permitted herein). Except as above provided,
the Borrower will not allow the name of any Person (other than the Borrower) to
be placed on any Airframe or on any Engine as a designation that might be
interpreted as a claim of ownership; provided that
nothing herein contained shall prohibit the Borrower (or any Lessee) from
placing its customary colors and insignia on any Airframe or any Engine.


 


Section
2.04.                         Possession and
Leases. Neither the Borrower nor any Subsidiary Guarantor or any
Trust will, without the prior written consent of the Collateral Agent, lease or
otherwise in any manner deliver, transfer or relinquish possession of any
Airframe or any Engine; provided that,
so long as the Loans have not been accelerated pursuant to Section 8 of the
Senior Credit Agreement, at the time of such lease, delivery, transfer or
relinquishment of possession or installation, and so long as the Borrower (or
any Lessee) shall comply with the provisions of this Article II, the Borrower
or a Subsidiary Guarantor or Trust may, without the prior written consent of
the Collateral Agent:


 


(a)                                  deliver
possession of any Airframe or any Engine to the manufacturer thereof (or for
delivery thereto) or to any organization (or for delivery thereto) for testing,
service, repair, maintenance or overhaul work on such Airframe or Engine or any
part of any thereof or for alterations or modifications in or additions to such
Airframe or Engine to the extent required or permitted by the terms of Section
2.05 or 2.06 hereof;


 


(b)                                 install
an Engine on an airframe which is owned by the Borrower or a Subsidiary
Guarantor or a Trust (or any Lessee), in each case, free and clear of all
Liens, except:


 


(i)                                     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),


 


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(ii)                                  the
rights of third parties under interchange agreements which would be permitted
under clause (i) above, provided that
the Borrower’s or Subsidiary Guarantor’s or Trust’s title to such Engine and
the first priority Lien of this Security Agreement shall not be divested or
impaired as a result thereof; and


 


(iii)                               mortgage liens or other
security interests, provided that
(as regards this clause (iii)) 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;


 


(c)                                  the
Borrower may, at any time, enter into any lease (a “Lease”) of any Aircraft or
Engine, with any Person (a “Lessee”), provided that:


 


(i)                                     such
Lessee is not organized or based in a Prohibited Country;


 


(ii)                                  the
terms of the Lease would not cause a violation with the terms of this Security
Agreement (provided, that (x) in the case of a Lease of an Engine, the Lessee
may be permitted to sublease the Engine and (y) in the case of the Lease of an
Aircraft, the Lessee will not be permitted to sublease an Aircraft other than
to a Subsidiary of the Lessee, provided, that, in either such cases, any such sublease
is expressly subject and subordinate to the Lease), including without
limitation, the inspection rights set forth in Section 2.08;


 


(iii)                               with respect to any
Lease of an Aircraft or Engine having a stated term (including all stated
renewals) in excess of 16 months, the Borrower shall have provided an opinion
of counsel reasonably acceptable to the Collateral Agent, in form and substance
reasonably satisfactory to the Collateral Agent (it being understood and agreed
that opinions that are customarily obtained with respect to such matters by
major international lessors with lessees in such jurisdiction shall be
acceptable to the Collateral Agent), addressed to the Collateral Agent, with
respect to the due execution, delivery and enforceability of such Lease under
the laws of the country of the Lessee’s organization, subject to customary
qualifications and assumptions and, if such registration or recordation is
stated by such counsel to be necessary or advisable to enforce the Assignment
of the Lease, the registration or recordation of the Assignment of Lease;


 


(iv)                              a
copy of such Lease has been delivered to the Collateral Agent;


 


(v)                                 such
Lease has been assigned to the Collateral Agent pursuant to an Assignment of
Lease and, in the case of a Assignment of Lease of an Engine, such Assignment
of Lease has been recorded with the FAA and, in the case of an Assignment of
Lease for an Aircraft (other than Aircraft which is an Exempted Property), (A)
such Assignment of Lease has been registered or recorded as stated to be
necessary or advisable by the opinion of counsel referred to in clause (iii)
above and (B) a Lessee Consent to Assignment has been obtained; and


 


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(vi)                              with
respect to a Lease of an Aircraft (other than Aircraft which is an Exempted
Property), if the State of Registration of such Aircraft has adopted the Cape
Town Convention and the Lessee is organized in a jurisdiction that has adopted
the Cape Town Convention, such Lease has been has been duly registered as an “international
interest” on the International Registry with no prior “international interests”
and the Assignment of Lease has been duly registered as an assignment of such “international
interest” and with respect to a Lease of an Engine (other than an Engine which
is an Exempted Property), if the Lessee is organized in a jurisdiction that has
adopted the Cape Town Convention, such Lease has been has been duly registered
as an “international interest” on the International Registry with no prior “international
interests” and the Assignment of Lease has been duly registered as an
assignment of such “international interest”.


 


The rights of any Lessee or other transferee
who receives possession by reason of a transfer permitted by this Section 2.04
shall be effectively subject and subordinate to, and any Lease permitted by
this Section 2.04 shall be expressly subject and subordinate to, all the terms
of this Security Agreement and to the Lien of this Security Agreement,
including, without limitation, the Collateral Agent’s rights to foreclosure and
repossession pursuant to Article III hereof and to avoid such Lease upon such
repossession, and the Borrower shall remain primarily liable hereunder for the
performance of all of the terms of this Security Agreement to the same extent
as if such Lease or transfer had not occurred. No pooling agreement, lease or
other relinquishment of possession of any Airframe or any Engine shall in any
way discharge or diminish any of the Borrower’s obligations to the Collateral
Agent hereunder or constitute a waiver of the Collateral Agent’s rights or
remedies hereunder. The Collateral Agent agrees, for the benefit of the
Borrower (and any Lessee) and for the benefit of any mortgagee or other holder
of a security interest in any engine (other than an Engine) owned by the
Borrower (or any Lessee), any lessor of any engine (other than an Engine)
leased to the Borrower (or any Lessee) and any conditional vendor of any engine
(other than an Engine) purchased by the Borrower (or any Lessee) subject to a
conditional sale agreement or any other security agreement, that no interest
shall be created hereunder in any engine so owned, leased or purchased and that
neither the Collateral Agent nor its successors or assigns will acquire or
claim, as against the Borrower (or any Lessee) or any such mortgagee, lessor or
conditional vendor or other holder of a security interest or any successor or
assignee of any thereof, any right, title or interest in such engine as the
result of such engine being installed on any Airframe; provided,
however, that such agreement of the Collateral Agent shall not be
for the benefit of any lessor or secured party of any airframe (other than an
Airframe) leased to the Borrower (or any Lessee) or purchased by the Borrower
(or any Lessee) subject to a conditional sale or other security agreement or
for the benefit of any mortgagee of or any other holder of a security interest
in an airframe owned by the Borrower (or any Lessee), unless such lessor,
conditional vendor, other secured party or mortgagee has expressly agreed
(which agreement may be contained in such lease, conditional sale or other
security agreement or mortgage) that neither it nor its successors or assigns
will acquire, as against the Collateral Agent, any right, title or interest in
an Engine as a result of such Engine being installed on such airframe.


 


11

















 


Section 2.05.                         Maintenance
and Operation.


 


(a)                                  Maintenance. Borrower, at its own cost and expense, shall
(or shall cause any Lessee to):


 


(i)                                     maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) the Aircraft and the Engines in accordance with a maintenance
program that is approved by the Aviation Authority of the State of Registration
and complies in all material respects to the maintenance program recommended by
the manufacturer of such Aircraft or Engine, as the case may be, so as to keep
the Aircraft and the Engines in good operating condition (except for ordinary
wear and tear), and as may be necessary to enable the applicable airworthiness
certification for the Aircraft to be maintained in good standing at all times
(other than during temporary periods of storage in accordance with applicable
regulations or during maintenance or modification permitted hereunder) under
the applicable laws of the State of Registration; and


 


(ii)                                  maintain
or cause to be maintained in the English language all records, logs and other
materials required to be maintained in respect of the Aircraft and the Engines
in a form consistent with the requirements of the Aviation Authority of the
State of Registration.


 


(b)                                 Operation. Neither
the Borrower nor any Subsidiary Guarantor nor any Trust will maintain, use,
service, repair, overhaul or operate the Aircraft and the Engines (or permit
any Lessee to maintain, use, service, repair, overhaul or operate the Aircraft
or the Engines) in violation of any law or any rule, regulation, order or
certificate of any government or governmental authority (domestic or foreign)
having jurisdiction, or in violation of any airworthiness certificate, license
or registration relating to the Aircraft or the Engines issued by the Aviation
Authority. Neither the Borrower nor any Subsidiary Guarantor nor any Trust will
knowingly or willfully operate the Aircraft or the Engines, or knowingly or
willfully permit any Lessee to operate the Aircraft or the Engines, in any area
excluded from coverage by any insurance required by the terms of Section 2.07.


 


(c)                                  Return Condition. Nothing contained in
this Section 2.05 shall be deemed to prohibit the Borrower, any Subsidiary
Guarantor or any Trust from waiving return conditions applicable on the
expiration or earlier termination of a Lease in exchange for a cash payment
from the Lessee thereunder in lieu of performance.


 


Section 2.06.                         Alterations, Modifications and Additions. The Borrower, at
its own expense, will make (or cause to be made) such alterations and
modifications in and additions to the Airframes and Engines as may be required
from time to time to meet the applicable standards of the FAA or any other
governmental authority having jurisdiction; provided, however,
that the Borrower (or, if a Lease is then in effect, any Lessee) may, in good
faith, contest the validity or application of any such law, rule, regulation or
order in any reasonable manner which does not materially adversely affect the
first priority Lien of this Security Agreement and does not involve any
material risk of sale, forfeiture or loss of the affected Eligible Equipment. In
addition, the


 


12

















 


Borrower (or any Lessee),
at its own expense, may from time to time add further parts or accessories and
make such alterations and modifications in and additions to any Airframe or any
Engine as the Borrower (or any Lessee) may deem desirable in the proper conduct
of its business, including, without limitation, removal of parts which the
Borrower (or any Lessee) has determined in its reasonable judgment to be
obsolete or no longer suitable or appropriate for use on such Airframe or
Engine (such parts, “Obsolete Parts”);
provided that no such alteration,
modification or addition shall diminish (other than in a de minimus amount) the
value or utility of such Airframe or Engine below the value or utility thereof
immediately prior to such alteration, modification or addition, assuming such
Airframe or Engine was then in the condition required to be maintained by the
terms of this Security Agreement. All parts incorporated or installed in or
attached or added to any Airframe or Engine as the result of such alteration,
modification or addition (the “Additional Parts”)
shall, without further act, become subject to the Lien of this Security
Agreement. Notwithstanding the foregoing sentence, the Borrower (or any Lessee)
may remove or suffer to be removed any Additional Part, provided
that such Additional Part (i) is in addition to, and not in replacement of
or substitution for, any Part originally incorporated or installed in or
attached to the appropriate Airframe or Engine on the date such Airframe or
Engine became subject to the Lien of this Security Agreement or any part in
replacement of, or substitution for, any such part, (ii) is not required
to be incorporated or installed in or attached or added to such Airframe or
Engine pursuant to the terms of Sections 2.05 and 2.06 hereof or this Section
and (iii) can be removed from such Airframe or Engine without diminishing
or impairing the value or utility which such Airframe or Engine would have had
at the time of removal had such alteration, modification or addition not
occurred, assuming that such Airframe or Engine were in the condition and
repair required to be maintained by the terms hereof.


 


Section
2.07.                         Insurance.


 


(a)                                  Public Liability and Property Damage Insurance. (I) Except
as provided in clause (II) of this Section 2.07(a), the Borrower will carry or
cause to be carried at its or any Lessee’s expense (i) liability insurance
(including, without limitation, passenger legal liability, third party legal
liability including property damage but excluding manufacturers’ product
liability and cargo liability, including if and to the extent the same is
maintained by the Borrower (or, if a Lease is then in effect, if and to the
extent maintained by Lessee) War and allied perils in an amount not less than
the greater of (x) the combined single limit from time to time applicable to
aircraft owned or operated by the Borrower or any Subsidiary Guarantor (or, if
a Lease is in effect, by the Lessee) and (y) a combined single limit of
$150,000,000 of the type and covering the same risks as from time to time
applicable to aircraft or engines owned or operated by the Borrower (or, if a
Lease is then in effect, by Lessee) of the same type as the Aircraft and
Engines and which is maintained in effect with insurers of recognized
responsibility. Any policies of insurance carried in accordance with this
paragraph (a) and any policies taken out in substitution or replacement for any
of such policies (A) shall be endorsed to name the Collateral Agent and each
Lender (but without imposing on any such parties liability to pay the premiums
for such insurance) (and, if any Lease shall be in effect, the Borrower in its
capacity as lessor under the Lease) as additional insureds as their respective
interests may appear, (B) shall provide that in respect of the interest of the
Collateral Agent and each Lender (and, if any Lease shall be in effect, the
Borrower in its capacity as lessor under the Lease) in such policies the
insurance shall


 


13

















 


not be invalidated by any action or inaction of the
Borrower (or, if any Lease is then in effect, any Lessee) or any other Person
and shall insure the Collateral Agent (and, if any Lease shall be in effect,
the Borrower in its capacity as lessor under the Lease) regardless of any
breach or violation of any warranty, declaration or condition contained in such
policies by the Borrower (or, if any Lease is then in effect, any Lessee), (C)
shall provide that, except to the extent not provided for by the Borrower’s war
risk, hijacking and related perils insurance provider, if the Borrower
maintains war risk, hijacking and related perils insurance, if the insurers cancel
such insurance for any reason whatever or if any material change is made in
such insurance which adversely affects the interest of the Collateral Agent or
any Lender (or, if any Lease shall be in effect, the Borrower in its capacity
as lessor under the Lease), or such insurance shall lapse for non-payment of
premium, such cancellation, lapse or change shall not be effective as to the
Collateral Agent or such Lender (or, if any Lease shall be in effect, the
Borrower in its capacity as lessor under the Lease) for thirty (30) days (seven
(7) days in the case of war risk and allied perils coverage) after issuance to
the Collateral Agent and each Lender (or, if any Lease shall be in effect, the
Borrower in its capacity as lessor under the Lease), respectively, of written
notice by such insurers of such cancellation, lapse or change; provided,
however, that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of prior notice as
shall then be reasonably obtainable, (D) shall be primary without right of
contribution from any other insurance which is carried by the Collateral Agent
or any Lender (or, if any Lease shall be in effect, the Borrower in its
capacity as lessor under the Lease), (E) shall expressly provide that all of
the provisions thereof, except the limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured, and (F)
shall waive any right of the insurers to any set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any
liability of the Collateral Agent or any Lender (or, if any Lease shall be in
effect, the Borrower in its capacity as lessor under the Lease) to the extent
of any moneys due to the Collateral Agent or any Lender (or, if any Lease shall
be in effect, the Borrower in its capacity as lessor under the Lease). To the
extent that the Borrower maintains war risk, hijacking and related perils
liability insurance and the Borrower’s war risk, hijacking and related perils
liability insurance provider does not provide for provision of direct notice to
the Collateral Agent and each Lender of cancellation, material change or lapse
in the insurance required hereunder, the Borrower hereby agrees that upon
receipt of notice of any thereof from such insurance provider it shall give the
Collateral Agent and each Lender immediate notice of each cancellation or lapse
of, or material change to, such insurance.


 


(II)                                During
any period that an Aircraft or Engine is on the ground and not in operation,
the Borrower may carry or cause to be carried, in lieu of the insurance
required by clause (I) above, insurance otherwise conforming with the
provisions of said clause (I) except that (A) the amounts of coverage shall not
be required to exceed the amounts of liability insurance from time to time
applicable to aircraft or engines owned or operated by the Borrower of the same
type as such Aircraft or Engine which are on the ground and not in operation;
and (B) the scope of the risks covered and the type of insurance shall be the
same as from time to time shall be applicable to aircraft or engines owned or
operated by the Borrower of the same type which are on the ground and not in
operation.


 


(b)                                 Insurance Against Loss or Damage to the Aircraft and Engines. (I) Except
as provided in clause (II) of this Section 2.07(b), the Borrower shall maintain
or cause


 


14

















 


to be maintained in effect, at its or any Lessee’s
expense, with insurers of recognized responsibility, (A) all-risk ground and
flight aircraft hull insurance covering each Aircraft and Engine, (B) all-risk
ground - coverage of the Engines while removed from each Aircraft and replaced
by similar components and (C) all risk property damage insurance covering the
Aircraft and Engines (including, without limitation, with respect to any
Aircraft or Engine, war risk and governmental confiscation and expropriation
(other than by the government of registry of such Aircraft) and hijacking
insurance (with such limitations as are customary in the
industry)(collectively, “Hull War Risk Insurance”), if and to the extent the
same is maintained by the Borrower (or, if a Lease is then in effect, by
Lessee) with respect to other aircraft or engines owned or operated by the
Borrower (or such Lessee) on the same routes as such Aircraft or Engine is
operated, except that the Borrower (or such Lessee) shall maintain Hull War
Risk Insurance if such Aircraft is operated on routes where the custom is for
major international air carriers flying comparable routes to carry such
insurance) which is of the type as from time to time applicable to aircraft or
engines owned or operated by the Borrower (or, if a Lease is then in effect, by
Lessee) of the same type as such Aircraft or Engine; provided that such
insurance shall at all times while any Aircraft, or any Engine is subject to
this Security Agreement be for an amount (subject to self-insurance to the
extent permitted by Section 2.07(d)) not less than 105% of the allocable
contribution of such Aircraft and Engine to the Borrowing Base, subject to
standard deductibles. Any policies carried in accordance with this paragraph
(b) covering the Aircraft and Engines, and any policies taken out in substitution
or replacement for any such policies (i) shall name the Collateral Agent (and,
if any Lease shall be in effect, the Borrower in its capacity as lessor under
the Lease) as an additional insured, as its interest may appear (but without
imposing on such party liability to pay premiums with respect to such
insurance), (ii) shall provide that all proceeds with respect to a
Recovery Event shall be payable to the Collateral Agent for application
pursuant to Section 2.11 of the Senior Credit Agreement, (iii) shall
provide that if the insurers cancel such insurance for any reason whatever, or
such insurance lapses for non-payment of premium or if any material change is
made in the insurance which adversely affects the interest of the Collateral
Agent, such cancellation, lapse or change shall not be effective as to the
Collateral Agent (or, if any Lease shall be in effect, the Borrower in its
capacity as lessor under the Lease) for thirty (30) days (seven (7) days in the
case of Hull War Risk Insurance coverage) after issuance to the Collateral
Agent and each Lender (or, if any Lease shall be in effect, the Borrower in its
capacity as lessor under the Lease), respectively, of written notice by such
insurers of such cancellation, lapse or change, provided, however, that if any
notice period specified above is not reasonably obtainable, such policies shall
provide for as long a period of prior notice as shall then be reasonably
obtainable, (iv) shall provide that in respect of the interest of the
Collateral Agent and each Lender (and, if any Lease shall be in effect, the
Borrower in its capacity as lessor under the Lease) in such policies the
insurance shall not be invalidated by any action or inaction of the Borrower
(or, if a Lease is then in effect, any Lessee) or any other Person and shall
insure the Collateral Agent (and, if any Lease shall be in effect, the Borrower
in its capacity as lessor under the Lease) regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by the Borrower (or, if a Lease is then in effect, any Lessee), (v) shall waive
any right of subrogation of the insurers against the Collateral Agent and each
Lender (and, if any Lease shall be in effect, the Borrower in its capacity as
lessor under the Lease), and (vi) shall waive any right of the insurers to
set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect


 


15

















 


of any liability of the Collateral Agent or the Borrower
(or any Lessee) to the extent of any moneys due to the Collateral Agent. To the
extent that the Borrower maintains Hull War Risk Insurance and the Borrower’s
Hull War Risk Insurance provider does not provide for provision of direct
notice to the Collateral Agent and each Lender of cancellation, material change
or lapse in the insurance required hereunder, the Borrower hereby agrees that
upon receipt of notice of any thereof from such insurance provider it shall
give the Collateral Agent and each Lender immediate notice of each cancellation
or lapse of, or material change to, such insurance. In the case of a loss with
respect to an engine (other than an Engine) installed on an Airframe, the
Collateral Agent shall hold any payment to it of any insurance proceeds in
respect of such loss for the account of any third party that is entitled to
receive such proceeds.


 


As between the Collateral Agent and the Borrower, the
insurance payments for any property damage loss to any Airframe or Engine not
constituting a Recovery Event with respect thereto will be applied in payment
for repairs or for replacement property in accordance with the terms of
Sections 2.05 and 2.06, if not already paid for by the Borrower (or any Lessee
or insurer), and any balance (or if already paid for by the Borrower (or any
Lessee), all such insurance proceeds) remaining after compliance with such
Sections with respect to such loss shall be paid to the Borrower (or any Lessee
if directed by the Borrower).


 


(II)                                During
any period that an Aircraft or Engine is on the ground and not in operation,
the Borrower may carry or cause to be carried, in lieu of the insurance
required by clause (I) above, insurance otherwise conforming with the
provisions of said clause (I) except that the scope of the risks and the type
of insurance shall be the same as from time to time applicable to aircraft or
engines owned or operated by the Borrower (or, if a Lease is then in effect, by
Lessee) of the same type similarly on the ground and not in operation, provided
that the Borrower shall maintain insurance against risk of loss or damage to
such Aircraft or Engine in an amount equal 105% of the allocable contribution
of such Aircraft or Engine to the Borrowing Base, subject to a standard
deductible.


 


(c)                                  Reports, etc. The Borrower will furnish, or cause to be
furnished, to the Collateral Agent and each Lender, on or before the Closing
Date and on or before April 1 in each year thereafter commencing April 1,
2007,  a certificate of insurance in
respect to aircraft and engines not on lease signed by Willis Limited on behalf
of the insurers or any other independent firm of insurance brokers reasonably
acceptable to the Collateral Agent (the “Insurance Brokers”), describing in
reasonable detail the insurance and, if applicable, reinsurance then carried
and maintained with respect to the Eligible Equipment. The Borrower will cause
such Insurance Brokers to agree to advise the Collateral Agent and each Lender
in writing of any default in the payment of any premium. To the extent such
agreement is reasonably obtainable, the Borrower will also cause such Insurance
Brokers to agree to advise the Collateral Agent and each Lender in writing at
least thirty (30) days (seven (7) days in the case of commercial war risk and
allied perils coverage), prior to the expiration or termination date of any
commercial insurance carried and maintained on any Eligible Equipment pursuant
to this Section 2.07; provided that, in respect of any commercial War Risk
Insurance, if the notice period specified above is not obtainable, the
Insurance Brokers shall provide for as long a period of notice as shall then be
obtainable. In addition, the Borrower will also cause such Insurance Brokers to
deliver to the Collateral Agent and each Lender, on or prior to the date of
expiration of any commercial


 


16

















 


insurance policy referenced in a previously delivered
certificate of insurance, a new certificate of insurance, substantially in the
same form as delivered by the Borrower to such party on the Closing Date. In
the event that the Borrower or any Lessee shall fail to maintain or cause to be
maintained insurance as herein provided, the Collateral Agent or any Lender may
at its sole option provide such insurance and, in such event, the Borrower
shall, upon demand, reimburse the Collateral Agent or such Lender for the cost
thereof to Collateral Agent or such Lender, without waiver of any other rights
Collateral Agent or such Lender may have. The Collateral Agent agrees that
endorsements in accordance with AVN67B shall be acceptable.


 


(d)                                 In
addition the Borrower will provide a report signed by Willis Aviation
Consulting Limited or any other independent firm of insurance advisers
reasonably acceptable to the Collateral Agent (the “Insurance Advisers”)
stating the opinion of such firm that the insurance then carried by the
Borrower or any Lessee and maintained with respect to the Eligible Equipment
complies with the terms hereof; provided, however, (i) in the case of War Risk
Insurance acquired by the Borrower directly from the FAA or other
instrumentality of the United States, no opinion concerning such coverage,
other than the fact that the Borrower has acquired it, need be given and (ii)
that all information contained in the foregoing report shall not be made
available by the Collateral Agent or the Lender to anyone except (A) to
permitted transferees of the Lender or the Collateral Agent who agree to hold
such information confidential, (B) to the Lender’s or the Collateral Agent’s
counsel or independent certified public accountants or independent insurance
advisors who agree to hold such information confidential, (C) as may be
required by any statute, court or administrative order or decree or
governmental ruling or regulation or (D) to bank examiners and auditors.


 


(e)                                  Additional Insurance by the Borrower. The Borrower (and any
Lessee) may at its own expense carry insurance with respect to its interest in
the Eligible Equipment in amounts in excess of that required to be maintained
by this Section 2.07.


 


(f)                                    Indemnification by Government in Lieu of Insurance. Notwithstanding
any provisions of this Section 2.07 requiring insurance, the Collateral Agent
agrees to accept, in lieu of insurance against any risk with respect to the
Eligible Equipment, indemnification from, or insurance provided by, the United
States Government or any agency or instrumentality thereof or, in the case of
an Aircraft, upon the written consent of the Collateral Agent, other Country of
Registration of such Aircraft or any agency or instrumentality thereof, against
such risk in an amount which, when added to the amount of insurance against
such risk maintained by the Borrower (or any Lessee) with respect to the
Eligible Equipment (including permitted self-insurance) shall be at least equal
to the amount of insurance against such risk otherwise required by this Section
2.07. The Borrower shall furnish (including by e-mail distribution) in advance
of attachment of such indemnity or insurance (or any renewal thereof), if
practical to do so or as soon thereafter as is practicable, copies of any
certificates of insurance evidencing any such indemnity or insurance, together
with such evidence as shall be required thereunder to cause the additional
insureds/loss payee hereunder to be named as additional insureds thereunder.


 


(g)                                 Aircraft and Engines being Parted Out. Aircraft
and engines which are both (i)  on the
ground and not in operation and (ii) either being disassembled for parts or
held on


 


17

















 


consignment shall not be “Aircraft” or “Engines” for
which insurance is required to be obtained under this Section 2.07.


 


(h)                                 Aircraft and/or Engines on Lease on Closing Date. As
soon as practicable after the Closing Date, the Borrower shall cause each
Lessee of Aircraft Asset Leases in effect on the Closing Date to revise the
insurance maintained pursuant to such Aircraft Asset Leases to provide for the
endorsements in favor of the Collateral Agent and the Lenders required by this
Section 2.07. So long as the Borrower shall use all commercially reasonable
efforts to obtain such endorsements, the Borrower shall not be deemed in
default of its obligations hereunder as a result of the insurance being
maintained by such Lessee of a Aircraft Asset Lease entered into prior to the
Closing Date not providing for the endorsements in favor of the Collateral
Agent required by this Section 2.07.


 


Section
2.08.                         Inspection.


 


At all reasonable times and upon at least
15 Business Days prior written notice to the Borrower, the Collateral
Agent acting on behalf of all of the Lenders, and their authorized
representatives may inspect the Aircraft and the Engines in Borrower’s or any
Subsidiary Guarantor’s possession and inspect and make copies (at the
Collateral Agent’s expense unless an Event of Default shall be continuing, in
which case it shall be at the Borrower’s expense) of the books and records of
the Borrower or any Subsidiary Guarantor or any Trust relating to the
maintenance of the Aircraft and the Engines upon reasonable notice and at any
time during normal business hours and not more than once during any fiscal
quarter (unless an Event of Default shall have occurred and be continuing). The
Collateral Agent shall not have any duty to make any such inspection nor shall
it incur any liability or obligation by reason of not making such inspection.
To the extent any Aircraft or Engine is subject to an Aircraft Asset Lease, the
Borrower shall (or shall cause the applicable Subsidiary Guarantor of Trust) to
exercise the inspection rights set forth in such Aircraft Asset Lease at the
reasonable request of the Collateral Agent not more than once during any fiscal
quarter (unless an Event of Default shall have occurred and be continuing) to the
extent permitted under such Aircraft Asset Lease.


 


Section
2.09.                         Requisition,
etc.


 


In the event of the requisition for use by any
government, or any instrumentality or agency thereof, of an Airframe or an
Engine, so long as such Airframe or Engine is subject to the Lien of this
Security Agreement, the Borrower shall promptly notify the Collateral Agent of
such requisition, and all of the Borrower’s obligations under this Security
Agreement with respect thereto, shall continue to the same extent as if such
requisition had not occurred. All payments received by the Collateral Agent or
the Borrower from such government or instrumentality or agency thereof for the
use of such Airframe and Engines shall be paid over to, or retained by, the
Borrower (or, if directed by the Borrower, any Lessee).


 


Section
2.10.                         Status of Lease Default Equipment and
Impaired Aircraft Assets.


 


Any failure of the Borrower, any Subsidiary Guarantor
or any Trust to perform or observe any covenant, condition, agreement or any
error in a representation or warranty under


 


18

















 


this Agreement or any other Loan Agreement shall not
constitute a default hereunder or any other Loan Document or a Default or Event
of Default under the Credit Agreements to the extent such failure or error is
caused solely by reason of an event that causes an Aircraft Asset to be Lease
Default Equipment or an Impaired Aircraft Asset, so long as the Borrower is
complying with its obligations under Section 2.9(d) of the Senior Credit
Agreement and, unless such Aircraft Asset has a Borrowing Base Value of zero,
is exercising all commercially reasonable efforts to correct or remedy such
event.


 


ARTICLE III



REMEDIES OF COLLATERAL AGENT


 


Section
3.01.                         Remedies.


 


(a)                                  If
the Loans have been accelerated pursuant to Section 8 of the Senior Credit
Agreement, then in every such case, the Collateral Agent may do one or more of
the following, to the extent permitted by, and subject to compliance with any
mandatory requirements of, applicable law then in effect:


 


(i)                                     cause
the Borrower or the relevant Subsidiary Guarantor or Trust upon the written
demand of the Collateral Agent and at the Borrower’s or the relevant Subsidiary
Guarantor’s expense, to deliver promptly, and the Borrower shall deliver
promptly, the Collateral (or any portion thereof) as the Collateral Agent may
so demand to the Collateral Agent, or the Collateral Agent, at its option, may
enter upon the premises where all or any part of the Collateral is located and
take immediate possession (to the exclusion of the Borrower or the relevant
Subsidiary Guarantor or Trust and all Persons claiming under or through the
Borrower or the relevant Subsidiary Guarantor or Trust) of and remove the same
by summary proceedings;


 


(ii)                                  subject
to the notice specified in Section 6.01, sell the Collateral (or any portion
thereof) 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
lease or otherwise dispose of, all or any part of any Airframe, any Engine or
any Inventory as the Collateral Agent, in its sole discretion, may determine,
all free and clear of any rights of the Borrower or the relevant Subsidiary
Guarantor or Trust, except as hereinafter set forth in this Article III;
provided, however, that the Borrower or the relevant Subsidiary Guarantor or
Trust 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 Uniform Commercial Code of the State of New York.


 


(b)                                 Any
Lender shall be entitled, at any sale pursuant to this Article III, to credit
against any purchase price bid at such sale by such holder all or any part of
the unpaid obligations owing to such Lender and secured by the Lien of this
Security Agreement. Any


 


19

















 


Lender shall, upon any purchase, acquire good title to
the property so purchased, to the extent permitted by applicable law, free of
all rights of redemption.


 


(c)                                  In
the event of any sale of the Collateral, or any part thereof, pursuant to any
judgment or decree of any court or otherwise in connection with the enforcement
of any of the terms of this Security Agreement, the unpaid principal amount of
all Loans then outstanding, together with accrued interest thereon, and other
amounts due thereunder, shall immediately become due and payable without
presentment, demand, protest or notice, all of which are hereby waived.


 


(d)                                 Any
sale of the Collateral or any part thereof or any interest therein, whether
pursuant to foreclosure or power of sale or otherwise hereunder, shall forever
be a bar against the Borrower or the relevant Subsidiary Guarantor, after the
expiration of the period, if any, during which the Borrower or the Subsidiary
Guarantor or Trust shall have the benefit of Section 3.01(a)(ii) hereof or any
redemption laws which may not be waived.


 


(e)                                  Any
sale or other conveyance of the Collateral by the Collateral Agent made
pursuant to the terms of this Security Agreement shall bind the Lenders and the
Borrower and the relevant Subsidiary Guarantors and Trusts and shall be
effective to transfer or convey all right, title and interest of the Borrower
and the relevant Subsidiary Guarantors. 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
3.02.                         Return
of Equipment, Etc.


 


(a)                                  If
the Loans have been accelerated pursuant to Section 8 of the Senior Credit
Agreement, at the request of the Collateral Agent, the Borrower and/or the
relevant Subsidiary Guarantors and/or Trusts shall promptly execute and deliver
to the Collateral Agent such instruments of title and other documents as the
Collateral Agent may deem necessary or advisable to enable the Collateral Agent
or an agent or representative designated by the Collateral Agent, at such time
or times and place or places as the Collateral Agent may specify, to obtain
possession of all or any part of the Collateral to which the Collateral Agent
shall at the time be entitled hereunder. If the Borrower shall for any reason
fail to execute and deliver such instruments and documents after such request
by the Collateral Agent, the Collateral Agent may (i) obtain a judgment
conferring on the Collateral Agent the right to immediate possession and
requiring the Borrower to execute and deliver such instruments and documents to
the Collateral Agent, to the entry of which judgment the Borrower hereby
specifically consents to the fullest extent permitted by applicable law, and
(ii) pursue all or part of such Collateral wherever it may be found and may
enter any of the premises of the Borrower wherever such Collateral may be or be
supposed to be and search for such Collateral and take possession of and remove
such Collateral. All expenses of obtaining such judgment or of pursuing,
searching for and taking such property shall, until paid, be secured by the
Lien of this Security Agreement.


 


(b)                                 Upon
every such taking of possession, the Collateral Agent may, from time to time,
at the expense of the Collateral, make all such expenditures for maintenance,
use,


 


20

















 


operation, storage, insurance, leasing, control,
management, disposition, modifications or alterations to and of the Collateral,
as it may deem proper. In each such case, the Collateral Agent shall have the
right to maintain, use, operate, store, insure, lease, control, manage, dispose
of, modify or alter the Collateral and to carry on the business and to exercise
all rights and powers of the Borrower and/or the relevant Subsidiary Guarantors
and/or Trusts relating to the Collateral, as the Collateral Agent shall deem
best, including the right to enter into any and all such agreements with
respect to the maintenance, use, operation, storage, insurance, leasing,
control, management, disposition, modification or alteration 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 and profits of the Collateral and every part
thereof, without prejudice, however, to the right of the Collateral Agent under
any provision of this Security Agreement 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 and profits shall be applied to pay
the expenses of the maintenance, use, operation, storage, insurance, leasing,
control, management, disposition, improvement, modification or alteration of
the Collateral and of conducting the business thereof, 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 Borrower), and all other payments which the Collateral Agent may be
required or authorized to make under any provision of this Security Agreement,
as well as just and reasonable compensation for the services of the Collateral
Agent, and of all persons properly engaged and employed by the Collateral Agent
with respect hereto.


 


Section
3.03.                         Discontinuance of Proceedings. In
case the Collateral Agent shall have instituted any proceeding to enforce any
right, power or remedy under this Security Agreement by foreclosure, entry or
otherwise, and such proceedings 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 Borrower, the Subsidiary Guarantors, the Trusts
and the Collateral Agent shall, subject to any determination in such
proceedings, be restored to their former positions and rights hereunder with
respect to the Collateral, and all rights, remedies and powers of the Borrower,
the Subsidiary Guarantors, the Trusts or the Collateral Agent shall continue as
if no such proceedings had been instituted.


 


Section
3.04.                         Appointment of Receiver. The
Collateral Agent shall, as a matter of right, be entitled to the appointment of
a receiver (who may be the Collateral Agent or any successor or nominee
thereof) for all or any part of the Collateral, whether such receivership be
incidental to a proposed sale of the Collateral or the taking of possession
thereof or otherwise, and the Borrower hereby consents to the appointment of
such a receiver and will not oppose any such appointment. Any receiver
appointed for all or any part of the Collateral shall be entitled to exercise
all the rights and powers of the Collateral Agent with respect to the
Collateral.


 


21

















 


ARTICLE IV



APPLICATION OF PROCEEDS


 


Section
4.01.                         Application of Proceeds.


 


(a)                                  If
the Loans have been accelerated pursuant to Section 8 of the Senior Credit
Agreement, the Collateral Agent may apply the proceeds of any sale or other
disposition of all or any part of the Collateral, in the order of priorities:


 


first, to pay the expenses of such sale or
other disposition, including reasonable compensation to agents of and counsel
for the Collateral Agent, and all expenses, liabilities and advances incurred
or made by the Collateral Agent in connection with the Security Documents, and
any other amounts then due and payable to the Collateral Agent in connection
with the Security Documents;


 


second, to pay ratably all interest (including
post-petition interest) and all facility and other fees and indemnity amounts
payable in connection with the Senior Loans, until payment in full of all such
interest and other fees and indemnity amounts shall have been made;


 


third, to pay the unpaid principal on the
Senior Loans and all other Obligations (including in connection with Specified
Hedge Agreements) in connection with the Senior Loans;


 


fourth, to pay ratably all interest (including
post-petition interest) and all facility and other fees and indemnity amounts
payable in connection with the Junior Loans, until payment in full of all such
interest and other fees and indemnity amounts shall have been made;


 


fifth, to pay the unpaid principal on the
Junior Loans and all other Obligations in connection with the Junior Loans; and


 


finally, to pay to the Borrower or the
relevant Subsidiary Guarantor or Trust, or as a court of competent jurisdiction
may direct, any surplus then remaining from the proceeds of the Collateral
owned by it;


 


provided
that Collateral owned by a Subsidiary Guarantor and any proceeds thereof shall
be applied pursuant to the foregoing clauses first, second, third, fourth and
fifth, only to the extent permitted by the limitation in Section 2(j) of
the Guarantee and Collateral Agreement. The Collateral Agent may make such
distributions hereunder in cash or in kind or, on a ratable basis, in any
combination thereof.


 


(b)                                 In
making the payments and allocations required by this Article, the Collateral
Agent may rely upon information supplied to it pursuant to Section 8.01(g).
All distributions made by the Collateral Agent pursuant to this Article IV
shall be final (except in the event of manifest error) and the Collateral Agent
shall have no duty to inquire as to the application by either Agent or any
Lender of any amount distributed to it.


 


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ARTICLE V



FEES AND EXPENSES, INDEMNIFICATION


 


Section
5.01.                         Fees
and Expenses and Indemnification. The Borrower will forthwith upon demand
pay to the Collateral Agent:


 


(i)                                     the
amount of any Taxes that the Collateral Agent may have been required to pay by
reason of the Liens created by the Security Documents or to free any Collateral
from any other Lien thereon (other than Permitted Liens);


 


(ii)                                  the
amount of any and all reasonable out-of-pocket expenses, including transfer
Taxes and reasonable fees and expenses of counsel and other experts, that the
Collateral Agent may incur in connection with (x) the administration or
enforcement of the Security Documents, including such expenses as are incurred
to preserve the value of the Collateral or the validity, perfection, rank or
value of any Lien created by the Security Documents, (y) the collection,
sale or other disposition of any Collateral, or (z) the exercise by the
Collateral Agent of any of its rights or powers under the Security Documents;


 


(iii)                               the amount of any fees
that the Borrower shall have agreed in writing to pay to the Collateral Agent
and that shall have become due and payable in accordance with such written
agreement; and


 


(iv)                              the
amount required to indemnify the Collateral Agent for, or hold it harmless and
defend it against, any loss, liability or expense (including the reasonable
fees and expenses of its counsel and any experts or sub-agents appointed by it
hereunder) incurred or suffered by the Collateral Agent in connection with the
Security Documents, except to the extent that such loss, liability or expense
arises from the Collateral Agent’s gross negligence or willful misconduct or a
breach of any duty of the Collateral Agent under this Agreement (after giving
effect to Articles VI and VII).


 


Any such amount not paid to the Collateral Agent on
demand will bear interest for each day thereafter until paid at the highest
rate of interest payable in connection with the Obligations under the Credit
Agreements.


 


ARTICLE VI



AUTHORITY TO ADMINISTER COLLATERAL


 


Section
6.01.                         Authority
To Administer Collateral. The
Borrower and each Subsidiary Guarantor and each Trust irrevocably appoints the
Collateral Agent its true and lawful attorney, with full power of substitution,
in the name of such Subsidiary Guarantor, any Lender or otherwise, for the sole
use and benefit of the Lender, but at the Borrower’s expense, to the extent
permitted by law to exercise, at any time and from time to time while an Event
of Default shall have occurred and be continuing, all or any of the following
powers with respect to


 


23

















 


all or any of the
Borrower’s, such Subsidiary Guarantor’s or such Trust’s Collateral (to the
extent necessary to pay the Obligations in full):


 


(a)                                  to
demand, sue for, collect, receive and give acquaintance for any and all monies
due or to become due upon or by virtue thereof;


 


(b)                                 to
settle, compromise, compound, prosecute or defend any action or proceeding with
respect thereto;


 


(c)                                  to
sell, lease, license or otherwise dispose of the same or the proceeds or avails
thereof, as fully and effectually as if the Collateral Agent were the absolute
owner thereof; and


 


(d)                                 to
extend the time of payment of any or all thereof and to make any allowance or
other adjustment with reference thereto;


 


provided
that, except in the case of Collateral that is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized market,
the Collateral Agent will give the Borrower or the relevant Subsidiary
Guarantor or Trust at least twenty days prior written notice of the time and
place of any public sale thereof or the time after which any private sale or
other intended disposition thereof will be made. The Collateral Agent and each
Subsidiary Guarantor agree that such notice shall be considered to have been “sent
within a reasonable time” pursuant to UCC Section 9-612. Such notice shall
(i) contain the information specified in UCC Section 9-613, (ii) be
Authenticated and (iii) be sent to the parties required to be notified pursuant
to UCC Section 9-611(c); provided that, if the Collateral Agent fails to
comply with this sentence in any respect, its liability for such failure shall
be limited to the liability (if any) imposed on it as a matter of law under the
UCC.


 


ARTICLE VII



LIMITATION ON DUTY IN RESPECT OF COLLATERAL


 


Section
7.01.                         Limitation
On Duty In Respect Of Collateral. Beyond the exercise of reasonable care in
the custody and preservation thereof, the Collateral Agent will have no duty as
to any Collateral in its possession or control or in the possession or control
of any sub-agent or bailee or any income therefrom or as to the preservation of
rights against prior parties or any other rights pertaining thereto. The
Collateral Agent will be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession or control if such
Collateral is accorded treatment substantially equal to that which it accords
its own property, and will not be liable or responsible for any loss or damage
to any Collateral, or for any diminution in the value thereof, by reason of any
act or omission of any sub-agent or bailee selected by the Collateral Agent in
good faith or by reason of any act or omission by the Collateral Agent pursuant
to instructions from the Agents or the Lenders, except to the extent that such
liability arises from the Collateral Agent’s gross negligence or willful
misconduct.


 


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ARTICLE VIII



GENERAL PROVISIONS CONCERNING THE COLLATERAL AGENT


 


Section
8.01.                         General Provisions Concerning The Collateral
Agent.


 


(a)                                  Authority.
The Collateral Agent is authorized to take such actions and to exercise such
powers as are delegated to the Collateral Agent by the terms of the Loan
Agreements, together with such actions and powers as are reasonably incidental
thereto.


 


(b)                                 Coordination
with Collateral Agent. The Collateral Agent will promptly notify each Agent
of each notice or other communication received by the Collateral Agent
hereunder and/or deliver a copy thereof to such Agent. As to any matters not
expressly provided for herein (including (i) the timing and methods of
realization upon the Collateral, and (ii) the exercise of any power that the
Collateral Agent may, but is not expressly required to, exercise under any
Security Document), the Collateral Agent shall act or refrain from acting other
than in accordance with written instructions from the Agents or, in the absence
of such instructions, in accordance with its discretion (subject to the
following provisions of this Article VIII).


 


(c)                                  Rights
and Powers as a Lender. The Person serving as the Collateral Agent shall,
in its capacity as a Lender, have the same rights and powers as any other
Lender and may exercise the same as though it were not the Collateral Agent. Such
Person and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrower, any of its Subsidiaries or
their respective Affiliates as if it were not the Collateral Agent hereunder.


 


(d)                                 Limited
Duties and Responsibilities. The Collateral Agent shall not have any duties
or obligations under the Security Documents except those expressly set forth
therein. Without limiting the generality of the foregoing, (a) the Collateral
Agent shall not be subject to any fiduciary or other implied duties, regardless
of whether an Event of Default has occurred and is continuing, (b) the Collateral
Agent shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated by the Security Documents that the Collateral Agent is required in
writing to exercise by the Agents, and (c) except as expressly set forth in the
Security Documents, the Collateral Agent shall not have any duty to disclose,
and shall not be liable for any failure to disclose, any information relating
to the Borrower or any of its Subsidiaries that is communicated to or obtained
by the bank serving as Collateral Agent or any of its Affiliates in any
capacity. The Collateral Agent shall not be liable for any action taken or not
taken by it with the consent or at the request of the Agents or in the absence
of its own gross negligence or willful misconduct. The Collateral Agent shall
not be responsible for the existence, genuineness or value of any Collateral or
for the validity, perfection, priority or enforceability of any Lien, whether
impaired by operation of law or by reason of any action or omission to act on
its part under the Security Documents. The Collateral Agent shall be deemed not
to have knowledge of any Event of Default unless and until written notice
thereof is given to the Collateral Agent by the Borrower, any Subsidiary
Guarantor, and Agent or a Lender, and the Collateral Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or


 


25

















 


representation made in or in connection with any
Security Document, (ii) the contents of any certificate, report or other
document delivered thereunder or in connection therewith, (iii) the performance
or observance of any of the covenants, agreements or other terms or conditions
set forth in any Security Document, (iv) the validity, enforceability,
effectiveness or genuineness of any Security Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in any
Security Document.


 


(e)                                  Authority
to Rely on Certain Writings, Statements and Advice. The Collateral Agent
shall be entitled to rely on, and shall not incur any liability for relying on,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Collateral Agent also may rely on any statement made to
it orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. The Collateral Agent may
consult with legal counsel (who may be counsel for the Borrowers or any of
their Subsidiaries), independent accountants and other experts selected by it,
and shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountant or expert.


 


(f)                                    Sub-Agents
and Affiliates. The Collateral Agent may perform any of its duties and
exercise any of its rights and powers through one or more sub-agents appointed
by it. The Collateral Agent and any such sub-agent may perform any of its
duties and exercise any of its rights and powers through its Affiliates. The
exculpatory provisions of Article VII and this Article VIII shall apply to any
such sub-agent and to the Affiliates of the Collateral Agent and any such
sub-agent.


 


(g)                                 Information
as to Secured Guarantees and Actions by Lenders. For all purposes of the
Security Documents, including determining the amounts of the Secured Guarantees
or whether any action has been taken under any Security Document, the
Collateral Agent will be entitled to rely on information from (i) the Agents,
and actions taken by them, (ii) any Lender (or any trustee, agent or similar
representative designated pursuant to subsection (f) to supply such
information) for information as to its Secured Guarantees and actions taken by
it, to the extent that the Collateral Agent has not obtained such information
from the foregoing sources, and (iii) the Borrower or any Subsidiary Guarantor,
to the extent that the Collateral Agent has not obtained information from the
foregoing sources.


 


(h)                                 Refusal
to Act. The Collateral Agent may refuse to act on any notice, consent,
direction or instruction from either Agent or any agent, trustee or similar
representative thereof that, in the Collateral Agent’s opinion, (i) is contrary
to law or the provisions of any Security Document, (ii) may expose the
Collateral Agent to liability (unless the Collateral Agent shall have been
indemnified, to its reasonable satisfaction, for such liability by the Lender),
or (iii) is unduly prejudicial to the Agent or Lenders not joining in such
notice, consent, direction or instruction.


 


(i)                                     Resignation;
Successor Collateral Agent. Subject to the appointment and acceptance of a
successor Collateral Agent as provided in this subsection, the Collateral Agent
may resign at any time by notifying the Agents and the Borrower. Upon
acceptance of its appointment as Collateral Agent hereunder by a successor,
such successor shall succeed to and


 


26

















 


become vested with all the rights, powers, privileges
and duties of the retiring Collateral Agent hereunder, and the retiring
Collateral Agent shall be discharged from its duties and obligations hereunder.
The fees payable by the Borrowers to a successor Collateral Agent shall be the
same as those payable to its predecessor unless otherwise agreed by the
Borrowers and such successor. After the Collateral Agent’s resignation
hereunder, the provisions of Article VII and this Article VIII shall continue
in effect for the benefit of such retiring Collateral Agent, its sub-agents and
their respective Affiliates in respect of any actions taken or omitted to be
taken by any of them while the retiring Collateral Agent was acting as
Collateral Agent.


 


(j)                                     Subject
to 8.01(d), the Collateral Agent hereby agrees to be bound by the terms and
provisions of all Loan Documents applicable to it.


 


ARTICLE IX



TERMINATION OF LIENS; RELEASE OF COLLATERAL


 


Section
9.01.                         Termination Of Liens; Release Of Collateral.


 


(a)                                  The
Liens granted by the Borrower, the Subsidiary Guarantors and the Trusts under
this Agreement shall terminate upon the payment in full of the unpaid principal
amount of all Loans, all accrued and unpaid interest thereon, and any other
Obligations payable under the Loan Documents and the reduction of all
outstanding Commitments to zero.


 


(b)                                 The
Liens granted by a Subsidiary Guarantor and any Trust in which it is the
beneficiary under this Agreement shall terminate when its Secured Guarantee is
released pursuant to Section 2(c) of the Guarantee and Collateral
Agreement.


 


(c)                                  Upon
any termination of a Lien granted under a Security Document or release of
Collateral, the Collateral Agent will, at the expense of the Borrower or the
relevant Subsidiary Guarantor or Trust, promptly execute and deliver to such
Borrower or Subsidiary Guarantor or Trust (or its designee) such documents as
such Borrower or Subsidiary Guarantor or Trust shall reasonably request to
evidence the termination of such Lien or the release of such Collateral, as the
case may be.


 


(d)                                 The
Borrower and any Subsidiary Guarantor may sell, exchange, assign or otherwise
dispose of any of the Aircraft or Engines in the ordinary course of business
unless (i) doing so would violate a covenant in the Credit Agreements or (ii)
the Loans shall have been accelerated pursuant to Section 8 of the Senior
Credit Agreement and the Collateral Agent shall have notified the Borrower or
such Subsidiary Guarantor that its right to do so is terminated, suspended or
otherwise limited. If such sale is to a Person which is not the Borrower or one
of its Subsidiaries, then concurrently with any sale or other disposition
permitted by the foregoing sentence, the Liens created by the Security
Documents on the assets sold or disposed of will cease immediately without any
action by the Collateral Agent or any Lender and the Collateral Agent will, at
the expense of the Borrower or the relevant Subsidiary Guarantor, promptly
execute and deliver to such Borrower or Subsidiary Guarantor such documents as
such Borrower


 


27

















 


or Subsidiary Guarantor shall reasonably request to
evidence the termination of such Lien on such assets.


 


ARTICLE X



THE BORROWER AND SUBSIDIARY GUARANTORS


 


Section
10.01.                  The
Borrower hereby represents and warrants that the Subsidiary Guarantors listed
on the signatures pages hereof represent all the Subsidiaries of the Borrower
on the date hereof and that the Trusts listed on the signatures pages hereof
represent all the Trusts on the date hereof. If any additional Subsidiary
(including, without limitation, any Special Purpose Vehicle) or any Trust is
formed or acquired after the date hereof, the Borrower will, within ten
Business Days after such Subsidiary or Trust is formed or acquired, notify the
Collateral Agent thereof and cause such Subsidiary or Trust to become a party
hereto by signing and delivering to the Collateral Agent a Security Agreement
Supplement, whereupon such Subsidiary or Trust shall become a “Subsidiary
Guarantor” or “Trust”, as the case may be, as defined herein.


 


ARTICLE XI



MISCELLANEOUS


 


Section
11.01.                  Notices. All notices, requests and
demands to or upon the respective parties hereto to be effective shall be in
writing (including by telecopy), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered, or
three Business Days after being deposited in the mail, postage prepaid, or, in
the case of telecopy notice, when received, addressed as set forth in Schedule
10.2 of the relevant Credit Agreement in the case of the Borrower and the
Agents, as set forth in an administrative questionnaire delivered to the Agent
in the case of the Lenders, as set forth below in respect of the Collateral
Agent and as set forth next to the signature thereof or in the relevant
Security Agreement Supplement in the case of any Subsidiary Guarantor or Trust,
or such other address as may be hereafter notified by the respective parties
hereto; provided that any notice, request or demand to or upon the Security
Agent, the Agent or the Lenders shall not be effective until received. Collateral
Agent’s details are:


 


CALYON New
York Branch


1301 Ave of the Americas


New York, NY 10019-6022


Attention:  Brian Bolotin and Sandra Markovic


Facsimile:  (212)
459-3180


Telephone:  (212) 261-7669

E-mail:  brian.bolotin@us.calyon.com and


sandra.markovic@us.calyon.com


 


Section
11.02.                  No
Implied Waivers; Remedies Not Exclusive.
No failure by the Collateral Agent or the Agents or any Lender to
exercise, and no delay in exercising and no


 


28

















 


course of dealing with
respect to, any right or remedy shall operate as a waiver thereof; nor shall
any single or partial exercise by the Collateral Agent or any Lender of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy. The rights and remedies specified herein and in
each other are cumulative and are not exclusive of any other rights or remedies
provided by law.


 


Section
11.03.                  Successors
And Assigns. This Agreement
is for the benefit of the Collateral Agent, the Agents and the Lenders. If all
or any part of any Lenders’ interest in any Obligation is assigned or otherwise
transferred, the transferor’s rights hereunder, to the extent applicable to the
obligation so transferred, shall be automatically transferred with such
obligation. This Agreement shall be binding on the Subsidiary Guarantors and
their successors and assigns.


 


Section
11.04.                  Amendments
And Waivers. Neither this
Agreement nor any provision hereof may be waived, amended, modified or
terminated except pursuant to an agreement or agreements in writing entered
into by the parties hereto.


 


Section
11.05.                  Choice
Of Law. This Agreement shall
be construed in accordance with and governed by the laws of the State of New
York, except as otherwise required by mandatory provisions of law and except to
the extent that remedies provided by the laws of any jurisdiction other than
the State of New York are governed by the laws of such jurisdiction.


 


Section
11.06.                  Waiver
Of Jury Trial. EACH PARTY
HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO ANY SECURITY DOCUMENT OR ANY TRANSACTION
CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.


 


Section
11.07.                  Severability. If any provision of any Security
Document is invalid or unenforceable in any jurisdiction, then, to the fullest
extent permitted by law (i) the other provisions of the Security Documents
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in favor of the Collateral Agent, the Agents and the
Lenders in order to carry out the intentions of the parties thereto as nearly
as may be possible, and (ii) the invalidity or unenforceability of such
provision in such jurisdiction shall not affect the validity or enforceability
thereof in any other jurisdiction.


 


29

















 


Section
11.08.                  Collateral Agent Subject To Direction of
Senior Agent.


 


(a)                                  The
Collateral Agent hereby covenants and agrees to serve as the Collateral Agent
subject to the direction of the Agents in accordance herewith. Should the Collateral
Agent fail or refuse to take or cause to be taken any action required or
permitted to be taken or caused to be taken by it pursuant to this Agreement or
any other Security Document, one or more of the Agents may take or cause to be
taken such action consistently with the Loan Documents. At the request of any
Agent, the Collateral Agent shall refrain from taking or causing to be taken
any action permitted (but not required) to be taken or caused to be taken by it
hereunder or under any other Loan Document. The Agents shall be entitled to all
of the rights, remedies, benefits and protections granted to the Collateral
Agent pursuant to this Agreement and the other Loan Documents to the same
extent as granted herein or therein to the Collateral Agent. The provisions
hereof are for the benefit of the Agents and the Lenders (subject to the last
sentence of this Section) and may not be directly or indirectly modified
without the prior written consent of each Agent. The foregoing shall apply
notwithstanding anything to the contrary contained herein, in any other
Security Document or otherwise. The Collateral Agent acknowledges that, for the
purposes of the Loan Documents, it shall act solely at the direction of the
Senior Agent until all Obligations related to the Senior Loans have been repaid
and all Commitments have been terminated, and shall thereafter act at the
direction of the Junior Agent, unless otherwise specifically provided for in
the Loan Documents.


 


30

















 


IN WITNESS WHEREOF, the parties hereto have
caused this Security Agreement to be duly executed by their respective officers
thereof duly authorized as of the day and year first above written.


 


 


	
   

  	
  AEROTURBINE, INC.,as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AEROTURBINE CAPITAL CORP., as

  Subsidiary Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION,
  not in its individual capacity, but solely as owner trustee under the Trust
  Agreement relating to one Boeing B767-200 aircraft (MSN 22694)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


31

















 


	
   

  	
  CALYON, NEW YORK BRANCH, as

  Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


32

















 


	
   

  	
  EXHIBIT A

  
	
   

  	
  TO

  
	
   

  	
  AIRCRAFT ASSET SECURITY

  AGREEMENT

  



 


AIRCRAFT ASSET SECURITY AGREEMENT
SUPPLEMENT


 


This
SECURITY AGREEMENT SUPPLEMENT dated [                    ]
(herein called this “Security Agreement
Supplement”) of [Borrower/Subsidiary Guarantor/Trust to be
specified] (the “Grantor”).


 


W
I T N E S S E T H:


 


WHEREAS, the AIRCRAFT ASSET SECURITY
AGREEMENT dated as of April    , 2006 (as amended and
supplemented to the date hereof, the “Security Agreement”)
between AeroTurbine, Inc., the Subsidiary Guarantors and Trusts party thereto
from time to time and CALYON New York Branch, as Collateral Agent (the “Collateral Agent”), provides for the execution and delivery
of a supplement thereto substantially in the form hereof, which shall particularly
describe the Eligible Equipment, and shall specifically mortgage such Aircraft
Assets to the Collateral Agent; and


 


[Following clauses to be used to add Aircraft Assets]


 


[WHEREAS, this Security Agreement relates
to the Aircraft Assets described below [, and a counterpart of this Security
Agreement is attached hereto and made a part hereof] and this Security
Agreement Supplement [, together with such counterpart of this Security
Agreement,] is being filed for recordation on the date hereof with the FAA as
one document];


 


NOW, THEREFORE, this Security Agreement
Supplement witnesseth that the Grantor hereby confirms that the Lien of this
Security Agreement on the Collateral covers all of the Grantor’s right, title
and interest in and to the following described property:


 


AIRFRAME


 


One
airframe identified as follows:


 


	
  Manufacturer

  	
   

  	
  Model

  	
   

  	
  FAA

  Registration

  Number

  	
   

  	
  Manufacturer’s

  Serial Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


together with all of the Grantor’s right,
title and interest in and to all Parts of whatever nature, whether now owned or
hereinafter acquired and which are from time to time incorporated or installed
in or attached to or, if required to be replaced in accordance with this
Security Agreement, removed from (until replaced if required to be replaced in
accordance with this Security Agreement) said airframe.


 


1

















 


AIRCRAFT ENGINES [RELATED
ENGINES]


 


        
aircraft engines, each such engine having 550 or more rated take-off horsepower
or the equivalent thereof [“relating to” the above-referenced Airframe],
identified as follows:


 


	
  Manufacturer

  	
   

  	
  Manufacturer’s Model

  	
   

  	
  Serial Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


together with all of the Grantor’s right,
title and interest in and to all Parts of whatever nature, whether now owned or
hereafter acquired and which are from time to time incorporated or installed in
or attached to any of such engines or, if required to be replaced in accordance
with this Security Agreement, removed therefrom (until replaced if required to
be replaced in accordance with this Security Agreement).]


 


AIRCRAFT ENGINES [NON-RELATED
ENGINES]


 


        
aircraft engines, each such engine having 550 or more rated take-off horsepower
or the equivalent thereof [“relating to” the above-referenced Airframe],
identified as follows:


 


	
  Manufacturer

  	
   

  	
  Manufacturer’s Model

  	
   

  	
  Serial Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


together with all of the Grantor’s right,
title and interest in and to all Parts of whatever nature, whether now owned or
hereafter acquired and which are from time to time incorporated or installed in
or attached to any of such engines or, if required to be replaced in accordance
with this Security Agreement, removed therefrom (until replaced if required to
be replaced in accordance with this Security Agreement).]


 


TO
HAVE AND TO HOLD all and singular the aforesaid property unto the Collateral
Agent, its successors and assigns, in trust for the equal and proportionate
benefit and security of the Lenders, without any preference, distinction or
priority of any one Loan over any other by reason of priority of time of issue,
sale, negotiation, date of maturity thereof or otherwise for any reason
whatsoever, and for the uses and purposes and subject to the terms and
provisions set forth in this Security Agreement.


 


This
Security Agreement Supplement shall be construed as supplemental to this
Security Agreement and shall form a part thereof. This Security Agreement is
hereby incorporated by reference herein and is hereby ratified, approved and
confirmed.]


 


[Following clauses to be used to add Subsidiary Guarantors or
Trusts]


 


WHEREAS,
the [Subsidiary Guarantor/Trust] desires to become a party to the Security
Agreement as a [Subsidiary Guarantor/Trust] thereunder; and


 


2

















 


WHEREAS,
terms defined in the Security Agreement (or whose definitions are incorporated
by reference in Section 1 of the Security Agreement) and not otherwise defined
herein have, as used herein, the respective meanings provided for therein;


 


NOW,
THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:


 


(a)                                  Party
to Security Agreement. Upon delivering this Security Agreement Supplement
to the Collateral Agent, the Subsidiary Guarantor will become a party to the
Security Agreement and will thereafter have all the rights and obligations of a
Subsidiary Guarantor and be bound by all the provisions thereof as fully as if
the Subsidiary Guarantor were one of the original parties thereto.


 


(d)                                 Address
of [Subsidiary Guarantor/Trust]. The address, facsimile number and e-mail
address of the [Subsidiary Guarantor/Trust] for purposes of Section 11.01 of
the Security Agreement are:


 


[address,
facsimile number and e-mail address of [Subsidiary Guarantor/Trust]


 


(e)                                  Representations
and Warranties. The [Subsidiary Guarantor][Trust] represents and warrants as
follows:


 


(i)                                     the
Subsidiary Guarantor is a [corporation][trust] duly organized, validly existing
and in good standing under the laws of [jurisdiction of organization];


 


(ii)                                  the
execution and delivery of this Security Agreement Supplement by the Subsidiary
Guarantor and the performance by it of its obligations under the Security
Agreement as supplemented hereby are within its [corporate or other] powers,
have been duly authorized by all necessary [corporate or other] action, require
no action by or in respect of, or filing with, any governmental body, agency or
official (other than the as contemplated by Section 5.2 of the Senior Credit
Agreement) and do not contravene, or constitute a default under, any provision
of applicable law or regulation or of its organizational documents, or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
it or result in the creation or imposition of any Lien on any of its assets;
and


 


(iv)                              the
Security Agreement as supplemented hereby constitutes a valid and binding
agreement of the [Subsidiary Guarantor][Trust], enforceable in accordance with
its terms, except as limited by (A) applicable bankruptcy, insolvency,
fraudulent conveyance or other similar laws affecting creditors’ rights
generally and (B) general principles of equity.]


 


This
Security Agreement Supplement is being delivered in the State of New York.


 


3

















 


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


 


	
   

  	
  [GRANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


4