Exhibit 10.2


 


 


AIRCRAFT MORTGAGE AND SECURITY AGREEMENT


 


 


Dated as of September 21, 2005


 


 


between


 


 


SKYWEST AIRLINES, INC.,


as Borrower


 


 


and


 


 


C.I.T. LEASING CORPORATION,


Security Trustee


 


 










 


Four Bombardier Regional Jet Model CL-600-2B19 Aircraft


U.S. Registration Numbers: N698BR, N699BR, N709BR and N710BR


Corresponding Manufacturer’s Serial Numbers:  7799, 7801, 7850, 7852


 










 





















 


TABLE OF CONTENTS


 


	
  ARTICLE I

  	
   

  
	
  ARTICLE II

  	
   

  
	
  SECTION
  2.01. Notes

  	
   

  
	
  SECTION
  2.02. Terms of Notes

  	
   

  
	
  SECTION 2.04. Method of Payment

  	
   

  
	
  SECTION 2.05. Application of Payments

  	
   

  
	
  SECTION 2.06. Termination of Interest in Indenture
  Estate

  	
   

  
	
  SECTION 2.07. Registration, Transfer and Exchange of
  Notes

  	
   

  
	
  SECTION 2.08. Mutilated, Destroyed, Lost or Stolen
  Notes

  	
   

  
	
  SECTION 2.09. Payment of Expenses on Transfer

  	
   

  
	
  SECTION 2.10. Prepayment

  	
   

  
	
  SECTION 2.11. Provisions Relating to Prepayment

  	
   

  
	
  SECTION 2.12. Notes in Respect of Replacement Aircraft

  	
   

  
	
  SECTION 2.13. Increased Regulatory Costs; Illegality

  	
   

  
	
  ARTICLE III RECEIPT,
  DISTRIBUTION AND APPLICATION OF INCOME FROM THE INDENTURE ESTATE

  	
   

  
	
  SECTION 3.01. Principal and Interest Distribution

  	
   

  
	
  SECTION 3.02. Prepayment, Event of Loss and
  Replacement, Insurance Proceeds

  	
   

  
	
  SECTION 3.03. Payment After Event of Default, etc.

  	
   

  
	
  SECTION 3.04. Certain Payments

  	
   

  
	
  SECTION 3.05. Other Payments

  	
   

  
	
  SECTION 3.06. Payments to Borrower

  	
   

  
	
  SECTION 3.07. Investment of Amounts Held by Security
  Trustee

  	
   

  
	
  ARTICLE IV COVENANTS; EVENTS
  OF DEFAULT; REMEDIES OF SECURITY TRUSTEE

  	
   

  
	
  SECTION 4.01. Covenants of Borrower

  	
   

  
	
  SECTION 4.02. Event of Default

  	
   

  
	
  SECTION 4.03. Remedies

  	
   

  
	
  SECTION 4.04. Remedies Cumulative

  	
   

  
	
  SECTION 4.05. Discontinuance of Proceedings

  	
   

  
	
  SECTION 4.06. Waiver of Past Defaults

  	
   

  
	
  SECTION 4.07. Engine Warranties and Aircraft
  Warranties

  	
   

  
	
  ARTICLE V DUTIES OF SECURITY
  TRUSTEE

  	
   

  
	
  SECTION 5.01. Notices

  	
   

  
	
  SECTION 5.02. Action Upon Instructions

  	
   

  
	
  SECTION 5.03. Indemnification

  	
   

  
	
  SECTION 5.04 No Duties Except as Specified in
  Indenture or Instructions

  	
   

  
	
  SECTION 5.05. No Action Except Under Operative
  Documents or Instructions

  	
   

  
	
  SECTION 5.06. Replacement Airframes and Replacement
  Engines

  	
   

  
	
  SECTION 5.07. Indenture Supplements for Replacements

  	
   

  
	
  SECTION 5.08. Effect of Replacement

  	
   

  
	
  ARTICLE VI SECURITY TRUSTEE

  	
   

  
	
  SECTION 6.01. Acceptance of Trusts and Duties

  	
   

  
	
  SECTION 6.02. Absence of Duties

  	
   

  
	
  SECTION 6.03. No Representations or Warranties as to
  Aircraft or Documents

  	
   

  
	
  SECTION 6.04. No Segregation of Monies; No Interest

  	
   

  
	
  SECTION 6.05. Reliance; Agents; Advice of Counsel

  	
   

  
	
  SECTION 6.06. Capacity in Which Acting

  	
   

  
	
  SECTION
  6.07. Compensation

  	
   

  
	
  SECTION 6.08. May Become Certificate Holder

  	
   

  
	
  SECTION 6.09. Further Assurances; Financing Statements

  	
   

  
	
  ARTICLE VII SUCCESSOR TRUSTEES; SEPARATE TRUSTEES

  	
   

  



 





















 


	
  SECTION 7.01. Resignation of Security Trustee;
  Appointment of Successor

  	
   

  
	
  SECTION 7.02. Appointment of Separate Trustees

  	
   

  
	
  ARTICLE VIII SUPPLEMENTS
  AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS

  	
   

  
	
  SECTION 8.01. Instructions of Majority; Limitations

  	
   

  
	
  SECTION 8.02. Trustees Protected

  	
   

  
	
  SECTION 8.03. Documents Mailed to Certificate Holders

  	
   

  
	
  SECTION 8.04. No Request Necessary for Indenture
  Supplement

  	
   

  
	
  ARTICLE IX MISCELLANEOUS

  	
   

  
	
  SECTION 9.01. Termination of Indenture

  	
   

  
	
  SECTION 9.02. No Legal Title to Indenture Estate in
  Certificate Holders

  	
   

  
	
  SECTION 9.03. Sale of Aircraft by Security Trustee is
  Binding

  	
   

  
	
  SECTION 9.04. Indenture for Benefit of Security
  Trustee, Borrower and Certificate Holders

  	
   

  
	
  SECTION 9.05. Quiet Enjoyment

  	
   

  
	
  SECTION 9.06. Notices

  	
   

  
	
  SECTION 9.07. Severability

  	
   

  
	
  SECTION 9.08. No Oral Modifications or Continuing
  Waivers

  	
   

  
	
  SECTION 9.09. Successors and Assigns

  	
   

  
	
  SECTION 9.10. Headings

  	
   

  
	
  SECTION 9.11. Governing Law

  	
   

  
	
  SECTION 9.12. Counterpart Form

  	
   

  
	
  SECTION 9.13. Entire Agreement

  	
   

  
	
  SECTION 9.14. Waiver Of Jury Trial

  	
   

  
	
  SECTION 9.15. Submission to Jurisdiction

  	
   

  
	
  SECTION 9.16. Payment in Dollars

  	
   

  
	
   

  	
   

  
	
  Appendix A –
  Definitions

  	
   

  



 





















 


AIRCRAFT MORTGAGE AND SECURITY AGREEMENT


 


THIS
AIRCRAFT MORTGAGE AND SECURITY AGREEMENT (this “Agreement” or this “Mortgage”),
dated as of September        , 2005, between
SkyWest Airlines, Inc., a Utah corporation (“Borrower”), and C.I.T.
Leasing Corporation, in its individual capacity only as expressly provided
herein and otherwise as Security Trustee (the “Security Trustee”).


 


W I  T
N  E  S  S  E  T  H :


 


WHEREAS,
all capitalized terms used herein shall have the respective meanings set forth
or referred to in Article I hereof;


 


WHEREAS,
Borrower desires by this Mortgage, among other things, (i) to provide for the
issuance by Borrower to Lender of Notes evidencing the Loan for the Aircraft as
provided in the Loan Agreement, and (ii) to provide for the assignment,
mortgage and pledge by Borrower to Security Trustee, as part of the Mortgage
Estate hereunder, among other things, of certain of Borrower’s right, title and
interest in and to the Aircraft and the Borrower Documents and the payments and
other amounts received thereunder or in respect thereof in accordance with the
terms hereof, as security for, among other things, Borrower’s obligations to
the Note Holders, and for the benefit and security of the Note Holders;


 


WHEREAS,
all things have been done to make the Notes, when executed by Borrower and
authenticated, issued and delivered hereunder, the valid obligations of
Borrower; and


 


WHEREAS,
all things necessary to make this Mortgage the valid, binding and legal
obligation of Borrower, for the uses and purposes herein set forth and in
accordance with its terms, have been done and performed and have happened.


 


GRANTING
CLAUSE


 


NOW,
THEREFORE, THIS AIRCRAFT MORTGAGE AND SECURITY AGREEMENT WITNESSETH, that, to
secure the prompt payment when due of the principal of and the Breakage Amount
(if any) and interest on, and all other amounts due with respect to, all Notes
from time to time outstanding hereunder and the performance and observance by
Borrower of all the agreements, covenants and provisions for the benefit of the
Note Holders herein and in the Loan Agreement and the Notes contained, and the
prompt payment and performance of any and all obligations from time to time
owing hereunder and under the Loan Agreement and the other Operative Documents
by Borrower to the Note Holders (collectively referred to herein as, the “Secured
Obligations”), and for the uses and purposes and subject to the terms and
provisions hereof, and in consideration of the premises and of the covenants
herein contained, and of the acceptance of the Notes by the Note Holders, and
of the sum of $1 and other valuable consideration paid to Borrower by Security
Trustee at or before the delivery hereof, the receipt whereof is hereby
acknowledged, Borrower has granted, bargained, sold, assigned, transferred,
conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain,
sell, assign, transfer, convey, mortgage, pledge and confirm, unto Security
Trustee and its successors and assigns, for the security and benefit of the
Note Holders, as aforesaid, a security interest in and mortgage Lien upon, all
right, title and interest of Borrower in, to and under the following described
property, rights and privileges and subject to the rights of Borrower set forth
herein (which collectively, including all property hereafter specifically
subjected to the Lien of this Mortgage by a Mortgage Supplement or any other
mortgage supplemental hereto, shall constitute the “Mortgage Estate”),
to wit:


 


1.                    the Aircraft (including the Airframe and the
Engines) and all replacements thereof and substitutions therefor to which
Borrower shall from time to time acquire title as


 





















 


provided
herein, all as more particularly described in the Mortgage Supplement executed
and delivered with respect to the Aircraft or any such replacements or
substitutions therefor, as provided in this Mortgage, and all records, logs and
other documents at any time maintained with respect to the foregoing property;


 


2.                    the Warranties;


 


3.                    all tolls, rents, issues, profits, revenues
and other income of the property subjected or required to be subjected to the
Lien of this Mortgage;


 


4.                    all insurance and requisition proceeds and
all other payments of any kind with respect to the Aircraft, including but not
limited to the insurance required under Section 4.01(e) hereof;


 


5.                    all monies and securities deposited or required
to be deposited with Security Trustee pursuant to any term of this Mortgage or
required to be held by Security Trustee hereunder; and


 


6.                    all proceeds of the foregoing.


 


All
property referred to in this Granting Clause, whenever acquired by Borrower, shall
secure all Secured Obligations.  Any and
all properties referred to in this Granting Clause which are hereafter acquired
by Borrower, shall, without further conveyance, assignment or act by Borrower
or Security Trustee thereby become and be subject to the security interest
hereby granted as fully and completely as though specifically described herein.


 


HABENDUM
CLAUSE


 


TO
HAVE AND TO HOLD all and singular the aforesaid property unto Security Trustee,
its successors and assigns, in trust for the benefit and security of the Note
Holders, and for the uses and purposes and subject to the terms and provisions
set forth in this Mortgage.


 


It
is expressly agreed that anything herein contained to the contrary
notwithstanding, Borrower shall remain liable under the Borrower Documents to
perform all of the obligations assumed by it thereunder, all in accordance with
and pursuant to the terms and provisions thereof, and Security Trustee and the
Note Holders shall have no obligation or liability under any thereof by reason
of or arising out of the assignment hereunder, nor shall the Security Trustee
or Note Holders be required or obligated in any manner to perform or fulfill
any obligations of Borrower under or pursuant to any of the Borrower Documents,
except as therein or herein expressly provided, to make any payment, or to make
any inquiry as to the nature or sufficiency of any payment received by it, or
present or file any claim, or take any action to collect or enforce the payment
of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.


 


Borrower
hereby constitutes Security Trustee the true and lawful attorney of Borrower,
irrevocably, with full power (in the name of Borrower or otherwise) to ask,
require, demand, receive, compound and give acquittance for any and all monies
and claims for monies (in each case including insurance and requisition
proceeds) due and to become due under or arising out of the Borrower Documents
and all other property which now or hereafter constitutes part of the Mortgage
Estate, 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 Security Trustee may deem to be necessary or advisable in the
premises.  Borrower agrees that promptly
on receipt thereof, it will transfer to Security Trustee any


 





















 


and all monies from time to time received by
it constituting part of the Mortgage Estate, for distribution by Security
Trustee pursuant to this Mortgage.


 


Borrower
does hereby warrant and represent that (except as permitted herein) it has not
assigned or pledged any of its right, title, and interest hereby assigned to
anyone other than Security Trustee.


 


Borrower
does hereby ratify and confirm the Borrower Documents and does hereby agree
that (except as permitted herein) it will not take or omit to take any action,
the taking or omission of which would result in an alteration or impairment of
any of the Borrower Documents or of any of the rights created by any thereof or
the assignment hereunder.


 


Borrower
agrees that at any time and from time to time, upon the written request of
Security Trustee, Borrower will promptly and duly execute and deliver any and
all such further instruments and documents as Security Trustee may deem
desirable in obtaining the full benefits of this assignment 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


 


For
all purposes of this Mortgage, terms defined in the heading and recitals of
this Mortgage are used as so defined and capitalized terms used herein shall
have the respective meanings set forth in Appendix A hereto for all purposes of
this Mortgage (such definitions to be equally applicable to both the singular
and plural forms of the terms defined). 
Any agreement referred to below shall mean such agreement as amended,
supplemented and modified from time to time in accordance with the applicable
provisions thereof and of the other Operative Documents.  Unless otherwise specified, Section and
Article references are to Sections and Articles of this Mortgage.  Appendix A and each of Exhibits A through
F attached hereto are hereby incorporated herein by this reference.


 


ARTICLE
II


THE NOTES


 


SECTION
2.01.  Notes.  The Notes and Security Trustee’s form of
certificate of authentication to appear on the Notes shall each be
substantially in the form set forth on Exhibit B.  On the Closing Date, Borrower shall issue a
Note to Lender in an aggregate original principal amount in Dollars equal to
the Loan.  Such Note shall be subject to
the terms and conditions set forth in this Article II.


 


SECTION
2.02.  Terms of Notes.


 


(a)                                  Interest Rate.  The
Notes shall bear interest at the Floating Rate.


 


(b)                                 [intentionally omitted]


 


(c)                                  Floating Rate Loan.  The
following terms shall apply to a Floating Rate Loan:


 


(i)                                     Each Note shall bear interest on the unpaid
principal amount thereof from time to time outstanding from and including the
date thereof until such principal amount is paid in full at the Floating Rate
applicable to each Interest Period in effect with respect thereto.  Such interest on the Note shall accrue with
respect to each Interest Period at the Applicable Rate in effect for such
Interest Period and shall be due and payable in arrears on each Payment Date
noted in Annex A to each Note.


 





















 


The Floating Rate in respect of each Interest
Period shall be determined by the Security Trustee by reference to the
definition of Floating Rate.  Security
Trustee shall provide written notice to the Borrower of the amount of interest
due on each Payment Date no fewer than five (5) business days prior to that
Payment Date (and if such notice is not timely received, Borrower shall be
deemed to have paid the amount of interest due for the applicable Interest
Period if it, at its election, (i) pays an amount equal to the interest payment
for the prior Interest Period, or (ii) pays an amount equal to the interest due
for the applicable Interest Period as reasonably calculated by Borrower in good
faith).  Notwithstanding the foregoing,
the final payment on the Notes shall be an amount sufficient to discharge in
full the unpaid principal amount, all accrued and unpaid interest and all other
amounts due and owing to all Note Holders under the Operative Documents.


 


(ii)                                  [intentionally omitted]


 


(iii)                               Interest shall be calculated on the basis of
a year of 360 days and the actual number of days elapsed.


 


(d)                                 Each Note shall bear interest at the Past Due
Rate on any principal thereof and interest and other amounts due thereunder,
hereunder and under the other Operative Documents, not paid when due (whether
at stated maturity, by acceleration or otherwise), for any period during which
the same shall be overdue, payable on demand by the Note Holder given through
Security Trustee.  Interest on past-due
amounts shall be calculated on the basis of a year of 360 days and the actual
days elapsed.  In the event the principal
of or interest on a Note or other amount payable thereunder or hereunder is not
paid in full when due (whether at stated maturity, by acceleration or
otherwise), the period applicable to the Past Due Rate shall be either (i) a
period commencing on the due date of such principal, interest or other amount
and ending on the next succeeding Business Day and thereafter each period
commencing on the last day of the preceding period and ending on the next
succeeding Business Day, or (ii) such other period or periods (not greater than
six months) as the Security Trustee may, at any time and from time to time
during the period the same remains past-due, select in its sole discretion for
the purpose of determining the Past Due Rate therefor.


 


(e)                                  The Notes shall be executed on behalf of
Borrower by one of its authorized officers. 
Notes bearing the signatures of individuals who were at any time the
proper officers of Borrower shall bind Borrower, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Notes or did not hold such offices at the
respective dates of such Notes.  No Notes
shall be issued hereunder except those provided for in Section 2.01 and
any Notes issued in exchange or replacement therefor pursuant to the terms of
this Mortgage.  Each Note issued under Section
2.01, Section 2.07 or Section 2.08 shall be dated the Closing
Date.  No Note shall be secured by or
entitled to any benefit under this Mortgage or be valid or obligatory for any
purpose, unless there appears on such Note a certificate of authentication in
the form provided for herein executed by Security Trustee by the manual
signature of one of its authorized officers and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.


 


SECTION
2.03.  [intentionally omitted]


 


SECTION
2.04.  Method of Payment.  Principal and interest and other amounts due
hereunder or under the Notes or in respect hereof or thereof shall be payable
in Dollars in immediately available funds prior to 11:15 A.M., New York City
time, on the due date thereof, to Security Trustee at such account or accounts
at such financial institution or institutions as the Note Holders shall have
designated to Security Trustee in writing, in immediately available funds for
distribution to the relevant Note Holders, such payment to be made, in the case
of any such designated account in New York City, New York, prior to


 





















 


2:00 P.M., New York City time, on the due
date thereof.  If Security Trustee,
through negligence or willful misconduct, shall fail to make any such payment
as provided in the preceding sentence after its receipt of funds at the place
and prior to the time specified above, Security Trustee, in its individual
capacity and not as trustee, agrees to compensate the Note Holders for loss of
use of funds in a commercially reasonable manner, and Borrower shall have no
liability for and the Mortgage Estate shall not secure any such loss or any
overdue interest on the Notes in connection with any such failure of Security
Trustee to timely distribute funds. All such payments by Borrower and Security
Trustee shall be made free and clear of and without reduction for account of
all wire and other like charges.  Prior
to the due presentment for registration of transfer of any Note, Borrower and
Security Trustee may deem and treat the Person in whose name any Note is
registered on the Note Register as the absolute owner of such Note for the
purpose of receiving payment of all amounts payable with respect to such Note
and for all other purposes whether or not such Note shall be overdue, and
neither Borrower nor Security Trustee shall be affected by any notice to the
contrary.  If any sum payable under the
Notes or under this Mortgage falls due on a day which is not a Business Day,
then such sum shall be payable on the next succeeding Business Day together
with interest thereon at the Applicable Rate from and including the scheduled
due date to but excluding such next succeeding Business Day; provided,
that if such succeeding Business Day falls into the next calendar month, such
payment shall be made on the preceding Business Day.


 


SECTION
2.05.  Application of Payments.  Each payment of principal and interest or
other amounts due in respect of each Note shall, except as otherwise expressly
provided herein, be applied, first, to the payment of any amount (other
than the principal of or the Breakage Amount, if any, or interest on such Note)
due in respect of such Note, second, to the payment of the Breakage
Amount, if any, and interest on such Note (as well as any interest on overdue
principal and, to the extent permitted by law, interest and other amounts
payable thereunder) due thereunder, third, to the payment of the principal
of such Note then due and fourth, the balance, if any, remaining
thereafter, to the payment of the principal of such Note remaining unpaid (provided
that such Note shall not be subject to prepayment or purchase without the
consent of the affected Note Holder except as permitted by Sections 2.10
and 2.11).


 


SECTION
2.06.  Termination of Interest in
Mortgage Estate.  A Note Holder shall
not, as such, have any further interest in, or other right with respect to, the
Mortgage Estate when and if the principal amount of and the Breakage Amount, if
any, and interest on and other amounts due under all Notes held by such Note
Holder and all other sums due to such Note Holder hereunder and under the other
Operative Documents shall have been paid in full.


 


SECTION
2.07.  Registration, Transfer and
Exchange of Notes.  Security Trustee
agrees with Borrower that Security Trustee shall keep a register (herein
sometimes referred to as the “Note Register”) in which provisions shall
be made for the registration of Notes and the registration of transfers of
Notes.  The Note Register shall be kept
at the offices of Security Trustee or at the office of any successor Security
Trustee, and Security Trustee is hereby appointed “Note Registrar” for
the purpose of registering Notes and transfers of Notes as herein
provided.  Upon surrender for
registration of transfer of any Note at the offices, Borrower shall execute,
and Security Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes of a like aggregate principal
amount.  At the option of the Note
Holder, its Notes may be exchanged for other Notes of any authorized
denominations, of a like aggregate principal amount, upon surrender of the
Notes to be exchanged at the offices. 
Each new Note issued upon transfer or exchange shall be in a principal
amount of at least $1,000,000 (except as may be necessary to evidence the
entire outstanding principal amount of a Note) and dated the Closing Date.  Whenever any Notes are so surrendered for
exchange, Borrower shall execute, and Security Trustee shall authenticate and
deliver, the Notes which the Note Holder making the exchange is entitled to
receive.  All Notes issued upon any
registration of transfer or exchange of Notes shall be the valid obligations of
Borrower evidencing the same respective obligations, and entitled to the same
security and


 





















 


benefits under this Mortgage, as the Notes
surrendered upon such registration of transfer or exchange.  Every Note presented or surrendered for
registration of transfer or exchange, shall (if so required by Security
Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to Security Trustee duly executed by the Note
Holder thereof or his attorney duly authorized in writing, and Security Trustee
may require evidence satisfactory to it as to the compliance of any such
transfer with the Securities Act. 
Security Trustee shall make a notation on each new Note or Notes of the
amount of all payments of principal previously made on the old Note or Notes
with respect to which such new Note is issued and the date to which interest
accrued on such old Note or Notes has been paid.  Security Trustee shall not be required to
register the transfer of or exchange any surrendered Notes as above provided
during the ten calendar day period preceding the due date of any payment on
such Notes.


 


Borrower
and Security Trustee shall treat the Person in whose name each Note is
registered on the Note Register as the Note Holder with respect thereto for all
purposes hereof until due presentment for registration of transfer as provided
in this Section 2.07.  Security
Trustee shall give Borrower and each Note Holder prompt notice of such transfer
of a Note under this Section 2.07. 
Each Note Holder, by its acceptance of a Note, agrees that any transfer
of any Note acquired by it hereunder shall not be effected unless the
transferee shall have delivered to Borrower and Security Trustee (1) a written
representation as to the matters specified in Section 7(b) and 7(d) of the Loan
Agreement and, notwithstanding the above, such transferee by its acceptance of
a Note shall be deemed to have made such a representation and (2) an agreement
to be bound by and comply with the provisions of the Loan Agreement and this
Mortgage binding on a “Lender” or “Note Holder” and, notwithstanding the above,
such transferee by its acceptance of a Note shall be deemed to have made such
agreement.


 


SECTION
2.08.  Mutilated, Destroyed, Lost or
Stolen Notes.  If any Note shall
become mutilated, destroyed, lost or stolen, Borrower shall, upon the written
request of the affected Note Holder, execute, and Security Trustee shall
authenticate and deliver in replacement thereof, a new Note in the same principal
amount, dated the date of such Note and designated as issued under this
Mortgage.  If the Note being replaced has
become mutilated, such Note shall be surrendered to Security Trustee and a
photocopy thereof shall be furnished to Borrower by Security Trustee.  If the Note being replaced has been
destroyed, lost or stolen, the affected Note Holder shall furnish to Borrower
and Security Trustee such security or indemnity as may be reasonably required
by them to hold Borrower and Security Trustee harmless and evidence
satisfactory to Borrower and Security Trustee of the destruction, loss or theft
of such Note and of the ownership thereof; provided, however,
that if the affected Note Holder is an original party to the Loan Agreement or
an Affiliate thereof, the written notice of such destruction, loss or theft and
such ownership and the written undertaking of such Note Holder delivered to
Borrower and Security Trustee to hold harmless Borrower and Security Trustee in
respect of the execution, authentication and delivery of such new Note shall be
sufficient evidence, security and indemnity. 
No transfer of a Note shall be effective unless recorded in the Note
Register.


 


SECTION
2.09.  Payment of Expenses on Transfer.  Upon the issuance of a new Note or new Notes
pursuant to Section 2.07 or 2.08, Borrower and/or Security
Trustee may require from the party requesting such new Note or Notes payment of
a sum sufficient to reimburse Borrower and/or Security Trustee for, or to
provide funds for, the payment of any Tax or other governmental charge in
connection therewith or any charges and expenses connected with such Tax or
other governmental charge paid or payable by Borrower or Security Trustee.


 


SECTION
2.10.  Prepayment.


 


(a)                                  At any time following the Closing Date, Borrower
may, upon no less than 15 days’ prior notice to Security Trustee, prepay the
Notes then outstanding at the principal amount thereof, together with accrued
interest thereon to the date of prepayment plus the Breakage Amount, if any,
and all


 





















 


other amounts due to Note Holders hereunder,
thereunder and under the other Operative Documents (including the reasonable
fees, costs and expenses of Lender and Security Trustee).


 


(b)                                 The Notes shall be prepaid in full, together
with accrued interest thereon to the date of prepayment plus the Breakage
Amount, if any, and all other amounts due thereunder and hereunder and under
the other Operative Documents (including the reasonable fees, costs and
expenses of Lender and Security Trustee) to the Note Holders upon the
occurrence of an Event of Loss with respect to the Airframe (unless pursuant to
Sections 4.01(d) and 5.06 hereof, a Replacement Airframe,
together with the same number of Replacement Engines as the Engines, if any,
subject to such Event of Loss, shall have been substituted for the Airframe and
the Engines subject to such Event of Loss), on the earlier of the date of
Borrower’s payment with respect to such Event of Loss in Section 4.01(d)
hereof and the last day permitted for such payment under said Section
4.01(d).  Any prepayment pursuant to
this Section 2.10(b) shall require at least three Business Days prior
written notice from Borrower to each Note Holder.


 


SECTION
2.11.  Provisions Relating to
Prepayment.  (a) Borrower shall have
no right to prepay the principal amount of the Notes except as permitted by Section
2.10.  On the date of prepayment, the
principal amount of the Notes so to be prepaid, plus accrued interest thereon
to the date of prepayment, together with the Breakage Amount, if any, shall
become due and payable on the prepayment date.


 


(b)                                 On the date fixed for prepayment under Section
2.10, immediately available funds in Dollars shall be deposited by Borrower
in the account of Security Trustee at the place and by the time and otherwise
in the manner provided in Section 2.04, in an amount equal to the
principal amount of Notes to be prepaid together with accrued and unpaid
interest thereon to the date fixed for such prepayment, the Breakage Amount, if
any, and all other amounts due to Note Holders hereunder, thereunder and under
the other Operative Documents.


 


(c)                                  [intentionally omitted]


 


SECTION
2.12.  Notes in Respect of Replacement
Aircraft.  Upon the execution and
delivery of a Mortgage Supplement covering a Replacement Airframe and/or
Replacement Engine, as provided in Section 5.06, each Note shall be
deemed to have been issued in connection with such Replacement Airframe and/or
Replacement Engine and each Note issued thereafter upon a transfer or exchange
of, or as a replacement for, a Note, shall be designated as having been issued
in connection with such Replacement Airframe and/or Replacement Engine, but
without any other change therein except as provided for in this Article II.


 


SECTION
2.13.  Increased Regulatory Costs;
Illegality.


 


(a)                                  If the enactment, adoption or promulgation,
after the Closing Date, of any applicable law or regulation or any change,
after the Closing Date, in any applicable law, rule, regulation, guidance or
ruling or any exceptions thereto (or any applicable published change, after the
Closing Date, in the interpretation thereof (whether or not having the force of
law) or any compliance by such Lender with any request from such authority (provided
that the observance thereof is in accordance with the reasonable practice of
lenders in the country concerned)) of general applicability by any
governmental, fiscal, monetary or other authority charged with the
administration or application thereof (in each of the foregoing cases which is
binding upon such Lender, in any applicable jurisdiction for purposes of
funding or maintaining any Note or the participation by such Lender in the
transactions contemplated hereby and by the other Operative Documents), (1)
shall make it unlawful for such Lender to fund or maintain its Note or (2)
shall:


 





















 


(i)                                     impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding any such requirement with respect to which such Lender is
entitled to compensation during the relevant interest period and excluding any
regulatory change the effect of which is the implementation of the Basle Accord
as in effect on the date hereof) against deposits with, or credit extended by,
such Lender by reason of the funding or maintaining of its Note;


 


(ii)                                  impose, modify or deem applicable a capital
adequacy requirement which such Lender can establish has the effect of
increasing the amount of capital required to be maintained by such Lender, but
only to the extent that such increase is directly attributable and allocable to
such Lender’s obligations to fund and maintain its Note; or


 


(iii)                               impose, modify or deem applicable any Tax
(not excluded from indemnification under Section 6(b) of the Loan Agreement),
or other governmental, monetary or other charge or other condition which in
each case is in the nature of such reserve, special deposit or similar
requirement;


 


and
the result of any of the foregoing clauses (i), (ii) and (iii) shall be to
increase in the aggregate and by a material amount the costs to such Lender,
but only to the extent that such increase is directly attributable and
allocable to funding and maintaining the Note (any such reserve, special
deposit, similar requirement, Tax or other governmental, monetary or other
charge or condition or capital adequacy cost being hereinafter collectively
referred to as an “Increased Cost”) then the Lender shall promptly
provide Security Trustee and Borrower with written notice of such event giving
rise to such illegality or Increased Cost; provided, that in assessing the
effect of such enactment, adoption, change or condition and determining such
Increased Cost, such Lender shall evaluate and apply the requirements in
respect of its Note hereunder in a manner which is no less favorable to
Security Trustee and Borrower than, and shall not discriminate in such
evaluation and application in relation to, and with respect to clauses (i) and
(ii) above, the other deposits with or credit extended by the Lender involving
other Persons, and with respect to clause (ii) above, comparable funding
obligations held by the Lender of the same type and category involving other
Persons. Such notice shall be accompanied by an officer’s certificate
describing in reasonable detail (A) the events giving rise to such illegality
or Increased Cost, (B) the basis for determining and allocating such Increased
Cost with respect to the Note and a statement to the effect that the determination
for such Increased Cost in connection with its obligations under its Note has
been made in a manner that does not discriminate against Security Trustee or
Borrower, and (C) a good faith estimate of the amount expected to be incurred
by the Lender (such estimate to set out in reasonable detail the basis on which
it has been prepared).


 


Within
thirty (30) days of the receipt of any invoice for Increased Cost incurred
following (or accompanying such notice), Borrower shall remit the amount of
such Increased Cost to such Lender.


 


Notwithstanding
any of the provisions hereof, such Lender shall not be entitled to serve notice
to cause a payment of Increased Cost if (I) the Lender (or any office, branch
or Affiliate thereof) incurred the relevant Increased Cost as a result of the
Lender’s (or any office, branch or Affiliate thereof) having acted in a manner
contrary to, or failed to act in a manner required by, the applicable laws,
rules, regulations, rulings or exceptions thereto or interpretations thereof or
(II) the relevant Increased Cost was imposed with respect to the period prior
to receipt by Borrower of the notice with respect thereto pursuant to the first
paragraph of this Section 2.13.


 





















 


(b)                                 Borrower shall not be required to make
payments under this Section 2.13 to any Lender if (i) a claim hereunder
arises through circumstances peculiar to such Lender and which do not affect
commercial lenders in the same jurisdiction generally, (ii) such Lender is not
also seeking indemnification against similar increased costs, to the extent it
is entitled to do so, in transactions with substantial borrowers (it being
agreed that an officer’s certificate to the contrary from any such Lender shall
constitute conclusive evidence of such fact) or (iii) the claim arises out of a
voluntary relocation by such Lender of its lending office.


 


ARTICLE III


RECEIPT, DISTRIBUTION AND APPLICATION OF


INCOME
FROM THE MORTGAGE ESTATE


 


SECTION
3.01.  Principal and Interest
Distribution.  (a) Except as
otherwise provided in Section 3.03, any payment of principal and
interest payable on any Payment Date or on overdue payments of principal and
interest shall be promptly distributed to pay in full the principal and
interest and other amounts (as well as any interest on overdue principal and,
to the extent permitted by law, on interest and other amounts) then due on or
in respect of the Notes to the Note Holders thereof ratably, without priority
of any one Note over any other Note, in the proportion that the amount of such
payment or payments then due under each Note bears to the aggregate amount of
the payments then due under all Notes.


 


(b)                                 Application of Other Amounts Held by Security
Trustee.  Except as otherwise provided in Section
3.03, if for any reason there shall not have been distributed on any
Payment Date the full amount then distributable pursuant Section 3.01(a),
Security Trustee shall, if so requested in writing by a Majority in Interest of
Note Holders, distribute other payments of the character referred to in Sections
4.01(d)(vi) and 4.01(e)(ix) then held by it or thereafter received
by it, to all Note Holders to the extent necessary to enable Security Trustee
to make all the distributions then due pursuant to Section 3.01(a).


 


SECTION
3.02.  Prepayment, Event of Loss and
Replacement, Insurance Proceeds.


 


(a)                                  Prepayment.  Any payment received by
Security Trustee as the result of a payment or prepayment described in Section
2.10, shall be applied to prepayment of the Notes and to all other amounts
payable thereunder or hereunder or under the other Operative Documents as
provided in Section 2.10 by applying such funds in the following order
of priority:  first, so much of
such payment as shall be necessary to reimburse Security Trustee for any costs
or expenses reasonably incurred in connection with such prepayment shall be
paid to Security Trustee, and second, so much of such payment as shall
be necessary to pay all amounts then due to the Note Holders pursuant to said Section
2.10 shall be distributed to such Note Holders, ratably, without priority
of any one Note Holder over any other such Note Holder.


 


(b)                                 Insurance Proceeds upon Event of Loss.  With
respect to any payment of insurance proceeds received by Security Trustee as a
result of the occurrence of an Event of Loss with respect to the Airframe or
any Engine, any such insurance proceeds so received shall be held by the
Security Trustee as security for the obligations of Borrower under the
Operative Documents and invested in accordance with the terms of Section
3.07, provided that, subject to Section 4.01(e)(ix), such
proceeds shall be released to Borrower upon Borrower’s written request upon the
replacement of such damaged Airframe or Engine as provided in Sections
4.01(d) and 5.06 hereof.  In
the event the Airframe or any Engine is replaced in accordance with Sections
4.01(d) and 5.06 hereof, provided that Borrower shall have fully
performed or, concurrently therewith, will fully perform the terms of Sections
4.01(d) and 5.06


 





















 


hereof, Borrower may elect by written notice
to Security Trustee to apply such insurance proceeds directly to the
acquisition of the Replacement Airframe or Replacement Engine, as the case may
be.


 


(c)                                  Insurance Proceeds other than upon Event of
Loss.  With respect to any payment of insurance
proceeds otherwise than in respect of an Event of Loss, any insurance proceeds
so received by Security Trustee shall be held by Security Trustee as security
for the obligations of Borrower under the Operative Documents and invested in
accordance with the terms of Section 3.07, provided that, subject
to Section 4.01(e)(ix), such proceeds shall be released to Borrower upon
receipt by Security Trustee of evidence reasonably satisfactory to the Security
Trustee of the repair of such damage to the Airframe or Engine or as otherwise
provided in Section 4.01(e) hereof; provided, further,
that upon receipt from Borrower of evidence reasonably satisfactory to Security
Trustee that the damage giving rise to such payment shall be repaired, Borrower
may elect by written notice to Security Trustee to apply such insurance
proceeds to the repair of the Aircraft, Airframe or the Engine.


 


(d)                                 Proceeds from Government or Other Party.  Any
amounts received by Security Trustee directly or indirectly from any
Governmental Authority or other party (other than an insurer) pursuant to any
provisions of Section 4.01(d)(iii) shall be held by the Security
Trustee, as security for the obligations of Borrower under the Operative
Documents and shall be invested in accordance with the terms of Section 3.07
and at such time as the conditions for payment to Borrower specified in said Section
4.01(d)(iii) shall be fulfilled, such amount, and the proceeds of any
investments thereof, shall, to the extent not applied to such obligations of
Borrower, be paid pursuant to instruction to Borrower to the extent provided in
this Mortgage.


 


SECTION
3.03.  Payment After Event of Default,
etc.  Notwithstanding Section 3.02
and except as otherwise provided in Section 3.05(ii), all payments
received and amounts held or realized by Security Trustee after an Event of
Default shall have occurred and so long as such an Event of Default shall be
continuing and Security Trustee shall have foreclosed or enforced the Lien of
this Mortgage or after the Notes shall have become due and payable as provided
in Section 4.03, together with all payments or amounts then held by
Security Trustee as part of the Mortgage Estate, shall be promptly distributed
by Security Trustee in the following order of priority:


 


First, so
much of such payments or amounts as shall be required to reimburse Security
Trustee for any tax, fees, expense, charge or other loss incurred by Security
Trustee (to the extent reimbursable pursuant to the terms of this Mortgage not
previously reimbursed) (including, without limitation, the expenses of any
sale, taking or other proceeding, reasonable attorneys’ fees and expenses,
court costs, and any other expenditures incurred or expenditures or advances
made by Security Trustee in the protection, exercise or enforcement of any
right, power or remedy or any damages sustained by Security Trustee, liquidated
or otherwise, upon such Event of Default) shall be applied by Security Trustee
in reimbursement of such expenses;


 


Second, so
much of such payments or amounts remaining as shall be required to reimburse
the Note Holders in full for payments made pursuant to Section 5.03 (to
the extent not previously reimbursed) shall be distributed to such Note
Holders, and if the aggregate amount remaining shall be insufficient to reimburse
all such payments in full, it shall be distributed ratably, without priority of
any Note over any other, in the proportion that the aggregate amount of the
unreimbursed payments made by each such Note Holder pursuant to Section 5.03
bears to the aggregate amount of the unreimbursed payments made by all Note
Holders pursuant to Section 5.03;


 


Third, so
much of such payments or amounts remaining as shall be required to pay in full
to the Note Holders the Breakage Amount, if any, and all other amounts payable
pursuant to the indemnification provisions of Section 6 of the Loan Agreement
or pursuant to any other provision of any


 





















 


Operative Document and secured hereunder
(other than amounts payable pursuant to clause “second”, “fourth”,
or “fifth” of this Section 3.03) to Note Holders and remaining
unpaid shall be distributed to such Note Holders, and if the aggregate amount
remaining shall be insufficient to pay all such amounts in full, it shall be
distributed ratably, without priority of any Note over any other, in the
proportion that the aggregate amount due each Note Holder under this clause “third”
bears to the aggregate amount due all Note Holders under this clause “third”;


 


Fourth, so
much of such payments or amounts remaining as shall be required to pay in full
the aggregate amount of all accrued but unpaid interest to the date of
distribution on the Notes shall be distributed to the Note Holders, and if the
aggregate amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any one Note over
any other, in the proportion that the aggregate amount of all accrued but
unpaid interest to the date of distribution on each Note bears to the aggregate
amount of all accrued but unpaid interest to the date of distribution on all
Notes;


 


Fifth, so
much of such payments or amounts remaining as shall be required to pay in full
the aggregate unpaid principal amount of all Notes shall be distributed to the
Note Holders, and if the aggregate amount remaining shall be insufficient to
pay all such amounts in full, it shall be distributed ratably, without priority
of any one Note over any other, in the proportion that the aggregate unpaid
principal amount of each Note bears to the aggregate unpaid principal amount of
all Notes;


 


Sixth, the
balance, if any, of such payments or amounts remaining thereafter shall be
distributed to Borrower.


 


SECTION
3.04.  Certain Payments.  (a) Except as otherwise provided in this
Mortgage, any payments received by Security Trustee for which provision as to
the application thereof is made in the Operative Documents shall be applied
forthwith to the purpose for which such payment was made in accordance with the
terms thereof.


 


(b)                                 Except as otherwise provided in Sections
3.01(b) or 3.03, Security Trustee will distribute, promptly upon
receipt, any indemnity payment or payment of damages received by it from
Borrower in respect of Security Trustee in its individual capacity or any Note
Holder pursuant to Section 6 of the Loan Agreement, directly to the Person
entitled thereto.


 


SECTION
3.05.  Other Payments.  Any payments received by Security Trustee
whose purpose or intended payee is not identified shall be held by Security
Trustee pending identification of the intended purpose of such payment, and
thereafter, if no provision as to the application thereof is made in this
Mortgage, shall be distributed by Security Trustee (i) to the extent received
or realized at any time prior to the payment in full of all obligations to the
Note Holders secured by the Lien of this Mortgage, in the order of priority
specified in Section 3.03, and (ii) to the extent received or realized
at any time after payment in full of all obligations to the Note Holders
secured by the Lien of this Mortgage, in the following order of priority:  first, in the manner provided in the
clause “first” of Section 3.03 and second, in the manner
provided in clause “seventh” of Section 3.03.


 


SECTION
3.06.  Payments to Borrower.  Any amounts distributed hereunder by Security
Trustee to Borrower shall be paid to Borrower by wire transfer of funds of the
type received by Security Trustee at the address and account set forth in
Schedule I to the Loan Agreement or at such other office and to such other
account or accounts of such entity or entities as shall be designated by notice
from Borrower to Security Trustee from time to time.


 





















 


SECTION
3.07.  Investment of Amounts Held by
Security Trustee.  Any amounts held
by Security Trustee pursuant to Section 3.02 or pursuant to any
provision of any other Operative Document providing for amounts to be held by
Security Trustee shall be invested by Security Trustee from time to time in
Permitted Investments as directed in writing by Borrower.  Unless otherwise expressly provided in this
Mortgage, any income realized as a result of any such investment, net of
Security Trustee’s reasonable fees and expenses in making such investment,
shall be held and applied by Security Trustee in the same manner as the
principal amount of such investment is to be applied and any losses, net of
earnings and such reasonable fees and expenses, shall be charged against the
principal amount invested.  Security
Trustee shall not be liable for any loss resulting from any investment required
to be made by it under this Mortgage other than by reason of its willful
misconduct or gross negligence or any negligence in the handling or application
of funds, and any such investment may be sold (without regard to its maturity)
by Security Trustee without instructions whenever Security Trustee reasonably
believes such sale is necessary to make a distribution required by this
Mortgage.


 


ARTICLE
IV


COVENANTS; EVENTS OF DEFAULT;


REMEDIES OF SECURITY TRUSTEE


 


SECTION
4.01.  Covenants of Borrower.  So long as the Lien of the Mortgage has not
been discharged and terminated pursuant to the terms hereof, Borrower hereby
covenants and agrees as follows:


 


(a)                                  Liens.  Except as expressly permitted
hereby, Borrower will not directly or indirectly create, incur, assume or
suffer to exist any Lien on or with respect to the Aircraft, Airframe or
Engines, title thereto or any interest therein or in this Mortgage, except (i)
the Lien of this Mortgage, (ii) Liens for Taxes of Borrower either not yet due
or being contested in good faith by appropriate proceedings so long as such
proceedings do not involved any material risk of the sale, forfeiture or loss
of the Airframe or any Engine or any interest therein, (iii) materialmen’s,
mechanics’, workmen’s, repairmen’s, employees’, or other like Liens arising in
the ordinary course of Borrower’s business securing obligations that are not
overdue or are 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 the Airframe or any Engine or any interest therein, (iv) Liens arising
out of any judgment or award against Borrower with respect to which at the time
an appeal or proceeding for review is being prosecuted in good faith by
appropriate proceedings diligently conducted and with respect to which there
shall have been secured and continuing a stay of execution pending such appeal
or proceeding for review, so long as such proceedings do not involve any
material risk of the sale, forfeiture or loss of the Airframe or any Engine or
any interest therein and (v) any other Lien with respect to which Borrower
shall have provided a bond or other security in an amount and under terms
reasonably satisfactory to Security Trustee. 
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 permitted
above if the same shall arise at any time.


 


(b)                                 Registration, Maintenance and Operation;
Possession; Insignia.


 


(i)                                     Registration and Maintenance. 
Borrower, at its own cost and expense, shall:  (1) cause the Aircraft to be and to remain
duly registered with the FAA in the name of Borrower under the Transportation
Code; (2) maintain, inspect, test, service, repair, and overhaul (or cause to
be maintained, inspected, tested, serviced, repaired, and overhauled) the
Aircraft (and any engine that is not an Engine but that is installed on the
Aircraft) (A) so as to keep the Aircraft in as good condition and appearance as
when originally delivered to Borrower by the Manufacturer on the Acquisition
Date, ordinary wear and tear excepted, in good operating condition and in
compliance at all times with


 





















 


Borrower’s FAA-approved maintenance program
for the Aircraft, as well as in compliance with Manufacturer’s or Engine
Manufacturer’s mandatory service bulletins and so as to maintain in full force
and effect any warranties of the Manufacturer or the Engine Manufacturer and to
keep the Aircraft in such condition as may be necessary to enable all
certificates, licenses, permits and authorizations required for the use and
operation of the Aircraft and each Engine and Part, including the airworthiness
certification for the Aircraft to be maintained in good standing at all times
(other than during temporary periods of storage, maintenance, or modification
in accordance with applicable regulations or when the FAA or other aviation
authority having jurisdiction over the Aircraft grounds Bombardier Regional Jet
Aircraft Model CL-600-2B19 aircraft) under (x) the Transportation Code, or (y)
the applicable laws of any other jurisdiction in which the Aircraft may then be
registered from time to time;  provided,
however, that Borrower may, in good faith, contest the validity or
application of any law, rule, regulation, order or bulletin in any reasonable
manner that does not materially adversely affect the respective interest of
Security Trustee or Lender in or to such Airframe or Engines or any Operative
Document and such contest or failure to comply will not result in any material
risk of loss, sale, forfeiture or damage to the Aircraft or any risk of civil
or criminal liability to Security Trustee or Lender; (B) in substantially the
same manner as Borrower maintains, inspects, tests, services, repairs or
overhauls similar aircraft operated by Borrower in similar circumstances and
without in any way discriminating against the Aircraft; (C) so as to comply
with any requirements under policies of insurance required to be maintained
hereunder; or (D) or such other manner as shall be approved by Security Trustee
whether by reason of its mortgaged status or otherwise; (3) promptly furnish or
cause to be furnished to Security Trustee such information as may be required
to enable Security Trustee to file any reports required to be filed by Security
Trustee with any Governmental Authority because of such person’s interest in
the Aircraft; and (4) maintain or cause to be maintained, in English, all
records, logs and other materials required to be maintained in respect of the
Aircraft by the FAA or the applicable regulatory agency or body of any other
jurisdiction in which the Aircraft may then be registered.


 


(ii)                                  Operation.  Borrower will not maintain,
use, locate, service, repair, overhaul or operate the Aircraft in violation of
any law or any rule, regulation, treaty, order or certificate of any
Governmental Authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority or for a purpose for which it is not
designed or in violation of any requirements of insurance pursuant to Section
4.01(e) or in violation of any requirements as may be necessary to keep any
unexpired warranties of Manufacturer or Engine Manufacturer in full force and
effect.  If such law, rule, regulation,
treaty, order or certificate requires alteration of the Aircraft, Borrower will
conform thereto or obtain conformance therewith at no expense to Security
Trustee or Lender.  Notwithstanding the
foregoing, after Borrower shall have provided Security Trustee with a
certificate of a Responsible Officer stating all relevant facts with respect
thereto, (except for any mandatory grounding of the Aircraft by an aviation
authority having appropriate jurisdiction) Borrower may contest in good faith
the validity or application of any such law, rule, regulation, treaty, order,
certificate, license, registration or violation in any reasonable manner that
does not adversely affect Lender’s or Security Trustee’s respective interests
in or to the Aircraft or any Operative Document and such contest or
non-compliance will not result in any material risk of loss, forfeiture or
damage to the Aircraft or any risk of unindemnified civil or criminal liability
to Security Trustee or Lender.  In
addition, Borrower shall comply with the provisions of this Article 4
notwithstanding such contest.  If the
indemnities or insurance specified in Section 4.01(e) hereof, have not
been obtained, Borrower will not operate, use or locate the Aircraft in or to
any area excluded from coverage by any insurance required to be maintained by
the terms of Section 4.01(e) hereof, unless such operation results from
a hijacking, medical emergency, equipment malfunction, weather conditions,
navigational error, or other extraordinary events beyond the control of
Borrower, so long as Borrower diligently and in good faith proceeds to remove
the Aircraft from such area.   Unless the
Aircraft has been requisitioned for use by the United States Government pursuant
to Section 4.01(d)(iv) hereof and indemnification or insurance has been
provided in accordance with Section 4.01(e) hereof, the Aircraft


 





















 


may not be operated, used or located in any
declared war zone or in any area that is an area of recognized hostilities
(except to leave any such zone or area), unless such operation results from a
hijacking, medical emergency, equipment malfunction, weather conditions,
navigational error, or other extraordinary events beyond the control of
Borrower, so long as Borrower diligently and in good faith proceeds to remove
the Aircraft from such area.


 


(iii)                               Registration. 
Borrower, at its own cost and expense, shall cause the Aircraft to be
duly registered as a United States aircraft under the Transportation Code in
the name of Borrower as the owner thereof, and shall not take any action or
fail to perform any act that would cause such registration not to remain
effective during the Term.


 


(iv)                              Possession.  Borrower will not, without the
prior written consent of Lender, lease or otherwise in any manner deliver,
transfer or relinquish possession of the Airframe or any Engine or install or
permit any Engine to be installed on any airframe other than the Airframe, provided
that so long as no Specified Default or Event of Default shall have occurred
and be continuing at the time of such lease, delivery, transfer or
relinquishment of possession or installation, Borrower may, without the prior
written consent of Lender or Security Trustee:


 


(1)                                  subject the Engines or engines then installed
on the Airframe to normal interchange agreements or any Engine to normal
pooling or similar arrangements, in each case customary in the airline industry
and entered into by Borrower in the ordinary course of its business with any
Certified Air Carrier, Engine Manufacturer, Manufacturer or an authorized
service center of either Manufacturer or Engine Manufacturer, in each case, not
then insolvent or subject to any bankruptcy, reorganization or similar
proceeding; 


 


(2)                                  deliver possession of the Airframe or any
Engine to the manufacturer thereof or to any other qualified institution for
testing, service, repair, maintenance or overhaul work on the 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 this Mortgage;


 


(3)                                  install an Engine on an airframe owned by
Borrower which airframe is free and clear of all Liens, except:  (A) Permitted Liens and those that apply only
to 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) that do not contemplate,
permit or require the transfer of title to such airframe or engine installed
thereon, and (B) the rights of third parties under interchange agreements that
would be permitted under Section 4.01(b)(iv)(1);


 


(4)                                  install an Engine on an airframe leased to
Borrower or purchased by Borrower subject to a conditional sale or other
security agreement, provided that (A) such airframe is free and clear of
all Liens, except:  (1) the respective
rights of the parties to the lease or conditional sale or other security
agreement covering such airframe, or their assignees, and (2) Liens of the type
permitted by Section 4.01(b)(iv)(3) and (B) such lease, conditional sale
or other security agreement effectively provides that such Engine shall not
become subject to the lien of such lease, conditional sale or other security
agreement, notwithstanding the installation thereof on such airframe; and


 


(5)                                  for a period not to extend beyond the end of
the Term, subject the Airframe or any Engine to: (1) the U.S. Civil Reserve Air
Fleet Program, (2) contracts with the U.S. government or any agency thereof the
obligations of which are supported by the full faith


 





















 


and
credit of the U.S. government or (3) any wet lease or similar arrangement under
which Borrower maintains operational control of the Aircraft.


 


(6)                                  [intentionally omitted]


 


(v)                                 Insignia.  On or prior to the Closing
Date, or as soon thereafter as practicable, Borrower agrees to affix and
maintain (or cause to be affixed and maintained) in the cockpit of the Airframe
adjacent to the registration certificate therein and on each Engine a plainly
visible and fireproof nameplate having dimensions of not less than 10 cm x 7 cm
and bearing the inscription:


 


“Subject
to a security interest in favor of C.I.T. Leasing Corporation, as Security
Trustee”


 


(such
nameplate to be replaced, if necessary, with a nameplate reflecting the name of
any successor Security Trustee, in each case as permitted under the Operative
Documents).


 


Except
as above provided, Borrower will not allow the name of any Person to be placed
on the Airframe or on any Engine as a designation that might be interpreted as
a claim of ownership, provided that nothing herein contained shall
prohibit Borrower from placing its customary colors, name and insignia on the
Airframe or any Engine.


 


(vi)                              Holding Out.  Borrower agrees that it will
not at any time represent or hold out Lender or Security Trustee or any
Affiliate of any of them (and will use its best efforts to ensure that none of
Lender and Security Trustee or any Affiliate of any of them is not at any time
represented or held out) as being in any way connected or associated with any
operation of the Airframe, any Engine or any Part or any other operations or
carriage undertaken by Borrower.


 


(vii)                           No Pledging of Credit. 
Borrower is not authorized to, and agrees that it will not purport to,
pledge the credit of Lender or Security Trustee for any maintenance, service,
repairs, or overhauls of, modifications to, or changes or alterations in, the
Airframe, any Engine, or any Part, or for any other purpose whatsoever.


 


(c)                                  Replacement and Pooling of Parts;
Alterations, Modifications and Additions.


 


(i)                                     Replacement of Parts. 
Borrower, at its own cost and expense, will promptly replace or cause to
be replaced all Parts that may from time to time become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use for any reason whatsoever, except as otherwise provided in Section
4.01(c)(iii) hereof.  All replacement
parts shall be owned by Borrower free and clear of all Liens (except Permitted
Liens, pooling arrangements permitted by Section 4.01(c)(ii) hereof and
replacement Parts temporarily installed on an emergency basis which are
replaced as promptly as practicable thereafter in accordance with the terms of
this Section 4.01(c)) and shall be in as good operating condition as, and shall
have a value, economic useful life and utility equal to or greater than, the
Parts replaced, assuming such replaced Parts were in the condition and repair
required to be maintained by the terms hereof. 
All Parts (other than Obsolete Parts) at any time removed from the
Airframe shall remain subject to the Lien of the Mortgage, no matter where
located, until such time as such Parts shall be replaced by parts that meet the
requirements for replacement parts specified above.  Immediately upon any replacement part
becoming incorporated or installed in or attached to the Airframe or any
Engine, without further act (subject only to Permitted Liens and any pooling
arrangement permitted by Section 4.01(c)(ii) hereof and except
replacement parts temporarily installed on an emergency basis which are
replaced as promptly as practicable thereafter in accordance with the terms of
this Section 4.01(c)), (i) such part shall become subject to the Lien of
the Mortgage and


 





















 


shall be deemed a Part for all purposes
hereof to the same extent as each Part originally incorporated or installed in
or attached to the Airframe or such Engine and (ii) the replaced Part shall no
longer be subject to the Lien of the Mortgage and shall no longer be deemed a
Part hereunder.


 


(ii)                                  Pooling of Parts.  Any
Part removed from the Airframe or any Engine as provided in Section
4.01(c)(i) hereof may be subjected by Borrower to a pooling arrangement of
the type permitted by Section 4.01(b)(iv)(1) hereof, provided
that the part replacing such removed Part shall be incorporated or installed in
or attached to such Airframe or Engine in accordance with Section 4.01(c)(i)
hereof as promptly as practicable after the removal of such removed Part.  In addition, any replacement part may be
owned by any third party subject to such a pooling arrangement, provided
that Borrower, at its expense, as promptly thereafter as practicable, shall
either (1) cause such replacement part to become the property of Borrower, free
and clear of all Liens other than Permitted Liens or (2) replace such
replacement part with a further replacement part owned by Borrower, free and
clear of all Liens other than Permitted Liens.


 


(iii)                               Alterations, Modifications and Additions. 
Borrower, at its expense, will make (or cause to be made) such
alterations and modifications in and additions to the Airframe and Engines as
may be required to be made during the Term to comply with all applicable laws
and to meet the applicable standards of any airworthiness directives or any
other standard of the FAA (or any applicable regulatory agency or body of any
other jurisdiction in which the Aircraft may then be registered) and any
mandatory service bulletins of Manufacturer or Engine Manufacturer (such laws,
rules, regulations, FAA or other applicable regulatory agency requirements and
any mandatory bulletins, collectively “Airworthiness Requirements”); provided,
however, that, Borrower may, in good faith, contest the validity or
application of any Airworthiness Requirement in any reasonable manner that does
not adversely affect the respective interest of Security Trustee or Lender in
or to such Airframe or Engines or any Operative Document and such contest or
failure to comply will not result in any material risk of loss, sale,
forfeiture or damage to the Aircraft or any risk of unindemnified civil or
criminal liability to Lender.  Borrower
shall pay all costs of each Airworthiness Requirement.


 


In
addition, Borrower, at its expense, may from time to time make such alterations
and modifications or improvements to the Airframe or any Engine as Borrower may
deem desirable in the proper conduct of its business, including removal of
Parts that Borrower deems to be obsolete or no longer suitable or appropriate
for use on the Airframe or such Engine (“Obsolete Parts”), provided
that no such alteration, improvement modification, removal or addition (1)
impairs the condition or airworthiness of the Airframe or such Engine, or diminishes
the value, utility or remaining useful life of the Airframe or such Engine
below the value, utility or remaining useful life thereof immediately prior to
such alteration, modification, removal or addition, assuming the Airframe or
such Engine was then in the condition required to be maintained by the terms
contained herein, except that the value (but not the utility, condition,
airworthiness or remaining useful life) of the Airframe or any Engine may be
reduced by the value of Obsolete Parts that shall have been removed so long as
the aggregate original cost of all Obsolete Parts, which shall have been
removed and not replaced shall not exceed $300,000, and provided that,
to the extent required by applicable law or for the safe operation of the Aircraft
or performance of the function of the Part removed, replacements therefor are
installed on the Aircraft or (2) involves structural alterations to the
Aircraft that would require material realteration to restore the Aircraft to
its original passenger configuration or be inconsistent with the use of the
Aircraft as an aircraft in passenger configuration, provided, that any
alteration of the Aircraft from passenger configuration to non-passenger
configuration shall require the prior written consent of the Security Trustee
and Lender.  All parts incorporated or
installed in or attached or added to the Airframe or an Engine as the result of
such alteration, modification or addition shall, without further act, become subject
to the Lien of the Mortgage.  The
foregoing provisions of this second paragraph of subparagraph (iii) shall not
apply to Nonproprietary Parts, which Borrower may add to, or, so long as no
Event of Default has occurred and is continuing and


 





















 


the Security Trustee has not commenced the exercise
of remedies pursuant to the terms set forth in this Mortgage, remove from, the
Aircraft in its sole and absolute discretion. 
In the event Borrower removes any Nonproprietary Part in accordance with
the immediately preceding sentence, such Nonproprietary Part shall not be
deemed a Part for any purposes herein or in the other Operative Documents.


 


(iv)                              No Liability for Alteration, Modification or
Addition; Grounding.  In no event shall
Security Trustee or Lender bear any liability or cost whatsoever for (v) any
alteration or modification or, or addition to, the Airframe or any Engine, (w)
any grounding of the Aircraft, (x) suspension of certification of the Aircraft,
(y) loss of revenue suffered by Borrower for any reason whatsoever, or (z) the
cost of Nonproprietary Parts.


 


(v)                                 Substitution of Engine.  So
long as no Event of Default exists and Borrower does not discriminate in its
selection of an engine to install on the Airframe based on its mortgaged
status, Borrower may at any time during the Term in its sole discretion
substitute any Engine for an Acceptable Alternate Engine.  Upon such substitution, Borrower shall comply
with the terms of Section 4.01(d)(ii) hereof to the same extent as if an
Event of Loss had occurred with respect to such Engine.


 


(d)
                              Loss, Destruction, Requisition, etc


 


(i)                                     Event of Loss with Respect to the Aircraft.  Upon
the occurrence of an Event of Loss with respect to the Airframe or the Airframe
and one or more Engines, Borrower shall (1) forthwith (and, in any event, within
ten days of such occurrence) give Security Trustee notice of such Event of Loss
and (2) within 60 days after such occurrence, give Security Trustee written
notice of its election to perform one of the following options (it being
understood that failure to give such notice shall be deemed an election of the
option set forth in clause (I) below). 
Borrower shall:


 


(I)                                    to the extent not paid to Security Trustee as
insurance proceeds, pay or cause to be paid to Security Trustee not later than
the earlier of (i) 180 days after the occurrence of such Event of Loss, (ii) 5
Business Days following the payment of insurance proceeds with respect to such
Event of Loss, or (iii) the Final Maturity Date, the then outstanding principal
amount of the Notes, together with accrued interest thereon to the date of such
payment, plus the Breakage Amount and all other amounts due to Note Holders and
the Security Trustee under the Operative Documents; or


 


(II)                                provided that no Specified Default or Event
of Default shall have occurred and be continuing, no later than 180 days
following such Event of Loss substitute an aircraft or an airframe or an
airframe and one or more engines, as the case may be.


 


At
such time as Security Trustee shall have received the amounts specified in (I)
above, the Lien of the Mortgage shall be terminated pursuant to, and in
accordance with, Section 9.01 hereof.


 


If
Borrower elects to substitute an aircraft (or an airframe or an airframe and
one or more engines, as the case may be), then Borrower shall, at its expense,
obtain good and marketable title to another aircraft (or an airframe or an
airframe and one or more engines that, together with the Engines or Engine
constituting a part of the Aircraft but not installed thereon at the time of
such Event of Loss, constitute the Aircraft) free and clear of all Liens (other
than the Lien of this Mortgage) and having at least the value, utility and
remaining economic useful life (as confirmed by an independent appraiser
selected by Security Trustee and reasonably acceptable to Borrower) and being
in as good condition as the Aircraft subject to such Event of Loss, in each
case assuming that the Aircraft had been maintained in accordance with the
terms hereof, provided that any aircraft, airframe or engine so substituted
hereunder shall be of the same or improved make and model as the Aircraft, and
in the case of an Engine, shall be an Acceptable


 





















 


Alternate Engine; and prior to or at the time
of any such substitution Borrower, at its own expense, shall (1) cause such
replacement aircraft, airframe or engine to become subject to the Lien of this
Mortgage; (2) cause a Mortgage Supplement to be filed for recording pursuant to
the Transportation Code or the applicable laws, rules and regulations of any
other jurisdiction in which the Airframe may then be registered and cause a
financing statement or statement or other requisite documents of a similar
nature to be filed in such place or places as necessary in order to perfect the
security interests herein created; (3) furnish Security Trustee with such
evidence of Borrower’s title to such replacement aircraft and of compliance
with the insurance provisions of Section 4.01(e) hereof with respect to
such substituted property as Security Trustee may reasonably request and that
the substituted property has been entered into Borrower’s FAA-approved
maintenance program; and (4) provide an opinion of counsel, which counsel shall
be reasonably acceptable to Security Trustee, to the effect that Borrower holds
title to such replacement aircraft free and clear of all Liens (except the Lien
of this Mortgage) and Security Trustee shall be entitled to the benefits and
protection of Section 1110 of the Bankruptcy Code with respect to the aircraft
substituted hereunder to at least the same extent as the original Airframe and
Engine or Engines, as the case may be, and otherwise comply with the provisions
and satisfy the conditions set forth in Section 5.06 hereof.  For all purposes hereof, the property
substituted shall after such transfer be deemed part of the property leased
hereunder and shall be deemed an “Aircraft,” “Airframe” or “Engine,”
as the case may be.  No such substitution
shall result in the reduction of any amounts due under the Notes.  Borrower agrees to pay all reasonable out-of-pocket
costs and expenses (including without limitation, reasonable counsel fees and
disbursements and any costs incurred in connection with Section 5.06
hereof) of Security Trustee and Lender in connection with the foregoing
replacement.


 


(ii)                                  Event of Loss with Respect to an Engine.  Upon
the occurrence of an Event of Loss with respect to an Engine under
circumstances where an Event of Loss has not occurred with respect to the
Airframe, Borrower shall promptly (and in any event, within ten days after such
occurrence) give Security Trustee written notice thereof and shall, within 90
days after the occurrence of such Event of Loss, obtain good and marketable
title to an Acceptable Alternate Engine free and clear of all Liens (other than
the Lien of this Mortgage).  Borrower, at
its expense, will (1) cause a Mortgage Supplement to be filed for recording
pursuant to the Transportation Code or the applicable laws, rules and
regulations of any other jurisdiction in which the Airframe may then be
registered and cause a financing statement or statement or other requisite
documents of a similar nature to be filed in such place or places as necessary
in order to perfect the security interests herein created, (2) furnish Security
Trustee with such evidence of Borrower’s title to such Acceptable Alternate
Engine and of compliance with the insurance provisions of Section 4.01(e)
hereof with respect to such Acceptable Alternate Engine as Security Trustee may
reasonably request, (3) furnish Security Trustee with an opinion of Borrower’s
counsel to the effect that title to such Acceptable Alternate Engine is free
and clear of all Liens (except the Lien of this Mortgage), and (4) otherwise
comply with the provisions and satisfy the conditions set forth in Section
5.06 of this Mortgage.  For all
purposes hereof, each such Acceptable Alternate Engine shall, after such
conveyance, be deemed an “Engine.” 
No such substitution shall result in the reduction of any amounts due
under the Notes.  Borrower agrees to pay
all reasonable out-of-pocket costs and expenses (including without limitation,
reasonable counsel fees and disbursements) of Security Trustee and Lender in
connection with the foregoing replacement.


 


(iii)                               Application of Payments from Governmental
Authorities for Requisition of Title, etc.  Any payments (other than
insurance proceeds the application of which is provided for in Section
4.01(e) hereof) received at any time by Borrower from any Governmental
Authority or other person with respect to an Event of Loss resulting from the
theft, disappearance, destruction, condemnation, confiscation or seizure of, or
requisition of title to or use of, the Airframe or any Engine, will be applied
as follows:


 





















 


(1)                                  if payments are received with respect to the
Airframe (or the Airframe and any Engine or engines then installed
thereon):  (A) unless the same are
replaced pursuant to Section 4.01(d)(i)(II) hereof, so much of such
payments as the then outstanding principal amount of the Loan, together with
accrued interest thereon to the date of such payment, plus all other amounts
due to Note Holders under the Operative Documents shall be applied in reduction
of Borrower’s obligation to pay such sums pursuant to Section 4.01(d)(i)
hereof if not already paid by Borrower, or, if already paid by Borrower, shall
be applied to reimburse Borrower for its payment of such sums, and following
the foregoing application, the balance, if any, of such payments shall be
distributed to Borrower; or (B) if such property is, or is to be, replaced pursuant
to Section 4.01(d)(i)(II) hereof, such payments shall be paid over to
the Security Trustee, and the Security Trustee shall pay such amounts to
Borrower, provided that Borrower shall have fully performed or,
concurrently therewith, will fully perform the terms of the last paragraph of Section
4.01(d)(i) hereof with respect to the Event of Loss for which such payments
are made; and


 


(2)                                  if such payments are received with respect to
an Engine under circumstances contemplated by Section 4.01(d)(ii) hereof,
so much of such payments remaining shall be paid over to Security Trustee, and
the Security Trustee shall pay such amounts to Borrower, provided that
Borrower shall have fully performed, or concurrently therewith will perform,
the terms of Section 4.01(d)(ii) hereof with respect to the Event of
Loss for which such payments are made.


 


(iv)                              Requisition for Use of the Aircraft by the
United States Government or Government of Registry of the Aircraft; Other
Government Payments.  In the event of the requisition for use of
the Airframe and the Engines or engines installed on the Airframe during the
Term not constituting an Event of Loss by the United States government or any
other Governmental Authority, Borrower shall promptly notify Security Trustee
of such requisition, and all of Borrower’s rights and obligations as set forth
in the Operative Documents with respect to the Aircraft shall continue to the
same extent as if such requisition had not occurred.  Except as set forth in Section
4.01(d)(iii) with respect to certain payments upon the occurrence of an
Event of Loss, all payments received by Borrower from the United States
government or any other Governmental Authority for the use of such Airframe and
Engines or engines, or any other payment by a governmental entity or Person
shall be paid over to, or retained by, Borrower.


 


(v)                                 Requisition for Use of an Engine by the
United States Government or any other Governmental Authority.  In
the event of the requisition for use of an Engine by the United States government
or any other Governmental Authority (other than in the circumstances
contemplated by Section 4.01(d)(iii) or Section 4.01(d)(iv)
hereof), Borrower shall replace such Engine hereunder with an Acceptable
Alternate Engine and Borrower shall comply with the terms of Section
4.01(d)(ii) hereof to the same extent as if an Event of Loss had occurred
with respect to such Engine.  Upon
compliance with Section 4.01(d)(ii) hereof, any payments received by
Borrower from such Governmental Authority with respect to such requisition
shall be retained by Borrower.


 


(vi)                              Application of Payments During Existence of a
Specified Default or an Event of Default.  Any amount referred to in this
Section 4.01(d) that is payable to or retainable by Borrower shall not
be paid to or retained by Borrower if at the time of such payment or retention
a Specified Default or an Event of Default shall have occurred and be
continuing, but shall be held by or paid over to Security Trustee as security
for the obligations of Borrower under this Mortgage and, if an Event of Default
shall have occurred and be continuing, applied against Borrower’s obligations
hereunder as and when due.  At such time
as there shall not be continuing any such Specified Default or Event of
Default, such amount shall be paid to Borrower to the extent not previously
applied in accordance with the preceding sentence.


 





















 


(e)                                  Insurance.


 


(i)                                     Public Liability, Property Damage Liability,
and War Risk Insurance.  Except as provided in Section 4.01(e)(iv),
and subject to the provisions of Section 4.01(e)(vi), Borrower will
carry or cause to be carried, at its expense, with insurers of recognized
reputation and responsibility, comprehensive airline liability and products
liability insurance (including, without limitation, contractual, bodily injury,
passenger and property damage liability) insurance (exclusive of manufacturer’s
product liability insurance) with respect to the Aircraft, in an amount not
less than the amount set forth in Exhibit F hereto.  In addition, Borrower shall at all times
maintain war risk (aviation liability) insurance of the scope substantially
similar to the coverage provided by AVN 52D (or its equivalent) (but excluding
the limitation of liability set forth therein) as specified below, in an amount
(taking into consideration any insurance or indemnification provided by the
United States government or any agency or instrumentality thereof the
obligations of which are supported by the full faith and credit of the United
States government in accordance with Section 4.01(e)(viii) hereof) not
less than the amount set forth on Exhibit F hereto.  Further, all insurance described in this Section
4.01(e)(i) shall be at least of a scope and coverage (except as to dollar
requirements) as is customarily carried by United States based regional air
carriers engaged in the same or similar business, similarly situated with the
Borrower and operating similar aircraft and engines; excluding, however, for
purposes of the foregoing, regional carriers owned by, controlled by, or
otherwise covered under, a major carriers insurance policy unless Borrower also
has insurance coverage under a major carriers insurance policy.  For the avoidance of doubt, AVN 52D provides
insurance against the following risks (collectively, “War Risks”): (1)
war, invasion, acts of foreign enemies (whether war be declared or not), civil
war, rebellion, revolution, insurrection, martial law, military or usurped
power, or attempts at usurpation of power, (2) strikes, riots, civil commotions
or labor disturbances, (3) any act of one or more persons, whether or not
agents of a sovereign power, for political or terrorist purposes and whether or
not the loss or damage resulting therefrom is accidental or intentional, (4)
any malicious act or act of sabotage, (5) confiscation, nationalization,
seizure, restraint, detention, appropriation, requisition for title or use by
or under the order of any government (whether civil, military or de facto) or
public or local authority, and (6) hi-jacking or any unlawful seizure or
wrongful exercise of control of the aircraft or crew in flight (including any
attempt at such seizure or control) made by any person or persons on board the
aircraft acting without the consent of the insured.


 


(ii)                                  Insurance Against Loss or Damage to the
Aircraft.  Except as provided in Section 4.01(e)(iv),
and subject to the provisions of Section 4.01(e)(vi), Borrower shall
maintain or cause to be maintained in effect, at its expense, with insurers of
recognized reputation and responsibility, all-risk ground, taxiing and flight
aircraft hull insurance covering the Aircraft (including Engines and Parts
temporarily removed from the Aircraft), and fire and explosion coverage,
ingestion and lightning and electrical damage, and extended coverage and all-risk
property damage insurance, including fire and transit, covering Engines and
Parts while removed from the Aircraft and not replaced by similar components
(or while removed from the Aircraft and not destined to be reattached to the
Aircraft) insured on a replacement cost clause; provided that such
insurance shall at all times while the Aircraft is subject to this Mortgage be
for an amount on an agreed value basis not less than 110% of the then
outstanding principal amount of the Notes, together with accrued interest
thereon (the “Insured Amount”).  Further, Borrower shall at all times maintain
or cause to be maintained war risk (aircraft hulls) and governmental
confiscation insurance (other than by the government of registry of the
Aircraft) per the terms of AVN48B writeback except (b) or its equivalent
providing insurance against the following risks: (1) strikes, riots, civil
commotions or labor disturbances, (2) any malicious act or act of sabotage and
(3) hi-jacking or any unlawful seizure or wrongful exercise of control of the
aircraft or crew in flight (including any attempt at such seizure or control)
made by any person or persons on board the aircraft acting without the consent
of the insured.  Such insurance described
in the immediately preceding sentence shall be in an amount (taking into
consideration any insurance or indemnification provided by the United States


 





















 


government or any agency or instrumentality
thereof the obligations of which are supported by the full faith and credit of
the United States government in accordance with Section 4.01(e)(viii)
hereof) not less than the Insured Amount. 
All insurance described in this Section 4.01(e)(ii) shall be at
least of a scope and coverage (except as to dollar requirements) as is
customarily carried by United States based regional air carriers engaged in the
same or similar business, similarly situated with the Borrower and operating
similar aircraft and engines; excluding, however, for purposes of the
foregoing, regional carriers owned by, controlled by, or otherwise covered
under, a major carriers insurance policy unless Borrower also has insurance
coverage under a major carriers insurance policy.


 


(iii)                               Application of Insurance Proceeds. 
Except during a period when a Specified Default or Event of Default has
occurred and is continuing, all losses will be adjusted by Borrower with the
insurers.  It is agreed that all
insurance payments received as the result of the occurrence of an Event of Loss
will be applied as follows:


 


(1)                                  If such payments are received with respect to
the Airframe (or the Airframe and the Engines installed thereon), (A) unless
such property is replaced pursuant to Section 4.01(d)(i)(II) hereof,
such payments as shall not exceed the then outstanding principal amount of the
Note, together with accrued interest thereon to the date of such payment, plus
all other amounts due to Note Holders under the Operative Documents shall be
applied in reduction of Borrower’s obligation to pay such amounts and the other
amounts payable under Section 4.01(d)(i), if not already paid by
Borrower, or, if already paid by Borrower, shall be applied to reimburse
Borrower for its payment of such amounts, and the balance, if any, of such
payments remaining thereafter will be paid over to, or retained by Borrower, or
(B) if such property is, or is to be, replaced pursuant to Section
4.01(d)(i)(II) hereof, such payments shall be paid over to Security
Trustee, and the Security Trustee shall pay such amounts to Borrower, provided
that Borrower shall have fully performed or, concurrently therewith, will fully
perform the terms of Section 4.01(d)(i)(II) hereof with respect to the
Event of Loss for which such payments are made.


 


(2)                                  If such payments are received with respect to
an Engine under the circumstances contemplated by Section 4.01(d)(ii)
hereof, such payments shall be paid over to Security Trustee, and the Security
Trustee shall pay such amounts to Borrower, provided that Borrower shall
have fully performed or, concurrently therewith, will fully perform the terms
of Section 4.01(d)(ii) hereof with respect to the Event of Loss for
which such payments are made.


 


(3)                                  The insurance payments for any property
damage loss to the Airframe or any Engine not constituting an Event of Loss
with respect thereto shall be paid over to, or retained by, Borrower if
$2,500,000 or less; otherwise, to Security Trustee.


 


(iv)                              Aircraft Not In Operation. 
During any period that the Airframe or an Engine while temporarily
removed from the Aircraft and not replaced by similar components, as the case
may be, is grounded and not in operation, Borrower may, so long as Borrower
takes reasonable measures to protect the Airframe and the Engines, carry or
cause to be carried as to such non-operating property, in lieu of the insurance
required by Sections 4.01(e)(i) and (e)(ii) above, and subject to
the provisions of Section 4.01(e)(vi), insurance otherwise conforming
with the provisions of Sections 4.01(e)(i) and (e)(ii), except that the
amounts of coverage, the scope of the risks and the type of insurance shall be
consistent with industry practice for similarly situated United States air
carriers in respect of the same or similar aircraft which are similarly
grounded and not in operation, provided that the amount of coverage, the scope
of risks and type of insurance shall be at least as favorable as from time to
time applicable to aircraft owned or leased by Borrower of the same type as the
Aircraft similarly grounded and not in operation; provided that subject
to the provisions of Section 4.01(e)(vi), Borrower shall maintain


 





















 


insurance against risk of loss or damage to
the Aircraft in an amount at least equal to the Insured Amount during such
period that the Aircraft is on the ground and not in operation.


 


(v)                                 Reports, etc. 
Borrower will furnish, or cause to be furnished, to Security Trustee and
Lender on or before the Closing Date and during each calendar year thereafter
on or before the anniversary of the Closing Date a certificate of insurance and
broker’s letter of undertaking, signed by an independent firm of insurance
brokers reasonably acceptable to Security Trustee (the “Insurance Brokers”),
describing in reasonable detail the hull and liability insurance (and property
insurance for detached Engines and Parts) then carried and maintained with
respect to the Aircraft and stating the opinion of such firm that such
insurance complies with the terms hereof and that premiums have been paid.  Borrower will cause such Insurance Brokers to
agree to advise promptly Security Trustee and Lender in writing if the
Insurance Brokers cease to be the insurance brokers to Borrower, or of the
occurrence of any default in the payment of any premium and of any other act or
omission on the part of Borrower of which it has actual knowledge and that might
invalidate or render unenforceable, in whole or in part, any insurance on the
Aircraft as required by the terms hereof and to advise such Persons in writing
at least 30 days prior to the cancellation (but not scheduled expiration) or
material change or lapse of any insurance required to be maintained pursuant to
this Section 4.01(e).  In
addition, Borrower will also cause such Insurance Brokers to deliver to
Security Trustee, on or prior to the date of expiration of any insurance policy
referenced in a previously delivered certificate of insurance, a new
certificate of insurance, substantially in the same form as delivered by
Borrower to such parties on the Closing Date except for changes in the report
or the coverage consistent with the terms hereof.  If Borrower fails to maintain or cause to be
maintained insurance as herein provided, Security Trustee or any Note Holder
may at its sole option, but without any obligation to do so, provide such
insurance and, in such event, Borrower shall, upon demand, reimburse Security
Trustee, for the cost thereof to Security Trustee; provided, however,
that no exercise by Security Trustee of said option shall affect the provisions
of this Mortgage, including the provisions that failure by Borrower to maintain
insurance prescribed hereunder shall constitute an Event of Default.


 


(vi)                              Self-Insurance. 
Subject to the terms set forth in Exhibit E hereto, Borrower may
self-insure the risks required to be insured against pursuant to this Section
4.01(e).


 


(vii)                           Additional Insurance. 
Borrower may at its own expense carry insurance with respect to its
interest in the Aircraft in amounts in excess of that required to be maintained
by this Section 4.01(e).  Security
Trustee or Lender or any Affiliate thereof may carry for its or their own
account at its or their sole cost and expense insurance with respect to its
interest in the Aircraft, and such insurance does not adversely affect or
materially impair Borrower from carrying the insurance required by this Section
4.01(e) or adversely affect such insurance or the cost thereof (it being
understood that all salvage rights to the Airframe and Engines shall remain
with Borrower’s insurers).


 


(viii)                        Indemnification by Government in Lieu of
Insurance.  Notwithstanding any provisions of this Section
4.01(e) requiring insurance, Security Trustee agrees to accept, in lieu of
insurance against any risk with respect to the Aircraft, indemnification from,
or insurance provided by, the United States government or any agency or
instrumentality thereof the obligations of which are supported by the full
faith and credit of the United States government, against such risk in an
amount that, when added to the amount of insurance against such risk maintained
by Borrower shall be at least equal to the amount of insurance against such
risk otherwise required by this Section 4.01(e) (taking into account
self-insurance permitted by Section 4.01(e)(vi) hereof).  Any such indemnification or insurance
provided by the United States government or any agency or instrumentality
thereof shall provide substantially similar protection as the insurance
required by this Section 4.01(e). 
Borrower shall furnish, in advance of attachment of such indemnity or
insurance, a certificate of a Responsible Officer of Borrower confirming


 





















 


in reasonable detail the amount and scope of
such indemnification or insurance and that such indemnification or insurance
complies with the preceding sentence.


 


(ix)                                Application of Payments During Existence of a
Specified Default or an Event of Default.  Any amount referred to in this
Section 4.01(e) that is payable to or retainable by Borrower shall not
be paid to or retained by Borrower if at the time of such payment or retention
a Specified Default or an Event of Default shall have occurred and be
continuing, but shall be held by or paid over to Security Trustee as security
for the obligations of Borrower under this Mortgage and, if an Event of Default
shall have occurred and be continuing, applied against Borrower’s obligations
hereunder as and when due.  At such time
as there shall not be continuing any such Specified Default or Event of
Default, such amount shall be paid to Borrower to the extent not previously
applied in accordance with the preceding sentence.


 


(x)                                   Terms of Insurance Policies.  Each
policy carried in accordance with Sections 4.01(e)(i) and (e)(ii)
hereof covering the Aircraft, and any policies taken out in substitution or
replacement for any such policies, (A) shall in the case of liability insurance
carried pursuant to Section 4.01(e)(i), including all war risk insurance
as required by such section, name the Additional Insureds as additional
insureds, and in the case of insurance carried pursuant to Sections
4.01(e)(i) and (e)(ii), name the Loss Payee as first loss payee (but
without imposing on any such party liability to pay premiums, calls or other
charges with respect to such insurance), (B) shall provide that if the insurers
cancel such insurance for any reason whatever, or if the same is allowed to
lapse for non-payment of premium or if any material change is made in the
insurance that adversely affects the interest of any Additional Insured under
this Agreement, such lapse, cancellation or change shall not be effective as to
any Additional Insured for 30 days (seven days in the case of war risk and
allied perils coverage) after receipt by the Insurance Broker of written notice
by such insurers of such lapse, cancellation or change, (C) shall provide that
the Additional Insureds shall have no liability for premiums, commissions,
calls, assessments, warranties or representations to underwriters, or advances
with respect to such policies, (D) shall provide that such insurance is primary
without right of contribution, (E) shall provide that in respect of the
respective interest of each Additional Insured under this Agreement in such
policies the insurance shall not be invalidated by any action or inaction of
Borrower or any other Person and shall insure the respective interests of the
Additional Insureds, as they appear under this Agreement, regardless of any
breach or violation of any representation, warranty, declaration or condition
contained in such policies by Borrower or, in the case of an Additional
Insured, the breach or violation by any other Additional Insured, (F) 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, (G) shall provide that the Additional Insured shall have
no responsibility for premium and the insurers shall waive any right of set-off
or counterclaim against the Additional Insureds except in respect of
outstanding premium in respect of the Aircraft and shall waive any rights of
subrogation against the Additional Insureds, (H) shall provide that (1) in the
event of a loss involving the Aircraft, Airframe, or an Engine for which
proceeds are in excess of $2,500,000, the proceeds in respect of such loss up
to the amount of the then outstanding principal amount of the Notes plus all other
amounts due to the Note Holders under the Operative Documents, together with
accrued interest thereon shall be payable, to Security Trustee as loss payee; provided,
that the application of such insurance proceeds shall be as provided in Section
4.01(e)(iii), with any amounts paid and held by Security Trustee for any
period being subject to Section 3.07 hereof; provided, further,
that in the case of any payment to Security Trustee otherwise than in respect
of an Event of Loss, Security Trustee shall, upon receipt of evidence
reasonably satisfactory to it that the damage giving rise to such payment has
been repaired, pay the amount of such payment, and any interest or income
earned thereon in accordance with Section 3.07 hereof, to Borrower or
its order (provided, that Borrower may elect by written notice to Security
Trustee to apply such insurance proceeds directly to the repair of the relevant
Airframe or Engine, as the case may be), and (2) the entire amount of any such
loss for which proceeds are $2,500,000 or less or the amount of any proceeds of
any such loss in excess of the


 





















 


then outstanding principal amount of the
Notes, together with accrued interest thereon plus all other amounts due to the
Note Holders under the Operative Documents shall be paid to Borrower or its
order unless a Specified Default or an Event of Default shall have occurred and
be continuing and the insurers have been notified thereof by Security Trustee,
(I) shall specifically exclude coverage for any Additional Insured or Loss
Payee with respect to any claim arising out of the legal liability of such
Person as manufacturer, repairer, supplier or servicing agent of the Aircraft
and shall not operate to prejudice the rights of recourse of the underwriters
of such insurance against any such Additional Insured or Loss Payee where such
rights of recourse would have existed had such exclusion not been effected
under such policies, (J) shall be payable in Dollars, and (K) in the event the
hull “all risks” and hull war risks policies are placed separately, shall
contain AVS103 (or its equivalent) (being the current London market endorsement
for such).


 


Notwithstanding
the foregoing, in the event the insurance acquired by Borrower is subject to
the AVN 67B endorsement, to the extent the terms of such endorsement conflict
with the foregoing, the terms of AVN 67B shall apply.


 


(f)                                    Inspection.  At all reasonable times prior
to the termination of this Mortgage pursuant to Section 9.01 (but with
respect to each Person, so long as no Default relating to the maintenance of
the Aircraft or Event of Default shall have occurred and be continuing, no more
than once in any twelve month period for such Person), the Lender may conduct
an inspection of the Aircraft and any Engine and the books and records of
Borrower relative thereto and to this Mortgage. 
Such inspection of the Aircraft shall be limited to a visual,
walk-around inspection which may include boarding the Aircraft, but shall not
include opening any panels or bays (although those otherwise open may be
inspected), and, so long as no Event of Default shall have occurred and be
continuing, shall be conducted so as not to interfere with Borrower’s business
or operation and maintenance of the Aircraft; provided, that the
foregoing limitation regarding the opening of any panels or bays shall not
apply with respect to Lender if an Event of Default has occurred and is
continuing.  Upon the written request of
Security Trustee, Borrower will use reasonable efforts to, but shall not be
obligated to, give such Person notice of the next scheduled “C” check or other
heavy maintenance visit with respect to the Aircraft or any Engine and afford
such Person an opportunity to be present at the same (in exercise of its annual
inspection right) without interfering in any material respect with the
maintenance, operations or business of Borrower.  Borrower shall furnish Security Trustee or
any Note Holder such additional information concerning the location, condition,
use and operation of the Aircraft (including information normally maintained by
Borrower regarding flight hours and cycles) as Security Trustee or any Note
Holder may reasonably request, including the location of the Aircraft and the
times and places of scheduled heavy maintenance.  Neither Security Trustee nor any Note Holder
shall have any duty to make any such inspection and shall not incur any
liability or obligation by reason of not making any such inspection.  Except for any inspection in connection with
an existing Event of Default, Security Trustee or such Note Holder shall be
responsible for costs incurred with respect to any inspection of the Aircraft.


 


SECTION
4.02.  Event of Default.  “Event of Default” means the
occurrence of any of the following events (whatever the reason for such Event
of Default and whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administration or governmental body):


 


(a)                                  the failure of Borrower to pay to Security
Trustee when due any payment of principal of, or interest on, any Note and such
failure shall have continued unremedied for 5 Business Days, or the failure of
Borrower to pay to Security Trustee or any other intended recipient when due
any other amount due and payable hereunder, or under any Note or the Loan
Agreement, and such failure shall have continued unremedied for 10 Business
Days after written notice of such failure to Borrower; or


 





















 


(b)                                 Borrower shall fail to carry and maintain on
or with respect to the Aircraft (or cause to be carried and maintained)
insurance required to be maintained in accordance with the provisions of Section
4.01(e) hereof; or


 


(c)                                  Borrower or Guarantor shall have failed to
perform or observe (or caused to be performed and observed) in any material
respect any other covenant or agreement to be performed or observed by it under
any Operative Document, and such failure shall continue unremedied for a period
of 30 days after written notice thereof by Security Trustee or any Note Holder;
provided, however, that if Borrower shall have undertaken to cure
any such failure relating to maintenance, service, repair, overhaul or
modifications, and notwithstanding the reasonable diligence of Borrower in
attempting to cure such failure, such failure is not cured within such 30 day
period but is curable with future due diligence, there shall exist no Event of
Default under this Section 4.02(c) so long as Borrower is proceeding with
due diligence to cure such failure and shall in fact cure such failure within
150 days following such notice; or


 


(d)                                 any representation or warranty made by
Borrower herein or in any other Operative Document or any document or
certificate furnished by Borrower or Guarantor in connection herewith or
therewith or pursuant hereto or thereto shall prove to have been incorrect in
any material respect at the time made, and shall continue uncured (together
with any adverse consequence thereof) for a period of 30 days after the receipt
by Borrower of a written notice from Security Trustee or any Note Holder
advising Borrower of the existence of such incorrectness;


 


(e)                                  Borrower shall not be a Certificated Air
Carrier;


 


(f)                                    Guarantor shall fail to observe any covenant
regarding the transfer or assignment of the Guaranty contained in Section 5(i)
of the Loan Agreement and such failure shall continue uncured for a period of
15 days after written notice from Security Trustee or any Note Holder, or the
Guaranty shall be repudiated by Guarantor or shall otherwise cease to be in
full force and effect; or


 


(g)                                 the commencement of an involuntary case or
other proceeding in respect of Borrower or Guarantor in an involuntary case
under the federal bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law
in the United States or seeking the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of Borrower or
Guarantor or for all or substantially all of its property, or seeking the
winding-up or liquidation of its affairs and the continuation of any such case
or other proceeding undismissed or unstayed for a period of 60 consecutive days
or an order for relief under Chapter 11 of the Bankruptcy Code with respect to
Borrower or Guarantor as debtor or any other order, judgment or decree shall be
entered in any proceeding by any court of competent jurisdiction appointing,
without the consent of Borrower, a receiver, trustee or liquidator of Borrower
or Guarantor, or for all or substantially all of its property, or sequestering
of all or substantially all of the property of Borrower or Guarantor and any
such order, judgment, decree, appointment or sequestration shall be final or
shall remain in force undismissed, unstayed or unvacated for a period of 60
consecutive days after the date of entry thereof; or


 


(g)                                 the commencement by Borrower or Guarantor of
a voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar law in the United States, or the consent by
Borrower or Guarantor to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Borrower or Guarantor or for all or substantially all of its
property, or the making by Borrower or Guarantor of any assignment for the
benefit of creditors or Borrower or Guarantor shall take any corporate action
to authorize any of the foregoing; or


 





















 


(h)                                 one or more final judgment(s) is/are rendered
by one or more court(s) of competent jurisdiction against Borrower or Guarantor
for a total of more than $20 million (of if greater 20% of Borrower’s Tangible
Net Worth as of the date of Borrower’s then most recent quarterly or annual
financial statements), excluding any amount insured by a solvent insurer who
has admitted coverage for the underlying claim(s), and such judgment(s) is/are
not stayed or discharged, or fully bonded again, within 30 days of the date of
entry.


 


SECTION
4.03.  Remedies.  If an Event of Default shall have occurred
and be continuing, Security Trustee may, consistent with applicable laws, do
any of the following:


 


(a)                                  Security Trustee may, at the direction of a
Majority in Interest of Note Holders, by notice in writing to the Borrower,
declare the entire unpaid balance of the Notes to be immediately due and
payable (or, if an Event of Default of the type described in Section 4.02(f)
or (g) shall have occurred and be continuing, the Notes shall
automatically be immediately due and payable); and thereupon all such unpaid
balance, together with all accrued interest thereon and Breakage Amount, if
any, together with all other amounts due hereunder and under the Notes and the
Operative Documents shall be and become immediately due and payable without
presentment, demand, protest or notice, all of which are hereby waived;


 


(b)                                 Upon the written demand of Security Trustee
and at the Borrower’s expense, the Borrower shall promptly deliver possession
of the Airframe or any Engine and/or the records, logs and other documents at
any time maintained and retained with respect thereto as Security Trustee may
so demand to Security Trustee or its order in the manner and condition required
by, and otherwise in accordance with all the provisions of, this Mortgage, or
Security Trustee at its option may enter upon the premises where all or any
part of the Airframe or any Engine is located and take immediate possession of
and remove the same by summary proceedings or otherwise (and at Security
Trustee’s option, store the same at the Borrower’s premises until disposal
thereof by Security Trustee), all without liability accruing to Security Trustee
(other than that caused by Security Trustee’s willful misconduct or gross
negligence) for or by reason of such entry or taking of possession or removing
whether for the restoration of damage to property caused by such action or
otherwise.  The Borrower shall, at the
request of Security Trustee, promptly execute and deliver to Security Trustee
such instruments or other documents as Security Trustee may deem necessary or
advisable to enable Security Trustee or an agent or representative designated
by Security Trustee, at such time or times and place or places as Security
Trustee may specify, to obtain possession of all or any part of the Mortgage
Estate the possession of which Security Trustee shall at the time be entitled
to hereunder;


 


(c)                                  To the extent applicable, Security Trustee
shall have the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in any jurisdiction in which any of the Mortgage
Estate may be located and, in any case, Security Trustee may immediately, directly
or by such agent as it may appoint, without demand of performance and (to the
extent permitted by applicable laws) without notice of intention to sell or of
time or place of sale or of redemption or other notice or demand whatsoever to
the Borrower, all of which are hereby expressly waived and without
advertisement, sell at public or private sale or otherwise realize upon the
whole, or from time to time any part, of the Mortgage Estate. If notice of any
sale or other disposition is required by law to be given, the Borrower hereby
agrees that a notice sent at least fifteen (15) days before the time of any
intended public sale, or of the time after which any private sale or other
disposition of the Mortgage Estate is to be made, shall be reasonable notice of
such sale or other disposition;


 





















 


(d)                                 Security Trustee may, either after entry or
without entry, proceed by suit or suits at law or in equity to foreclose this
Mortgage and to sell at public or private sale in connection therewith all or,
from time to time, any part of the Mortgage Estate;


 


(e)                                  Security Trustee may hold, use, operate,
lease to others or keep idle the Aircraft, Airframe or any Engines as Security
Trustee in its sole discretion may determine, all free and clear of any rights
of the Borrower, and without any duty to account to the Borrower with respect
to such action or inaction or for any proceeds with respect thereto;


 


(f)                                    Security Trustee may commence legal
proceedings for the appointment of a receiver or receivers (to which Security
Trustee shall be entitled as a matter of right) to take possession of the
Mortgage Estate pending the sale thereof pursuant either to the power of sale
given in this Section 4.03 or to a judgment, order or decree made in any
judicial proceeding for the foreclosure or involving the enforcement of this
Mortgage;


 


(g)                                 Security Trustee may either directly or by
such agent as it may appoint or by means of a receiver appointed by a court
therefor, enter upon the premises of the Borrower, and any other premises where
any of the Mortgage Estate may be located, exclude the Borrower and all other
Persons therefrom and take immediate possession of the Mortgage Estate, using
all necessary force to do so;


 


(h)                                 [intentionally omitted]


 


(i)                                     Upon every taking of possession pursuant to
this Section 4.03, Security Trustee may, from time to time, make all
such expenditures for maintenance, insurance, repairs, replacements,
alterations, additions and improvements to and of the Mortgage Estate as
Security Trustee may deem proper.  In
each such case, Security Trustee shall have the right to hold, use, operate,
store, lease, control or manage the Mortgage Estate, and to exercise all rights
and powers of Borrower relating to the Mortgage Estate as Security Trustee
shall deem appropriate, including the right to enter into any and all such
agreements with respect to the use, operation, storage, leasing, control or
management of any of the Mortgage Estate. 
The Borrower shall promptly, upon demand therefor, reimburse the
Security Trustee for the amount of any expenditures, plus interest at the Past
Due Rate, made pursuant to this Section 4.03(i);


 


(j)                                     Security Trustee may (A) assert all claims
for damages in respect of the Aircraft or any Engine, arising as a result of
any default by the Engine Manufacturer or the Manufacturer in respect of the
Warranties, and (B) exercise any and all rights of Borrower to compel
performance of the terms of the Engine Warranties or the Aircraft Warranties,
as the case may be; or


 


(k)                                  Security Trustee shall have, and may
exercise, in addition to the aforesaid rights and remedies, all other rights
and remedies available hereunder, at law or in equity, or by statute, each of
which may be exercised singly or concurrently with any one or more other rights
or remedies.


 


SECTION
4.04.  Remedies Cumulative.  Each and every right, power and remedy given
to Security Trustee specifically or otherwise in this Mortgage shall be
cumulative and shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time and as often and
in such order as may be deemed expedient by Security Trustee, and the exercise
or the beginning of the exercise of any power or remedy shall not be construed
to be a waiver of the right to exercise at the same time or thereafter any
other right, power or remedy.  No delay
or omission by Security Trustee in the exercise of any right, remedy or power


 





















 


or in the pursuit of any remedy shall impair
any such right, power or remedy or be construed to be a waiver of any default
on the part of Borrower or to be an acquiescence therein.


 


SECTION
4.05.  Discontinuance of Proceedings.  In case Security Trustee shall have
instituted any proceeding to enforce any right, power or remedy under this
Mortgage by foreclosure, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason or shall have been determined
adversely to Security Trustee, then and in every such case, Security Trustee
and Borrower shall, subject to any determination in such proceedings, be
restored to their former positions and rights hereunder with respect to the
Mortgage Estate, and all rights, remedies and powers of Security Trustee shall
continue as if no such proceedings had been instituted.


 


SECTION
4.06.  Waiver of Past Defaults.  Upon written instructions from a Majority in
Interest of Note Holders, Security Trustee shall waive any past Default or
Event of Default hereunder and its consequences and, upon any such waiver, such
Default or Event of Default shall cease to exist and any Default or Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Mortgage, but no such waiver shall extend to any subsequent or other
Default Event of Default or impair any right consequent thereon; provided,
however, that in the absence of written instructions from all Note Holders,
Security Trustee shall not waive any Default or Event of Default (i) in the
payment of the principal of, or interest on, or other amounts due under, any
Note then outstanding, or (ii) in respect of a covenant or provision hereof
which, under the proviso to the first sentence of Section 8.01 or under
the last sentence of Section 8.01, cannot be waived without the consent
of each Note Holder.


 


SECTION
4.07.  Engine Warranties and Aircraft
Warranties.  Effective at any time
after an Event of Default has occurred, and for so long as such Event of
Default is continuing and thereafter until the Engine Manufacturer or the
Manufacturer, as the case may be, shall have received notice from Security
Trustee that all Events of Default have been cured or waived (which Security
Trustee hereby agrees promptly to give upon such cure or waiver), Borrower does
hereby constitute Security Trustee, its corporate successors and permitted
assigns, Borrower’s true and lawful attorney, irrevocably, with full power (in
the name of Borrower or otherwise) to ask, require, demand, receive, compromise
and give acquittance for any and all monies and claims for monies due and to
become due under, or arising out of, the Engine Warranties in respect of any
Engine or the Aircraft Warranties in respect of the Aircraft, for such period
as Security Trustee may exercise rights with respect thereto under this
Mortgage, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or take any action or institute (or, if
previously commenced, assume control of) any proceedings and to obtain any
recovery in connection therewith that Security Trustee may reasonably deem to
be necessary or advisable with respect to such monies and claims for monies.  Security Trustee confirms expressly for the
benefit of the Engine Manufacturer and the Manufacturer that, in exercising any
rights in and to the Warranties as granted herein, or in making any claim with
respect thereto, the applicable terms and conditions of the Warranties shall
apply to, and be binding upon, Security Trustee to the same extent as
Borrower.  For purposes of Section
4.03, the Engine Manufacturer shall not be deemed to have knowledge of and
need not recognize the occurrence, the continuance or the discontinuance of any
Event of Default, unless and until the Engine Manufacturer shall have received
from Security Trustee written notice thereof addressed to the Engine
Manufacturer’s Manager of Contracts, G.E. Aircraft Engines, 1000 Western
Avenue, Lynn, Massachusetts, 01910; and the Manufacturer shall not be deemed to
have knowledge of and need not recognize the occurrence, the continuance or the
discontinuance of any Event of Default, unless and until the Manufacturer shall
have received from Security Trustee written notice thereof addressed to the
Manufacturer, Attention: Director, Contracts Regional Jet, Bombardier, Inc.
Bombardier Regional Aircraft Division, 123 Garratt Boulevard, Downsview,
Ontario, Canada M3K 1Y5.  So long as the
Engine Manufacturer and the Manufacturer act in good faith in accordance with
this Mortgage, the Engine Manufacturer and the Manufacturer may rely
conclusively on any notice of the occurrence and


 





















 


continuance of an Event of Default given by
Security Trustee hereunder without inquiring as to the accuracy of, or the
entitlement of Security Trustee to give, such notice.


 


ARTICLE
V


DUTIES OF SECURITY TRUSTEE


 


SECTION
5.01.  Notices.  (a) Notice of Event of Default.  If Security Trustee shall have knowledge of a
Default or of an Event of Default arising from a failure to pay any amount of
principal and interest due and owing, Security Trustee shall forthwith give
telephone notice thereof to Borrower and the Note Holders (promptly confirmed
by facsimile to such Persons not later than one Business Day thereafter).  Subject to Sections 4.06 and 5.03,
Security Trustee shall take such action, or refrain from taking such action,
with respect to any such Event of Default (including with respect to the
exercise of any rights or remedies hereunder) as Security Trustee shall be
instructed in writing by the Majority in Interest of Note Holders.  Subject to the provisions of Section 5.03,
if Security Trustee shall not have received instructions as above provided
within 20 calendar days after notice of such Event of Default to the Note
Holders, Security Trustee may, subject to instructions thereafter received
pursuant to the preceding provisions of this Section 5.01, take such
action, or refrain from taking such action, but shall be under no duty to take
or refrain from taking any action, with respect to any such Event of Default as
it shall be directed by the Majority in Interest of Note Holders.  In the event Security Trustee shall at any
time commence to foreclose or otherwise enforce the Lien of this Mortgage,
Security Trustee shall forthwith notify the Note Holders and Borrower.  For all purposes of this Mortgage, in the
absence of actual knowledge on the part of an officer in its offices, in the
case of Security Trustee, Security Trustee shall not be deemed to have
knowledge of any Default or any Event of Default (except, upon the failure of
Borrower to make scheduled payments of principal and interest on the Payment
Date, which failure shall constitute knowledge of a Default) unless notified in
writing by Borrower or one or more Note Holders.  This Section 5.01, however, is subject
to the condition that, if at any time after the principal of the Notes shall
have become due and payable pursuant to Section 4.03 and before any
judgment or decree for the payment of the money so due, or any thereof, shall
be entered, all overdue payments of interest upon the Notes and all other
amounts payable under the Notes (except the principal of the Notes which by
such declaration shall have become payable) shall have been duly paid, and
every other Default and Event of Default with respect to any covenant or
provision of this Mortgage shall have been cured, then and in every such case a
Majority in Interest of Note Holders may (but shall not be obligated to), by written
instrument filed with Security Trustee, rescind and annul such acceleration and
its consequences; but no such rescission or annulment shall extend to or affect
any subsequent Default or Event of Default or impair any right consequent
thereon.


 


(b)                                 Other Notices. 
Security Trustee will furnish to each Note Holder promptly upon receipt
thereof, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and other instruments furnished to Security
Trustee under any Operative Document to the extent the same shall not have been
otherwise directly distributed to the Note Holders pursuant to the express
provision of any other Operative Document.


 


SECTION
5.02.  Action Upon Instructions.  Subject to the terms of Sections 5.01
and 5.03, upon the written instructions at any time and from time to
time of a Majority in Interest of Note Holders, Security Trustee shall take
such of the following actions as may be specified in such instructions:  (i) exercise such election or option, or make
such decision or determination, or give such notice, consent, waiver or
approval or exercise such right, remedy or power or take such other action
hereunder or under any other Operative Document or in respect of any part or
all of the Mortgage Estate as shall be specified in such instructions; (ii)
take such action with respect to, or to preserve or protect, the Mortgage
Estate (including the discharge of Liens) as shall be specified in such
instructions and as are consistent with this Mortgage; and (iii) take such
other action in respect of the subject matter of this Mortgage pursuant to the


 





















 


terms hereof. 
Security Trustee will execute and Borrower will file or cause to be
filed such continuation statements with respect to financing statements
relating to the security interest created hereunder in the Mortgage Estate as
may be specified from time to time in written instructions of a Majority in
Interest of Note Holders (which instructions may, by their terms, be operative
only at a future date and which shall be accompanied by the execution form of
such continuation statement so to be filed).


 


SECTION
5.03.  Indemnification.  Security Trustee shall not be required to
take any action or refrain from taking any action hereunder (other than under
the first sentence of Section 5.01) unless Security Trustee shall have
been indemnified by the Note Holders against any liability, cost or expense
(including counsel fees) which may be incurred in connection therewith.  Security Trustee shall not be under any
obligation to take any action under this Mortgage and nothing in this Mortgage
contained shall require Security Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.  Security Trustee shall not be required to take
any action hereunder (other than under the first sentence of Section 5.01),
nor shall any other provision of this Mortgage be deemed to impose a duty on
Security Trustee to take any action, if Security Trustee shall have been
advised by counsel that such action is contrary to the terms hereof or is
otherwise contrary to law.


 


SECTION
5.04  No Duties Except as Specified in
Mortgage or Instructions.  Security
Trustee shall not have any duty or obligation to use, operate, store, lease,
control, manage, sell, dispose of or otherwise deal with the Aircraft or any
other part of the Mortgage Estate, or to otherwise take or refrain from taking
any action under, or in connection with, this Mortgage or any part of the
Mortgage Estate, except as expressly provided by the terms of this Mortgage or
as expressly provided in written instructions from Note Holders as provided in
this Mortgage; and no implied duties or obligations shall be read into this
Mortgage against Security Trustee. 
Security Trustee agrees that it will, in its individual capacity and at
its own cost and expense (but without any right of indemnity in respect of any
such cost or expense) promptly take such action as may be necessary to duly
discharge all Liens on any part of the Mortgage Estate which result from claims
against it in its individual capacity (i) resulting from any breach of any
representation, warranty or covenant made by Security Trustee in its individual
capacity contained in the Operative Documents or (ii) not related to the
mortgaging to it of the Aircraft or the administration of the Mortgage Estate
or any other transaction contemplated by or pursuant to the Loan Agreement or
any document included in the Mortgage Estate.


 


SECTION
5.05.  No Action Except Under
Operative Documents or Instructions. 
Borrower and Security Trustee agree that they will not use, operate,
store, lease, control, manage, sell, dispose of or otherwise deal with the
Aircraft or any other part of the Mortgage Estate except (i) in accordance with
the terms of the Operative Documents, or (ii) in accordance with the powers
granted or reserved to, or the authority conferred upon, Borrower and Security
Trustee pursuant to this Mortgage and in accordance with the express terms
hereof.


 


SECTION
5.06.  Replacement Airframes and
Replacement Engines.  At any time and
from time to time, any Airframe or Engine which has been (or is to be treated
as if the same had been) subject to an Event of Loss and may be replaced under Section
4.01(d)(i) or (d)(ii) hereof by a Replacement Airframe or
Replacement Engine, as the case may be, shall be replaced in accordance with
the provisions of this Section 5.06 and Section 4.01(d), and
Borrower shall, from time to time, direct Security Trustee to execute and
deliver to or as directed in writing by Borrower an appropriate instrument
releasing such Airframe and/or Engine, as appropriate, from the Lien of this
Mortgage and Security Trustee shall execute and deliver such instrument as
aforesaid, but only upon receipt by or deposit with Security Trustee of the
following:


 





















 


(a)               A written request from Borrower, requesting
such release and specifically describing the Airframe and/or Engine(s) so to be
released.


 


(b)              A certificate signed by a Responsible Officer
of Borrower stating the following:


 


(1)                                  With respect to the replacement of any
Airframe:


 


(i)                                     a description of the Airframe subject to
replacement, which shall be identified by manufacturer, model, FAA registration
number and manufacturer’s serial number;


 


(ii)                                  a description of the Replacement Airframe
(including the manufacturer, model, FAA registration number and manufacturer’s
serial number) to be received as consideration for the Airframe to be released;


 


(iii)                               that on the date of the Mortgage Supplement
relating to the Replacement Airframe Borrower will be the legal owner of such
Replacement Airframe free and clear of all Liens (except the Lien of this
Mortgage), and that such Replacement Airframe has been or, substantially
concurrently with such replacement, is in the process of being duly registered
in the name of Borrower under Chapter 441 of the Transportation Code (or under
the appropriate foreign aviation authority) and that an airworthiness
certificate has been duly issued under Chapter 447 of the Transportation Code
(or under the appropriate foreign aviation authority) with respect to such
Replacement Airframe, and that such registration and certificate is in full
force and effect, and that Borrower will have the full right and authority to
use such Replacement Airframe;


 


(iv)                              that the insurance required by Section
4.01(e) hereof is in full force and effect with respect to such Replacement
Airframe and all premiums then due thereon have been paid in full;


 


(v)                                 that no Specified Default or Event of Default
has occurred and is continuing or would result from the making and granting of
the request for release and the addition of such Replacement Airframe;


 


(vi)                              that the release of the Airframe so to be
released will not impair the security of the Mortgage or be in contravention of
any of the provisions hereof; and


 


(vii)                           that each of the conditions specified in Section
4.01(d)(i) hereof with respect to such Replacement Airframe have been
satisfied.


 


(2)                      With respect to the replacement of any
Engine:


 


(i)                                     a description of the Engine subject to
replacement which shall be identified by manufacturer’s name and serial number;


 


(ii)                                  a description of the Replacement Engine
(including the manufacturer’s name and serial number) to be received as
consideration for the Engine to be released;


 





















 


(iii)                               that on the date of the Mortgage Supplement
relating to the Replacement Engine Borrower will be the legal owner of such
Replacement Engine free and clear of all Liens except the Lien of this
Mortgage;


 


(iv)                              that no Event of Default has occurred and is
continuing or would result from the making and granting of the request for
release and the addition of such Replacement Engine;


 


(v)                                 that the release of the Engine so to be
released will not impair the security of the Mortgage or be in contravention of
any of the provisions hereof; and


 


(vi)                              that each of the conditions specified in Section
4.01(d)(ii) hereof with respect to such Replacement Engine have been
satisfied.


 


(c)                                  The appropriate instruments (i) assigning to
Security Trustee the benefit of all manufacturer’s and vendor’s warranties, if
any, generally available with respect to such Replacement Airframe or
Replacement Engine; and (ii) a Mortgage Supplement subjecting such Replacement
Airframe or Replacement Engine to the Lien of this Mortgage.


 


(d)                                 With respect to (i) a Replacement Airframe, a
certificate from a firm of nationally recognized independent aircraft
appraisers selected by the Security Trustee and satisfactory to a Majority in
Interest of Note Holders confirming the value, condition, utility, airworthiness
and remaining economic useful life as required by Section 4.01(d)
hereof, or (ii) a Replacement Engine, other than a General Electric Model
CF34-3B1, a certificate from a firm of nationally recognized independent
aircraft appraisers selected by the Security Trustee and satisfactory to a
Majority in Interest of Note Holders or a qualified engineer (which engineer
may be an employee of Borrower reasonably satisfactory to a Majority in
Interest of Note Holders) confirming the value, condition, utility,
airworthiness and remaining economic useful life as required for an Acceptable
Alternate Engine.


 


(e)                                  The opinion of counsel to Borrower,
reasonably satisfactory to Security Trustee, stating that:


 


(1)                                  the certificates, opinions and other
instruments and/or property which have been or are therewith delivered to and
deposited with Security Trustee conform to the requirements of this Mortgage
and, upon the basis of such application, the property so sold or disposed of
may be lawfully released from the Lien of this Mortgage and, to its knowledge,
all conditions precedent herein provided for relating to such release have been
complied with; and


 


(2)                                  the Replacement Airframe or Replacement
Engine has been validly subjected to the Lien of this Mortgage, the instruments
subjecting such Replacement Airframe or Replacement Engine to the Lien of this
Mortgage have been duly filed for recordation pursuant to the Act, and no
further action, filing or recording of any document is necessary or advisable
in order to establish and perfect the title of Borrower to and the Lien of this
Mortgage on such Replacement Aircraft or Replacement Engine and, as to any such
Replacement Airframe and associated Replacement Engines, that Borrower and
Security Trustee shall be entitled to the benefits of Section 1110 of
Bankruptcy Code with respect thereto to the same extent as immediately prior to
such replacement.


 


(f)                                    Borrower shall pay all reasonable costs
associated with the matters set forth in this Section 5.06.


 





















 


SECTION
5.07.  Mortgage Supplements for
Replacements.  In the event of a
Replacement Airframe or Replacement Engine being substituted as contemplated by
Sections 4.01(d)(i) or (d)(ii) hereof, Security Trustee agrees
for the benefit of the Note Holders, subject to fulfillment of the conditions
precedent and compliance by Borrower with its obligations set forth in Sections
4.01(d)(i) or (d)(ii) hereof, to execute and deliver a Mortgage
Supplement with respect thereto as contemplated by Section 5.06(c), and provided
no Default or Event of Default shall have occurred and be continuing, to
execute and deliver to Borrower an appropriate instrument releasing the
Airframe or Engine being replaced from the Lien of the Mortgage.


 


SECTION
5.08.  Effect of Replacement.  In the event of the substitution of a
Replacement Airframe or Replacement Engine as contemplated herein, all
provisions of this Mortgage relating to the Airframe or Engine or Engines being
replaced shall be applicable to such Replacement Airframe or Replacement Engine
or Replacement Engines with the same force and effect as if such Replacement
Airframe or Replacement Engine or Replacement Engines were the same airframe or
engine or engines, as the case may be, as the Airframe or Engine or Engines
being replaced but for the Event of Loss with respect to the Airframe or Engine
or Engines being replaced.


 


ARTICLE VI


SECURITY TRUSTEE


 


SECTION
6.01.  Acceptance of Trusts and Duties.  Security Trustee accepts the duties hereby
created and applicable to it and agrees to perform the same but only upon the
terms of this Mortgage and agrees to receive and disburse all monies
constituting part of the Mortgage Estate in accordance with the terms
hereof.  Security Trustee, in its
individual capacity, shall not be answerable or accountable under any
circumstances, except (a) for its own willful misconduct or gross negligence,
(b) as provided in Section 2.04 or the last sentence of Section 5.04,
(c) negligence in the handling or distribution of funds and (d) for liabilities
that may result from the inaccuracy or nonperformance of any representation or
warranty or covenant of Security Trustee made in its individual capacity in the
Loan Agreement or this Mortgage.


 


SECTION
6.02.  Absence of Duties.  Except in accordance with written instructions
furnished pursuant to Section 5.01 or 5.02, and except as
provided in, and without limiting the generality of, Sections 5.03 and 5.04,
Security Trustee shall have no duty (i) to see to any registration of the
Aircraft or any recording or filing of this Mortgage or any other document,
financing statement, Tax filing or other filing, or to see to the maintenance
of any such registration, recording or filing, (ii) to see to any insurance,
whether or not Borrower shall be in default with respect thereto, (iii) to see
to the payment or discharge of any Lien of any kind against any part of the
Mortgage Estate, (iv) to confirm, verify or inquire into the failure to receive
any financial statements of Borrower, (v) to inspect the Aircraft at any time
or ascertain or inquire as to the performance or observance of any of Borrower’s
covenants hereunder with respect to the Aircraft, or (vi) to otherwise deal
with the Aircraft or the Mortgage Estate. 
Except as expressly otherwise herein or in the Loan Agreement, the Note
Holders shall not have any duty or responsibility hereunder, including, without
limitation, any of the duties mentioned in clauses (i) through (vi) above.


 


SECTION
6.03.  No Representations or
Warranties as to Aircraft or Documents. 
SECURITY TRUSTEE (INCLUDING IN ITS INDIVIDUAL CAPACITY) DOES NOT MAKE
AND SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, COMPLIANCE WITH SPECIFICATIONS,
CONDITION, DESIGN, QUALITY, DURABILITY, OPERATION, MERCHANTABILITY,
CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR PURPOSE OF THE AIRCRAFT OR ANY
PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER


 





















 


DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO
THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO
THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF OR
ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF
WHATSOEVER.  Security Trustee in its
individual capacity does not make and shall not be deemed to have made any
representation or warranty as to the validity, legality or enforceability of
this Mortgage, the Notes or any other Operative Document or as to the
correctness of any statement contained in any thereof, except for the
representations and warranties of Security Trustee made in its respective
individual capacities under this Mortgage or in the Loan Agreement.  The Note Holders make no representation or
warranty hereunder whatsoever.


 


SECTION
6.04.  No Segregation of Monies; No
Interest.  Any monies paid to or
retained by Security Trustee pursuant to any provision hereof and not then
required to be distributed to any Note Holder or Borrower as provided in
Article III need not be segregated in any manner except to the extent required
by applicable law, and may be deposited under such general conditions as may be
prescribed by applicable law, and Security Trustee shall not (except as
otherwise provided in Section 3.07) be liable for any interest thereon, provided
that any payments received or applied hereunder by Security Trustee shall be
accounted for by the Security Trustee so that any portion thereof paid or
applied pursuant hereto shall be identifiable as to the source thereof.


 


SECTION
6.05.  Reliance; Agents; Advice of
Counsel.  Security Trustee shall not
incur liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. 
Security Trustee may accept a copy of a resolution of the Board of
Directors of any party to the Loan Agreement, certified by the Secretary or an
Assistant Secretary thereof as duly adopted and in full force and effect, as
conclusive evidence that such resolution has been duly adopted and that the
same is in full force and effect.  As to
any fact or matter relating to Borrower the manner of ascertainment of which is
not specifically described herein, Security Trustee may for all purposes hereof
rely on a certificate, signed by a duly authorized officer of Borrower, as to
such fact or matter, and such certificate shall constitute full protection to
Security Trustee for any action taken or omitted to be taken by them in good
faith in reliance thereon.  Security
Trustee shall assume, and shall be fully protected in assuming, that Borrower
is authorized to enter into this Mortgage and to take all action to be taken by
it pursuant to the provisions hereof, and shall not inquire into the
authorization of Borrower with respect thereto. 
In the administration of the trust hereunder, Security Trustee may
execute any of the trusts or powers hereof and perform its powers and duties
hereunder directly or through agents or attorneys and may, at the expense of
the Mortgage Estate, consult with counsel, accountants and other skilled
persons to be selected and retained by it, and Security Trustee shall not be
liable for anything done, suffered or omitted in good faith by them in
accordance with the written advice or written opinion of any such counsel,
accountants or other skilled persons.


 


SECTION
6.06.  Capacity in Which Acting.  Security Trustee acts hereunder solely as
trustee herein and not in its individual capacity, except as otherwise
expressly provided in the Operative Documents.


 


SECTION 6.07.  Compensation.  Security Trustee shall be entitled to
compensation, if any, as set forth in a separate fee agreement with Lender,
including expenses and disbursements (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), for all services
rendered hereunder.


 





















 


SECTION
6.08.  May Become Note Holder.  The institution acting as Security Trustee
hereunder may become a Note Holder and have all rights and benefits of a Note
Holder to the same extent as if it were not the institution acting as Security
Trustee.


 


SECTION
6.09.  Further Assurances; Financing
Statements.  At any time and from
time to time, upon the request of Security Trustee (acting upon request of the
Note Holders), Borrower shall promptly and duly execute and deliver any and all
such further instruments and documents as may be specified in such request and
as are 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 Security Trustee the full benefit of the specific rights and
powers herein granted, including, without limitation, the execution and
delivery of Uniform Commercial Code financing statements and continuation
statements with respect thereto, or similar instruments relating to the
perfection of the mortgage, security interests or assignments created or
intended to be created hereby.


 


ARTICLE VII


SUCCESSOR
TRUSTEES; SEPARATE TRUSTEES


 


SECTION
7.01.  Resignation of Security
Trustee; Appointment of Successor. 
(a) Security Trustee or any successor thereto may resign at any time
without cause by giving at least 30 calendar days’ prior written notice to
Borrower and each Note Holder, such resignation to be effective upon the
acceptance of the trusteeship by a successor Security Trustee.  In addition, (A) a Majority in Interest of
Note Holders may at any time remove Security Trustee without cause by an
instrument in writing delivered to Borrower and Security Trustee and (B)
Borrower may, so long as no Specified Default or Event of Default shall be
continuing, remove Security Trustee at any time to avoid or mitigate an
indemnity obligation of Borrower owed to Security Trustee by an instrument in
writing delivered to Security Trustee. 
Borrower, in the case of either (A) or (B) of the immediately preceding
sentence, shall promptly notify each Note Holder thereof in writing, such
removal to be effective upon the acceptance of the trusteeship by a successor
Security Trustee.  In the case of the
resignation or removal of Security Trustee, a Majority in Interest of Note
Holders may appoint a successor Security Trustee by an instrument signed by
such Note Holders.  If a successor
Security Trustee shall not have been appointed within 30 calendar days after
such notice of resignation or removal, Security Trustee, Borrower or any Note
Holder may apply to any court of competent jurisdiction to appoint a successor
Security Trustee to act until such time, if any, as a successor shall have been
appointed as above provided.  The
successor Security Trustee so appointed by such court shall immediately and
without further act be superseded by any successor Security Trustee appointed
as above provided within one year from the date of the appointment by such
court.


 


(b)                                 Any successor Security Trustee, however
appointed, shall execute and deliver to Borrower and to the predecessor
Security Trustee an instrument accepting such appointment, and thereupon such
successor Security Trustee, without further act, shall become vested with all
the estates, properties, rights, powers and duties of the predecessor Security
Trustee hereunder in the trusts hereunder applicable to it with like effect as
if originally named Security Trustee herein; but nevertheless upon the written
request of such successor Security Trustee, such predecessor Security Trustee
shall execute and deliver an instrument transferring to such successor Security
Trustee, upon the trusts herein expressed applicable to it, all the estates,
properties, rights and powers of such predecessor Security Trustee, and such
predecessor Security Trustee shall duly assign, transfer, deliver and pay over
to such successor Security Trustee all monies or other property then held by
such predecessor Security Trustee hereunder.


 


(c)                                  Any successor Security Trustee, however
appointed, shall be a United States Person and shall also be a bank or trust
company having a combined capital and surplus of at least


 





















 


$100,000,000, if there be such an institution
willing, able and legally qualified to perform the duties of Security Trustee
hereunder upon reasonable or customary terms.


 


(d)                                 Any corporation into which Security Trustee
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
Security Trustee shall be a party, or any corporation to which substantially
all the corporate trust business of Security Trustee may be transferred, shall,
subject to the terms of paragraph (c) of this Section, be Security Trustee
under this Mortgage without further act.


 


SECTION
7.02.  Appointment of Separate
Trustees.  (a) At any time or times,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Mortgage Estate may at the time be located or in which any
action of Security Trustee may be required to be performed or taken or if Security
Trustee shall be advised by counsel satisfactory to it that it is so necessary
or prudent in the interests of the Note Holders, or in the event Security
Trustee shall have been requested to do so by a Majority in Interest of Note
Holders, Security Trustee, by an instrument in writing signed by it, and
without the concurrence of Borrower, may appoint one or more individuals or
corporations to act as separate trustee or separate trustees or co-trustee,
acting jointly with Security Trustee, or to act as separate trustee or trustees
of all or any part of the Mortgage Estate with such powers as may be provided
in an agreement supplemental hereto.


 


(b)                                 Security Trustee and, at the request of
Security Trustee, Borrower, shall execute, acknowledge and deliver all such
instruments as may be required by the legal requirements of any jurisdiction or
by any such separate trustee or separate trustees or co-trustee for the purpose
of more fully confirming such title, rights or duties to such separate trustee
or separate trustees or co-trustee and Borrower hereby makes, constitutes and
appoints Security Trustee its agent and attorney-in-fact for it and in its
name, place and stead to execute, acknowledge and deliver the same in the event
that Borrower shall not itself execute and deliver the same within 20 days
after receipt by it of such request so to do. 
Upon the acceptance in writing of such appointment by any such separate
trustee or separate trustees or co-trustee, it, he or they shall be vested with
such title to the Mortgage Estate or any part thereof, and with such rights and
duties, as shall be specified in the instrument of appointment, jointly with
Security Trustee (except insofar as local law makes it necessary for any such
separate trustee or separate trustees or co-trustee to act alone) subject to
all the terms of this Mortgage.  Any
separate trustee or separate trustees or co-trustee may, at any time by an
instrument in writing, constitute Security Trustee its or his attorney-in-fact
and agent with full power and authority to do all acts and things and to
exercise all discretion on its or his behalf and in its or his name.  In case any such separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, the
title to the Mortgage Estate and all assets, property, rights, powers, trusts,
obligations and duties of such separate trustee or co-trustee shall, so far as
permitted by law, vest in and be exercised by Security Trustee, without the
appointment of a successor to such separate trustee or co-trustee unless and
until a successor is appointed.


 


(c)                                  All provisions of this Mortgage which are for
the benefit of Security Trustee shall extend to and apply to each separate
trustee or co-trustee appointed pursuant to the foregoing provisions of this Section
7.02.


 


(d)                                 Every separate trustee and co-trustee
hereunder shall, to the extent permitted by law, be appointed and act and
Security Trustee shall act, subject to the following provisions and conditions:


 


(i)                                     all powers, duties, obligations and rights
conferred upon Security Trustee in respect of the receipt, custody, investment
and payment of monies shall be exercised solely by Security Trustee;


 





















 


(ii)                                  all other rights, powers, duties and
obligations conferred or imposed upon Security Trustee shall be conferred or
imposed upon and exercised or performed by Security Trustee and such separate
trustee or separate trustees or co-trustee jointly except to the extent that
under any law of any jurisdiction in which any particular act or acts are to be
performed, Security Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Mortgage Estate in any such
jurisdiction) shall be exercised and performed by such separate trustee or
separate trustees or co-trustee;


 


(iii)                               no power hereby given to, or with respect to
which it is hereby provided may be exercised by, any such separate trustee or
separate trustees or co-trustee shall be exercised hereunder by such Person
except jointly with, or with the consent of, Security Trustee; and


 


(iv)                              no trustee hereunder shall be personally
liable by reason of any act or omission of any other trustee hereunder.


 


If
at any time Security Trustee shall deem it no longer necessary or prudent in
order to conform to any such law, or take any such action or shall be advised
by such counsel that it is no longer legally required or necessary or prudent
in the interest of the Note Holders or in the event Security Trustee shall have
been requested to do so by a Majority in Interest of Note Holders, Security
Trustee shall execute and deliver a mortgage supplemental hereto and all other
instruments and agreements necessary or proper to remove any separate trustee or
separate trustees or co-trustee.


 


(e)                                  Any request, approval or consent in writing
by Security Trustee to any separate trustee or separate trustees or co-trustee
shall be sufficient warrant to such separate trustee or separate trustees or
co-trustee, as the case may be, to take such action as may be so requested,
approved or consented to.


 


(f)                                    Notwithstanding any other provision of this Section
7.02, the powers of any separate trustee or separate trustees or co-trustee
appointed pursuant to this Section 7.02 shall not in any case exceed
those of Security Trustee hereunder.


 


ARTICLE
VIII


SUPPLEMENTS AND AMENDMENTS TO THIS


MORTGAGE AND OTHER DOCUMENTS


 


SECTION
8.01.  Instructions of Majority;
Limitations.  At any time and from
time to time,  Borrower and Security
Trustee (but only on the written request of a Majority in Interest of Note
Holders) shall execute a supplement hereto for the purpose of adding provisions
to, or changing or eliminating provisions of, this Mortgage to the other
Operative Documents as specified in such request; provided, however,
that, without the consent of each Note Holder, no such amendment of or
supplement to any such document, or waiver or modification of the terms of any
thereof, shall (i) modify any of the provisions of this Section 8.01 or
the definitions of the terms “Breakage Amount,” “LIBOR Break Amount,”
“Default,” “Event of Default,” “Borrower’s Cost,” “Majority
in Interest of Note Holders” or “Operative Documents,” contained
herein or in any other Operative Document (except to change default definitions
by providing for additional events of default), (ii) increase the principal
amount of any Note or reduce the amount or extend the time of payment of any
amount owing or payable under any Note or (except as provided in this Mortgage)
increase or reduce the Breakage Amount or interest payable on any Note (except
that only the consent of the affected Note Holder shall be required for any
decrease in any amounts of or the rate of Breakage Amount or interest payable
on such Note or any extension for the time of payment of any amount payable
under such Note), or alter or modify the provisions of Article III with respect
to the order


 





















 


of priorities in which distributions
thereunder shall be made or with respect to the amount or time of payment of
any such distribution, (iii) reduce, modify or amend any indemnities in favor
of any Note Holder or alter the definition of “Indemnitee” to exclude
any Note Holder (except as consented to by each Person adversely affected
thereby), or (iv) modify, amend or supplement the Mortgage or consent to any
assignment of the Mortgage, in either case in such a way as to release Borrower
from its obligations in respect of the payments of principal and interest and
other amounts due and owing hereunder. 
This Section 8.01 shall not apply to any mortgage or mortgages
supplemental hereto permitted by, and complying with the terms of, Section
5.07, Section 7.02 or Section 8.04.  Notwithstanding the foregoing, without the
consent of each Note Holder, no such supplement to this Mortgage, or waiver or
modification of the terms hereof or of any other agreement or document shall
expressly permit the creation of any Lien on the Mortgage Estate or any part
thereof, except as herein expressly permitted, or deprive any Note Holder of
the benefit of the Lien of this Mortgage on the Mortgage Estate, except as
provided in Sections 5.01 and 5.02 or in connection with the
exercise of remedies under Article IV.


 


SECTION
8.02.  Trustees Protected.  If, in the opinion of the institution acting
as Security Trustee hereunder, any document required to be executed pursuant to
the terms of Section 8.01 affects any right, duty, immunity or indemnity
with respect to it under this Mortgage, Security Trustee may in their
discretion decline to execute such document.


 


SECTION
8.03.  Documents Mailed to Note
Holders.  Promptly after the
execution of any document entered into pursuant to Section 8.01,
Borrower shall mail, postage prepaid, a conformed copy thereof to Security
Trustee and Security Trustee shall mail, by certified mail, postage prepaid, a
conformed copy thereof to each Note Holder at its address shown on the Note
Register, but the failure of Borrower or Security Trustee, as the case may be,
to mail such conformed copies shall not impair or affect the validity of such
document.


 


SECTION
8.04.  No Request Necessary for
Mortgage Supplement.  Notwithstanding
anything contained in Section 8.01, no written request or consent of
Security Trustee or any Note Holder pursuant to Section 8.01 shall be
required to execute and deliver a Mortgage Supplement to subject the Aircraft
or other property hereto pursuant to the terms hereof.


 


ARTICLE
IX


MISCELLANEOUS


 


SECTION
9.01.  Termination of Mortgage.  Upon (or at any time after) payment in full
of the principal of and interest on and Breakage Amount, if any, and all other
amounts due under, or otherwise due to the Note Holders holding all Notes and, provided
that there shall then be no other amounts due to the Note Holders and Security
Trustee hereunder or under the Operative Documents and provided no Event of
Default shall have occurred and be continuing, Borrower shall direct Security
Trustee to execute and deliver to or as directed in writing by Borrower an
appropriate instrument releasing the Aircraft from the Lien of this Mortgage
and releasing the Borrower Documents from the assignment and pledge thereof
hereunder, and Security Trustee shall execute and deliver such instrument as
aforesaid and, at Borrower’s expense, will execute and deliver such other
instruments or documents as may be furnished to it and reasonably requested by
Borrower to give effect to such release; provided, however, that
this Mortgage and the trusts created hereby shall earlier terminate and this
Mortgage shall be of no further force or effect upon any sale or other final
disposition by Security Trustee of all property part of the Mortgage Estate and
the final distribution by Security Trustee of all monies or other property or
proceeds constituting part of the Mortgage Estate in accordance with the terms
hereof.  Except as aforesaid otherwise
provided, this Mortgage and the trusts created hereby shall continue in full
force and effect in accordance with the terms hereof.


 





















 


SECTION
9.02.  No Legal Title to Mortgage Estate
in Note Holders.  No Note Holder
shall have legal title to any part of the Mortgage Estate.  No transfer, by operation of law or
otherwise, of any Note or other right, title and interest of any Note Holder in
and to the Mortgage Estate or hereunder shall operate to terminate this
Mortgage or entitle such Note Holder or any successor or transferee of such
Note Holder to an accounting or to the transfer to it of legal title to any
part of the Mortgage Estate.


 


SECTION
9.03.  Sale of Aircraft by Security Trustee
is Binding.  Any sale or other
conveyance of any Aircraft by Security Trustee made pursuant to the terms of
this Mortgage shall bind the Note Holders and shall be effective to transfer or
convey all right, title and interest of Security Trustee, Borrower and the Note
Holders in and to such Aircraft.  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
Security Trustee.


 


SECTION
9.04.  Mortgage for Benefit of
Security Trustee, Borrower and Note Holders.  Nothing in this Mortgage, whether express or
implied, shall be construed to give to any Person other than Borrower, Security
Trustee, Guarantor and the Note Holders any legal or equitable right, remedy or
claim under or in respect of this Mortgage.


 


SECTION
9.05.  Quiet Enjoyment.  Notwithstanding any of the provisions of this
Mortgage, so long as no Event of Default shall have occurred and be continuing,
neither Security Trustee nor any Person claiming by, through or under Security
Trustee will interfere with Borrower’s quiet enjoyment and right to possession,
use and operation of the Aircraft.


 


SECTION
9.06.  Notices.  Unless otherwise expressly specified or
permitted by the terms hereof, all notices, requests, demands, authorizations,
directions, consents, waivers or documents provided or permitted by this
Mortgage to be made, given, furnished or filed shall be in writing and delivered
in the manner and at the address provided in Section 9 of the Loan Agreement.


 


SECTION
9.07.  Severability.  Any provision of this Mortgage which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.


 


SECTION
9.08.  No Oral Modifications or
Continuing Waivers.  No terms or
provisions of this Mortgage or the Notes may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party or
other Person against whom enforcement of the change, waiver, discharge or
termination is sought and any other party or other Person whose consent is
required pursuant to this Mortgage; and any waiver of the terms hereof or of
any Note shall be effective only in the specific instance and for the specific
purpose given.


 


SECTION
9.09.  Successors and Assigns.  All covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, each of the parties hereto
and the successors and assigns of each, all as herein provided.  Any request, notice, direction, consent,
waiver or other instrument or action by any Note Holder shall bind the
successors and assigns of such Note Holder.


 


SECTION
9.10.  Headings.  The headings of the various Articles and
Sections herein and in the table of contents hereto are for the convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.


 





















 


SECTION
9.11.  Governing Law.  THIS MORTGAGE SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.


 


SECTION
9.12.  Counterpart Form.  This Mortgage may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.


 


SECTION
9.13.  Entire Agreement.  This Agreement, together with all documents
referred to herein, constitutes the entire agreement among the parties hereto
and supersedes all prior agreements and understandings of the parties with
respect to the subject matter hereof and thereof.


 


SECTION
9.14.  Waiver Of Jury Trial.  EACH OF BORROWER AND SECURITY TRUSTEE HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS MORTGAGE OR THE TRANSACTIONS CONTEMPLATED HEREBY.


 


SECTION
9.15.  Submission to Jurisdiction.  Each of Borrower and Security Trustee agrees
that any legal action or proceeding with respect to this Mortgage or any of the
transactions contemplated hereby, or to enforce any judgment obtained against
it in respect of any of the foregoing (a certified or exemplified copy of which
judgment shall be conclusive evidence of the fact and of the amount of any
indebtedness therein described), may be brought in the Supreme Court of the
State of New York or the United States District Court for the Southern District
of New York and by the execution and delivery of this Mortgage, each such
Person irrevocably consents and submits to the nonexclusive jurisdiction of
each such court, acknowledges its competence and irrevocably agrees to be bound
by a final judgment of such court.  Each
such Person irrevocably waives, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any
such proceeding brought in such a court has been brought in an inconvenient
forum.  Each of Borrower and Security
Trustee hereby generally consents to service of process to the respective
addresses set forth in Section 9 of the Loan Agreement in the manner specified
in such Section 9 of the Loan Agreement. 
Nothing in this paragraph shall affect the right of any party hereto or
their successors or assigns to bring any action or proceeding against any other
party hereto or their property in the courts of other jurisdictions.


 


SECTION
9.16.  Payment in Dollars.


 


(a)                                  If, for the purposes of obtaining judgment
in, or enforcing the judgment of, any court, it is necessary for any Person to
convert a sum due hereunder in Dollars into another currency (the “Judgment
Currency”), the rate of exchange used shall be that at which in accordance
with normal banking procedures such Person could purchase Dollars with the
Judgment Currency on the Business Day preceding that on which final judgment is
given or the order of enforcement made.


 


(b)                                 The obligation of Borrower in respect of any
sum due from it to any Person hereunder shall, notwithstanding any judgment or
order of enforcement in such Judgment Currency, be discharged only to the
extent that on the Business Day following that on which final judgment is given
or the order of enforcement made, such Person may in accordance with normal
banking procedures purchase Dollars with the Judgment Currency; if the Dollars
so purchased are less than the sum originally due to such Persons in Dollars,
Borrower agrees, as a separate obligation and notwithstanding any such judgment
or order of enforcement, to indemnify any Person against such loss attributable
to any of its


 





















 


obligations hereunder, and if the Dollars so
purchased exceed the sum originally due from Borrower, in Dollars, such Person
shall remit to Borrower such excess.  Any
additional amount due from Borrower under this Section 9.16 will be due
as a separate debt and shall not be affected by judgment or order of
enforcement being obtained for any other sums due under or in respect of this
Mortgage or any other Operative Document.


 


 


[Remainder of Page Intentionally
Blank — Signature Page Follows]


 





















 


 


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


 


	
   

  	
  SKYWEST
  AIRLINES, INC.,

  
	
   

  	
  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michael J. Kraupp

  	
   

  
	
   

  	
  Name:
  

  	
  Michael
  J. Kraupp

  
	
   

  	
  Title:

  	
  Vice
  President Finance and Assistant Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  C.I.T.
  Leasing Corporation

  
	
   

  	
  not in its individual capacity, except as expressly

  provided herein, but solely as Security Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Glen T. Dimpfel

  	
   

  
	
   

  	
  Name:
  Glen T. Dimpfel

  
	
   

  	
  Title:
   Vice President

  
					



 





















 


APPENDIX A (CIT Loan)


 


(Attached to and forming a part of


Aircraft Mortgage and Security Agreement


Between SkyWest Airlines, Inc.,


as Borrower, debtor, and C.I.T. Leasing Corporation, as Security
Trustee, secured party)


 


 


DEFINITIONS


 


Except
as otherwise expressly indicated, all references in this Appendix A, the
Aircraft Mortgage and Security Agreement referred to above (the “Mortgage”),
and the other Operative Documents to agreements or instruments shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms of the Operative Documents and such agreements or
instruments.  Except as otherwise
expressly indicated, all references in this Appendix A, the Mortgage and the
other Operative Documents to Persons shall mean such Persons and their
successors and permitted assigns.  Except
as otherwise expressly indicated, all references to treaties, statutes,
regulations, codes and other laws or sections or provisions thereof shall mean
such treaties, statutes, regulations, codes or other laws, or such sections or
provisions thereof as amended from time to time or any similar legislation of
the relevant jurisdiction enacted to supersede any such items.  “Including”
means “including but not limited to.”  “Or”
means one or more, or all, of the alternatives listed or described.  “Herein,”
“hereof,”  “hereunder,”  etc. mean in, of, under, etc.
the Operative Document in which such reference appears and not merely in, of,
under, etc. the section or
provision of such Operative Document where the reference appears.


 


Each
exhibit, annex and schedule to each Operative Document is incorporated in, and
is made a part of, such Operative Document.


 


As
used in the Mortgage and in the other Operative Documents to the extent such
other Operative Documents refer to this Appendix A or the Mortgage for their
respective defined terms, the following words and terms shall have the
respective meanings set forth below, unless the context hereof otherwise
clearly requires, and definitions set forth herein shall be equally applicable
both to the singular and plural forms of such defined terms.


 


“Acceptable
Alternate Engine” means a General Electric Company Model CF34-3B1 engine or
an engine of the same manufacturer and same model of equivalent or greater
value, utility and remaining useful life (without regard to hours and cycles
remaining to the next scheduled overhaul) as the Engine being substituted or
replaced therefor and suitable for installation and use on the Airframe and
compatible with the other Engine; provided that such engine shall be of the
same make, model and manufacturer as the other engine installed on the
Airframe, and shall have been maintained, serviced, repaired and overhauled in
substantially the same manner as Borrower maintains, services, repairs and
overhauls similar engines utilized by Borrower without in any way
discriminating against such engine.


 


“Acquisition
Date” has the meaning set forth in Schedule II of the Loan Agreement.


 


“Additional
Insured” means Lender, the Security Trustee and their respective officers,
directors, employees, servants, agents, successors and assigns.


 


“Affiliate” means a Person that directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under a common control with, another Person.


 





















 


“After-Tax
Basis” means, with respect to any payment to be received or accrued by any
Person, the amount of such payment supplemented by a further payment or
payments (which shall be payable either simultaneously or, in the event that
Taxes resulting from the receipt or accrual of such payment are not actually
payable in the year of receipt or accrual, at the time or times such Taxes are
actually payable) so that the sum of all such payments, after deduction of all
Taxes actually payable to any Taxing authority as a result of the receipt or
accrual of such payments (which, in the case of Lender, shall be computed using
the highest marginal federal income tax rate generally applicable to corporations
and Lender’s actual composite state and local income tax rate), and after
taking into account all current Tax Savings actually realized by such Person as
a result of the event giving rise to such payment, shall be equal to the
payment to be received or accrued by such Person; provided, however, the loss,
deferral or recapture of any Tax Savings taken into consideration in making any
payment on an After-Tax Basis shall be treated as an indemnifiable Tax under
Section 6(b) of the Loan Agreement (determined without regard to Section
6(b)(ii) of the Loan Agreement (other than subparagraphs (4), (11) and (12)
thereof)).


 


“Aircraft” means each, and all, of the Airframe
together with the two Engines per Airframe whether or not such Engines are
installed on each of the Airframe or any other airframe.


 


“Aircraft
Registration Application” means an aircraft registration application for
each of the Aircraft on AC Form 8050-1, dated the Closing Date, executed by
Borrower.


 


“Aircraft
Warranties” means all warranties or assurances of any kind whatsoever
relating to the Aircraft and related equipment manufactured by the
Manufacturer.


 


“Airframe” means:  (i) each, and all, of the Bombardier Regional
Jet aircraft Model CL-600-2B19 (excluding the Engines or engines from time to
time installed thereon) specified by United States Registration Numbers and
Manufacturer’s serial numbers in the Mortgage Supplement; (ii) any Replacement
Airframe which may from time to time be substituted pursuant to Sections
4.01(d)(i)(II) and 5.06 of the Mortgage; and (iii) in any case, any and all
related Parts.


 


“Airworthiness
Requirements” has the meaning set forth in Section 4.01(c)(iii) of the
Mortgage.


 


“Applicable
Margin” has the meaning set forth in Schedule II of the Loan Agreement.


 


“Applicable
Rate” means the Floating Rate.


 


“Assumed
Debt Rate” has the meaning set forth in Schedule II to the Loan Agreement.


 


“Bankruptcy
Code” means the United States Bankruptcy Code of 1978, as amended.


 


“Borrower” means SkyWest Airlines, Inc., and
its permitted successors and assigns.


 


“Borrower-Controlled
Contest” means a contest involving only Taxes with respect to which (i)
participation by neither the Indemnitee nor any Affiliate of the Indemnitee is
required (it being understood that any contest involving Taxes in the nature of
income Taxes (other than income Taxes imposed by any State or local tax
authority in the United States) or any contest conducted in the name of such
Indemnitee is a contest requiring the participation of such Indemnitee) and
(ii) no tax return of the Indemnitee or any of its Affiliates is held open with
respect to which any Indemnitee may reasonably be viewed as having an actual or
potential liability for Taxes not indemnified against by Borrower.


 


“Borrower
Documents” means the Operative Documents to which Borrower is a party.


 





















 


“Breakage
Amount” means the LIBOR Break Amount. 
If Breakage Amount is owed pursuant to the terms of the Operative
Documents, each Note Holder will furnish to Borrower and Security Trustee a
certificate setting forth the calculation and amount of the Breakage Amount
with respect to its Note, which amount shall be conclusive absent manifest
error.


 


“Business
Day” means any day other than a Saturday or Sunday or a day on which
commercial banks are required or authorized to close in New York, New York and,
if such day relates to the borrowing or making of payment of principal of or
interest on the Notes, or any notice in respect of any such borrowing or
payment, a day on which Dollar transactions are effected in London, England.


 


“Certificated
Air Carrier” means a solvent United States “air carrier” within the meaning
of the Transportation Code holding a certificate issued under Chapter 447 of
the Transportation Code for aircraft capable of carrying ten or more individuals
or 6,000 pounds or more of cargo, and as to whom there is in force an air
carrier operating certificate issued pursuant to FAR Part 121, or if such
certification shall cease to be available, an air carrier eligible for
certification as to the matters contemplated by such certification under any
successor or substitute provisions thereof.


 


“Change
in Tax Law” means a change in the Code (including for this purpose, any
non-Code provisions of legislation affecting the Code, such as transitional or
effective date provisions), final or temporary Treasury Regulations, any
Revenue Ruling or Revenue Procedure or other administrative interpretations,
statements or declarations, applicable judicial precedents or Executive Orders
of the President of the United States, or income Tax treaties between the
United States and any other foreign taxing jurisdiction, or interpretation of
any thereof.


 


“Closing” has the meaning set forth in Section
2(d) of the Loan Agreement.


 


“Closing
Date” means the date of Mortgage Supplement No. 1, which date shall be the
date the Loan is made by the Lender to Borrower as contemplated by the
Operative Documents.


 


“Code” means the Internal Revenue Code of 1986,
as amended from time to time, or any similar legislation of the United States
enacted to supersede, amend or supplement such Code and any reference to a
provision or provisions of the Code shall also mean and refer to any successor
provisions, however designated.


 


“Default” means an Event of Default or any
event that with the giving of notice or the lapse of time or both is reasonably
likely to become an Event of Default.


 


“Dollars” and “$”
mean the lawful currency of the United States of America.


 


“Engine” means: 
(i) each of the two General Electric Company Model CF34-3B1 engines per
Airframe listed by Engine Manufacturer’s serial numbers in Mortgage Supplement
No. 1 and installed on the Airframe at the time of the delivery to Borrower of
such Airframe, whether or not from time to time thereafter installed on such
Airframe or any other airframe; (ii) any Acceptable Alternate Engine which may
from time to time be substituted for any of such two engines pursuant to the
terms of the Mortgage; and (iii) in any case, any and all related Parts.  The term “Engines”
means, as of any date of determination, all Engines then subject to the Lien of
the Mortgage.


 


“Engine
Manufacturer” means General Electric Company and its successors and
assigns.


 


“Engine
Warranties” means all warranties or assurances of any kind whatsoever
relating to the Engines and related equipment manufactured by the Engine
Manufacturer.


 





















 


“ERISA” means the federal Employee Retirement
Income Security Act of 1974, as amended from time to time.


 


“Event
of Default” has the meaning set forth in Section 4.02 of the Mortgage.


 


“Event
of Loss” has the meaning set forth in Exhibit F to the Mortgage.


 


“Expenses” means any and all liabilities,
obligations, losses, damages, fines, proceedings, judgments, penalties, claims
(including, but not limited to, negligence, strict or absolute liability,
liability in tort and liabilities arising out of violation of laws or
regulatory requirements of any kind), actions, suits, out-of-pocket costs,
expenses and disbursements (including reasonable legal fees, costs of
investigation of whatsoever kind and nature and expenses, Transaction Costs,
and all costs and expenses relating to amendments, supplements, waivers and
consents to and under the Operative Documents, but excluding, in all cases (A)
internal costs and expenses, such as salaries and overhead of whatsoever kind
and nature, (B) any losses, damages or claims in respect of future profits, and
(C) other than Breakage Amount, any costs and expenses associated with
obtaining and maintaining the Loan.


 


“FAA” means the Federal Aviation Administration.


 


“Federal
Aviation Administration” means the United States Federal Aviation
Administration and any successor agency or agencies thereto.


 


“Final
Maturity Date” has the meaning set forth in Schedule II to the Loan
Agreement.


 


“Floating
Rate” with respect to each Interest Period, means LIBOR for such Interest
Period plus the Applicable Margin; provided that the Floating Rate for the
first Interest Period is the Assumed Debt Rate.


 


“Floating
Rate Loan” means a Note bearing interest at a Floating Rate in accordance
with Section 2.02(c) of the Mortgage.


 


“Governmental
Authority” means any nation or government, any state or other political
subdivision thereof, any central bank (or similar monetary or regulatory
authority) thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.


 


“Guarantor” means SkyWest, Inc., a Utah
corporation.


 


“Guaranty” means the Guaranty (CIT Loan) dated
as of the Closing Date among Guarantor and Lender, as the same may be amended,
modified or supplemented from time to time.


 


“Increased
Costs” has the meaning set forth in Section 2.13 of the Mortgage.


 


“Indemnitee” means Lender, Security Trustee and
their respective Affiliates, corporate successors, permitted assigns,
directors, officers, employees, servants and agents.  For purposes of Section 6(b) of the Loan
Agreement, “Indemnitee” shall also include the parties indicated in Section
6(b)(vii) of the Loan Agreement.


 


“Indemnitee-Controlled Contest” means any
contest other than a Borrower-Controlled Contest.


 





















 


“Insurance
Broker” has the meaning set forth in Section 4.01(e)(v) of the Mortgage.


 


“Insured
Amount” has the meaning set forth in Section 4.01(e)(ii) of the Mortgage.


 


“Interest
Determination Date” means (x) in respect of the interest rate for the
initial Interest Period, the date which is two London Business Days prior to
the Closing Date and (y) in respect of each subsequent Interest Period, the
date which is two London Business Days prior to the commencement of such
Interest Period.


 


“Interest
Period” means, initially, the period commencing on and including the
Closing Date and ending on but excluding the first Payment Date and each
succeeding period thereafter commencing on and including the preceding Payment
Date and ending on but excluding the next Payment Date, provided that if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day, unless such next
succeeding Business Day is the next calendar month, in which case such payment
shall be made on the preceding Business Day.


 


“Lender”
means the Lender as defined in the initial paragraph of the Loan Agreement, and
its successors and assigns, and any Note Holder from time to time.


 


“Lending
Office” means for any Lender, the office from which such Lender is booking
a Note held by it as an asset for accounting purposes.


 


“LIBOR” means, with respect to any Interest
Period for which the same is to be calculated, the interest rate per annum
(calculated on the basis of a 360-day year and the actual number of days
elapsed) at which Dollar deposits are offered in the London interbank market
for a period equal to such period as such rate is displayed on Bloomberg BBAM
page at approximately 11:00 a.m., London time (or as soon thereafter as
practicable), or if such service does not display any such quote, the
arithmetic mean (rounded upwards, if necessary, to the nearest 1/16th of 1%) of
such rates as displayed on Reuters Page LIBO at approximately 11:00 a.m.,
London time (or as soon thereafter as practicable), or if such service does not
display any such quote, the arithmetic mean (rounded upwards, if necessary, to
the nearest 1/16th of 1%) of such rates, as quoted by London Reference Banks,
in any case on the Interest Determination Date.


 


“LIBOR
Break Amount” means an amount equal to the net loss or additional expense
which a Lender sustains or incurs as a direct result of the payment or
prepayment (whether by mandatory or voluntary prepayment, purchase,
acceleration or any other form of payment or prepayment) of all or any portion
of such Lender’s Note on a date other than the last day of an Interest Period,
as reasonably determined by such Lender by reference to the LIBOR applicable in
respect of such Interest Period and set forth in a statement provided by such
Lender which includes in reasonable detail the basis for the calculations of
the amount being claimed which statement shall be conclusive and binding for
all purposes, except in the case of manifest error; provided, that in no event shall any portion of the LIBOR Break
Amount, if any, be attributable to loss of future margin or profit.


 


“Lien” means any mortgage, pledge, lien, claim,
encumbrance, lease, security interest or any other charge of any kind on
property.


 


“Loan” has the meaning set forth in Schedule II
of the Loan Agreement.


 


“Loan
Agreement” means that certain Loan Agreement (CIT Loan) dated as of the
Closing Date among Borrower, Guarantor, Security Trustee and Lender, as such
Loan Agreement may be amended or supplemented from to time pursuant to the
applicable provisions thereof.


 





















 


“London
Business Day” means a day other than a Saturday or Sunday on which business
is carried out on the London interbank market.


 


“London
Reference Banks” means Barclays Bank plc, HSH Nordbank AG and ABN AMRO Bank
N.V.


 


“Loss
Payee” means Security Trustee.


 


“Majority
in Interest of Note Holders” means, as of any date of the determination
thereof, Note Holders holding Notes evidencing not less than 66-2/3% of the
aggregate outstanding principal amount of all Notes.  For all purposes of the foregoing definition,
in determining as of any date the then aggregate outstanding principal amount
of Notes, there shall be excluded any Notes, if any, held by Borrower or any
Affiliate thereof.


 


“Manufacturer” means Bombardier Inc., a
Canadian corporation, represented by its Bombardier Regional Aircraft Division,
and its successors and assigns.


 


“Mortgage” means the Aircraft Mortgage and
Security Agreement dated as of the Closing Date between Borrower and Security
Trustee, as originally executed or as modified, amended or supplemented in
accordance with the provisions thereof, including, without limitation, any
Mortgage Supplement entered into pursuant to the applicable provisions thereof.


 


“Mortgage
Estate” has the meaning set forth in the Granting Clause of the Mortgage.


 


“Mortgage
Supplement” means a supplement to the Mortgage, substantially in the form
of Exhibit A to the Mortgage.


 


“Non-U.S.
Person” means any Person who is not a United States Person.


 


“Nonproprietary
Parts” means all readily severable appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment of whatever nature
which (i) are not necessary or required to satisfy Airworthiness Requirements
or any other requirement specified in the Mortgage, (ii) are attached to the
Aircraft after the Acquisition Date, (iii) can be removed with minimal cost and
without material damage to the Aircraft, and (iv) are in addition to and not in
replacement of Parts installed on or attached to the Aircraft on the
Acquisition Date.


 


“Note
Holder” means, at any time, each registered holder of one or more Notes.


 


“Note
Register” has the meaning specified in Section 2.07 of the Mortgage.


 


“Notes”
means the Notes issued pursuant to Section 2.01 of the Mortgage and any such
certificates issued in exchange or replacement therefor pursuant to Section
2.07 or 2.08 of the Mortgage.


 


“Obsolete
Parts” has the meaning set forth in Section 4.01(c)(iii) of the Mortgage.


 


“Operative
Documents” means the Guaranty, the Mortgage, the Notes, the Loan Agreement,
and any Mortgage Supplement.


 


“Parts” means all appliances, parts,
instruments, appurtenances, accessories, furnishings and other equipment of
whatever nature (other than complete Engines or engines), which are from time
to time


 





















 


incorporated or installed in or attached to
the Airframe or any Engine and all such items which are subsequently removed
therefrom and not replaced in accordance with the Mortgage; provided that Parts shall not
include Nonproprietary Parts except as otherwise provided by Section 4.01(c)(iii)
of the Mortgage.


 


“Past
Due Rate” means a rate per annum equal to 1% plus the Applicable Rate, but
in no event greater than that allowed by applicable law.


 


“Payment
Date” means each date during the Term specified as a “Payment Date” in
Annex A to the Note.


 


“Permitted
Investments” means (a) investments in direct obligations of the government
of the United States or any instrumentality thereof the obligations of which
are guaranteed by such government maturing within 90 days of the date of
acquisition thereof, (b) investments in obligations fully guaranteed by the
government of the United States or any instrumentality thereof the obligations
of which are guaranteed by such government maturing within 90 days of the date
of acquisition thereof, (c) investments in a money market fund registered under
the Investment Company Act of 1940 (15 U.S.C. § 809-1, et seq.), as from time
to time amended, (d) investments in open market commercial paper issued by any
corporation rated at least P-1 by Moody’s Investors Service, Inc. or A-1 by
Standard & Poor’s Ratings Group (or any equivalent rating thereto) maturing
within 90 days from the date of acquisition thereof, and (e) investments in
certificates of deposit issued by, or bankers’ acceptances of, or time deposits
or a deposit account issued by, any bank, trust company or national banking
association incorporated or doing business under the laws of the United States
of America or any State thereof having a combined capital and surplus of at
least $500,000,000 in each case maturing within 90 days of the date of
acquisition thereof, provided that the
aggregate amount at any time so invested in certificates of deposit or
commercial paper issued by any one bank or company shall not exceed $1,000,000.


 


“Permitted
Lien” means any Lien referred to in clauses (i) through (v) of Section
4.01(a) of the Mortgage.


 


“Person” means any individual, corporation,
limited liability company, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof or any other entity.


 


“Prime
Rate” means the rate of interest publicly announced from time to time by
Citibank, N.A., as its “base rate” or “prime rate”.


 


“Purchase
Agreement” means the Aircraft Sale and Purchase Agreement, dated as of
December 3, 2004, between Borrower and Independence Air, Inc. relating to the
purchase by Borrower of the Aircraft, as originally executed or as modified,
amended or supplemented in accordance with the terms thereof, but only insofar
as the foregoing relates to the Aircraft.


 


“Realistic
Possibility of Success” shall mean the standard upon which an attorney may
properly advise the taking of a position on a tax return as set forth in ABA
Formal Opinion 85-352 or any successor thereto.


 


“Replacement
Aircraft” means any aircraft substituted for the Aircraft pursuant to
Section 5.06 of the Mortgage and Section 4.01(d) of the Mortgage.


 


“Replacement
Airframe” means any airframe substituted for an Airframe pursuant to and in
accordance with Section 4.01(d) and Section 5.06 of the Mortgage.


 





















 


“Replacement
Engine” means any engine substituted for an Engine pursuant to Section
4.01(d) and Section 5.06 of the Mortgage.


 


“Responsible
Officer” shall mean, with respect to the subject matter of any covenant,
agreement or obligation of any party contained in any Operative Document, the
President, any Vice President, Assistant Vice President, Treasurer, Assistant
Treasurer or other officer who in the normal performance of his operational
responsibility would have knowledge of such matter and the requirements with
respect thereto.


 


“Secured
Obligations” has the meaning set forth in the Granting Clause of the
Mortgage.


 


“Securities
Act” means the Securities Act of 1933, as amended.


 


“Specified
Default” means a Default described in Section 4.02(a), (b), (f) or (g) of
the Mortgage.


 


“Subsidiary” means, with respect to any Person
that is a corporation, any other corporation a majority of the voting
securities of which are owned by such Person, such Person and one or more
Subsidiaries or one or more Subsidiaries.


 


“Tangible
Net Worth” shall mean, with respect to a Person, the difference between (i)
the sum of (a) the par or stated value of all outstanding capital stock, (b)
surplus and (c) undivided profits of such Person, and (ii) the sum of (a) any
amounts attributable to goodwill, patents, copyrights, trademarks, bond
discount and underwriting expenses, (b) write-up in the book value of any
assets resulting from a revaluation thereof subsequent to the Closing Date, and
(c) organization expenses and other intangibles, all determined in accordance
with generally accepted accounting principles consistently applied.


 


“Taxes” means any and all fees (including,
without limitation, license, documentation and registration fees), taxes
(including, without limitation, income, gross receipts, sales, rental, use,
turnover, value added, property (tangible and intangible), excise and stamp
taxes), licenses, levies, imposts, duties, recording charges or fees, charges,
assessments, or withholdings of any nature whatsoever, together with any
assessments, penalties, fines, additions to Tax and interest thereon (each,
individually a “Tax”).


 


“Tax
Savings” shall mean a net Tax benefit, savings, deduction or credit,
including foreign Tax credits and any reduction in Taxes resulting from a
payment of any Tax or Expense by or on behalf of Borrower pursuant to the terms
of the Operative Documents.


 


“Term” means the period commencing on the
Closing Date and ending on the Final Maturity Date or such other earlier date
as the Mortgage may be terminated in accordance with terms hereof.


 


“Transaction
Costs” has the meaning specified in Section 11 of the Loan Agreement.


 


“Transportation
Code” means 49 U.S.C. subtitle VII, as amended, and any successor statute
thereto and the Federal Aviation Regulations issued or promulgated pursuant
thereto.


 


“Treasury
Regulations” shall mean the income tax regulations promulgated under the
Code.


 


“Uniform
Commercial Code” means the Uniform Commercial Code as in effect from time
to time in any relevant jurisdiction.


 





















 


“United
States Person” shall have the meaning given such term in Section
7701(a)(30) of the Code.


 


“Upfront
Fee” shall have the meaning given to such term in Schedule II to the Loan
Agreement.


 


“U.S.
Civil Reserve Air Fleet Program” means any contract entered into by and
between Borrower and the U.S. government pursuant to 10 U.S.C. § 9512.


 


“U.S.
Withholding Taxes” means United States federal withholding taxes on United
States source interest, rent and other fixed and determinable income.


 


“Warranties” means, collectively the Aircraft
Warranties and the Engine Warranties.


 


“War
Risks” has the meaning set forth in Section 4.01(e)(i) of the Mortgage.