Document:

Exhibit
10.11

 

AIRCRAFT
MORTGAGE AND SECURITY AGREEMENT

 

This AIRCRAFT MORTGAGE AND SECURITY AGREEMENT (as amended, modified or
supplemented from time to time, the “Mortgage”), dated as of October 23,
2001, between NORTHWEST AIRLINES, INC., a Minnesota corporation (together with
its successors and permitted assigns, the “Company”), and THE CHASE
MANHATTAN BANK, as Collateral Agent (the “Collateral Agent”), for the
benefit of the Lenders and the Agents under, and any other lender from time to
time party to, the Credit Agreement hereinafter referred to (such Lenders,
Agents and the other lenders, if any, are hereinafter called the “Secured
Creditors”).  

 

W I
T  N  E  S  S  E  T  H :

 

WHEREAS, subject to and upon the terms and conditions set forth in the
Credit Agreement, the Lenders have agreed to make available the Loans to the
Company provided for therein;

 

WHEREAS, the Company has requested certain amendments to the terms and
conditions set forth in the Credit Agreement;

 

WHEREAS, it is a condition precedent to the above-described amendments
that the Company shall have executed and delivered to the Collateral Agent this
Mortgage; and

 

WHEREAS, the Company desires to execute the Mortgage to satisfy the
condition described in the preceding paragraph.

 

NOW, THEREFORE, to secure the due and punctual payment of the
Obligations, it is hereby covenanted and agreed by and between the parties
hereto as follows:

 

ARTICLE 1

DEFINITIONS

 

SECTION 1.1. 
Certain Definitions.

 

Unless otherwise defined herein or the context requires otherwise,
capitalized terms used herein shall have the meanings set forth in Appendix
A hereto.

 

ARTICLE 2

SECURITY

 

SECTION 2.1. 
Grant of Security Interest.

 

The Company, in order to secure (i) the prompt payment when due of all
the Obligations and (ii) the performance and observance by the Company and the
Guarantors of all agreements, covenants and provisions contained herein and in
the other Loan Documents, and in consideration of the premises and of the
covenants herein contained, and of other good and

 

 

valuable consideration, the receipt of which is hereby acknowledged,
has granted, bargained, sold, assigned, transferred, conveyed, mortgaged,
pledged and confirmed and does hereby grant, bargain, sell, assign, transfer,
convey, mortgage, pledge and confirm unto the Collateral Agent, its permitted
successors and assigns, for the security and benefit of the Secured Creditors,
forever, a continuing security interest in, and mortgage lien on, all estate,
right, title and interest of the Company in, to and under the following
described properties, rights, interests and privileges (which, collectively,
including all property hereafter specifically subjected to the lien of this
Mortgage by any instrument supplemental hereto, are referred to herein as the “Collateral”):

 

(a)                                  the
Airframes described in Schedule I hereto and the Engines described in Schedule II
hereto, each of which Engines is a 750 or more rated take-off horsepower or the
equivalent of such horsepower, and in the case of such Engines, whether or not
such Engines shall be installed in or attached to the Airframes, described in
this clause or any other airframes, together with all accessories, equipment,
parts and appurtenances appertaining or attached to the Airframes (other than
jet aircraft engines not constituting Engines) or the Engines, whether now
owned or hereafter acquired, and all substitutions, renewals and replacements
of and additions, improvements, accessions and accumulations to the Airframe
and Engines and all records, logs and other documents at any time maintained
with respect to the foregoing;

 

(b)                                 the Contract Rights;

 

(c)                                  all
proceeds with respect to the requisition of title to or use of the Aircraft, or
any part thereof, all insurance proceeds with respect to the Aircraft or any
part thereof, and any other proceeds of any kind resulting from an Event of
Loss, but excluding any insurance maintained by the Company and not required
under Section 3.6 hereof;

 

(d)                                 all
moneys and securities now or hereafter paid or deposited or required to be paid
or deposited to or with the Collateral Agent in pledge hereunder and held or
required to be held by the Collateral Agent hereunder;

 

(e)                                  any
and all property that may, from time to time hereafter, in accordance with the
provisions of this Mortgage, by delivery or by Mortgage Supplement or by other
writing of any kind, for the purposes hereof be in any way subjected to the
lien and security interest hereof or be expressly conveyed, mortgaged,
assigned, transferred, deposited, in which a security interest may be granted
by the Company and/or pledged by the Company, or by any Person authorized to so
do on its behalf or with its consent, to and with the Collateral Agent, who is
hereby authorized to receive the same at any and all times as and for
additional security hereunder; and

 

(f)                                    all proceeds of the foregoing.

 

PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions
of this Section 2.1, so long as no Event of Default shall have occurred
and be continuing, (i) the Company shall have the right, to the exclusion of
the Collateral Agent, to quiet enjoyment of the Airframe and Engines, and to
possess, use, retain and control the Airframe and Engines and all revenues,
income and profits derived therefrom and (ii) the Collateral Agent, acting on
behalf of

 

 

the Secured Creditors, (A) shall not, through it own actions or
inactions, interfere with, or suffer to exist with respect to any Aircraft any
Lien attributable to the Collateral Agent which might interfere with, the
Company’s (or any Lessee’s) continued possession, use and operation of, and
quiet enjoyment (including, without limitation, administrative quiet enjoyment)
of, the Aircraft during the term of this Mortgage in accordance with the terms
of the Loan Documents so long as no Event of Default shall have occurred and be
continuing, (B) shall not suffer to exist a default in any of its obligations
pursuant to this Mortgage that does not correspond to or result from an Event
of Default or Default and (C) neither the Collateral Agent nor any Secured
Creditor shall assign this Mortgage for security purposes without the prior
written consent of the Company, which may be granted or withheld in its sole
discretion (such consent, if granted, to be conveyed by the Company in writing).

 

TO HAVE AND TO HOLD the Collateral unto the Collateral Agent, its
permitted successors and assigns, forever, upon the terms herein set forth, in
trust for the benefit, security and protection of the Secured Creditors,
without any priority of any one Secured Creditor over any other, and for the
uses and purposes and subject to the terms and provisions set forth in this
Mortgage.

 

It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Company and the Guarantors shall remain liable under each
of the Loan Documents to which they are party to perform all of the obligations
assumed by them thereunder, all in accordance with and pursuant to the terms
and provisions thereof, and neither the Administrative Agent, the Collateral Agent
nor the Lenders shall have any obligation or liability under any of the Loan
Documents to which the Company or the Guarantors is a party by reason of or
arising out of the assignment hereunder, nor shall the Administrative Agent,
the Collateral Agent or the Lenders be required or obligated in any manner to
perform or fulfill any obligations of the Company or the Guarantors under any
of the Loan Documents to which the Company or the Guarantors is a party, or,
except as herein expressly provided, to make any payment, or to make any
inquiry as to the nature or sufficiency of any payment received by it, or
present or file any claim, or take any action to collect or enforce the payment
of any amounts which may have been assigned to it or to which it may entitled
at any time or times.

 

The Company does hereby irrevocably constitute and appoint the
Collateral Agent the true and lawful attorney of the Company (which appointment
is coupled with an interest) with full power (in the name of the Company or
otherwise) to ask, require, demand, receive, compound and give acquittance for
any and all moneys and claims for moneys (in each case including insurance and
requisition proceeds) and all other property which now or hereafter constitutes
part of the Collateral, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or to take any action or to
institute any proceeding which the Collateral Agent may deem to be necessary or
advisable in the premises; provided that the
Collateral Agent shall not exercise any such rights except upon the occurrence
and during the continuance of an Event of Default.

 

The Company agrees that at any time and from time to time, upon the
written request of the Collateral Agent, the Company will promptly and duly
execute and deliver or cause to be duly executed and delivered any and all such
further instruments and documents as

 

 

the Collateral Agent may reasonably deem
desirable in obtaining the full benefits of the assignment hereunder and of the
rights and powers herein granted.

 

The Company does hereby warrant and represent that it has not assigned
or pledged, and hereby covenants that it will not assign or pledge, so long as
the assignment hereunder shall remain in effect, any of its right, title or
interest hereby assigned, to anyone other than the Collateral Agent.

 

ARTICLE 3

GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

 

SECTION 3.1. 
General.

 

The Company represents, warrants and
covenants, which representations, warranties and covenants shall survive
execution and delivery of this Mortgage, as follows:

 

(a)                                  Necessary
Filings.

 

All filings, registrations and recordings necessary to create,
preserve, protect and perfect the security interest granted by the Company to
the Collateral Agent hereby in respect of the Collateral have been accomplished
and the security interest granted to the Collateral Agent pursuant to this
Mortgage in and to the Collateral constitutes a perfected security interest
therein prior to the rights of all other Persons therein and subject to no
other Liens (other than Permitted Liens) and is entitled to all the rights,
priorities and benefits afforded by the Federal Aviation Act and other relevant
law as enacted in any relevant jurisdiction to perfected security interests.

 

(b)                                 No
Liens.

 

The Company is, and as to Collateral acquired by it from time to time
after the date hereof the Company will be, the owner of all Collateral free
from any Lien, security interest, encumbrance or other right, title or interest
of any Person (other than Permitted Liens), and the Company shall defend the
Collateral against all claims and demands of all Persons (other than Persons
claiming by, through or under the Collateral Agent) at any time claiming the
same or any interest therein adverse to the Collateral Agent.

 

(c)                                  Other
Financing Statements.

 

There is no financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) covering or purporting to cover
any interest of any kind in the Collateral (other than Permitted Liens), and so
long as the Commitments have not been terminated or any Letter of Credit
remains outstanding or any of the Reimbursement Obligations or the other
Obligations remain unpaid, the Company will not execute or authorize to be
filed in any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except financing statements filed or to be filed in
respect of and covering the security interests granted hereby by the Company.

 

 

(d)                                 Chief
Executive Office; State of Incorporation.

 

The chief executive office of the Company is located at 2700 Lone Oak
Parkway, Eagan, Minnesota 55121 and the Company is incorporated in the state of
Minnesota. The Company will not move its chief executive office or change its
jurisdiction of incorporation until it shall have given the Collateral Agent 30
days’ prior written notice of its intention to do so and the Company will
provide such other information in connection therewith as the Collateral Agent
may reasonably request.

 

(e)                                  Name.

 

The name of the Company is Northwest Airlines, Inc.  The Company will not change its name until
(i) it shall have given to the Collateral Agent not less than 30 days’
prior written notice of its intention to do so, (ii) with respect to such
new name, it shall have taken all action, satisfactory to the Collateral Agent,
to maintain the security interest of the Collateral Agent in the Collateral
intended to be granted hereby at all times fully perfected and in full force
and effect, (iii) at the request of the Collateral Agent, it shall have
furnished an opinion of counsel acceptable to the Collateral Agent to the
effect that all financing or continuation statements and amendments or
supplements thereto have been filed in the appropriate filing office or
offices, and (iv) the Collateral Agent shall have received evidence that
all other actions (including, without limitation, the payment of all filing
fees and taxes, if any, payable in connection with such filings) have been
taken, in order to perfect (and maintain the perfection and priority of) the
security interest granted hereby.

 

(f)                                    Recourse.

 

This Mortgage is made with full recourse to the Company and pursuant to
and upon all the warranties, representations, covenants and agreements on the
part of the Company contained herein, in the other Loan Documents and otherwise
in writing in connection herewith or therewith.

 

SECTION 3.2. 
Possession, Operation and Use, Maintenance and
Registration.

 

(a)                                  Possession.

 

The Company shall not, without the prior written consent of the
Collateral Agent, lease or otherwise in any manner deliver, transfer or
relinquish possession of any Airframe, Engine or Part, install or permit any
Engine to be installed in any airframe other than the Airframes or enter into
any Wet Lease; provided
that so long as no Default of the type referred to in Sections 8(a) or (f) of
the Credit Agreement or Event of Default shall have occurred and be continuing
at the time of such lease, delivery, transfer or relinquishment of possession
or installation or such Wet Lease, so long as the action to be taken shall not
deprive the Collateral Agent of the first priority Lien (subject to Permitted
Liens) of this Mortgage on the Collateral and so long as the Company (or any
Lessee) shall comply with the provisions of Sections 3.2(c) and 3.6 hereof, the
Company may, without the prior written consent of the Collateral Agent:

 

(i)                                     subject any Airframe or Engine or engines installed on an
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 the
Company (or any Lessee) in the ordinary course of its business; provided that (A) no such agreement or arrangement contemplates or
requires the transfer of title to any Airframe, (B) if the Company’s title to
any Engine shall be divested under any such agreement or arrangement, such
divestiture shall be deemed to be an Event of Loss with respect to such Engine
and the Company shall (or shall cause Lessee to) comply with Section 3.4(e)
hereof in respect thereof, and (C) any interchange agreement to which the
Airframes may be subject shall be with a U.S. Air Carrier or a Foreign Air
Carrier;

 

(ii)                                  deliver
possession of any Airframe or Engine to the manufacturer thereof (or for
delivery thereto) or to any organization (or for delivery thereto) for testing,
service, repair, maintenance or overhaul work on such Airframe or Engine or any
part thereof or for alterations or modifications in or additions to such
Airframe or Engine to the extent required or permitted by the terms of Section 3.4(d)
hereof;

 

(iii)                               install
any Engine on an airframe which is owned by the Company (or any Lessee) free
and clear of all Liens, except: (A) Permitted Liens and those which apply only
to the engines (other than Engines), appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment (other than Parts)
installed on such airframe (but not to the airframe as an entirety), (B) the
rights of third parties under interchange agreements which would be permitted
under clause (i) above provided that the
Company’s title to any such Engine and the first priority Lien of this Mortgage
shall not be divested or impaired as a result thereof and (C) mortgage liens or
other security interests, provided that (as
regards this subclause (C)) such mortgage liens or other security interests
effectively provide that such Engine shall not become subject to such mortgage
or security interest, notwithstanding the installation thereof on such
airframe;

 

(iv)                              install
any Engine on an airframe which is leased to the Company (or any Lessee) or
purchased by the Company (or any Lessee) subject to a conditional sale or other
security agreement, provided that (x) such
airframe is free and clear of all Liens, except: (A) the rights of the parties
to the lease or conditional sale or other security agreement covering such
airframe, or their assignees, and (B) Liens of the type permitted by clause
(iii) of this Section 3.2(a) and (y) such lease, conditional sale or other
security agreement effectively provides that such Engine shall not become
subject to the lien of such lease, conditional sale or other security
agreement, notwithstanding the installation thereof on such airframe;

 

(v)                                 install
any Engine on an airframe owned by the Company (or any Lessee), leased to the
Company (or any Lessee) or purchased by the Company (or any Lessee) which is
subject to a conditional sale or other security agreement under circumstances
where neither clause (iii) nor clause (iv) of this Section 3.2(a) is
applicable, provided that such
installation shall be deemed an Event of Loss with respect to such Engine and
that the Company shall (or shall cause any Lessee to) comply with Section 3.4(e)
hereof in respect thereof, the Collateral Agent not intending hereby to waive
any right or interest it may have to or in such Engine under applicable law
until compliance by the Company with such Section 3.4(e);

 

 

(vi)                              to
the extent permitted by Section 3.4(c) hereof, subject any appliances,
Parts or other equipment owned by the Company and removed from any Airframe or
Engine to any pooling arrangement referred to in such Section;

 

(vii)                           subject
(or permit any Lessee to subject) any Airframe or Engine to the Civil Reserve
Air Fleet Program and transfer (or permit any Lessee to transfer) possession of
any Airframe or Engine to the United States of America or any instrumentality
or agency thereof pursuant to the Civil Reserve Air Fleet Program, so long as
the Company (or any Lessee) shall (A) promptly notify the Collateral Agent upon
subjecting such Airframe or Engine to the Civil Reserve Air Fleet Program in
any contract year and provide the Collateral Agent with the name and address of
the Contracting Office Representative for the Air Mobility Command of the
United States Air Force to whom notice must be given pursuant to Section 4.2
hereof, and (B) promptly notify the Collateral Agent upon transferring
possession of the Airframe or any Engine to the United States of America or any
agency or instrumentality thereof pursuant to such program;

 

(viii)                                                enter
into a Wet Lease for any Airframe or engines then installed thereon with any
third party, provided that if the
Company (or any Lessee) shall enter into any Wet Lease for a period of more
than one year (including renewal options) the Company shall provide to the
Collateral Agent written notice of such Wet Lease (such notice to be given
prior to entering into such Wet Lease, if practicable, but in any event
promptly after entering into such Wet Lease);

 

(ix)                                transfer
possession of any Airframe or Engine to the United States of America or any
instrumentality or agency thereof pursuant to a contract, a copy of which shall
be provided to the Collateral Agent, or

 

(x)                                   enter,
any time, into any lease of any Airframe or Engine with (A) a U.S. Air Carrier,
(B) any Person approved in writing by the Collateral Agent (with the approval
of the Required Lenders), (C) any Permitted Lessee, or (D) any airline alliance
partner of the Company that otherwise meets the requirement of (A), (B) or (C)
above or has been previously approved in writing by the Collateral Agent, in
any such case, if (1) the lessee under such lease is not subject to a
proceeding or final order under applicable bankruptcy, insolvency or
reorganization laws on the date such lease is entered into, (2) in the event
that the lessee under such lease is a Foreign Air Carrier (other than a Foreign
Air Carrier principally based in Taiwan), the United States maintains
diplomatic relations with the country in which such Foreign Air Carrier is
principally based at the time such lease is entered into (or, in the case of a
lease to a lessee principally based in Taiwan, maintains diplomatic relations
at least as good as those in effect on the Effective Date) and (3) in the event
that the lessee under such lease is a Foreign Air Carrier, the Collateral Agent
shall receive at the time such lease is entered into an opinion of counsel (in
form and substance reasonably satisfactory to the Collateral Agent) to the
Company to the effect that (I) the terms of the proposed lease will be legal,
valid, binding and (subject to customary exceptions in foreign opinions generally)
enforceable against the proposed lessee in the country in which the proposed
lessee is principally based, (II) there exist no possessory rights in favor of
the lessee under such lease under the laws of such lessee’s

 

 

country of domicile that would, upon
bankruptcy or insolvency of or other default by the Company and assuming at
such time such lessee is not insolvent or bankrupt, prevent the return or
repossession of the Aircraft in accordance with the terms of this Mortgage,
(III) the laws of such lessee’s country of domicile require fair compensation
by the government of such jurisdiction payable in currency freely convertible
into Dollars for the loss of use of the Aircraft in the event of the
requisition by such government of such use, and (IV) the laws of such lessee’s
country of domicile would give recognition to the Company’s title to the
Aircraft, to the registry of the Aircraft in the name of the Company (or the
proposed lessee, as “lessee,” as appropriate), and to the Lien of this Mortgage.

 

The rights of any Lessee or other transferee who receives possession by
reason of a transfer permitted by this Section 3.2(a) (other than the
transfer of an Engine which is deemed an Event of Loss) shall be effectively
subject and subordinate to, and any lease permitted by this Section 3.2(a)
shall be expressly subject and subordinate to, all the terms of this Mortgage
and to the Lien of this Mortgage, including, without limitation, the covenants
contained in this Section 3.2 and the Collateral Agent’s rights to
foreclosure and possession pursuant to Section 4.2 hereof and to avoid
such lease upon such repossession, and the Company shall remain primarily
liable hereunder for the performance of all of the terms of this Mortgage to
the same extent as if such lease or transfer had not occurred, and, except as
otherwise provided herein, the terms of any such lease shall not permit any
Lessee to take any action not permitted to be taken by the Company in this
Mortgage with respect to the Aircraft. No pooling agreement, lease or other
relinquishment of possession of any Airframe or Engine, or Wet Lease shall in
any way discharge or diminish any of the Company’s obligations to the
Collateral Agent hereunder or constitute a waiver of the Collateral Agent’s
rights or remedies hereunder. Any lease permitted under this Section 3.2(a)
shall expressly prohibit any further sublease by the Lessee. The Collateral
Agent agrees, for the benefit of the Company (and any Lessee) and for the
benefit of any mortgagee or other holder of a security interest in any engine
(other than an Engine) owned by the Company (or any Lessee), any lessor of any
engine (other than an Engine) leased to the Company (or any Lessee) and any
conditional vendor of any engine (other than an Engine) purchased by the
Company (or any Lessee) subject to a conditional sale agreement or any other
security agreement, that no interest shall be created hereunder in any engine
so owned, leased or purchased and that neither the Collateral Agent nor its
successors or assigns will acquire or claim, as against the Company (or any
Lessee) or any such mortgagee, lessor or conditional vendor or other holder of
a security interest or any successor or assignee of any thereof, any right,
title or interest in such engine as the result of such engine being installed
on the Airframes; provided,
however, that such agreement of the Collateral Agent shall not be
for the benefit of any lessor or secured party of any airframe (other than the
Airframes) leased to the Company (or any Lessee) or purchased by the Company
(or any Lessee) subject to a conditional sale or other security agreement or
for the benefit of any mortgagee of or any other holder of a security interest
in an airframe owned by the Company (or any Lessee), unless such lessor,
conditional vendor, other secured party or mortgagee has expressly agreed
(which agreement may be contained in such lease, conditional sale or other
security agreement or mortgage) that neither it nor its successors or assigns
will acquire, as against the Collateral Agent, any right, title or interest in
an Engine as a result of such Engine being installed on such airframe. The
Company shall provide to the Collateral Agent (i) written notice of any
lease hereunder (such notice to be given not later than five days prior to
entering into such lease) and (ii) a copy of each lease which has a term of
more than three months.

 

 

(b)                                 Operation
and Use.

 

The Company will not maintain, use, service, repair, overhaul or
operate the Aircraft (or permit any Lessee or other Person to maintain, use,
service, repair, overhaul or operate the Aircraft) in violation of any law or
any rule, regulation, order or certificate of any government or governmental
authority (domestic or foreign) having jurisdiction, or in violation of any
airworthiness certificate, license or registration relating to the Aircraft
issued by any such authority, except to the extent that the Company (or any
Lessee) is contesting in good faith the validity or application of any such
law, rule, regulation or order in any reasonable manner which does not
adversely affect the first priority Lien (subject to Permitted Liens) of this
Mortgage and does not involve any material risk of sale, forfeiture or loss of
the Aircraft.

 

The Company shall not operate the Aircraft, or permit any Lessee to
operate the Aircraft, in any area excluded from coverage by any insurance
required by the terms of Section 3.6 hereof, provided, however, that the failure of the Company to comply with the
provisions of this sentence shall not give rise to an Event of Default
hereunder where such failure is attributable to causes beyond the reasonable
control of the Company (or any Lessee) or to extraordinary circumstances
involving an isolated occurrence or series of incidents not in the ordinary
course of the regular operations of the Company (or any Lessee) and in each
case the Company (or such Lessee, as the case may be) is taking all reasonable
steps to remedy such failure as soon as is reasonably practicable.

 

(c)                                  Maintenance.

 

The Company, at its own cost and expense, shall (or shall cause any
Lessee to) maintain, service, repair and overhaul (or cause to be maintained,
serviced, repaired and overhauled) the Aircraft so as to keep the Aircraft in
as good an operating condition as when initially subjected to the Lien hereof,
ordinary wear and tear excepted, and as may be necessary to enable the
applicable airworthiness certification for the Aircraft to be maintained in
good standing at all times (other than temporary periods of storage in
accordance with applicable regulations or during maintenance or modification
permitted hereunder) under the Federal Aviation Act, except when all Aircraft
powered by engines of the same type as those with which such Aircraft shall be
equipped at the time of such grounding and registered in the United States have
been grounded by the FAA (although such certification need actually be
maintained only during such period as an Aircraft is registered in the United
States), or the applicable laws of any other jurisdiction in which an Aircraft
may then be registered from time to time in accordance with the terms hereof,
utilizing, except during any period that a Lease is in effect, the same manner
and standard of maintenance, service, repair or overhaul used by the Company
with respect to similar aircraft operated by the Company in similar
circumstances and utilizing, during any period that a Lease is in effect, the
same manner and standard of maintenance, service, repair or overhaul used by
the Lessee with respect to similar aircraft operated by the Lessee in similar
circumstances; provided, however, that
in all circumstances the Aircraft shall be maintained by the Company (or any
Lessee) in accordance with maintenance standards required by, or substantially
equivalent to those required by, the FAA or the central civil aviation
authority of Canada, France, Germany, Japan, the Netherlands or the United
Kingdom. The Company shall maintain or cause to be maintained 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.

 

(d)                                 Identification
of Collateral Agent’s Interest.

 

As soon as practicable, the Company agrees to fix and maintain (or
cause to be fixed and maintained), at its expense, in the cockpit of the
Airframes adjacent to the airworthiness certificate therein and on each Engine
a nameplate bearing the inscription:

 

“SUBJECT TO AN AIRCRAFT MORTGAGE AND SECURITY AGREEMENT IN FAVOR OF THE
CHASE MANHATTAN BANK, AS COLLATERAL AGENT”

 

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

 

(e)                                  Registration.

 

The Company, at its own expense, will (or will cause any Lessee to)
cause the Aircraft to be duly registered, and at all times to remain duly registered,
in the name of the Company under the Federal Aviation Act, provided, however, that the Company may elect to effect a change in the
registration of the Aircraft, at the Company’s expense, with the prior written
consent of the Collateral Agent (which shall not be unreasonably withheld).

 

SECTION 3.3. 
Inspection.

 

At reasonable times and, so long as no Event of Default shall have
occurred and be continuing, on at least 15 days’ prior written notice to the
Company, the Collateral Agent or its authorized representatives may (not more
than once every calendar year (unless an Event of Default has occurred and is
continuing)) inspect the Aircraft and inspect and make copies (at the
Collateral Agent’s expense) of the books and records of the Company relating to
the maintenance of the Aircraft; any such inspection of the Aircraft shall be
limited to a visual, walk-around inspection and shall not include opening any
panels, bays or the like without the express consent of the Company; provided that no exercise of such inspection rights shall interfere
with the normal operation or maintenance of the Aircraft by, or the business
of, the Company or any Lessee. The Collateral Agent shall not have any duty to
make any such inspection and shall not incur any liability or obligation by
reason of not making any such inspection.

 

 

SECTION 3.4. 
Replacement and Pooling of Parts; Alterations,
Modifications and Additions; Substitution of Engines.

 

(a)                                  Replacement
of Parts.

 

The Company, at its own cost and expense, will so long as any Airframe
or Engine is subject to the Lien of this Mortgage promptly replace or cause to
be replaced all Parts which may from time to time be incorporated or installed
in or attached to such Airframe or Engine and which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use for any reason whatsoever, except
as otherwise provided in Section 3.4(d) hereof or if any Airframe or any
Engine to which a Part relates has suffered an Event of Loss. In addition, the
Company (or any Lessee) may, at its own cost and expense, remove in the
ordinary course of maintenance, service, repair, overhaul or testing, any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use, provided that the Company (or such Lessee), except as otherwise
provided in Section 3.4(d) hereof, will, at its own cost and expense,
replace such Parts as promptly as practicable. All replacement Parts shall be
free and clear of all Liens (except Permitted Liens and pooling arrangements to
the extent permitted by Section 3.4(c) and except in the case of
replacement property temporarily installed on an emergency basis) and shall be
in as good operating condition as, and shall have a value and utility at least
equal to, the Parts replaced assuming such replaced Parts were in the condition
and repair required to be maintained by the terms hereof

 

(b)                                 Parts.

 

Except as otherwise provided in Section 3.4(d) hereof, all Parts
at any time removed from any Airframe or Engine shall remain subject to the
Lien of this Mortgage, no matter where located, until such time as such Parts
shall be replaced by parts that have been incorporated or installed in or
attached to such Airframe or Engine and which meet the requirements for
replacement parts specified in Section 3.4(a) hereof.  Immediately upon any replacement part
becoming incorporated or installed in or attached to any Airframe or Engine as
provided in Section 3.4(a) hereof, without further act (subject only to
Permitted Liens and any pooling arrangement to the extent permitted by Section 3.4(c)
hereof and except in the case of replacement property temporarily installed on
an emergency basis), (i) title to such replacement Part shall be owned by the
Company, (ii) the replaced Part shall thereupon be free and clear of all rights
of the Collateral Agent and the replacement part shall be deemed a Part
hereunder; and (iii) such replacement Part shall become subject to the Lien of
this Mortgage and be deemed part of such Airframe or Engine, as the case may
be, for all purposes hereof to the same extent as the Parts originally
incorporated or installed in or attached to such Airframe or Engine.

 

(c)                                  Pooling
of Parts.

 

Any Part removed from any Airframe or Engine as provided in Section 3.4(a)
hereof may be subjected by the Company (or any Lessee) to a normal pooling
arrangement customary in the airline industry of which the Company (or any
Lessee) is a party entered into in the ordinary course of the Company’s (or
such Lessee’s) business; provided that the Part
replacing such removed Part shall be incorporated or installed in or attached
to such Airframe or

 

 

Engine in accordance with Sections 3.4(a) and 3.4(b) hereof as promptly
as practicable after the removal of such removed Part. In addition, any
replacement part when incorporated or installed in or attached to any Airframe
or any Engine in accordance with Section 3.4(a) hereof may be owned by any
third party subject to such a normal pooling arrangement, provided that the Company (or any Lessee), at its expense, as
promptly thereafter as practicable, either (i) causes such replacement Part to
become subject to the Lien of this Mortgage, free and clear of all Liens except
Permitted Liens (other than pooling arrangements), at which time such temporary
replacement Part shall become a Part or (ii) replaces such replacement Part by
incorporating or installing in or attaching to such Airframe or Engine a
further replacement Part which is subject to the Lien of this Mortgage, free
and clear of all Liens except Permitted Liens (other than pooling
arrangements).

 

(d)                                 Alterations;
Modifications and Additions.

 

The Company, at its own expense, will make (or cause to be made) such
alterations and modifications in and additions to any Airframe or Engine as may
be required to be made from time to time to meet the applicable standards of
the FAA or any applicable regulatory agency or body of any other jurisdiction
in which the Aircraft may then be registered as permitted by Section 3.2(e)
hereof, provided, however, that the
Company (or any Lessee) may, in good faith, contest the validity or application
of any such law, rule, regulation or order in any reasonable manner which does
not adversely affect the Collateral Agent. In addition, the Company (or any
Lessee), at its own expense, may from time to time add further parts or
accessories and make such alterations and modifications in and additions to any
Airframe or Engine as the Company (or such Lessee) may deem desirable in the
proper conduct of its business, including, without limitation, removal of Parts
which the Company (or such Lessee) has determined in its reasonable judgment to
be obsolete or no longer suitable or appropriate for use on such Airframe or
Engine (such parts, “Obsolete Parts”); provided that no such alteration, modification or addition shall
materially diminish the value, utility or remaining useful life of such
Airframe or Engine below the value, utility or remaining useful life thereof
immediately prior to such alteration, modification or addition, assuming such
Airframe or Engine was then in the condition required to be maintained by the
terms of this Mortgage, except that the value (but not the utility or remaining
useful life) of any Airframe or Engine may be reduced by the value of Obsolete
Parts which have been removed so long as the aggregate original value of all
Obsolete Parts that shall have been removed and not replaced with respect to
any Aircraft shall not exceed an amount equal to 1.5% of the Appraised Value of
such Aircraft. All Parts incorporated or installed in or attached or added to
the Airframes or the Engines as the result of such alteration, modification or
addition (the “Additional Parts”) shall become subject to the Lien of
this Mortgage. Notwithstanding the foregoing sentence, the Company (or any
Lessee) may remove or suffer to be removed any Additional Part, provided that such Additional Part (i) is in addition to, and not in
replacement of or in substitution for, any Part originally incorporated or
installed in or attached to such Airframe or Engine at the time of delivery
thereof hereunder or any Part in replacement of, or in substitution for, any
such Part, (ii) is not required to be incorporated or installed in or attached
or added to such Airframe or Engine pursuant to the terms of Section 3.2(a)
or (c) hereof or the first sentence of this Section 3.4(d), and (iii) can
be removed from such Airframe or Engine without diminishing or impairing the
value, utility or remaining useful life which such Airframe or Engine would
have had at the time of removal had such alteration, modification or addition
not occurred, assuming that such Airframe or Engine

 

 

was in the condition and repair required to be
maintained by the terms hereof. Upon the removal by the Company (or any Lessee)
of any such part as above provided, such part shall, without further act, be
free and clear of all rights of the Collateral Agent and such Part shall not be
deemed a Part hereunder.

 

(e)                                  Substitution
of Engines.

 

The Company shall have the right at its option at any time, on at least
twenty (20) days’ prior written notice to the Collateral Agent, to substitute,
and if an Event of Loss shall have occurred with respect to an Engine (not
involving an Event of Loss with respect to the Airframe to which such Engine is
attached with respect to which the Company reduces the Total Revolving
Commitments as required by Section 7.5(a)(iii) of the Credit Agreement or
makes the substitution permitted by Section 3.5(a) hereof), shall within
thirty (30) days after the occurrence of such Event of Loss substitute, a
Replacement Engine of the same make and model. In such event, immediately upon
the effectiveness of such substitution on the date set forth in such notice and
without further act, (i) the replaced Engine shall thereupon be free and
clear of all rights of the Collateral Agent and shall no longer be deemed an
Engine hereunder, and (ii) such Replacement Engine shall become subject to
the Lien of this Mortgage, free and clear of all Liens except Permitted Liens,
and be deemed part of the relevant Aircraft for all purposes hereof to the same
extent as the Engine originally installed on or attached to the Airframe. The
Company’s right to make a replacement hereunder shall be subject to the
fulfillment of the following conditions precedent at the Company’s sole cost
and expense:

 

(i)                                     The
following documents shall have been duly authorized, executed and delivered by
the respective party or parties thereto and shall be in full force and effect,
and an executed counterpart of each shall have been delivered to the Collateral
Agent (except that any financing statements under the UCC shall only be
executed if so required by the UCC):

 

(A)                              a Mortgage Supplement
covering the Replacement Engine (filed for recording pursuant to the Federal
Aviation Act, or the applicable laws, rules and regulations of any other
jurisdiction in which the relevant Aircraft may then be registered as permitted
hereby);

 

(B)                                an Officer’s
Certificate of the Company stating (i) that the Replacement Engine is of
at least equal value, utility and remaining useful life as the Engine it
replaces assuming such Engine had been maintained in the condition required
hereunder and (ii) each of the conditions specified in this paragraph (e) with
respect to such Replacement Engine, and any comparable provisions of any Lease
permitted hereby to which such Engine is subject, have been satisfied;

 

(C)                                such UCC financing
statements covering the Lien created by this Mortgage as deemed necessary or
desirable by counsel for the Collateral Agent to protect the security interests
of the Collateral Agent in the Replacement Engine; and

 

(D)                               a
certificate, reasonably acceptable to the Collateral Agent in form

 

 

and substance, of an aircraft engineer or qualified independent
aircraft appraiser certifying, with respect to such Replacement Engine, to the
effect specified in Section 3.4(e)(i)(B) hereof;

 

(ii)                                  Upon
request by the Collateral Agent, the Company shall furnish the Collateral Agent
with (A) an opinion addressed to the Collateral Agent, reasonably satisfactory
in form and substance to the Collateral Agent, of the Company’s counsel, which
may be the Company’s General Counsel or an Associate General Counsel, to the
effect that such documents reasonably requested by the Collateral Agent are
sufficient to cause such Replacement Engine to be subject to the Lien of this
Mortgage, (B) upon recordation, an opinion of qualified FAA counsel, or if
applicable, qualified counsel in the jurisdiction of the relevant Aircraft’s
registration addressed to the Collateral Agent, in either case satisfactory in
form and substance to the Collateral Agent as to the due recordation of the
Mortgage Supplement as a first priority Lien on the Replacement Engine,
registration of the ownership of the Replacement Engine and the freedom from
Liens of record (except Permitted Liens), and (C) such evidence of compliance
with the insurance provisions of Section 3.6(b) hereof with respect to
such Replacement Engine as the Collateral Agent may reasonably request; and

 

(iii)                               The
Company shall have delivered to the Collateral Agent (A) a copy of the bill of
sale respecting such Replacement Engine or other evidence of the Company’s
ownership of such Replacement Engine, reasonably satisfactory to the Collateral
Agent and (B) appropriate instruments assigning to the Collateral Agent the
benefits, if any, of all manufacturer’s and vendor’s warranties generally
available and permitted to be assigned by the Company with respect to such
Replacement Engine.

 

Upon such substitution, (x) the Collateral Agent shall execute and
deliver to the Company such documents and instruments, prepared at the Company’s
expense, as the Company shall reasonably request, to evidence the release of
such replaced Engine from the Lien of this Mortgage; (y) the Collateral Agent
shall assign to the Company all claims it may have against any other Person
relating to an Event of Loss of such replaced Engine giving rise to such
substitution; and (z) the Company shall receive all insurance proceeds and
proceeds in respect of any Event of Loss of such replaced Engine giving rise to
such replacement to the extent not previously applied to the purchase price of
the Replacement Engine as provided in Sections 3.6(b)(I), second paragraph, and
3.5(d)(ii) hereof.

 

(f)                                    Substitution of Aircraft.

 

(I)                                    The Company shall
have the right at its option at any time, on at least five (5) Business Days’
prior written notice to the Collateral Agent, to substitute for one or more
Aircraft one or more Replacement Aircraft so long as on the date of such
replacement no Event of Default shall have occurred and be continuing, such
Replacement Aircraft are free and clear of all Liens except Permitted Liens and
the aggregate appraised value (as determined by an appraisal, dated not more
than ten Business Days prior to the date of such substitution, by an
independent appraisal firm satisfactory, at the time of such appraisal, to the Collateral
Agent setting forth the fair market value, as determined in accordance with the
definition of “fair market value”

 

 

promulgated by
the International Society of Transport Aircraft Trading, as of the date of such
appraisal, of the Replacement Aircraft) of the Replacement Aircraft shall be
not less than the aggregate Appraised Value of the Aircraft for which the
Replacement Aircraft are being substituted.

 

(II)                                Upon the Company having provided
Replacement Aircraft as provided for in Section 3.4(f)(I) above, the Lien
of the Mortgage shall continue with respect to such Replacement Aircraft as
though no substitution had occurred; the Collateral Agent shall, at the cost
and expense of the Company, release from the Lien of this Mortgage the replaced
Aircraft upon the occurrence of the substitution by executing and delivering to
the Company such documents and instruments, prepared at the Company’s expense,
as the Company may reasonably request to evidence such release.

 

(III)                            Conditions to Aircraft Substitution.

 

(i)                                     The Company’s right to make a substitution
under Section 3.4(f)(I) hereof shall be subject to the fulfillment, at the
Company’s sole cost and expense and in addition to the conditions contained in
such Section 3.4(f)(I), of the following conditions precedent:

 

(A)                              a Mortgage Supplement covering the Replacement Aircraft (filed for
recording pursuant to the Federal Aviation Act, or the applicable laws, rules and regulations of any other
jurisdiction in which the relevant Aircraft may then be registered as permitted
hereby);

 

(B)                                an appraisal for the
Replacement Aircraft satisfying the requirements of Section 3.4(f)(I)
above;

 

(C)                                such Uniform Commercial Code financing statements covering the Lien
created by this Mortgage as deemed necessary or desirable by counsel for the
Collateral Agent to protect the security interests of the Collateral Agent in
the Replacement Aircraft; and

 

(ii)                                  the Collateral Agent shall have received from
the Company such documents and evidence with respect to the Company as the
Collateral Agent may reasonably request in order to establish the consummation
of the transactions contemplated by this Section 3.4(f), evidence of
taking of all necessary corporate action in connection therewith and compliance
with the conditions set forth in this Section 3.4(f), in each case in form
and substance reasonably satisfactory to the Collateral Agent;

 

(iii)                               the Company shall cause the Replacement
Aircraft to be subject to the Lien of this Mortgage, free and clear of Liens
(other than Permitted Liens);

 

(iv)                              the Replacement Aircraft shall have been duly
certified by the FAA or the relevant body or agency of the jurisdiction then
applicable to the registration of the Aircraft to be replaced as to type and
airworthiness in accordance with the terms of this Mortgage, and the
registration of the Replacement Aircraft in the name of the Company (or any
Lessee as lessee if the Aircraft to be replaced had been so registered
immediately

 

 

prior to such substitution) shall have been duly
made with the FAA or the relevant body or agency of the jurisdiction then
applicable to the registration of the Airframe to be replaced;

 

(v)                                 the Collateral Agent shall have received
evidence satisfactory to it with respect to the matters covered by
subparagraphs (iii) and (iv) above;

 

(vi)                              the Collateral Agent shall, at the expense of
the Company, have received (A) an opinion addressed to the Collateral Agent,
reasonably satisfactory in form and substance to the Collateral Agent, from
Cadwalader, Wickersham & Taft or other counsel selected by the Company and
reasonably satisfactory to the Collateral Agent to the effect that (x) the
Replacement Aircraft has or have been made subject to the Lien of this Mortgage
and (y) all required action has been taken in order to maintain, and such
action shall maintain, the effectiveness and priority of the interests in the
Collateral which the Mortgage purports to create and (B) an opinion of
qualified FAA counsel or, if applicable, qualified local counsel in the
jurisdiction where the Aircraft to be replaced is registered, in either case
addressed to the Collateral Agent and in form and substance satisfactory to the
Collateral Agent, respecting the due recordation of the Mortgage Supplement as
a first priority Lien respecting such Replacement Aircraft, the registration of
the ownership thereof and freedom from Liens of record (other than Permitted
Liens);

 

(vii)                           the Company shall have delivered to the
Collateral Agent (A) a copy of the original bill of sale respecting such
Replacement Aircraft, and (B) appropriate instruments assigning to the
Collateral Agent the benefits, if any, of all manufacturer’s and vendor’s
warranties generally available and permitted to be assigned by the Company with
respect to such Replacement Aircraft;

 

(viii)                        the Collateral Agent shall have received
evidence satisfactory to the Collateral Agent as to the due compliance with Section 3.6
hereof with respect to the Replacement Aircraft; and

 

(ix)                                the following statement shall be true and the
Collateral Agent shall have received an Officer’s Certificate of the Company,
dated the date of such substitution, stating that each of the conditions
specified in this paragraph (III) with respect to such Replacement Aircraft,
and any comparable provisions of any lease permitted hereby to which such
Aircraft is subject, have been satisfied.

 

SECTION 3.5. 
Loss, Destruction or Requisition.

 

(a)                                  Event
of Loss With Respect to Airframes.

 

Upon the occurrence of an Event of Loss with respect to an Airframe or
an Engine, the Company shall forthwith (and in any event within ten (10) days
after such occurrence) give the Collateral Agent written notice of such Event
of Loss. The Company shall, within twenty (20) days after the occurrence of an
Event of Loss with respect to such Airframe give the Collateral Agent written
notice of its election to perform one of the following options (it being agreed
that, if the Company shall not have given notice of such election within such
20 day period, the Company shall be required to reduce the Total Revolving
Commitments pursuant to

 

 

Section 7.5(a)(iii) of the Credit
Agreement). The Company may elect either to (i) reduce the Total Revolving
Commitments pursuant to Section 7.5(a)(iii) of the Credit Agreement or
(ii) cause to be subjected to the Lien of this Mortgage in replacement
thereof not later than the Business Day next succeeding the 30th day following
the occurrence of such Event of Loss, a Replacement Airframe (together with the
same number of Replacement Engines as the number of Engines, if any, installed
on such Airframe at the time such Event of Loss occurred), such Replacement
Airframe and Replacement Engines to be free and clear of all Liens except
Permitted Liens, to have a value, utility and remaining useful life at least
equal to, and to be of a comparable or improved model as, such Airframe and
Engines, if any, so replaced, as of the date of the Event of Loss (assuming
such Airframes and Engines were in the condition required by the terms hereof);
provided that if the Company does not
perform its obligation to effect such replacement in accordance with this Section 3.5(a)
during the period of time provided herein, then the Company shall reduce the
Total Revolving Commitments pursuant to Section 7.5(a)(iii) of the Credit
Agreement on the Business Day next succeeding the 30th day following the
occurrence of such Event of Loss.

 

(b)                                 Effect
of Replacement.

 

Upon the Company having provided a Replacement Aircraft as provided for
in Section 3.5(a) above, (x) the Lien of this Mortgage shall continue with
respect to such Replacement Aircraft as though no Event of Loss had occurred;
the Collateral Agent shall, at the cost and expense of the Company, release
from the Lien of this Mortgage the replaced Airframe and Engines or engines, if
any, attached to such Airframe upon the occurrence of the Event of Loss by
executing and delivering to the Company such documents and instruments,
prepared at the Company’s expense, as the Company may reasonably request to
evidence such release and (y) the Collateral Agent shall assign to the Company
all claims it may have against any other Person arising from the Event of Loss
and the Company shall receive all insurance proceeds and proceeds from any
award in respect of condemnation, confiscation, seizure or requisition,
including any investment interest thereon, to the extent not previously applied
to the purchase price of the Replacement Aircraft as provided in Sections
3.5(d)(i) and 3.6 hereof.

 

(c)                                  Conditions
to Airframe Replacement.

 

(i)  The Company’s right to make
a replacement under Section 3.5(a) hereof shall be subject to the
fulfillment, at the Company’s sole cost and expense and in addition to the
conditions contained in such Section 3.5(a), of the following conditions
precedent:

 

(1)                                  on the date that the
Replacement Aircraft is delivered, which date shall be not later than the
Business Day next succeeding the 30th day following the Event of Loss leading
to such replacement (hereinafter referred to as the “Replacement Closing
Date”), no Event of Default shall have occurred and be continuing;

 

(2)                                  on the Replacement Closing Date, the
following documents shall have been duly authorized, executed and delivered by
the respective party or parties thereto and shall be in full force and effect,
and an executed counterpart of each thereof shall have been delivered to the
Collateral Agent (except that any financing statements under the UCC shall only
be executed if so required by the UCC):

 

 

(A)                              a Mortgage Supplement
covering the Replacement Aircraft (filed for recording pursuant to the Federal
Aviation Act, or the applicable laws, rules and regulations of any other
jurisdiction in which the Aircraft to be replaced may then be registered as
permitted hereby);

 

(B)                                such UCC financing statements covering the Lien created by this Mortgage
as deemed necessary or desirable by counsel for the Collateral Agent to protect
the security interests of the Collateral Agent in the Replacement Aircraft; and

 

(C)                                a certificate, reasonably acceptable to the Collateral Agent in form and
substance, of an aircraft engineer or qualified independent aircraft appraiser
Certifying (I) that the Replacement Airframe is the same model as the Airframe
to be replaced (or an improved model, as the case may be) and has a value,
utility and remaining useful life at least equal to the Airframe to be
replaced, assuming such Airframe had been maintained in the condition required
hereunder and (II) with respect to the Replacement Engines constituting part of
such Replacement Aircraft to the effect specified in Section 3.4(e)(i)(B)
hereof;

 

(3)                                  on or before the Replacement Closing Date,
the Collateral Agent shall have received from the Company such documents and
evidence with respect to the Company as the Collateral Agent may reasonably
request in order to establish the consummation of the transactions contemplated
by this Section 3.5(c), evidence of taking of all necessary corporate
action in connection therewith and compliance with the conditions set forth in
this Section 3.5(c), in each case in form and substance reasonably
satisfactory to the Collateral Agent;

 

(4)                                  the Collateral Agent shall have received evidence satisfactory to the
Collateral Agent as to the due compliance with Section 3.6 hereof with
respect to the Replacement Aircraft;

 

(5)                                  on the Replacement Closing Date, (A) the
Company shall cause the Replacement Aircraft to be subject to the Lien of this
Mortgage, free and clear of Liens (other than Permitted Liens), (B) the
Replacement Aircraft shall have been duly certified by the FAA or the relevant
body or agency of the jurisdiction then applicable to the registration of the
Airframe to be replaced as to type and airworthiness in accordance with the
terms of this Mortgage, and the registration of the Replacement Aircraft in the
name of the Company (or any Lessee as lessee if the Aircraft to be replaced had
been so registered immediately prior to the occurrence of the Event of Loss
with respect thereto) shall have been duly made with the FAA or the relevant
body or agency of the jurisdiction then applicable to the registration of the
Airframe to be replaced and (C) the Collateral Agent shall have received
evidence satisfactory to it with respect to the matters covered by this
subparagraph (5);

 

(6)                                  on the Replacement Closing Date, the
following statements shall be true and the Collateral Agent shall have received
an Officer’s Certificate of the Company, dated the Replacement Closing Date,
stating that (A) the matters set forth in

 

 

subparagraph (1) above are confirmed, (B) no
Event of Default will result from the Company acquiring its interest in the
Replacement Aircraft and (C) each of the conditions specified in this paragraph
(c) with respect to such Replacement Airframe, and any comparable provisions of
any lease permitted hereby to which such Airframe is subject, have been
satisfied;

 

(7)                                  the Collateral Agent shall, at the expense of
the Company, have received (A) an opinion addressed to the Collateral Agent,
reasonably satisfactory in form and substance to the Collateral Agent, from
Cadwalader, Wickersham & Taft or other counsel selected by the Company and
reasonably satisfactory to the Collateral Agent to the effect that (i) the
Replacement Airframe and Replacement Engines, if any, has or have been made
subject to the Lien of this Mortgage and (ii) all required action has been
taken in order to maintain, and such action shall maintain, the effectiveness
and priority of the interests in the Collateral which the Mortgage purports to
create and (B) an opinion of qualified FAA counsel or, if applicable, qualified
local counsel in the jurisdiction where the Aircraft to be replaced is
registered, in either case addressed to the Collateral Agent and in form and
substance satisfactory to the Collateral Agent, respecting the due recordation
of the Mortgage Supplement as a first priority Lien respecting such Replacement
Aircraft, the registration of the ownership thereof and freedom from Liens of
record (other than Permitted Liens); and

 

(8)                                  the Company shall have delivered to the
Collateral Agent (A) a copy of the original bill of sale respecting such
Replacement Airframe and Replacement Engines, if any, and (B) appropriate
instruments assigning to the Collateral Agent the benefits, if any, of all
manufacturer’s and vendor’s warranties generally available and permitted to be
assigned by the Company with respect to such Replacement Airframe and/or
Replacement Engine.

 

(d)                                 Non-Insurance
Payments Received on Account of an Event of Loss.

 

As between the Collateral Agent and the Company, any payments on account
of an Event of Loss (other than
insurance proceeds or other payments the application of which is provided for
in Section 3.6 hereof, or elsewhere in this Mortgage, as the case may be,
or payments in respect of damage to the business or property, of the Company)
with respect to any Airframe, Engine or Part received at any time by the
Collateral Agent or by the Company from any governmental authority or other
Person will be applied as follows:

 

(i)                                     if
such payments are received with respect to an Event of Loss as to any Aircraft,
and the relevant Airframe or the relevant Airframe and Engines or engines
installed thereon are being replaced by the Company pursuant to Section 3.5(a)
hereof, such payments shall be paid over to, or retained by, the Collateral Agent
as security and upon completion of such replacement (or upon the closing
therefor) and compliance with the provisions of Sections 3.5(a) and (c) with
respect to the Event of Loss for which such payments are made, paid over to or
retained by the Company;

 

(ii)                                  if such payments are received with respect to an Event of
Loss to an Engine or Part (not involving an Event of Loss as to an Airframe)
that has been or is

 

 

being replaced by
the Company pursuant to Section 3.4(e) hereof, such payments shall be paid
over to, or retained by, the Company; and

 

(iii)                               if
such payments are received with respect to an Event of Loss as to an Aircraft,
if the relevant Airframe or the relevant Airframe and Engines or engines
installed thereon has not or have not been and will not be replaced as
contemplated by Section 3.5(a) hereof, such payments shall be applied to
the prepayment required pursuant to Section 3.2(b) of the Credit Agreement
and the payment of any other Obligations then due and payable and thereafter,
the balance, if any, of such payment shall be promptly paid over to, or
retained by, the Company.

 

(e)                                  Requisition
of Use.

 

In the event of a requisition for use by any government, so long as it
does not constitute an Event of Loss, of any Airframe and the Engines or
engines installed on such Airframe so long as any Airframe or Engine is subject
to the Lien of this Mortgage, the Company shall promptly notify the Collateral
Agent of such requisition and all of the Company’s obligations under this
Mortgage shall continue to the same extent as if such requisition had not
occurred. So long as no Event of Default shall have occurred and be continuing,
any payments received by the Collateral Agent or the Company from such
government with respect to such requisition of use shall be paid over to, or
retained by, the Company. In the event of an Event of Loss of an Engine
resulting from the requisition for use by a government of such Engine (but not
an Airframe), the Company will replace such Engine hereunder by complying with
the terms of Section 3.4(e) hereof and any payments received by the
Collateral Agent or the Company from such government with respect to such
requisition shall be paid over to, or retained by, the Company.

 

(f)                                    Application
of Payments During Existence of Event of Default.

 

Any amount referred to in this Section 3.5 which is payable to the
Company (or any Lessee) shall not be paid to or retained by the Company (or
such Lessee), if at the time of such payment or retention an Event of Default
shall have occurred and be continuing, but shall be held by or paid over to the
Collateral Agent as security for the Obligations and, if the aggregate unpaid
principal amounts of the Loans shall be declared to be due and payable pursuant
to the Credit Agreement, applied against the Obligations as and when due. Upon
the earlier of (a) such time as there shall not be continuing any such Event of
Default or (b) the termination of this Mortgage in accordance with Section 7.12,
such amount, and any interest realized thereon pursuant to Section 6.1
hereof, shall be paid over to the Company (or such Lessee) to the extent not
previously applied in accordance with the preceding sentence.

 

SECTION 3.6. 
Insurance.

 

(a)                                  Public
Liability and Property Damage Insurance.

 

(I)  Except as provided in clause (II) of this Section 3.6(a),
the Company will carry or cause to be carried at its or any Lessee’s expense
(i) aircraft public liability (including, without limitation, passenger
legal liability) (and including aircraft war risk and hijacking insurance, if
and to the extent the same is maintained by the Company (or any Lessee) with
respect to other aircraft owned or leased, and operated by the Company (or such
Lessee) on the

 

 

same routes) insurance and property damage insurance (exclusive of
manufacturer’s product liability insurance) with respect to each of the
Aircraft, in an amount not less than the greater of (x) with respect to
each Aircraft of any type, the amount of public liability and property damage
insurance from time to time applicable to aircraft owned or operated by the
Company of the same type and (y) the amount of public liability and
property damage maintained by the Company for such Aircraft on the Effective
Date and (ii) cargo liability insurance, in the case of both clause (i)
and clause (ii), (A) with respect to Aircraft of any type, of the type and
covering the same risks as from time to time applicable to aircraft operated by
the Company of the same type as the Aircraft and (B) which is maintained
in effect with insurers of recognized responsibility. Any policies of insurance
carried in accordance with this paragraph (a) and any policies taken out
in substitution or replacement for any of such policies (A) shall be
amended to name the Secured Creditors (but without imposing on any such party
liability to pay the premiums for such insurance) (and, if any Lease shall be
in effect, the Company in its capacity as lessor under the Lease) as additional
insureds as their interest may appear, (B) shall provide that in respect of
the interest of the Secured Creditors (and, if any Lease shall be in effect,
the Company in its capacity as lessor under the Lease) in such policies the
insurance shall not be invalidated by any action or inaction of the Company
(or, if any Lease is then in effect, any Lessee) or any other Person and shall
insure the Secured Creditors (and, if any Lease shall be in effect, the Company
in its capacity as lessor under the Lease) regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by the Company (or, if any Lease is then in effect, any Lessee), (C) may
provide for self-insurance to the extent permitted by Section 3.6(d) and
(D) shall provide that if the insurers cancel such insurance for any
reason whatever or if any material change is made in such insurance which
adversely affects the interest of the Secured Creditors (or, if any Lease shall
be in effect, the Company in its capacity as lessor under the Lease), or such
insurance shall lapse for non-payment of premium, such cancellation, lapse or
change shall not be effective as to the Secured Creditors (or, if any Lease
shall be in effect, the Company in its capacity as lessor under the Lease) for
thirty (30) days (seven (7) days in the case of war risk and allied perils
coverage) after issuance to the Collateral Agent of written notice by such
insurers of such cancellation, lapse or change; provided, however, that if any notice period specified above is not
reasonably obtainable, such policies shall provide for as long a period of
prior notice as shall then be reasonably obtainable. Each liability policy
(1) shall be primary without right of contribution from any other
insurance which is carried by the Secured Creditors (or, if any Lease shall be
in effect, the Company in its capacity as lessor under the Lease),
(2) shall expressly provide that all of the provisions thereof, except the
limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured, and (3) shall waive any right of
the insurers to any set-off or counterclaim or any other deduction, whether by
attachment or otherwise, in respect of any liability of the Secured Creditors
(or, if any Lease shall be in effect, the Company in its capacity as lessor under
the Lease) to the extent of any moneys due to the Secured Creditors (or, if any
Lease shall be in effect, the Company in its capacity as lessor under the
Lease).

 

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

 

 

in operation; and (B) the scope of the
risks covered and the type of insurance shall be the same as from time to time
shall be applicable to aircraft owned or operated by the Company of the same
type which are on the ground and not in operation.

 

(b)                                 Insurance
Against Loss or Damage to the Aircraft.

 

(I)  Except as provided in clause
(II) of this Section 3.6(b), the Company shall maintain or cause to be
maintained in effect, at its or any Lessee’s expense, with insurers of
recognized responsibility, all-risk ground and flight aircraft hull insurance
covering the Aircraft and all-risk ground and flight coverage of Engines and
Parts while temporarily removed from the Aircraft and not replaced by similar
components (including, without limitation, war risk and governmental
confiscation and expropriation (other than by the government of registry of the
relevant Aircraft) and hijacking insurance, if and to the extent the same is
maintained by the Company (or, if a Lease is then in effect, any Lessee) with
respect to other of the same type aircraft owned or operated by the Company (or
such Lessee) on the same routes, except that the Company (or such Lessee) shall
maintain war risk and governmental confiscation and expropriation (other than
by the government of registry of the relevant Aircraft) and hijacking insurance
if the Aircraft are operated on routes where the custom is for major
international air carriers flying comparable routes to carry such insurance)
which is of the type as from time to time applicable to aircraft owned or
operated by the Company of the same type as the Aircraft; provided that such insurance shall at all times while the Aircraft
are subject to this Mortgage be for an amount (subject to self-insurance to the
extent permitted by Section 3.6(d)) not less than the amount of insurance
of the same type maintained by the Company on the Effective Date with respect
to the Aircraft. Any policies carried in accordance with this paragraph (b)
covering the Aircraft and any policies taken out in substitution or replacement
for any such policies (i) shall be amended to name the Collateral Agent as
a loss payee, as its interest may appear (but without imposing on any such
party liability to pay premiums with respect to such insurance), (ii) may
provide for self-insurance to the extent permitted in Section 3.6(d),
(iii) shall provide that (A) in the event of a loss involving
proceeds in excess of an amount equal to 13.5% of the Appraised Value of the
Aircraft subject to such event of loss, the proceeds in respect of such loss up
to an amount equal to the amount of the reduction in the Total Revolving
Commitments as required by Section 7.5(a)(iii) of the Credit Agreement
with respect to such loss (the “Balance Due”), shall be payable to the
Collateral Agent (except in the case of a loss with respect to an Engine
installed on an airframe other than an Airframe, in which case the Company (or
any Lessee) shall arrange for any payment of insurance proceeds in respect of
such loss to be held for the account of the Collateral Agent whether such
payment is made to the Company (or any Lessee) or any third party), it being
understood and agreed that in the case of any payment to the Collateral Agent
otherwise than in respect of an Event of Loss, the Collateral Agent shall, upon
receipt of evidence satisfactory to it that the damage giving rise to such
payment shall have been repaired or that such payment shall then be required to
pay for repairs then being made, pay the amount of such payment to the Company
or its order, and (B) the entire amount of any loss involving total
proceeds equal to the amount set forth in clause (A) above or less or the
amount of any proceeds of any loss in excess of the Balance Due shall be paid
to the Company or its order unless an Event of Default shall have occurred and
be continuing and the insurers shall have been notified thereof by the
Collateral Agent, (iv) shall provide that if the insurers cancel such
insurance for any reason whatever, or such insurance lapses for non-payment of
premium or if any material change is made in the insurance which adversely
affects the interest of the Collateral Agent, such

 

 

cancellation, lapse or change shall not be effective as to the
Collateral Agent (or, if any Lease shall be in effect, the Company in its
capacity as lessor under the Lease) for thirty (30) days (seven (7) days in
case of hull war risk and allied perils coverage) after issuance to the
Collateral Agent (or, if any Lease is in effect, the Company in its capacity as
lessor under the Lease) of written notice by such insurers of such
cancellation, lapse or change; provided, however, that if any notice period specified above is not generally
obtainable, such policies shall provide for as long a period of prior notice as
shall then be generally obtainable, (v) shall provide that in respect of
the interest of the Collateral Agent (and, if any Lease shall be in effect, the
Company in its capacity as lessor under the Lease) in such policies the
insurance shall not be invalidated by any action or inaction of the Company
(or, if a Lease is then in effect, any Lessee) or any other Person and shall
insure the Collateral Agent (and, if any Lease shall be in effect, the Company
in its capacity as lessor under the Lease) regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by the Company (or, if a Lease is then in effect, any Lessee), (vi) shall
be primary without any right of contribution from any other insurance which is
carried by the Secured Creditors (or, if any Lease shall be in effect, the
Company in its capacity as lessor under the Lease), (vii) shall waive any
right of subrogation of the insurers against the Secured Creditors (and if any
Lease shall be in effect, the Company in its capacity as lessor under the
Lease), and (viii) shall waive any right of the insurers to set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of the Secured Creditors or the Company (or any
Lessee) to the extent of any moneys due to the Collateral Agent. In the case of
a loss with respect to an engine (other than an Engine) installed on an
Airframe, the Collateral Agent shall hold any payment to it of any insurance
proceeds in respect of such loss for the account of the Company or any other
third party that is entitled to receive such proceeds.

 

As between the Collateral Agent and the Company, it is agreed that all
insurance payments received as the result of the occurrence of an Event of Loss
will be applied as follows:

 

(w)  if such payment is
received as the result of an Event of Loss with respect to an Airframe (the
Airframe and any Engines installed thereon) that has been or is being replaced
by the Company as contemplated by Section 3.5(a) hereof, such payments
shall be paid over to, or retained by, the Collateral Agent and upon completion
of such replacement be paid over to the Company;

 

(x)  if such payments are received with respect to
an Airframe (or the Airframe and the Engines installed thereon) that has not
been or is not being replaced by the Company as contemplated by Section 3.5(a)
hereof, so much of such payments remaining, after reimbursement of the
Collateral Agent for reasonable costs and expenses, as shall not exceed the
Balance Due shall be applied in reduction of the Company’s obligation to pay
the Balance Due in accordance with Section 3.2(a) of the Credit Agreement,
if not already paid by the Company, or, if already paid by the Company, shall
be applied to reimburse the Company for its payment of such Balance Due, and
the balance, if any, of such payments remaining thereafter will be paid over
to, or retained by, the Company (or if directed by the Company, any Lessee);
and

 

(y)  if such payments are
received with respect to an Engine under the circumstances contemplated by Section 3.4(e)
hereof, so much of such payments

 

 

remaining,
after reimbursement of the Collateral Agent for reasonable costs and expenses,
shall be paid over to, or retained by, the Company (or if directed by the
Company, any Lessee); provided that the
Company shall have fully performed or, concurrently therewith, will fully
perform, the terms of Section 3.4(e) hereof with respect to the Event of
Loss for which such payments are made.

 

As between the Collateral Agent and the Company, the insurance payments
for any property damage or loss to any Airframe or Engine not constituting an
Event of Loss with respect thereto will be applied in payment for repairs or
for replacement property in accordance with the terms of Sections 3.2(c) and
3.4 hereof, if not already paid for by the Company (or any Lessee), and any
balance (or if already paid for by the Company (or any Lessee), all such
insurance proceeds) remaining after compliance with such Sections with respect
to such loss shall be paid to the Company (or any Lessee if directed by the
Company).

 

(II)  During any period that an
Aircraft is on the ground and not in operation, the Company may, in relation to
such Aircraft, carry or cause to be carried, in lieu of the insurance required
by clause (b)(I) above, insurance otherwise conforming with the provisions of
said clause (b)(I) except that the scope of the risks and the type of insurance
shall be the same as from time to time applicable to aircraft owned by the
Company of the same type similarly on the ground and not in operation; provided that the Company shall maintain insurance against risk of
loss or damage to such Aircraft in an amount at least equal to the amount of
insurance of such type maintained by the Company on the Effective Date with
respect to such Aircraft during such period that such Aircraft is on the ground
and not in operation.

 

(c)                                  Reports,
etc.

 

The Company will furnish, or cause to be furnished, to the Collateral
Agent, on or before the Effective Date and on or before July 1, in each
year thereafter commencing July 1, 2002 a report, signed by Aon Risk
Services, Inc. of Minnesota, Marsh & McLennan, Incorporated or any other
independent firm of insurance brokers reasonably acceptable to the Collateral
Agent (the “Insurance Brokers”), describing in reasonable detail the
insurance and reinsurance then carried and maintained with respect to the
Aircraft and stating the opinion of such firm that the insurance then carried
and maintained with respect to the Aircraft complies with the terms hereof; provided however, that all information contained in the foregoing report
shall not be made available by the Secured Creditors to anyone except (A) to
permitted transferees of the interest of the Secured Creditors who agree to
hold such information confidential, (B) to the Secured Creditors’ counsels or
independent public accountants or independent insurance advisors who agree to
hold such information confidential or (C) as may be required by any statute,
court or administrative order or decree or governmental ruling or regulation.
The Company will cause such Insurance Brokers to agree to advise the Collateral
Agent in writing of any default in the payment of any premium and of any other
act or omission on the part of the Company of which it has knowledge and which
might invalidate or render unenforceable, in whole or in part, any insurance on
the Aircraft. To the extent such agreement is reasonably obtainable, the
Company will also cause such Insurance Brokers to agree to advise the
Collateral Agent in writing at least thirty (30) days (seven (7) days in the
case of war risk and allied perils coverage) prior to the expiration or
termination date of any insurance carried and maintained on the Aircraft
pursuant to this Section 3.6. In addition, the Company will also cause

 

 

such Insurance Brokers to deliver to the Collateral Agent, 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 the Company to the Collateral
Agent on the Effective Date. In the event that the Company or any Lessee shall
fail to maintain or cause to be maintained insurance as herein provided, the
Collateral Agent may at its sole option provide such insurance and, in such
event, the Company shall, upon demand, reimburse the Collateral Agent for the
cost thereof to the Collateral Agent, without waiver of any other rights the
Collateral Agent may have.

 

(d)                                 Self-Insurance.

 

The Company may self-insure by way of deductible, premium adjustment or
franchise provisions or otherwise (including, with respect to insurance
maintained pursuant to Section 3.6(b), insuring for maximum amounts which
are less than the amounts required by such Section) in the insurance covering
the risks required to be insured against pursuant to this Section 3.6
under a program applicable to all the aircraft in the Company’s fleet, but in
no case shall the aggregate amount of self-insurance in regard to Section 3.6(a)
and Section 3.6(b) exceed during any policy year, with respect to all of
the aircraft in the Company’s fleet (including, without limitation, the
Aircraft), the lesser of (a) 50% of the largest replacement value of any single
aircraft in the Company’s fleet or (b) 1-1/2% of the average aggregate
insurable value (during the preceding policy year) of all aircraft (including,
without limitation, the Aircraft) on which the Company carries insurance. In
addition, the Company (and any Lessee) may self-insure to the extent of any
applicable mandatory minimum per aircraft (or, if applicable, per annum or
other period) hull or liability insurance deductible imposed by the aircraft
hull or liability insurers.

 

(e)                                  Additional
Insurance by the Collateral Agent and the Company.

 

The Company (and any Lessee) 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 3.6, so long as such excess
insurance is not in conflict with the insurance otherwise required hereunder.

 

(f)                                    Indemnification
by Government in Lieu of Insurance.

 

Notwithstanding any provisions of this Section 3.6 requiring
insurance, the Collateral Agent agrees to accept, in lieu of insurance against
any risk with respect to an Aircraft, indemnification from, or insurance
provided by, the United States Government or any agency or instrumentality
thereof or, upon the written consent of the Collateral Agent, other government
of registry of such Aircraft or any agency or instrumentality thereof, against
such risk in an amount which, when added to the amount of insurance against
such risk maintained by the Company (or any Lessee) with respect to the
Aircraft (including permitted self-insurance) shall be at least equal to the
amount of insurance against such risk otherwise required by this Section 3.6.

 

(g)                                 Application
of Payments During Existence of an Event of Default.

 

Any amount referred to in paragraph (b) of this Section 3.6 which
is payable to or retainable by the Company (or any Lessee) shall not be paid to
or retained by the Company (or

 

 

any Lessee) if at the time of such payment or retention an Event of
Default shall have occurred and be continuing, but shall be held by or paid
over to the Collateral Agent as security for the Obligations and, if the
aggregate unpaid principal amount of the Notes shall be declared to be due and
payable pursuant to the Credit Agreement, applied against the Obligations as
and when due. Upon the earlier of (a) such time as there shall not be
continuing any such Event of Default or (b) the termination of this Mortgage in
accordance with Section 7.12, such amount, and any interest realized
thereon pursuant to Section 6.1 hereof, shall be paid to the Company (or
such Lessee) to the extent not previously applied in accordance with the
preceding sentence.

 

SECTION 3.7. 
Filings.

 

The Company will take, or cause to be taken, at the Company’s cost and
expense, such action with respect to the recording, filing, re-recording and re-filing
of this Mortgage in the office of the Federal Aviation Administration, pursuant
to the Federal Aviation Act, and in such other places as may be required under
any applicable law or regulation, each Mortgage Supplement and any financing
statements or other instruments as are necessary, or reasonably requested by
the Collateral Agent and appropriate, to maintain, so long as this Mortgage is
in effect, the perfection and preservation of any Lien created by this
Mortgage, or will furnish to the Collateral Agent timely notice of the necessity
of such action, together with such instruments, in execution form, and such
other information as may be required to enable the Collateral Agent to take
such action.

 

ARTICLE 4

 

REMEDIES OF THE COLLATERAL
AGENT

UPON AN EVENT OF DEFAULT

 

SECTION 4.1. 
Event of Default.

 

It shall be an Event of Default hereunder if under the
Credit Agreement an “Event of Default” (as such term is defined in the Credit
Agreement) shall occur; provided that if the
Company shall have undertaken to cure any failure which arises under Section 3.2(c)
hereof, or under the first sentence of Section 3.2(b) hereof as it relates
to maintenance, service, repair or overhaul or under Section 3.4(a), (b),
(c) or (d) hereof and, notwithstanding the diligence of the Company in
attempting to cure such failure, such failure is not cured within 30 days but
is curable with future due diligence, there shall exist no Event of Default so
long as the Company is proceeding with due diligence to cure such failure and
such failure is remedied not later than one hundred eighty (180) days after
receipt by the Company of notice from the Collateral Agent of such failure; and
provided further that any
failure of the Company to perform or observe any covenant, condition, agreement
or any error in a representation or warranty shall not constitute an Event of
Default if such failure or error is caused solely by reason of an event that
constitutes an Event of Loss so long as the Company is continuing to comply
with all of the terms of Section 3.5 hereof.

 

 

SECTION 4.2.  Remedies with Respect to Collateral.

 

(a)                                  Remedies
Available.

 

Upon (i) the
occurrence and continuance of any Event of Default, the Collateral Agent (in
accordance with the provisions of Article 5 hereof) may, and upon the written
instructions of the Required Lenders, the Collateral Agent shall, do one or
more of the following; provided, however, that
during any period that an Aircraft is subject to the Civil Reserve Air Fleet
Program in accordance with the provisions of Section 3.2(a) hereof and in
possession of the United States government or an agency or instrumentality of
the United States, the Collateral Agent shall not, on account of any Event of
Default, be entitled to exercise any of the remedies specified in the following
clauses (A), (B) and (C) in relation to such Aircraft in such manner as to
limit the Company’s control under this Mortgage of the relevant Airframe, or
any Engines installed thereon, unless at least sixty (60) days’ (or such lesser
period as may then be applicable under the Air Mobility Command program of the
United States Air Force) written notice of default hereunder shall have been
given by the Collateral Agent by registered or certified mail to the Company
(and any Lessee) with a copy addressed to the Contracting Office Representative
for the Air Mobility Command of the United States Air Force under any contract
with the Company (or any Lessee) relating to such Aircraft:

 

(A)                              cause
the Company, upon the written demand of the Collateral Agent, at the Company’s
expense, to deliver promptly, and the Company shall deliver promptly, all or
such part of the Airframes, the Engines or other Collateral as the Collateral
Agent may so demand to the Collateral Agent or its order, or the Collateral
Agent, at its option, may enter upon the premises where all or any part of the
Airframes, the Engines or other Collateral are located and take immediate
possession (to the exclusion of the Company and all Persons claiming under or
through the Company) of and remove the same by summary proceedings or otherwise
together with any engine which is not an Engine but which is installed on an
Airframe, subject to all of the rights of the owner, lessor, lien or secured
party of such engine; provided that an
Airframe with an engine (which is not an Engine) installed thereon may be flown
or returned only to a location within the continental United States, and such
engine shall be held for the account of any such owner, lessor, lienor or
secured party or, if owned by the Company, may at the option of the Collateral
Agent, be exchanged with the Company for an Engine in accordance with the
provisions of Section 3.4(e) hereof;

 

(B)                                sell all or any part of the Airframes,
Engines or other Collateral at public or private sale, whether or not the
Collateral Agent shall at the time have possession thereof, as the Collateral Agent may determine, or lease or otherwise
dispose of all or any part of the Airframes, the Engines or other Collateral as
the Collateral Agent, in its sole discretion, may determine, all free and clear
of any rights or claims of whatsoever kind of the Company; provided, however, that the Company shall be entitled at any time prior to
any such disposition to redeem the Collateral by paying in full all of the
Obligations; or

 

(C)                                exercise any or all of the rights and powers
and pursue any and all

 

 

remedies of a secured party under the Uniform Commercial Code of the
State of New York.

 

Upon every
taking of possession of Collateral under this Section 4.2, the Collateral Agent
may, from time to time, at the expense of the Collateral Agent, make all such
expenditures for maintenance, insurance, repairs, replacements, alterations,
additions and improvements to and of the Collateral, as it may deem proper. In
each such case, the Collateral Agent shall have the right to maintain, store,
lease, control or manage the Collateral and to exercise all rights and powers
of the Company relating to the Collateral in connection therewith, as the
Collateral Agent shall deem best, including the right to enter into any and all
such agreements with respect to the maintenance, insurance, storage, leasing,
control, management or disposition of the Collateral or any part thereof as the
Collateral Agent may determine; and the Collateral Agent shall be entitled to
collect and receive directly all tolls, rents, revenues, issues, income,
products and profits of the Collateral and every part thereof, without
prejudice, however, to the right of the Collateral Agent under any provision of
this Mortgage to collect and receive all cash held by, or required to be
deposited with, the Collateral Agent hereunder. Such tolls, rents, revenues,
issues, income, products and profits shall be applied to pay the expenses of
storage, leasing, control, management or disposition of the Collateral, and of
all maintenance, repairs, replacements, alterations, additions and
improvements, and to make all payments which the Collateral Agent may be
required or may elect to make, if any, for taxes, assessments, insurance or
other proper charges upon the Collateral or any part thereof (including the
employment of engineers and accountants to examine, inspect and make reports
upon the properties and books and records of the Company), and all other
payments which the Collateral Agent may be required or authorized to make under
any provision of this Mortgage, as well as just and reasonable compensation for
the services of the Collateral Agent, and of all Persons properly engaged and
employed by the Collateral Agent.

 

In addition,
the Company shall be liable for all legal fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise of
the Collateral Agent’s remedies with respect thereto, including all costs and
expenses incurred in connection with the retaking or return of any Airframe or
Engines in accordance with the terms hereof or under the Uniform Commercial
Code of the State of New York, which amounts shall, until paid, be secured by
the Lien of this Mortgage.

 

If an Event of Default shall have occurred and
the Loans shall have been accelerated, at the request of the Collateral Agent
the Company shall promptly execute and deliver to the Collateral Agent such
instruments of title and other documents as the Collateral Agent may deem
necessary or advisable to enable the Collateral Agent or an agent or
representative designated by the Collateral Agent, at such time or times and
place or places as the Collateral Agent may specify, to obtain possession of
all or any part of the Collateral to which the Collateral Agent shall at the
time be entitled hereunder. If the Company shall for any reason fail to execute
and deliver such instruments and documents after such request by the Collateral
Agent, the Collateral Agent may obtain a judgment conferring on the Collateral
Agent the right to immediate possession and requiring the Company to execute
and deliver such instruments and documents to the Collateral Agent, to the
entry of which judgment the Company hereby specifically consents to the fullest
extent it may lawfully do so.

 

 

Nothing in
the foregoing shall affect the right of each Secured Creditor to receive all
payments of principal of, and interest on, the Obligations held by such Secured
Creditor and all other amounts owing to such Secured Creditor as and when the
same may be due.

 

(b)                                 Notice
of Sale.

 

The
Collateral Agent shall give the Company at least fifteen (15) days’ prior
written notice of the date fixed for any public sale of any Airframe or Engine
or the date on or after which any private sale will be held, which notice the
Company hereby agrees is reasonable notice, and any such public sale shall be
conducted in general so as to afford the Company (and any Lessee) a reasonable
opportunity to bid.

 

(c)                                  Receiver.

 

If any Event
of Default shall occur and be continuing, to the extent permitted by law, the
Collateral Agent shall be entitled, as a matter of right as against the
Company, without notice or demand and without regard to the adequacy of the
security for the Obligations or the solvency of the Company, upon the
commencement of judicial proceedings by it to enforce any right under this
Mortgage, to the appointment of a receiver of the Collateral and of the tolls,
rents, revenues, issues, income, products and profits thereof.

 

(d)                                 Concerning
Sales.

 

At any sale
under this Article, any Secured Creditor may bid for and purchase the property
offered for sale, may make payment on account thereof as herein provided, and,
upon compliance with the terms of sale, may hold, retain and dispose of such
property without further accountability therefor. Any purchaser shall be
entitled, for the purpose of making payment for the property purchased, to
deliver any of the Notes or other Obligations in lieu of cash in the amount
which shall be payable thereon as principal or interest. Said Notes and other
Obligations, in case the amount so payable to the holders thereof shall be less
than the amounts due thereon, shall be returned to the holders thereof after
being stamped or endorsed to show partial payment.

 

SECTION 4.3.  Waiver of Appraisement, etc., Laws.

 

To the full
extent that it may lawfully so agree, the Company agrees that it will not at
any time insist upon, plead, claim or take the benefit or advantage of, any
appraisement, valuation, stay, extension, or redemption law now or hereafter in
force, in order to prevent or hinder the enforcement of this Mortgage or the
absolute sale of the Collateral, or any part thereof, or the possession thereof
by any purchaser at any sale under this Article; but the Company, for itself
and all who may claim under it, so far as it or they now or hereafter lawfully
may, hereby waives the benefit of all such laws. The Company, for itself and
all who may claim under it, waives, to the extent that it lawfully may, all
right to have the property in the Collateral marshalled upon any foreclosure
hereof, and agrees that any court having jurisdiction to foreclosure this
Mortgage may order the sale of the Collateral as an entirety.

 

SECTION 4.4.  Application of Proceeds.

 

(a)                                  All
moneys collected by the Collateral Agent upon any sale or other

 

 

disposition of the Collateral shall be applied as follows:

 

(i)                                     first, to the
payment of all Obligations owing the Collateral Agent of the type provided in
clauses (ii) and (iii) of the definition of Obligations;

 

(ii)                                  second, to the extent
proceeds remain after the application pursuant to the preceding clause (i), an
amount equal to the outstanding Obligations shall be paid to the Secured
Creditors, with each Secured Creditor receiving an amount equal to its
outstanding Obligations or, if the proceeds are insufficient to pay in full all
such Obligations, its Pro Rata Share of the amount remaining to be distributed;

 

(iii)                               third, to the extent
proceeds remain after the application pursuant to the preceding clauses (i) and
(ii) and following the termination of this Mortgage pursuant to Section 7.12
hereof, to the Company or as required by applicable law.

 

(b)                                 For
purposes of this Mortgage “Pro Rata Share” shall mean, when calculating a
Secured Creditor’s portion of any distribution or amount, that amount
(expressed as a percentage) equal to a fraction the numerator of which is the
then unpaid amount of such Secured Creditor’s Obligations and the denominator
of which is the then outstanding amount of all Obligations.

 

(c)                                  If
any payment to any Secured Creditor of its Pro Rata Share of any distribution
would result in overpayment to such Secured Creditor, such excess amount shall
instead be distributed in respect of the unpaid Obligations of the other
Secured Creditors, with each Secured Creditor whose Obligations have not been
paid in full to receive an amount equal to such excess amount multiplied by a
fraction the numerator of which is the unpaid Obligations of such Secured
Creditor and the denominator of which is the unpaid Obligations of all Secured
Creditors entitled to such distribution.

 

(d)                                 It
is understood that the Company shall remain liable to the extent of any
deficiency between the amount of the proceeds of the Collateral and the
aggregate amount of the sums referred to in clauses (i) and (ii) of Section
4.4(a).

 

SECTION 4.5.  Remedies Cumulative.

 

Each and every right, power and remedy hereby
specifically given to the Collateral Agent or otherwise in this Mortgage shall
be cumulative and shall be in addition to every other right, power and remedy
specifically given under this Mortgage or the other Loan Documents 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 or simultaneously and as often and in such order as
may be deemed expedient by the Collateral Agent. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of the exercise
of one shall not be deemed a waiver of the right to exercise any other or
others. No delay or omission of the Collateral Agent in the exercise of any
such right, power or remedy and no renewal or extension of any of the
Obligations shall impair any such right, power or remedy or shall be construed
to be a waiver of any Default or Event of Default or an acquiescence therein.
No notice to or demand on the Company in any case shall entitle it to any other
or further notice or demand in similar or other circumstances or constitute a

 

 

waiver of any
of the rights of the Collateral Agent to any other or further action in any
circumstances. In the event that the Collateral Agent shall bring any suit to
enforce any of its rights hereunder and shall be entitled to judgment, then in
such suit the Collateral Agent may recover reasonable expenses, including
attorneys’ fees, and the amounts thereof shall be included in such judgment.

 

SECTION 4.6.  Discontinuance of Proceedings.

 

In case the
Collateral Agent shall have instituted any proceeding to enforce any right,
power or remedy under this Mortgage by foreclosure, sale, entry or otherwise,
and such proceeding shall have been discontinued or abandoned for any reason or
shall have been determined adversely to the Collateral Agent, then and in every
such case the Company, the Collateral Agent and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interest created under
this Mortgage, and all rights, remedies and powers of the Collateral Agent
shall continue as if no such proceeding had been instituted (but otherwise
without prejudice).

 

ARTICLE 5

 

INDEMNITY

 

SECTION 5.1.  Indemnity.

 

(a)                                  The
Company agrees to indemnify, reimburse and hold the Collateral Agent, each
Secured Creditor and their successors, permitted assigns, employees, agents and
servants (hereinafter in this Section 5.1 referred to as “Indemnitees”)
harmless from any and all liabilities, obligations, damages, injuries,
penalties, claims, demands, actions, suits, judgments and any and all
reasonable costs, expenses or disbursements (including reasonable attorneys’
fees and expenses) (for the purposes of this Section 5.1 the foregoing are
collectively called “expenses”) of whatsoever kind and nature imposed
on, asserted against or incurred by any of the Indemnitees in any way relating
to or arising out of this Mortgage, any other Loan Document or any other
document executed in connection herewith or therewith or in any other way
connected with the administration of the transactions contemplated hereby or
thereby or the enforcement of any of the terms of, or the preservation of any
rights under any thereof, or in any way relating to or arising out of the
manufacture, ownership, ordering, purchase, delivery, control, acceptance,
lease, financing, possession, operation, condition, sale, return or other
disposition, or use of the Collateral (including, without limitation, latent or
other defects, whether or not discoverable), the violation of the laws of any
country, state or other governmental body or unit, any tort (including, without
limitation, claims arising or imposed under the doctrine of strict liability,
or for or on account of injury to or the death of any Person (including any
Indemnitee), or property damage); provided that no Indemnitee shall be
indemnified pursuant to this Section 5.1(a) for losses, damages or liabilities
to the extent caused by the gross negligence or willful misconduct of such Indemnitee.
The Company agrees that upon written notice by any Indemnitee of the assertion
of such a liability, obligation, damage, injury, penalty, claim, demand,
action, suit or judgment, the Company shall assume full responsibility for the
defense thereof. Indemnitees agree to use their best efforts to promptly notify
the Company of any such assertion of which such Indemnitees have knowledge.

 

 

(b)                                 Without
limiting the application of Section 5.1(a), the Company agrees to pay, or
reimburse the Collateral Agent for any and all reasonable fees, costs and
expenses of whatever kind or nature incurred in connection with the creation,
preservation or protection of the Collateral Agent’s Liens on, and security
interest in, the Collateral, including, without limitation, all fees and taxes
in connection with the recording or filing of instruments and documents in
public offices, payment or discharge of any taxes or Liens upon or in respect
of the Collateral, premiums for insurance with respect to the Collateral and
all other reasonable fees, costs and expenses in connection with protecting,
maintaining or preserving the Collateral and the Collateral Agent’s interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.

 

(c)                                  Without
limiting the application of Section 5.1(a) or (b), the Company agrees to pay,
indemnify and hold the Indemnitees harmless from and against any loss, costs,
damages and expenses which the Indemnitees may suffer, expend or incur in
consequence of or growing out of any misrepresentation by the Company in this
Mortgage, or any other Loan Document or in any writing contemplated by or made
or delivered pursuant to or in connection with this Mortgage, or any other Loan
Document.

 

(d)                                 If
and to the extent that the obligations of the Company under this Section 5.1
are unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.

 

SECTION 5.2.  Indemnity Obligations Secured by Collateral;
Survival.

 

Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral until the
Termination Date. The indemnity obligations of the Company contained in this
Section 5 shall continue in full force and effect notwithstanding that the
Loans, the Reimbursement Obligations and the other Obligations under the Loan
Documents shall have been paid in full, the Commitments have been terminated
and no Letters of Credit shall be outstanding.

 

ARTICLE 6

 

INVESTMENT OF SECURITY FUNDS

 

SECTION 6.1.  Investment of Security Funds.

 

Any monies paid to or retained by the
Collateral Agent which are required to be paid to the Company or applied for
the benefit of the Company (including, without limitation, amounts payable to
the Company under Sections 3.5(d), 3.5(f), 3.6(b) and 3.6(g) hereof), but which
the Collateral Agent is entitled to hold under the terms hereof pending the
occurrence of some event or the performance of some act (including, without
limitation, the remedying of an Event
of Default), shall, until paid to the Company or applied as provided herein, be
invested by the Collateral Agent at the written authorization and direction of
the Company from time to time at the sole expense and risk of the Company in
Permitted Investments. After the occurrence and

 

 

during the
continuance of an Event of Default, Permitted Investments will be selected by
the Collateral Agent at its discretion. At the time of such payment or
application, there shall be remitted to the Company any gain (including
interest received) realized as the result of any such investment (net of any
fees, commissions, other expenses or losses, if any, incurred in connection
with such investment) unless an Event of Default shall have occurred and be
continuing. The Collateral Agent shall not be liable for any loss relating to a
Permitted Investment made pursuant to this Article 6. The Company will promptly
pay to the Collateral Agent, on demand, the amount of any loss (net of any
gains, including interest received) realized as the result of any such
investment (together with any fees, commissions and other expenses, if any,
incurred in connection with such investment).

 

ARTICLE 7

 

MISCELLANEOUS

 

SECTION 7.1.  No Legal Title to Collateral.

 

No Secured
Creditor shall have legal title to any part of the Collateral. No transfer, by
operation of law or otherwise, of any right, title and interest of a Secured
Creditor in and to the Collateral or this Mortgage shall operate to terminate
this Mortgage or entitle any successor or transferee of such Secured Creditor
to an accounting or to the transfer to it of legal title to any part of the
Collateral.

 

SECTION 7.2.  Sale of the Aircraft by Collateral Agent Is
Binding.

 

Any sale or
other conveyance of the Aircraft, the Airframe, any Engine or any interest
therein by the Collateral Agent made pursuant to the terms of this Mortgage
shall bind the Secured Creditors and the Company, and shall be effective to
transfer or convey all right, title and interest of the Collateral Agent, the
Company, and the Secured Creditors in and to the Aircraft, the Airframe, any
Engine or any interest therein. No purchaser or other grantee shall be required
to inquire as to the authorization, necessity, expediency or regularity of such
sale or conveyance or as to the application of any sale or other proceeds with
respect thereto by the Collateral Agent;

 

SECTION 7.3.  Benefit of Mortgage.

 

Nothing in
this Mortgage, whether express or implied, shall be construed to give to any
Person other than the Company, the Collateral Agent, and the Secured Creditors
any legal or equitable right, remedy or claim under or in respect of this
Mortgage.

 

SECTION 7.4.  Notices.

 

Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be in writing (including telegraphic, telex, facsimile transmission or cable
communication) and shall be delivered, mailed, telegraphed, telexed, facsimile
transmitted or cabled, addressed:

 

 

(a)                                  if
to the Company, at its office at:

 

2700 Lone Oak Parkway

Eagan, MN 55121

Telecopy: (612) 726-0665

Attention: Senior Vice President—Finance and Treasurer

 

(b)                                 if
to the Collateral Agent:

 

One Chase Manhattan Plaza

Loan and Agency Services Group

8th Floor

New York, New York 10081

Telecopy (212) 552-5650

Attention: Jesus Sang

 

with a copy to:

 

Matthew Massie

Aerospace Group

270 Park Avenue

38th Floor

New York, New York 10017

Telecopy (212) 270-5100

 

(c)                                  if
to any Secured Creditor, either (x) to the Administrative Agent, at the address
of the Administrative Agent specified in the Credit Agreement or (y) at such
address as such Secured Creditor shall have specified in the Credit Agreement;

 

or at such
other address as shall have been furnished in writing by any Person described
above to the party required to give notice hereunder. All such notices and communications
shall, when mailed, telegraphed, telexed, facsimile transmitted or cabled or
sent by overnight courier, be effective on the third Business Day following
deposit in the U.S. mails, certified, return receipt requested, when delivered
to the telegraph company, cable company or on the day following delivery to an
overnight courier, as the case may be, or when sent by telex or facsimile
device, except that notices and communications to the Collateral Agent shall
not be effective until received by the Collateral Agent.

 

SECTION 7.5.  Waiver; Amendment.

 

None of the terms and conditions of this
Mortgage may be changed, waived, modified or varied in any manner whatsoever
unless in writing duly signed by the Company and the Collateral Agent (with the
consent of the Required Lenders or, to the extent required by Section 11.1 of
the Credit Agreement, all of the Lenders).

 

 

SECTION 7.6.  Obligations Absolute.

 

The
obligations of the Company hereunder shall remain in full force and effect
without regard to, and shall not be impaired by, (a) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation
or the like of the Company, except to the extent that the enforceability
thereof may be limited by any such event; (b) any exercise or non-exercise, or
any waiver of, any right, remedy, power or privilege under or in respect of
this Mortgage or any other Loan Document, except as specifically set forth in a
waiver granted pursuant to Section 7.5; or (c) any amendment to or modification
of any Loan Document or any security for any of the Obligations; whether or not
the Company shall have notice or knowledge of any of the foregoing, except as
specifically set forth in an amendment or modification executed pursuant to
Section 7.5.

 

SECTION 7.7.  Successors and Assigns.

 

This
Mortgage shall be binding upon each Assignor and its successors and assigns and
shall inure to the benefit of the Collateral Agent and each Secured Creditor
and their respective successors and assigns; provided, that the Company may not transfer or assign any or all of
its rights or obligations hereunder without the prior written consent of the
Collateral Agent. All agreements, statements, representations and warranties
made by the Company herein or in any certificate or other instrument delivered
by the Company or on its behalf under this Mortgage shall be considered to have
been relied upon by the Secured Creditors and shall survive the execution and
delivery of this Mortgage and the other Loan Documents regardless of any
investigation made by the Secured Creditors or on their behalf

 

SECTION 7.8.  Headings Descriptive.

 

The headings
of the several sections of this Mortgage are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of
this Mortgage.

 

SECTION 7.9.  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 7.10.  Governing Law.

 

THIS MORTGAGE AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BE GOVERNED
BY, AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THAT WOULD DICTATE THE
APPLICATION OF THE LAW OF ANOTHER JURISDICTION.

 

 

SECTION 7.11.  Company’s Duties.

 

It is
expressly agreed, anything herein contained to the contrary notwithstanding,
that the Company shall remain liable to perform all of the obligations, if any,
assumed by it with respect to the Collateral and the Collateral Agent shall not
have any obligations or liabilities with respect to any Collateral by reason of
or arising out of this Mortgage, nor shall the Collateral Agent be required or
obligated in any manner to perform or fulfill any of the obligations of the
Company under or with respect to any Collateral.

 

SECTION 7.12.  Termination; Release.

 

(a)                                  After
the Termination Date, this Agreement shall terminate (provided that all
indemnities set forth herein including, without limitation, in Section 5.1
hereof shall survive such termination) and the Collateral Agent, at the request
and expense of the Company, will promptly execute and deliver to the Company a
proper instrument or instruments acknowledging the satisfaction and termination
of this Mortgage, and will duly assign, transfer and deliver to the Company
(without recourse and without any representation or warranty) such of its
Collateral as may be in the possession of the Collateral Agent and as has not
theretofore been sold or otherwise applied or released pursuant to this
Mortgage. As used in this Mortgage, “Termination Date” shall mean the date upon
which the Loans, the Reimbursement Obligations and the other Obligations shall
have been paid in full, the Commitments have been terminated and no Letters of
Credit are outstanding.

 

(b)                                 In
the event that any part of the Collateral is sold in connection with a sale
permitted by the Credit Agreement or is otherwise released at the direction of
the Required Lenders (or all the Lenders if required by Section 11.1 of the
Credit Agreement) and the proceeds of such sale or sales or from such release
are applied in accordance with the terms of the Credit Agreement, such Collateral
will be sold free and clear of the Liens created by this Mortgage and the
Collateral Agent, at the request and expense of the Company, will duly assign,
transfer and deliver to the Company (without recourse and without any
representation or warranty) such of the Collateral of the Company as is then
being (or has been) so sold or released and as may be in the possession of the
Collateral Agent and has not theretofore been released pursuant to this
Mortgage.

 

(c)                                  At
any time that the Company desires that Collateral be released as provided in
the foregoing Section 7.12(a) or (b), it shall deliver to the Collateral Agent
a certificate signed by its chief financial officer or another authorized
senior officer stating that the release of the respective Collateral is
permitted pursuant to Section 7.12(a) or (b). If requested by the Collateral
Agent (although the Collateral Agent shall have no obligation to make any such
request), the Company shall furnish appropriate legal opinions (from counsel,
which may be in-house counsel, acceptable to the Collateral Agent) to the
effect set forth in the immediately preceding sentence. The Collateral Agent
shall have no liability whatsoever to any Secured Creditor as the result of any
release of Collateral by it as permitted by this Section 7.

 

 

SECTION 7.13.  Counterparts.

 

This
Mortgage may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument. A set of counterparts executed by all the parties
hereto shall be lodged with the Company and the Collateral Agent.

 

SECTION 7.14.  The Collateral Agent.

 

The
Collateral Agent will hold in accordance with this Mortgage all items of the
Collateral at any time received under this Mortgage. It is expressly understood
and agreed by the parties hereto and each Secured Creditor, by accepting the
benefits of this Mortgage, acknowledges and agrees that the obligations of the
Collateral Agent as holder of the Collateral and interests therein and with
respect to the disposition thereof, and otherwise under this Mortgage, are only
those expressly set forth in this Mortgage. The Collateral Agent shall act
hereunder on the terms and conditions set forth in Section 10 of the Credit
Agreement.

 

SECTION 7.15.  Limited Obligations.

 

It is the
desire and intent of the Company, the Collateral Agent and the Secured
Creditors that this Mortgage shall be enforced against the Company to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. If and to the extent that the
obligations of the Company under this Mortgage shall be adjudicated to be
invalid or unenforceable for any reason (including, without limitation, because
of any applicable state or federal law relating to fraudulent conveyances or
transfers, which laws would determine the solvency of the Company by reference
to the full amount of the Obligations at the time of the execution and delivery
of this Mortgage), then the amount of the Obligations of the Company shall be
deemed to be reduced and the Company shall pay the maximum amount of the
Obligations which would be permissible under the applicable law.

 

 

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

 

	
   

  	
  NORTHWEST AIRLINES, INC.

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/

  	
  Rolf
  S. Andreson

  	
   

  
	
   

  	
  Name:

  	
  Rolf
  S. Andreson

  
	
   

  	
  Title:

  	
  Vice
  President -Finance and Chief

  
	
   

  	
   

  	
  Accounting
  Officer

  
	
   

  	
   

  
	
   

  	
  THE
  CHASE MANHATTAN BANK, as Collateral

  Agent

  
	
   

  	
   

  
	
   

  	
  By:
  

  	
  /s/

  	
  Mathew
  Massie

  	
   

  
	
   

  	
  Name:

  	
  Mathew
  Massie

  
	
   

  	
  Title:

  	
  Managing
  Director

  
						

 

 

Appendix A

 

DEFINITIONS RELATING TO THE

AIRCRAFT MORTGAGE AND SECURITY AGREEMENT

 

Unless
otherwise defined herein, terms used in the Mortgage shall have the meaning
provided thereto in the “Credit Agreement” as defined herein. The definitions
stated herein shall apply equally to both the singular and plural forms of the
terms defined.

 

“Additional Parts” has the meaning given such term in Section
3.4(d) of the Mortgage.

 

“Administrative
Agent” has the meaning given to such term in the Credit Agreement.

 

“Aircraft”
means each of the Airframes (or any airframes which are part of any Replacement
Aircraft substituted therefor pursuant to Section 3.4 or 3.5 of the Mortgage)
together with the Engines (if any) installed thereon (or any Replacement
Engines substituted for said Engines pursuant to Section 3.4 of the Mortgage),
whether or not any of such initial or substitute Engines may from time to time
be installed on such Airframe or may be installed on any other airframe or on
any other aircraft.

 

“Airframes”
means each of the airframes described in Section 2.1(a) of the Mortgage, and
any airframes which are part of any Replacement Aircraft that may from time to
time be substituted pursuant to Section 3.4 or 3.5 of the Mortgage, together
with any and all Parts (other than Engines or engines) so long as the same
shall be incorporated or installed therein or attached thereto.

 

“Balance
Due” has the meaning given such term in Section 3.6(b) of the Mortgage.

 

“Bankruptcy
Code” means Title 11 of the United States Code, as amended from time
to time, and any successor provisions thereof

 

 “Certificated Air Carrier”  means a Citizen of the United States holding
a carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of Title 49, United States Code, for aircraft capable
of carrying ten or more individuals or 6,000 pounds or more of cargo.

 

“Citizen
of the United States”  has the
meaning specified in Section 40102(a)(15) of Title 49 of the United States
Code.

 

“Civil Reserve Air Fleet Program” means the Civil Reserve Air Fleet
Program, currently administered by the United States Air Force Military Command
pursuant to Executive Order No. 11490, as amended, or any substantially similar
program.

 

“Collateral” has the meaning given to such term in Section 2.1 of the
Mortgage.

 

 

“Collateral Agent” has the meaning specified in the preamble to the Mortgage.

 

“Company” has
the meaning specified in the preamble to the Mortgage.

 

“Contract Rights” mean all of the
Company’s right, title and interest in and to any purchase agreement,
modification agreement and buyer-furnished equipment agreement, as and to the
extent that the same relates to any Aircraft and the operation thereof,
including, without limitation, (a) all claims for damages in respect of any Aircraft
arising as a result of any default by the manufacturer or the seller under any
purchase agreement, modification agreement and buyer-furnished equipment
agreement, in respect of such Aircraft, including, without limitation, all
warranty, service life policy, aircraft performance guarantee and indemnity
provisions in such agreements in respect of any Aircraft and all claims
thereunder and (b) any and all rights of the Company to compel performance of
the terms of any purchase agreement, modification agreement and buyer-furnished
equipment agreement, in respect of any Aircraft.

 

“Credit Agreement” shall mean the
Credit and Guarantee Agreement, dated as of October 24, 2000, among Northwest
Airlines Corporation, Northwest Airlines Holdings Corporation, NWA Inc.,
Northwest Airlines, Inc., the lenders and agents from time to time party
thereto and The Chase Manhattan Bank, as administrative agent, as amended,
modified and/or supplemented from time to time.

 

“Default” means an event which,
with the giving of notice, lapse of time or both would become an Event of
Default.

 

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

 

“Effective Date” means October 23,
2001.

 

“Engines”
means each of the engines described in Section 2.1(a) of the Mortgage whether
or not from time to time installed on any Airframe or on any other aircraft,
and any Replacement Engine that may from time to time be substituted, pursuant
to Section 3.4 of the Mortgage, for such Engine; together in each case with any
and all Parts incorporated or installed in or attached thereto.

 

“Event of Default” has the meaning
given such term in Section 4.1 of the Mortgage.

 

“Event of Loss” with respect to
the Aircraft, the Airframes, or the Engines means any of the following events
with respect to such property:

 

(i)                                     the
loss of such property or the use thereof due to the destruction of or damage to
such property which renders repair uneconomic or which renders such property
permanently unfit for normal use by the Company for any reason whatsoever;

 

(i)   any damage to such property
which results in an insurance settlement with respect to such property on the
basis of a total loss, or a constructive or compromised total loss;

 

2

 

(ii)   the theft or disappearance
of such property, or the confiscation, condemnation, or seizure of, or
requisition of title to, or use of, such property by any governmental or
purported governmental authority (other than a requisition for use by the
United States government or any other government of registry of an Aircraft, or
any agency or instrumentality of any thereof) which in the case of any event
referred to in this clause (iii) (other than a requisition of title) shall
have resulted in the loss of possession of such property by the Company for a
period in excess of 180
consecutive days or, in the case of a requisition of title, the
requisition of title shall not have been reversed within 90 days from the date of such
requisition of title;

 

(iii)   as a result of any law,
rule, regulation, order or other action by the Federal Aviation Administration
or other governmental body of the government of registry of an Aircraft having
jurisdiction, the use of such property in the normal course of the business of air
transportation shall have been prohibited for a period of 180 consecutive days; and

 

(iv)   any divestiture of title
to an Engine treated as an Event of Loss pursuant to Section 3.2(a) of the
Mortgage.

 

An Event of
Loss with respect to an Aircraft shall be deemed to have occurred if an Event
of Loss occurs with respect to the relevant Airframe.

 

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

 

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

 

“Foreign
Air Carrier” means any air carrier which is not a U.S. Air Carrier and
which performs maintenance, preventative maintenance and inspections for an
Aircraft, an Airframe, the Parts and/or the related Engines or engines to
standards which are approved by, or which are substantially equivalent to those
required by, the Federal Aviation Administration, the Civil Aviation Authority
of the United Kingdom, the Direction Generale de l’Aviation Civile of the
French Republic, the Luftfahrt Bundesamt of the Federal Republic of Germany,
the Rijflauchtraatdienst of the Kingdom of the Netherlands, the Ministry of
Transportation of Japan or the Federal Ministry of Transport of Canada (or any
agency or instrumentality of the applicable government succeeding to the
jurisdiction of the foregoing entities).

 

“Guarantor”
or “Guarantors” has the meaning provided in the Credit Agreement.

 

“Indemnitees”
has the meaning given by such term in Section 5.1 of the Mortgage.

 

“Lease”
means any lease permitted by the terms of Section 3.2(a)(x) of the Mortgage.

 

3

 

“Lessee”
means any lessee permitted by the terms of Section 3.2(a)(x) of the Mortgage.

 

“Lien”
shall mean any mortgage,
pledge, hypothecation, assignment, security deposit arrangement, encumbrance,
lien (statutory or other) or other security agreement or lien of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing or similar statement or notice filed
under the UCC or any other similar recording or notice statute, and any capital
lease having substantially the same economic effect as any of the foregoing).

 

“Mortgage”
means the Aircraft Mortgage and Security Agreement covering the Collateral,
dated as of October 23, 2001, between the Company and the Collateral Agent, as
the same may be amended, modified or supplemented from time to time.

 

“Mortgage
Supplement” means any Mortgage and Security Agreement Supplement substantially
in the form of Exhibit A to the Mortgage, and any other supplement to
the Mortgage, from time to time executed and delivered.

 

“Obligations”
means the unpaid principal of and interest on (including interest
accruing after the maturity of the Loans and Reimbursement Obligations and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Company, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) the Loans and all other obligations and
liabilities of the Company to any Agent or Lender, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which arise under, out of, or in connection with, the Credit
Agreement, any other Loan Document, the Letters of Credit or any other document
made, delivered or given in connection herewith or therewith, whether on
account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including all fees, charges and disbursements of counsel to
any Agent or Lender that are required to be paid by the Company pursuant
hereto) or otherwise; (ii) any and all
sums advanced by the Collateral Agent in order to preserve the Collateral or
preserve its security interest in the Collateral and (iii) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities referred to in clauses (i) and (ii) above, after an Event of
Default shall have occurred and be continuing, the reasonable expenses of
re-taking, holding, preparing for sale or lease, selling or otherwise disposing
of or realizing on the Collateral, or of any exercise by the Collateral Agent
of its rights hereunder, together with reasonable attorneys’ fees and court
costs.

 

“Obsolete
Parts” has the meaning given such term in Section 3.4(d) of the Mortgage.

 

“Officer’s
Certificate” means, as to any Person, a certificate signed by the Chairman,
the Vice Chairman, the President, any Executive Vice President, any Director,
any Senior Vice President, any Vice President, any Assistant Vice President,
the Treasurer or any Assistant Treasurer, the Secretary, or any Assistant
Secretary of such Person.

 

4

 

“Parts”
means any and all appliances, parts, instruments, appurtenances, accessories,
furnishings, seats, buyer furnished equipment, and other equipment of whatever
nature (other than (a) complete Engines or engines, (b) items leased
by the Company from a third party and (c) cargo containers) which may from
time to time be incorporated or installed in or attached to any Airframe or any
Engine.

 

“Permitted Investments” means (i) direct obligations of the
United States of America and agencies guaranteed by the United States
government having a final maturity of 90 days or less from date of purchase
thereof, (ii) certificates of deposit issued by, bankers’ acceptances of,
or time deposits with, any bank, trust company or national banking association
incorporated under the laws of the United States of America or one of the
states thereof having combined capital and surplus and retained earnings as of
its last report of condition of at least $500,000,000 and having a rating of Aa
or better by Moody’s Investors Service, Inc. (“Moody’s”) or AA or better
by Standard & Poor’s Ratings Services (“S&P”) and having a final maturity of 90 days or less from
date of purchase thereof, and (iii) commercial paper of any holding
company of a bank, trust company or national banking association described in
(ii) and commercial paper of any corporation or finance company
incorporated or doing business under the laws of the United States of America
or any state thereof having a rating assigned to such commercial paper of Al by
S&P or P1 by Moody’s and having a final maturity of 90 days or less from
the date of purchase thereof, provided that the aggregate amount at any one
time so invested in certificates of deposit issued by any one bank shall not be
in excess of 5% of such bank’s capital and surplus.

 

“Permitted
Lessee” means any air
carrier domiciled in a country listed in Schedule III to the Mortgage.

 

“Person”
means an individual,
partnership, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.

 

“Replacement
Aircraft” means any Aircraft of which a Replacement Airframe is part.

 

“Replacement
Airframe” means an aircraft (except Engines or engines from time to time
installed thereon), which shall have been made subject to the Lien of the
Mortgage pursuant to Section 3.4 or 3.5 thereof.

 

“Replacement
Closing Date” has the meaning given such term in Section 3.5(c) of the
Mortgage.

 

“Replacement
Engine” means an aircraft engine suitable for installation and use on the
relevant Airframe and which has a value, utility and remaining useful life
(except for maintenance cycle condition) at least equal to the Engine which it
is replacing, assuming such Engine was of the value, utility and remaining
useful life (except for maintenance cycle condition) required by the terms of
the Mortgage, and which shall have been made subject to the Lien of the
Mortgage pursuant to Section 3.4 or 3.5 of the Mortgage.

 

5

 

“Secured
Creditors” has the meaning given such term in the preamble to the Mortgage.

 

“Termination
Date” has the meaning given to such term in Section 7.12 of the Mortgage.

 

 “UCC” or “Uniform Commercial Code”
shall mean the Uniform Commercial Code as from time to time in effect in the
relevant jurisdiction.

 

“U.S. Air
Carrier” means any Certificated Air Carrier as to which there is in force
an air carrier operating certificate issued pursuant to Part 121 of the
regulations under the Federal Aviation Act, or which may operate as an air
carrier by certification or otherwise under any successor or substitute
provisions therefor or in the absence thereof

 

“Wet
Lease” means any
arrangement whereby the Company (or any Lessee) agrees to furnish any Airframe
and the Engines or engines installed thereon to a third party pursuant to which
such Airframe and Engines or engines (i) shall be operated solely by regular
employees of the Company (or any Lessee) possessing all current certificates
and licenses that would be required under the Federal Aviation Act or, if the
Aircraft is not registered in the United States, all certificates and licenses
required by the laws of the jurisdiction of registry, for the performance by such
employees of similar functions within the United States of America or such
other jurisdiction of registry (it is understood that cabin attendants need not
be regular employees of the Company (or any Lessee) and (ii) shall be
maintained by the Company (or any Lessee) in accordance with its normal
maintenance practices.

 

6

 

EXHIBIT A

 

FORM OF
AIRCRAFT MORTGAGE AND SECURITY

AGREEMENT SUPPLEMENT NO.

 

Aircraft
Mortgage and Security Agreement Supplement No.     dated (“Mortgage
Supplement”) of NORTHWEST AIRLINES, INC. (the “Company”).

 

W I
T  N  E  S  S  E  T  H:

 

WHEREAS, the
Aircraft and Security Mortgage Agreement, dated as of October 23, 2001, (the “Mortgage”),
between the Company and The Chase Manhattan Bank, as Collateral Agent (the “Collateral
Agent”), provides for the execution and delivery of supplements thereto
substantially in the form hereof which shall particularly describe the Aircraft
(such term and other defined terms in the Mortgage being used herein with the
same meanings), and shall specifically grant a security interest in the
Aircraft to the Collateral Agent; and

 

WHEREAS, the
Company has, as provided in the Mortgage, heretofore executed and delivered to
the Collateral Agent              
Mortgage Supplement(s) for the purpose of specifically subjecting to the Lien
of the Mortgage certain airframes and/or engines therein described, which
Mortgage Supplement(s) is/are dated and has/have been duly recorded with the
FAA as set forth below, to wit:

 

	
  Date

  	
   

  	
  Recordation Date

  	
   

  	
  FAA Document Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

NOW,
THEREFORE, in order to secure the prompt payment of the Obligations, subject to
the terms and conditions of the Mortgage, and in consideration of the premises
and of the covenants contained in the Mortgage, and of other good and valuable
consideration given to the Company at or before the delivery hereof, the
receipt whereof is hereby acknowledged, the Company has mortgaged, assigned,
pledged, hypothecated and granted, and does hereby mortgage, assign, pledge,
hypothecate and grant, a continuing security interest in, and mortgage lien on,
the property comprising all its right, title and interest in and to the
Airframes and Engines described in Annex A attached hereto, whether or not such
Engines shall be installed in or attached to the Airframes or any other
aircraft, to the Collateral Agent, its successors and assigns, for the benefit
and security of the Secured Creditors;

 

To have and to
hold all and singular the aforesaid property unto the Collateral Agent, its
successors and assigns, for the benefit and security of the Secured Creditors
and for the uses and purposes and subject to the terms and provisions set forth
in the Mortgage.

 

This Mortgage
Supplement shall be construed as supplemental to the Mortgage and shall form a
part thereof, and the Mortgage is hereby incorporated by reference herein and
is hereby ratified, approved and confirmed and terms not otherwise defined
herein shall have the meaning provided in the Mortgage.

 

7

 

THIS
MORTGAGE SUPPLEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL IN
ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK, WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THAT WOULD, DICTATE THE
APPLICATION OF THE LAW OF ANOTHER JURISDICTION.

 

8

 

IN
WITNESS WHEREOF, the Company has caused this
Supplement No.     to be duly executed by one of its duly
authorized officers, as of the day and year first above written.

 

 

	
   

  	
  NORTHWEST
  AIRLINES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  

 

9

 

Annex A

to Mortgage

Supplement No.    

 

DESCRIPTION OF
AIRFRAME AND ENGINES

AIRFRAME

 

 

Schedule I

to

MORTGAGE

 

SCHEDULE OF AIRFRAMES AS PART OF THE COLLATERAL

 

	
  Manufacturer

  	
   

  	
  Model

  	
   

  	
  Registration No.

  	
   

  	
  Manufacturer’s Serial

  No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[See Attached]

 

 

Schedule II

to

MORTGAGE

 

SCHEDULE OF ENGINES AS PART OF THE COLLATERAL

 

	
  Manufacturer

  	
   

  	
  Model

  	
   

  	
  Manufacturer’s

  Serial No.

  	
   

  	
  Manufacturer

  	
   

  	
  Model

  	
   

  	
  Manufacturer’s

  Serial No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

[See Attached]

 

 

SCHEDULE OF COUNTRIES FOR PERMITTED LESSEES

 

 

[See Attached]Exhibit
10.19

 

*** Indicates
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

 

A330 FINANCING
LETTER AGREEMENT No.1

 

As of December 21,
2000

 

Northwest Airlines, Inc.

2700 Lone Oak Parkway

Eagan, Minnesota 55121

 

Attention:                           Mr.
Daniel B. Matthews,

Senior Vice President
Finance & Treasurer

 

Re:                               A330-300 AIRCRAFT FINANCING AND ASSET VALUE
SUPPORT

 

Gentlemen:

 

Northwest Airlines, Inc.
(“NWA”) and AVSA, S.A.R.L. (“AVSA”) have entered into an Airbus A330-300
Purchase Agreement dated as of even date herewith (the “Agreement”) which
covers, among other matters, the sale by AVSA and the purchase by NWA of
certain A330-300 aircraft (the “Aircraft”) as described in the specifications
annexed to said Agreement. NWA and AVSA have agreed to set forth in this A330
Financing Letter Agreement No. 1 (this “Letter Agreement”) certain additional
terms and conditions regarding the sale of the Aircraft provided for in the
Agreement. The terms “herein”, “hereof” and “hereunder” and words of similar
import refer to this Letter Agreement. Capitalised terms used herein and not
otherwise defined in this Letter Agreement will have the meanings assigned
thereto in the Agreement. The term “affiliate”, when used in the context of
AVSA, shall include Airbus Finance Company Limited (“AFC”) or any of its
affiliates and Airbus Industrie Financial Services (“AIFS”) or any of its
affiliates.

 

This Letter Agreement
shall not constitute part of the Agreement, but shall be a separate and
independent contract of financial accommodation.

 

A.                                    Aircraft
Financing

 

1.0                               Availability
and Exposure

 

1.1                               In
determining the availability of financing for NWA at delivery of each Aircraft,
Exposure (as defined hereafter) under these financing arrangements and those
arrangements in respect of certain other aircraft and spare parts will be
aggregated. Exposure is defined as the aggregate of (a), (b), (c), (d), (e) and
(f) where (a) will be the aggregate outstanding principal amount from time to
time under the Credit

 

1

 

Agreement in respect of
A319 and A320 aircraft dated as of 23 January 1998 between NWA as borrower
and AFC as initial lender and administrative agent as amended by the Credit
Agreement Amendment Agreement No 1 dated as of 1 July 1999 (the “A319
Credit Agreement”), (b) will be the aggregate outstanding principal amount from
time to time under any credit agreement entered into between NWA as borrower
and AVSA or an affiliate of AVSA as initial lender and administrative agent in
respect of A319 or A320 aircraft excluding any amounts identified in (a), (c)
will be the aggregate outstanding principal amount from time to time under the
A330 Short-Term Credit facility described herein where AVSA or an affiliate is
the Lender, (d) will be the aggregate principal amount outstanding under the
EETC Participation described herein regardless of which entity is holding the
certificates, (e) will be the higher of (i) the aggregate principal amount
actually outstanding and (ii) the aggregate principal amount scheduled to be
outstanding (as outlined in Exhibit 1) under the amended and restated loan
agreement dated as of 29 March 1996 (the “AIFS Term Loan”) between NWA as
borrower and AIFS as initial lender and agent regardless as to whether such
AIFS Term Loan has been repaid and (f) will be an amount equal to the combined
scheduled termination values (as outlined in Exhibit 2) at the time  in relation to the ten (10) A320-200 sub-lease
agreements (Trusts A through J) between NWA as sub-lessee and AI Leasing IV,
Inc. (“AIL”) as sub-lessor (each an “AIL Trust” and collectively the “AIL
Trusts”). In the event that an AIL Trust is terminated for any reason prior to
its currently scheduled term then the figures in Exhibit 2 will be reduced on a
pro rated basis.

 

1.2                               Subject
to the terms of this Letter Agreement (i) the A330 Short-Term Credit facility
described herein and (ii) the EETC Participation described herein will be
available to be drawn in accordance with the terms of this Letter Agreement in
respect of all of AVSA’s share of the Aircraft as described in paragraph 2.0
below, subject to Exposure not exceeding US$ *** at any time. For the avoidance
of doubt, if at the time of financing of a relevant Aircraft the amount to be
advanced in respect of such Aircraft under any of the A330 Short-Term Credit or
EETC Participation facilities described herein would result in Exposure
exceeding US$ ***, then the amount advanced in respect of such Aircraft will be
reduced accordingly.

 

2.0                               Election of Financing

 

2.1                               Subject
to the terms and conditions set forth herein NWA may elect, with respect to any
of the Aircraft up to a maximum of twelve (12) out of the sixteen (16) initial
Firm Aircraft and six (6) out of the remaining eight (8) Cancelable Aircraft
from the initial twenty-four (24) Firm Aircraft, by informing AVSA in writing
to use the A330 Short-Term Credit offered by AVSA as set forth in this section A
by providing written notice to AVSA no less than sixty (60) days prior to the
scheduled month of delivery of each such Aircraft (the “Preliminary Notice Date”).
NWA will be required to provide final written irrevocable notice (the

 

2

 

“Final Notice Date”) no
less than thirty (30) days prior to the scheduled month of delivery of such
Aircraft. Notwithstanding the foregoing, in order to facilitate administrative
planning, AVSA will be entitled to enquire of NWA from time to time and in
advance of the Preliminary Notice Date as to NWA’s likely intentions with
regard to the financing of a relevant Aircraft. NWA hereby undertakes to
provide a good faith response to any such enquiry, which will not be binding on
its ultimate intentions. It is understood that AVSA will be entitled to begin
working on financing documentation from the Preliminary Notice Date.
Notwithstanding the foregoing, NWA may elect to draw down the A330 Short-Term
Credit (as described herein) up to three (3) months following delivery of a
relevant Aircraft provided that such election may only be made in respect of up
to six (6) Aircraft and that no previous election (excluding any preliminary
notice) had been made to have such Aircraft financed at delivery under the
facilities described herein and provided further that AVSA is provided with
initial revocable notice no less than three (3) Business Days before the date
of delivery of such Aircraft and final irrevocable written notice no less than
thirty (30) days before drawdown under the A330 Short-Term Credit in respect of
such Aircraft.

 

3.0                               Short-Term
Debt Financing

 

3.1                               If
NWA gives AVSA timely notice of its election with respect to any Aircraft, as
provided in Paragraph 2.0 above, to use the financing alternative set forth in
this Paragraph 3.0, then AVSA will provide or procure that a nominee will
provide on the terms set forth below, a secured short-term debt financing (an “A330
Short-Term Credit”) of such Aircraft to NWA. The A330 Short-Term Credit will be
secured by a first priority perfected lien on the Aircraft and will be entitled
to the benefits of Section 1110 of the US Bankruptcy Code. The amount of
debt to be arranged or provided in any such A330 Short-Term Credit transaction
shall not exceed  *** percent (*** %) of
the Net Aircraft Flyaway Price of such Aircraft (which, for the purposes of
this Letter Agreement, is defined as the Final Contract price of the relevant
Aircraft plus Buyer Furnished Equipment less all airframe and engine credits
available at delivery of such Aircraft). The initial term (the “Initial Term”)
of an A330 Short-Term Credit will not extend beyond the third anniversary
following delivery of the relevant Aircraft. Interest will accrue and be paid
in arrears at the end of the selected LIBOR period by NWA at the rate of LIBOR
plus a margin for each of the three years which will be determined at drawdown.
The rate of interest (the “Interest Rate”) payable by NWA under each A330
Short-Term Credit will be based on LIBOR plus the higher of (x) and (y) where
(x) is the prevailing margin at which NWA could borrow in a commercial bank
loan transaction of the same principal amount with the same tenor and on
comparable terms and security at the same time (the “NWA Market Margin”) and
(y) from the date of drawdown until the first anniversary: *** basis points per
annum, from the first anniversary until the second anniversary: *** basis
points per annum, and from the second anniversary until the third anniversary: ***
basis points per annum. Notwithstanding the foregoing, it is agreed between the
parties

 

3

 

that the Interest Rate
will not exceed LIBOR plus *** basis points per annum. AVSA and NWA will
establish the NWA Market Margin by requesting their respective commercial banks
from the list of approved commercial banks in Exhibit 3 to determine the margin
that would be obtainable in the market by NWA at the time of such A330
Short-Term Credit. Should the two commercial banks fail to agree on such NWA
Market Margin, both AVSA and NWA will request a mutually selected third
commercial bank to determine the NWA Market Margin, and the average of the
closest rates of two of the three commercial banks will be agreed to be the NWA
Market Margin.

 

3.2                               Notwithstanding
the foregoing, NWA may select on a per Aircraft basis from time to time in
accordance with the procedure established under the A319 Credit Agreement, one
(1) month LIBOR in place of three (3) month LIBOR. The principal balance of
such financing will amortise on the basis of *** percent of the drawn amount
per quarter in arrears during the first two years and *** percent of the drawn
amount per quarter in arrears during the third year and be repaid quarterly in
arrears. Apart from any specific changes outlined in this Letter Agreement, any
changes which are required to reflect the identity and location of the Lender
and any other changes that may be agreed with NWA at the time, the
documentation under each A330 Short Term Credit will otherwise contain the same
terms as set forth in the A319 Credit Agreement, including, without limitation,
prepayment rights and obligations.

 

3.3                               In
respect of any relevant Aircraft, in the event that NWA does not intend to
extend the A330 Short Term Credit beyond the Initial Term then repayment in
full of the outstanding principal will be made by NWA at final maturity on the
last day of the Initial Term. In respect of any relevant Aircraft, if NWA
wishes to extend the A330 Short Term Credit beyond the Initial Term, it shall
be entitled so to do, subject to written notice provided by NWA to the Lender
of not less than sixty (60) days before the last day of the Initial Term. The
maximum period that NWA may extend the A330 Short-Term credit beyond the
Initial Term will be *** years (the “Extended Term”). Repayment in full of the
outstanding principal will be made by NWA at final maturity on the last day of
the Extended Term.

 

3.4                               During
the Extended Term principal under the A330 Short-Term Credit will amortise
quarterly in arrears on the basis of a mortgage-style level payment profile at
an assumed fixed interest rate of *** % per annum to a balloon payment of *** percent
(*** %) of the original amount drawn. Interest will accrue and be paid in
arrears at the end of the selected LIBOR period by NWA at the rate of LIBOR
plus a margin for each of the nine years which will be determined two business
days before the first day of the Extended Term. Notwithstanding the foregoing,
NWA may select on a per Aircraft basis from time to time in accordance with the
procedure established under the A319 Credit Agreement, one (1) month LIBOR in
place of three- (3) month LIBOR. The rate of interest (the “Extended Term
Interest Rate”) during each year of the Extended Term payable by NWA under

 

4

 

each A330 Short-Term
Credit will be based on LIBOR plus the prevailing margin at which NWA could
borrow on the basis of a commercial bank loan transaction of the same principal
amount with the same tenor and on comparable terms and security at the same
time (the “NWA Extended Term Market Margin”), with a minimum interest rate of
LIBOR plus *** basis points in respect of any of the first six (6) Aircraft
financed under an Extended Term during the Extended Term, LIBOR plus *** basis
points in respect of any of the next six (6) Aircraft financed under an
Extended Term during the Extended Term and LIBOR plus *** basis points in
respect of any of the remaining six (6) Aircraft financed under an Extended
Term during the Extended Term. AVSA and NWA will establish the NWA Extended
Term Market Margin by requesting their respective commercial banks from the
list of approved commercial banks in Exhibit 3 to determine the margin that
would be obtainable in the market by NWA at the time of such Extended Term.
Should the two commercial banks fail to agree on such NWA Extended Term Market
Margin, both AVSA and NWA will request a mutually selected third commercial
bank to determine the NWA Extended Term Market Margin, and the average of the
closest rates of two of the three commercial banks will be agreed to be the NWA
Extended Term Market Margin.

 

3.5                               In
the event that NWA selects the Extended Term in respect of up to six (6)
Aircraft, from the first day of the Extended Term up to and including the second
anniversary of the Extended Term the Extended Term Interest Rate will be LIBOR
plus the NWA Extended Term Market Margin. From the second anniversary of the
Extended Term until and including the third anniversary of the Extended Term
the Extended Term Interest Rate will be LIBOR plus *** percent (*** %) of the
NWA Extended Term Market Margin. From the third anniversary of the Extended
Term until and including the sixth anniversary of the Extended Term the
Extended Term Interest Rate will be LIBOR plus *** percent (*** %) of the NWA
Extended Term Market Margin. From the sixth anniversary of the Extended Term
until and including the seventh anniversary of the Extended Term the Extended
Term Interest Rate will be LIBOR plus *** percent (*** %) of the NWA Extended
Term Market Margin. From the seventh anniversary of the Extended Term until and
including the ninth anniversary of the Extended Term the Extended Term Interest
Rate will be LIBOR plus *** percent (*** %) of the NWA Extended Term Market
Margin. Notwithstanding the foregoing, it is agreed between the parties that
the Extended Term Interest Rate in respect of such Aircraft will not exceed
LIBOR plus *** basis points per annum.

 

3.6                               In
the event that NWA selects the Extended Term in respect of more than six (6)
Aircraft but no more than twelve (12) Aircraft, from the first day of the
Extended Term up to and including the first anniversary of the Extended Term
the Extended Term Interest Rate in respect of the seventh to the twelfth
Aircraft will be LIBOR plus the NWA Extended Term Market Margin. From the first
anniversary of the Extended Term until and including the third anniversary of
the Extended Term the Extended Term Interest Rate will be LIBOR plus *** percent
(*** %) of the

 

5

 

NWA Extended Term Market
Margin. From the third anniversary of the Extended Term until and including the
fourth anniversary of the Extended Term the Extended Term Interest Rate will be
LIBOR plus *** percent (*** %) of the NWA Extended Term Market Margin. From the
fourth anniversary of the Extended Term until and including the fifth
anniversary of the Extended Term the Extended Term Interest Rate will be LIBOR
plus *** percent (*** %) of the NWA Extended Term Market Margin. From the fifth
anniversary of the Extended Term until and including the seventh anniversary of
the Extended Term the Extended Term Interest Rate will be LIBOR plus *** percent
(*** %) of the NWA Extended Term Market Margin. From the seventh anniversary of
the Extended Term until and including the ninth anniversary of the Extended
Term the Extended Term Interest Rate will be LIBOR plus *** percent (*** %) of
the NWA Extended Term Market Margin. Notwithstanding the foregoing, it is
agreed between the parties that the Extended Term Interest Rate in respect of
such Aircraft will not exceed LIBOR plus *** basis points per annum.

 

In the event that NWA
selects the Extended Term in respect of more than twelve (12) Aircraft, from
the first day of the Extended Term up to and including the first anniversary of
the Extended Term the Extended Term Interest Rate in respect of the thirteenth
Aircraft to the eighteenth Aircraft will be LIBOR plus the NWA Extended Term
Market Margin. From the first anniversary of the Extended Term until and
including the third anniversary of the Extended Term the Extended Term Interest
Rate will be LIBOR plus *** percent (*** %) of the NWA Extended Term Market
Margin. From the third anniversary of the Extended Term until and including the
fourth anniversary of the Extended Term the Extended Term Interest Rate will be
LIBOR plus *** percent (*** %) of the NWA Extended Term Market Margin. From the
fourth anniversary of the Extended Term until and including the fifth
anniversary of the Extended Term the Extended Term Interest Rate will be LIBOR
plus *** percent (*** %) of the NWA Extended Term Market Margin. From the fifth
anniversary of the Extended Term until and including the seventh anniversary of
the Extended Term the Extended Term Interest Rate will be LIBOR plus *** percent
(*** %) of the NWA Extended Term Market Margin. From the seventh anniversary of
the Extended Term until and including the ninth anniversary of the Extended
Term the Extended Term Interest Rate will be LIBOR plus *** percent (*** %) of
the NWA Extended Term Market Margin.

 

3.7                               The
Aircraft will initially be registered with the FAA. NWA may at any time
re-register the Aircraft after the fifth anniversary following delivery of the
Aircraft in a foreign country in accordance with the terms contained in Exhibit
5 hereto, it being understood that there are no adverse tax consequences not
otherwise indemnified by NWA. Notwithstanding the foregoing NWA may reregister
the Aircraft at any time before the fifth anniversary following delivery in the
Netherlands, the United Kingdom or Japan subject to the consent of the Lender,

 

6

 

such consent not to be
unreasonably withheld or delayed, it being understood that there are no adverse
tax consequences not otherwise indemnified by NWA.

 

3.8                               Quiet
Enjoyment

 

3.8.1                     Each
Lender in a A330 Short-Term Credit will covenant to NWA that it shall not,
through its own actions or inactions, interfere with, or suffer to exist with
respect to the Aircraft any lien attributable to the Lender which might
interfere with, NWA’s continued possession, use and operation of, and quiet
enjoyment (including, without limitation, administrative quiet enjoyment) of,
the Aircraft during the term of the A330 Short-Term Credit in accordance with
the terms thereof so long as NWA shall not have been duly declared, or deemed
to be declared, in default pursuant to the A330 Short-Term Credit.

 

3.8.2                     Each
Lender will agree not to suffer to exist an event of default in its funding
arrangement that does not correspond to or result from an event of default or
default by NWA pursuant to the A330 Short-Term Credit.

 

3.8.3                     In the
event such third party requests an assignment of the A330 Short-Term Credit for
security purposes in return for such acknowledgment of quiet enjoyment and use
of the Aircraft without interference, the Lender shall make such request to NWA
and NWA may in its sole determination approve whether or not such assignment
may be permitted, such approval, if granted, to be conveyed by NWA in writing.

 

3.9                               Insurance

 

3.9.1                     NWA will
provide insurance (including public liability, property damage, war risk and
hijacking insurance) with respect to the Aircraft against risks customarily
insured against by NWA for similar aircraft, provided that public
liability and property damage insurance shall be in an amount of the higher of
(x) and (y) where (x) is US$475,000,000 per occurrence and (y) is the amount of
such insurance from time to time applicable to aircraft owned or operated by
NWA of the same type as the Aircraft. NWA will also provide all-risk hull
insurance in an amount equal to the outstanding principal balance from time to
time (subject to self-insurance described below). NWA will retain the right to
insure the Aircraft for amounts in excess of stipulated loss value, and NWA
will retain insurance proceeds in excess of stipulated loss value.

 

3.9.2                     NWA may
self insure by way of deductible, premium adjustment or franchise provisions or
otherwise, but in no case shall the aggregate amount of self-insurance with
respect to public liability, property damage and all-risk hull insurance exceed
during any policy year, with respect to

 

7

 

all of the aircraft in
NWA’s fleet (including, without limitation, the Aircraft), the lesser of (A) ***
% of the highest replacement value of any single aircraft in NWA’s fleet or (B)
*** % of the average aggregate insurable value (during the preceding year) of
all aircraft (including, without limitation, the Aircraft) on which NWA carries
insurance. In addition, NWA (and any lessee or sublessee, as appropriate) may
self-insure to the extent of any applicable mandatory minimum per Aircraft (or,
if applicable, per annum or other period) the hull or liability insurance
deductible imposed by the Aircraft hull or liability insurer.

 

3.9.3                     If at any
time the Aircraft is not covered by insurance as required by the preceding
sub-paragraph NWA may not operate the Aircraft and must maintain ground
insurance.

 

3.10                        Maintenance

 

NWA will maintain the
Aircraft in as good an operating condition as when initially delivered to NWA
under the facility, ordinary wear and tear excepted, in compliance with
applicable laws and regulations and a maintenance programme approved by the government
of registry, and in such condition as may be necessary to enable the Aircraft’s
airworthiness certification to be maintained in good standing at all times
(with exceptions as to temporary periods of storage in accordance with
applicable regulations and as to the grounding by the FAA of all Airbus A330
series aircraft powered by engines of the same type as those with which the
Aircraft shall be equipped at the time of such grounding), utilising, except
during any period that a sublease (or lease in the case where NWA is the
borrower) is in effect, the same manner of maintenance used by NWA with respect
to similar aircraft operated by NWA and utilising, during any period that a
sublease is in effect (or lease in the case where NWA is the borrower), the
same manner of maintenance used by the sublessee (or lessee) with respect to
similar aircraft operated by the sublessee (or lessee). NWA will have the right
at any time during the term of any financing to substitute for any engine
another compatible engine having a value and utility (except for maintenance
hours or cycle condition) of the engine being replaced.

 

4.0                               EETC
Participation

 

4.1                               With
respect to any of the Aircraft up to a maximum of twelve (12) out of the
sixteen (16) initial Firm Aircraft and six (6) out of the remaining eight (8)
Cancelable Aircraft from the initial twenty-four (24) Firm Aircraft NWA may
elect to have a trust (established for the benefit of NWA) issue an EETC on
customary market terms and conditions in respect of an Aircraft. At any time
between the date of this Letter Agreement up to and including the eighteenth
calendar month following delivery of such Aircraft, subject to written
irrevocable notice from NWA to AVSA of at least sixty (60) days (the “EETC
Notice Date”)

 

8

 

prior to issuance of such
EETC, AVSA will participate in or arrange for an affiliate to participate in
such EETC issued by the trust on NWA’s behalf in respect of such Aircraft. For
the avoidance of doubt, such EETC may include other aircraft in addition to
such Aircraft. Notwithstanding the foregoing the EETC Notice Date shall be
reduced to thirty (30) days (the “Standard EETC Notice Date”) in the case of an
EETC issue having substantially the same form and terms as a transaction
previously closed by NWA and AVSA or an affiliate of AVSA under this Letter
Agreement. Such Standard EETC Notice Date may be further reduced to a time to
be agreed at NWA’s written request with the consent of AVSA, such consent not
to be unreasonably withheld or delayed.

 

4.2                               AVSA’s
participation will take the form of a purchase of equipment trust certificates
(an “EETC Participation”) amounting in aggregate to an amount required by NWA
not to exceed in aggregate *** percent (*** %) of the Net Aircraft Flyaway
Price of each Aircraft in the EETC. The EETC Participation may be allocated in
any of A, B, C or D classes within a limit of the senior *** percent (*** %)
(the “Senior Limit”) of the Net Aircraft Flyaway Price at delivery of such Aircraft.
If the EETC is issued at the eighteenth calendar month following delivery of a
relevant Aircraft the limit will be the senior *** percent (*** %) of the Net
Aircraft Flyaway Price of such Aircraft. In the event that the EETC is issued
between delivery of a relevant Aircraft and the eighteenth calendar month
following delivery of such Aircraft the limit will be pro rated.

 

4.3                               Any
EETC may be structured on the basis of a prefunding on customary terms and
conditions. Interest will be charged at NWA’s market pricing for such
certificates with market clearing protection for NWA, subject to such pricing
not falling below Airbus Industrie’s market rate for such a tranche. AVSA or
its affiliate, as appropriate, will be provided access to the price determination
process and NWA and the lead managers will be required to use reasonable
efforts to sell in its entirety each class in which NWA is considering applying
an EETC Participation where such EETC Participation would represent part of a
class. AVSA will establish Airbus Industrie’s market rate described above by
requesting its investment bank from the list of approved investment banks in
Exhibit 4 to determine the market rate that would be obtainable by Airbus
Industrie for such a tranche at the time of such EETC Participation. In the
case where AVSA or its affiliate is required to acquire the entirety of a
class, AVSA will be entitled to have its investment bank audit the price
determination process in order to verify that the pricing on the class is the market
rate.

 

4.4                               Depending
on the level of seniority of a class there will be a limit on term and weighted
average life as follows: In the case of a junior participation (C class or D
class), the maximum term for any EETC Participation, in whole or in part, above
and excluding ***percent (*** %) of the Net Aircraft Flyaway Price of any
Aircraft at delivery of such Aircraft or above and excluding ***percent (*** %)
at the eighteenth calendar month following delivery of such Aircraft (with the

 

9

 

intervening period being
pro rated) will not exceed *** years from delivery with a weighted average life
not to exceed *** years from delivery. In the case of a senior participation (A
class or B class), if any EETC Participation, in whole or in part, is at a
level below and including *** percent (*** %) of the Net Aircraft Flyaway Price
of any Aircraft or below and including *** percent (*** %) at the eighteenth
calendar month following delivery of such Aircraft (with the intervening period
being pro rated) then the maximum term for such EETC Participation will be as
follows:

 

(i)                                     the
maximum term in respect of an A class participation may not exceed *** years
from delivery with a weighted average life not to exceed *** years from
delivery (so long as the EETC Participation in such circumstances represents
less than fifty percent of the A class);

 

(ii)                                  the
maximum term in respect of a B class participation (or an A class participation
if the EETC Participation is equal to the *** percent or more of the A class)
may not exceed *** years from delivery with a weighted average life not to
exceed *** years from delivery.

 

4.5                               In
the event that NWA elects to have an EETC Participation in respect of a
relevant Aircraft it may not be entitled to elect to have an RVG as outlined
herein in respect of such Aircraft. In the event that eighteen (18) RVGs have
been issued then NWA will not be entitled to elect to have an EETC
Participation in respect of an Aircraft without first cancelling an RVG in
respect of such Aircraft or another Aircraft, as appropriate.

 

5.0                               Other
Terms and Conditions

 

5.1                               Costs
and Expenses

 

NWA will pay the Lender’s
reasonable and adequately documented external legal expenses in relation to the
A330 Short-Term Credit or EETC Participation, as appropriate, whether or not
consummated.

 

5.2                               Transfer
and Assignment

 

5.2.1.                  The
certificates under an EETC Participation will be either registered paper at
issuance or will be eligible for resale under Rule 144a. If AVSA supplies to
NWA a statement from a law firm reasonably satisfactory to NWA to the effect
that such firm is not able to deliver an unqualified opinion that AVSA or, if
different, the initial certificate purchaser, can resell the certificates to
the public without an effective registration statement, NWA will enter into a
registration rights agreement pursuant to

 

10

 

which it agrees that, at AVSA’s request, or, if
different, the certificate purchaser’s request, NWA will (i) effect a
registered exchange offer under customary terms and conditions, and/or (ii)
file (and use its reasonable efforts to cause to become effective) a
registration statement on Form S-3 and thereafter use its reasonable efforts to
maintain the effectiveness of such registration statement for a  period of two (2) years following the date of
the initial purchase of the certificates; provided, however, that NWA shall not
be obligated to file or cause to become effective, and shall be permitted to
suspend sales under, a registration statement if, and for so long as, the Board
of Directors of NWA determines in good faith that a valid business reason
prevents the disclosure of information relating to NWA (such determination to
be evidenced by a certificate of the Chief Financial Officer or any Senior or
Executive Vice President of NWA and 
delivered to AVSA). Failing its obligations under the registration
rights agreement NWA shall be liable for customary liquidated damages.

 

5.2.2.                  The initial
purchaser under an EETC Participation will notify NWA in writing on any
occasion that the initial purchaser has an intention to dispose of its
interest, fully or partially, in the certificates to an unrelated third party
or parties in the public market. If, at the time of such notice, NWA is in the
process of establishing a financing of aircraft in the long-term domestic fixed
income market and requires a free and clear market to consummate such financing
NWA will be entitled to require the initial purchaser to refrain temporarily
(each such occasion being a “Refrain Period”) from disposing of such interest
for a period of up to *** days (the “Maximum Period”) from receipt of such
notice by notifying in writing the initial purchaser that this is the case. If
NWA requires the initial purchaser to refrain for a period of less than the
Maximum Period then NWA may use the balance between the Maximum Period and the
period for which NWA has required the initial purchaser to refrain from
disposing of its interest in the certificates on up to three more occasions
thereafter. For the avoidance of doubt, to the extent the Maximum Period is not
fully utilised on the four occasions outlined above any balance of days
remaining will no longer be available to NWA. Once the total number of Refrain
Periods has either reached four (4) in total or in days the Maximum Period, NWA
will not be entitled to require that an initial purchaser refrain from
disposing of its interest in the certificates for a period of *** days
thereafter. At any time after *** days thereafter if the initial purchaser
notifies NWA in writing of its intention to dispose of its interest in the
certificates, fully or partially, then NWA will be entitled to repeat the
process outlined above. The process outlined herein may be repeated until the
initial purchaser has fully disposed of its interest in the certificates.

 

5.2.3.                  The person
to whom any transfer or assignment under an A330 Short-Term Credit is made will
be either (1) a bank or other financial institution

 

11

 

with a combined capital, surplus and undivided
profits of at least $ ***, or a corporation whose consolidated tangible net
worth is at least $ ***, exclusive of goodwill, in either case as of the
proposed date of such transfer or assignment, as determined in accordance with
generally accepted accounting principles or (2) any affiliate of any such bank,
financial institution or corporation if such bank, financial institution or
corporation furnishes to NWA an agreement or agreements of such bank, financial
institution or corporation unconditionally guaranteeing to NWA such affiliate’s
obligations to NWA, so long as such entity referred to in (1) or (2) is (A) not
an airline, a commercial air carrier, an air freight forwarder, an entity
engaged in the business of parcel transport or other similar business
(collectively a “Potential Competitor”) and (B) is not a person or entity
(other than a bank or financial institution) controlling, controlled by or
under common control with any such Potential Competitor.

 

5.2.4.                  NWA hereby
agrees to provide latest publicly available financial, business and other
information to a Lender, if requested, together with any other information
which NWA may currently be providing to lenders in respect of other similar
type of debt financings which NWA may be arranging at the same time for
incorporation into or use in connection with any applicable placement
materials; provided, however, that, in respect of non-public information, such
Lender or its assignee shall enter into a written confidentiality agreement
with NWA consistent with NWA’s normal lender practices, if so required by NWA.

 

5.2.5.                  In
furtherance of the matters covered by this sub-paragraph 5.2. AVSA, and NWA
and, as appropriate, each Lender and each initial certificate purchaser in an
EETC Participation shall undertake in good faith at NWA’s request, consent to
which request not to be unreasonably withheld or delayed by AVSA, each Lender
or each initial certificate purchaser to define a mutually beneficial process
by which the parties would coordinate each Lender’s, or each initial
certificate purchaser’s, efforts to transfer debt or debt securities with NWA’s
plans and efforts to raise capital.

 

B.                                    ***

 

C.                                    General

 

1.0                               Termination

 

During the term of this
Letter Agreement, each of the commitments of AVSA set forth herein shall be
subject to the non-occurrence of any of the events described in this paragraph
C.1.0. Should any event described in sub-paragraph (a) to this paragraph occur,
this Letter Agreement and the commitments of AVSA hereunder shall automatically

 

12

 

terminate without notice
of any kind and without prejudice to any other rights or remedies that may be
exercised by AVSA. If any event described in sub-paragraphs (b) or (c) to this
paragraph occur, AVSA shall be entitled to terminate this Letter Agreement and
its commitments hereunder.

 

(a)

 

(1)                                  NWA
or any other party shall commence any case, proceeding or other action with
respect to NWA in any jurisdiction relating to bankruptcy, insolvency,
reorganisation or relief from debtors or seeking a reorganisation, arrangement,
winding-up, liquidation, dissolution or other relief with respect to its debts
and such case, proceeding or action is not dismissed within sixty (60) days.

 

(2)                                  An
action is commenced seeking the appointment of a receiver, trustee, custodian
or other similar official for NWA for all or substantially all of its assets
and such action is not stayed or dismissed within sixty (60) days, or NWA makes
a general assignment for the benefit of its creditors

 

(3)                                  An
action is commenced against NWA seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets and such action is not dismissed within sixty (60) days.

 

(4)                                  NWA
is unable generally to pay its debts as they become due.

 

(5)                                  There
is a liquidation, winding-up or analogous event with respect to NWA.

 

(b)

 

(1)                                  NWA
fails to make any Predelivery Payment required to be made pursuant to the
Agreement when such payment comes due or fails to make payment of all or part
of the Final Contract price required to be made pursuant to the Agreement.

 

(2)                                  NWA
defaults on any payment of principal or interest on any indebtedness or in the
payment of any guarantee obligation to AVSA or any of its Affiliates (as
defined in the Agreement).

 

(3)                                  NWA
defaults in its obligation to take delivery of an Aircraft (as defined in the
Agreement).

 

13

 

(4)                                  NWA
defaults in any material respect in the observance or performance of any other
material covenant or undertaking contained in the Agreement, and such default
continues beyond the applicable grace period (if any).

 

(5)                                  The
Agreement shall have terminated on account of a material breach by NWA or for
any other reason or if NWA shall be in material default of any of its
obligations thereunder.

 

(c)                                  NWA
or any of its affiliates shall have materially defaulted under any A330
Short-Term Credit or EETC Participation.

 

2.0                               Conditions
Precedent

 

Each A330 Short-Term
Credit, EETC Participation or RVG (at issuance) will contain appropriate
conditions precedent including

 

(i)                                     there
not having occurred since 31 December 2000 and be continuing 60 days
before drawdown of debt or RVG issue, as appropriate, in respect of a relevant
Aircraft a material adverse change in NWA’s financial condition which has a
material adverse effect on NWA’s ability to perform its material obligations
under the A330 Short-Term Credit, RVG or EETC Participation, as appropriate and

 

(ii)                                  NWA
not being in material default, at time of drawdown of debt under this Letter
Agreement or time of RVG issuance in respect of a relevant Aircraft, under any
material financing (including without limitation financing drawn under the
Credit Agreement, another A330 Short-Term Credit or EETC Participation or
financing drawn under the A319 Credit Agreement or under the AIFS Term Loan if
AIFS or an affiliate remains at risk or under an AIL Trust if AIL or an
affiliate remains at risk or financing drawn under commitments provided to NWA
by the Propulsion Systems manufacturer in respect of the Aircraft) or under the
Agreement.

 

3.0                               Guarantee

 

To the extent that AVSA
or an affiliate of AVSA (but excluding AFC if it is a Lender) is the Lender
under an A330 Short-Term Credit and prior to any transfer or assignment of such
A330 Short-Term Credit by such Lender, any Lender undertaking or obligation,
including without limitation lifting of liens, indemnities for the benefit of
NWA and transferring of title under a conditional sale arrangement, shall be
unconditionally guaranteed by Airbus Industrie. To the extent that AVSA or an
affiliate of AVSA (but excluding AFC if it is an RVG Guarantor) is the RVG
Guarantor under an RVG its obligations shall be unconditionally guaranteed by
Airbus Industrie. In the event that an affiliate of AFC is the Lender or the
RVG Guarantor under an RVG then its obligations to

 

14

 

NWA or third party
beneficiary, as appropriate, shall be unconditionally guaranteed by AFC.

 

4.0                               Propulsion
Systems Manufacturer

 

NWA hereby confirms that,
at the time of signature of the Propulsion Systems agreement in respect of support
and warranties on the Propulsion Systems and as a condition of its selection,
the Propulsion Systems manufacturer will be required to provide a formal and
documented undertaking to NWA to provide financing options to NWA in respect of
up to *** Aircraft out of the initial twenty-four (24) Firm Aircraft.

 

5.0                               Option
aircraft

 

The support outlined
herein is available in respect of the initially ordered Firm Aircraft, which
may include initially ordered Firm Aircraft converted into A330-200 and
A330-500 aircraft, and not in respect of Option Aircraft or Purchase Right
Aircraft subsequently converted to Firm Aircraft or Converted Firm A330-200
Aircraft or Converted Firm A330-500 Aircraft or Converted Firm A340-500
Aircraft or Converted Firm A340-600 Aircraft any of which were originally
Option Aircraft or Purchase Right Aircraft.

 

6.0                               Exposure
Reduction

 

NWA acknowledges that
Airbus Industrie and AIL intend to reduce their exposure in the AIL Trusts.
AVSA and AIL will take all reasonable efforts to minimise the administrative
burden in connection with such exposure reduction. NWA agrees to cooperate
reasonably with AIL and Airbus Industrie with the objective of achieving such
exposure reduction for AIL and Airbus Industrie under the AIL Trusts according
to a timetable to be established by Airbus Industrie and which could begin, at
Airbus Industrie’s option, in 2001, it being acknowledged by AVSA that NWA will
not be required to suffer any economic deterioration or additional risk in
respect of the exposure reduction under such AIL Trusts. In addition, AVSA will
procure that AIL will reimburse NWA’s reasonable and adequately documented
external legal and investment bank fees and expenses in respect of any exposure
reduction.

 

7.0                               Assignment

 

Notwithstanding any other
provision of this Letter Agreement or of the Agreement, this Letter Agreement
and the rights and obligations of NWA and AVSA hereunder (excluding, for the
avoidance of doubt, for the purposes of this Paragraph the rights and
obligations under an A330 Short-Term Credit or EETC Participation or RVG that
have already been closed) will not be assigned or transferred or mortgaged or
pledged in any manner without the prior written consent of either party
hereunder, and any attempted assignment or transfer in contravention of the
provisions of this Paragraph will be void and of no force and effect.

 

15

 

8.0                               Miscellaneous Provisions

 

(a)                                  Notices

 

All notices and requests
required or authorised hereunder shall be given in writing either by personal
delivery to a responsible officer of the party to whom the same is given or by
commercial courier or mail or by electronic transmission to the addresses set
forth below. The date upon which any such notice or request is so personally
delivered or delivered by commercial courier or mail, or if such notice or
request is given by electronic transmission, the date upon which sent, shall be
deemed to be the effective date of such notice or request.

 

AVSA shall be addressed
at:

 

2, rond-point Maurice
Bellonte

31700 BLAGNAC, FRANCE

 

	
  Attention:

  	
  Director - Contracts

  
	
  Telephone:

  	
  (33) 5 61 30 40 12

  
	
  Telex:

  	
  AVSA 521155F

  
	
  Fax:

  	
  (33) 5 61 30 40 11

  

 

And NWA shall be
addressed at:

 

2700 Lone Oak Parkway

Eagan, Minnesota 55121,
USA

 

	
  Attention:

  	
  Senior Vice President
  Finance & Treasurer

  
	
  Telephone:

  	
  (1) 612 726 2274

  
	
  Fax:

  	
  (1) 612 726 2488

  

 

or at such other address
or to such other address or to such other person as the party receiving the
notice or request may designate from time to time.

 

(b)                                 Waiver

 

The failure of either
party to enforce at any time any of the provisions of this Letter Agreement, or
to exercise any right herein provided, or to require at any time performance by
any other party of any of the provisions hereof, will in no way be construed to
be a present or future waiver of such provisions nor in any way to affect the
validity of this Letter Agreement or any part hereof or the right of the other
party thereafter to enforce each and every provision. The express waiver by
either party of any provision, condition or requirement of this Letter
Agreement shall not constitute a waiver of any future obligation to comply with
such provision, condition or requirement.

 

16

 

(c)                                  Interpretation
and Law

 

THIS
LETTER AGREEMENT AND ANY DOCUMENTS PERTAINING TO ANY OF THE FINANCING PROVIDED
HEREUNDER WILL BE GOVERNED BY AND CONSTRUED, AND THE PERFORMANCE THEREOF WILL
BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE IN SUCH STATE BY RESIDENTS THEREOF AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE; INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE. Each of AVSA and NWA (i) hereby irrevocably
submits itself to the non-exclusive jurisdiction of the courts of the State of
New York, New York County, of the United States, and to the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York, for the purposes of any suit, action or other proceeding arising out
of this Letter Agreement, the subject matter hereof or any of the transactions
contemplated hereby brought by any party or parties hereto, and (ii) hereby
waives, and agrees not to assert, by way of motion, as a defence, or otherwise,
in any such suit, action or proceeding, to the extent permitted by applicable
law, any defence based on sovereign or other immunity or that any suit, action
or proceeding is brought in an inconvenient forum, that the venue of such suit,
action or proceeding is improper, or that this Letter Agreement or the subject
matter hereof or any of the transactions contemplated hereby may not be
enforced in or by such courts.

 

(d)                                 Confidentiality

 

Subject to any legal or
governmental requirements of disclosure, and except for disclosure to legal
counsel, credit rating agencies and lead lenders to the parties on an as-needed
basis, the parties (which for this purpose shall include their board of
directors, employees, agents and advisers (including financial advisers)) shall
maintain the terms and conditions of this Letter Agreement strictly
confidential. Without limiting the generality of the foregoing, NWA and AVSA
will limit the disclosure of the contents of this Letter Agreement, to the
extent legally permissible, in any filing required to be made with any
governmental agency and shall make such applications as shall be necessary to
implement the foregoing. NWA and AVSA shall consult with each other prior to
the making of any public disclosure or filing, otherwise permitted hereunder,
of this Letter Agreement or the terms and conditions hereof. In the event that
NWA receives any other disclosure request from any government or any branch,
agency or instrumentality thereof or any government-related entity, which NWA
believes would be advisable to satisfy in whole or in part, NWA and AVSA will
consult and AVSA will not unreasonably withhold its consent to such disclosure.
Notwithstanding anything in this Paragraph to the contrary, AVSA may deliver a
copy of this Letter Agreement to the selected Propulsion Systems manufacturer.
The provisions of this Paragraph shall survive any termination of this Letter
Agreement.

 

17

 

(e)                                  Severability

 

In the event that any
provision of this Letter Agreement should for any reason be held to be without
effect, the remainder of this Letter Agreement shall remain in full force and
effect. To the extent permitted by applicable law, each party hereto hereby
waives any provision of law which renders any provision of this Letter
Agreement prohibited or unenforceable in any respect.

 

(f)                                    Alterations
to Contract

 

This Letter Agreement
contains the entire agreement between the parties with respect to the subject
matter hereof and supersedes any previous understanding, commitments or
representations whatsoever, oral or written.

 

(g)                                 Language

 

All correspondence,
documents and any other written matters in connection with this Letter
Agreement shall be in English.

 

(h)                                 Headings

 

All headings in this
Letter Agreement are for convenience of reference only and do not constitute a
part of this Letter Agreement.

 

(i)                                     Counterparts

 

This Letter Agreement 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.

 

18

 

If the foregoing
correctly sets forth our understanding, please execute the original and one (1)
copy hereof in the space provided below and return a copy to AVSA.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  AVSA, S.A.R.L.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francois Besnier

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  December 21, 2000

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted and Agreed

  	
   

  
	
   

  	
   

  
	
  NORTHWEST AIRLINES,
  INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Daniel B. Matthews

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Its:

  	
  Senior Vice President
  & Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  December 21, 2000

  	
   

  
							

 

19

 

	
  Exhibit
  1

  	
   

  	
  AIFS Term Loan Amortisation

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
   

  
				

 

20

 

	
  Exhibit
  2

  	
   

  	
  AIL Trusts Aggregate Termination Values

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
   

  
				

 

21

 

	
  Exhibit
  3

  	
   

  	
  Approved Commercial Banks

  
	
   

  	
   

  	
   

  
	
  ABN-Amro
  Bank

  	
   

  	
   

  
	
  Citibank

  	
   

  	
   

  
	
  Crédit
  Lyonnais

  	
   

  	
   

  
	
  Chase
  Manhattan Bank

  	
   

  	
   

  
	
  Deutsche
  Bank

  	
   

  	
   

  
	
  The
  Mitsubishi Trust and Banking Corporation

  	
   

  	
   

  
	
  The
  Bank of Tokyo-Mitsubishi Limited

  	
   

  	
   

  
	
  Kreditanstalt
  für Wiederaufbau

  	
   

  	
   

  
	
  Credit
  Suisse

  	
   

  	
   

  
				

 

their successors or
assigns.

 

22

 

	
  Exhibit
  4

  	
   

  	
  Approved Investment Banks

  
	
   

  	
   

  	
   

  
	
  Morgan Stanley Dean
  Witter

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Merrill Lynch

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Salomon Smith Barney

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Goldman Sachs

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Deutsche Bank
  Securities

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  J.P. Morgan (Chase)
  Securities

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Credit Suisse First
  Boston Corporation

  	
   

  	
   

  
				

 

their successors or
assigns and any investment bank not on the above list who at the time of
determination of market rates is one of the top five lead banks in the fixed
income US domestic bond market according to Thomson Financial Securities Data.

 

23

 

	
  Exhibit
  5

  	
   

  	
  Aircraft Reregistration Rights

  
	
   

  	
   

  	
   

  

The Lender will agree
that, at any time after the fifth anniversary following delivery, NWA may
effect a change in the registration of the Aircraft, at NWA’s expense, so long
as

 

(a)                                  the
proposed country of registry of the Aircraft is a country listed on Exhibit 6
to the Letter Agreement (or such other country as the Lender approves),

 

(b)                                 NWA
undertakes to perform in such country that which is required to maintain the
Lender’s security position and

 

(c)                                  the
following conditions are met:

 

(i)                                     the
United States, France, Germany, United Kingdom, the Netherlands or Japan, as
appropriate, maintain normal diplomatic relations with the proposed country of
registry of the Aircraft; and

 

(ii)                                  the
Lender together with any appropriate funding entity (including the equity
investor, as appropriate) shall have received favourable opinions (subject to
customary exceptions) addressed to each party, from counsel of recognised
reputation qualified in the laws of the relevant jurisdiction to the effect
that:

 

(A)                              The
appropriate party’s ownership, lease or security interests in the Aircraft
shall be recognised under the laws of such jurisdiction,

 

(B)                                the
obligations of NWA, and the rights and remedies of the appropriate parties
under the financing transaction shall remain valid, binding and (subject to
customary bankruptcy and equitable remedies exceptions and to other exceptions
customary in foreign opinions generally) enforceable under the laws of such
jurisdiction (or the laws of the jurisdiction to which the laws of such
jurisdiction would refer as the applicable governing law),

 

(C)                                after
giving effect to such change in registration, any lien, if appropriate, on the
Lender’s right and interest in and to the Aircraft and the borrowing shall
continue as a valid and duly perfected first priority security interest and all
filing, recording or other action necessary to protect the same shall have been
accomplished (or, if such opinion cannot be given at the time of such proposed
change in registration

 

24

 

because such change in
registration is not effective, (1) the opinion shall detail what filing,
recording or other action is necessary and (2) the Lender and the appropriate
parties shall have received a certificate from NWA that all possible
preparations to accomplish such filing, recording and other action shall have
been done, and such filing, recording and other action shall be accomplished
and a supplemental opinion to that effect shall be delivered the Lender and
other appropriate parties on or prior to the effective date of such change in
registration),

 

(D)                               it
is not necessary, solely as a consequence of such change in registration and
without giving effect to any other activity of the Lender or another
appropriate party, as the case may be, for the Lender or such other appropriate
party to qualify to do business in such jurisdiction,

 

(E)                                 there
is no tort liability of the owner of an aircraft not in possession thereof under
the laws of such jurisdiction (it being agreed that, in the event such latter
opinion cannot be given in a form satisfactory to the appropriate parties, such
opinion shall be waived if insurance reasonably satisfactory to the appropriate
parties is provided to cover such risk) and

 

(F)                                 (unless
NWA shall have agreed to provide insurance covering the risk of requisition of
use of the Aircraft by the government of such jurisdiction so long as the
Aircraft is registered under the laws of such jurisdiction) the laws of such
jurisdiction require fair compensation by the government of such jurisdiction
payable in currency freely convertible into US dollars for the loss of use of
the Aircraft in the event of the requisition by such government of such use.

 

In addition, as a
condition precedent to any such change in registration, NWA shall furnish to
the Lender and any other appropriate party an officer’s certificate to the
effect that the insurance required by the financing transaction shall be in
full force and effect at the time of such change in registration after giving
effect to such change in registration and that the new country of registry
imposes aircraft maintenance standards not materially different from those of
the United States of America, France, Germany, Japan, the Netherlands or the
United Kingdom. NWA shall pay all costs, expenses, fees, recording and
registration taxes, including the fees and expenses of counsel to the Lender
and other appropriate parties and other charges in connection with any such
change in registration.

 

25

 

	
  Exhibit
  6

  	
   

  	
  Approved Countries for Aircraft Reregistration Purposes

  
	
   

  	
   

  	
   

  

 

	
  Argentina

  	
   

  	
  Malaysia

  
	
   

  	
   

  	
   

  
	
  Australia

  	
   

  	
  Netherlands

  
	
   

  	
   

  	
   

  
	
  Belgium

  	
   

  	
  New Zealand

  
	
   

  	
   

  	
   

  
	
  Brazil

  	
   

  	
  Norway

  
	
   

  	
   

  	
   

  
	
  Canada

  	
   

  	
  People’s Republic of
  China

  
	
   

  	
   

  	
   

  
	
  Chile

  	
   

  	
  Philippines

  
	
   

  	
   

  	
   

  
	
  Denmark

  	
   

  	
  Portugal

  
	
   

  	
   

  	
   

  
	
  Finland

  	
   

  	
  Republic of China
  (Taiwan)(1)

  
	
   

  	
   

  	
   

  
	
  France

  	
   

  	
  Singapore

  
	
   

  	
   

  	
   

  
	
  Germany

  	
   

  	
  South Korea

  
	
   

  	
   

  	
   

  
	
  Greece

  	
   

  	
  Spain

  
	
   

  	
   

  	
   

  
	
  Iceland

  	
   

  	
  Sweden

  
	
   

  	
   

  	
   

  
	
  India

  	
   

  	
  Switzerland

  
	
   

  	
   

  	
   

  
	
  Indonesia

  	
   

  	
  Thailand

  
	
   

  	
   

  	
   

  
	
  Ireland

  	
   

  	
  Trinidad and Tobago

  
	
   

  	
   

  	
   

  
	
  Italy

  	
   

  	
  United Kingdom

  
	
   

  	
   

  	
   

  
	
  Japan

  	
   

  	
  Venezuela

  
	
   

  	
   

  	
   

  
	
  Luxembourg

  	
   

  	
   

  

 

(1) So long as on the
date of entering into the proposed re-registration such country and the United
States have diplomatic relations as good as those in effect as of the date of
this Letter Agreement with respect to the applicable Aircraft.

 

26

 

	
  Exhibit
  7

  	
   

  	
  Reference Condition

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
   

  
				

 

27

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