Document:

Exhibit 10.54

 

Pursuant to 17 CFR 240.24b-2, confidential information (indicated by
[***]) has been omitted and has been filed separately with the Securities and
Exchange Commission pursuant to a Confidential Treatment Application filed with
the Commission.

 

Execution Version

 

 

LOAN AGREEMENT

 

DATED AS OF FEBRUARY 17, 2005

 

BETWEEN

 

INDEPENDENCE AIR, INC.,

AS BORROWER

 

AND

 

 

GENERAL ELECTRIC CAPITAL CORPORATION,

AS ADMINISTRATIVE AGENT AND AS LENDER

 

AND

 

THE LENDERS

FROM TIME TO TIME PARTY HERETO

 

 

 

TABLE OF CONTENTS

 

	
  Article I  The Loans

  	
   

  
	
  Section
  1.1.  The Loans

  	
   

  
	
  Section
  1.2.  Making the Loans

  	
   

  
	
  Section
  1.3.  Fees

  	
   

  
	
  Section
  1.4.  Commitment Termination

  	
   

  
	
  Section
  1.5.  Use of Proceeds

  	
   

  
	
  Section
  1.6.  Payments and Computations

  	
   

  
	
  Section
  1.7.  Allocation of Payments

  	
   

  
	
  Section
  1.8.  Special Provision Regarding Loans

  	
   

  
	
   

  	
   

  
	
  Article II  Interest

  	
   

  
	
  Section
  2.1.  Rate of Interest

  	
   

  
	
  Section
  2.2.  Interest Periods

  	
   

  
	
  (a)  Interest Periods

  	
   

  
	
  (b)  Expiration of Interest
  Periods

  	
   

  
	
  Section
  2.3.  Interest Payments

  	
   

  
	
  Section
  2.4.  Default Rate

  	
   

  
	
  Section
  2.5.  Computation of Interest

  	
   

  
	
  Section
  2.6.  Maximum Rate

  	
   

  
	
   

  	
   

  
	
  Article III  Representations and
  Warranties

  	
   

  
	
  Section
  3.1.  General Representations and Warranties

  	
   

  
	
  (a)  Organization; Powers

  	
   

  
	
  (b)  Authorization;
  Enforceability

  	
   

  
	
  (c)  No Violation

  	
   

  
	
  (d)  Governmental Approvals

  	
   

  
	
  (e)  Litigation

  	
   

  
	
  (f)  Financial Condition

  	
   

  
	
  (g)  No Default

  	
   

  
	
  (h)  Investment and Holding
  Company Status

  	
   

  
	
  (i)  Use of Proceeds

  	
   

  
	
  (j)  Licenses, Permits, etc.

  	
   

  
	
  (k)  Compliance with Laws

  	
   

  
	
  (l)  Tax Returns

  	
   

  
	
  (m)  Information

  	
   

  
	
  Section
  3.2.  Additional Representations re Collateral

  	
   

  
	
  (a)  Good Title, Etc.

  	
   

  
	
  (b)  Filings

  	
   

  
	
  (c)  No Event of Loss

  	
   

  
	
  (d)  Section 1110

  	
   

  
	
  (e)  Conditions

  	
   

  
	
  (f)  Location, Identification and
  Release of Pledged Spare Parts

  	
   

  
	
  (g)  Software

  	
   

  
	
  (h)  Records

  	
   

  

 

i

 

	
  (i)  Spare Parts

  	
   

  
	
   

  	
   

  
	
  Article IV  Covenants

  	
   

  
	
  Section
  4.1.  Covenants of the Borrower

  	
   

  
	
  (a)  Financial Statements and
  Other Information

  	
   

  
	
  (b)  Existence; Conduct of
  Business

  	
   

  
	
  (c)  Mergers and Consolidations

  	
   

  
	
  (d)  Delivery of Post-Recording
  FAA Opinion

  	
   

  
	
  (e)  Compliance with Mortgages

  	
   

  
	
  (f)  LDTV Ratio

  	
   

  
	
  (g)  Engine Reports and
  Valuations

  	
   

  
	
   

  	
   

  
	
  Article V  Increased Costs; Tax
  Indemnity; General Indemnity

  	
   

  
	
  Section
  5.1.  Capital Adequacy; Increased Costs; Illegality

  	
   

  
	
  Section
  5.2.  Regulation D Compensation

  	
   

  
	
  Section
  5.3.  Withholding of Taxes

  	
   

  
	
  (a)  Payments to Be Free and
  Clear

  	
   

  
	
  (b)  Grossing-up of Payments

  	
   

  
	
  (c)  Evidence of Exemption from
  U.S. Withholding Tax

  	
   

  
	
  Section
  5.4.  Other Taxes

  	
   

  
	
  Section
  5.5.  General Indemnity

  	
   

  
	
  Section
  5.6.  Replacement of Lenders

  	
   

  
	
   

  	
   

  
	
  Article VI  Conditions Precedent

  	
   

  
	
  Section
  6.1.  General Conditions

  	
   

  
	
  Section
  6.2.  Additional Conditions

  	
   

  
	
   

  	
   

  
	
  Article VII  Events of Default

  	
   

  
	
  Section
  7.1.  Events of Default

  	
   

  
	
   

  	
   

  
	
  Article VIII  The Administrative
  Agent

  	
   

  
	
  Section
  8.1.  Appointment and Authorization

  	
   

  
	
  Section
  8.2.  Delegation of Duties

  	
   

  
	
  Section
  8.3.  Exculpatory Provisions

  	
   

  
	
  Section
  8.4.  Reliance by Administrative Agent

  	
   

  
	
  Section
  8.5.  Notice of Events of Default

  	
   

  
	
  Section
  8.6.  Non-Reliance on Administrative Agent and Other Lenders;
  Lender Representations

  	
   

  
	
  Section
  8.7.  Administrative Agent and Affiliates

  	
   

  
	
  Section
  8.8.  Indemnification

  	
   

  
	
  Section
  8.9.  Successor Administrative Agent

  	
   

  

 

ii

 

	
  Article IX  Miscellaneous

  	
   

  
	
  Section
  9.1.  Amendments

  	
   

  
	
  Section
  9.2.  Notices

  	
   

  
	
  Section
  9.3.  Costs and Expenses

  	
   

  
	
  Section
  9.4.  Certain Agreements

  	
   

  
	
  Section
  9.5.  Entire Agreement

  	
   

  
	
  Section
  9.6.  Cumulative Rights and Severability

  	
   

  
	
  Section
  9.7.  Waivers

  	
   

  
	
  Section
  9.8.  Successors and Assigns; Participations; Assignments

  	
   

  
	
  (a)  Successors and Assigns

  	
   

  
	
  (b)  Participations

  	
   

  
	
  (c)  Assignments

  	
   

  
	
  (d)  Register

  	
   

  
	
  Section
  9.9.  Confidentiality

  	
   

  
	
  Section
  9.10.  Counterparts

  	
   

  
	
  Section
  9.11.  Governing Law; Submission to Jurisdiction; Venue

  	
   

  
	
  Section
  9.12.  Waiver of Trial by Jury

  	
   

  
	
  Section
  9.13.  Effective Date

  	
   

  

 

iii

 

	
  Schedule 1

  	
  Definitions

  	
   

  
	
  Schedule 2

  	
  Engine Descriptions and Termination Values

  	
   

  
	
  Schedule 3

  	
  Certain Information

  	
   

  
	
  Schedule 3.1(e)

  	
  Certain Legal Proceedings

  	
   

  
	
  Schedule 4

  	
  Principal Amortization Schedule

  	
   

  
	
  Schedule 5

  	
  GE Deferral Leases

  	
   

  
	
  Schedule 6

  	
  GE Deferral Amount

  	
   

  
	
  Schedule 7

  	
  Maximum Deferral Amount

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
  Form of Engine Mortgage

  	
   

  
	
  EXHIBIT B

  	
  Form of Spare Parts Mortgage

  	
   

  
	
  EXHIBIT C

  	
  Form of Guaranty

  	
   

  
	
  EXHIBIT D

  	
  Form of Promissory Note

  	
   

  
	
  EXHIBIT E

  	
  Form of Notice of Borrowing

  	
   

  
	
  EXHIBIT F

  	
  Form of Transfer Supplement

  	
   

  
	
  EXHIBIT G

  	
  Certificate re Non-Bank Status

  	
   

  
	
  EXHIBIT H

  	
  Form of Payment and Indemnity Agreement

  	
   

  
	
  EXHIBIT I

  	
  Form of Subordinated Engine Mortgage

  	
   

  
	
  EXHIBIT J

  	
  Form of Subordinated Spare Parts Mortgage

  	
   

  
	
  EXHIBIT K

  	
  Form of Collateral Agent Agreement

  	
   

  
	
  EXHIBIT L

  	
  Form of LDTV Compliance Report

  	
   

  

 

iv

 

LOAN AGREEMENT

 

THIS LOAN
AGREEMENT, dated as of February 17, 2005 (this “Agreement”), is among
INDEPENDENCE AIR, INC., a California corporation (the “Borrower”), and
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as the
Administrative Agent for the Lenders (the “Administrative Agent”),
GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as lender and
such other lenders as may from time to time be party hereto (together with the
initial lender named herein, the “Lenders”).  Certain capitalized terms used herein are
defined, and certain rules of construction are specified, in Schedule 1.

BACKGROUND

 

1.                                       The
Lenders have agreed to make loans to the Borrower to be secured by a Lien on
certain aircraft engines and spare parts owned by the Borrower and to be
guaranteed by the Guarantor.

 

2.                                       In
connection with the foregoing, the parties hereto wish to enter into certain
related understandings, as set forth herein.

 

The parties hereto
agree as follows:

 

ARTICLE I

THE LOANS

 

Section
1.1.                                The
Loans.

 

(a)                                  Commitments.   
Subject to the terms and conditions of this Agreement, on the Funding
Date, the Lenders shall make a loan to the Borrower in the principal amount
equal to the Aggregate Series A Commitment (the “Series A Loan”), and a
loan to the Borrower in the principal amount equal to the Aggregate Series B
Commitment (the “Series B Loan”, and together with the Series A Loan,
the “Loans”).  As evidence of the
funds advanced by each Lender on the Funding Date pursuant to its Series A
Commitment, the Borrower shall issue and deliver to such Lender, as provided
hereunder, a Series A Note payable to such Lender in an original principal
amount equal to the amount of its Series A Commitment.  As evidence of the funds advanced by each
Lender on the Funding Date pursuant to its Series B Commitment, the Borrower
shall issue and deliver to such Lender, as provided hereunder, a Series B Note
payable to such Lender in an original principal amount equal to the amount of
its Series B Commitment.  The Series A
Notes and the Series B Notes shall each be substantially in the form set forth
in Exhibit D.

 

(b)                                 Amortization.  The
principal of each Loan, and the Notes evidencing such Loan, shall be due and
payable in sixty (60) consecutive monthly installments on each Payment Date,
commencing with the Payment Date occurring in the month immediately following
the month in which the Funding Date occurs and ending on the Maturity
Date.  Each such installment shall be in
an amount computed by multiplying the original

 

1

 

principal amount
of the applicable Loan or Note, as the case may be, by the percentage set forth
in Schedule 4 (it being expressly understood that the information set
forth on such schedule shall be expressly set forth in Annex A of each Note)
opposite the Payment Date on which such installment is due; provided, however,
in the event that any Loan shall have been prepaid in part pursuant to this
Agreement, then from and after the date on which any such partial prepayment is
made, the amount of the remaining scheduled monthly installments with respect
to such Loan shall be reduced, in inverse order of maturity, by the amount of
such partial prepayment.

 

(c)                                Optional
Prepayment.  The Borrower may not,
except as otherwise expressly provided in this Agreement, prepay any Loan, in
whole or in part, prior to the Designated Date. 
On or after the Designated Date, the Borrower may prepay all Loans in
whole on any Business Day provided that (x) the Borrower provides not less than
three Business Days’ prior irrevocable written notice to the Administrative
Agent of the proposed prepayment date, and (y) the Borrower shall, concurrently
with such prepayment, enter into such security arrangements as the Collateral
Agent, in its reasonable discretion, deems acceptable to provide Acceptable
Collateral in an amount equal to the Maximum Deferral Amount determined as of
the date of such prepayment, and providing for periodic adjustment to reflect
the Maximum Deferral Amount in effect from time to time, as security for the payment
and performance by the Borrower of the GE Deferral Lease Obligations, which
arrangements shall provide that such Acceptable Collateral shall remain in
place for so long as the Subordinated Mortgages would have remained in place
pursuant to the terms thereof in the absence of any prepayment of the Loans
hereunder.  If the Borrower elects to
make a prepayment pursuant to this Section 1.1(c), the Borrower shall pay to
the Administrative Agent, on the prepayment date specified in the Borrower’s
notice delivered hereunder, the outstanding principal amount of all Loans
hereunder with all accrued and unpaid interest thereon, any LIBOR Breakage
Costs, and all other amounts then due and payable under the Transaction
Documents.  For the avoidance of doubt,
the Borrower and the Lenders mutually acknowledge and agree that no partial
prepayments of any Loan, or of one Loan but not the other, shall be permitted
at any time, except to the extent, if any, permitted or required by Section
1.1(d) below.

 

(d)                                 Mandatory Prepayment.

 

(i)                                  Engine
Event of Loss. If an Event of Loss occurs with respect to any Engine and
the Borrower elects not to substitute another engine for such Engine in
accordance with the Engine Mortgage (or if the Borrower so elects, but does not
substitute another engine for such Engine in accordance with the Engine
Mortgage) or if a Permitted Disposition occurs with respect to any Engine, the
Borrower shall, on the date specified for payment with respect to such Event of
Loss in Section 3.04(a)(i) of the Engine Mortgage or such Permitted
Disposition in Section 3.04(h) of the Engine Mortgage, by payment to the
Administrative Agent, prepay the Series A Loan in a principal amount equal to
the amount determined pursuant to the immediately following sentence, together
with accrued interest thereon to the date of such prepayment plus any LIBOR
Breakage Costs, and the amount of principal so paid by the Borrower shall be
applied as specified in Section 1.1(b). 
The amount of principal to be prepaid pursuant to 

 

2

 

this
Section 1.1(d)(i) with respect to any Engine will be equal to the amount set
forth opposite such Engine (or the Engine which such Engine has replaced) on Schedule
2.  For the avoidance of doubt, any
prepayment pursuant to this Section 1.1(d)(i) may be made at any time, whether
before or after the Designated Date, and may be a prepayment in part only, and
not a prepayment in full, of the Series A Loan.

 

(ii)                              Spare
Parts Ratios.  In the event that, in
accordance with Section 3.03 of the Spare Parts Mortgage, the Borrower is
entitled to make, and elects to make, a prepayment of the Series B Loan, then
the amount of such prepayment, together with accrued interest thereon to the
date of such prepayment and any LIBOR Breakage Costs, shall be paid to the
Administrative Agent before the expiration of the period specified in Section
3.03(a) or (b), as the case may be, of the Spare Parts Mortgage, and the amount
of principal so paid by the Borrower shall be applied as provided in Section
1.1(b).  For the avoidance of doubt, any
prepayment pursuant to this Section 1.1(d)(ii) may be made at any time, whether
before or after the Designated Date, and may be a prepayment in part only, and
not a prepayment in full, of the Series B Loan.

 

(iii)                          LDTV
Ratio.  If pursuant to Section 4.1(f)
of this Agreement, the Borrower is entitled to make, and elects to make, a
prepayment of the Loans, then the amount of such prepayment, together with
accrued interest thereon to the date of such prepayment and any LIBOR Breakage
Costs, shall be paid to the Administrative Agent before the expiration of the
period specified in Section 4.1(f) of this Agreement, and the amount of
principal so paid by the Borrower shall be applied as provided in Section
1.1(b).  Subject only to Section
1.1(d)(iv) below, and notwithstanding anything to the contrary set forth
elsewhere in this Agreement or in any of the other Transaction Documents, any
prepayment made by the Borrower pursuant to this Section 1.1(d)(iii) shall be
applied to the Loans in such proportion as the Administrative Agent may specify
pursuant to instructions from the Required Lenders; it being expressly
acknowledged and agreed that the Administrative Agent may elect to apply the
entire amount of such prepayment to either of the Loans with the other Loan
remaining unaffected or to apply such prepayment to each of the Loans in such
proportion as the Administrative Agent may specify pursuant to instructions
from the Required Lenders.  For the
avoidance of doubt, any prepayment pursuant to this Section 1.1(d)(iii) may be
made at any time, whether before or after to the Designated Date, and may be a
prepayment in part only, and not a prepayment in full, of the Loans or either
of them.

 

(iv)                            Relationship
Between Subclauses (ii) and (iii). 
For the avoidance of doubt, the Administrative Agent hereby expressly
acknowledges and agrees on behalf of the Lenders that, if at any time the
Borrower is required to make payments under both Section 3.03 of the Spare
Parts Mortgage and Section 4.1(f) of this Agreement, any payment made by the
Borrower shall be deemed to be made pursuant to, and shall be applied in
accordance with, Section 1.1(d)(ii) above to the extent required in order for
the Borrower to comply with its obligations under Section 3.03 of the Spare
Parts Mortgage first, and any excess shall be deemed to be made pursuant to,
and shall be applied in accordance with, Section 1.1(d)(iii) above.

 

3

 

Section
1.2                                   Making
the Loans. 

 

(a)                                  The Loans shall be requested by the delivery of a Notice of Borrowing
by the Borrower to the Administrative Agent not later than 11:00 A.M. (New York
City time) one Business Day prior to the Funding Date specified in such notice.
 The Administrative Agent shall give to
each Lender prompt notice thereof.  The
Notice of Borrowing shall be irrevocable and binding on the Borrower.  The Notice of Borrowing shall be in writing
and shall specify therein (i) the aggregate amount of the Loans to be funded,
(ii) the proposed Funding Date, and (iii) the Borrower’s account to which
the Loan proceeds are to be funded.  Each
Lender shall, before 10:00 a.m. (New York City time) on the scheduled Funding
Date, make available for the account of its Lending Office to the
Administrative Agent’s Account, in immediately available funds, its Series A
Commitment and its Series B Commitment. 
After the Administrative Agent’s receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article VI as confirmed
during a closing conference call pursuant to which the Administrative Agent or
its counsel shall indicate such fulfillment, the Administrative Agent shall
transfer such funds to the Borrower at its account at Wachovia Bank, Richmond, Virginia, ABA # 051400549, Credit:
Independence Air, Inc. Account # 207 901 911 7146.  For the avoidance of doubt, the
Borrower and the Lenders expressly acknowledge and agree that the Borrower
shall not be entitled to draw down one or the other of the Loans without
drawing down on both of them, and in no event will any Lender fund one Loan (or
such Lender’s Percentage Share of such Loan) without funding the other Loan (or
such Lender’s Percentage Share of such other Loan).

 

(b)                                 If for any reason the Closing is not consummated on the Funding Date set
forth in the Notice of Borrowing, the Borrower may, by written notice to the
Administrative Agent given by 5:00 p.m., New York City time on the scheduled
Funding Date, designate a delayed Funding Date for such Closing, in which case
the Administrative Agent shall hold the funds provided by the Lenders until
such delayed Funding Date and use reasonable efforts to invest such funds in
Permitted Investments, as directed by the Borrower, provided, that if such Closing
does not occur by the third Business Day after such initial scheduled Funding
Date, such funds shall be returned to the Lenders, and the Loans shall be
deemed not to have been made pursuant to this Section 1.2.  The Administrative Agent shall pay to the
Borrower upon its request any earnings from such investments, and the Borrower
shall pay to the Administrative Agent upon its request any losses from such
investments.  If the Closing fails to
occur on a scheduled or delayed Funding Date and the Borrower does not give
notice of a delayed Funding Date pursuant to this Section, the Administrative
Agent shall promptly return to the Lenders the amounts funded by them, the
Loans shall be deemed not to have been made pursuant to this Section 1.2, and
the Borrower shall pay to the Lenders upon demand LIBOR Breakage Costs with
respect to amounts funded plus, in the case of failure to close on a delayed
Funding Date, interest from and including the initial scheduled Funding Date to
but excluding the date on which such funds are returned by 1:00 p.m. (New York
City time) (or, if returned after

 

4

 

such time on such date, to but excluding the next
Business Day), at a rate per annum equal to the relevant LIBOR Rate plus the
Applicable Margin that would have been applicable thereto had the Closing
occurred on the initial scheduled Funding Date. 
If the Borrower has designated a delayed Funding Date pursuant to this
Section and the Closing occurs on such delayed Funding Date, each Loan shall
begin to accrue interest at the relevant LIBOR Rate plus the Applicable Margin
on the date that funds were originally provided by the Lenders to the
Administrative Agent to make such Loan (which shall be deemed to be the
commencement date of the initial Interest Period for such Loan); provided,
however, if all conditions precedent specified in Article VI are satisfied in
full on or before the initial scheduled Funding Date and the Closing does not
occur on the initial scheduled Funding Date solely due to the failure of the
Lenders to fund the Loan pursuant to their respective Commitments hereunder
(but the Closing does occur later pursuant to this Section 1.2(b)), then each
Loan shall begin to accrue interest only on the date that the Closing actually
occurs (rather than from the initial scheduled Funding Date).

 

Section 1.3.                                Fees.  The Borrower shall pay to the Administrative
Agent for the account of the Lenders on the Funding Date an upfront arrangement
fee in the amount of one percent (1%) of the aggregate principal amount of the
Loans funded on the Funding Date.

 

Section 1.4.                                Commitment
Termination.  The Aggregate
Commitment and the Commitment of each Lender shall terminate on the earlier of
(i) the making of the Loans pursuant to Section 1.2 above, or (ii) at 5:00
pm (New York time) on the Commitment Termination Date.

 

Section 1.5.                                Use
of Proceeds.  The Borrower may use
the proceeds of the Loans for any general corporate purpose of the Borrower.

 

Section 1.6.                                Payments
and Computations .

 

(a)                                  The
Borrower shall make each payment hereunder and under the Notes not later than
12:30 p.m. (New York City time) on the day when due in Dollars to the
Administrative Agent’s Account in immediately available funds, without set-off
or counterclaim (except for any required withholding taxes not subject to
indemnification hereunder).  Any amounts
received after such time may, in the discretion of the Administrative Agent, be
deemed to have been received on the next succeeding Business Day for the
purpose of calculating interest thereon.

 

(b)                                 Whenever
any payment hereunder or under the Notes shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or other amounts as the case may be; provided, however, that, if such extension would cause
payment of interest on or principal of a Loan to be made in the next following
calendar month, such payment shall be made on

 

5

 

the
next preceding Business Day, and such reduction of time shall be given effect
in the computation of the payment of interest hereunder.

 

Section 1.7.                                Allocation
of Payments.  So long as no Event of
Default has occurred and is continuing, (i) payments matching specific
scheduled payments then due shall be applied to those scheduled payments; (ii)
voluntary prepayments shall be applied in accordance with the provisions of
Section 1.1(c); and (iii) mandatory prepayments shall be applied as set forth
in Section 1.1(d).  All payments and
prepayments applied to a particular Loan shall be applied ratably to the
portion thereof held by each Lender as determined by its Ratable Share of such
Loan.  As to any other payment and as to
all payments made when an Event of Default has occurred and is continuing, the
Borrower hereby irrevocably waives the right to direct the application of any
and all payments received from or on behalf of the Borrower.

 

Section 1.8.                                Special
Provision Regarding Loans.  To induce
the Lenders to provide the Loans on the terms and conditions set forth herein,
if (i) any Loan is repaid in whole or in part prior to the last day of any
applicable Interest Period (whether that repayment is made pursuant to any
provision of this Agreement or any other Transaction Document or occurs as a
result of acceleration, by operation of law or otherwise); (ii) the Borrower
shall default in payment when due of the principal amount of or interest on any
Loan; (iii) the Borrower shall refuse to accept any borrowing of, or shall
request a termination of any borrowing, of any Loan after the Borrower has
given a notice thereof in accordance with this Agreement, then the Borrower
shall indemnify and hold harmless each Lender from and against any loss or
expense arising from the reemployment of funds obtained by it or from fees
payable to terminate deposits from which such funds were obtained.  For the purposes of calculating amounts
payable to a Lender under this subsection, each Lender shall be deemed to have
actually funded its Percentage Share of the applicable Loan through the
purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to
its Percentage Share of the applicable Loan and having a maturity comparable to
the relevant Interest Period; provided, that each Lender may fund its
Percentage Share of each applicable Loan in any manner it sees fit, and the
foregoing assumption shall only be used for the calculation of amounts payable
under this subsection.  This covenant of
the Borrower shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.  As promptly as practicable under the
circumstances, each Lender shall provide the Borrower with its written
calculation of all amounts payable pursuant to this Section 1.8, and such
calculation shall be binding on the parties hereto absent manifest error.  The amounts calculated pursuant to this
Section 1.8, and payable by the Borrower pursuant to this subsection as well as
other provisions of this Agreement, are sometimes referred to as “LIBOR
Breakage Costs”).

 

ARTICLE II

INTEREST

 

Section 2.1.                                Rate
of Interest.  Each Note shall bear
interest on the unpaid principal amount thereof for each Interest Period from
the date made through maturity (whether by acceleration or otherwise) at a rate
equal to the sum of the LIBOR 

 

6

 

Rate for such
Interest Period plus the Applicable
Margin.  The applicable Interest Period
for determining the rate of interest with respect to each Note or portion
thereof shall be established in accordance with Section 2.2.

 

Section 2.2.                                Interest
Periods.

 

(a)                                  Interest Periods. 
The first Interest Period for the Notes evidencing each Loan shall be
the period commencing on the Funding Date (provided, that in the case of a
delayed Funding Date, the date funds for such Loan are made available to the
Administrative Agent shall be the commencement date of such Interest Period
pursuant to Section 1.2(b)) and shall end on, but shall exclude, the third
subsequent Interest Payment Date for such Notes, and thereafter each successive
Interest Period shall commence on (and shall include) the last day of the next
preceding Interest Period and shall end on (but shall exclude) the third
subsequent succeeding Interest Payment Date, provided
however that notwithstanding anything in this Agreement to the
contrary, the final Interest Period for the Notes shall end on the Maturity
Date.

 

(b)                                 Expiration of Interest Periods.  If an Interest Period for any Note would
otherwise expire on a day that is not a Business Day, such Interest Period
shall expire on the next succeeding Business Day; provided
that, if any Interest Period for any Note would otherwise expire on a day that
is not a Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day.

 

Section 2.3.                                  Interest Payments.  Accrued interest on each Note shall be
payable in arrears on each Interest Payment Date for such Note; provided,
that (i) interest accrued pursuant to Section 2.4 shall be payable on
demand and (ii) in the event of any repayment or prepayment of any Note
(or any portion thereof), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment.

 

Section 2.4.                                Default
Rate.  Notwithstanding
Section 2.1, the Borrower shall pay the Administrative Agent for the account
of the Lenders and itself (as applicable) on demand interest on any principal,
interest, fee or other amount not paid hereunder, under any Note or under any
other Transaction Document when due at a rate per annum that is [***]% per
annum in excess of the LIBOR Rate for the relevant Interest Period plus the
Applicable Margin (the “Default Rate”).

 

Section 2.5.                                Computation
of Interest.  Interest on the Notes
shall be computed on the basis of a 360-day year for the actual number of days
elapsed in the period during which such amount accrues.  In computing such amounts, the first day of
the applicable period shall be included, and the last day of the applicable
period shall be excluded; provided that
if a Note (or any portion thereof) is repaid on the same day on which it is
made, one day’s interest shall be paid on that Note or the relevant portion
thereof.

 

Section 2.6.                                Maximum
Rate.  Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any
Note, together with all fees,

 

7

 

charges and other
amounts which are treated as interest on such Note under applicable law
(collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum
Rate”) which may be contracted for, charged, taken, received or reserved by
the Lender holding such Note in accordance with applicable law, the rate of
interest payable in respect of such Note or the relevant portion thereof
hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Note or the relevant portion
thereof but were not payable as a result of the operation of this
Section shall be cumulated and the interest and Charges payable to such
Lender in respect of other periods shall be increased (but not above the
Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the LIBOR Rate to the date of repayment, shall have been received by
such Lender.

 

ARTICLE
III

REPRESENTATIONS AND WARRANTIES

 

Section 3.1.                                General
Representations and Warranties.  The
Borrower represents and warrants to the Administrative Agent and each Lender as
of the date of this Agreement that:

 

(a)                                  Organization; Powers.  Each of the Borrower and the Guarantor (i) is
duly incorporated, validly existing and in good standing under the laws of its
state of incorporation, (ii) is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required, except
where the failure to be so qualified would not result in losses or liabilities
which could reasonably be expected to have a Material Adverse Effect,
(iii) has all requisite corporate power and authority to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease and to carry on its business as now conducted
or proposed to be conducted.  With
respect to each of the Borrower and the Guarantor, its name as it appears in
its Articles or Certificate of Incorporation, as the case may be, its
jurisdiction of incorporation, its organizational identification number in its
jurisdiction of incorporation, and its federal employer identification number
are as follows:

 

	
   

  	
   

  	
  Name

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Organizational

  ID No.

  	
   

  	
  F.E.I.N.

  	
   

  
	
  Borrower:

  	
   

  	
  Independence
  Air, Inc.

  	
   

  	
  California

  	
   

  	
  C1654054

  	
   

  	
  77-0291749

  	
   

  
	
  Guarantor:

  	
   

  	
  FLYi, Inc.

  	
   

  	
  Delaware

  	
   

  	
  2265793

  	
   

  	
  13-3621051

  	
   

  

 

(b)                                 Authorization; Enforceability.  The execution and delivery by each of the
Borrower and the Guarantor of the Transaction Documents and the Subordinated
Documents to which it is a party and the performance by the Borrower and the
Guarantor of its obligations thereunder are within the respective corporate
powers of the Borrower

 

8

 

and
the Guarantor, have been duly authorized by all necessary corporate action of
Borrower and the Guarantor, do not require any stockholder approval, or
approval or consent of any trustee or holder of indebtedness or obligations of
the Borrower or the Guarantor except such as have been duly obtained.  This Agreement and the Guaranty have been
duly executed and delivered by the Borrower and the Guarantor, respectively, and
the other Transaction Documents and the Subordinated Documents to which the
Borrower and/or the Guarantor is a party will be duly executed and delivered by
the Borrower when required by this Agreement. 
This Agreement and the Guaranty constitute, and each of the other
Transaction Documents and Subordinated Documents to which the Borrower and/or
the Guarantor is a party when executed and delivered by the Borrower or the
Guarantor, as the case may be, will constitute, a legal, valid and binding
obligation of the Borrower or the Guarantor, as the case may be, enforceable
against the Borrower or the Guarantor, as the case may be, in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and
subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.

 

(c)                                  No Violation.  The execution and delivery by the Borrower
and the Guarantor of the Transaction Documents and the Subordinated Documents
to which it is a party and the performance by the Borrower and the Guarantor of
its obligations thereunder do not and will not (a) violate any provision of the
Articles or Certificate of Incorporation or By-Laws of the Borrower or the
Guarantor, respectively, (b) violate any law applicable to or binding on
the Borrower or the Guarantor, as the case may be, or (c) violate or constitute
any default under, or result in the creation of any Lien (other than as
permitted under the applicable Mortgages) upon any Collateral under, any
indenture, mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, loan or other material agreement, instrument or document to
which the Borrower or the Guarantor is party or by which either the Borrower or
the Guarantor or any of their respective properties is bound.

 

(d)                                 Governmental Approvals.  The execution and delivery by the Borrower
and the Guarantor of the Transaction Documents and Subordinated Documents to
which it is a party and the performance by the Borrower and the Guarantor of
its obligations thereunder do not and will not require the consent or approval
of, or the giving of notice to, or the registration with, or the recording or
filing of any documents with, or the taking of any other action in respect of,
any Governmental Authority, other than the filings described in Section 3.2(b).

 

(e)                                  Litigation.  Except as set forth in the Guarantor’s Annual
Report on Form 10-K for 2003 (as amended through the Funding Date), or in any
Quarterly Report on Form 10-Q or Current Report on Form 8-K filed by the
Guarantor with the SEC subsequent to such Form 10-K (in each case as amended
through the Funding Date) (a list of which filings has been provided by
Borrower to the Administrative Agent on the Funding Date), no action, claim or
proceeding is now pending or, to the Actual Knowledge of the Borrower or the
Guarantor, threatened against the Borrower or the Guarantor before any court,
governmental body, arbitration board, tribunal or administrative agency, which
is reasonably likely to be determined adversely to the

 

9

 

Borrower
or the Guarantor and if determined adversely to the Borrower or the Guarantor,
as the case may be, would result in a Material Adverse Effect , except as
disclosed in Schedule 3.1(e) hereto.

 

(f)                                    Financial Condition.  The audited consolidated balance sheet of the
Guarantor and its consolidated subsidiaries with respect to its most recent
fiscal year included in its Annual Report on Form 10-K for 2003 (as amended
through the Funding Date) filed by the Guarantor with the SEC, and the related
consolidated statements of operations and cash flows for the year then ended
have been prepared in accordance with GAAP and fairly present in all material
respects the financial condition of the Borrower and its consolidated
subsidiaries as of such date and the results of its operations and cash flows
for such period.  The consolidated
balance sheet of the Guarantor as of September 30, 2004 included in its
Quarterly Report on Form 10-Q for the period ended September 30, 2004, and the
related consolidated statement of operations and cash flows for the three
months then ended have been prepared in accordance with GAAP (subject to normal
year-end adjustments and the absence of footnotes) and fairly present in all
material respects (subject to such adjustments and the absence of footnotes)
the financial condition of the Guarantor and its consolidated subsidiaries as
of such date and the results of its operations and cash flows for such
period.  Since the date of the Guarantor’s
Quarterly Report on Form 10-Q for the period ended September 30, 2004, no event
has occurred that, alone or with other events, could reasonably be expected to
have a Material Adverse Effect, except for (i) the matters addressed and
resolved or waived upon consummation of the Restructuring Transactions, and
(ii) the matters disclosed in Schedule 3.1(e) hereto.

 

(g)                                 No Default.  No Event of Default or Potential Default has
occurred and is continuing.

 

(h)                                 Investment and Holding Company Status.  Neither the
Borrower nor the Guarantor is (i) an “investment company”
as defined in, or subject to regulation under, the Investment Company Act of
1940 or (ii) a “holding company” as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935.

 

(i)                                     Use of Proceeds.  No part of the proceeds of the Loans will be
used, whether directly or indirectly, for any purpose that entails a violation
of Regulations U or X of the Board of Governors of the Federal Reserve System.

 

(j)                                     Licenses, Permits, etc.  The Borrower is a Certificated Air Carrier
and holds all licenses, permits and franchises from the appropriate
Governmental Authorities necessary to authorize the Borrower to lawfully engage
in air transportation and to carry on scheduled commercial passenger service as
currently conducted, except where the failure to so hold any such license,
permit or franchise would not have a Material Adverse Effect.

 

(k)                                  Compliance with Laws. 
Each of the Guarantor and its Subsidiaries (including Borrower) is in
compliance with all laws, regulations and orders of any governmental or
regulatory authority or agency applicable to it or its property, except 

 

10

 

where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

 

(l)                                     Tax Returns. 
The Guarantor and its Subsidiaries (including Borrower) have timely
filed all Federal income tax returns and all other material tax returns that
are required to be filed by them and have paid all Taxes that are material in
amount shown to be due pursuant to such returns or pursuant to any assessment
received by the Guarantor or any of its Subsidiaries, other than any Taxes that
are not yet delinquent and any such assessment that is being contested in good
faith through appropriate proceedings and against which adequate reserves are
being maintained and the nonpayment of which (individually or in the aggregate)
could reasonably be expected to have a Material Adverse Effect.  The charges, accruals and reserves on the
books of the Guarantor and its Subsidiaries (including Borrower) in respect of
taxes and other governmental charges are, in the opinion of the Borrower,
adequate.

 

(m)                               Information. 
The Guarantor’s Annual Report on Form 10-K for 2003 filed with the SEC
and each of the Guarantor’s Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K subsequently filed by the Guarantor with the SEC, as of the date it
was filed with the SEC (or, if such report has been amended, in each case as
amended through the Funding Date) did not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

 

(n)                                 ERISA.  The
Guarantor and each of its Subsidiaries (including Borrower) have met their
minimum funding requirements under ERISA with respect to all of their employee
benefit plans covered by the minimum funding requirements of ERISA, and have
not incurred any material liability to the Pension Benefit Guaranty Corporation
(or any entity succeeding to any or all of said Corporation’s functions under
ERISA) under ERISA in connection with any such plan.  None of the employee benefit plans maintained
by the Guarantor or any of its Subsidiaries (including Borrower) is subject to
Title IV of ERISA.

 

Section 3.2.                                Additional
Representations re Collateral.  The
Borrower represents and warrants to the Administrative Agent and each Lender as
of the date of this Agreement that:

 

(a)                                  Good Title, Etc.  The Borrower has good title to each Engine
and to the Pledged Spare Parts, in each case, free and clear of any Lien of Record
whatsoever and free and clear of any other Liens (other than any Permitted
Liens).  No Person holds any right or
interest in any of the Pledged Spare Parts by virtue of any interest that such
Person may have in the real property or improvements located at any of the
Designated Locations (whether as fee owner, landlord, tenant, ground lessor,
mortgagee, leasehold mortgagee, beneficiary of deed of trust, beneficiary of
leasehold deed of trust or otherwise).

 

(b)                                 Filings.  Except for (x) the filing for recordation
(and recordation) with the FAA of the FAA Filed Documents with respect to the
Engines and the Pledged

 

11

 

Spare
Parts located at the Designated Locations, and (y) the filing of the
Financing Statements (and continuation statements relating thereto at periodic
intervals) with the Secretary of State of the State of California with respect
to the Collateral and the “collateral” described in the Subordinated Mortgages,
no further action, including any filing or recording of any document (including
any financing statement in respect thereof under Article 9 of the UCC) is
necessary in order to establish and perfect the Administrative Agent’s interest
in the Collateral created under the Senior Mortgages and the Collateral Agent’s
interest in the “collateral” described in the Subordinated Mortgages, in each
case as against the Borrower and any other Person, in each case in any
applicable jurisdiction in the United States.

 

(c)                                  No Event of Loss.  No event has occurred that constitutes, or
with the giving of notice or lapse of time or both will give rise to, an Event
of Loss with respect to any Engine.

 

(d)                                 Section 1110.  The Administrative Agent is and will be
entitled, pursuant to the Senior Mortgages, in the event of a case under
Chapter 11 of the Bankruptcy Code in which Borrower is a debtor, to the
benefits of Section 1110 of the Bankruptcy Code with respect to the Engines,
Engine Documents, Pledged Spare Parts (other than the Identified Spare Parts)
and Spare Parts Documents (other than the Spare Parts Documents relating to the
Identified Spare Parts).

 

(e)                                  Condition.  Each Engine and all Pledged Spare Parts have
been maintained in accordance with Borrower’s FAA-approved maintenance program
and, except for Engines and Pledged Spare Parts held for repair or overhaul in
the ordinary course of business, are in the condition and state of repair
required under the Borrower’s FAA-approved maintenance program relating to such
Engine and to such Pledged Spare Parts, respectively.  No appliances, parts, interests,
appurtenances, accessories or other equipment of whatever nature which are
incorporated or installed in or attached to any Engine or any Pledged Spare
Parts are leased by the Borrower (other than, in respect of any Engine, an
airframe on which such Engine may be installed).

 

(f)                                    Location, Identification and Release of Pledged Spare Parts.   All of the Pledged Spare Parts are or will (upon
becoming subject to the Lien of the Spare Parts Mortgage) be maintained by or
on behalf of the Borrower at a Designated Location, subject to Section 3.02 of
the Spare Parts Mortgage, except for Pledged Spare Parts sent to third parties
for component repair in the ordinary course of business.

 

(g)                                 Software.  The Borrower confirms
that (i) the only Software currently used by the Borrower to track the
location, use and maintenance status of its spare parts are the software
programs licensed to it by MRO Software, Inc. (“MRO”) and the database programs
licensed to it by Oracle Corporation (“Oracle”), (ii) each of its license
agreements with MRO and with Oracle is in full force and effect, (iii) all
licensing fees (including all on-going maintenance or support fees) with
respect to the foregoing license agreements have been fully prepaid at least
through March 31, 2006 with respect to the MRO agreement and through February
27, 2006 with respect to the Oracle agreement, and (iv) neither MRO nor Oracle
has a contractual right to terminate its license agreement

 

12

 

with the
Borrower other than upon the occurrence of a breach by Borrower and, in the
case of MRO, upon the liquidation, dissolution, or insolvency of Borrower or
upon the institution by or against Borrower of any proceeding under any law
relating to bankruptcy or insolvency or the reorganization or relief of
debtors.

 

(h)                                 Records.  The Borrower
maintains its records with respect to the Pledged Spare Parts at a Borrower
facility at Washington-Dulles International Airport, in Dulles, Virginia, or
the applicable Designated Location.

 

(i)                                     Spare Parts.  It is the
intention of the parties to this Agreement that all Pledged Spare Parts be “spare
parts” as defined in Section 40102(a)(38) of Title 49 of the United States
Code.  The Borrower hereby represents and warrants that it maintains the
Pledged Spare Parts for the purpose of installing the Pledged Spare Parts on
aircraft, aircraft engines or appliances as defined in Section 40102(a)(6), (7)
and (11) of Title 49 of the United States Code.

 

ARTICLE IV

COVENANTS

 

Section 4.1.                                Covenants
of the Borrower.  The Borrower shall
comply with the following covenants and agreements, unless the Required Lenders
shall otherwise consent:

 

(a)                                  Financial Statements and Other Information.  The Borrower will
furnish to the Administrative Agent and each Lender:

 

(i)                                     within
120 days after the end of each fiscal year of the Guarantor, a copy of the Form
10-K (excluding exhibits) filed by the Guarantor with the SEC for such fiscal
year (or in lieu of such copy, an e-mail notice that such report has been filed
with the SEC and providing a web site address (which may be the Borrower’s
website at www.flyi.com or another website other than the SEC’s website) at
which such report may be accessed, provided that such e-mail notice will
satisfy this requirement only if such report is in fact accessible at such web
site address), or, if no such Form 10-K was so filed, its audited consolidated
balance sheet and related statements of operations, stockholders’ equity and
cash flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by
the Guarantor’s independent public accountants of recognized national standing
to the effect that such consolidated financial statements present fairly in all
material respects the consolidated financial condition and results of
operations of the Guarantor and its Subsidiaries (including the Borrower) on a
consolidated basis in accordance with GAAP;

 

(ii)                                  within
60 days after the end of each of the first three fiscal quarters of each fiscal
year of the Guarantor, a copy of the Form 10-Q (excluding exhibits) filed by
the Borrower with the SEC for such quarterly period (or in lieu of such copy,
an e-mail notice that such report has been filed with the SEC and providing

 

13

 

a web site address
(which may be the Borrower’s website at www.flyi.com or another website other
than the SEC’s website) at which such report may be accessed, provided that
such e-mail notice will satisfy this requirement only if such report is in fact
accessible at such web site address), or if no such Form 10-Q was so filed, its
consolidated balance sheet and related statements of operations and cash flows
as of the end of and for such fiscal quarter (in the case of the statement of
operations) and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, prepared in accordance with GAAP, subject to normal
year-end audit adjustments and the absence of footnotes;

 

(iii)                               concurrently
with any delivery of financial statements under clause (i) above, an Officer’s
Certificate of the Borrower certifying as to whether the Borrower has Actual
Knowledge that a Potential Default or an Event of Default has occurred and is
continuing and, if so, specifying the details thereof and any action taken or
proposed to be taken with respect thereto;

 

(iv)                              promptly
following any request therefor, such other nonconfidential information
regarding the Engines, the Pledged Spare Parts, the operations, business
affairs and financial condition of the Borrower, the Guarantor or any
Subsidiary, or compliance with the terms of the Transaction Documents, as the
Administrative Agent or Lender may reasonably request; and

 

(v)                                 With
respect to any employee benefit plan that is maintained by the Guarantor or any
of its Subsidiaries (including Borrower) and is subject to Title IV of ERISA,
upon the request of the Administrative Agent or any Lender, Borrower shall
provide copies of the most recent annual reports or returns (IRS Form 5500),
audited or unaudited financial statements and actuarial valuations with respect
to such plans.

 

(b)                                 Existence; Conduct of Business.  The Borrower will, and will cause each of its
Subsidiaries and the Guarantor to:

 

(i)                                     do
or cause to be done all things necessary to preserve and maintain its legal
existence; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 4.1(c);

 

(ii)                                  comply
with the requirements of all applicable laws, rules, regulations and orders of
governmental or regulatory authorities if failure to comply with such
requirements would reasonably be expected to (either individually or in the
aggregate) cause a material impairment of the ability of the Borrower to
perform, or the Administrative Agent or the Lenders to enforce, the obligations
of the Borrower under the Transaction Documents;

 

(iii)                               pay
and discharge all Taxes imposed on it or on its income or profits or on any of
its property prior to the date on which penalties attach thereto, except for
any such Tax the payment of which is being contested in good faith

 

14

 

and by proper
proceedings and against which adequate reserves are being maintained, and the
nonpayment of which (either individually or in the aggregate) could not
reasonably be expected to cause a material impairment of the ability of the
Borrower to perform, or the Administrative Agent or the Lenders to enforce, the
obligations of the Borrower under the Transaction Documents; and

 

(iv)                              permit
representatives of any Lender, during normal business hours and on reasonable
notice, to discuss its business and affairs with its officers, all to the
extent reasonably requested by such Lender.

 

(c)                                  Mergers and Consolidations.  Neither the Borrower nor the Guarantor will
consolidate with or merge with or into any other Person or convey, transfer or
lease all or substantially all of its assets as an entirety to any Person (the
Person formed by such consolidation or into which the Company or the Guarantor
is merged or the Person which acquires by conveyance, transfer or lease
substantially all of the assets of the Company or the Guarantor as the case may
be, as an entirety, being referred to herein as the “Successor”) unless:

 

(i)                                     in
the case of a transaction involving the Borrower, the Successor of Borrower
shall be a Certificated Air Carrier;

 

(ii)                                  in
the case of either the Borrower or the Guarantor, the Successor shall execute
and deliver to the Administrative Agent a duly authorized, valid, binding and enforceable
agreement in form and substance reasonably satisfactory to the Administrative
Agent containing an assumption by the Successor of the due and punctual
performance and observance of each covenant and condition of the Transaction
Documents and the Subordinated Documents to be performed or observed by the
Borrower or the Guarantor, as the case may be;

 

(iii)                               no
Event of Default shall have occurred and be continuing at the time of the
proposed transaction, and no Potential Default or Event of Default shall arise
upon giving effect to such transaction; such transaction shall not materially
impair the ability of the Successor to perform the obligations of the Borrower
or the Guarantor, as the case may be, under the Transaction Documents and
Subordinated Documents to which the Borrower or the Guarantor is a party

 

(iv)                              (A)
in the case of the Borrower, the tangible net worth (determined in accordance
with GAAP) of the Successor, after giving effect to such transaction, shall not
be less than the greater of (1) the lesser of (x) the tangible net worth of the
Borrower immediately prior to such transaction and (y) the tangible net worth
of the Borrower as of December 31, 2001, and (2) [***]% of the tangible net
worth of the Borrower immediately before completion of such transaction; provided, that if the Guarantor owns more than 50% of the
capital stock of the Borrower immediately before such transaction, the net
worth test contained in this Section 4.1(c)(iv)(A) shall not prevent the
Borrower from completing such transaction with the Guarantor;

 

15

 

(B) in
the case of the Guarantor, the tangible net worth (determined in accordance
with GAAP) of the Successor, after giving effect to such transaction, shall not
be less than the greater of (1) the lesser of (x) the tangible net worth of the
Guarantor immediately prior to such transaction and (y) the tangible net worth
of the Guarantor as of December 31, 2001, and (2) [***]% of the tangible net
worth of the Guarantor immediately before completion of such transaction; provided, that if the Guarantor owns more than 50% of the
capital stock of the Borrower immediately before such transaction, the net
worth test contained in this Section 4.1(c)(iv)(B) shall not prevent the Guarantor
from completing such transaction with the Borrower;

 

(v)                                 all
filings shall have been made as shall be necessary to preserve (A) the Lien of
the Senior Mortgages on the Collateral on a first priority and perfected basis
(subject to Permitted Liens), and (B) the Lien of the Subordinated Mortgages on
the collateral described therein on a second priority and perfected basis
(subject to Permitted Liens); and

 

(vi)                              promptly
after the consummation of such transaction, the Borrower, or if such
transaction involved the Borrower, the Successor of the Borrower, shall deliver
to the Administrative Agent (A) an Officer’s Certificate of the Successor,
certifying as to compliance with the conditions of this Section 4.1(c) and (B)
an opinion of counsel reasonably acceptable to the Administrative Agent and in
form and substance reasonably acceptable to the Administrative Agent (1)
stating that the agreements entered into to effect such consolidation, merger,
sale, conveyance, transfer, or lease and such assumption agreements have been
duly authorized, executed, and delivered by the Successor and that they (and
the Transaction Documents and Subordinated Documents, as the case may be, so
assumed) constitute legal, valid, and binding obligations of the Successor,
enforceable in accordance with their terms (in the case of the Transaction
Documents and the Subordinated Documents, to the same extent as each such
Transaction Document or Subordinated Document was enforceable against the
Borrower or the Guarantor, as the case may be, immediately prior to such
transaction), (2) confirming compliance with Sections 4.1(c)(i), 4.1(c)(ii) and
4.1(c)(iv), as applicable, and stating that all other conditions precedent that
are legal in nature provided for in this Agreement and the other Transaction
Documents and Subordinated Documents and relating to such transaction have been
fulfilled, and (3) addressing such other matters as the Administrative Agent
may reasonably request.

 

Upon any consolidation or
merger, or any conveyance, transfer or lease of all or substantially all of the
assets of the Borrower as an entirety in accordance with this Section 4.1(c),
the Successor shall succeed to, and be substituted for, and may exercise every
right and power of, the Borrower under this Agreement and the other Transaction
Documents and Subordinated Documents with the same effect as if the Successor
had been named as the Borrower herein. 
No such conveyance, transfer or lease of all or substantially all of the
assets of the Borrower as an entirety shall have the effect of releasing the
Borrower or any Person which shall theretofore have become such in the

 

16

 

manner
prescribed in this Section 4.1(c) from the Borrower’s liability in respect of
any Transaction Document or Subordinated Document to which it is a party.

 

(d)                                 Delivery of Post-Recording FAA Opinion.  Promptly upon the
recording of the Senior Mortgages and the Subordinated Mortgages pursuant to
the Act, the Borrower will cause FAA Counsel to deliver to the Administrative
Agent, the Collateral Agent and the Borrower a favorable opinion addressed to
each of them as to such recordation and the lack of filing of any intervening
documents creating a Lien with respect to any of the Engines and/or Pledged
Spare Parts, as the case may be.

 

(e)                                  Compliance with Mortgages.  The Borrower will comply with the terms and
provisions of each Mortgage.

 

(f)                                    LDTV Ratio. 
The Borrower hereby agrees that the Borrower shall not at any time
directly or indirectly permit the LDTV Ratio to be greater than the Maximum
LDTV Ratio.  The Borrower shall deliver
an LDTV Compliance Report to the Administrative Agent on the Funding Date and
monthly thereafter concurrently with the delivery of its Appraisal Compliance
Report (as defined in the Spare Parts Mortgage) pursuant to Section 3.10 of the
Spare Parts Mortgage.  If, based upon an
LDTV Compliance Report, the LDTV Ratio set forth therein is greater than the
Maximum LDTV Ratio, the Company shall within ten (10) Business Days:

 

(i)                                     subject
additional Spare Parts or Appliances that are free and clear of all Liens other
than Permitted Liens (the “Additional Parts”) to the Lien of the Spare
Parts Mortgage in accordance with Section 3.03(d) of the Spare Parts
Mortgage, or subject additional engines that are free and clear of all Liens
other than Permitted Liens (the “Additional Engines”) to the Lien of the
Engine Mortgage in accordance with the provisions thereof;

 

(ii)                                  provide
additional cash to the Administrative Agent to be held in its capacity as “Secured
Party” under and in accordance with the Spare Parts Mortgage, with any
additional cash so provided to the Administrative Agent being considered part
of the “Cash Collateral” (as defined in the Spare Parts Mortgage), except that (A)
the amount thereof shall not be deducted from the principal balance of the
Series B Loan for purposes of calculating the Maximum Collateral Ratio and/or
the Maximum Rotables Ratio, and (B) when the amount thereof is to be applied to
prepayment of the Loans pursuant to the Spare Parts Mortgage, such amount shall
be allocated between the Series A Loan and the Series B Loan at the election of
the Administrative Agent in accordance with Section 1.1(d)(iii) and (iv)
hereof;

 

(iii)                               prepay
some or all of the Loans pursuant to Section 1.1(d)(iii) hereof; or

 

(iv)                              any
combination of the foregoing;

 

such that, the LDTV
Ratio, as recalculated giving effect to such action taken pursuant to this
Section 4.1(f) and, in the case of clause (i) of this Section 4.1(f), using the
Current

 

17

 

Market Value of any such
Additional Parts determined pursuant to Section 3.03(d) of the Spare Parts
Mortgage, or the Current Market Value of any such Additional Engines determined
pursuant to Section 4.1(g)(ii) below, as the case may be, would not be greater
than the Maximum LDTV Ratio.

 

(g)                                 Engine Reports and Valuations.

 

(i)                                     The
Borrower shall, by the tenth Business Day of March, June, September and
December of each year, commencing with such date in March of 2005, furnish to
the Administrative Agent an Officer’s Certificate of the Borrower stating, with
respect to each Engine as of the last day of the calendar month immediately
preceding the date of such Officer’s Certificate (each such Officer’s
Certificate being sometimes referred to herein as an “Engine Report”):
(A) if such Engine is then installed on an airframe, the Borrower’s tail number
of such airframe, or, if not so installed, the status (e.g., in storage,
undergoing overhaul, etc.) and location of such Engine, (B) the hours and
cycles of operation of such Engine since new and since its last major overhaul,
and (C) the most limiting life limited part on such engine, (the “limiter”),
and the cycles remaining on such limiter. 
In addition, concurrently with the provision of any Additional Engines
pursuant to Section 4.1(1)(f)(i) above, the Borrower shall deliver to the
Administrative Agent a report that sets forth the make, model and month and
year of manufacture of such Additional Engine as well as all of the information
required in subclauses (A) — (B) above with respect to such Additional Engine
as of the date on which such Additional Engine is subjected to the Lien of the
Engine Mortgage.

 

(ii)                                  The
Borrower expressly acknowledges that the Administrative Agent will calculate
the Current Market Value of each Engine in September of each calendar year so
long as any of the Obligations remain outstanding.  In making its calculations under this Section
4.1(g)(ii) with respect to each Engine, the Administrative Agent will (A)
obtain a report as to the then current market value of engines of like model
and year in half-time maintenance status from each of three independent engine
appraisers chosen by the Administrative Agent in its sole discretion, (B)
compute the average of the current market values of engines of like model and
year provided by the foregoing appraisers, and (C) adjust such average
current market value to reflect the actual number of hours and cycles of such
Engine since last overhaul as reflected in the most recent Engine Report
provided by the Borrower prior to the date of determination.  Following completing its calculations under
this Section 4.1(g)(ii), the Administrative Agent shall send the Borrower a
written notice (an “Engine Valuation Notice”) setting forth the Current
Market Value of each Engine, as well as the aggregate Current Market Value of
all Engines, as determined pursuant to this Section 4.1(g)(ii), and the Current
Market Values set forth in such Engine Valuation Notice shall, absent manifest
error,  be binding for all purposes of
this Agreement and the other Transaction Documents (including, but not limited
to, for purposes of determining the LDTV Ratio pursuant to Section 4.1(f)
above) until such time as superseded

 

18

 

by a subsequent Engine
Valuation Notice delivered by the Administrative Agent pursuant to this
Section.

 

ARTICLE V

INCREASED COSTS; TAX INDEMNITY; GENERAL INDEMNITY

 

Section 5.1.                                Capital
Adequacy; Increased Costs; Illegality  .

 

(a)                                  If
any law, treaty, governmental (or quasi governmental) rule, regulation,
guideline or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by any Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements
(whether or not having the force of law), in each case, adopted after the
Funding Date, from any central bank or other Governmental Authority increases
or would have the effect of increasing the amount of capital, reserves or other
funds required to be maintained by such Lender and thereby reducing the rate of
return on such Lender’s capital as a consequence of its obligations hereunder,
then the Borrower shall from time to time upon demand by such Lender (with a
copy of such demand to such Administrative Agent) pay to such Administrative
Agent, for the account of such Lender, additional amounts sufficient to
compensate such Lender for such reduction; provided, however, in the case of
any reserve requirement resulting in any payment by Borrower to any Lender
pursuant to Section 5.2 below, Borrower’s obligation under this Section 5.1(a)
with respect to such Lender shall be limited to as to avoid any duplicate
recovery by such Lender.  A certificate
as to the amount of that reduction and showing the basis of the computation
thereof submitted by such Lender to the Borrower and to such Administrative
Agent shall be presumptive evidence of the matters set forth therein.

 

(b)                                 If,
due to either (i) the introduction of or any change in any law or regulation
(or any change in the interpretation thereof) other than in respect of taxes
(including income taxes) under Section 5.3 or (ii) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), in each case occurring after the
Funding Date, there shall be any increase in the cost to any Lender of agreeing
to make or making, funding or maintaining any Loan, then the Borrower shall
from time to time, upon demand by such Lender (with a copy of such demand to
such Administrative Agent), pay to such Administrative Agent for the account of
such Lender additional amounts sufficient to compensate such Lender for such
increased cost.  A certificate as to the
amount of such increased cost, submitted to the Borrower and to the
Administrative Agent by such Lender, shall be presumptive evidence of the
matters set forth therein.  Each Lender
agrees that, as promptly as practicable after it becomes aware of any
circumstances referred to above which would result in any such increased cost,
the affected Lender shall, to the extent not inconsistent with such Lender’s
internal policies of general application, use reasonable commercial efforts to
minimize costs and expenses incurred by it and payable to it by the Borrower
pursuant to this 5.1(b).

 

(c)                                  Notwithstanding
anything to the contrary contained herein, if the introduction of or any change
in any law or regulation (or any change in the interpretation

 

19

 

thereof) after the
Funding Date shall make it unlawful, or any central bank or other Governmental
Authority shall assert that it is unlawful, for any Lender to agree to make or
to make or to continue to fund or maintain its Percentage Share or its Ratable
Share of any Loan, then, unless that Lender is able to make or to continue to
fund or to maintain its Percentage Share or its Ratable Share of such Loan at
another branch or office of that Lender without, in that Lender’s reasonable
opinion, materially and adversely affecting it or its Percentage Share or its
Ratable Share of any Loan or the income obtained therefrom, on notice thereof
and demand therefor by such Lender to the Borrower through such Administrative
Agent, (i) the obligation of such Lender to agree to make or to make or to
continue to fund or maintain its Percentage Share or its Ratable Share of such
Loan shall terminate and (ii) the Borrower shall forthwith prepay in full all
outstanding Notes with respect to such Loan owing to such Lender, together with
interest accrued thereon,.

 

(d)                                 Failure
on the part of any Lender to demand compensation for any increased costs or
reduction in amounts received or receivable or reduction in return on capital
with respect to any period shall not constitute a waiver of such Lender’s right
to demand compensation with respect to such period or any other period,
provided, that the Borrower shall not be required to compensate a Lender
pursuant to this Section 5.1 for any increased costs or reductions incurred
more than 150 days prior to the date that such Lender notifies the Borrower of
the circumstance giving rise to such increased costs or reductions and of such
Lender’s intention to claim compensation therefor.

 

Section 5.2.                                Regulation
D Compensation  . If and so
long as a reserve requirement of the type referred to in (B) below is
prescribed by the Board of Governors of the Federal Reserve System (or any
successor), each Lender subject to such requirement may require the Borrower to
pay, contemporaneously with each payment of interest on each such Lender’s
Notes, additional interest on such Notes at a rate per annum determined by such
Lender up to but not exceeding the excess of (i)(A) the applicable LIBOR Rate
divided by (B) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day that is two (2) Business Days prior to the
beginning of such Interest Period (including basic, supplemental, marginal and
emergency reserves under any regulations of the Federal Reserve Board or other
Governmental Authority having jurisdiction with respect thereto, as now and
from time to time in effect) for Eurocurrency funding (currently referred to as
“Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board) that
are required to be maintained by a member bank of the Federal Reserve System
over (ii) the applicable LIBOR Rate.

 

Section 5.3.                                Withholding
of Taxes.

 

(a)                                  Payments to Be Free and Clear.  All sums payable by the Borrower under this
Agreement and the other Transaction Documents to each Lender and the
Administrative Agent shall (except to the extent required by law) be paid free
and clear of, and without any deduction or withholding on account of, any Tax
imposed, levied, collected, withheld or assessed by or within any jurisdiction
or by or within any political subdivision or taxing authority thereof or
therein with respect to such payments.

 

20

 

(b)                                 Grossing-up of Payments.  If the Borrower or any other Person is
required by law to make any deduction or withholding on account of any Tax from
any sum paid or payable by the Borrower to the Administrative Agent or any
Lender under any of the Transaction Documents:

 

(i)                                     the
Borrower shall notify the Administrative Agent in writing of such requirement;

 

(ii)                                  the
Borrower shall pay such Tax before the date on which any interest, addition to
Tax or penalties attach thereto, such payment to be made (if the liability to
pay is imposed on the Borrower) for its own account or (if that liability is
imposed on the Administrative Agent or such Lender, as the case may be) on
behalf of and in the name of the Administrative Agent or such Lender;

 

(iii)                               in
the case of any Tax other than an Excluded Tax, the sum payable by the Borrower
in respect of which the relevant deduction, withholding or payment is required
shall be increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, the Administrative Agent or such
Lender, as the case may be, receives on the due date a net sum equal to what it
would have received had no such deduction, withholding or payment been required
or made; and

 

(iv)                              within
30 days after paying any sum from which it is required by law to make any
deduction or withholding, and within 30 days after the due date of payment of
any Tax which it is required by clause (b) above to pay, the Borrower shall deliver
to the Administrative Agent evidence reasonably satisfactory to the affected
parties of such deduction, withholding or payment and of the remittance thereof
to the relevant taxing or other authority.

 

If any
additional amounts are payable in respect of Taxes pursuant to clause (iii)
above, the Borrower agrees to indemnify each Lender, the Administrative Agent
and their successors, assigns and Affiliates for such Taxes required to be
deducted or withheld and to reimburse such Persons, upon the written request of
such Person, for the net increase in Tax imposed on or measured by the net
income or net profits of such Lender (after taking into account current credits
and deductions resulting from such Tax liability) pursuant to the laws of the
jurisdiction in which such Lender is organized or in which the principal office
or applicable Lending Office of such Lender is located or under the laws of any
political subdivision or taxing authority of any such jurisdiction in which
such Lender is organized or in which the principal office or applicable Lending
Office of such Lender is located or in which such Lender is doing business (if
the Taxes imposed on the net income, net profits or net gains of such Lender by
such jurisdiction in which a Lender is doing business are treated as Excluded
Taxes under this Agreement) and for any withholding of Taxes as such Lender
shall reasonably determine are payable by, or withheld from, such Lender in
respect of such amounts so paid to or on behalf of such Lender pursuant to clause
(iii) above and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. 
Notwithstanding the foregoing provisions of this Section 5.3(b), no such
additional amount shall be required to be paid to any Lender 

 

21

 

under
clause (iii) above in respect of United States federal withholding taxes except
to the extent that such obligation to deduct or withhold results from a change,
after the date hereof in applicable law, treaty, or governmental rule,
regulation or order, or any change in the official interpretation,
administration or application thereof.

 

(c)                                  Evidence of Exemption from U.S. Withholding Tax.

 

(i)                                     Each
Lender that is organized under the laws of any jurisdiction other than the
United States or any state or other political subdivision thereof shall, to the
extent it is entitled to do so, deliver to the Administrative Agent for
transmission to the Borrower, at or prior to the Closing (in the case of each
Lender listed on the signature pages hereof) or on or prior to the date of the
Transfer Supplement pursuant to which it becomes a Lender (in the case of each
other Lender), (x) two original copies of Internal Revenue Service Form W-8BEN
or W-8ECI (or any successor forms), properly completed and duly executed by
such Lender, together with any other certificate or statement of exemption
required under the Internal Revenue Code or the regulations issued thereunder
to establish that such Lender is entitled to an exemption or reduction in the
amount of United States federal income tax required to be deducted or withheld
from any payments to such Lender of interest, fees or other amounts payable
under any of the Transaction Documents or (y) if such Lender is not a “bank” or
other Person described in Section 881(c)(3) of the Internal Revenue Code and
cannot deliver either Internal Revenue Service Form W-8BEN claiming exemption
under a treaty or W-8ECI, pursuant to clause (x) above, a Certificate re
Non-Bank Status together with two original copies of Internal Revenue Service
Form W-8BEN (or any successor form), properly completed and duly executed by
such Lender, together with any other certificate or statement of exemption
required under the Internal Revenue Code or the regulations issued thereunder
to establish that such Lender is entitled to an exemption or reduction in the
amount of United States federal income tax required to be withheld from
payments to such Lender of interest payable under any of the Transaction
Documents.

 

Each Lender that is
organized under the laws of the United States or any state or other political
subdivision thereof that is not a corporation shall deliver to the
Administrative Agent for transmission to the Borrower, at or prior to the
Closing (in the case of each Lender listed on the signature pages hereof) or on
or prior to the date of the Transfer Supplement pursuant to which it becomes a
Lender (in the case of each other Lender), two original copies of Internal
Revenue Service Form W-9 (or any successor form), properly completed and duly
executed by such Lender, if requested by the Borrower in writing and required
by the Internal Revenue Code or the regulations issued thereunder to permit the
Borrower to pay to or for the account of such Lender interest, fees or other
amounts pursuant to any of the Transaction Documents without deducting or
withholding any United States federal income tax from such payment.

 

(ii)                                  Each
Lender required to deliver any forms, certificates or other evidence with
respect to United States federal income tax withholding matters

 

22

 

pursuant to
Section 5.3(c)(i) hereby agrees, from time to time after the initial delivery
by such Lender of such forms, certificates or other evidence, that such Lender,
to the extent it is entitled to do so, shall promptly after receipt of the
Borrower’s written request therefor (x) deliver to the Administrative Agent for
transmission to the Borrower two new original copies of Internal Revenue Service
Form W-8BEN or W-8ECI or W-9, or a Certificate re Non-Bank Status and two
original copies of Internal Revenue Service Form W-8BEN, as the case may be,
properly completed and duly executed by such Lender, together with any other
certificate or statement of exemption required in order to confirm or establish
that such Lender is entitled to an exemption or reduction in the amount of
United States federal income tax required to be withheld from payments to such
Lender under the Transaction Documents or (y) notify the Administrative Agent
and the Borrower of its inability to deliver any such forms, certificates or
other evidence in which case such Lender shall not be required to deliver any
such form or certificate pursuant to this Section 5.3(c).

 

(iii)                               The
Borrower shall not be required to pay any additional amount to any Lender under
clause (iii) of Section 5.3(b) if such Lender shall have failed to satisfy
the requirements of clause (i) or (ii)(x) of this Section 5.3(c); provided that if such Lender shall have satisfied the
requirements of Section 5.3(c)(i) at or prior to the Closing (in the case of
each Lender listed on the signature pages hereof) or on the date of the
Transfer Supplement pursuant to which it became a Lender (in the case of each
other Lender), nothing in this Section 5.3(c)(iii) shall relieve the Borrower
of its obligation to pay any additional amounts pursuant to Section 5.3(b) in
the event that, as a result of any change in any applicable law, treaty or
governmental rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding as
described in Section 5.3(c)(i) or (ii).

 

(iv)                              If
the Borrower pays any additional amount under this Section 5.3 to a Lender and
such Lender determines in its sole discretion that it has actually realized in
connection therewith a net cash benefit (including a net cash benefit which the
relevant taxing authority applies to satisfy any liability of such Lender for
Excluded Taxes) due to any refund or any reduction of, or credit against, its
liabilities for Excluded Taxes in any taxable year, provided
no Special Default or Event of Default shall have occurred and be continuing,
such Lender shall, to the extent it can do so without prejudice to the
retention of such benefit, pay to the Borrower an amount that the Lender shall,
in its sole discretion, determine is equal to such net cash benefit which was
obtained by the Lender in such year as a consequence of such refund, reduction
or credit realized in connection with the payment of such additional amount.

 

Section 5.4.                                Other
Taxes.  In addition to the amounts
described elsewhere in this Article V, the Borrower shall pay, and indemnify,
and hold harmless on a net after-tax basis each Lender and the Administrative
Agent from and against all Other Taxes 

 

23

 

(other than Excluded Taxes) which arise from any payment made hereunder
or under any other Transaction Document or from the execution, delivery,
registration, filing, recording, performance or enforcement of, or otherwise
with respect to, this Agreement or any other Transaction Document or otherwise
in connection with or as a result of the transactions contemplated by the
Transaction Documents.

 

Section 5.5.                                General
Indemnity.   The Borrower agrees to indemnify and hold
harmless each Lender, the Administrative Agent, and their respective
successors, assigns, directors, officers, employees, members, shareholders,
representatives and agents (hereinafter in this Section 5.5 referred to
individually as an “Indemnitee,” and collectively as “Indemnitees”)
on an after-tax basis against any and all liabilities, obligations, losses,
damages, penalties, claims, demands, actions, suits, judgments and any and all
costs and expenses (including reasonable attorneys’ fees, disbursements and
other charges) (for the purposes of this Section 5.5 the foregoing are
collectively called “Losses”) of whatsoever kind and nature imposed on,
or incurred or suffered by any of the Indemnitees in any way relating to, or
arising out of, or by reason of any investigation, assertion of a claim or
demand for Losses, litigation, or other proceedings (including any threatened
investigation, litigation or other proceedings) relating to either (or both)
Senior Mortgages, or the exercise or enforcement by the Administrative Agent of
any of the terms, rights, or remedies thereunder, or in any way relating to or
arising out of the manufacture, ownership, ordering, purchase, delivery,
control, acceptance, lease, possession, operation, condition, sale, return or
other disposition, or use of the Collateral (including latent or other defects,
whether or not discoverable), the violation of the Laws of any country, state
or other governmental authority with respect to or arising otherwise in
connection with the Collateral, or any tort (including 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)
with respect to or arising otherwise in connection with the Collateral (but
excluding any such Losses to the extent incurred by reason of (i) the gross
negligence or willful misconduct of such Indemnitee, (ii) Taxes, reserve
requirements or similar regulatory requirements imposed by banking authorities
except as otherwise provided in Sections 5.1, 5.2, 5.3 and 5.4 hereof,
(iii) breaches by such Indemnitee of any Transaction Document to which it is a
party or (iv) to the extent attributable to the failure of the
Administrative Agent to distribute funds received and distributable by it in
accordance any such Transaction Documents).

 

Section 5.6.                                Replacement
of Lenders.  In the event any Lender that is not a GE Affiliate exercises its rights
pursuant to Article V or requests payment pursuant to this Article V, the
Borrower may require, at the Borrower’s expense, such Lender to assign, at par
plus accrued interest and any other amounts payable to it hereunder, without
recourse all of its interests, rights and obligations hereunder (including all
of its Commitment and the Loans and other amounts at the time owing to it
hereunder and its Notes) to a bank, financial institution or other entity
specified by the Borrower, provided that (i) such assignment shall not
conflict with or violate any law, rule or regulation or order of any court or
other Governmental Authority, (ii) the Borrower shall have received the
written consent of the Administrative Agent, which consent shall not be
unreasonably withheld, to such assignment, and (iii) the Borrower shall
have paid to the assigning Lender all principal, interest and any other amounts
payable to it hereunder.  For the
avoidance of 

 

24

 

doubt, the Borrower expressly acknowledges and agrees that its rights
under this Section 5.6 do not apply with respect to any Lender that is a GE
Affiliate, even if such Lender exercises any rights pursuant to this Article V
or requests payment pursuant to this Article V.

 

ARTICLE VI

CONDITIONS PRECEDENT

 

Section 6.1.                                General
Conditions .  The obligation of the
Lenders to make the Loans is subject to the condition that, on or prior to the
Funding Date:

 

(a)                                  The
Borrower shall have delivered to the Administrative Agent (with a copy for each
Lender that is a party hereto on the Funding Date) the following:

 

(i)                                     an
executed counterpart of this Agreement;

 

(ii)                                  an
executed counterpart of the Engine Mortgage (including Mortgage Supplement No.
1 with respect thereto);

 

(iii)                               an
executed counterpart of the Spare Parts Mortgage;

 

(iv)                              an
executed counterpart of the Guaranty;

 

(v)                                 an
executed counterpart of the Payment and Indemnity Agreement;

 

(vi)                              an
executed counterpart of the Subordinated Engine Mortgage (including the
Mortgage Supplement No. 1 with respect thereto);

 

(vii)                           an
executed counterpart of the Subordinated Spare Parts Mortgage;

 

(viii)                        an
executed counterpart of the Collateral Agent Agreement;

 

(ix)                                opinions
of Gibson, Dunn & Crutcher LLP, counsel to the Borrower and the Guarantor,
and Richard J. Kennedy, Esq., general counsel of the Borrower and the
Guarantor, in form and substance reasonably satisfactory to the Administrative
Agent;

 

(x)                                   an
opinion of FAA Counsel in form and substance reasonably satisfactory to the
Administrative Agent; and

 

(xi)                                (1)
a certificate of the Secretary or an Assistant Secretary of the Borrower
certifying (i) the resolutions of the Borrower’s board of directors or
executive committee of such board approving the transactions contemplated by
this Agreement and the other Transaction Documents and the Subordinated
Documents, (ii) the name and signature of each officer who executes a
Transaction Document or Subordinated Document on the Borrower’s behalf (on

 

25

 

which certificate
the Administrative Agent and each Lender may conclusively rely until a revised
certificate is received), (iii) the Borrower’s articles of incorporation
certified by the Secretary of State of the State of California within ten days
prior to the Funding Date, (iv) a copy of the Borrower’s By-Laws and (2) a
good standing certificate of the Borrower from the Secretary of State of the
State of California dated within ten days prior the Funding Date;

 

(xii)          (1)
a certificate of the Secretary or an Assistant Secretary of the Guarantor
certifying (i) the resolutions of the Guarantor’s board of directors or
executive committee of such board approving the transactions contemplated by
the Guaranty, (ii) the name and signature of each officer who executes a
Transaction Document or Subordinated Document on the Guarantor’s behalf (on
which certificate the Administrative Agents and each Lender may conclusively
rely until a revised certificate is received), (iii) the Guarantor’s
certificate of incorporation certified by the Secretary of State of the State
of Delaware within ten days prior to the Funding Date, and (iv) a copy of the
Guarantor By-Laws and (2) a good standing certificate of the Guarantor
from the Secretary of State of the State of Delaware dated within ten days
prior to the Funding Date.

 

Section 6.2.           Additional Conditions .  The obligation of the Lenders to make the
Loans is subject to the fulfillment, prior to or on the Funding Date, of the
following additional conditions precedent:

 

(a)           The
Administrative Agent shall have received the following documents (with a copy
for each Lender that is a party hereto as of the Funding Date):

 

(i)            (1)
a Series A Note, duly executed by the Borrower, in an original principal amount
equal to each Lender’s Series A Commitment and (2) a Series B Note, duly
executed by Borrower, in an original principal amount equal to the each Lender’s
Series B Commitment shall have been issued to each Lender that is advancing
funds on the Funding Date;

 

(ii)           the
broker’s report and insurance certificate required by Appendix B of the Spare
Parts Mortgage and the Subordinated Spare Parts Mortgage with respect to the
Pledged Spare Parts, and the broker’s report and insurance certificate required
by Appendix B of the Engine Mortgage and the Subordinated Engine Mortgage with
respect to the Engines;

 

(iii)          with
respect to each Engine, a copy of the original bill(s) of sale or manufacturer’s
invoice(s), evidencing chain of title back to the manufacturer, or other
evidence of ownership reasonably satisfactory to the Administrative Agent;

 

(iv)          an
Officer’s Certificate of the Borrower, dated as of the Funding Date, stating
that its representations and warranties set forth in Sections 3.1 and 3.2 of
this Agreement are true and correct as of the Funding Date (or, to the extent
that any such representation and warranty expressly relates to an earlier date,
true and correct as of such earlier date);

 

26

 

(v)           the
Financing Statements;

 

(vi)          the
UCC Termination Statements, if any;

 

(vii)         the
Releases, if any; and

 

(viii)        the
written consent and acknowledgement of the vendor or licensor of the Software
currently used by the Borrower to track its spare parts inventory to the
interests of the Administrative Agent and the Collateral Agent in such
Software, which consent shall include and express grant of a license by such
vendor to the Administrative Agent and the Collateral Agent for the use of such
Software following the occurrence of an Event of Default and shall be in form
and substance satisfactory to the Lenders in their sole discretion.

 

(b)           On
the Funding Date, after giving effect to the filing of the FAA Filed Documents,
the Financing Statements and the UCC Termination Statements (if any), (i) the
Administrative Agent shall have received a duly perfected first priority
security interest in all of the Borrower’s right, title and interest in the
Collateral subject only to Permitted Liens that are not Liens of Record, and
(ii) the Collateral Agent shall have received a duly perfected second
priority security interest in all of the Borrower’s right, title and interest
in the “collateral” described in each Subordinated Mortgage, subject only to
the Lien of the applicable Senior Mortgage and other Permitted Liens (as
defined in such Subordinated Mortgage) that are not Liens of Record.

 

(c)           No
change shall have occurred after the date of this Agreement in any applicable
law that makes it a violation of law for (a) the Borrower, the Guarantor, the
Administrative Agent, the Collateral Agent, any Lender or any Beneficiary to
execute, deliver and perform the Transaction Documents and Subordinated
Documents to which it is a party or (b) any Lender to make the Loans on the
terms and conditions contemplated by the Transaction Documents.

 

(d)           On
the Funding Date, no event shall have occurred and be continuing, or would
result from the mortgage of the Collateral, which constitutes an Event of
Default or a Potential Default.

 

(e)           The
Borrower shall have good title to the Engines and the Pledged Spare Parts, in
each case free and clear of all Liens, except Permitted Liens which are not
Liens of Record.  With respect to each
Designated Location that is leased (including any ground lease and any lease of
any temporary buildings or the like) or subleased by the Borrower, the Borrower
shall have obtained from the Borrower’s immediate landlord, and if requested by
the Administrative Agent, from each landlord in the chain back to the owner of
the real property and the owner of the improvements (whether permanent or
temporary, if separate from the real property), a waiver of any and all right
or interest that such Person may otherwise have in the Pledged Spare Parts and
such Person’s consent, if applicable, to access by the Administrative Agent,
the Collateral Agent and/or any

 

27

 

Lender or any
representative of any of them to the premises in connection with the exercise
of any rights or remedies under or pursuant to the Senior Mortgages and the
Subordinated Mortgages (in each case, in form and substance satisfactory to the
Lenders).  In addition, with respect to
each Designated Location owned by the Borrower or any of its Affiliates, if any,
the Borrower shall have obtained from each other Person that may have an
interest in the real property and/or the improvements (whether permanent or
temporary improvements) at such location (whether as mortgagee or otherwise) a
waiver of any and all right or interest that such Person may otherwise have in
the Pledged Spare Parts and such Person’s consent, in the event that such
Person shall have obtained possession and control of the relevant premises from
the Borrower or the Borrower’s Affiliate (whether upon foreclosure or other
exercise of remedies by such Person or otherwise), to access by the
Administrative Agent, the Collateral Agent and/or any Lender or any
representative of any of them to the premises in connection with the exercise
of any rights or remedies under or pursuant to the Senior Mortgages and the
Subordinated Mortgages (in each case, in form and substance satisfactory to the
Lenders).

 

(f)            The
Administrative Agent is and will be entitled to the benefits of Section 1110 of
the Bankruptcy Code with respect to the Engines, Engine Documents, Pledged
Spare Parts (other than the Identified Spare Parts) and Spare Parts Documents
(other than the Spare Parts Documents relating to the Identified Spare Parts)
in the event of a case under Chapter 11 of the Bankruptcy Code in which the Borrower
is a debtor .

 

(g)           On the
Funding Date, (i) the FAA Filed Documents shall have been duly filed for
recordation (or shall be in the process of being so duly filed for recordation)
with the FAA in accordance with the Act and (ii) each Financing Statement and
each UCC Termination Statement (if any) shall have been duly filed (or shall be
in the process of being so duly filed) in the appropriate jurisdiction.

 

(h)           No action
or proceeding shall have been instituted, nor shall any action be threatened in
writing, before any Governmental Authority, nor shall any order, judgment or
decree have been issued or proposed to be issued by any Governmental Authority,
to set aside, restrain, enjoin or prevent the completion and consummation of
this Agreement or any other Transaction Document or any Subordinated Document
or the transactions contemplated hereby or thereby.

 

(i)            The
representations and warranties in Sections 3.1 and 3.2 shall be true and
correct in all material respects on and as of such date (except to the extent
such representations and warranties relate solely to an earlier date but then
as of such earlier date).

 

(j)            The
Borrower shall have paid (i) to the Administrative Agent the fee referenced in
Section 1.3, and (ii) the person or persons entitled thereto all amounts
referred to in the first sentence of Section 9.3 for which it shall have

 

28

 

received reasonably detailed invoices at least two
Business Days before the Funding Date.

 

(k)           No payment
default (without giving effect to any grace period) by Borrower shall have
occurred and be continuing under any of the IAI Operative Documents (as defined
in the Payment and Indemnity Agreement) or any agreement to which the Borrower
and any Lender or any Lender’s Subsidiaries are parties (or any agreement to
which the Borrower is a party relating to the same transaction as any such
agreement).

 

(l)            No
payment default by the Borrower currently exists with respect to any financing
facility of $250,000 or more and the Administrative Agent and the Lenders shall
have received a certification from the Borrower to such effect.

 

(m)          (i) The
Restructuring Transactions shall have been documented in definitive
documentation satisfactory to the Lenders and the Beneficiaries, as applicable,
in their sole discretion, and (ii) either (x) all of the Restructuring
Transactions shall have been fully consummated in a manner satisfactory to the
Lenders and the Beneficiaries, as applicable, in their sole discretion or (y)
any Restructuring Transactions not yet consummated shall be ready to be
consummated contemporaneously with the funding of the Loans hereunder and all
conditions precedent to the effectiveness and consummation thereof shall have
been satisfied (or waived) in a manner satisfactory to the Lenders and the
Beneficiaries, as applicable, in their sole discretion.

 

(n)           The
Administrative Agent shall have received an Appraisal (using the Physical
Appraisal Methodology) with respect to the Pledged Spare Parts from the
Independent Appraiser, satisfactory in form and substance in the sole
discretion of the Administrative Agent, as well as (x) an Officer’s Certificate
of the Independent Appraiser substantially in the form of Appendix E to the
Spare Parts Mortgage, and (y) an Officer’s Certificate of the Borrower
substantially in the form of Appendix C to the Spare Parts Mortgage; and the
following shall be true:

 

(i)            The Current Market
Value of the Pledged Spare Parts (excluding those Spare Parts which are either
in transit or out for repair and consequently not located at a Designated
Location) reflected in such Appraisal shall not be less than $[***]; and

 

(ii)           The Current Market
Value of the Rotables and the Repairables (excluding in each case those
Rotables and Repairables which are either in transit or out for repair and
consequently not located at a Designated Location) reflected in such Appraisal
shall be such that the Series B Commitment shall be equal to or less than the
sum of (x) [***]% of the Current Market Value of the Rotables (excluding
those Rotables which are either in transit or out for repair and consequently
not located at a Designated Location) reflected in such Appraisal, and (y)
[***]% of the

 

29

 

Current Market Value of the Repairables
(excluding those Repairables which are either in transit or out for repair and
consequently not located at a Designated Location) reflected in such Appraisal.

 

(o)           The Administrative
Agent shall have received an Officer’s Certificate of the Borrower certifying
the maintenance status (including hours and cycles since last overhaul) of each
Engine, which certification may be in the form of an Engine Report, and the
Engines shall have a Current Market Value (as determined by the Administrative
Agent in accordance with the procedures set forth in Section 4.1(g)(ii) above,
based upon reports dated September 2004 as to the current market value of the
engines of like make and model from three independent appraisers chosen by the
Administrative Agent in its sole discretion and the maintenance status of the
Engines as so certified by the Borrower) of not less than $[***] in the
aggregate.

 

(p)           On the Funding Date
after the Loans have been made, (i) the Collateral Ratio shall be no greater
than the Maximum Collateral Ratio, (ii) the Rotables Ratio shall be no greater
than the Maximum Rotables Ratio, (iii) the LDTV Ratio shall be no greater than
the Maximum LDTV Ratio and (iv) the Lenders shall have received one or more
Officer’s Certificates of the Borrower to such effect, which certification may
be in the form of the Appraisal Compliance Report (as defined in the Spare
Parts Mortgage) and the LDTV Compliance Report, in each case shall include an
express certification by the Borrower as to the accuracy and completeness of
all information and data provided by the Borrower to the Independent Appraiser
for the preparation of the Appraisal referenced therein; and

 

(q)           Such other documents
relating to the Loans contemplated hereby as the Administrative Agent or any
Lender may reasonably request.

 

ARTICLE
VII

EVENTS OF DEFAULT

 

Section 7.1.           Events of Default.  Each of the following events shall
constitute an “Event of Default,” whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body:

 

(a)           The
Borrower shall fail to make any payment of principal of or interest on any Loan
or LIBOR Breakage Costs within five Business Days after the same shall have
become due hereunder; or

 

(b)           The
Borrower or the Guarantor shall fail to pay any other amount payable hereunder
or under any other Transaction Document when due and such failure shall
continue for a period of ten Business Days after the same shall have become due
hereunder or under such other Transaction Document; or

 

30

 

(c)           Any
representation or warranty made by the Borrower or the Guarantor in this
Agreement or any other Transaction Document, or in any report, certificate or
other document prepared by the Borrower or the Guarantor, and furnished
pursuant to or in connection with this Agreement or any other Transaction
Document or any amendment or modification hereof or thereof or waiver hereunder
or thereunder shall prove to have been incorrect in any material respect when
made, such incorrect representation or warranty is material at the time in
question, and, if curable, the same shall remain uncured for a period in excess
of 30 days after the date of written notice thereof from the Administrative
Agent or any Lender; or

 

(d)           The
Borrower or the Guarantor shall fail to perform or observe any term, covenant
or agreement contained in this Agreement or any other Transaction Document on
its part to be performed or observed and such failure shall remain unremedied
for a period of 30 days after written notice of such failure shall have been
given to the Borrower by the Administrative Agent or any Lender, unless such
failure is capable of being corrected and the Borrower shall be diligently
proceeding to correct such failure, in which case there shall be no Event of
Default unless and until such failure shall continue unremedied for a period of
60 days after receipt of such notice; or

 

(e)           The
Borrower or the Guarantor shall consent to the appointment of or the taking of
possession by a receiver, trustee or liquidator of itself or of substantially
all of its property, or the Borrower or the Guarantor shall admit in writing
its inability to pay its debts generally as they come due, or does not pay its
debts generally as they become due or shall make a general assignment for the
benefit of creditors, or the Borrower or the Guarantor shall file a voluntary
petition in bankruptcy or a voluntary petition or an answer seeking
reorganization, liquidation or other relief in a case under any bankruptcy laws
or other insolvency laws (as in effect at such time), or the Borrower or the Guarantor
shall seek relief by voluntary petition, answer or consent, under the
provisions of any other bankruptcy or other similar law providing for the
reorganization or winding-up of corporations (as in effect at such time) or the
Borrower’s or the Guarantor’s board of directors shall adopt a resolution
authorizing any of the foregoing;

 

(f)            An order,
judgment or decree shall be entered by any court of competent jurisdiction
appointing, without the consent of the Borrower or the Guarantor as the case
may be, a receiver, trustee or liquidator of the Borrower or the Guarantor or
of substantially all of their respective property, or substantially all of the
property of the Borrower or the Guarantor shall be sequestered, and any such
order, judgment or decree of appointment or sequestration shall remain in force
undismissed, unstayed and unvacated for a period of 60 days after the date of
entry thereof; or a petition against the Borrower or the Guarantor in a case
under any bankruptcy laws or other insolvency laws (as in effect at such time)
is filed and not withdrawn or dismissed within 60 days thereafter, or if, under
the provisions of any law providing for reorganization or winding-up of
corporations which may apply to the Borrower or the Guarantor, any court of
competent

 

31

 

jurisdiction assumes jurisdiction, custody or control
of the Borrower or the Guarantor, or of substantially all of the property of
the Borrower or the Guarantor and such jurisdiction, custody or control remains
in force unrelinquished, unstayed and unterminated for a period of 60 days; or

 

(g)           The
Borrower shall fail to carry and maintain, or cause to be carried and
maintained, insurance on and in respect of the Engines and/or the Pledged Spare
Parts in accordance with the provisions of Section 3.05 of the Engine
Mortgage and the Spare Parts Mortgage, respectively; or

 

(h)           The
Borrower shall cease to be a Certificated Air Carrier; or

 

(i)            Any
Senior Mortgage shall for any reason cease to be a valid first priority
perfected security interest (subject to Permitted Liens) in favor of the
Administrative Agent in the Borrower’s right, title and interest in and to the
Collateral described in such Senior Mortgage under the laws of the United
States of America; or

 

(j)            an “Event
of Default” as defined in any of the GE Deferral Leases or any of the Early
Termination Leases shall have occurred and be continuing; provided, however, it
is expressly acknowledged and agreed that none of the occurrence of a Trigger
Event, the termination of any GE Deferral Lease upon the occurrence of a
Trigger Event pursuant to the Milestone Agreement, or the implementation of any
other remedy expressly contemplated by the Milestone Agreement or by any other
agreement (including but not limited to an omnibus amendment agreement)
executed pursuant to the Milestone Agreement on account of the occurrence of a
Trigger Event shall be deemed to constitute an Event of Default under this
subclause (j); provided, further, however, that, notwithstanding the
immediately preceding proviso, any failure by the Borrower or the Guarantor to
comply with its obligations under the Milestone Agreement, under any other
agreement (including but not limited to an omnibus amendment agreement)
executed pursuant to the Milestone Agreement on account of the occurrence of a
Trigger Event, or under any GE Deferral Lease or any Early Termination Lease as
amended by any such omnibus amendment agreement on account of such Trigger
Event, including, but not limited to, any failure to return the applicable
aircraft to the lessor thereof following the termination of the lease in
respect thereof, shall constitute an Event of Default hereunder to the same
extent (and subject to the same grace periods) as such failure constitutes an
Event of Default under the applicable Early Termination Lease or GE Deferral
Lease; or

 

(k)           a “Subordinated
Event of Default” shall have occurred and be continuing under any of the
Subordinated Documents.

 

then, if an Event of
Default referred to in clause (e) or (f) of this Section 7.1 shall have
occurred and be continuing, (x) the principal of the Loans then
outstanding, together with interest accrued but unpaid thereon, LIBOR Breakage
Costs, and all other amounts owing to the Administrative Agent and any Lender
hereunder or under any other Transaction

 

32

 

Document, shall
immediately and without further act become due and payable, and (y) the
Commitments, to the extent not previously terminated, shall automatically
terminate, in each case without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower and, if any
other Event of Default shall have occurred and be continuing, then the Administrative
Agent shall, upon request of the Required Lenders, by notice to the Borrower,
terminate the Commitments and declare the unpaid principal of the Loans then
outstanding, together with interest accrued but unpaid thereon, LIBOR Breakage
Costs and all other amounts due to the Administrative Agent and any Lender
hereunder or under any other Transaction Document, to be forthwith due and
payable, whereupon the Commitments shall terminate and the Loans, all such
interest and all other amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrower.  In addition to any other remedies available
to the Administrative Agent and the Lenders under the Transaction Documents or
at law or otherwise, if an Event of Default shall have occurred and so long as
the same shall be continuing unremedied, then and in every such case the
Administrative Agent may exercise any or all of the rights and powers and pursue
any and all of the remedies set forth in the Senior Mortgages.

 

ARTICLE
VIII

THE ADMINISTRATIVE AGENT

 

Section 8.1.           Appointment and
Authorization.  Each Lender hereby
irrevocably designates and appoints General Electric Capital Corporation as the
“Administrative Agent” under the
Transaction Documents and authorizes the Administrative Agent to take such
actions and to exercise such powers as are delegated to it thereby and to
exercise such other powers as are reasonably incidental thereto, including but
not limited to serving as the “Secured Party” on behalf of the Lenders under
the Senior Mortgages and documents and instruments relating thereto.  The Administrative Agent shall not have any
duties other than those expressly set forth in a Transaction Document or any
fiduciary relationship with any Lender, and no implied obligations or
liabilities shall be read into this Agreement, or otherwise exist, against the
Administrative Agent.  The Administrative
Agent does not assume, nor shall it be deemed to have assumed, any obligation
to, or relationship of trust or agency with, the Borrower.  Notwithstanding any provision of this
Agreement or any other Transaction Document, in no event shall the
Administrative Agent ever be required to take any action which exposes it to
personal liability or which is contrary to the provision of any Transaction
Document or applicable law.

 

Section 8.2.           Delegation of Duties.  The Administrative Agent may execute any of
its duties through agents or attorneys-in-fact and shall be entitled to advice
of counsel concerning all matters pertaining to such duties.

 

Section 8.3.           Exculpatory Provisions.  Neither the Administrative Agent nor any of
its directors, officers, agents or employees shall be liable to any Lender for
any action taken or omitted (i) with the consent or at the direction of
the Required Lenders or (ii) in the absence of such Person’s gross negligence
or willful misconduct.  The

 

33

 

Administrative
Agent shall not be responsible to any Lender or other Person for (a) any
recitals, representations, warranties or other statements made by the Borrower
or any of its Affiliates, (b) the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any Transaction Document, (c) any failure of
the Borrower or any of its Affiliates to perform any obligation or (d) the
satisfaction of any condition specified in Article VI.  The Administrative Agent shall not have any
obligation to any Lender to ascertain or inquire about the observance or
performance of any agreement contained in any Transaction Document or to
inspect the properties, books or records of the Borrower or any of its
Affiliates.

 

Section 8.4.           Reliance by
Administrative Agent.  As between the
Administrative Agent and the Lenders, the Administrative Agent shall in all
cases be entitled to rely, and shall be fully protected in relying, upon any
document, other writing or conversation reasonably believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person and upon
advice and statements of legal counsel (including counsel to the Borrower or
any of its Affiliates), independent accountants and other experts selected by
the Administrative Agent.  The
Administrative Agents shall in all cases be fully justified in failing or
refusing to take any action under any Transaction Document unless it shall
first receive such advice or concurrence of the Lenders, and assurance of its
indemnification, as it deems appropriate. 
Subject to Section 9.1, the Administrative Agent shall not effect
any waiver or grant any consent or make any determination without the direction
of the Required Lenders.

 

Section 8.5.           Notice of Events of
Default.  The Administrative Agent
shall not be deemed to have knowledge or notice of the occurrence of any
Potential Default or Event of Default unless it has received notice from any
Lender or the Borrower stating that a Potential Default or Event of Default has
occurred hereunder and describing such Potential Default or Event of
Default.  Promptly upon receiving notice
of the occurrence of any Potential Default or Event of Default, the
Administrative Agent shall notify each Lender of such occurrence.  The Administrative Agents shall take such
action concerning a Potential Default or Event of Default as may be directed by
the Required Lenders (or, if required for such action, all of the Lenders), but
until the Administrative Agent receives such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, as the Administrative Agent deems advisable and in the best
interests of the Lenders.

 

Section 8.6.           Non-Reliance on
Administrative Agent and Other Lenders; Lender Representations.  Each Lender expressly acknowledges that
neither the Administrative Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Administrative Agent hereafter taken,
including any review of the affairs of the Borrower, the Guarantor or any of
their Affiliates, shall be deemed to constitute any representation or warranty
by the Administrative Agent.  Each Lender
represents and warrants to the Administrative Agent that, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, it has made and
will continue to make its own appraisal of and investigation into the business,
operations, property, prospects, financial and other

 

34

 

conditions and
creditworthiness of the Borrower and the Guarantor and its own decision to
enter into this Agreement and to take, or omit, action under any Transaction
Document.  Except for items specifically
required to be delivered hereunder, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any information concerning
the Borrower, the Guarantor or any of their Affiliates that comes into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.

 

Section 8.7.           Administrative Agent
and Affiliates.  The Administrative
Agent and its Affiliates may extend credit to, accept deposits from and
generally engage in any kind of business with the Borrower or any of its
Affiliates and, in its role as a Lender, General Electric Capital Corporation
may exercise or refrain from exercising its rights and powers as if it were not
Administrative Agent.

 

Section 8.8.           Indemnification.  Each Lender shall indemnify and hold harmless
the Administrative Agent and its officers, directors, employees,
representatives and agents (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably in
accordance with its Percentage Share (or, after the Commitments have been
terminated, its Ratable Share) from and against any and all liabilities,
obligations, losses, damages, penalties, judgments, settlements, costs,
expenses and disbursements of any kind whatsoever (including in connection with
any investigative or threatened proceeding, whether or not the Administrative
Agent or such Person shall be designated a party thereto) that may at any time
be imposed on, incurred by or asserted against the Administrative Agent or such
Person as a result of, or related to, any of the transactions contemplated by
the Transaction Documents or the execution, delivery or performance of the
Transaction Documents or any other document furnished in connection therewith
(but excluding any such liabilities, obligations, losses, damages, penalties,
judgments, settlements, costs, expenses or disbursements resulting solely from
the gross negligence or willful misconduct of the Administrative Agent or such
Person as finally determined by a court of competent jurisdiction).

 

Section 8.9.           Successor
Administrative Agent.  The
Administrative Agent may, upon at least 30 days notice to the Borrower and each
Lender, resign its position as the Administrative Agent.  Such resignation shall not become effective
until a successor Administrative Agent acceptable to the Borrower is appointed
by the Required Lenders and has accepted such appointment.  Upon such acceptance of its appointment as
the Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall succeed to and become vested with all the
rights and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
the Transaction Documents.  After any
retiring Administrative Agent’s resignation hereunder, the provisions of
Article V and this Article VIII shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was the Administrative Agent.

 

35

 

ARTICLE IX

MISCELLANEOUS

 

Section 9.1.           Amendments.  Neither this Agreement nor any other
Transaction Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated (excluding any mortgage supplements or supplemental
mortgages contemplated by and executed and delivered pursuant to the Engine
Mortgage or the Spare Parts Mortgage, respectively) unless such change, waiver,
discharge or termination is in writing signed by the Borrower and the Required
Lenders, provided that no such change, waiver,
discharge or termination shall, without the consent of each Lender affected
thereby, (i) extend the final scheduled maturity of any Loan or any Note,
or reduce the rate or extend the time of payment of interest or fees thereon,
or reduce or extend the time of payment of the principal amount thereof (except
to the extent, and under the circumstances, specified in Section 1.1(d)(iii)),
(ii) increase the Commitment of any Lender, (iii) release any
Collateral (except as expressly provided in the applicable Senior Mortgage),
(iv) amend, modify or waive any provision of this Section 9.1, (v) reduce
the percentage specified in the definition of Required Lenders, (vi) consent to
the assignment or transfer by the Borrower or the Guarantor of any of its
rights and obligations under this Agreement or the other Transaction Documents
or (vii) impair any indemnity under a Transaction Document in favor of such
Lender; provided, further, that no such change,
waiver, discharge or termination shall, without the consent of the
Administrative Agent, amend, modify or waive any provision of Article VIII or
any other provision as same relates to the rights or obligations of the
Administrative Agent.

 

Section 9.2.           Notices.  Unless otherwise specified, all notices
and other communications hereunder shall be in writing (including by facsimile
communication), given to the appropriate Person at its address or facsimile
number set forth on the signature pages hereof or at such other address or
facsimile number as such Person may specify, and effective when received at the
address specified by such Person.  The
number of days for any advance notice required hereunder may be waived (orally
or in writing) by the Person receiving such notice.

 

Section 9.3.           Costs and
Expenses.   The Borrower hereby agrees to pay at or prior
to the Closing after receipt of reasonably
detailed invoices, all reasonable and actual costs and expenses of the initial
Lenders and the Administrative Agent in connection with the preparation,
execution and delivery of the Transaction Documents and the Subordinated
Documents (whether or not any such Transaction Document or Subordinated Document
is entered into), including, without limitation the reasonable fees and
expenses of (a) Holland & Knight LLP, special counsel to the initial
Lenders and the Beneficiaries, (b) Weil, Gotshal & Manges, special
bankruptcy counsel to the Lenders, (c) FAA Counsel, and (d) the Independent
Appraiser (but, solely in the case of the Independent Appraiser, its fees
payable by the Borrower under this subclause (d) shall not exceed
$115,000).  The Borrower further agrees
to pay on demand all reasonable and actual costs and expenses of the
Administrative Agent and the Lenders, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of the Transaction
Documents after the occurrence of an Event of Default.

 

36

 

Section 9.4.           Certain Agreements  .  (a) Each Lender and
the Administrative Agent agrees as to itself with the Borrower that, so long as
no Event of Default shall have occurred and be continuing, such person shall
not (and shall not permit any Affiliate or other person claiming by, through or
under it to) take or cause to be taken any action contrary to the Borrower’s
right to quiet enjoyment of the Collateral, and to possess, use, retain and
control the Engines and the Pledged Spare Parts and all revenues, income and
profits derived therefrom without hindrance.

 

(b)           Each
Lender agrees to comply with its obligations under the Senior Mortgages.

 

Section 9.5.           Entire Agreement.  The Transaction Documents and the
Subordinated Documents constitute the entire understanding of the parties
thereto concerning the subject matter thereof. 
Any previous agreements, whether written or oral, concerning such
matters are superseded thereby.

 

Section 9.6.           Cumulative Rights and
Severability.  All rights and
remedies of the Lenders and the Administrative Agent hereunder shall be
cumulative and non-exclusive of any rights or remedies such Persons have under
law or otherwise.  Any provision hereof
that is prohibited or unenforceable in any jurisdiction shall, in such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and
without affecting such provision in any other jurisdiction.

 

Section 9.7.           Waivers.  No failure or delay of any party hereto
in exercising any power, right, privilege or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such power,
right, privilege or remedy preclude any other or further exercise thereof or
the exercise of any other power, right, privilege or remedy.  Any waiver hereof shall be effective only in
the specific instance and for the specific purpose for which such waiver was
given.  After any waiver, the Borrower,
the Lenders and the Administrative Agent shall be restored to their former
position and rights and any Potential Default or Event of Default waived shall
be deemed to be cured and not continuing, but no such waiver shall extend to
(or impair any right consequent upon) any subsequent or other Potential Default
of Event of Default.

 

Section 9.8.           Successors and Assigns;
Participations; Assignments.

 

(a)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.  Except as otherwise provided
herein, the Borrower may not assign or transfer any of its rights or delegate
any of its duties without the prior consent of the Administrative Agent and
each of the Lenders.

 

(b)           Participations.  Any Lender may sell to one or more Persons
(each a “Participant”) participating interests in
the interests of such Lender hereunder. 
Such Lender shall remain solely responsible for performing its
obligations hereunder, and the Borrower and the Administrative Agent shall
continue to deal solely and directly with

 

37

 

such Lender in
connection with such Lender’s rights and obligations hereunder (without any
consent required from any Participant). 
Each Participant shall be entitled to the benefits of Article V; provided that such Participant shall not be entitled to any
greater benefit under Article V than the Lender that sold the participating interest
to the Participant would have been entitled to thereunder and no Participant
shall be entitled to any benefit thereunder unless it shall perform such
obligations as are imposed on the Lenders under Article V; provided
further that in the event that any Participant that is not a GE
Affiliate exercises any of its rights under Article V or requests payment
pursuant to Article V, the Borrower may request, at the Borrower’s expense,
that such Participant re-assign its interests to a bank, financial institution
or other entity specified by the Borrower, provided that (i) such assignment
shall not conflict with or violate any law, rule or regulation or order of any
court or other Governmental Authority, (ii) the Borrower shall have received
the written consent of both the Administrative Agent and the Lender that
granted the participating interest to the Participant initially, which consents
shall not be unreasonably withheld, and (iii) the Borrower shall have paid to
the Lender that granted the participating interest to the Participant all
principal, interest and other amounts then due and payable to such Lender
hereunder.

 

(c)           Assignments.  Notwithstanding the foregoing, any Lender may
assign all or a portion of its Commitment and its outstanding Notes to a
Qualified Affiliate of such Lender or assign all, or if less than all, a
portion equal to at least $[***] in the aggregate face amount of Notes and of
such Commitment (and related Obligations) to one or more Eligible Assignees,
each of which assignees referred to in Section 9.8(c) shall become a party to
this Agreement as a Lender by execution of a supplement hereto in the form of Exhibit
F (a “Transfer Supplement”) hereto, provided that such transfer or
assignment will not be effective until recorded by the Administrative Agent on
the Register pursuant to Section 9.8(d) hereof. 
To the extent of any assignment pursuant to this Section 9.8(c) (other
than an assignment to a Qualified Affiliate pursuant to the preceding
sentence), the assigning Lender shall be relieved of its obligations hereunder
with respect to its assigned Commitment. 
At the time of each assignment pursuant to this Section 9.8(c) to a
Person which is not already a Lender hereunder, the respective assignee Lender
shall provide to the Borrower and the Administrative Agent the Internal Revenue
Service forms (and, if applicable, a Certificate re Non-Bank Status) required
by Section 5.3 (c)(i).

 

(d)           Register.  The Borrower hereby
designates the Administrative Agent to serve as the Borrower’s agent, solely
for purposes of this Section 9.8(d), to maintain a register (the “Register”)
on which it will record the registered holder of the Notes of each Series and
the registration of transfers of Notes of each Series made pursuant to and in
accordance with Section 9.8(c).  The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice, and the
Administrative Agent shall, reasonably promptly after (a) any person becomes a
Lender after the date hereof and (b) any Lender alters or modifies its
name or address, notify the Borrower of and deliver to the Borrower a written
update of the names and addresses of all Lenders.  Failure to make any such recordation, or any
error in such recordation, shall not affect the Borrower’s obligations in
respect of the Notes held by any Lender. 
With respect to any Lender, the transfer of the Commitment of such
Lender and the rights to the principal of, and interest on, the Notes made
pursuant to such

 

38

 

Commitment shall
not be effective until such transfer is recorded on the Register maintained by
the Administrative Agent with respect to ownership of such Commitment and Notes
and prior to such recordation all amounts owing to the transferor with respect
to such Commitment and Notes shall remain owing to the transferor.  The registration of assignment or transfer of
all or part of the Commitment and the Notes shall be recorded by the Administrative
Agent on the Register only upon the acceptance by the Administrative Agent of a
properly executed and delivered Transfer Supplement in accordance
herewith.  Coincident with the delivery
of such a Transfer Supplement to the Administrative Agent for acceptance and
registration of assignment or transfer of all or part of any Note or Notes, or
as soon thereafter as practicable, the assigning or transferor Lender shall
surrender such Notes, and thereupon one or more new Notes of the same series of
Notes in the same aggregate principal amount shall be issued by the Borrower to
the assigning or transferor Lender and/or the new Lender, as appropriate to
reflect such assignment.  The new Notes
shall be authenticated by the Administrative Agent.  By execution and delivery hereof, the
Borrower requests and directs the Administrative Agent to authenticate and
deliver the Notes to be issued hereunder and the Administrative Agent Agrees to
do so.

 

Section 9.9.           Confidentiality.  Neither the Administrative Agent nor any
Lender shall disclose any nonpublic information relating to the Borrower
(provided to it by the Borrower) or any Transaction Document to any other
Person without the consent of the Borrower, other than (a) to the
Administrative Agent’s or Lender’s Affiliates and its officers, directors,
employees, agents and advisors and, as contemplated by Section 9.8, to actual
or prospective assignees and participants, and then, in all such cases, only
with an undertaking by the party to whom such information is disclosed to keep
such information confidential, (b) as required by any law, rule or regulation
or judicial process, (c) as requested or required by any state, federal or
foreign authority or examiner regulating banks or banking, and (d) to the
extent reasonably necessary in connection with any dispute related to, or
enforcement of, the Transaction Documents.

 

Notwithstanding anything to the contrary set forth herein or in any
other agreement to which the parties hereto are parties or by which they are
bound, the obligations of confidentiality contained herein and therein, as they
relate to the transactions described in the Transaction Documents (the “Transaction”),
shall not apply to the U. S. federal tax structure or U. S. federal tax
treatment of the Transaction, and each party hereto (and any employee,
representative, or agent of any party hereto) may disclose to any and all
persons, without limitation of any kind, the U. S. federal tax structure and U.
S. federal tax treatment of the Transaction. 
The preceding sentence is intended to cause the Transaction to be
treated as not having been offered under conditions of confidentiality for
purposes of Section 1.6011-4(b)(3) (or any successor provision) of the Treasury
Regulations promulgated under Section 6011 of the Internal Revenue Code of
1986, as amended, and shall be construed in a manner consistent with such
purpose.  In addition, each party hereto
acknowledges that it has no proprietary or exclusive rights to the U. S. federal
tax structure of the Transaction or any U. S. federal tax matter or U. S.
federal tax idea related to the Transaction.

 

39

 

Section 9.10.        Counterparts.  This Agreement may be executed by
different parties on any number of counterparts, each of which shall constitute
an original and all of which, taken together, shall constitute one and the same
agreement.

 

Section 9.11.        Governing
Law; Submission to Jurisdiction; Venue.

 

(a)           This
Agreement and the rights and obligations of the parties hereunder and
thereunder shall be construed in accordance with and be governed by the laws of
the State of New York.  Any legal action
or proceeding with respect to this Agreement may be brought in the courts of
the State of New York or the United States for the Southern District of New
York located in the Borough of Manhattan, and, by execution and delivery of
this Agreement or a Transfer Supplement, each party hereto hereby irrevocably
accepts for itself and in respect of its property, generally and unconditionally,
the jurisdiction of the aforesaid courts. 
Each party hereto hereby further irrevocably waives any claim that any
such courts lack jurisdiction over such party, and agrees not to plead or
claim, in any legal action or proceeding with respect to this Agreement brought
in any of the aforesaid courts, that any such court lacks jurisdiction over
such party.  Each party hereto further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at its address specified
pursuant to Section 9.2, such service to become effective 30 days after such
mailing.  Nothing herein shall affect the
right of any party hereto to serve process in any other manner permitted by law
or to commence legal proceedings or otherwise proceed against any other party
hereto in any other jurisdiction.

 

(b)           Each
party hereto hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.

 

Section 9.12.        Waiver of Trial by Jury.  To the extent permitted by applicable law,
each party hereto irrevocably waives all right of trial by jury in any action,
proceeding or counterclaim arising out of, or in connection with, any
Transaction Document or any matter arising thereunder.

 

Section 9.13.        Effective Date.  Although this Agreement is dated as of
February 17, 2005, it shall not be effective unless and until executed by the
parties listed on the signature pages hereto.

 

 

[Remainder of this page blank]

 

40

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed and delivered by their
duly authorized officers as of the date hereof.

 

	
   

  	
  GENERAL ELECTRIC CAPITAL CORPORATION

  
	
   

  	
  as the Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  General Electric Capital Corporation

  
	
   

  	
   

  	
  c/o GE Capital Aviation Services, Inc.

  
	
   

  	
   

  	
  201 High Ridge Road

  
	
   

  	
   

  	
  Stamford, Connecticut 06927

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  Customer Services

  
	
   

  	
   

  	
  Telephone:

  	
  (203) 357-3776

  
	
   

  	
   

  	
  Facsimile:

  	
  (203) 357-3201

  
	
   

  	
   

  	
  email:

  	
  Nanotices@gecas.com

  
					

 

 

	
   

  	
   

  	
  INDEPENDENCE AIR, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  Independence Air, Inc.

  
	
   

  	
   

  	
  Executive Offices

  
	
   

  	
   

  	
  45200 Business Court

  
	
   

  	
   

  	
  Dulles, VA  20166

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  General Counsel

  
	
   

  	
   

  	
  Telephone:

  	
  (703) 650-6006

  
	
   

  	
   

  	
  Telecopy:

  	
  (703) 650-6294

  
	
   

  	
   

  	
  Email:

  	
  rick.kennedy@flyi.com

  
					

 

 

	
  Commitment:

  	
   

  	
  GENERAL ELECTRIC CAPITAL

  
	
  Series A Commitment: $8,516,374

  	
   

  	
  CORPORATION

  
	
  Series B Commitment: $7,655,023

  	
   

  	
  as Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notice Address and Lending Office:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  General Electric Capital Corporation

  
	
   

  	
   

  	
  c/o GE Capital Aviation Services, Inc.

  
	
   

  	
   

  	
  201 High Ridge Road

  
	
   

  	
   

  	
  Stamford, Connecticut 06927

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  Customer Services

  
	
   

  	
   

  	
  Telephone:  

  	
  (203) 357-3776

  
	
   

  	
   

  	
  Facsimile: 

  	
  (203) 357-3201

  
	
   

  	
   

  	
  email:

  	
  Nanotices@gecas.com

  
					

 

 

SCHEDULE 1

DEFINITIONS AND OTHER INTERPRETIVE PROVISIONS

 

1.             Definitions.  The
following terms have the meanings set forth, or referred to, below:

 

“Acceptable Collateral” means a
letter of credit issued by a bank
organized under the laws of the United States or any State thereof, or the New
York branch of a major international bank, in each case for only so long as its
long-term Dollar denominated unsecured debt (or if it does not have long-term
unsecured Dollar denominated debt, its parent corporation’s long-term unsecured
Dollar denominated debt) carries a rating from Standard & Poor’s of A or
better, or another security arrangement that affords at least the same degree
of certainty of payment.

 

“Act”
means part A of subtitle VII of title 49, United States Code.

 

“Actual
Knowledge” means, with respect to any Person, actual knowledge of a
Vice President or more senior officer of such Person or any other officer of
such Person having responsibility for the transactions contemplated by the
Transaction Documents.

 

“Administrative
Agent’s Account” means the Administrative Agent’s account
number 50-234-585, reference Independence Air Engine and Spare Parts Loan, at
Deutsche Bank Trust Company Americas, New York branch, ABA No. 021-001-033,
Swift Code BKTRUS 33, or such other account at a bank in the United States
designated to the Borrower by the Lender.

 

“Affiliate”
means, with respect to any Person, any other Person, directly or indirectly,
controlling, controlled by, or under common control with such Person.  For purposes of this definition, “control’’ means the power, directly or indirectly, to direct
or cause the direction of the management and policies of such Person whether
through the ownership of voting securities, by contract or otherwise, and “controlling,” “controlled by,”
and “under common control with” have
correlative meanings.

 

“Aggregate
Commitment” means the sum of the Aggregate Series A
Commitment and the Aggregate Series B Commitment.

 

“Aggregate  Series A
Commitment” means the amount set forth in Schedule 3 to this
Agreement.

 

“Aggregate  Series B
Commitment” means the amount set forth in Schedule 3 to this
Agreement.

 

“Agreement”
is defined in the first paragraph of this Agreement.

 

“Applicable
Margin” means [***]% per annum.

 

1-1

 

“Appraisal”
means a written report as to the Current Market Value of the
Pledged Spare Parts prepared by the Independent Appraiser based on either the
Desk-Top Appraisal Methodology or the Physical Appraisal Methodology, as the
case may be.

 

“Bankruptcy
Code” means Title 11 of the United States Code, as the same may
be amended.

 

“Beneficiaries”
has the meaning specified in the Payment and Indemnity Agreement.

 

“Borrower”
is defined in the first paragraph of this Agreement.

 

“Borrower’s
Account” means initially the account set forth in Section 1.2(b) or
any subsequent account designated in writing by the Borrower to the
Administrative Agent from time to time.

 

“Business Day”
means (i) any day other than a Saturday, Sunday or other day on which banks in
New York City or Dulles, Virginia are authorized or required by law to close,
and (ii) with respect to all notices and determinations in connection with, and
borrowings and payments of principal and interest on the Loans, any day which
is a Business Day described in clause (i) above and which is also a day for
trading by and between banks in the London interbank Eurodollar market.

 

“Certificate
re Non-Bank Status” means a certificate substantially in the form of
Exhibit G annexed hereto.

 

“Certificated
Air Carrier” means a Person holding an air 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.

 

“Closing”
means the time at which the Loans are advanced to the Borrower.

 

“Code”
means the Internal Revenue Code of 1986, as amended from time to time.

 

“Collateral”
means, collectively, all of the Engine Collateral and the
Spare Parts Collateral.

 

“Collateral
Agent” means General Electric Capital Corporation in its
capacity as agent for the Beneficiaries with respect to the collateral created
and granted by the Borrower under the Subordinated Mortgages.

 

“Collateral
Agent Agreement” means a Collateral Agent Agreement
substantially in the form of Exhibit K attached hereto, duly completed
and executed by the Collateral Agent and the Beneficiaries.

 

“Collateral
Ratio” has the meaning set forth in the Spare Parts Mortgage.

 

1-2

 

“Commitment”
means, with respect to any Lender, its commitment to make a Loan (or any
portion thereof) pursuant to this Agreement, including without limitation its
Series A Commitment and its Series B Commitment as set forth on the signature
pages hereto.

 

“Commitment
Termination Date” means February 23, 2005.

 

“CRJ-200”
means Bombardier Inc. model CL600-2B19 aircraft.

 

“Current
Market Value” means (i) with
respect to any Pledged Spare Part, its current market value determined on the
basis of a hypothetical sale negotiated in an arm’s length free market orderly
liquidation transaction between a willing and able seller and a willing and
able buyer, neither of whom is under undue pressure to complete the
transaction, under then current market conditions, as determined by the
Independent Appraiser, and (ii) with respect to any Engine, its current market
value determined on the basis of a hypothetical sale negotiated in an arm’s
length free market transaction between a willing and able seller and a willing
and able buyer, neither of whom is under undue pressure to complete the
transaction, under then current market conditions, as determined by the
Administrative Agent pursuant to Section 4.1(g)(ii) hereof.

 

“Default Rate”
is defined in Section 2.4.

 

“Desk-Top
Appraisal Methodology” has the
meaning set forth in the Spare Parts Mortgage.

 

“Designated
Date” means the day coinciding with the third (3rd)
anniversary of the Funding Date.

 

“Designated
Locations” means the locations in the U.S. designated from time
to time by the Borrower at which the Pledged Spare Parts may be maintained by
or on behalf of the Borrower, which initially shall be the locations set forth
on Schedule I to the Spare Parts Mortgage and shall include the additional
locations designated by the Borrower pursuant to Section 3.02(b) of the Spare
Parts Mortgage.

 

“Dollar” and “$” means lawful
currency of the United States of America.

 

“Early
Termination Leases” means, collectively, (i) the leveraged
leases with respect to the CRJ-200 aircraft specified in the definition of
Existing Early Termination Agreement, which leases are described in more detail
in the Existing Early Termination Agreement, and (ii) the leveraged lease
transactions with respect to the ten CRJ-200 aircraft bearing manufacturer’s
serial numbers 7500, 7520, 7527, 7528, 7544, 7545, 7561, 7553, 7572 and 7652,
in each case as in existence on the date hereof and as the same may be further
amended, supplemented, restated or otherwise modified from time to time, but in
each case only for so long as a GE Affiliate remains the owner participant
thereunder.

 

“Eligible
Assignee” means (i) prior to the termination of the Commitments in
full, a Person approved by the Borrower which approval shall not be
unreasonably withheld or

 

1-3

 

delayed and which
approval shall not be required if an Event of Default shall be continuing and
(ii) after the termination of the Commitments in full, a bank or other
financial institution nominated by a Lender.

 

“Engine”
means any engine described on Schedule 2 to this Agreement and any
engine substituted for an Engine from time to time thereafter in accordance
with the terms of the Engine Mortgage, but excluding any Engine that has been
released from the Lien of the Engine Mortgage in accordance with the terms
thereof.

 

“Engine
Collateral” means all of
the Engines and such other items as are included within the definition of “Collateral”
in the Engine Mortgage.

 

“Engine
Container” means any engine container identified by manufacturer’s
serial number on Schedule 2 to this Agreement.

 

“Engine
Documents” has the meaning specified in
the Engine Mortgage.

 

“Engine
Mortgage” means the Engine Mortgage and
Security Agreement in substantially the form of Exhibit A to this
Agreement entered into by the Borrower and the Administrative Agent to secure
the Loans, as supplemented by Mortgage Supplement No. 1 thereto pursuant to
which all of the Engines and Engine Containers described on Schedule 2 to this
Agreement are subjected to the Lien thereof.

 

“Engine
Report” has the meaning specified in Section 4.1(g)(i).

 

“Engine
Valuation Notice” has the meaning specified in Section 4.1(g)(ii).

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time, and the relations promulgated and rulings issued thereunder. Section
references to ERISA are to ERISA as in effect at the date of this Agreement and
any subsequent provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.

 

“Event of
Default” is defined in Section 7.1.

 

“Excluded Tax”
of a Person means (A) any Tax imposed on all or part of the income, profits or
gains (whether worldwide, or only insofar as such income, profits or gains are
considered to arise in or to relate to a particular jurisdiction) of that
Person, any franchise, doing business, net worth or capital-based Tax imposed
on that Person, and any intangibles Tax or similar Tax imposed on the principal
amount or value of the Loans, by any jurisdiction (including the United States)
(i) in which that Person is organized, (ii) in which that Person’s
principal office or applicable Lending Office is located, or (iii) in
which that Person is subject to such Tax as a result of that Person doing
business unrelated to making a Loan under this Agreement, (B) any Tax imposed
on a transferee of a Lender or on payments to a transferee to the extent that,
under applicable law in effect on the date of the transfer to such transferee,
the amount of such Taxes exceeds the amount of such Taxes that would have been
imposed on the transferor to such transferee or on payments to such transferor
and indemnified against hereunder

 

1-4

 

(with appropriate
adjustment to reflect the amount of the Loan acquired by such transferee) or (C) any Tax to the extent that
liability for such Tax is caused by, and would not have been incurred but for,
(i) the gross negligence or willful misconduct of such Person or (ii) the
inaccuracy of any representation of such Person in any Transaction Document or
(iii) the breach by such Person of any of its obligations under Section
5.3(c)(i).

 

“Existing
Early Termination Agreement” means that certain Omnibus Amendment
Agreement dated as of January 7, 2005 among Borrower, Guarantor, Export
Development Canada and certain other parties thereto with respect to ten
CRJ-200 aircraft bearing manufacturer’s serial numbers 7594, 7599, 7601, 7720,
7723, 7737, 7739, 7740, 7759, and 7768.

 

“FAA”
means the Federal Aviation Administration of the United States Department of
Transportation, or any agency which may succeed to the rights, duties and
obligations thereof under applicable law.

 

“FAA Counsel”
means Daugherty, Fowler, Peregrin & Haught.

 

“FAA Filed
Documents” means the Engine Mortgage (together with the Mortgage
Supplement No. 1 thereto), the Spare Parts Mortgage, the Subordinated Engine
Mortgage (together with the Mortgage Supplement No. 1 thereto), and the
Subordinated Spare Parts Mortgage.

 

“Federal
Aviation Act” means Title 49 of the United States Code which, among
other things, recodified and replaced the U.S. Federal Aviation Act of 1958 and
the regulations promulgated thereunder, or any subsequent legislation that
amends, supplements or supersedes such provisions.

 

“Financing
Statements” means, collectively, the Uniform Commercial Code
financing statements naming Borrower as debtor and the Administrative Agent, as
secured party, covering the Collateral to be filed with the appropriate
Governmental Authorities on the Funding Date.

 

“Funding Date” means the date, on
or prior to the Commitment Termination Date, which the Borrower requests for
the funding of the Loans pursuant to Section 1.2

 

“GAAP”
means generally accepted accounting principles as set forth in the statements
of financial accounting standards issued by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants, as such
principles may at any time or from time to time be varied by any applicable
financial accounting rules or regulations issued by the SEC and, with respect
to any Person, means such principles applied on a basis consistent with prior
periods except as may be disclosed in such Person’s financial statements.

 

“GECAS”
means GE Capital Aviation Services, Inc.

 

“GECC”
means General Electric Capital Corporation.

 

1-5

 

“GE Affiliate”
means GECC and each Affiliate of GECC.

 

“GE Deferral Amount” means, as of any date of determination,
(i) with respect to any particular GE Deferral Lease, the amount shown on Schedule
6 hereto with respect to such lease for the month in which the date of
determination occurs, plus all accrued but unpaid “basic rent” (howsoever
titled or described) under such lease through and including the date of
determination, and (ii) with respect to all of the GE Deferral Leases, the
aggregate sum of the amounts shown on Schedule 6 hereto with respect to
each of the GE Deferral Leases for the month in which the date of determination
occurs, plus all accrued but unpaid “basic rent” (howsoever titled or
described) under all such leases through and including the date of
determination.

 

“GE Deferral
Leases” means, collectively, all of the leases described on Schedule 5
hereto, as the same may be further amended, supplemented, restated or otherwise
modified from time to time, but only for so long as the owner participant
thereunder remains a GE Affiliate.

 

“GE Deferral
Lease Obligations” means, collectively, all obligations of the Borrower under the GE
Deferral Leases and the “operative documents” (howsoever titled or described)
relating to each such GE Deferral Lease, including, without limitation, the
obligation to make payments of “basic rent” (howsoever titled or described) in
full as and when due pursuant to the terms thereof, the obligation to make
default interest payments, make-whole payments and/or payments for breakages
costs (in each case howsoever titled or described) in respect of any payments
not made when due, and all other payment and performance obligations of the
Borrower thereunder, regardless of whether any such payment or performance
obligation of the Borrower is expressed thereunder as being owed by the
Borrower to a GE Affiliate or to some other party (it being expressly
acknowledged and agreed that, pursuant to the express terms of the GE Deferral
Leases and the “operative documents” relating thereto, certain payments are to
be made by the Borrower to a security trustee or equivalent person or agent for
the account of all interested parties, including the equity or owner
participant therein as well as the lender or loan participants therein).

 

“Governmental
Authority” means any (a)
governmental entity, board, bureau, agency or instrumentality, (b)
administrative or regulatory authority (including any central bank or similar
authority) or (c) court, judicial authority or arbitrator, in each case,
whether foreign or domestic.

 

“Guarantor”  means FLYi, Inc., a Delaware corporation.

 

“Guaranty”
means a Guaranty substantially in the form of Exhibit C hereto, duly
completed and executed by Guarantor for the benefit of, among others, the
Administrative Agent and the Lenders.

 

“Identified
Spare Parts” has the meaning specified in the Spare Parts Mortgage.

 

“Independent
Appraiser” has the
meaning specified in the Spare Parts Mortgage.

 

1-6

 

“Independent
Appraiser’s Fee Amount” has the meaning set forth in Schedule 3.

 

“Interest
Payment Date” means, subject to Section
1.6(b), the date numerically corresponding to the Funding Date in each calendar
month, commencing with the month immediately following the month in which the
Funding Date occurs and continuing until the Maturity Date or, in the absence
of such a numerically corresponding date, the last day of such month.  The final “Interest Payment Date” for any
Note shall be the Maturity Date.

 

“Interest
Period” means, with respect to any Note, a period used for
calculating the interest rate applicable to such Note, as determined pursuant
to Section 2.2.

 

“Interest
Rate Determination Date” means, with respect to any Interest Period
for a Note, the second Business Day prior to the first day of such Interest
Period.

 

“LDTV
Compliance Report” means an Officer’s Certificate substantially in
the form of Exhibit L to this Agreement, duly completed and signed on
behalf of the Borrower.

 

“LDTV Ratio”
means, as of any date, a percentage determined by dividing (i) the aggregate
outstanding principal amount of the Loans plus the GE Deferral Amount minus the
amount of the Cash Collateral held by the Administrative Agent as of such date
by (ii) the sum of (a) the aggregate Current Market Value of all Engines, (b)
aggregate Current Market Value of all Pledged Spare Parts, excluding (x) those
Pledged Spare Parts which are either in transit or out for repair and
consequently not located at a Designated Location as of such date, and
(y) those Pledged Spare Parts which are located at any Designated Location
which is at the premises of a third party maintenance facility.

 

“Lender” is defined in the first paragraph of this Agreement.

 

“Lending
Office” means the lending office of each
Lender set forth on the signature page of this Agreement with respect to such
Lender, or such other lending office as a Lender from time to time shall notify
the Borrower as its lending office hereunder; provided
that a Lender shall not, without the Borrower’s request, change its Lending
Office if it would increase the Borrower’s obligations under Sections 5.1,
5.2 or 5.3.

 

“LIBOR
Breakage Costs” has the meaning specified in Section 1.8.

 

“LIBOR Rate”
means, with respect to any Interest Period, the rate appearing on Bloomberg
Page BBAM 1 screen service (or on any successor or substitute page of such
service, or any successor to or substitute for such service, providing rate
quotations comparable to those currently provided on such page of such
service) at approximately 11:00 a.m., London time, on the Interest Rate
Determination Date for such Interest Period, as the rate for dollar deposits
with a maturity of three months.  In the
event that such rate is not available at such time for any reason, then the “LIBOR
Rate” for such Interest Period shall be the average (rounded upwards to the
nearest 1/100%), as determined by the Administrative Agent, of the per annum
interest rates at which dollar

 

1-7

 

deposits of
amounts comparable to the outstanding principal amount of the Loan and for a
maturity of three months are offered by the principal London offices of the
Reference Banks, in each case offered to prime banks in the London interbank
market, in each case at or about 11:00 a.m., London time, on the Interest Rate
Determination Date for such Interest Period.

 

“Lien” means any mortgage, pledge, lien, charge, claim, encumbrance,
lease, sublease, sub-sublease or security interest affecting the title to or
any interest in property.

 

“Lien of
Record” means, (i) with respect to any Pledged Spare Parts, any Lien
that is recorded in the records of the aircraft registry maintained by the FAA
in Oklahoma City, Oklahoma in accordance with the Act (or any successor thereto
under applicable law) against property located at the Designated Locations and
having a description which would include any of such Pledged Spare Parts, and (ii)
with respect to any Engine, any Lien that is recorded in the records of the
aircraft registry maintained by the FAA in Oklahoma City, Oklahoma in
accordance with the Act (or any successor thereto under applicable law) against
such Engine.

 

“Loan”
or “Loans” means
the Series A Loan and/or the Series B Loan, individually or collectively as the
context may require.

 

“Material
Adverse Effect” means a material adverse effect on (i) the business
or financial condition of the Borrower individually or the Guarantor and its
Subsidiaries (including Borrower) taken as a whole, (ii) the ability of the
Borrower and the Guarantor to pay any of the Loans or any of the other
Obligations in accordance with the terms of this Agreement and the other
Transaction Documents, (iii) the Collateral, the material impairment of the
ability of the Borrower to perform, or the Administrative Agent or the Lenders
to enforce, the obligations of Borrower under the Transaction Documents.

 

“Maturity
Date” means the fifth (5th) anniversary of the Funding
Date.

 

“Maximum
Collateral Ratio” has the meaning set forth on Schedule 3 to
this Agreement.

 

“Maximum
Deductible Amount” has the meaning set forth on Schedule 3 to
this Agreement.

 

“Maximum Deferral Amount”
means, as of any date of determination, the amount shown on Schedule 7
attached hereto for the month in which the date of determination occurs, plus
all accrued but unpaid “basic rent” (howsoever titled or described) under all
of the GE Deferral Leases in the aggregate through and including the date of
determination.  Notwithstanding the
foregoing, the parties hereto acknowledge and agree that (i) the amount shown
on Schedule 7 attached hereto for each month shown on such schedule
reflects the “maximum” amount of the GE Deferral Amount with respect to all of
the GE Deferral Leases in the aggregate as reflected on Schedule 6
hereto, assuming due and punctual payment by the Borrower of all ‘basic rent”
(howsoever titled or described) when due under the GE Deferral Leases, during
the period from and including the first day of such month through and including
the Maturity Date, and (ii) in the event

 

1-8

 

any of the leases described on Schedule 5 attached hereto ceases
to be a GE Deferral Lease because the owner participant thereunder is no longer
a GE Affiliate, then this Agreement shall be amended to incorporate a new
version of Schedule 7, recalculated to reflect the deletion of such
lease from the pool of GE Deferral Leases on the same basis and using the same
methodology as originally used to calculate Schedule 7 as in effect on
the date hereof.

 

“Maximum LDTV
Ratio” has the meaning set forth on Schedule 3 to this
Agreement.

 

“Maximum
Rotables Ratio” has the meaning set forth on Schedule 3 to
this Agreement.

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“Mortgages”
means, collectively, the Senior Mortgages and the Subordinated Mortgages.

 

“Note”
means a Series A or Series B promissory note of the Borrower issued in
connection with a Loan made by a Lender and payable to the order of such
Lender, in substantially the form of Exhibit D hereto, evidencing the
indebtedness of the Borrower to such Lender resulting from such Loan.

 

“Notice of
Borrowing” means a notice substantially in the form of Exhibit E
annexed hereto delivered by the Borrower to the Administrative Agent pursuant
to Section 1.2(b) with respect to a proposed borrowing.

 

“Obligations”
means, collectively, the principal of and interest on the Loans, any LIBOR
Breakage Costs, and all other obligations of every nature of the Borrower from
time to time owed to the Administrative Agent, the Lenders (or any of them)
under this Agreement or any other Transaction Document.

 

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

 

“Other Taxes”
means any and all present or future Taxes arising from any payment made under
any Transaction Document or from the execution, delivery, performance, filing,
recording or enforcement of, or otherwise with respect to, any Transaction
Document or the transactions contemplated by the Transaction Documents,
excluding any Taxes based on or measured by net income or net profits.

 

“Participant”
is defined in Section 9.8(b).

 

“Payment and
Indemnity Agreement” means the Payment and Indemnity Agreement substantially
in the form of Exhibit H hereto among the Borrower, the Collateral Agent
and the Beneficiaries.

 

1-9

 

“Payment Date”
means, subject to Section 1.8(b), with respect to the Series A and Series B
Notes, the date numerically corresponding to the Funding Date in each calendar
month following the month in which the Funding Date occurs and continuing
through the Maturity Date, or, in the absence of such a numerically
corresponding date, the last day of such month. 
The final “Payment Date” for any Note shall be the Maturity Date for
such Note.

 

“Percentage
Share” means, for each Lender, any of the following, as the context
may require:  (i) with respect to the
Series A Loan, such Lender’s Series A Commitment divided by the Aggregate
Series A Commitment, (ii) with respect to the Series B Loan, such Lender’s
Series B Commitment divided by such the Aggregate Series B Commitment, and
(iii) with respect to the Loans collectively, the sum of such Lender’s Series A
Commitment and such Lender’s Series B Commitment, divided by the sum of the
Aggregate Commitment.

 

“Permitted
Disposition” is defined in the Engine Mortgage.

 

“Permitted
Investments” is defined in each Senior Mortgage.

 

“Permitted
Liens” is defined in the Engine Mortgage with respect to the
Collateral covered thereby and in the Spare Parts Mortgage with respect to the
Collateral covered thereby.

 

“Persons”
or “persons” means individuals, firms,
partnerships, joint ventures, trusts, trustees, Governmental Authorities,
organizations, associations, corporations, limited liability companies, or any
committees, departments, authorities and other bodies thereof, corporate or
incorporate, whether having distinct legal status or not, or any member of any
of the same.

 

“Physical
Appraisal Methodology” has the
meaning set forth in the Spare Parts Mortgage.

 

“Pledged
Spare Parts” has the meaning set forth in Clause (a) of the first
paragraph of Section 2.01 of the Spare Parts Mortgage.

 

“Potential
Default” means any event or condition that with the lapse of time or
giving of notice, or both, would constitute an Event of Default.

 

“Prepayment
Date” means, with respect to any prepayment of any Loan pursuant to
Section 1.1(c) or (d), as the case may be, the date on which the Administrative
Agent receives the funds from the Borrower required to effect the prepayment
contemplated thereby.

 

“Qualified
Affiliate” means, as to any Lender, an Affiliate of such Lender
engaged in the business of making loans.

 

“Ratable
Share” means, for each Lender, any of the following, as the context
may require:  (i) with respect to the
Series A Loan, the outstanding principal balance of such

 

1-10

 

Lender’s Series A
Note divided by the aggregate outstanding principal balance of all Series A
Notes, (ii) with respect to the Series B Loan, the outstanding principal
balance of such Lender’s Series B Note divided by the aggregate outstanding
principal balance of all Series B Notes, and (iii) with respect to the Loans
collectively, the outstanding principal balance of all Notes held by such
Lender divided by the aggregate outstanding principal balance of all Notes.

 

“Reference
Banks” means (a) Deutsche Bank, (b) Citibank, N.A., (c) JPMorgan
Chase Bank, and (d) such other bank or banks as may from time to time be agreed
by the Borrower and the Required Lenders.

 

“Register”
is defined in Section 9.8(d).

 

“Releases” means,
collectively, all such releases, lease termination certificates and other
documents and instruments, howsoever titled or described, as may be required to
be filed with the FAA, each duly executed by or on behalf the lessor or secured
party named therein, in order to terminate any and all liens of record covering
all or any portion of the Collateral (other than liens in favor of the
Administrative Agent and the Collateral Agent created by the Transaction
Documents and the Subordinated Documents).

 

“Repairables” has the meaning set forth in the Spare Parts Mortgage.

 

“Required
Lenders” means Lenders having (i) Commitments in excess of 50%
of the Aggregate Commitment or (ii) if the Commitments have been
terminated, Notes with an outstanding principal balance in excess of 50% of the
aggregate outstanding balance of all Notes outstanding (regardless of Series).

 

“Restructuring
Transactions” means the
transactions contemplated by that certain Memorandum of Understanding dated
January 7, 2005 among GECAS, Borrower and Guarantor, other than the
transactions contemplated by paragraph 4 and Exhibit A thereof (it being
expressly understood that those provisions of the Memorandum of Understanding
refer to the transactions contemplated by this Agreement and the other
Transaction Documents and Subordinated Documents).

 

“Rotables” has the meaning set forth in the Spare Parts Mortgage.

 

“Rotables
Ratio” has the meaning set forth in the
Spare Parts Mortgage.

 

“SEC”
means the Securities and Exchange Commission of the United States, or any
Governmental Authority succeeding to the functions of such Securities and
Exchange Commission.

 

“Senior
Mortgages” means, collectively, the Engine Mortgage and the Spare
Parts Mortgage.

 

“Series” means, as the context may require,
any of (i) the Series A Notes, collectively, or (ii) the Series B Notes,
collectively.

 

1-11

 

“Series A
Commitment” means, with respect to any Lender, its commitment to
make such portion of the Series A Loan as is set forth on its signature page
hereto.

 

“Series A Note” means a promissory note
substantially in the form of Exhibit D hereto designated
on its face as a “Series A Note”, duly completed and executed by Borrower.

 

“Series B
Commitment” means, with respect to any Lender, its commitment to
make such portion of the Series B Loan as is set forth on its signature page
hereto.

 

“Series B Note” means a promissory note
substantially in the form of Exhibit D hereto designated on its face as a “Series
B Note”, duly completed and executed by Borrower.

 

“Software” has the meaning set forth in the Spare Parts
Mortgage.

 

“Spare Parts”
has the meaning specified in the Spare Parts Mortgage.

 

“Spare Parts Collateral” means all of the Pledged Spare Parts and such other items
as are included within the definition of “Collateral” in the Spare Parts
Mortgage.

 

“Spare Parts
Documents” has the meaning specified in
the Spare Parts Mortgage.

 

“Spare Parts
Mortgage” means the Spare Parts Mortgage
and Security Agreement in substantially the form of Exhibit B to this
Agreement entered into by the Borrower and the Administrative Agent to secure
the Loans.

 

“Special Default” means any Event of Default pursuant to
Section 7.1(a), (b) and/or (f) or any event or condition that with the lapse of
time or giving of notice, or both, would constitute an Event of Default under
Section 7.1(a), (b) and/or (f); provided, however, that with respect to any
payment contemplated by Section 7.1(b) above that is due upon demand, rather
than within some specified period following demand, no “Special Default” shall
arise under this definition unless and until any failure to pay continues for
five Business Days following the date of such demand.

 

“Subordinated
Documents” means, collectively, the Payment and Indemnity Agreement,
the Collateral Agent Agreement, the Subordinated Engine Mortgage and the
Subordinated Spare Parts Mortgage

 

“Subordinated
Engine Mortgage” means the Subordinated Engine Mortgage and Security
Agreement in substantially the form of Exhibit I to this Agreement
entered into by the Borrower and the Administrative Agent to secure the
obligations of the Borrower under the Payment and Indemnity Agreement, as supplemented
by Mortgage Supplement No. 1 thereto pursuant to which all of the Engines
described on Schedule II to this Agreement are subjected to the Lien thereof.

 

“Subordinated
Mortgages” means, collectively, the Subordinated Engine Mortgage and
the Subordinated Spare Parts Mortgage.

 

1-12

 

“Subordinated
Spare Parts Mortgage” means the Subordinated Spare Parts Mortgage
and Security Agreement in substantially the form of Exhibit J to this
Agreement entered into by the Borrower and the Administrative Agent to secure
the obligations of the Borrower under the Payment and Indemnity Agreement.

 

“Subsidiary”
means, as to any Person, any other Person of which at least a majority of the
voting stock (or equivalent equity interests) is owned or controlled by such
first Person or by one or more other Subsidiaries.

 

“Taxes”
means all taxes, charges, fees, levies or other assessments (including income,
gross receipts, profits, withholding, excise, property, sales, use, license,
occupation and franchise taxes and including any related interest, penalties or
other additions) imposed by any jurisdiction or taxing authority (whether
international, foreign or domestic).

 

“Threshold
Amount” has the meaning specified in Schedule 3 to this
Agreement.

 

“Transaction
Documents” means this Agreement, the Notes, the Engine Mortgage, the
Spare Parts Mortgage, and the Guaranty.

 

“Transfer Supplement” is defined in
Section 9.8(c).

 

“Trigger Event” has the meaning specified
in that certain Milestone Agreement to be dated on or about February 18, 2005
among Borrower, Guarantor and the beneficiaries named therein.

 

“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code
as in effect in any applicable jurisdiction.

 

“UCC Termination Statements” means, collectively, all such UCC-3 termination statements
as may be required to be filed with the appropriate Governmental Authority,
each duly authorized by or on behalf the secured party named therein, in order
to terminate any and all UCC financing statements of record covering all or any
portion of the Collateral (other than financing statements in favor of the
Administrative Agent and the Collateral Agent, respectively, contemplated by
the Transaction Documents and the Subordinated Documents).

 

2.             Other Interpretive Provisions.  (a) The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined
terms.  All terms defined directly or by
incorporation in this Agreement shall have the defined meanings when used in
any certificate or other document delivered pursuant hereto unless otherwise
defined therein.  For purposes of this
Agreement and all such certificates and other documents, unless the context
otherwise requires: (i) accounting terms not otherwise defined in this
Agreement, and accounting terms partly defined in this Agreement to the extent
not defined, shall have the respective meanings given to them under GAAP; (ii)
references to any amount as on deposit or outstanding on any particular date means
such amount at the close of business on such day; (iii) the words “hereof,” “herein”
and “hereunder” and words of similar import refer to this Agreement (or the
certificate or other document in which they are used) as a whole and not to any
particular

 

1-13

 

provision of this
Agreement (or such certificate or document); (iv) references to any Section,
Schedule or Exhibit are references to Sections, Schedules and Exhibits in or to
this Agreement (or the certificate or other document in which the reference is
made), and references to any paragraph, subsection, clause or other subdivision
within any Section or definition refer to such paragraph, subsection, clause or
other subdivision of such Section or definition; (v) the term “including” means
“including without limitation”; (vi) references to any law or regulation refer
to that law or regulation as amended from time to time and include any
successor law or regulation; (vii) references to any agreement refer to that
agreement as from time to time amended, supplemented, restated or as the terms
of such agreement are waived or modified in accordance with its terms; (viii)
references to any Person include that Person’s successors and assigns; and (ix)
headings are for convenience of reference only and shall not otherwise affect
the meaning or interpretation of any provision hereof.

 

(b)           Each
exhibit and schedule to this Agreement is incorporated in, and shall be deemed
a part of, this Agreement.

 

(c)           All
terms defined in any Senior Mortgage and used herein have such respective
defined meanings unless otherwise defined herein.

 

1-14

 

SCHEDULE 2

 

ENGINE AND ENGINE CONTAINER DESCRIPTIONS 

 

AND TERMINATION VALUES

 

	
  Engine Type

  	
   

  	
  Engine S/N

  	
   

  	
  Termination Value

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-950191

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-872483

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-873416

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-950192

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-873044

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-950205

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-873689

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-872207

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-873155

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-950229

  	
   

  	
  $

  	
  [***]

  	
   

  
	
  CF34-3B1

  	
   

  	
  GE-E-872232

  	
   

  	
  $

  	
  [***]

  	
   

  

 

“Engine Containers” means the eleven (11)
engine containers bearing manufacturer’s serial numbers 9661, 073, 076, 9684,
054, 039, 9688, 9715, 051, 02571 and 9675.

 

2-1

 

SCHEDULE 3

 

CERTAIN INFORMATION

 

1.                                      Certain
Definitions:

 

“Aggregate Series A
Commitment” means $8,516,374.

 

“Aggregate Series B
Commitment” means $7,655,023.

 

“Independent Appraiser’s
Fee Amount” means $130,000, subject to increase from time to time in
the event that the fees charged by the Independent Appraiser are increased due
to (i) changes in the overall number of Designated Locations, (ii) changes in
the relative percentage (determined on the basis of Current Market Value) of
Pledged Spare Parts stored at each Designated Location, (iii) changes in the
locations of Designated Locations, and/or (iv) any other material changes in
the Borrower’s operations or spares inventory or spares inventory management
systems that increase the cost to the Independent Appraiser of performing its
duties under the Spare Parts Mortgage.

 

“Maximum Collateral Ratio”
means twenty-eight percent ([***]%).

 

“Maximum Deductible Amount”
as used in (i) the Spare Parts Mortgage means the standard market spares
deductible in existence from time to time in the worldwide airline insurance
marketplace, but in no event greater than $100,000, any one occurrence, and
(ii) the Engine Mortgage, $250,000.

 

“Maximum LDTV Ratio” means seventy percent ([***]%).

 

“Maximum Rotables Ratio”
means thirty-three percent ([***]%).

 

“Minimum Liability Amount” means $[***].

 

“Threshold Amount” means $[***].

 

2.                                      Additional
Agreement Concerning Insurance:  The
Administrative Agent and the Borrower hereby expressly agree that, if General
Electric Capital Corporation or any of its Affiliates are at any time
permitting, as a discretionary matter, lower amounts or lesser scope of War
Risk Insurance than the amounts and scope of such insurance required under
paragraph B.1 of Appendix B to the Engine Mortgage for carriers similarly
situated to the Borrower, the Borrower shall receive comparable treatment from
the Administrative Agent in its capacity as Secured Party under the Engine
Mortgage

 

3-1

 

SCHEDULE 3.1(e)

 

CERTAIN LEGAL PROCEEDINGS

 

With respect to one CRJ leveraged lease in which
Independence Air, Inc. is lessor and FLYi, Inc. is a guarantor, a lender under
the leveraged lease did not agree to defer lease payments pending restructuring
negotiations, and has terminated the lease and repossessed the aircraft.  An action is also pending the Supreme Court
of the State of New York, County of New York, titled U.S. Bank National
Association, as Loan trustee on behalf of ING Lease (Ireland) B.V. and ING
Lease (Ireland) B.V. v. Independence Air, Inc. In that action the plaintiff is
seeking damages for all unpaid rent due under the applicable lease before,
during and after the exercise of remedies, and for legal fees and other
costs.  Independence Air does not anticipate
that this case will be settled as part of its restructuring and the claim will
need to be litigated.  Unless
Independence Air, Inc. is able to negotiate a suitable resolution of this
matter, it will have an ongoing exposure for amounts due under the lease
relative to the amount earned by the lease parties after they have mitigated
their damages.

 

Seven J41 leases in which Independence Air, Inc. is
lessor and FLYi, Inc. is a guarantor are with an affiliate of BAE Systems,
Inc.  The leases include a provision that
requires Independence Air, Inc. to pay maintenance reserves should it terminate
its engine power by the hour arrangement. 
That arrangement was terminated when the J41 operations ceased.  The leases provide that Independence Air,
Inc. catch up on reserve payments by making 12 equal monthly installments.  The lessor provided a notice of default in
December 2004 claiming reserves in excess of $[***].  Independence Air, Inc. has subsequently not
made monthly lease payments.  The lessor
waived defaults through January 31, 2005, but has not agreed to a further
extension.  The lease also provides that
the loss of Independence Air, Inc.’s code share agreement with United is a
violation of the lease.  As a result of
the termination of Independence Air, Inc.’s agreement with United, this provision
could be raised by the lessor as a further effort to accelerate the
leases.  Independence Air, Inc. is in
negotiations with the lessor for the return of the aircraft, the termination of
the applicable leases, and the settlement of outstanding defaults, and
presently anticipates that it will successfully complete these negotiations as
part of its restructuring.

 

With respect to four J41 leases in which
Independence Air, Inc. is lessor and FLYi, Inc. is a guarantor, the lessor
provided a notice in December that it viewed Independence Air, Inc.’s statement
during the course of negotiations that it would not be making further lease
payments as an anticipatory breach.  The
lessor declared the leases to be in default and provided a notice of
termination.  Independence Air, Inc. has
subsequently entered into an MOU with this party for the return of the
aircraft, the termination of the applicable leases, and the settlement of
outstanding defaults, and is in the process of having the aircraft inspected
for return and completing final agreements. 
The Company presently anticipates that it will successfully complete
these final agreements as part of its restructuring.

 

3.1(e)-1

 

With respect to two J41 leases in which Independence
Air, Inc. is lessor and FLYi, Inc. is a guarantor, the lessor provided a notice
of termination after its lease payments were not made in January 2005.  Independence Air, Inc. is in the process of
negotiations with this party, including with BAE with respect to certain
residual value support provided to the lessor, and presently anticipates that
it will successfully complete these negotiations as part of its restructuring.

 

There are nine other J41s for which lease payments
have not been made, and one J41 for which loan payments have not been
made.  These parties provided a waiver of
default through January 31.  They have
also agreed to provide a further waiver until February 22 provided BAE Systems,
Inc. confirms that it will not consider this waiver to relinquish any rights of
these parties under residual value agreements they have with BAE.  BAE provided these confirmations through
January 31 but has not renewed them. Independence Air, Inc. is in the process
of negotiations with these parties, including with BAE with respect to certain
residual value support provided to the lessors, and presently anticipates that
it will successfully complete these negotiations as part of its restructuring.

 

With respect to 32 Dornier 328 leases in which
Independence Air, Inc. is lessor and FLYi, Inc. is a guarantor, the lenders in
the leveraged leases have agreed to defer certain lease payments through
February 28, 2005.  The Company is in the
process of negotiating arrangements for the assignment of 30 of these aircraft
to Delta Airlines pursuant to its rights under its former Delta Connection
Agreement, and for the release by the lenders from claims against Independence
Air, Inc. or FLYi, Inc. under the leases. 
The Company presently anticipates that it will successfully complete its
negotiations with the lenders for all 32 of the 328s as part of its
restructuring.  The equity participant in
these leveraged leases is Fairchild Dornier GmbH, the manufacturer of the
aircraft.  That entity defaulted under
certain obligations to Independence Air, Inc., and Independence Air, Inc.
believes that it will ultimately not be liable to this party under the leases.

 

Independence Air, Inc. is in various stages of
negotiations with its other CRJ lessors with respect to payment obligations
that we due during 2005, and presently anticipates that it will successfully
complete these negotiations as part of its restructuring.

 

Adverse decisions in any of the foregoing, or an
inability to successfully restructure those matters intended to be addresses as
part of the proposed restructuring of Independence Air, Inc. could result in
defaults or accelerations of these and the Company’s other obligations.

 

3.1(e)-2

 

SCHEDULE 4

 

PRINCIPAL AMORTIZATION

 

	
  Payment Date

  	
   

  	
  Principal PMT as

  % of Original Loan

  Amount

  	
   

  
	
  Feb 18 2005

  	
   

  	
   

  	
   

  
	
  Mar 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Apr 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  May 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Jun 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  July 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Aug 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Sep 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Oct 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Nov 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Dec 18 2005

  	
   

  	
  [***]

  	
  %

  
	
  Jan 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Feb 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Mar 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Apr 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  May 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Jun 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  July 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Aug 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Sep 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Oct 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Nov 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Dec 18 2006

  	
   

  	
  [***]

  	
  %

  
	
  Jan 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Feb 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Mar 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Apr 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  May 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Jun 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  July 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Aug 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Sep 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Oct 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Nov 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Dec 18 2007

  	
   

  	
  [***]

  	
  %

  
	
  Jan 18 2008

  	
   

  	
  [***]

  	
  %

  

 

4-1

 

	
  Payment Date

  	
   

  	
  Principal PMT as

  % of Original Loan

  Amount

  	
   

  
	
  Feb 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Mar 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Apr 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  May 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Jun 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  July 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Aug 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Sep 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Oct 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Nov 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Dec 18 2008

  	
   

  	
  [***]

  	
  %

  
	
  Jan 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Feb 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Mar 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Apr 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  May 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Jun 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  July 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Aug 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Sep 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Oct 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Nov 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Dec 18 2009

  	
   

  	
  [***]

  	
  %

  
	
  Jan 18 2010

  	
   

  	
  [***]

  	
  %

  
	
  Feb 18 2010

  	
   

  	
  [***]

  	
  %

  

 

4-2

 

SCHEDULE 5

 

GE DEFERRAL LEASES

 

1.               Lease
Agreement [[***]] dated as of July 22, 1998 between Wachovia Bank, National
Association, as successor by merger to First Union National Bank, as owner
trustee, as lessor, and Independence Air, Inc., formerly known as Atlantic
Coast Airlines, as lessee.

 

2.               Lease
Agreement [***] dated as of July 31, 2001 between Wachovia Bank, National
Association, as successor by merger to First Union National Bank, as owner
trustee, as lessor, and Independence Air, Inc., formerly known as Atlantic
Coast Airlines, as lessee.

 

3.               Lease
Agreement [***] dated as of July 31, 2001 between Wachovia Bank, National
Association, as successor by merger to First Union National Bank, as owner
trustee, as lessor, and Independence Air, Inc., formerly known as Atlantic
Coast Airlines, as lessee.

 

4.               Lease
Agreement [***] dated as of July 31, 2001 between Wachovia Bank, National
Association, as successor by merger to First Union National Bank, as owner trustee,
as lessor, and Independence Air, Inc., formerly known as Atlantic Coast
Airlines, as lessee.

 

5.               Lease
Agreement [***] dated as of July 31, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

6.               Lease
Agreement [***] dated as of July 31, 2002 between Wachovia Bank, National
Association, as owner trustee, and, as lessor, and Independence Air, Inc.,
formerly known as Atlantic Coast Airlines, as lessee.

 

7.               Lease
Agreement [***] dated as of September 12, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

8.               Lease
Agreement [***] dated as of September 13, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

9.               Lease
Agreement [***] dated as of October 18, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

10.         Lease
Agreement [***] dated as of October 23, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

5-1

 

11.         Lease
Agreement [***] dated as of November 13, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

12.         Lease
Agreement [***] dated as of November 26, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

13.         Lease
Agreement [***] dated as of December 4, 2002 between Wachovia Bank, National
Association, as owner trustee, as lessor, and Independence Air, Inc., formerly
known as Atlantic Coast Airlines, as lessee.

 

5-2

 

SCHEDULE 6

 

GE DEFERRAL AMOUNT

 

6-1

 

SCHEDULE 7

 

MAXIMUM DEFERRAL AMOUNT

 

7-1

 

EXHIBIT A

 

[Insert Form of Engine Mortgage]

 

A-1

 

EXHIBIT B

 

[Insert Form of Spare Parts Mortgage] 

 

B-1

 

EXHIBIT C

 

[Insert Form of Guaranty]

 

C-1

 

EXHIBIT D

 

Form of Promissory Note

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR UNDER THE SECURITIES OR SIMILAR LAWS OF ANY STATE OR
OTHER JURISDICTION AND MAY NOT BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION UNDER THE ACT AND SUCH SECURITIES
OR SIMILAR LAWS IS IN EFFECT OR PURSUANT TO AN EXEMPTION FROM SUCH
REGISTRATION.

 

THIS NOTE IS SUBJECT TO CERTAIN ADDITIONAL RESTRICTIONS ON TRANSFER SET
FORTH IN SECTION 9.8 OF THE LOAN AGREEMENT REFERRED TO BELOW.

 

SERIES [*] NOTE DUE FEBRUARY [    ],
[2010

 

	
  No. [*] -

  	
  New York, New York

  

 

                ,
200[ ]

 

$                          

 

 

FOR VALUE RECEIVED, the undersigned, INDEPENDENCE AIR, INC., a
California corporation (together with its successors and permitted assigns, the
“Borrower”) hereby
unconditionally promises to pay to                       ,
or the registered assignee thereof, the principal amount of                       
DOLLARS ($                   ),
in lawful currency of the United States of America, in installments in the
amounts and on the Payment Dates set forth in Annex A hereto, and to pay
interest in arrears on each Interest Payment Date at the Debt Rate (as defined
herein below) for the Interest Period ending on such Interest Payment Date on
the amount of such principal amount remaining unpaid from time to time from the
date hereof until such principal amount is paid in full; provided that in the event (i) that this
Note shall have been prepaid in part pursuant to the Loan Agreement, from and
after the relevant Prepayment Date, the amounts of such installments shall be
reduced, in inverse order of maturity, by the amount of such partial prepayment
and (ii) of any repayment or prepayment of any principal amount hereof, accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment; and provided
further that the final principal payment hereon shall in any and all
events equal the then outstanding principal balance hereof and such final
payment shall discharge all amounts due under this Note.  Interest shall be computed on the basis of a
year of 360 days and the actual days elapsed (including the first day but
excluding the last day) in the period for which interest is payable.  The Applicable Margin for this Note is [***]%
per annum.  As used herein, the term “Debt
Rate” means the LIBOR Rate for the relevant Interest Period plus the Applicable
Margin.

 

Notwithstanding the foregoing, this Note shall bear interest at the
Default Rate on overdue principal and, to the extent permitted by applicable
law, on any interest and any other amounts payable hereunder not paid when due
and payable for any period during which the same shall be overdue, payable on
demand by the holder hereof.

 

D-1

 

This Note is one
of the Notes referred to in, and is entitled to the benefits of, the Loan
Agreement dated as of February 17, 2005, among the Borrower, General
Electric Capital Corporation, as Administrative Agent, General Electric Capital
Corporation, as Lender, and the Lenders from time to time party thereto (as the
same may be amended, modified, supplemented and/or restated from time to time,
the “Loan Agreement”; the terms defined therein being used herein as therein
defined).  The Loan Agreement, among
other things, (i) provides for the making of one or more loans to the
Borrower to be evidenced by one or more Notes, as originally issued and as the
same may be replaced pursuant to the terms thereof, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of
certain stated events and also prepayments on account of principal hereof prior
to the maturity hereof upon the terms and conditions therein specified.  The obligations of the Borrower under this
Note and the Loan Agreement are secured by collateral as provided in the Engine
Mortgage and the Security Agreement and the Spare Parts Mortgage and Security
Agreement, each dated as of February 18, 2005, executed by the Borrower and
General Electric Capital Corporation, as secured party (as each may be amended
and supplemented from time to time, collectively, the “Mortgages”).

 

Each holder
hereof, by its acceptance of this Note, agrees that each payment received by it
hereunder shall be applied, first, to the
payment of any amount (other than principal of or interest on this Note) then
due in respect of this Note, including, without limitation, LIBOR Breakage
Costs, if any; second, to the payment of accrued
interest on this Note (as well as any interest on overdue principal, or, to the
extent permitted by law, on LIBOR Breakage Costs, if any, on interest and on
other amounts due hereunder) due and payable to the date of such payment; and third, to the payment of principal then due hereunder
(applied, in the case of a partial prepayment, in inverse order of maturity).

 

There shall be
maintained a Note Register for the purpose of registering transfers and exchanges
of Notes at the office of the Administrative agent in the manner provided in
Section 9.8(d) of the Loan Agreement.  As
provided in the Loan Agreement and subject to certain limitations therein set
forth, the Notes may be assigned, and the Notes are exchangeable for a like
aggregate original principal amount of Notes of different authorized
denominations, as requested by the Lender surrendering the same.

 

Unless the
certificate of authentication hereon has been executed by or on behalf of the
Administrative Agent by manual signature, this Note shall not be entitled to
any benefit under the Loan Agreement or the Mortgages or be valid or obligatory
for any purpose.

 

D-2

 

THIS NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

 

	
   

  	
  INDEPENDENCE AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

D-3

 

ADMINISTRATIVE AGENT’S CERTIFICATE OF
AUTHENTICATION

 

 

This is one of
the Notes referred to in the within-mentioned Loan Agreement and Mortgages.

 

	
   

  	
  GENERAL ELECTRIC CAPITAL

  CORPORATION,

  
	
   

  	
  not in its individual capacity but

  solely as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

D-4

 

EXHIBIT E

 

FORM OF NOTICE OF BORROWING

 

NOTICE OF BORROWING

 

General Electric Capital Corporation

as Administrative Agent

	
  Attention:
  [                           ]

  	
   

  	
                              ,
  2005

  

 

Ladies and Gentlemen:

 

We refer to the Loan Agreement
dated as of February 17, 2005, among Independence Air, Inc., General Electric
Capital Corporation, as Administrative Agent, General Electric Capital
Corporation, as Lender, and the Lenders from time to time party thereto (as
amended or modified from time to time, the “Loan Agreement”; the terms defined
therein being used herein as therein defined). 
We hereby give you notice requesting the Series A Loan and the Series B
Loan pursuant to Section 1.2(b) of the Loan Agreement, and in that connection
we set forth below the required information relating to such Loans
(collectively, the “Proposed Loans”):

 

(1)                                  The
Funding Date on which the Proposed Loans shall be made is                              .

 

(2)                                  The
aggregate principal amount of the Proposed Loans is $                             .

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  INDEPENDENCE AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

E-1

 

EXHIBIT F

 

FORM OF TRANSFER SUPPLEMENT

 

Date                      ,
       

 

Reference is made
to the Agreement described in Item 2 of Annex I hereto (as such Loan Agreement
may hereafter be amended, supplemented or otherwise modified from time to time,
the “Loan Agreement”).  Unless defined in Annex I hereto, terms
defined in the Loan Agreement are used herein as therein defined.                             
(the “Assignor”) and                     
(the “Assignee”) hereby agree as follows:

 

1.                                       The
Assignor hereby sells and assigns to the Assignee without recourse and without
representation or warranty (other than as expressly provided herein), and the
Assignee hereby purchases and assumes from the Assignor, that interest in and
to all of the Assignor’s rights and obligations under the Loan Agreement as of
the date hereof which represents the percentage interest specified in Item 4 of
Annex I hereto (the “Assigned Share”)
of all of the outstanding rights and obligations under the Loan Agreement
relating to the Loans and Commitments listed in Item 4 of Annex I hereto.  After giving effect to such sale and
assignment, the amount of the outstanding Loans owing to the Assignee will be
as set forth in Item 4 of Annex I hereto.

 

2.                                       The
Assignor (i) represents and warrants that it is the legal and beneficial owner
of the interest being assigned by it hereunder and that such interest is free
and clear of any adverse claim; (ii) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or the other
Transaction Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Agreement or the other
Transaction Documents or any other instrument or document furnished pursuant
thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any party to the
Transaction Documents or the performance or observance by any party to the
Transaction Documents of any of their respective obligations under the Loan
Agreement or the other Transaction Documents to which they are a party or any
other instrument or document furnished pursuant thereto.

 

3.                                       The
Assignee (i) confirms that it has received a copy of the Loan Agreement and the
other Transaction Documents, together with copies of the financial statements
referred to therein and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Transfer Supplement; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Agreement; (iii) confirms that it is an Eligible Assignee under
Section 9.8(c) of the Loan Agreement; (iv) appoints and authorizes the
Administrative Agent to take such action as an agent on its behalf and to
exercise such powers under the Loan Agreement and the other Transaction
Documents as are delegated to the Administrative Agent, as the case may be, by
the

 

F-1

 

terms thereof,
together with such powers as are reasonably incidental thereto; (vi) agrees
that it will perform in accordance with their terms all of the obligations
which by the terms of the Loan Agreement are required to be performed by it as
a Lender; (vii) makes the representations and warranties contained in Section
3.5 of the Loan Agreement[; and (viii) attaches the forms described in Sections
5.3(c) and 9.8(c) of the Loan Agreement.](1)

 

4.                                       Following
the execution of this Transfer Supplement by the Assignor and the Assignee, an
executed original hereof (together with all attachments) will be delivered to
the Administrative Agent.  This Transfer
Supplement shall be effective, unless a later date is otherwise specified in
Item 5 of Annex I hereto (the “Settlement Date”),
upon the date upon which each of the following conditions shall have been
satisfied:  (i) each of the Assignor and
Assignee shall have executed a copy hereof and delivered the same to the other
party, (ii) the registration of the transfer on the Register as provided by
Section 9.8(d) of the Loan Agreement and (iii) receipt by the Assignee of such
other documentation or fees specified on Item 9 of Annex I hereto.

 

5.                                       Upon
the delivery of a fully executed original hereof to the Administrative Agent,
as of the Settlement Date of this Transfer Supplement, (i) the Assignee shall
be a party to the Loan Agreement and, to the extent provided in this Transfer
Supplement, have the rights and obligations of a Lender thereunder and under
the other Transaction Documents and (ii) the Assignor shall, to the extent
provided in this Transfer Supplement, relinquish its rights and be released
from its obligations under the Loan Agreement and the other Transaction
Documents.

 

6.                                       It
is agreed that the Assignee shall be entitled to all interest on the Assigned
Share of the Loans at the rates specified in Item 6 of Annex I which are paid
by the Borrower on and after the Settlement Date, such interest to be paid by
the Administrative Agent directly to the Assignee.  It is further agreed that all payments of
principal made on the Assigned Share of the Loans which occur on and after the
Settlement Date will be paid directly by the Administrative Agent to the
Assignee.  Upon the Settlement Date, the
Assignee shall pay to the Assignor an amount specified by the Assignor in writing
which represents the Assigned Share of the principal amount of the Loans
pursuant to the Loan Agreement which are outstanding on the Settlement Date,
and which are being assigned hereunder. 
The Assignor and the Assignee shall make all appropriate adjustments in
payments under the Loan Agreement for periods prior to the Settlement Date
directly between themselves.

 

7.                                       The
Borrower is an intended third party beneficiary of, and may enforce, this
Transfer Supplement.

 

8.                                       THIS
TRANSFER SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

(1)          Include if the Assignee
is organized under the laws of a jurisdiction outside of the United States.

 

F-2

 

IN WITNESS WHEREOF,
the parties hereto have caused their duly authorized officers to execute and
deliver this Transfer Supplement, as of the date first above written, such
execution also being made on Annex I hereto.

 

 

	
   

  	
  [NAME OF ASSIGNOR],

  
	
   

  	
  as Assignor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF ASSIGNEE],

  
	
   

  	
  as Assignee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged and Agreed:

  	
   

  
	
   

  	
   

  
	
  GENERAL ELECTRIC CAPITAL CORPORATION

  as Administrative Agent

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
							

 

F-3

 

ANNEX FOR TRANSFER SUPPLEMENT

 

ANNEX I

 

1.                                       Borrower: Independence Air, Inc.

 

2.                                       Name and Date of Loan Agreement:

 

                                                Loan
Agreement, dated as of February 17, 2005, among Independence Air, Inc., as
Borrower, General Electric Capital Corporation, as Administrative Agent and
Lender, and the Lenders from time to time party thereto.

 

3.                                       Date of Assignment Agreement:

 

4.                                       Amounts (as of date of Item 3 above):

 

	
   

  	
   

  	
  Outstanding Principal

  of Loan

  	
   

  	
  Aggregate

  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  a.                                       Aggregate
  Amount for all Lenders

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  b.                                      Assigned
  Share

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c.                                       Amount
  of Assigned Share

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

	
  5.                                       Settlement Date:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.                                       Rate of Interest to the Assignee:

  	
   

  	
  As set forth
  in Section 2.1 of the Loan Agreement (unless otherwise agreed to by the Assignor
  and the Assignee)*

  

 

*                 The
Borrower and the Administrative Agent shall direct the entire amount of the
interest to the Assignee at the rate set forth in Section 2.1 of the Loan
Agreement, with the Assignor and Assignee effecting the agreed upon sharing of
the interest through payments by the Assignee to the Assignor.

 

F-4

 

	
  7.                                       Notice and Lending Office:

  
	
   

  
	
  ASSIGNOR:

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention:

  
	
   

  	
  Telephone:

  
	
   

  	
  Telecopier:

  
	
   

  
	
  ASSIGNEE:

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention:

  
	
   

  	
  Telephone:

  
	
   

  	
  Telecopier:

  
	
   

  
	
  8.                                       Payment Instructions:

  
	
   

  
	
  ASSIGNOR:

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention:

  
	
   

  	
  Reference:

  
	
   

  
	
  ASSIGNEE:

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention:

  
	
   

  	
  Reference:

  

 

F-5

 

9.                                       Other Documents or Fees for Closing (if any):

 

Acknowledged
and Agreed:

 

	
  [NAME OF ASSIGNEE]

  	
  [NAME OF ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Print Name and Title)

  	
  (Print Name and Title)

  

 

F-6

 

EXHIBIT G

 

FORM OF CERTIFICATE RE NON-BANK STATUS

 

CERTIFICATE RE NON-BANK STATUS

 

Reference is hereby made
to the Loan Agreement , dated as of February 17, 2005, among Independence Air,
Inc., General Electric Capital Corporation, as Administrative Agent and Lender
and the other Lenders party thereto from time to time (as amended or modified
from time to time, the “Loan Agreement”). 
Pursuant to the provisions of Section 5.3(c) of the Loan Agreement,
the undersigned hereby certifies that it is not a “bank” as such term is used
in Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended.

 

	
   

  	
  [NAME OF LENDING INSTITUTION]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  

 

G-1

 

EXHIBIT H

 

[Insert Form
of Payment and Indemnity Agreement]

 

H-1

 

EXHIBIT I

 

[Form of
Subordinated Engine Mortgage]

 

I-1

 

EXHIBIT J

 

[Form of
Subordinated Spare Parts Mortgage]

 

J-1

 

EXHIBIT K

 

[Form of
Collateral Agent Agreement]

 

K-1

 

EXHIBIT L

 

Form of
LDTV Compliance Report

 

 

LDTV
COMPLIANCE REPORT

 

 

[Address to each Lender and

to the Administrative Agent]

 

LDTV
Compliance Report Under the Loan Agreement

 

Ladies and Gentlemen:

 

We refer to the
Loan Agreement (the “Loan Agreement”), dated as of           ,
between Independence Air, Inc. (the “Company”), General Electric Capital
Corporation, as Administrative Agent and Lender, and the other Lenders from
time to time party thereto.  Terms
defined in the Loan Agreement and used herein have such respective defined
meanings.  The Company hereby certifies
that:

 

1.                                       This
LDTV Compliance Report is based upon (i) an Engine Valuation Notice dated [                    ]
provided by the Administrative Agent to the Borrower (the “Relevant Engine
Valuation Notice”), (ii) an Engine Report dated as of the date hereof duly
executed by the Borrower and being delivered to the Administrative Agent
concurrently with this report reflecting the status of the Engines as of                     
(the “Relevant Engine Report”), and (iii) an Independent Appraiser’s
Certificate (as defined in the Spare Parts Mortgage referenced in the Loan
Agreement) dated [                    ]
(the “Relevant Spare Parts Appraisal”). 
The Valuation Date (as defined in the Spare Parts Mortgage) for purposes
of the Relevant Spare Parts Appraisal was [                    ]
(the “Relevant Valuation Date”).

 

2.                                       Based
on the Relevant Engine Valuation Notice, the Relevant Engine Report, and the
Relevant Spare Parts Appraisal, the following sets forth the calculation of the
LDTV Ratio as of the [Relevant Valuation Date] [For
first LDTV Compliance Report, the bracketed language will be replaced with the
following: Funding Date after giving effect to the funding of
the Loans in accordance with the Loan Agreement]:

L-1

 

	
  a.                                       The
  Current Market Value of the Pledged Spare Parts, is at least

  	
   

  	
  $

  	
  [             ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  b.                                      The
  Current Market Value of the Pledged Spare Parts that are either (A) in
  transit or out for repair and consequently not located at a Designated
  Location as of the Relevant Valuation Date, or (B) located at a
  Designated Location that is at the premises of a third party maintenance
  facility as of the Relevant Valuation Date, in each case as set forth in the
  accompanying Independent Appraiser’s Certificate, is at least

  	
   

  	
  $

  	
  [             ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c.                                       The
  Current Market Value of the Engines is:

  	
   

  	
  $

  	
  [             ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  d.                                      The
  aggregate principal amount of the Loans outstanding as of the [Relevant
  Valuation Date] [Funding Date]

  	
   

  	
  $

  	
  [             ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  e.                                       The
  GE Deferral Amount as of the [Relevant Valuation Date] [Funding Date]

  	
   

  	
  $

  	
  [             ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  f.                                         The
  amount of the Cash Collateral as of the [Relevant Valuation Date] [Funding
  Date]

  	
   

  	
  $

  	
  [             ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  e.                                       The
  Collateral Ratio ((d + e - f) ÷ (a – b + c))

  	
   

  	
  [             ]

  	
  %

  

 

 

Dated:    [                  ]

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  INDEPENDENCE AIR, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

L-2

Execution Version

 

 

GUARANTY

 

dated as of February 17, 2005

 

of

 

FLYI, INC.

 

Engines and Spare Parts Financing

 

 

L-1

 

TABLE OF CONTENTS

 

	
  1. Guarantee of Obligations

  	
   

  
	
  (a) Guarantee

  	
   

  
	
  (b) Absolute Guarantee

  	
   

  
	
  (c) Guarantee
  of Payment and Performance

  	
   

  
	
  (d) Waiver

  	
   

  
	
  (e) Termination

  	
   

  
	
   

  	
   

  
	
  2. Rights Limited
  to Guaranteed Parties

  	
   

  
	
   

  	
   

  
	
  3. Bankruptcy, etc.

  	
   

  
	
   

  	
   

  
	
  4. Subrogation, Etc.

  	
   

  
	
   

  	
   

  
	
  5. Amendments and Other
  Actions

  	
   

  
	
   

  	
   

  
	
  6. Assignment

  	
   

  
	
   

  	
   

  
	
  7. Written Changes Only

  	
   

  
	
   

  	
   

  
	
  8. Payments

  	
   

  
	
   

  	
   

  
	
  9.
  Representations, Warranties, and Covenants

  	
   

  
	
  (a) Organization

  	
   

  
	
  (b) Authorization;
  Compliance

  	
   

  
	
  (c) Approvals

  	
   

  
	
  (d) Validity of Guaranty

  	
   

  
	
  (e) Litigation

  	
   

  
	
  (f) Borrower’s
  Representations and Warranties

  	
   

  
	
  (g) Tax Assessments

  	
   

  
	
  (h) Annual Reporting

  	
   

  
	
  (i) ERISA

  	
   

  
	
  (j) No Sovereign Immunity

  	
   

  
	
   

  	
   

  
	
  10. Covenants of the
  Guarantor

  	
   

  
	
   

  	
   

  
	
  (a) Corporate
  Existence; Merger, Sale, etc.

  	
   

  
	
  (b) Merger, Sale, etc.

  	
   

  
	
   

  	
   

  
	
  11. Consent to Jurisdiction

  	
   

  
	
   

  	
   

  
	
  12. Integration;
  Successors and Assigns

  	
   

  
	
   

  	
   

  
	
  13. Notices

  	
   

  
	
   

  	
   

  
	
  14. Governing Law

  	
   

  
	
   

  	
   

  
	
  15. Costs and Expenses

  	
   

  
	
   

  	
   

  
	
  16. Performance

  	
   

  

 

i

 

	
  SCHEDULE I

  	
  Guaranteed Parties

  	
   

  

 

ii

 

GUARANTY

 

This Guaranty is issued as of February 17, 2005 by FLYi, Inc.
(the “Guarantor”), a
Delaware corporation, in favor of the parties listed in Schedule I hereto
(the “Guaranteed Parties”).

 

The Guarantor is the direct or indirect
owner of all of the common stock of Independence Air, Inc., a California
corporation (the “Borrower”).

 

The Borrower is seeking certain financing to be secured by the aircraft
engines and spare parts owned by the Borrower pursuant to that certain Loan
Agreement dated as of the date hereof among the Borrower and General Electric
Capital Corporation, as administrative agent and lender, and the other lenders
from time to time party thereto (as the same may be amended, supplemented,
restated or otherwise modified from time to time, the “Loan
Agreement”).

 

The Guaranteed Parties (other than the Non-Party Indemnitees) are
unwilling to consummate the transactions contemplated by the Loan Agreement and
certain of the Restructuring Transactions unless the Guarantor issues this
Guaranty.

 

The terms defined in (or by reference in) the Loan Agreement, when
capitalized as in the Loan Agreement, have the same meanings when used in this
Guaranty.  Any provision of any
Applicable Law includes any such provision as amended, modified, supplemented,
substituted reissued or reenacted before the Funding Date, and thereafter from
time to time. Any agreement or instrument referred to herein and in the Loan
Agreement means such agreement or instrument as from time to time supplemented
and amended.  “Including” means “including
but not limited to”.  “Or” means one or
more, or all, of the alternatives listed or described.  “Herein”, “hereof”, “hereunder”, etc. mean
in, of, under, etc. this Guaranty (and not merely in, of, under, etc. the section or
provision where the reference appears). References in this Guaranty to
sections, paragraphs, clauses, appendices, schedules, and exhibits are to
sections, paragraphs, clauses, appendices, schedules, and exhibits in and to
this Guaranty unless otherwise specified.

 

The Guarantor therefore agrees as follows:

 

1.             Guarantee of Obligations.

 

(a)           Guarantee. 
The Guarantor acknowledges that it is fully aware of the terms and
conditions of (i) the Loan Agreement, the Engine Mortgage, the Spare Parts
Mortgage and the other Transaction Documents and (ii) the Payment and
Indemnity Agreement, the Subordinated Engine Mortgage, the Subordinated 

 

1

 

Spare Parts Mortgage and the other Subordinated Documents
(collectively, the “Guaranteed Documents”),
and hereby irrevocably and unconditionally guarantees to the Guaranteed Parties
and to their successors and assigns, as primary obligor and not merely as
surety, without offset or deduction, (1) the Borrower’s payment of all its
payment obligations under the Guaranteed Documents when due (including when due
by virtue of the declaration of the Loans and/or any of the IAI Transaction
Documents (as defined in the Payment and Indemnity Agreement) to be in default)
(the “Financial Obligations”), and (2) the
Borrower’s performance of all its other obligations under the Guaranteed
Documents (the “Nonfinancial Obligations”) (the
Financial Obligations and Nonfinancial Obligations together being the “Obligations”).

 

(b)           Absolute Guarantee.  The Guarantor’s obligations under this
Guaranty shall be absolute and unconditional, shall remain in full force and
effect until irrevocable payment, performance, or observance in full of all of
the Obligations, and shall not be affected by any action taken or not taken by
any Guaranteed Party, by any lack of prior enforcement or retention of any
rights against the Borrower or the Guarantor, by any illegality,
unenforceability, or invalidity of the Obligations or the Guaranteed Documents,
by any other guaranty or other obligations, or by any other circumstance or
condition (whether or not the Guarantor or the Borrower shall have any
knowledge or notice thereof), including: (1) any termination, amendment,
modification, or other change in, or supplement to, any of the Guaranteed
Documents or any other agreement, or to the Collateral or any part thereof, or
any assignment, mortgage, or transfer thereof, or any leasing or subleasing of
any Collateral or any part thereof, or any furnishing or acceptance of
additional security, or release of any security, for the obligations of the
Borrower under the Guaranteed Documents, or the failure of any security or any
failure to perfect any interest in any collateral given by the Borrower under
the Guaranteed Documents; (2) any failure, omission, or delay on the part
of any Person to conform or comply with any term of any Guaranteed Document or
any other agreement, including failure to give notice to the Guarantor of the
occurrence of an Event of Default or Potential Default; (3) any waiver of
the payment, performance, or observance of any of the obligations, conditions,
covenants, or agreements contained in any Guaranteed Document or any other
agreement or any other waiver, consent, extension, indulgence, compromise,
settlement, release, or other action or inaction under or in respect of any
Guaranteed Document, or any exercise or nonexercise of any right or remedy
under any Guaranteed Document or any obligation or liability of the Borrower or
any Guaranteed Party, or any exercise or nonexercise of any right, remedy,
power, or privilege under or in respect of any Guaranteed Document or any such
obligation or liability; (4) any extension of time for payment or
performance of any Obligation; (5) the exchange, modification,
substitution, or surrender of any collateral; (6) any failure, omission,
or delay on the part of any Guaranteed Party to enforce, assert, or exercise
any right, power, or remedy conferred on it in connection with any Guaranteed
Document, or any other action on the part of any Guaranteed Party; (7) any
voluntary or 

 

2

 

involuntary bankruptcy, insolvency, assignment for the benefit of
creditors, receivership, conservatorship, custodianship, liquidation,
marshalling of assets and liabilities, or similar proceeding with respect to
the Borrower, the Guarantor, or any other Person or any of their respective
properties or creditors, or the disaffirmance in whole or in part of any of the
Guaranteed Documents in any such proceeding, or any action taken by any trustee
or receiver or by any court in any such proceeding; (8) any limitation on
the Borrower’s liability or obligations (or the liabilities and obligations of
any other Person) or any discharge, termination, cancellation, frustration,
irregularity, invalidity, or unenforceability, in whole or in part, of any of
the Guaranteed Documents or any other agreement; (9) any defect in the
title, compliance with specifications, condition, design, operation, or fitness
for use of any Collateral or any part thereof, or any damage to or loss or
destruction of any Collateral or any part thereof, or any interruption or
cessation of the use of any Collateral or any part thereof for any reason
(including any force majeure and any act of a
Governmental Authority or military authority); (10) any merger or
consolidation of the Borrower or the Guarantor into or with any other
corporation, or any sale, lease, or other transfer of any of the assets of the
Borrower or the Guarantor to any other Person or any change in the ownership of
the Guarantor or in the control of any such owner; (11) to the extent permitted
by law, any release or discharge, by operation of law, of the Guarantor from
the performance or observance of any obligation, covenant, or agreement
contained in this Guaranty; and (12) any other condition or circumstance which
might otherwise constitute a legal or equitable discharge, release, or defense
of a surety or guarantor, or which might otherwise limit recourse against the
Guarantor, including any discharge, release, defense, or limitation arising out
of any laws of the United States of America or any state thereof or any other
Governmental Authority having authority thereover which would exempt, modify,
or delay the due or punctual payment and performance of the obligations of the
Guarantor hereunder (it being agreed that the obligations of the Guarantor
hereunder shall not be discharged except by payment or performance).  No failure or delay in exercising any right
under this Guaranty shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right of any Guaranteed Party under this
Guaranty or the Guaranteed Documents.

 

(c)           Guarantee of Payment and
Performance.  This Guaranty is a
guarantee of payment and performance and not merely of collection, and the
Guarantor waives any right to require that any action against the Borrower or
any other Person or any collateral or security be taken or exhausted before
action is taken against the Guarantor. 
No Guaranteed Party shall be required (1) to file suit or to
proceed to obtain or assert a claim against the Borrower for the Obligations, (2) to
make any effort at collection of the Obligations from the Borrower, (3) to
foreclose against or seek to realize upon any present or future security for the
Obligations, (4) to file suit or to proceed to obtain or assert a claim
for personal judgment against any other Person liable for the Obligations, 

 

3

 

or to make any effort at collecting the Obligations from any such other
Person, or to exercise or assert any other right or remedy to which any
Guaranteed Party is or becomes entitled in connection with the Obligations or
any security or other guarantee therefor, or (5) to assert or to file any
claim against the assets of the Borrower or any other guarantor or any other
Person liable for the Obligations, or any part thereof, either before or as a
condition to enforcing the Guarantor’s liability under this Guaranty or to
require the Guarantor to pay or perform the Obligations at any time thereafter.

 

(d)           Waiver.  The
Guarantor hereby waives diligence, presentment, demand, protest, and notice of
any kind whatsoever with respect to this Guaranty or the Obligations, including
(1) notice of acceptance of this Guaranty, notice of nonpayment or
nonperformance of any of the Obligations, and notice of an Event of Default or
Potential Default; (2) any requirement to exhaust any remedies exercisable
upon a default under any Guaranteed Document or other agreement; (3) any notice
of any sale, transfer, or other disposition of any right or title to or
interest in any of the Collateral; and (4) any other circumstance
whatsoever which might otherwise constitute a legal or equitable discharge,
release, or defense of a guarantor or surety or which might otherwise limit
recourse against the Guarantor.

 

(e)           Termination. 
The Guarantor’s obligations under this § 1 shall terminate (subject
to reinstatement under § 3 hereof) when the Obligations have been
irrevocably paid and performed in full.

 

2.             Rights Limited to Guaranteed
Parties.  This Guaranty shall not
create any right in any Person except the Guaranteed Parties (and their
permitted successors and assigns), and shall not be construed in any respect to
be a contract in whole or in part for the benefit of any other Person.

 

3.             Bankruptcy, etc.  If at any time all or any part of any
payment or performance theretofore applied to any of the Obligations is or must
be rescinded or returned for any reason whatsoever (including the bankruptcy,
insolvency, or reorganization of the Borrower), such Obligations shall, for
purposes of this Guaranty, to the extent rescinded or returned, be deemed to
have continued in existence, notwithstanding such application by any Guaranteed
Party, and this Guaranty shall continue to be effective or be reinstated, as
the case may be, as to such Obligations all as though such application by any
Guaranteed Party had not been made.  If
an event permitting the declaration of default under a Guaranteed Document exists
at any time, and such declaration of default is prevented by the pendency
against Borrower or any other Person of a case or proceeding under a bankruptcy
or insolvency law, then for purposes of this Guaranty and the Guarantor’s
obligations hereunder, such Guaranteed Document shall be deemed to have been
declared in default with the same effect 

 

4

 

as if such Guaranteed Document had been enforceable in accordance with
the terms thereof, and the Guarantor shall forthwith pay the amounts due
hereunder as specified by any Guaranteed Party, any interest thereon, and any
other amounts guaranteed hereunder, without further notice or demand.

 

4.             Subrogation, Etc.. The Guarantor hereby
irrevocably and unconditionally waives any and all rights it may have or
obtain, by reason of the performance of the terms and provisions of this
Guaranty, to be subrogated to the rights and privileges of any Guaranteed Party
against any collateral security or guarantee or right of offset held by any
Guaranteed Party for the payment of the Obligations pursuant to the Guaranteed
Documents or otherwise, except as provided in this § 4. If the Guarantor
makes a payment to a Guaranteed Party under this Guaranty, the Guarantor shall
be subrogated to that Guaranteed Party’s claims against the Borrower or any
other Person relating to that payment. 
Any such subrogation right and any contractual, common law, statutory,
or other rights of reimbursement, contribution, exoneration, or indemnification
(or any similar rights) from or against the Borrower which may arise in
connection with this Guaranty shall be subject and subordinate to the
Guaranteed Parties’ rights under the Guaranteed Documents until all of the
Obligations that are due and payable have been paid in full, and until such
time, the Guarantor agrees not to claim or enforce any such right in whole or
in part against the Borrower.  No payment
or performance hereunder by the Guarantor shall give rise to any claim of the
Guarantor against any of the Guaranteed Parties; provided,
that this sentence shall not prevent the Guarantor from being subrogated to any
claim available to the Borrower.

 

5.             Amendments and Other Actions.  Any Guaranteed Party may, in its discretion,
and without affecting the Guarantor’s absolute and unconditional liability
under this Guaranty, agree to amendments, modifications, or supplements to the
Loan Agreement, the Payment and Indemnity Agreement, the Engine Mortgage, the
Subordinated Engine Mortgage, the Spare Parts Mortgage, the Subordinated Spare
Parts Mortgage and/or the other Guaranteed Documents, or any other agreement,
give or withhold consents, waivers, or approvals, and exercise or refrain from
exercising rights under the Loan Agreement, the Payment and Indemnity
Agreement, the Engine Mortgage, the Subordinated Engine Mortgage, the Spare
Parts Mortgage, the Subordinated Spare Parts Mortgage, the other Guaranteed
Documents, or any other agreement.

 

6.             Assignment. 
Any Guaranteed Party may at any time sell, assign, transfer, or
otherwise dispose of its interest in all or any part of this Guaranty, the Loan
Agreement, the Payment and Indemnity Agreement, the Engine Mortgage, the
Subordinated Engine Mortgage, the Spare Parts Mortgage, the Subordinated Spare
Parts Mortgage, the other Guaranteed Documents, or any 

 

5

 

other agreement and in the property and interests subject thereto and
hereto, subject to any limitations and conditions thereon in any such
Guaranteed Document or other agreement. 
To the extent of the interest acquired by it, any purchaser, assignee,
transferee, or other party so acquiring any Guaranteed Party’s interest shall
have the same rights as such assigning Guaranteed Party hereby and shall be
deemed and declared a “Guaranteed Party” hereunder.  The Guarantor shall not assign any of its
rights or obligations hereunder, including any claim arising by subrogation.

 

7.             Written Changes Only.  No amendment, waiver, or consent under
the terms of this Guaranty shall be effective unless evidenced by an instrument
in writing signed by the Guarantor and each Guaranteed Party, other than the
Non-Party Indemnitees.

 

8.             Payments.  All
payments by the Guarantor hereunder shall be made in the United States in U.S.
dollars and in immediately available funds, and otherwise as provided in the
Guaranteed Documents pursuant to which the relevant Obligations are
created.  All payments hereunder shall be
made free and clear of, and without deduction or withholding for or on account
of, any Taxes, to the extent that any such Taxes would reduce the amount that
the Guaranteed Party receiving the payment otherwise would have received had
the Borrower made such payment.  If any
Taxes must be deducted or withheld from any payment hereunder, the Guarantor
shall increase the amount paid so that the Guaranteed Party receiving the
payment receives the full amount of the payment provided for in this Guaranty
on an after-tax basis.

 

9.             Representations, Warranties,
and Covenants.  The Guarantor
hereby represents, warrants, and covenants to the Guaranteed Parties as
follows:

 

(a)           Organization.  The Guarantor is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware,
is a U.S. Citizen, and has the power and authority to carry on its business as
now conducted, to own or to hold under lease the properties it holds itself out
as owning or leasing, and to enter into and perform its obligations under this
Guaranty. The Guarantor is duly licensed or qualified to do business as a
foreign corporation in good standing in each jurisdiction where the failure to
be so qualified or in good standing would have a materially adverse effect on
its business or financial condition or would impair its ability to perform its
obligations under this Guaranty.

 

(b)           Authorization; Compliance.  The Guarantor has the power and authority to
issue this Guaranty. This Guaranty has been duly authorized by all necessary
action on the Guarantor’s part, and does not require any approval or 

 

6

 

other action of the shareholders of the Guarantor or approval or
consent of any trustee or holders of any indebtedness or obligations of the
Guarantor or of any other Person, except such as have been obtained, and the
Guarantor has duly executed and delivered this Guaranty.  The Guarantor’s execution, delivery, and
performance of this Guaranty are not inconsistent with the Guarantor’s
certificate of incorporation or bylaws, do not contravene any Applicable Law
applicable to or binding on the Guarantor, and do not contravene, result in any
breach of, or constitute any default or result in the creation of any Lien
under, any indenture, mortgage, security agreement, deed of trust, or other
agreement or instrument to which the Guarantor is a party or by which the
Guarantor or its properties are bound.

 

(c)           Approvals. 
Neither the Guarantor’s execution and delivery of this Guaranty, nor the
Guarantor’s consummation of any of the transactions contemplated hereby,
requires the consent or approval of, giving of notice (other than subsequent
reporting requirements) to, registration with, or taking of any other action in
respect of, any Governmental Authority, except any which are in full force and
effect.

 

(d)           Validity of Guaranty. This Guaranty
has been duly entered into, executed, and delivered and constitutes a legal,
valid, and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms subject to applicable bankruptcy, insolvency,
reorganization, moratorium on other similar laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The Guarantor’s obligations
under this Guaranty rank, and until discharged in full will continue to rank,
in right of payment and security, equally and ratably in all respects with all
the Guarantor’s present and future unsecured and unsubordinated indebtedness
for borrowed money.

 

(e)           Litigation. 
There are no pending or, to the Guarantor’s knowledge, threatened
actions, suits, or proceedings before any court or Governmental Authority,
arbitrator, or administrative agency that may be expected to have a materially
adverse effect on the Guarantor’s financial condition or ability to perform its
obligations under this Guaranty, except as set forth in the SEC Reports or Schedule 3.1(e) to
the Loan Agreement.

 

(f)            Borrower’s Representations and
Warranties.
The Borrower’s representations and warranties contained in Article 3 of
the Loan Agreement are true and correct as of the date hereof.

 

(g)           Tax Assessments.  The Guarantor does not know of any proposed
tax assessment against it and, in the Guarantor’s opinion, all the Guarantor’s
tax liabilities are adequately provided for.

 

7

 

(h)           Annual Reporting.  The Guarantor shall furnish to the Guaranteed
Parties (other than the Non-Party Indemnitees) during the Term of the Lease:

 

(aa)         within
120 days after the end of each fiscal year of the Guarantor, a copy of the Form 10-K
(excluding exhibits) filed by the Guarantor with the SEC for such fiscal year
(or in lieu of such copy, an e-mail notice that such report has been filed with
the SEC and providing a web site address (other than the SEC’s website) at
which such report may be accessed, provided that such e-mail notice will
satisfy this requirement only if such report is in fact accessible at such web
site address), or, if no such Form 10-K was so filed, its audited consolidated
balance sheet and related statements of operations, stockholders’ equity and
cash flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by
the Guarantor’s independent public accountants of recognized national standing
to the effect that such consolidated financial statements present fairly in all
material respects the consolidated financial condition and results of
operations of the Guarantor on a consolidated basis in accordance with GAAP;

 

(bb)         within
60 days after the end of each of the first three fiscal quarters of each fiscal
year of the Guarantor, a copy of the Form 10-Q (excluding exhibits) filed
by the Guarantor with the SEC for such quarterly period (or in lieu of such
copy, an e-mail notice that such report has been filed with the SEC and
providing a web site address (other than the SEC’s website) at which such
report may be accessed, provided that such e-mail notice will satisfy this
requirement only if such report is in fact accessible at such web site
address), or if no such Form 10-Q was so filed, its consolidated balance
sheet and related statements of operations and cash flows as of the end of and
for such fiscal quarter (in the case of the statement of operations) and the
then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year,
prepared in accordance with GAAP, subject to normal year-end audit adjustments
and the absence of footnotes; and

 

(cc)         promptly,
such other financial data or information regarding the Guarantor as any
Guaranteed Party (other than the Non-Party Indemnitees) from time to time
reasonably requests.

 

(i)            ERISA.  The
Guarantor has met its minimum funding requirements under ERISA with respect to
all of Guarantor’s employee benefit plans covered by the minimum funding
requirements of ERISA, and has not incurred any material liability to the
Pension Benefit Guaranty Corporation (or any entity succeeding to any or all of
said Corporation’s functions under ERISA) under 

 

8

 

ERISA in connection with any such plan. 
None of the employee benefit plans maintained by the Guarantor is
subject to Title IV of ERISA.

 

(j)            No Sovereign Immunity. The Guarantor is not entitled to (or has waived) sovereign
immunity under the laws of any jurisdiction.

 

10.          Covenants of the Guarantor.

 

(a)           Corporate
Existence; Merger, Sale, etc.  The Guarantor will do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its
corporate existence, provided, that
nothing in this § 10(a) shall prevent the Guarantor from merging
into, consolidating with, or selling all or substantially all of its assets to
any Person in compliance with § 10(b) hereof, and (ii) its
qualifications to do business in such jurisdictions as may be necessary for it
to carry out the transactions contemplated by this Guaranty.

 

(b)           Merger, Sale, etc.  The Guarantor will not consolidate with or
merge with or into any other Person or convey, transfer or lease all or
substantially all of its assets as an entirety to any Person unless:

 

(aa)         the
Person formed by such consolidation or into which the Guarantor is merged or
the Person which acquires by conveyance, transfer or lease substantially all of
the assets of the Guarantor as an entirety (the “Successor”) shall execute and
deliver to the Guaranteed Parties a duly authorized, valid, binding and
enforceable agreement in form and substance reasonably satisfactory to the
Guaranteed Parties containing an assumption by the Successor of the due and
punctual performance and observance of each covenant and condition of the
Transaction Documents to be performed or observed by the Guarantor;

 

(bb)         no
Event of Default shall have occurred and be continuing at the time of the
proposed transaction; no Potential Default or Event of Default shall arise upon
giving effect to such transaction; such transaction shall not materially impair
the ability of the Successor to perform its obligations under this Guaranty and
the other Guaranteed Documents to which the Guarantor is a party; and this
Guaranty shall remain in full force and effect (unless the Guarantor has merged
with the Borrower) in respect of the Borrower’s obligations under the
Guaranteed Documents;

 

(cc)         the
tangible net worth (determined in accordance with GAAP) of the Successor, after
giving effect to such transaction, shall not be less than the greater of (i) the
lesser of (x) the tangible net worth of the Guarantor immediately prior to such
transaction and (y) the tangible net worth of the Guarantor as of December 31,
2001, and (ii) [***]% of the tangible net worth of the Guarantor
immediately before completion of such transaction; provided, that if the
Guarantor owns more than 50% of the 

 

9

 

capital stock of Borrower immediately before such transaction, the net
worth test contained in this § 10(b)(cc) shall not prevent the Guarantor
from completing such transaction with Borrower; and

 

(dd)         promptly
after the consummation of such transaction, the Successor shall deliver to the
Guaranteed Parties an Officer’s Certificate of the Successor certifying
compliance with the conditions of this § 10(b) and an opinion of
counsel reasonably acceptable to the Guaranteed Parties and in form and
substance reasonably satisfactory to the Guaranteed Parties, (i) stating
that the agreements entered into to effect such consolidation, merger, sale,
conveyance, transfer, or lease and such assumption agreements have been duly
authorized, executed, and delivered by the Successor and that they (and this
Guaranty so assumed) constitute legal, valid, and binding obligations of the
Successor, enforceable in accordance with their terms (in the case of this
Guaranty, to the same extent as this Guaranty was enforceable against the
Guarantor immediately prior to such transaction), (ii) stating that all
conditions precedent that are legal in nature provided for in this Guaranty and
the Guaranteed Documents and relating to such transaction have been fulfilled,
and (iii) containing such other matters as the Guaranteed Parties
reasonably request.

 

Upon any such merger or consolidation or conveyance, sale, transfer or
lease of all or substantially all of the assets of the Guarantor as an entirety
in accordance with this § 10(b),
the Successor shall succeed to, shall be substituted for, and may exercise
every right and power of the Guarantor under this Guaranty, with the same
effect as if the Successor had been named as the Guarantor herein.  No such merger or consolidation or
conveyance, sale, transfer, or lease of all or substantially all the Guarantor’s
assets as an entirety shall have the effect of releasing the Guarantor (or any
Successor) from its liability under this Guaranty.  The Guarantor shall pay all reasonable
out-of-pocket expenses of the Guaranteed Parties in respect of such transfer.

 

11.          Consent to Jurisdiction.  The Guarantor irrevocably agrees that any
legal action or proceeding brought against the Guarantor with respect to this
Guaranty may be brought and determined in the Supreme Court of the State of New
York, New York County, or in the United States District Court for the Southern
District of New York, and the Guarantor hereby irrevocably accepts with regard
to any such action or proceeding, for itself and in respect of its properties,
generally and unconditionally, the nonexclusive jurisdiction of those courts.
The Guarantor hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense or counterclaim, or otherwise, in any such action or
proceeding, any claim that it is not personally subject to the jurisdiction of
the foregoing courts, that it or its property is exempt or immune from
jurisdiction of any court or from any legal process (whether through service of
notice, attachment prior to judgment, attachment in aid of execution, or
otherwise), and, to the extent permitted by law, that the suit, action, or
proceeding is brought in 

 

10

 

an inconvenient forum, that the venue of the suit, action, or
proceeding is improper, or that this Guaranty or the subject matter hereof may
not be enforced in or by such courts, and further irrevocably waives, to the
extent permitted by law, the benefit of any defense that would hinder or delay
the levy, execution, or collection of any amount to which any Guaranteed Party
is entitled pursuant to a final judgment of any court having jurisdiction (provided, that this sentence shall not waive any requirement
of service of process).  Nothing herein
shall affect any Guaranteed Party’s right to commence legal proceedings or
otherwise proceed against the Guarantor in any other jurisdiction in which the
Guarantor shall be subject to suit.

 

The Guarantor consents to service of process to its address as set
forth in § 13.

 

THE GUARANTOR AND EACH OF THE GUARANTEED
PARTIES IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS GUARANTY OR THE OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

 

12.          Integration; Successors and
Assigns .  This Guaranty
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the Guarantor and the Guaranteed
Parties, with respect to the subject matter hereof.  This Guaranty shall bind the Guarantor’s
successors and permitted assigns, and shall benefit, and be enforceable by, the
Guaranteed Parties and their successors and permitted assigns.  In addition, this Guaranty shall bind and
inure to the benefit of and be enforceable by any other Person who becomes a
Beneficiary (as defined in the Indemnity Agreement) in accordance with the
Indemnity Agreement.

 

13.          Notices.  All
requests, demands, notices, and other communications hereunder shall be in
writing (including telecopies), shall be in English, shall be effective on
delivery, and shall be addressed as follows (or to such other address as any
such person shall designate by notice to each other such person):

 

if to the Guarantor:

 

FLYi, Inc.

45200 Business Court, Suite 100

Dulles, VA 20166

Attention:  General Counsel

Fax:         (703) 650-6294

Tel:         (703) 650-6006

 

11

 

if to any Guaranteed Party:

 

to its address set forth in the Loan Agreement or the Payment and
Indemnity Agreement, as the case may be.

 

14.          Governing Law. 
This Guaranty is delivered in, and shall in all respects be governed
by and construed in accordance with the laws of, the state of New York, U.S.A.

 

15.          Costs and Expenses.  The Guarantor agrees to pay to any
Guaranteed Party any and all expenses (including legal fees and expenses)
incurred by such Guaranteed Party in enforcing this Guaranty, together with any
expenses (including legal fees) incurred on account of the Guarantor’s
bankruptcy or insolvency.

 

16.          Performance. 
The Guarantor’s performance of any or all of the Obligations shall,
for all purposes of the Guaranteed Documents, constitute performance by the
Borrower of such Obligations.

 

12

 

IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
date and year first above written.

 

 

	
   

  	
  FLYI, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
								

 

 

Execution Version

 

Schedule I

to Guaranty

 

Guaranteed Parties

 

General Electric Capital Corporation, in its individual capacity as
Lender and Beneficiary and in its capacity as Administrative Agent and as
Collateral Agent

 

Windy City Holdings,Inc., as Beneficiary

 

AFS Investments XI, Inc., as Beneficiary

 

AFS Investments XLI LLC, as Beneficiary

 

AFS Investments XLII LLC, as Beneficiary

 

Each of the other Indemnitees (the “Non-Party Indemnitees”)

 

 

 

 

ENGINE MORTGAGE AND SECURITY AGREEMENT

 

Dated as of February 18, 2005

 

between

 

INDEPENDENCE AIR, INC.

 

and

 

GENERAL ELECTRIC CAPITAL CORPORATION, 

 

as Secured Party

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1.  DEFINITIONS

  	
   

  
	
   

  	
  Section
  1.01.  Certain Definitions

  	
   

  
	
   

  	
  Section
  1.02.  Certain Rules of Construction

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2.  SECURITY

  	
   

  
	
   

  	
  Section
  2.01.  Grant of Security Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3.  COVENANTS OF THE
  COMPANY

  	
   

  
	
   

  	
  Section
  3.01.  Liens

  	
   

  
	
   

  	
  Section
  3.02.  Possession, Operation and Use, Maintenance and Registration

  	
   

  
	
   

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

  	
   

  
	
   

  	
  Section
  3.04.  Event of Loss and Release of Engines

  	
   

  
	
   

  	
  Section
  3.05.  Insurance

  	
   

  
	
   

  	
  Section
  3.06.  Filings

  	
   

  
	
   

  	
  Section
  3.07.  [Intentionally Left Blank]

  	
   

  
	
   

  	
  Section
  3.08.  Notice of Change of the Company’s Location

  	
   

  
	
   

  	
  Section
  3.09.  Inspection

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4.  REMEDIES OF THE SECURED
  PARTY UPON AN EVENT OF DEFAULT

  	
   

  
	
   

  	
  Section
  4.01.  Remedies with Respect to Collateral

  	
   

  
	
   

  	
  Section
  4.02.  Remedies Cumulative

  	
   

  
	
   

  	
  Section
  4.03.  Discontinuance of Proceedings

  	
   

  
	
   

  	
  Section
  4.04.  Allocation of Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5.   INTENTIONALLY LEFT
  BLANK

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6.  SECURITY FUNDS

  	
   

  
	
   

  	
  Section
  6.01.  Investment of Security Funds

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7.  MISCELLANEOUS

  	
   

  
	
   

  	
  Section
  7.01.  Termination of Mortgage

  	
   

  
	
   

  	
  Section
  7.02.  Alterations to Mortgage

  	
   

  
	
   

  	
  Section
  7.03.  No Legal Title to Collateral

  	
   

  
	
   

  	
  Section
  7.04.  Sale of the Engines by Secured Party Is Binding

  	
   

  
	
   

  	
  Section
  7.05.  Benefit of Mortgage

  	
   

  
	
   

  	
  Section
  7.06.  Section 1110 of the Bankruptcy Code

  	
   

  
	
   

  	
  Section
  7.07.  Notices

  	
   

  
	
   

  	
  Section
  7.08.  Severability

  	
   

  
	
   

  	
  Section
  7.09.  Separate Counterparts

  	
   

  
	
   

  	
  Section
  7.10.  Successors and Assigns

  	
   

  
	
   

  	
  Section
  7.11.  Headings

  	
   

  

 

i

 

	
   

  	
  Section
  7.12.  Governing Law

  	
   

  
	
   

  	
   

  
	
  APPENDIX A 

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  APPENDIX B 

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
  Mortgage Supplement

  	
   

  
				

 

ii

 

ENGINE MORTGAGE AND SECURITY AGREEMENT

 

This ENGINE MORTGAGE AND
SECURITY AGREEMENT, dated as of February 18, 2005 (the “Mortgage”)
between INDEPENDENCE AIR, INC., a California corporation (the “Company”),
and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as agent for
the Lenders (as defined herein) (in such capacity, the “Secured Party”).

 

WITNESSETH :

 

WHEREAS, the Lenders have
agreed, pursuant and subject to the terms and conditions of the Loan Agreement,
to make the Loans to the Company secured by, among other things, a Lien on the
Collateral; and

 

WHEREAS, the Company
desires by this Mortgage, among other things, to grant to the Secured Party for
the benefit of the Lenders a first priority perfected Lien on the Collateral in
accordance with the terms hereof, as security for the Obligations; and

 

WHEREAS, all things
necessary to make this Mortgage a legal, valid and binding obligation of the
Company and the Secured Party, for the uses and purposes herein set forth, in
accordance with its terms, have been done and performed and have occurred;

 

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 1.01.          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.

 

Section 1.02.          Certain
Rules of Construction.  The defined
terms and the other provisions of this Mortgage shall be construed in
accordance with the rules of construction set forth under the heading “General
Provisions” in Appendix A hereto.

 

ARTICLE 2.

 

SECURITY

 

Section 2.01.          Grant
of Security Interest.  In order to
secure (i) the prompt payment when due of the Obligations and (ii) the
performance and observance by the Company of all agreements, covenants and
provisions contained herein and in the other Transaction

 

 

Documents
to the extent same relate to the Obligations 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, the Company has
granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged
and confirmed and does hereby grant, bargain, sell, assign, transfer, convey,
mortgage, pledge and confirm unto the Secured Party, its successors and
assigns, for the security and benefit of the Lenders, a first priority security
interest in, and mortgage lien on, all 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
Engines, each of which Engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower (as more particularly described in each Mortgage
Supplement executed and delivered in connection herewith), as the same is now
and will hereafter be constituted, whether now owned or hereafter acquired, and
whether or not any such Engine from time to time is installed on an airframe,
together with (a) all Parts of whatever nature, which are from time to time
included within the definition of “Engines”, whether now owned or hereafter
acquired, including all substitutions, renewals and replacements of and
additions, improvements, accessions and accumulations to the Engines, (b) all
Engine Documents, and (c) the Engine Containers;

 

(b)           all
warranty rights with respect to the Engines or any Part thereof that the
Company may have, to the extent that such warranty rights are assignable (the “Warranties”)
(it being understood that the Company has no obligation to obtain an assignment
or consent or to take any further action with respect to the security interest
granted pursuant to this clause (other than to include such Collateral in any
UCC financing statements and continuation statements) notwithstanding any
obligation of the Company in any Transaction Document (including the last
paragraph of this Section 2.01) to execute and deliver further instruments
and documents or provide other further assurances, except that, if an Event of
Default shall have occurred and be continuing, the Company will take reasonable
action requested by the Secured Party for the assignment of material Warranties
with respect to an Engine to any person acquiring such Engine pursuant to
Article 4); in each case together with all rights, powers, privileges,
options and other benefits of the Company thereunder with respect to the
Engines, including, without limitation, the right to make all waivers and
agreements, to give and receive all notices and other instruments or
communications, to take such action upon the occurrence of a default
thereunder, including the commencement, conduct and consummation of legal,
administrative or other proceedings, as shall be permitted thereby or by law,
and to do any and all other things which the Company is or may be entitled to
do thereunder;

 

(c)           each
assigned Lease (to the extent assigned under any Lease assignment), and
including, without limitation, all rents or other payments of any kind made
under such assigned Lease, all collateral security or credit support with
respect to such assigned Lease (in the nature of a guarantee, letter of credit,
credit insurance, Lien on or security interest in any property or otherwise)
for the obligations of the lessee thereunder (if any), and all rights of the
Company to execute any election or option or to

 

2

 

give any notice, consent, waiver, or approval under or
with respect to any thereof or to accept any surrender of any Engine or any
part thereof as well as any rights, powers or remedies on the part of the
Company, whether arising under such assigned Lease or by statute or at law or
in equity, or otherwise, arising out of any default under such assigned Lease
(it being understood that, so long as no Event of Default shall have occurred
and be continuing, the Company shall retain all rights as lessor under such
Lease, including to receive all such payments thereunder, to hold, dispose of,
or relinquish any such collateral or credit support and to take or refrain from
taking all actions thereunder) (to the extent assigned under such Lease
assignment);

 

(d)           all
proceeds with respect to the requisition of title to the Engines or any part
thereof, and all insurance proceeds with respect to the Engines or any part
thereof, but excluding any insurance maintained by the Company and not required
under Section 3.05; and

 

(e)           all
proceeds of the foregoing;

 

PROVIDED, HOWEVER, that
notwithstanding any of the foregoing provisions of this Section 2.01, 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 Secured Party, to quiet enjoyment
of the Engines and other Collateral (excluding, however, any Collateral that is
to be placed in the possession of the Secured Party pursuant to the terms
hereof), and peaceably and quietly, without hindrance or molestation, to
possess, use, retain and control the Engines and other Collateral (excluding,
however, any Collateral that is to be placed in the possession of the Secured Party
pursuant to the terms hereof), and (ii) the Company shall have the right, to
the exclusion of the Secured Party, with respect to the Warranties, to exercise
in the Company’s name all rights and powers as the beneficiary of the
Warranties and to retain any recovery or benefit resulting from the enforcement
of any warranty or indemnity under the Warranties;

 

TO HAVE AND TO HOLD the
Collateral unto the Secured Party, its successors and assigns, upon the terms
herein set forth, for the benefit, security and protection of the Secured
Party, 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
shall remain liable under any assigned Lease and the Warranties to perform all
of the obligations assumed by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and the Secured Party shall have
no obligation or liability under any assigned Lease and the Warranties by
reason of or arising out of the assignment hereunder, nor shall the Secured
Party be required or obligated in any manner to perform or fulfill any
obligations of the Company under any assigned Lease and the Warranties, or,
except as herein expressly provided, to make any payment, or to make any
inquiry as to the nature or sufficiency of any payment received by it, or
present or file any claim, or take any action to collect or enforce the payment
of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

 

3

 

The Company does hereby
irrevocably constitute and appoint the Secured Party 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 Secured Party may deem to be necessary or advisable to collect such
property which constitutes Collateral; provided that the Secured Party shall
not exercise any such rights except upon the occurrence and during the
continuance of an Event of Default. 
Without limiting the provisions of the foregoing, during the continuance
of any Event of Default, but subject to the terms hereof and any mandatory
requirements of applicable Law, the Secured Party shall have the right under
such power of attorney in its discretion to file any claim or to take any other
action or proceedings, either in its own name or in the name of the Company or
otherwise, that the Secured Party may reasonably deem necessary or appropriate
to protect and preserve the right, title and interest of the Secured Party in
and to the security intended to be afforded hereby.  The Company hereby agrees that promptly on
receipt thereof, except as otherwise contemplated by the Transaction Documents,
it will transfer to the Secured Party any and all moneys from time to time
received by the Company constituting part of the Collateral, for distribution
by the Secured Party pursuant to this Mortgage.

 

The Company does hereby
warrant and represent that it has not sold or assigned, and hereby covenants
that it will not sell or assign, so long as this Mortgage shall remain in
effect and the Lien hereof shall not have been released pursuant to the
provisions hereof, any of its estate, right, title or interest hereby assigned,
to any Person other than the Secured Party, except as expressly permitted
herein, in any other Transaction Document, or in the Subordinated Engine
Mortgage.

 

The Company agrees that
at any time and from time to time, upon the written request of the Secured
Party, 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 Secured Party may reasonably deem necessary to perfect and protect the
priority of the security interests and assignments created hereby and to obtain
the full benefits of the security interest granted hereunder and of the rights
and powers herein granted.

 

ARTICLE 3.

 

COVENANTS
OF THE COMPANY

 

Section 3.01.          Liens.  The Company will not directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to the
Company’s interest in the Collateral, except:

 

(a)           the
Lien of this Mortgage and the Subordinated Engine Mortgage;

 

(b)           the
rights of others under agreements or arrangements to the extent permitted by
Sections 3.02 and 3.03 hereof;

 

4

 

(c)           Liens
for Taxes of the Company (or any Lessee) and its U.S. Federal tax law
consolidated group either not yet overdue or being contested in good faith by
appropriate proceedings so long as such Liens and such proceedings do not
involve any material risk of the sale, forfeiture or loss (including loss of
use) of any Engine or any interest therein or any discernible risk of criminal
liability or any material risk of civil penalty against any Secured Party or
impair the Lien of this Mortgage;

 

(d)           materialmen’s,
mechanic’s, workmen’s, repairmen’s, employees’ or other like Liens arising in
the ordinary course of business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing
obligations that are not overdue or are being contested in good faith by
appropriate proceedings so long as such Liens and such proceedings do not
involve any material risk of civil penalty or any discernible risk of criminal
liability against any Secured Party or any material risk of the sale,
forfeiture or loss of any Engine or adversely affect the Lien of this Mortgage;

 

(e)           Liens
arising out of any judgment or award against the Company (or against any
Lessee), so long as such judgment or award shall, within thirty (30) days after
the entry thereof, have been discharged or vacated, or execution thereof stayed
pending appeal or shall have been discharged, vacated or reversed within thirty
(30) days after the expiration of such stay and so long as during any such
30-day period there is not, or any such judgment or award does not involve, any
material risk of the sale, forfeiture or loss (including loss of use) of any
Engine, or any interest therein or any discernible risk of criminal liability
or any material risk of civil penalty against any Secured Party or impair the
Lien of this Mortgage;

 

(f)            salvage
or similar rights of insurers under policies of insurance maintained by the
Company pursuant to Section 3.05 hereof;

 

(g)           any
other Lien with respect to which the Company (or any Lessee) shall have
provided a bond, cash collateral or other security adequate in the reasonable
opinion of the Secured Party;

 

(h)           Liens
attributable to the Secured Party; and

 

(i)            Liens
approved in writing by the Secured Party.

 

Liens described in
clauses (a) through (i) above are referred to herein as “Permitted Liens.”  The Company shall promptly, at its own
expense, take such action as may be necessary to duly discharge (by bonding or otherwise)
any such Lien on the Collateral other than a Permitted Lien arising at any
time.

 

Section 3.02.          Possession,
Operation and Use, Maintenance and Registration.

 

(a)           Possession.  Except as expressly provided herein, the
Company shall not, without the prior written consent of the Secured Party,
sell, lease or otherwise in any manner deliver, transfer or relinquish
possession of any Engine; provided that if and for so long as all
approvals, consents or authorizations required in connection with any such
lease or such

 

5

 

delivery,
transfer or relinquishment of possession by the FAA (or, if at the time
thereof, the Engine is installed on an airframe registered with any non-U.S.
Governmental Authority, such other Governmental Authority) have been obtained
and remain in full force and effect, then the Company may, without the prior
written consent of the Secured Party:

 

(i)            so
long as no Event of Default shall have occurred and be continuing, subject or
permit any Lessee to subject any Engine to normal interchange, pooling or
borrowing, or similar arrangements with persons who are domiciled in the United
States, in each case for no more than ninety (90) days and customary in the
airline industry and entered into in writing by the Company (or any Lessee) in
the ordinary course of its business; provided that (A) no such agreement or
arrangement shall contemplate,
require or result in the transfer of title to such Engine, (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 comply with Section 3.04(a) hereof in respect
thereof and (C) the Company (or a Lessee) shall not relinquish possession of an
Engine pursuant to this clause (i) for a period longer than ninety (90)
consecutive days;

 

(ii)           deliver
or permit any Lessee to deliver possession of any Engine or any Part (A) to the
manufacturer thereof or to any FAA certified third-party maintenance provider
(or certified by a foreign authority so long as work performed on such Engine
or Part shall comply with Section 3.02(c)), for testing, service, repair,
maintenance or overhaul work on such Engine or Part or to the extent required
or permitted by the terms of Section 3.03(d) for alterations or modifications
in or additions to such Engine or Part or (B) to licensed or bonded common
carriers qualified in the shipping and transport of items such as such Engine
or Part for the purpose of transport to a Person referred to in the preceding
clause (A); provided that, if a Special Default or an Event of Default shall
have occurred and be continuing, then, prior to delivering (permitting delivery
of) possession of any Engine or Part to any Person described in clause (A), the
Company shall put into place such measures as are reasonably satisfactory to
the Secured Party to ensure that such Person shall not assert a Lien against
such Engine or Part and shall not have any other right of detention of such
Engine or Part;

 

(iii)          install
or permit any Lessee to install an Engine on an airframe owned by the Company
(or such Lessee) free and clear of all Liens, except: (A) those of the
type permitted under clauses (c), (d), (e) and (f) of Section 3.01
and those that apply only to the engines (other than Engines) and/or only to
parts, appliances, instruments, appurtenances, accessories, furnishings and
other equipment (other than Parts), and (B) the rights of third parties under
normal interchange, pooling or borrowing, or similar arrangements which would
be permitted under clause (i) above;

 

(iv)          install
or permit any Lessee to install an Engine on an airframe leased to the Company
(or such Lessee) or owned by the Company (or such Lessee) subject to a
mortgage, 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 subclauses (A) and (B)
of clause (iii) of this Section 3.02(a) and

 

6

 

(y)
the Company or Lessee, as the case may be, shall have received from the lessor,
mortgagee, secured party or conditional seller, in respect of such airframe, a
written agreement (which may be a copy of the lease, mortgage, security
agreement, conditional sale or other agreement covering such airframe), whereby
such Person agrees that neither such Person nor its successors or assigns will
acquire or claim any right, title or interest in, or Lien on, such Engine by
reason of such Engine being installed on such airframe at any time while such
Engine is subject to the Lien of this Mortgage;

 

(v)           so
long as no Event of Default shall have occurred and be continuing, install or
permit any Lessee to install an Engine on an airframe leased to the Company (or
such Lessee) or owned by the Company (or such Lessee) subject to a mortgage,
conditional sale or other security agreement under circumstances where neither
clause (iii) nor clause (iv) of this Section 3.02(a) is applicable; provided
that such Engine shall be deemed to have suffered an Event of Loss as of the
date of such installation and the Company shall (or shall cause such Lessee to)
comply with Section 3.04(a) hereof in respect thereof (it being understood that
until Section 3.04(a) has been fully complied with the Lien of this
Mortgage on any such Engine shall
continue in full force and effect);

 

(vi)          transfer
possession of any Engine to the U.S. Government pursuant to the Civil Reserve
Air Fleet Program or any similar program, so long as the Company shall promptly
notify the Secured Party thereof and, in the case of a transfer pursuant to the
Civil Reserve Air Fleet Program, provide the Secured Party with the name,
address and telephone number of the Contracting Office Representative for the
Air Mobility Command of the United States Air Force to whom notice must be
given pursuant to Section 4.01(a); or

 

(vii)         so
long as no Special Default or Event of Default shall have occurred and be
continuing, enter into a lease with the U.S. Government under which the lessee’s
obligations are guaranteed or supported by the full faith and credit of the
United States, but only if:

 

(A)          The
Company shall provide at least 15 days’ advance written notice to the Secured
Party; and

 

(B)           Any
such lease (i) shall include provisions for the maintenance, operation,
possession, and inspection of such Engine that are substantially the same as,
or (from a lessor’s perspective) more favorable than, the applicable provisions
of Sections 3.02(a), 3.02(b), 3.02(c), and 3.09, and (ii) shall
provide that the lessee thereunder may not further lease or transfer its
interests (except transfers of the type permitted in clauses (i) through
(vi), inclusive, of this Section 3.02(a)) in such Engine; or

 

(viii)        so
long as no Special Default or Event of Default shall have occurred and be
continuing, enter into any lease with respect to any Engine with any Permitted
Air Carrier, but only if:

 

7

 

(A)          The
Company shall provide at least 15 days’ advance written notice to the Secured
Party;

 

(B)           At
the time that the Company enters into such lease, such Permitted Air Carrier
shall not be insolvent or subject to any bankruptcy, insolvency, liquidation,
reorganization, dissolution or similar proceeding, shall not be seeking any
reorganization or any readjustment of its debts and shall not be, and shall not
have substantially all of its property, in the possession of any liquidator,
trustee, receiver or similar person;

 

(C)           Any
such lease (i) shall include provisions for the maintenance, operation,
possession, inspection and insurance of such Engine that are substantially the
same as, or (from a lessor’s perspective) more favorable than, the applicable
provisions of Sections 3.02(a), 3.02(b), 3.02(c), 3.05 and 3.09 and
(ii) shall provide that such Permitted Air Carrier may not further lease
or transfer its interests (except transfers of the type permitted in
clauses (i) through (vi), inclusive, of Section 3.02(a)) in such
Engine;

 

(D)          The
Company shall furnish to the Secured Party evidence reasonably satisfactory to
the Secured Party that the insurance required by Section 3.05 remains in
effect;

 

(E)           All
necessary action, if any, shall have been taken to continue in full force and
effect (i) the perfection of the Secured Party’s first-priority perfected
Lien on such Engine (subject to Permitted Liens) and (ii) the Secured
Party’s rights under this Mortgage;

 

(F)           All
necessary documents shall have been duly filed, registered or recorded in such
public offices as may be required fully to preserve the priority of the
interest of the Secured Party in such Engine;

 

(G)           Each
such lease shall be assigned by the Company to the Secured Party as security
for the performance of all of the Company’s obligations under this Mortgage
(with the Company retaining all rights of lessor thereunder, to the extent
consistent with this Section 3.02(a)(viii), if and for so long as there
shall not have occurred and be continuing a Special Default or an Event of
Default), with the express consent of such Permitted Air Carrier;

 

(H)          The
Company shall furnish to the Secured Party a written confirmation (which may be
contained in any relevant operative agreement) from the lessee and any owner,
lessor or mortgagee of any aircraft on which such Engine is installed by such
Lessee that each such party shall recognize the Company’s rights and interests
in, and the rights and interests of the Secured Party in the leased Engine and,
notwithstanding any contrary provisions of applicable Laws, its rights and
benefits under which are hereby waived to the extent in conflict with this
provision, no such party shall claim, as against the Company or the Secured
Party, any right, title or interest in such Engine as a

 

8

 

result of such
Engine being subject to such lease or installed on any aircraft as a result of
such lease; 

 

(I)            In
connection with a lease to a Permitted Air Carrier which is not a U.S. Air
Carrier, all necessary governmental approvals, if any, required for such Engine
to be imported to, and exported from (upon repossession thereof by the Secured
Party or other termination or expiration of such lease), the applicable
jurisdiction shall have been obtained prior to commencement of any such lease,
and any foreign exchange permits necessary to allow all rent and other payments
provided for under such lease shall be in full force and effect; and the
Company shall have provided to the Secured Party a power-of-attorney,
reasonably satisfactory in form and substance to the Secured Party and, to the
extent permitted by applicable Law, valid and enforceable in the applicable
jurisdiction, permitting the Secured Party to exercise all rights of the
Company under such lease in such jurisdiction, upon the occurrence and
continuation of an Event of Default;

 

(J)            In
connection with a lease to a Permitted Air Carrier which is not a U.S. Air
Carrier, the Company shall have furnished the Secured Party a favorable opinion
of counsel, reasonably satisfactory to the Secured Party, in the country of
domicile of such Permitted Air Carrier, in form and substance reasonably
satisfactory to the Secured Party, that, subject to customary exceptions and
qualifications: (i) the terms of such lease and this Mortgage are the
legal, valid and binding obligations of the parties thereto enforceable under
the Laws of such jurisdiction, (ii) it is not necessary for the Secured
Party or any of the Lenders to register or qualify to do business in such
jurisdiction, if not already so registered or qualified, as a result, in whole
or in part, of the proposed lease, (iii) the Secured Party’s Lien in
respect of such Engine will be recognized in such jurisdiction and the Secured
Party shall have a first priority perfected security interest (subject to
Permitted Liens) in the Engines subject to such Lease under the Laws of such
jurisdiction, (iv) the Laws of such jurisdiction of domicile require fair
compensation by the government of such jurisdiction, payable in a currency
freely convertible into Dollars, for the loss of use of or title to such Engine
in the event of the requisition by such government of such use or title (unless
the Company shall provide insurance in the amounts required with respect to
hull insurance under Section 3.05 covering the requisition of use of or
title to such Engine by the government of such jurisdiction so long as such
Engine is subject to such lease) and (v) the agreement of such Permitted
Air Carrier that its rights under the lease are subject and subordinate to all
the terms of this Mortgage is enforceable against such Permitted Air Carrier
under applicable Law and the Secured Party shall be able to repossess such
Engine, and return it to the United States, without undue expense, penalty or
delay, upon the occurrence and continuation of an Event of Default;

 

(K)          At
any one time, not more than two of the Engines are subject to any Lease; and

 

9

 

(L)           The
Company shall reimburse the reasonable out-of-pocket fees and expenses,
including, without limitation, reasonable fees and disbursements of counsel,
incurred by the Secured Party in connection with any such lease.

 

Notwithstanding anything
to the contrary in this Section 3.02(a), the rights of any Lessee or other
transferee who receives possession of an Engine by reason of a transfer
permitted by this Section 3.02(a) (other than the transfer of an Engine which
is deemed an Event of Loss) shall be subject and subordinate to, and any lease
permitted by this Section 3.02(a) shall include a provision that makes it
expressly subject and subordinate to, all the terms of this Mortgage and to the
Lien of this Mortgage, including, without limitation, (i) the Secured
Party’s rights to foreclosure and possession pursuant to Section 4.01,
(ii) the Secured Party’s right to terminate and avoid such lease,
delivery, transfer or relinquishment of possession upon the occurrence and
continuation of an Event of Default and (iii) the right to require such
person to forthwith deliver such Engine subject to such transfer upon the
occurrence and continuation of an Event of Default.  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 Engines.  No pooling
arrangement, lease or other relinquishment of possession of any Engine or
Engine Documents shall in any way discharge or diminish any of the Company’s
obligations to the Secured Party hereunder or constitute a waiver of the
Secured Party’s rights or remedies hereunder. 
Except as otherwise provided herein and without in any way relieving the
Company from its primary obligation for the performance of its obligations
under this Mortgage, the Company may in its sole discretion permit a Lessee to
exercise any or all rights which the Company would be entitled to exercise
under Article III, and may cause a Lessee to perform any or all of the Company’s
obligations under Article III (provided that a Lessee may not lease or
otherwise in any manner deliver, transfer or relinquish possession of an Engine
except as expressly permitted by this Mortgage), and the Secured Party agrees
to accept actual and full performance thereof by a Lessee in lieu of
performance by the Company.  Any Wet
Lease shall not constitute a delivery, transfer or relinquishment of possession
for purposes of Section 3.02(a) and shall not be prohibited by the terms
hereof.  Any event that constitutes or
would, with the passage of time, constitute an Event of Loss under
paragraph (c), (d) or (e) of the definition of such term (as set forth in
Appendix A) shall not be deemed to violate the provisions of this Section 3.02.

 

(b)           Operation
and Use.  The Company shall not, and
shall not allow any other person to, operate, use, maintain, service, repair or
overhaul the Engines (i) in violation of any Law binding on or applicable to
the Company or to any Engine, or any of the Engine Documents, or to the
operation, use, maintenance, service, repair or overhaul of, or similar
dealings in, any Engine, or (ii) in violation of any airworthiness certificate,
license or registration of any Governmental Authority relating to the Company
or to any Engine, except (1) immaterial or non-recurring violations with
respect to which corrective measures are taken promptly by the Company or a
Lessee, as the case may be, upon discovery thereof, and (2) to the extent
the Company or any Lessee is contesting the validity or application of any such
Law, rule, regulation, order, certificate, license or registration in good
faith in any reasonable manner which does not involve any material risk of the
sale, forfeiture or loss (including loss of use) of any Engine or any of the
Engine Documents or any interest therein or any discernible risk of criminal

 

10

 

liability
or any material risk of civil penalty against any Secured Party or impair the
lien of the Mortgage.  The Company agrees
not to operate, use or locate any Engine, or allow any Engine to be operated,
used or located (A) in any area excluded from coverage by any insurance
required by the terms of Section 3.05, except in the case of a requisition
by the U.S. Government where the Company obtains an indemnity in lieu of such
insurance from the U.S. Government, or insurance from the U.S. Government,
covering such area, in accordance with Section 3.05(c) or (B) in any
recognized or threatened area of hostilities unless fully covered in accordance
with Appendix B by war-risk insurance as required by the terms of
Section 3.05 (including, without limitation, Section 3.05(c)), unless
the Engine is only temporarily located in such area as a result of an
emergency, equipment malfunction, navigational error, hijacking, weather
condition or other similar unforeseen circumstances, so long as the Company
diligently and in good faith proceeds to remove the Engine from such area
immediately.

 

(c)           Maintenance.  The Company, at its own cost and expense,
shall (or shall cause a Lessee to) maintain, service, repair and overhaul (or
cause to be maintained, serviced, repaired and overhauled) each Engine in
accordance with the requirements of an FAA or EASA approved maintenance program
so as to keep each Engine serviceable (except when undergoing overhaul) and in
as good operating condition as when initially subjected to the Lien hereof,
ordinary wear and tear excepted, and as may be necessary and required under
applicable Law, including the Federal Aviation Act, airworthiness directives,
and other applicable rules, regulations and requirements by any government
authority, 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 engines similar to such Engine operated by the
Company 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 engines similar to such Engine operated by the Lessee.  The Company agrees that it shall not enroll
the Engines (or any of them) in, or otherwise contract for the maintenance of
the Engines (or any of them) under, a “power-by-hour” or “maintenance cost per
hour” maintenance program, other than a Qualified PBH Program.  The Company further agrees that the Engines
will be maintained, used, serviced, repaired, overhauled or inspected in
compliance with applicable Laws with respect to the maintenance of the Engines
and in compliance with each applicable airworthiness certificate, license and
registration of any Governmental Authority, including the FAA, relating to any
Engine, other than minor or nonrecurring violations with respect to which
corrective measures are taken upon discovery thereof and except to the extent
the Company is contesting in good faith the validity or application of any such
Law or requirement relating to any such certificate, license or registration in
any reasonable manner which does not create a risk of sale, loss or forfeiture
of any Engine or the interest of the Secured Party therein, any material risk
of civil liability or any discernible risk of criminal liability.  If an Engine becomes unserviceable, the
Company shall commence the restoration process with respect to such Engine in
as prompt a manner as is consistent with normal U.S. airline practice, but in
no event later than fourteen (14) days after such Engine becomes unserviceable;
provided, however, that the Company shall not be responsible for any delays by
a third-party maintenance provider unless such delay is caused by a breach of
an obligation of the Company to the third-party maintenance provider.  If an Engine is not installed on an airframe
for a period in excess of thirty consecutive days and is not undergoing
maintenance during such period, the Company shall store such Engine in
accordance with the requirements of an FAA or EASA approved maintenance
program.  The Company agrees that the
Engines may only be serviced, overhauled and repaired in an FAA-approved

 

11

 

maintenance
facility.  The Company shall maintain or
cause to be maintained all Engine Documents in respect of each Engine in
accordance with the requirements of the Company’s (or if such Engine is subject
to a Lease, Lessee’s) FAA or EASA approved maintenance program.

 

(d)           Identification
of Secured Party’s Interest.  On or
reasonably promptly after the Closing Date, the Company agrees to affix and
maintain (or cause to be affixed and maintained), at its expense, on each
Engine a nameplate bearing the inscription:

 

“THIS ENGINE IS
OWNED BY INDEPENDENCE AIR, INC. AND IS SUBJECT TO A MORTGAGE AND SECURITY
AGREEMENT IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION, AS SECURED PARTY.”

 

(such nameplate to be
replaced, if necessary, with a nameplate reflecting the name of any
successor).  Such nameplate may be
removed temporarily in the course of maintenance of an Engine.

 

Section 3.03.          Replacement
and Pooling of Parts; Alterations, Modifications and Additions.

 

(a)           Replacement
of Parts.  So long as an Engine is
subject to the Lien of this Mortgage, the Company, at its own cost and expense,
will promptly replace or cause to be replaced all Parts which may from time to
time be incorporated or installed in or attached to any 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 3.03(d) hereof
or if an 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 3.03(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 3.03(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); provided, however, that the
foregoing restriction as to the value and utility of replacement parts shall
not be applicable with respect to an Engine during any period when such Engine
is enrolled in a Qualified PBH Program. 
No removal and replacement of Parts shall be permitted for the purpose
of diminishing the value, utility or remaining useful life of any Engine, and
neither the Company nor any Lessee shall be permitted to remove or replace any
Parts in any manner, for any reason, or on any basis that would discriminate
against the interests of the Secured Party in any Engine (as compared to other
aircraft engines of the same type owned, leased or operated by the Company or
any such Lessee, as the case may be).

 

12

 

(b)           Parts
Subject to Lien.  Except as otherwise
provided in Section 3.03(d) hereof, all Parts at any time removed from any
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 Engine and which meet the
requirements for replacement Parts specified in Section 3.03(a) hereof.  Immediately upon any replacement part
becoming incorporated or installed in or attached to an Engine as provided in
Section 3.03(a) hereof, without further act (subject only to Permitted Liens
and except in the case of replacement property temporarily installed on an
emergency basis), (i) the replaced Part shall thereupon be free and clear of
the Lien of this Mortgage and all rights of the Secured Party and shall no
longer be deemed a Part hereunder and (ii) the replacement part shall be
deemed a Part hereunder and such replacement Part shall become subject to the
Lien of this Mortgage and be deemed part of such Engine for all purposes hereof
to the same extent as the Parts originally incorporated or installed in or
attached to such Engine.

 

(c)           Pooling
of Parts.  Any Part removed from any
Engine as provided in Section 3.03(a) hereof may be subjected by the Company
(or any Lessee) to a normal pooling arrangement customary in the commercial
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 Engine in accordance with Sections 3.03(a) and 3.03(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 Engine in accordance with
Section 3.03(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, 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 Engine a further
replacement Part which is subject to the Lien of this Mortgage, free and clear
of all Liens except Permitted Liens.

 

(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 Engine as may be required to be made from
time to time to meet the applicable standards of the FAA or EASA, to the extent
made mandatory in respect of the Engines; provided, however, that
the Company in good faith and by appropriate proceedings may contest the
validity or application of any such mandatory modification in any reasonable
manner which does not involve any risk of loss, sale or forfeiture of any
Engine, or result in any risk of criminal liability or material civil liability
to any Secured Party or materially adversely affect the Secured Party’s interest
in such Engine.  In addition, the
Company, at its own expense, may, or may permit a Lessee at its own cost and
expense to, from time to time make or cause to be made such alterations and
modifications in and additions to any Engine (each an “Optional Modification”)
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
deems are obsolete or no longer suitable or appropriate for use in such Engine;
provided, however, that (i) no such Optional Modification shall
materially diminish the value, utility, or useful life of any Engine below its
value, utility or useful life immediately prior to such Optional

 

13

 

Modification
(assuming such Engine was in the condition required by the Mortgage immediately
prior to such Optional Modification) and (ii) such Optional Modification
shall have been approved by the applicable Engine Manufacturer or the FAA or
EASA, as applicable.  Except as otherwise
expressly provided herein, all Parts incorporated or installed in or attached
or added to any Engine as the result of any 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 Engine on the date
that the Company originally acquired such Engine 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 Engine pursuant to the terms of
Section 3.02(c) hereof, the terms of the insurance policies required to be
carried hereunder or any applicable law or the first sentence of this Section
3.03(d), and (iii) can be removed from such Engine without materially
diminishing the value, utility or remaining useful life which such Engine would
have had at the time of removal had such alteration, modification or addition
not occurred, assuming that such 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 the
Lien of this Mortgage and all rights of the Secured Party and such Part shall
no longer be deemed a Part hereunder.

 

Section 3.04.          Event
of Loss and Release of Engines.

 

(a)           Event
of Loss With Respect to an Engine. 
Upon the occurrence of an Event of Loss with respect to an Engine, the
Company shall promptly (and in any event within ten (10) Business Days after
such occurrence) give the Secured Party written notice of such Event of
Loss.  The Company shall, within thirty
(30) days after the occurrence of an Event of Loss with respect to an Engine
give the Secured Party 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 30-day period, the Company shall be deemed
to have elected the option in clause (i) of the next sentence).  The Company may elect either to
(i) repay a principal amount of the Series A Loan in an amount equal to
the Termination Value of such Engine, plus accrued interest thereon and any
other amounts in accordance with Section 1.1(d) of the Loan Agreement, on
or prior to the earlier of (A) the ninety-first (91st) day following the Event
of Loss and (B) the second Business Day following the receipt of insurance
proceeds with respect to such occurrence (but in any event not earlier than the
date of the Company’s election under the preceding sentence of this Section to
make payment under this clause (i)), or (ii) cause to be subjected to the Lien
of this Mortgage in replacement thereof not later than the ninetieth (90th) day
following the occurrence of such Event of Loss, a Replacement Engine, owned by
the Company and free and clear of all Liens except Permitted Liens; provided
that if the Company does not perform its obligation to effect such replacement
in accordance with this Section 3.04(a) during the period of time provided
herein, then the Company shall be deemed to have elected to make the payment
contemplated by clause (i) of this sentence within the period of time specified
therein.  The Company shall not be
entitled to elect the replacement option pursuant to clause (ii) of the
preceding sentence if, at the time the Company gives notice pursuant to the
preceding sentence there shall have occurred and be continuing a Special
Default or an Event of Default.  A
Replacement Engine for an Engine suffering an Event of Loss must meet the
following conditions:

 

14

 

(1)           be
the same model as the Engine to be replaced thereby, or an improved model,
manufactured by the same Engine Manufacturer;

 

(2)           have
a value, utility and remaining useful life, at least equal to, and is in at
least as good operating condition as, the Engine to be replaced thereby
(assuming that such Engine was of the value and utility and in the condition
and repair required by the terms hereof immediately prior to the occurrence of
the Event of Loss).  In determining the
value, utility and remaining useful life of a Replacement Engine, hours and
cycles since original delivery or last major overhaul, whichever is later,
shall be considered; and

 

(3)           have
been first placed in service after October 22, 1994, or, if different, meet
whatever conditions or requirements as may be required in order for the Secured
Party to be entitled to the benefits of Section 1110 of the Bankruptcy Code
with respect to such Replacement Engine in the event of a case under Chapter 11
of the Bankruptcy Code in which the Company is a debtor.

 

(b)           Effect
of Replacement or Repayment.  Upon
the Company having provided a Replacement Engine as provided for in Section
3.04(a) above, the Lien of this Mortgage shall attach to such Replacement
Engine as though no Event of Loss had occurred. 
Upon the Company having provided a Replacement Engine or having made a
repayment of the Loan pursuant to Section 3.04(a), so long as no Special
Default or Event of Default shall have occurred and be continuing, the Secured
Party shall, at the cost and expense of the Company, release from the Lien of
this Mortgage the Engine subject to such Event of Loss, and all Engine
Documents and Warranties relating to such Engine, by executing and delivering
to the Company such documents and instruments as the Company may reasonably
request to evidence such release and shall assign without recourse or
representation 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 other proceeds from any award in respect of condemnation,
confiscation, seizure or requisition, including all investment interest
thereon, to the extent not previously applied to the purchase price of the
Replacement Engine as provided in Sections 3.04(d)(i) and 3.05 hereof.

 

(c)           Conditions
to Engine Replacement.  The Company’s
right to make a replacement under Section 3.04(a) hereof shall be subject to
the fulfillment, at the Company’s cost and expense, of the following conditions
precedent:

 

(1)           On
the date that the Replacement Engine is made subject to the Lien of this
Mortgage (the “Replacement Closing Date”), no Special Default or Event
of Default shall have occurred and be continuing;

 

(2)           On
the Replacement Closing Date, an executed counterpart of each of the following
shall have been delivered to the Secured Party, in each case in form and
substance reasonably satisfactory to the Secured Party:

 

(A)          a
Mortgage Supplement covering the Replacement Engine (which shall be filed for
recordation pursuant to the Federal Aviation Act);

 

15

 

(B)           such
Uniform Commercial Code financing statements covering the Lien created by this
Mortgage as deemed necessary by the Secured Party to protect the security
interests of the Secured Party in the Replacement Engine;

 

(C)           a
certificate of a qualified aircraft engineer (who may be an employee of the
Company) or, if the Secured Party makes written request to the Company within
five Business Days after the Company shall have furnished to the Secured Party
the information referred to in Section 3.04(c)(5)(C), an independent
appraiser specified in such request (provided such appraiser is reasonably
acceptable to the Company), whose fees and expenses shall be paid by the
Secured Party if the appraiser’s report supports the certificate delivered by
such engineer and paid by the Company otherwise, the Company, certifying that
such Replacement Engine meets all of the requirements set forth in subclauses
(1), (2) and (3) of Section 3.04(a), as applicable; and

 

(D)          a
copy of a bill of sale, manufacturer’s invoice or other evidence of the Company’s
title with respect to the Replacement Engine.

 

(3)           The
Secured Party shall have received evidence satisfactory to the Secured Party as
to the due compliance with Section 3.05 hereof with respect to the Replacement
Engine;

 

(4)           On
the Replacement Closing Date, the Company shall be the owner of the Replacement
Engine and shall cause the Replacement Engine to be subjected to the Lien of
this Mortgage, free and clear of Liens (other than Permitted Liens);

 

(5)           The
Secured Party shall, at the expense of the Company, have received (A) an
opinion addressed to the Secured Party, reasonably satisfactory to the Secured
Party, to the effect that (i) the Replacement Engine has been made subject to
the Lien of this Mortgage, (ii) the Secured Party will be entitled to the
benefits of Section 1110 of the Bankruptcy Code (or any successor or
replacement statute) with respect to the Replacement Engine and (iii) to
such further effect as the Secured Party may reasonably request, (B) an opinion
of FAA counsel addressed to the Secured Party, reasonably satisfactory to the
Secured Party, respecting the due filing for recordation with the FAA of the
Mortgage Supplement with respect to such Replacement Engine, the perfection and
priority of the Lien of this Mortgage thereon and as to such other matters
concerning the Federal Aviation Act as the Secured Party may reasonably request
and (C) at least six Business Days before the Replacement Closing Date the
information specified in Section 4.1(e) of the Loan Agreement with respect
to the Replacement Engine as of a date within 30 days prior to the date such
information is furnished to the Secured Party; and

 

(6)           The
Company shall have taken such other actions and furnished such other
certificates and documents as the Secured Party shall have reasonably requested
in order that such Replacement Engine be duly and properly subjected to the
Lien of this Mortgage to the same extent as initially required under the
Transaction Documents with respect to the Engine so replaced.

 

16

 

(d)           Payments
Received on Account of an Event of Loss. 
As between the Secured Party 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 3.05 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 an Engine received at any
time by the Secured Party 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 an Engine and
such Engine is being replaced by the Company pursuant to Section 3.04(a)
hereof, such payments shall be paid over to, or retained by, the Secured Party
as security; and upon completion of such replacement (or upon the closing
therefor) and compliance with the provisions of Section 3.04(a) and (c) with
respect to the Event of Loss for which such payments are made, all such
payments, including all investment earnings thereon shall be promptly paid over
to, or retained by, the Company; and

 

(ii)           if
the Company has elected or is deemed to have elected to make the repayment
referred to in clause (i) of the third sentence of Section 3.04(a), such
payments shall be applied as follows:

 

first,
if the sum described in such clause (i) has not then been paid in full by
the Company, such payments shall be deposited with the Secured Party as cash
collateral up to the amount required to be paid under such clause (i), and the
Secured Party shall apply such
deposit to payment under clause (i) on such date in compliance with
clause (i) as the Company shall
specify to the Secured Party or, if no such date has been specified, on the
last date available for repayment in compliance with such clause (i); and

 

second,
the balance, if any, shall be paid to, or retained by, the Company.

 

(e)           Requisition
of Use.  In the event of a
requisition for use by a Governmental Authority of an Engine not constituting
an Event of Loss, any payments received by the Secured Party or the Company (or
the Lessee of such Engine) from such government with respect to such
requisition shall be paid to or retained by the Company (or such Lessee, as the
case may be).

 

(f)            Application
of Payments During Existence of Event of Default.  Any amount referred to in this Section 3.04
or Section 3.05 which is payable to or retainable by 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 a Special Default or an Event of Default
shall have occurred and be continuing, but shall be held by or paid over to the
Secured Party as security for the Obligations. 
Upon the earlier of (a) such time as there shall not be continuing any
such Special Default or Event of Default or (b) the termination of this
Mortgage in accordance with Section 7.01, such amount, and any interest
realized thereon pursuant to Section 6.01 hereof, shall be paid over to the
Company (or such Lessee) to the extent not previously applied in accordance
with the preceding sentence, provided that if at the time of the
termination of this Mortgage a “Special Default” or “Subordinated Event of
Default” (as such terms are defined in the Subordinated Engine Mortgage) has
occurred and is continuing, then such amount, and any

 

17

 

such
interest, not so previously applied shall be held or paid over to the
Subordinated Secured Party as security under the Subordinated Engine Mortgage.

 

(g)           [Intentionally
Left Blank]

 

(h)           Permitted
Dispositions.  Upon not less than
fifteen (15) days’ prior written notice from the Company to the Secured Party,
provided no Special Default or Event of Default shall have occurred and be
continuing, the Secured Party shall release from the Lien of this Mortgage
pursuant to Section 3.04(b) one or more Engines specified in such notice (the “Disposed
Engines”) that the Company is disposing, or intends to dispose, in the
ordinary course of its business (a “Permitted Disposition”) (treating
such Disposed Engines, for the purposes of Sections 3.04(a) and (b) as Engines
having suffered an Event of Loss) if, but only if, each of the following
conditions is satisfied:

 

(1)           the
Company delivers to the Secured Party an Officer’s Certificate certifying that
(i) each of the Disposed Engines is surplus to the operational needs of the
Company and is not required to meet the fleet planning needs of the Company in
the ordinary course of its business, and (ii) the Company has not, and does not
intend to, acquire by any means whatsoever any replacement for any of the
Disposed Engines as support for the Company’s operations (it being expressly
understood that any purchase, lease or sublease of one or more other engines
and any other arrangement permitting the Company access to or use of one or
more other engines would all be considered a replacement of the Disposed
Engines within the meaning of this Section 3.04(h)(1)(ii)); and

 

(2)           the
Secured Party shall have received, in immediately available funds, a prepayment
of the principal amount of the Series A Loan (plus accrued interest thereon and
any other amounts payable therewith in accordance with Section 1.1(d) of
the Loan Agreement) in an amount equal to the Termination Value of the Disposed
Engine.

 

Section 3.05.          Insurance.

 

(a)           Obligation
to Insure.  The Company shall comply
with, or cause to be complied with, each of the provisions of Appendix B,
which provisions are hereby incorporated by this reference as if set forth in
full herein.

 

(b)           Insurance
for Own Account.  Nothing in Section
3.05 shall limit or prohibit (a) the Company from maintaining the policies of
insurance required under Appendix B with higher limits than those specified in
Appendix B, or (b) the Secured Party, the Subordinated Secured Party or
any Lender from obtaining insurance for its own account (and any proceeds
payable under such separate insurance shall be payable as provided in the
policy relating thereto); provided, however, that no insurance may be obtained
or maintained that would increase the cost of, limit or otherwise adversely
affect the coverage of any insurance required to be obtained or maintained by
the Company pursuant to this Section 3.05 and Appendix B.

 

(c)           Indemnification
by Government in Lieu of Insurance. 
Secured Party agrees to accept, in lieu of insurance against any risk
with respect to any Aircraft or

 

18

 

Engine described in Appendix B, indemnification from,
or insurance provided by, the U.S. Government, or upon the written consent of
Secured Party, other Governmental Authority, against such risk in an amount
that, when added to the amount of insurance, if any, against such risk that the
Company (or any Lessee) may continue to maintain, in accordance with this
Section 3.05, shall be at least equal to the amount of insurance against
such risk otherwise required by this Section 3.05.

 

(d)           Application
of Insurance Proceeds.  All proceeds
of insurance required to be maintained by the Company, in accordance with
Section 3.05 and Section B of Appendix B, in respect of any
property damage or loss, whether or not constituting an Event of Loss, shall be
adjusted, paid and applied in the manner specified in Section B of Appendix B; provided
that if at the time of the termination of this Mortgage a “Special Default” or “Subordinated
Event of Default” (as such terms are defined in the Subordinated Engine
Mortgage) has occurred and is continuing, then such proceeds, and any such
interest, not so previously applied shall be held or paid over to the
Subordinated Secured Party as security under the Subordinated Spare Parts
Mortgage and/or Subordinated Engine Mortgage in such proportion as the
Subordinated Secured Party may elect.

 

Section 3.06.          Filings.  The Company, at its sole cost and expense,
shall promptly take, or cause to be taken, such action with respect to the
recording, filing, re-recording and re-filing of this Mortgage, each Mortgage
Supplement and any financing statements or other instruments as are necessary,
or reasonably requested by the Secured Party and appropriate, to maintain, so
long as this Mortgage is in effect, the perfection and priority of the Lien
created by this Mortgage, or will furnish to the Secured Party 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 Secured Party
to take such action.  In addition, the
Company will pay any and all recording, stamp and other similar taxes payable
in connection with the execution, delivery, recording, filing, re-recording and
refiling of this Mortgage or any such financing statements or other
instruments.

 

Section 3.07.          [Intentionally
Left Blank].  

 

Section 3.08.          Notice
of Change of the Company’s Location. 
The Company will notify the Secured Party of any change in the location
of the Company (within the meaning of Section 9-307 of the Uniform
Commercial Code) promptly after making such change and in any event within a
reasonable period of time prior to the date by which it is necessary under
applicable Law to make any filing in order to prevent the lapse of perfection
(absent refiling) of financing statements filed under or with respect to this
Mortgage.

 

Section 3.09.          Inspection.

 

(a)           At
all reasonable times, the Secured Party and its authorized representatives (the
“Inspecting Parties”) may inspect the Engines (including without
limitation, the Engine Documents and Engine Containers) and the Company shall
cooperate, and shall cause any Lessee to cooperate, with the Inspecting Parties
in connection with any such inspection

 

19

 

(including,
without limitation, permitting any such Inspecting Party to make copies of  Engine Documents) at its own cost and
expense.

 

(b)           Any
inspection of the Engines hereunder shall be limited to a visual inspection and
shall not include the disassembling, or opening of any components, of any
Engine, and no such inspection shall interfere with the Company’s or any Lessee’s
maintenance or use of any Engine.

 

(c)           With
respect to such rights of inspection, the Secured Party shall not:

 

(i)            have
any duty or liability to make, or any duty or liability arising out of, any
such visit, inspection or survey or failure to make any such visit, inspection
or survey; or

 

(ii)           so
long as no Event of Default has occurred and is continuing, exercise its
inspection rights hereunder other than on reasonable notice.

 

(d)           Each
person inspecting the Engines hereunder shall bear its own expenses in
connection with any such inspection, unless such person discovers, in
connection therewith, any material failure by the Company or any Lessee to
comply with the provisions of this Mortgage, in which case the Company shall
bear all such expenses that are reasonably incurred.

 

(e)           If
requested by the Secured Party, the Company shall provide, or shall cause any
Lessee to provide, to the Secured Party the date(s), if then scheduled, upon
which any Engine undergoes its next scheduled maintenance visit and next major
check and next off-the-wing maintenance, and shall advise the Secured Party of
the name and location of the relevant maintenance performer, if then selected,
and shall, if requested by the Secured Party in connection with a major check,
at least 5 days prior to commencement of such major check or maintenance, make
available for inspection by the Secured Party all relevant Engine Documents at
the Company’s records facility in the United States, or at such Lessee’s
records facility, or at the premises of the maintenance performer.

 

ARTICLE 4.

 

REMEDIES
OF THE SECURED PARTY UPON AN EVENT OF DEFAULT

 

Section 4.01.          Remedies
with Respect to Collateral.

 

(a)           Remedies
Available.  Upon the occurrence of
any Event of Default and at any time thereafter so long as the same shall be
continuing, the Secured Party may do one or more of the following; provided,
however, that during any period an Engine is subject to the Civil Reserve Air
Fleet Program in accordance with the provisions of Section 3.02(a) hereof and
in possession of the U.S. Government, the Secured Party shall not, on account
of any Event of Default, be entitled to exercise any of the following remedies
in such manner as to limit the Company’s control under this Mortgage of such
Engine, unless at least sixty (60) days’ (or such other period as may then be
applicable under the Civil Reserve Air Fleet Program) written notice

 

20

 

of
such Event of Default hereunder shall have been given by the Secured Party 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 by
Lessee) relating to such Engine:

 

(i)            cause
the Company, upon the written demand of the Secured Party, at the Company’s
expense, to deliver promptly, and the Company shall deliver promptly, all or
any of the Engines constituting the Collateral at such location designated by
the Secured Party within the continental United States of America, together in
each case with the Engine Documents for such Engine(s) as the Secured Party may
so demand, to the Secured Party or its order, or the Secured Party, at its
option, may enter upon the premises where all or any of such Engine(s) and/or
Engine Documents 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;

 

(ii)           sell
all or any part of the Collateral at public or private sale, whether or not the
Secured Party shall at the time have possession thereof, as the Secured Party
may determine, or lease or otherwise dispose of all or any part of the
Collateral as the Secured Party, 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;

 

(iii)          apply
any cash collateral then held as provided in Section 4.04 hereof; or

 

(iv)          exercise
any or all of the rights and powers and pursue any and all remedies of a
secured party under applicable Law.

 

Upon every such taking of
possession of Collateral under this Section 4.01, the Secured Party may, from
time to time, make all such expenditures for maintenance, insurance, repairs,
replacements, alterations, additions and improvements to and of the Collateral,
as it shall consider to be commercially reasonable.  In each such case, the Secured Party 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 Secured Party shall consider to be commercially
reasonable, 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 Secured Party may
determine; and the Secured Party 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 Secured Party under any provision of this Mortgage to collect and
receive all cash held by, or required to be deposited with, the Secured Party
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 Secured Party 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

 

21

 

and records of the
Company), and all other payments which the Secured Party may be required or
authorized to make under any provision of this Mortgage, as well as
compensation for the services of all Persons engaged by the Secured Party.  If the income and proceeds of the Collateral
shall not be sufficient to pay in full the Obligations, the Company shall be
liable for any deficiency.

 

In addition, the Company
shall be liable for all reasonable legal fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise of
the Secured Party’s remedies with respect thereto, including, without
limitation, all costs and expenses incurred in connection with the retaking or
return of any Engine in accordance with the terms hereof or under applicable
Law, which amounts shall, until paid, be secured by the Lien of this Mortgage.

 

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

 

The Company agrees that
if an Event of Default has occurred and is continuing, and only for so long as
the Secured Party is exercising its foreclosure rights with respect to the
Engines and requires use of an engine stand or container owned by the Company
(and not comprising a portion of the Collateral) for transporting an Engine,
the Company shall permit the Secured Party or its agents or representatives to
use such an engine stand or container suitable for use with such Engine,
available at the location of such Engine and which is not otherwise being used
by the Company, for the sole purpose of transporting such Engine.  The Secured Party shall return each such
engine stand or container to the location from which it was taken promptly
after it has transported such Engine using such engine stand or container.

 

(b)           Notice
of Sale.  The Secured Party shall
give the Company at least fifteen (15) days’ prior written notice of the date
fixed for any public sale of any Engine or of 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 a reasonable opportunity to bid.

 

Section 4.02.          Remedies
Cumulative.  Each and every right,
power and remedy herein specifically given to the Secured Party or otherwise in
this Mortgage shall be cumulative and shall be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and

 

22

 

as
often and in such order as may be deemed expedient by the Secured Party, and
the exercise or the beginning of the exercise of any power or remedy shall not
be construed to be a waiver of the right to exercise at the time or thereafter
any other right, power or remedy.  No
delay or omission by the Secured Party in the exercise of any right, remedy or
power or in the pursuance of any remedy shall impair any such right, power or
remedy or be construed to be a waiver of any default on the part of the Company
or to be an acquiescence therein.

 

Section 4.03.          Discontinuance
of Proceedings.  If the Secured Party
shall have proceeded to enforce any right, power or remedy under this Mortgage
by foreclosure, entry or otherwise, and such proceedings shall have been discontinued
or abandoned for any reason, then and in every such case the Company and the
Secured Party shall be restored to their former positions and rights hereunder
with respect to the property, subject to the Lien of this Mortgage, and all
rights, remedies and powers of the Secured Party shall continue, as if no such
proceedings had been undertaken (but otherwise without prejudice).

 

Section 4.04.          Allocation
of Payments.  Notwithstanding any
other provisions of the Loan Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Secured Party or any Lender on account of the Obligations shall
be paid over or delivered as follows:

 

FIRST, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation
reasonable attorneys’ fees and expenses actually incurred) of the Secured Party
in connection with enforcing the rights of the Secured Party under the
Transaction Documents;

 

SECOND, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees and expenses actually incurred) of each of the
Lenders in connection with enforcing its rights under the Transaction Documents
or otherwise with respect to the Obligations owing to such Lender;

 

THIRD, to all other
Obligations (other than as covered by Clause “FOURTH”, “FIFTH” and “SIXTH”
below) which shall have become due and payable under the Transaction Documents
or otherwise and not repaid pursuant to clauses “FIRST” through “SECOND” above;
and

 

FOURTH, to the payment of
all accrued interest on the Obligations;

 

FIFTH, to the payment of
LIBOR Breakage Costs, if any, due under the Loan Agreement in respect of the
Loans;

 

SIXTH, to the payment of
the outstanding principal amount of the Loans, allocated between payment of the
Series A Loan and the Series B Loan in such priority and proportion as the
Secured Party may from time to time elect;

 

SEVENTH, so long as
either the Lien of the Subordinated Engine Mortgage has not been discharged, or
the Lien of the Subordinated Spare Parts Mortgage has not been discharged, to
the Subordinated Secured Party to be held as security under the

 

23

 

Subordinated Engine
Mortgage and/or the Subordinated Spare Parts Mortgage in such proportion as the
Subordinated Secured Party may elect;

 

EIGHTH, to the payment of
the surplus, if any, to whoever may be lawfully entitled to receive such
surplus.

 

In carrying out the foregoing,
(i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category and (ii) if amounts available are insufficient to pay
all amounts due within any category, such available amounts shall be paid pro
rata to the parties entitled thereto based upon the amount due under such
category to each such party.

 

ARTICLE 5.

 

INTENTIONALLY
LEFT BLANK

 

ARTICLE 6.

 

SECURITY
FUNDS

 

Section 6.01.          Investment
of Security Funds.  Any monies paid
to or received by the Secured Party as cash collateral or 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 3.04(d),
3.04(f) and 3.05(d) hereof), but which the Secured Party 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
subject to the Lien of this Mortgage and be invested by the Secured Party at
the written authorization and direction of the Company (or, if an Event of
Default shall have occurred and be continuing, the Secured Party) from time to time
at the sole expense and risk of the Company in Permitted Investments.  All Permitted Investments held by the Secured
Party pursuant to this Section 6.01 shall either be (a) registered in the name
of, payable to the order of, or specially endorsed to, the Secured Party or (b)
held in an Eligible Account.  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 Secured Party
shall not be liable for any loss relating to a Permitted Investment made
pursuant to this Section 6.01.  The
Company will promptly pay to the Secured Party, 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).  Any amount paid under the preceding sentence
in respect of a net loss on investments shall be subject to the Lien of this
Mortgage and shall be held as Collateral for as long as the Permitted
Investments in respect of which it was paid are required to be held as
Collateral hereunder and shall be returned to the Company whenever such
Permitted Investments are required hereby to be returned to the Company.

 

24

 

ARTICLE 7.

 

MISCELLANEOUS

 

Section 7.01.          Termination
of Mortgage.  Upon (or at any time
after) payment in full of the unpaid principal of, and accrued interest on, the
Loans and all other Obligations then due and payable (and regardless of whether
any Default or Event of Default shall have occurred and be continuing), the
Secured Party shall, upon the written request of the Company execute and
deliver to, or as directed in writing by, the Company an appropriate instrument
(in due form for recording) releasing the Engines and the balance of the
Collateral from the Lien of this Mortgage and, in such event, this Mortgage
shall terminate and this Mortgage shall be of no further force or effect, provided
that the Secured Party shall have no obligation to release such Engines and
Collateral from the Lien of this Mortgage or otherwise terminate this Mortgage
prior to such payment in full.  Upon any
release of an Engine from the Lien of this Mortgage in accordance with the
terms of this Mortgage, the Parts, Engine Containers, Aircraft Documents and
other Collateral referred to in subsections (b), (c), (d) and (e) of
Section 2.01 relating to such Engine shall also be released.

 

Section 7.02.          Alterations
to Mortgage.  This Mortgage shall not
be varied except in accordance with the Loan Agreement.

 

Section 7.03.          No
Legal Title to Collateral.  Neither
the Secured Party nor any of the Lenders shall have legal title to any part of
the Collateral.  No transfer, by
operation of Law or otherwise, of a Note or any right, title and interest of
the Secured Party or any Lender in and to the Collateral or this Mortgage shall
operate to terminate this Mortgage or entitle any successor or transferee to an
accounting or to the transfer to it of legal title to any part of the
Collateral.

 

Section 7.04.          Sale
of the Engines by Secured Party Is Binding. 
Any sale or other conveyance of the Collateral, or any part thereof or
any interest therein by the Secured Party made pursuant to and in accordance
with the terms of this Mortgage shall bind the Secured Party and the Lenders,
and shall be effective to transfer or convey all right, title and interest of
the Secured Party, the Lenders and the Company, in and to such Collateral, or
such part thereof or 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 Secured Party.

 

Section 7.05.          Benefit
of Mortgage.  Nothing in this
Mortgage, whether express or implied, shall be construed to give to any Person
other than the Company, the Lenders and the Secured Party any legal or
equitable right, remedy or claim under or in respect of this Mortgage.

 

Section 7.06.          Section
1110 of the Bankruptcy Code.  It is
the intention of the parties hereto that the security interest created hereby
entitles the Secured Party on behalf of the Lenders to all of the benefits of
Section 1110 of Chapter 11 of the Bankruptcy Code in respect of the Engines and
Engine Documents in the event of the Company becomes a debtor under such
Chapter.

 

25

 

Section 7.07.          Notices.  Unless otherwise expressly specified or
permitted by the terms hereof, any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served or sent by telefacsimile, United States mail,
courier service or overnight delivery and shall be effective when received
addressed:

 

(i)            if
to the Company, at its office at

 

Independence Air, Inc.

Executive Offices 

 

45200 Business Court

Dulles, VA 20166

 

Attention:              General
Counsel

Telephone:            (703)
650-6006

Telecopy:              (703)
650-6294

Email:                      rick.kennedy@flyi.com

 

 (ii)          if
to the Secured Party, at its office at

 

c/o GE Capital Aviation
Services, Inc. 

201 High Ridge Road

Stamford, Connecticut 06927

Attention:              Customer
Services

Telephone:            (203)
357-3776

Telecopy:              (203) 357-3201

Email:                      nanotices@gecas.com

 

 (iii)         if
to any Lender, at its address for notices to it provided under the Loan
Agreement,

 

or, as to any
party, at such other address as such party shall from time to time designate by
written notice to the other parties in accordance with this Section 7.07.

 

Section 7.08.          Severability.  Should any one or more provisions of this
Mortgage be determined to be illegal or unenforceable by a court of any
jurisdiction, such provision shall be ineffective to the extent of such
illegality or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provisions in any
other jurisdiction.  The Company and the
Secured Party agree, as to such jurisdiction and to the extent permitted by
such jurisdiction’s Laws, to replace any provision of this Mortgage which is so
determined to be illegal or unenforceable by a valid provision which has as
nearly as possible the same effect; provided that such replacement provision
shall not expand the Company’s or the Secured Party’s obligations hereunder.

 

Section 7.09.          Separate
Counterparts.  This Mortgage may be
executed in any number of counterparts (and each of the parties hereto shall
not be required to execute the same

 

26

 

counterpart).  Each counterpart of this Mortgage executed by
a party hereto shall be an original counterpart of this Mortgage, and all of
such counterparts together shall constitute one instrument.

 

Section 7.10.          Successors
and Assigns.  All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Company and its successors and permitted assigns, and the Secured Party and
its successors and permitted assigns, all as herein provided.

 

Section 7.11.          Headings.  The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.

 

Section 7.12.          Governing
Law.  THIS MORTGAGE 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.  The provisions of Sections 9.11 and 9.12
of the Loan Agreement are incorporated herein by reference, mutatis mutandis.

 

[Remainder
of this page is blank.]

 

27

 

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

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GENERAL
  ELECTRIC CAPITAL

  CORPORATION, as agent for the Lenders, as

  Secured Party

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

28

 

APPENDIX A

 

DEFINITIONS RELATING TO THE

MORTGAGE AND SECURITY AGREEMENT

 

General Provisions

 

(a)           Unless otherwise
expressly provided, a reference to:

 

(i)            each
of “the Company,” “Secured Party” or any other person includes, without
prejudice to the provisions of any Transaction Document, any successor in
interest to it and any permitted transferee or permitted assignee of it;

 

(ii)           words
importing the plural include the singular and words importing the singular
include the plural;

 

(iii)          any
agreement, instrument or document, or any annex, schedule or exhibit thereto,
or any other part thereof, includes, without prejudice to the provisions of any
Transaction Document, that agreement, instrument or document, or annex,
schedule or exhibit, or part, respectively, as amended, modified or
supplemented from time to time in accordance with its terms and in accordance
with the Transaction Documents, and any agreement, instrument or document
entered into in substitution or replacement therefor;

 

(iv)          any
provision of any Law includes any such provision as amended, modified,
supplemented, substituted, reissued or reenacted prior to the Closing Date, and
thereafter from time to time;

 

(v)           the
words “Mortgage,” “this Mortgage,” “hereby,” “herein,” “hereto,” “hereof” and “hereunder”
and words of similar import when used in the Mortgage refer to the Mortgage as
a whole and not to any particular provision of the Mortgage;

 

(vi)          the
words “including,” “including, without limitation,” “including, but not limited
to,” and terms or phrases of similar import when used in the Mortgage, with
respect to any matter or thing, mean including, without limitation, such matter
or thing; and

 

(vii)         a
“Section,” an “Exhibit,” an “Appendix,” an “Annex” or a “Schedule” referred to
in the Mortgage, or in any annex thereto, is a reference to a section of, or an
exhibit, an appendix, an annex or a schedule to, the Mortgage or such annex,
respectively.

 

(b)           Each exhibit, appendix,
annex and schedule to the Mortgage is incorporated in, and shall be deemed to
be a part of, the Mortgage.

 

(c)           Headings used in the
Mortgage are for convenience only and shall not in any way affect the
construction of, or be taken into consideration in interpreting, the Mortgage.

 

A-1

 

(d)           The occurrence and
continuance of a Default, Special Default or Event of Default referred to in
Section 7.1 of the Loan Agreement shall not be deemed to prohibit the
Company from taking any action or exercising any right that is conditioned on
no Default, Special Default or Event of Default having occurred and be
continuing if such Default, Special Default or Event of Default consists of the
institution of reorganization proceedings with respect to the Company under
Chapter 11 of the Bankruptcy Code and the trustee or debtor-in-possession in
such proceedings shall have agreed to perform its obligations under the
Mortgage with the approval of the applicable court and thereafter shall have
continued to perform such obligations in accordance with Section 1110 of the
Bankruptcy Code.

 

Definitions

 

“Additional
Parts” has the meaning specified in Section 3.03(d) of the
Mortgage.

 

“Affiliate”
means, with respect to any person, any other person directly or indirectly
controlling, controlled by or under common control with such person.  For purposes of this definition, “control” means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise and “controlling,” “controlled by” and “under common control with” have
correlative meanings.

 

“Aircraft”
means an airframe on which an Engine is then installed.

 

“Bankruptcy
Code” means Title 11 of the United States Code.

 

“Business
Day” means any day except Saturday, Sunday and any day which
shall be in New York City or Dulles, Virginia a day on which banking
institutions are authorized or required by Law to close.

 

“Certificated
Air Carrier” means a Person holding an air 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.

 

“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.

 

“Closing
Date” means the date on which the Loans are made pursuant to
the Loan Agreement.

 

“Collateral”
has the meaning given such term in Section 2.01 of the Mortgage.

 

“Collateral
Agent Agreement” has the meaning given such term in the Loan
Agreement.

 

A-2

 

“Company”
means Independence Air, Inc., a California corporation.

 

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

 

“Designated
Date” has the meaning given such term in the Loan Agreement.

 

“Disposed
Engine” has the meaning set forth in Section 3.04(h).

 

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

 

“EASA” means the European Aviation Safety
Agency, and any agency or instrumentality succeeding to its functions.

 

“Eligible
Account” means an account established by and with an Eligible
Institution at the request of the Secured Party, which institution agrees, for
all purposes of the New York UCC including Article 8
thereof, that (a) such account shall be a “securities account” (as defined in
Section 8-501 of the New York UCC), (b) such
institution is a “securities intermediary” (as defined in Section 8-102(a)(14)
of the New York UCC), (c) all property (other than
cash) credited to such account shall be treated as a “financial asset” (as
defined in Section 8-102(9) of the New York UCC), (d)
the Secured Party shall be the “entitlement holder” (as defined in Section
8-102(7) of the New York UCC) in respect of such
account, (e) it will comply with all entitlement orders issued by the Secured
Party to the exclusion of the Company, (f) it will waive or subordinate in
favor of the Secured Party all claims (including without limitation, claims by
way of security interest, lien or right of set-off or right of recoupment), and (g) the “securities intermediary
jurisdiction” (under Section 8-110(e) of the New York UCC)
shall be the State of New York.

 

“Eligible
Institution” a depository institution organized under the
Laws of the United States of America or any of the states thereof or the
District of Columbia (or any U.S. branch of a foreign bank), which has a
long-term unsecured debt rating from Moody’s and Standard & Poor’s of at
least A3 or its equivalent.

 

“Engine”
means (a) each of the engines listed in Annex A to each Mortgage Supplement
executed and delivered by the Company pursuant to the Loan Agreement and (b)
any and all Parts incorporated or installed in or attached or appurtenant to
such engine, and any and all Parts removed from such engine, unless the Lien of
the Mortgage shall not apply to such Parts in accordance with Section 3.03 of
the Mortgage.  Upon substitution of a
Replacement Engine in accordance with Section 3.04 of this Mortgage, any such
Replacement Engine shall become subject to the Mortgage and shall be an “Engine”
for all purposes of this Mortgage and the Loan Agreement.  Upon substitution of a Replacement Engine in
accordance with Section 3.04 of the Mortgage, the Engine released pursuant to
such Section shall no longer be subject to the Mortgage, and such released
Engine shall cease to be an “Engine.” 
Each Engine shall be bare and shall not include QEC
or any other parts associated with any Aircraft.

 

“Engine
Containers” means each engine container identified by serial
number on Annex A to each Mortgage Supplement.

 

A-3

 

“Engine
Documents” means all technical data, manuals and log books,
and all inspection, modification and overhaul records and other service,
repair, maintenance and technical records that are required by the Company’s
(or, in the case of any Engine subject to a Lease, such Lessee’s) maintenance
program in accordance with the requirements of the FAA to be maintained with
respect to the Engines or Parts, and such term shall include all additions,
renewals, revisions and replacements of any such materials from time to time
made, or required to be made, in accordance with FAA regulations, and in each
case in whatever form and by whatever means or medium (including, without
limitation, microfiche, microfilm, paper or computer disk) such materials may
be maintained or retained by or on behalf of the Company (provided, that all
such materials shall be maintained in the English language).

 

“Event
of Default” has the meaning given such term in the Loan
Agreement.

 

“Event
of Loss” means, with respect to any Engine, any of the
following circumstances, conditions or events with respect to such Engine, for
any reason whatsoever:

 

(a)           the
destruction of such Engine, damage to such Engine beyond practical or economic
repair or rendition of such Engine permanently unfit for normal use by the
Company;

 

(b)           the
actual or constructive total loss of such Engine or any damage to such Engine,
or requisition of title or use of such Engine, which results in an insurance
settlement with respect to such Engine on the basis of a total loss or
constructive or compromised total loss;

 

(c)           any
theft, hijacking or disappearance of such Engine for a period of 90 consecutive
days or more;

 

(d)           any
seizure, condemnation, confiscation, or taking of, or requisition of title to,
such Engine by any Governmental Authority or purported Governmental Authority
(other than a requisition of use by the U.S. Government) for a period exceeding
90 consecutive days;

 

(e)           any
seizure, condemnation, confiscation, taking or requisition of use of such
Engine that continues until the earliest of (i) the
date upon which such Engine is modified, altered or adapted in such a manner as
would render conversion of such Engine for use in normal commercial passenger
service impractical or uneconomical, (ii) the date on which such Engine is
operated or located in any area excluded from coverage by any insurance policy
required to be maintained in respect of such Engine pursuant to the Mortgage
(unless an indemnity in lieu of insurance is provided to the Secured Party in
accordance with Section 3.05(c) of the Mortgage) or (iii) the date that is 90
days following the commencement of such loss of use (unless such loss of use
results from action by the U.S. Government, in which case this clause (iii)
shall not apply to such loss of use); and

 

(f)            as
a result of any Law, rule, regulation, order or other action by the FAA, the
use of such Engine in the normal course of the Company’s business of passenger
air transportation is prohibited for a period expiring on the date that is 90
days

 

A-4

 

following commencement of such prohibition, provided
that if the Company, prior to the expiration of such 90-day period, shall have
undertaken and shall be diligently carrying forward all steps which are
necessary or desirable to permit the normal use of such Engine by the Company,
then the date that is six (6) months following commencement of such
prohibition.

 

The date of such Event of
Loss shall be the date of such loss, damage, insurance settlement, seizure,
condemnation, confiscation, taking or requisition of title or use or
prohibition, except that, for purposes of clauses (c), (d), (e) and (f) above,
no Event of Loss shall be deemed to have occurred until the date of expiration
of the applicable period referred to therein.

 

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

 

“Federal
Aviation Act” means Part A of Subtitle VII of Title 49,
United States Code.

 

“Governmental
Authority” means (a) any federal, state, provincial or
similar government, and any body, board, department, commission, court,
tribunal, authority, agency or other instrumentality of any such government or
otherwise exercising any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other government entity
having jurisdiction over any matter contemplated by the Transaction Documents
or relating to the observance or performance of the obligations of any of the
parties to the Transaction Documents.

 

“Law”
means (a) any constitution, treaty, statute, law, decree, regulation,
order, rule or directive of any Governmental Authority, and (b) any
judicial or administrative interpretation or application of, or decision under,
any of the foregoing.

 

“Lease”
means any lease permitted by the terms of Section 3.02(a) of the Mortgage.

 

“Lender”
has the meaning given to that term in the Loan Agreement.

 

“Lessee”
means any lessee permitted by the terms of Section 3.02(a) of the Mortgage.

 

“Lien”
means any mortgage, pledge, lien, charge, encumbrance, lease, or security
interest affecting the title to or interest in property.

 

“Loans”
has the meaning given to that term in the Loan Agreement.

 

“Loan
Agreement” means the Loan Agreement dated as of February 17,
2005 among the Company, General Electric Capital Corporation, the Secured Party
and the Lenders from time to time party thereto.

 

“Maximum
Deductible Amount” has the meaning set forth in Schedule 3 to
the Loan Agreement.

 

A-5

 

“Minimum
Liability Amount”
has the meaning set forth in Schedule 3 to the Loan Agreement..

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“Mortgage”
means the Engine Mortgage and Security Agreement covering the Collateral dated
as of February 18, 2005, between the Company and the Secured Party.

 

“Mortgage
Supplement” means any supplement to the Mortgage from time to
time executed and delivered.

 

“New
York UCC”  means the Uniform Commercial Code as in effect
in the State of New York.

 

“Note”
has the meaning given to that term in the Loan Agreement.

 

“Obligations”
means the principal of and interest on the Loans, any LIBOR Breakage Costs (as
defined in the Loan Agreement), and all other obligations of every nature of
the Company from time to time owed to the Secured Party, the Lenders or any of
them under the Loan Agreement or any other Transaction Document.

 

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

 

“Parts”
means any and all appliances, parts, instruments, appurtenances, modules,
accessories, and other equipment of whatever nature, other than QEC, which may from time to time be incorporated or
installed in or attached to any Engine or removed therefrom
unless the Lien of the Mortgage shall not be applicable to such Parts in
accordance with Section 3.03 of the Mortgage.

 

“Permitted
Air Carrier” means (i) any U.S. Air
Carrier or (ii) any air carrier holding a valid air carrier operating
certificate issued pursuant to the applicable regulations of Transport Canada
Aviation (or any successor agency thereto).

 

“Permitted
Investments” means (i) securities
issued or directly and fully guaranteed by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof), the Federal Home
Loan Mortgage Corporation, the Student Loan Marketing Association and the
Federal National Mortgage Association, in all cases having a maturity of not
more than 90 days or, in the case of auction rate notes issued by any of the
foregoing, having an action reset interval of not more than 30 days; (ii)
certificates of deposit, bankers’ acceptances, repurchase agreements or time
deposits issued or accepted or guaranteed by 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 or AA
or better by Standard & Poor’s 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

 

A-6

 

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 A1 by Standard & Poor’s
or P1 by Moody’s and having a final maturity of 90 days or less from the date
of purchase thereof, or, in the case of auction rate notes issued by any of the
foregoing having an auction reset interval of not more than thirty (30) days;
provided that the aggregate amount at any one time 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
Liens” has them meaning given such term in Section 3.01 of
the Mortgage.

 

“Person”
has the meaning given to such term in the Loan Agreement.

 

“Qualified
PBH Program” means an engine maintenance arrangement with a third-party FAA
licensed maintenance and repair vendor that either (1) is subject to a
tri-party agreement among the vendor, the Company and the Secured Party that is
satisfactory in form and substance to the Secured Party in its sole discretion,
or (2) meets all of the following criteria: 
(a) a true and complete (except for the redaction of pricing
information) copy of the contract between the Company and such vendor shall
have been provided to the Secured Party and the Secured Party shall have
approved the requirements of such contract as to engine build standards to be
met by the vendor, which approval may be given or withheld in the Secured Party’s
sole discretion, (b) the Company and such vendor shall have jointly represented
to the Secured Party, in a written instrument acceptable to the Secured Party
in its sole discretion, that the copy of the contract between them provided to
the Secured Party is a true and complete copy of such contract, except for the
redaction of pricing information, (c) the Company and such vendor shall have
jointly covenanted and agreed for the benefit of the Secured Party and the
Lenders, in a written instrument acceptable to the Secured Party in its sole
discretion, that they will not amend any of the provisions of such contract
relating to engine build standard requirements without the Secured Party’s
prior written consent to such amendment; and (d) such vendor agrees, for the
benefit of the Secured Party and the Lenders and pursuant to documentation that
is acceptable to the Secured Party in its sole discretion, that it shall not
assert a Lien against any Engine.

 

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

 

“Replacement
Engine” means an engine substituted for an Engine pursuant to
Section 3.04 of the Mortgage.

 

“Secured
Party” means General Electric Capital Corporation, in its
capacity as Secured Party under this Mortgage.

 

“Series A
Loan” has the meaning set forth in the Loan Agreement.

 

“Series B
Loan” has the meaning set forth in the Loan Agreement.

 

“Spare
Parts Mortgage” has the meaning set forth in the Loan
Agreement.

 

A-7

 

“Special
Default” has the meaning given to that term in the Loan
Agreement.

 

“Standard
& Poor’s” means Standard & Poor’s Ratings Services.

 

 “Subordinated Engine Mortgage”
has the meaning given to that term in the Loan Agreement.

 

“Subordinated
Spare Parts Mortgage” has the meaning given to that term in
the Loan Agreement.

 

“Subordinated
Secured Party” means the Collateral Agent as defined in the
Collateral Agent Agreement.

 

“Taxes”
has the meaning given to that term in the Loan Agreement.

 

“Termination
Value” means, in the case of each Engine, the Termination
Value for such Engine (or the Engine that such Engine replaced) on Schedule 2
to the Loan Agreement.

 

“Threshold
Amount” has the
meaning set forth in Schedule 3 to the Loan Agreement.

 

 “Transaction Documents”
means the Loan Agreement, each Note, the Spare Parts Mortgage, this Mortgage
and each Mortgage Supplement.

 

“UCC” or “Uniform Commercial Code” means
the Uniform Commercial Code as in effect in any applicable 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.

 

“U.S.
Government” means the federal government of the United
States, or any instrumentality or agency thereof the obligations of which are
guaranteed by the full faith and credit of the federal government of the United
States.

 

“Warranties”“
has the meaning given to that term in Section 2.01(b) of the Mortgage.

 

“Wet
Lease” means any arrangement whereby the Company or a Lessee
agrees to furnish an Aircraft to a third party pursuant to which such Aircraft
(including any Engines attached thereto) shall at all times be in the
operational control of, and insured by, the Company or such Lessee, provided
that the Company’s obligations under this Mortgage shall continue in full force
and effect notwithstanding any such arrangement.

 

A-8

 

APPENDIX B

 

INSURANCE

 

Capitalized terms used but not defined herein shall
have the respective meanings set forth or incorporated by reference in Appendix
A to the Mortgage.

 

A.                    Bodily Injury Liability and Property Damage
Liability Insurance.

 

1.             Except
as provided in paragraph 2 of this Section A, the Company will at all
times carry and maintain or cause to be carried and maintained, at no expense
to the Secured Party or any of the Lenders, on a non-discriminatory basis,
comprehensive airline liability insurance, including passenger legal liability,
bodily injury liability, products liability, property damage liability and
contractual liability (exclusive of manufacturer’s product liability insurance)
with respect to the Aircraft and the Engines (a) in an amount per
occurrence not less than the greater of (x) the amount of comprehensive
airline legal liability insurance from time to time applicable to aircraft
owned or leased and operated by the Company of the same type and operating on
similar routes as the Aircraft and (y) the Minimum Liability Amount,
(b) of the type and covering the same risks as from time to time
applicable to aircraft operated by the Company (or any lessee to whom such
Engine is leased under and in accordance with Section 3.02(a) hereof, a “Permitted
Lessee”) of the same type which comprise the Company’s (or such Permitted
Lessee’s) fleet and (c) which is maintained in effect with insurers or reinsurers of recognized responsibility.  The Company shall maintain cargo liability
insurance in an amount not less than the amount of cargo liability insurance
maintained for other aircraft operated by the Company.  Such insurance shall in any event include
cover for war risks and allied perils liability insurance in accordance with
London form AVN52D as in effect on January 1, 2005 or its substantive
equivalent, or in the case that such coverage is maintained through the FAA,
Chapter 443 of Title 49 of the United States Code as in effect on January 1,
2005, and such war risks and allied perils liability insurance shall be for an amount
not less than the greater of (i) the Minimum
Liability Amount and (ii) the amount carried by the Company in respect of
similar aircraft owned or otherwise operated by the Company.

 

2.             During
any period that the Aircraft or an Engine is on the ground and not in
operation, the Company may carry or cause to be carried, in lieu of the
insurance required by paragraph 1 above, insurance otherwise conforming to
the provisions of said paragraph 1 except that (a) the amounts of
coverage shall not be required to exceed the amounts of bodily injury liability
and property damage liability insurance from time to time applicable, in the
case of the Aircraft, to aircraft owned or leased by the Company (or any
Permitted Lessee) of the same or similar type as the Aircraft which comprise
the Company’s (or such Permitted Lessee’s) fleet, or, in the case of an Engine,
to engines owned or operated by the Company (or such Permitted Lessee) of the
same type as such Engine, and in any such case which are on the ground and not
in operation and (b) the scope of the risks covered and the type of
insurance shall be consistent with industry practice for airlines operating
only similarly-sized equipment on similar routes and the same as from time to
time shall be applicable, in case of Aircraft, to aircraft owned or leased by
the Company (or any Permitted Lessee) of the same or similar type which
comprise the Company’s (or such Permitted Lessee’s) fleet, or in the case of an
Engine, to engines owned or operated by the Company (or such Permitted Lessee)
of the same type as such Engine, and in any case which are on the ground and
not in operation.

 

B-1

 

B.                    Insurance Against Loss or Damage to the Aircraft or
the Engines.

 

1.             Except
as provided in paragraph 2 of this Section B and subject to the
additional agreement between the Company and the Secured Party set forth in
Schedule 3 to the Loan Agreement, the Company shall at all times carry and
maintain or cause to be carried and maintained in effect with insurers or reinsurers of recognized responsibility (i) ”all risk” aircraft hull insurance covering the
Aircraft and the Engines, (ii) fire, transit and extended coverage of
Engines and Parts while removed from the Aircraft and not replaced by similar
components, and (iii) war risk and allied perils insurance, including
governmental confiscation and expropriation (other than by the government of
registry of the Aircraft) and hijacking insurance (collectively, “War Risk Insurance”); as contained in
London form LSW 555B or its substantive
equivalent; or in the case that such insurance is maintained through the FAA,
Chapter 443 of Title 49 of the United States Code as in effect on January 1,
2005; provided, further, that the foregoing insurance shall at all times while
the Engines are subject to this Mortgage be for an amount in the aggregate
applicable to all the Engines not less than the Termination Value of the
Engines, and that when any Engine is installed on an Aircraft, the agreed value
of that Aircraft under the relevant policy shall be automatically increased by
the amount of the Termination Value of such Engine.  

 

All losses
will be adjusted with the insurers by the Company (giving due regard to the
interest of the Additional Insureds).  However, in the event an Event of Default has
occurred and is continuing, all losses will be adjusted among the Company, the
insurers and the Secured Party.

 

As between the
Secured Party and the Company, the insurance payments for any property damage
loss to any Engine not constituting an Event of Loss with respect thereto shall
be paid, to the extent such proceeds are not paid by the insurer(s) directly to
the person effecting the repair, as follows: 
all payments in respect of losses less than or equal to the Threshold
Amount shall be paid to the Company (or any Permitted Lessee if directed by the
Company), and all payments with respect to losses greater than the Threshold
Amount shall be paid to the Secured Party, to be held as collateral security
for the Obligations, and applied to reimburse the Company for accomplishing
repairs and/or replacements as required, or to pay suppliers directly for such
repairs and/or replacements as directed by the Company (or any Permitted Lessee
if directed by the Company).  In the case
of any payment to the Secured Party (other than in respect of an Event of Loss
of an Engine), the Secured Party shall, upon receipt of evidence reasonably
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, and any interest or income earned
thereon, to the Company or its order.

 

2.             During
any period that an Aircraft or an Engine is on the ground and not in operation,
the Company may carry or cause to be carried, in lieu of the insurance required
by paragraph 1 above, insurance otherwise conforming with the provisions
of said paragraph 1 except that the scope of the risks and the type of insurance
shall be consistent with industry practice for airlines operating only
similar-sized equipment on similar routes the same as from time to time
applicable to aircraft and engines owned or leased and operated by the Company
(or any Permitted Lessee) of the same or similar type which comprise the
Company’s (or such Permitted Lessee’s) fleet similarly on the ground and not in
operation, provided that, the

 

B-2

 

Company shall
maintain or cause to be maintained insurance against risk of loss or damage to
each Engine in an amount at least equal to the Termination Value of such Engine
during such period that such Engine is on the ground and not in operation.

 

C.            Reports,
Etc.  The Company will furnish, or
cause to be furnished, to the Secured Party on or before the Closing Date and
annually on or before the renewal dates of the Company’s (or the Permitted
Lessee’s) relevant insurance policies required hereunder, a report, signed by
any reputable recognized independent firm of insurance brokers selected by the
Company, which brokers may be regularly retained by the Company or any
Permitted Lessee (the “Insurance Broker”),
describing in reasonable detail the hull and liability insurance then carried
and maintained with respect to the Aircraft and the Engines and stating the
opinion of such firm that, to its knowledge, such insurance complies with the
terms of this Appendix B.  Such
information shall remain confidential as provided in Section 9.9 of the
Loan Agreement. The Company will cause such Insurance Broker to agree to advise
the Secured Party in writing of any default in the payment of premium and of
any other act or omission on the part of the Company (or any Permitted Lessee)
of which it has actual knowledge and which will invalidate or render
unenforceable, in whole or in part, any insurance as required by the terms
hereof and to advise the Secured Party at least thirty (30) days (seven
(7) days in the case of War Risk Insurance and ten (10) days in the case
of nonpayment of premium) prior to the cancellation, lapse or material adverse
change of any insurance maintained pursuant to this Appendix B, provided that,
in respect of the War Risk Insurance, the Insurance Broker shall provide for
such shorter period as may be obtainable in the international insurance
market.  In the event that the Company
shall fail to maintain or cause to be maintained insurance as herein provided,
the Secured Party may, at its sole option, provide such insurance and, in such
event, the Company shall, upon demand, reimburse the Secured Party for the cost
thereof. 

 

D.            Deductibles.  The insurance required by Section B.1(i) hereof may be subject to a per occurrence
deductible.  With respect to the Aircraft
and the Engines when on-wing, such deductible shall be no greater than the
Maximum Deductible Amount for any one occurrence.  Said deductible shall not apply in the case
of a total loss of the Aircraft.

 

E.             Terms
of Insurance Policies.  Any policies
carried in accordance with Sections A and B hereof covering the Aircraft
and the Engines, and any policies taken out in substitution or replacement for
any such policies, as applicable, (1) shall name the Secured Party and the
Lenders (the “Additional Insureds”) as additional insureds, as their interests may appear, (2) in the
case of hull insurance, shall name the Secured Party as sole loss payee to the
extent provided in clause (12) below, (3) shall provide that if the
insurers cancel such insurance for any reason whatsoever, or the same is
allowed to lapse for nonpayment of premium or if any material change is made in
the insurance which adversely affects the interest of any Additional Insured,
such cancellation, lapse, or change shall not be effective as to the Additional
Insureds for thirty (30) days (or ten
(10) days in the case of nonpayment of premium) after issuance to (but, in
the case of War Risk Insurance, seven (7) days after sending to) the
Additional Insureds of written notice by such
insurers of such cancellation or change, provided, however, that
if, in respect of the War Risk Insurance, such policies shall provide for such
shorter period as may be available in the international insurance market,
(4) shall provide that in respect of the Additional Insureds’
respective interests in such policies the insurance shall not be invalidated by
any action or inaction of the Company (or any Permitted Lessee) and shall
insure the respective interests of the

 

B-3

 

Additional Insureds regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the Company
(or any Permitted Lessee), (5) shall be primary without any right of
contribution from any other insurance which is carried by any Additional
Insured, (6) shall expressly provide that all of the provisions thereof,
except the limits of liability, shall operate in the same manner as if a
separate policy covered each insured, (7) shall waive any right of
subrogation of the insurers or 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 any Additional Insured, (8) shall provide that
losses (other than for total loss of an Engine) shall be adjusted with the
Company (or, if an Event of Default or Special Default shall have occurred
which is continuing, with the Secured Party), (9) shall provide that the
Additional Insureds are not liable for any insurance
premiums, (10) shall be effective with respect to both domestic and international
operations, (11) shall provide that (i) except
as specified in clause (iii) below, in the event of a loss involving
proceeds in excess of the Threshold Amount, all proceeds in respect of such
loss up to the amount of Termination Value for an affected Engine shall, to the
extent such proceeds are not paid by the insurer(s) directly to the person
effecting the repair, be payable to the Secured Party to be held by the Secured
Party (whether such payment is made to the Company (or any Permitted Lessee) or
any third party), it being understood and agreed that in the case of any
payment to the Secured Party otherwise than in respect of an Event of Loss of
the Engine, the Secured Party shall, upon receipt of evidence reasonably
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 or the replacement of the Engine suffering the Event of Loss, pay
the amount of such payment, and any interest or income earned thereon, to the
Company or its order, (ii) except as specified in the following
clause (iii), all proceeds equal to or less than the Threshold Amount
(regardless of the total amount of proceeds resulting from such loss) and any
proceeds of any loss in excess of Termination Value for the Engine suffering
such loss shall be paid to the Company or its order and
(iii) notwithstanding anything to the contrary contained in the preceding
clauses (i) and (ii), if a Special Default shall
have occurred and be continuing and the insurers have been notified thereof by
the Secured Party, all proceeds of loss shall be paid to the Secured Party,
(12) if separate hull and war risk coverage is maintained, shall contain a
50/50 clause in accordance with AVS 103, (13) shall
operate on a worldwide basis subject to certain territorial restrictions which
are usual and customary in the War Risks market from time to time and
(14) shall contain a provision entitling the Secured Party to initiate a
claim if an Event of Default shall be continuing. 

 

F.             Reinsurance.  The Company shall procure that in respect of
insurances maintained by the Company in accordance with the provisions in this
Appendix B the insurers shall maintain, if such insurances do not provide for
direct coverage in the markets hereafter referred to, reinsurance covering
identical subject matter and risk for an amount which shall not be less than
100% of the coverage amount under Sections A and B hereof in Lloyd’s of
London or other internationally recognized aviation insurance and/or
reinsurance markets.  Such reinsurance
shall contain a customary “cut-through” endorsement and shall provide that any
payment by the reinsurers shall be made
notwithstanding any bankruptcy, insolvency or liquidation of the original
insurer and/or that the original insurer has made no payment under the original
policies.

 

B-4

 

EXHIBIT A

 

ENGINE MORTGAGE AND SECURITY

AGREEMENT SUPPLEMENT NO.      

 

Engine
Mortgage and Security Agreement Supplement No.      dated           ,
20     (this “Mortgage
Supplement”) of INDEPENDENCE AIR, INC. (the “Company”).

 

WITNESSETH:

 

WHEREAS,
the Engine Mortgage and Security Agreement, dated as of February 18, 2005 (as supplemented, amended, and otherwise
modified to date, the “Mortgage”),
between the Company and General Electric Capital Corporation, as agent for the
Lenders (as defined therein), as Secured Party (the “Secured Party”), provides for the execution and delivery of
supplements thereto substantially in the form hereof which shall particularly
describe the Engines (such term and other defined terms in the Mortgage being
used herein with the same meanings) and Engine Containers;

 

NOW,
THEREFORE, this Mortgage Supplement WITNESSETH that
the Company hereby confirms that the Lien of the Mortgage on the Collateral
covers all of the Company’s right, title and interest in and to the property
described on Annex A hereto.

 

To
have and to hold all and singular the aforesaid property unto the Secured Party,
its successors and assigns, for the benefit, security and protection of the
Secured Party, and for the uses and purposes and subject to the terms and
provision 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.

 

A-1

 

IN
WITNESS WHEREOF, the Company has caused this Engine Mortgage and Security
Agreement Supplement No. 1 to be duly executed by one of its duly authorized
officers, as of the day and year first above written.

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-2

 

Annex A to

Mortgage Supplement

 

DESCRIPTION OF ENGINES

 

ENGINES AND ENGINE CONTAINER

 

	
  Engine Manufacturer

  	
   

  	
  Engine
  Model

  	
   

  	
  Engine
  Serial Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Each
engine is of 750 or more “rated take-off horsepower” or the equivalent of such
horsepower.

 

Engine
Container Serial Number

 

A-3

 

EXHIBIT A

 

ENGINE MORTGAGE AND SECURITY

AGREEMENT SUPPLEMENT NO. 1

 

Engine
Mortgage and Security Agreement Supplement No. 1 dated February 18, 2005 (this “Mortgage Supplement”) of INDEPENDENCE AIR,
INC. (the “Company”).

 

WITNESSETH:

 

WHEREAS,
the Engine Mortgage and Security Agreement, dated as of February 18, 2005 (as supplemented, amended, and
otherwise modified to date, the “Mortgage”),
between the Company and General Electric Capital Corporation, as agent for the
Lenders (as defined therein), as Secured Party (the “Secured Party”), provides for the execution and delivery of
supplements thereto substantially in the form hereof which shall particularly
describe the Engines (such term and other defined terms in the Mortgage being
used herein with the same meanings) and Engine Containers;

 

NOW,
THEREFORE, this Mortgage Supplement WITNESSETH that
the Company hereby confirms that the Lien of the Mortgage on the Collateral
covers all of the Company’s right, title and interest in and to the property
described on Annex A hereto.

 

To
have and to hold all and singular the aforesaid property unto the Secured
Party, its successors and assigns, for the benefit, security and protection of
the Secured Party, and for the uses and purposes and subject to the terms and
provision 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.

 

A-1

 

IN
WITNESS WHEREOF, the Company has caused this Engine Mortgage and Security
Agreement Supplement No. 1 to be duly executed by one of its duly authorized
officers, as of the day and year first above written.

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

2

 

Execution Version

 

Annex A to

Engine Mortgage

and
Security Agreement

Supplement
No. 1

 

DESCRIPTION OF ENGINES

 

ENGINES AND ENGINE CONTAINER

 

	
  Engine Manufacturer

  	
   

  	
  Engine
  Model

  	
   

  	
  Engine
  Serial Number

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950191

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-872483

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873416

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950192

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873044

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950205

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873689

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-872207

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873155

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950229

  	
   

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-872232

  	
   

  

 

 Each
engine is of 750 or more “rated take-off horsepower” or the equivalent of such
horsepower.

 

	
  Engine Container Serial Number

  	
   

  
	
  9661

  	
   

  
	
  073

  	
   

  
	
  076

  	
   

  
	
  9684

  	
   

  
	
  054

  	
   

  
	
  039

  	
   

  
	
  9688

  	
   

  
	
  9715

  	
   

  
	
  051

  	
   

  
	
  02571

  	
   

  
	
  9675

  	
   

  

 

A-3

 

 

 

SUBORDINATED ENGINE MORTGAGE AND SECURITY
AGREEMENT

 

 

Dated as of February 18, 2005

 

 

between

 

 

INDEPENDENCE AIR, INC.

 

 

and

 

 

GENERAL ELECTRIC CAPITAL CORPORATION, 

 

 

as Secured Party

 

 

 

 

TABLE OF CONTENTS

 

 

	
  ARTICLE
  1.  DEFINITIONS

  	
   

  
	
  Section 1.01.

  	
   

  	
  Certain
  Definitions

  	
   

  
	
  Section 1.02.

  	
   

  	
  Certain
  Rules of Construction

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2.  SECURITY

  	
   

  
	
  Section 2.01.

  	
   

  	
  Grant
  of Security Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  3.  COVENANTS OF THE COMPANY

  	
   

  
	
  Section 3.01.

  	
   

  	
  Liens

  	
   

  
	
  Section 3.02.

  	
   

  	
  Possession,
  Operation and Use, Maintenance and Registration

  	
   

  
	
  Section 3.03.

  	
   

  	
  Replacement
  and Pooling of Parts; Alterations, Modifications and Additions

  	
   

  
	
  Section 3.04.

  	
   

  	
  Event
  of Loss and Release of Engines

  	
   

  
	
  Section 3.05.

  	
   

  	
  Insurance

  	
   

  
	
  Section 3.06.

  	
   

  	
  Filings

  	
   

  
	
  Section 3.07.

  	
   

  	
  Mergers
  and Consolidations

  	
   

  
	
  Section 3.08.

  	
   

  	
  Notice
  of Change of the Company’s Location

  	
   

  
	
  Section 3.09.

  	
   

  	
  Inspection

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  4.  REMEDIES OF THE SECURED PARTY UPON A SUBORDINATED EVENT OF
  DEFAULT

  	
   

  
	
  Section 4.01.

  	
   

  	
  Remedies
  with Respect to Collateral

  	
   

  
	
  Section 4.02.

  	
   

  	
  Remedies
  Cumulative

  	
   

  
	
  Section 4.03.

  	
   

  	
  Discontinuance
  of Proceedings

  	
   

  
	
  Section 4.04.

  	
   

  	
  Allocation
  of Payments

  	
   

  
	
  Section 4.05.

  	
   

  	
  Turnover
  of Payments to Senior Secured Party

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  5.  INTENTIONALLY LEFT BLANK

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6.  SECURITY FUNDS

  	
   

  
	
  Section 6.01.

  	
   

  	
  Investment
  of Security Funds

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7.  MISCELLANEOUS

  	
   

  
	
  Section 7.01.

  	
   

  	
  Termination
  of Mortgage

  	
   

  
	
  Section 7.02.

  	
   

  	
  Alterations to Mortgage

  	
   

  
	
  Section 7.03.

  	
   

  	
  No
  Legal Title to Collateral

  	
   

  
	
  Section 7.04.

  	
   

  	
  Sale
  of the Engines by Secured Party Is Binding

  	
   

  
	
  Section 7.05.

  	
   

  	
  Benefit
  of Mortgage

  	
   

  
	
  Section 7.06.

  	
   

  	
  Section
  1110 of the Bankruptcy Code

  	
   

  
	
  Section 7.07.

  	
   

  	
  Notices

  	
   

  
	
  Section 7.08.

  	
   

  	
  Severability

  	
   

  
	
  Section 7.09.

  	
   

  	
  Separate
  Counterparts

  	
   

  

 

i

 

	
  Section 7.10.

  	
   

  	
  Successors
  and Assigns

  	
   

  
	
  Section 7.11.

  	
   

  	
  Headings

  	
   

  
	
  Section 7.12.

  	
   

  	
  Governing
  Law; Submission to Jurisdiction; Venue

  	
   

  
	
  Section 7.13.

  	
   

  	
  Waiver
  of Trial by Jury

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  APPENDIX A

  	
   

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  APPENDIX B

  	
   

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  Mortgage Supplement

  	
   

  

 

ii

 

SUBORDINATED ENGINE MORTGAGE AND SECURITY
AGREEMENT

 

This SUBORDINATED ENGINE
MORTGAGE AND SECURITY AGREEMENT, dated as of February 18, 2005 (the “Mortgage”)
between INDEPENDENCE AIR, INC., a California corporation (the “Company”),
and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as agent for
the Beneficiaries under the Indemnity Agreement (as defined herein) (in such
capacity, the “Secured Party”).

 

W  I  T  N
E  S  S  E  T  H :

 

WHEREAS, as a condition
to the Lenders entering into the Loan Agreement, the Company has entered into
the Indemnity Agreement to support certain payment obligations due and owing to
the Beneficiaries under the IAI Transaction Documents; and

 

WHEREAS, the Company
desires by this Mortgage, among other things, to grant to the Secured Party for
the benefit of the Beneficiaries a perfected Lien on the Collateral in
accordance with the terms hereof, as security for the Obligations; and

 

WHEREAS, all things
necessary to make this Mortgage a legal, valid and binding obligation of the
Company and the Secured Party, for the uses and purposes herein set forth, in
accordance with its terms, have been done and performed and have occurred;

 

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 1.01.          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.

 

Section 1.02.          Certain Rules of
Construction.  The defined terms and
the other provisions of this Mortgage shall be construed in accordance with the
rules of construction set forth under the heading “General Provisions” in
Appendix A hereto.

 

ARTICLE 2.

 

SECURITY

 

Section 2.01.          Grant
of Security Interest.  In order to
secure (i) the prompt payment when due of the Obligations and (ii) the
performance and observance by the Company

 

1

 

of all
agreements, covenants and provisions contained herein and in the other
Transaction Documents to the extent same relate to the Obligations 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,
the Company has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed and does hereby grant, bargain, sell, assign,
transfer, convey, mortgage, pledge and confirm unto the Secured Party, its
successors and assigns, for the security and benefit of the Lenders, a security
interest in, and mortgage lien on, all 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”) (it being expressly understood and agreed that the security interest
granted hereunder in the Collateral shall be junior, and otherwise subject and
subordinate in all respects, to the security interest granted in the Collateral
under the Senior Mortgage):

 

(a)           the
Engines, each of which Engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower (as more particularly described in each Mortgage
Supplement executed and delivered in connection herewith), as the same is now
and will hereafter be constituted, whether now owned or hereafter acquired, and
whether or not any such Engine from time to time is installed on an airframe,
together with (a) all Parts of whatever nature, which are from time to
time included within the definition of “Engines”, whether now owned or
hereafter acquired, including all substitutions, renewals and replacements of
and additions, improvements, accessions and accumulations to the Engines, (b)
all Engine Documents, and (c) the Engine Containers;

 

(b)           all
warranty rights with respect to the Engines or any Part thereof that the
Company may have, to the extent that such warranty rights are assignable (the “Warranties”)
(it being understood that the Company has no obligation to obtain an assignment
or consent or to take any further action with respect to the security interest
granted pursuant to this clause (other than to include such Collateral in any
UCC financing statements and continuation statements) notwithstanding any
obligation of the Company in any Transaction Document (including the last
paragraph of this Section 2.01) to execute and deliver further instruments
and documents or provide other further assurances, except that, if an Event of
Default shall have occurred and be continuing, the Company will take reasonable
action requested by the Secured Party for the assignment of material Warranties
with respect to an Engine to any person acquiring such Engine pursuant to
Article 4); in each case together with all rights, powers, privileges,
options and other benefits of the Company thereunder with respect to the
Engines, including, without limitation, the right to make all waivers and
agreements, to give and receive all notices and other instruments or
communications, to take such action upon the occurrence of a default thereunder,
including the commencement, conduct and consummation of legal, administrative
or other proceedings, as shall be permitted thereby or by law, and to do any
and all other things which the Company is or may be entitled to do thereunder;

 

(c)           each
assigned Lease (to the extent assigned under any Lease assignment), and
including, without limitation, all rents or other payments of any kind

 

2

 

made under such assigned Lease, all collateral
security or credit support with respect to such assigned Lease (in the nature
of a guarantee, letter of credit, credit insurance, Lien on or security
interest in any property or otherwise) for the obligations of the lessee
thereunder (if any), and all rights of the Company to execute any election or
option or to give any notice, consent, waiver, or approval under or with
respect to any thereof or to accept any surrender of any Engine or any part
thereof as well as any rights, powers or remedies on the part of the Company,
whether arising under such assigned Lease or by statute or at law or in equity,
or otherwise, arising out of any default under such assigned Lease (it being
understood that, so long as no Event of Default shall have occurred and be
continuing, the Company shall retain all rights as lessor under such Lease,
including to receive all such payments thereunder, to hold, dispose of, or
relinquish any such collateral or credit support and to take or refrain from
taking all actions thereunder) (to the extent assigned under such Lease
assignment);

 

(d)           all
proceeds with respect to the requisition of title to the Engines or any part
thereof, and all insurance proceeds with respect to the Engines or any part
thereof, but excluding any insurance maintained by the Company and not required
under Section 3.05; and

 

(e)           all
proceeds of the foregoing;

 

PROVIDED, HOWEVER, that
notwithstanding any of the foregoing provisions of this Section 2.01, 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 Secured Party, to quiet enjoyment
of the Engines and other Collateral (excluding, however, any Collateral that is
to be placed in the possession of the Secured Party pursuant to the terms
hereof), and peaceably and quietly, without hindrance or molestation, to
possess, use, retain and control the Engines and other Collateral (excluding,
however, any Collateral that is to be placed in the possession of the Secured
Party pursuant to the terms hereof), and (ii) the Company shall have the right,
to the exclusion of the Secured Party, with respect to the Warranties, to
exercise in the Company’s name all rights and powers as the beneficiary of the
Warranties and to retain any recovery or benefit resulting from the enforcement
of any warranty or indemnity under the Warranties;

 

TO HAVE AND TO HOLD the
Collateral unto the Secured Party, its successors and assigns, upon the terms
herein set forth, for the benefit, security and protection of the Secured
Party, 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
shall remain liable under any assigned Lease and the Warranties to perform all
of the obligations assumed by it thereunder, all in accordance with and
pursuant to the terms and provisions thereof, and the Secured Party shall have
no obligation or liability under any assigned Lease and the Warranties by
reason of or arising out of the assignment hereunder, nor shall the Secured
Party be required or obligated in any manner to perform or fulfill any
obligations of the Company under any assigned Lease and the Warranties, 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

 

3

 

enforce the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

 

The Company does hereby
irrevocably constitute and appoint the Secured Party 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 Secured Party may deem to be necessary or advisable to collect such
property which constitutes Collateral; provided that the Secured Party shall
not exercise any such rights except upon the occurrence and during the
continuance of an Event of Default; provided, further, that the
exercise of such rights shall at all times be subject to the rights of the
Senior Secured Party under the Senior Mortgage and to the provisions of
Sections 4.01(c) and 4.05 of this Mortgage.  Without limiting the provisions of the
foregoing, during the continuance of any Event of Default, but subject to the
terms hereof and any mandatory requirements of applicable Law, the Secured
Party shall have the right under such power of attorney in its discretion to
file any claim or to take any other action or proceedings, either in its own
name or in the name of the Company or otherwise, that the Secured Party may
reasonably deem necessary or appropriate to protect and preserve the right,
title and interest of the Secured Party in and to the security intended to be
afforded hereby.  The Company hereby
agrees that, if the Lien of the Senior Mortgage has been discharged, promptly
on receipt thereof, except as otherwise contemplated by the Transaction
Documents, it will transfer to the Secured Party any and all moneys from time
to time received by the Company constituting part of the Collateral, for
distribution by the Secured Party pursuant to this Mortgage.

 

The Company does hereby
warrant and represent that it has not sold or assigned, and hereby covenants
that it will not sell or assign, so long as this Mortgage shall remain in
effect and the Lien hereof shall not have been released pursuant to the
provisions hereof, any of its estate, right, title or interest hereby assigned,
to any Person other than the Secured Party, except as provided in the Senior Mortgage
or as expressly permitted herein or in any other Transaction Document.

 

The Company agrees that
at any time and from time to time, upon the written request of the Secured
Party, 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 Secured Party may reasonably deem necessary to perfect and protect the
priority of the security interests and assignments created hereby and to obtain
the full benefits of the security interest granted hereunder and of the rights
and powers herein granted.

 

4

 

ARTICLE 3.

 

COVENANTS OF THE
COMPANY

 

Section 3.01.          Liens.  The Company will not directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to the
Company’s interest in the Collateral, except:

 

(a)           the
Lien of this Mortgage and the Senior Mortgage;

 

(b)           the
rights of others under agreements or arrangements to the extent permitted by
Sections 3.02 and 3.03 hereof;

 

(c)           Liens
for Taxes of the Company (or any Lessee) and its U.S. Federal tax law
consolidated group either not yet overdue or being contested in good faith by
appropriate proceedings so long as such Liens and such proceedings do not
involve any material risk of the sale, forfeiture or loss (including loss of
use) of any Engine or any interest therein or any discernible risk of criminal
liability or any material risk of civil penalty against any Secured Party or
impair the Lien of this Mortgage;

 

(d)           materialmen’s,
mechanic’s, workmen’s, repairmen’s, employees’ or other like Liens arising in
the ordinary course of business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing
obligations that are not overdue or are being contested in good faith by
appropriate proceedings so long as such Liens and such proceedings do not
involve any material risk of civil penalty or any discernible risk of criminal
liability against any Secured Party or any material risk of the sale,
forfeiture or loss of any Engine or adversely affect the Lien of this Mortgage;

 

(e)           Liens
arising out of any judgment or award against the Company (or against any
Lessee), so long as such judgment or award shall, within thirty (30) days after
the entry thereof, have been discharged or vacated, or execution thereof stayed
pending appeal or shall have been discharged, vacated or reversed within thirty
(30) days after the expiration of such stay and so long as during any such
30-day period there is not, or any such judgment or award does not involve, any
material risk of the sale, forfeiture or loss (including loss of use) of any
Engine, or any interest therein or any discernible risk of criminal liability
or any material risk of civil penalty against any Secured Party or impair the
Lien of this Mortgage;

 

(f)            salvage
or similar rights of insurers under policies of insurance maintained by the
Company pursuant to Section 3.05 hereof;

 

(g)           any
other Lien with respect to which the Company (or any Lessee) shall have
provided a bond, cash collateral or other security adequate in the reasonable
opinion of the Secured Party;

 

(h)           Liens
attributable to the Secured Party; and

 

5

 

(i)            Liens
approved in writing by the Secured Party.

 

Liens described in
clauses (a) through (i) above are referred to herein as “Permitted Liens.”  The Company shall promptly, at its own
expense, take such action as may be necessary to duly discharge (by bonding or
otherwise) any such Lien on the Collateral other than a Permitted Lien arising
at any time.

 

Section 3.02.          Possession,
Operation and Use, Maintenance and Registration.

 

(a)           Possession.  Except as expressly provided herein, the
Company shall not, without the prior written consent of the Secured Party,
sell, lease or otherwise in any manner deliver, transfer or relinquish
possession of any Engine; provided that if and for so long as all
approvals, consents or authorizations required in connection with any such
lease or such delivery, transfer or relinquishment of possession by the FAA
(or, if at the time thereof, the Engine is installed on an airframe registered
with any non-U.S. Governmental Authority, such other Governmental Authority)
have been obtained and remain in full force and effect, then the Company may,
without the prior written consent of the Secured Party:

 

(i)            so
long as no Event of Default shall have occurred and be continuing, subject or
permit any Lessee to subject any Engine to normal interchange, pooling or
borrowing, or similar arrangements with persons who are domiciled in the United
States, in each case for no more than ninety (90) days and customary in the
airline industry and entered into in writing by the Company (or any Lessee) in
the ordinary course of its business; provided that (A) no such agreement or
arrangement shall contemplate,
require or result in the transfer of title to such Engine, (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 comply with Section 3.04(a) hereof in respect
thereof and (C) the Company (or a Lessee) shall not relinquish possession of an
Engine pursuant to this clause (i) for a period longer than ninety (90)
consecutive days;

 

(ii)           deliver
or permit any Lessee to deliver possession of any Engine or any Part (A) to the
manufacturer thereof or to any FAA certified third-party maintenance provider
(or certified by a foreign authority so long as work performed on such Engine
or Part shall comply with Section 3.02(c)), for testing, service, repair,
maintenance or overhaul work on such Engine or Part or to the extent required
or permitted by the terms of Section 3.03(d) for alterations or modifications
in or additions to such Engine or Part or (B) to licensed or bonded common
carriers qualified in the shipping and transport of items such as such Engine
or Part for the purpose of transport to a Person referred to in the preceding
clause (A); provided that, if a Special Default or an Event of Default shall
have occurred and be continuing, then, prior to delivering (permitting delivery
of) possession of any Engine or Part to any Person described in clause (A), the
Company shall put into place such measures as are reasonably satisfactory to
the Senior Secured Party (if the Lien of the Senior Mortgage shall not then
have been discharged) or the Secured Party (if the Lien of the Senior Mortgage
shall then have been discharged) to ensure that such Person shall not assert a
Lien against such Engine or Part and shall not have any other right of
detention of such Engine or Part;

 

6

 

(iii)          install
or permit any Lessee to install an Engine on an airframe owned by the Company
(or such Lessee) free and clear of all Liens, except: (A) those of the
type permitted under clauses (c), (d), (e) and (f) of Section 3.01
and those that apply only to the engines (other than Engines) and/or only to
parts, appliances, instruments, appurtenances, accessories, furnishings and
other equipment (other than Parts), and (B) the rights of third parties under
normal interchange, pooling or borrowing, or similar arrangements which would
be permitted under clause (i) above;

 

(iv)          install
or permit any Lessee to install an Engine on an airframe leased to the Company
(or such Lessee) or owned by the Company (or such Lessee) subject to a
mortgage, 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 subclauses (A) and (B) of
clause (iii) of this Section 3.02(a) and (y) the Company or Lessee, as the case
may be, shall have received from the lessor, mortgagee, secured party or
conditional seller, in respect of such airframe, a written agreement (which may
be a copy of the lease, mortgage, security agreement, conditional sale or other
agreement covering such airframe), whereby such Person agrees that neither such
Person nor its successors or assigns will acquire or claim any right, title or
interest in, or Lien on, such Engine by reason of such Engine being installed
on such airframe at any time while such Engine is subject to the Lien of this
Mortgage;

 

(v)           so
long as no Event of Default shall have occurred and be continuing, install or
permit any Lessee to install an Engine on an airframe leased to the Company (or
such Lessee) or owned by the Company (or such Lessee) subject to a mortgage,
conditional sale or other security agreement under circumstances where neither
clause (iii) nor clause (iv) of this Section 3.02(a) is applicable; provided
that such Engine shall be deemed to have suffered an Event of Loss as of the
date of such installation and the Company shall (or shall cause such Lessee to)
comply with Section 3.04(a) hereof in respect thereof (it being understood that
until Section 3.04(a) has been fully complied with the Lien of this
Mortgage on any such Engine shall
continue in full force and effect);

 

(vi)          transfer
possession of any Engine to the U.S. Government pursuant to the Civil Reserve
Air Fleet Program or any similar program, so long as the Company shall promptly
notify the Secured Party thereof and, in the case of a transfer pursuant to the
Civil Reserve Air Fleet Program, provide the Secured Party with the name,
address and telephone number of the Contracting Office Representative for the
Air Mobility Command of the United States Air Force to whom notice must be
given pursuant to Section 4.01(a); or

 

(vii)         so
long as no Special Default or Event of Default shall have occurred and be
continuing, enter into a lease with the U.S. Government under which the lessee’s
obligations are guaranteed or supported by the full faith and credit of the
United States, but only if:

 

(A)          The
Company shall provide at least 15 days’ advance written notice to the Secured
Party; and

 

7

 

(B)           Any
such lease (i) shall include provisions for the maintenance, operation,
possession, and inspection of such Engine that are substantially the same as,
or (from a lessor’s perspective) more favorable than, the applicable provisions
of Sections 3.02(a), 3.02(b), 3.02(c), and 3.09, and (ii) shall
provide that the lessee thereunder may not further lease or transfer its
interests (except transfers of the type permitted in clauses (i) through
(vi), inclusive, of this Section 3.02(a)) in such Engine; or

 

(viii)        so
long as no Special Default or Event of Default shall have occurred and be
continuing, enter into any lease with respect to any Engine with any Permitted
Air Carrier, but only if:

 

(A)          The
Company shall provide at least 15 days’ advance written notice to the Secured
Party;

 

(B)           At
the time that the Company enters into such lease, such Permitted Air Carrier
shall not be insolvent or subject to any bankruptcy, insolvency, liquidation,
reorganization, dissolution or similar proceeding, shall not be seeking any
reorganization or any readjustment of its debts and shall not be, and shall not
have substantially all of its property, in the possession of any liquidator,
trustee, receiver or similar person;

 

(C)           Any
such lease (i) shall include provisions for the maintenance, operation,
possession, inspection and insurance of such Engine that are substantially the
same as, or (from a lessor’s perspective) more favorable than, the applicable
provisions of Sections 3.02(a), 3.02(b), 3.02(c), 3.05 and 3.09 and
(ii) shall provide that such Permitted Air Carrier may not further lease
or transfer its interests (except transfers of the type permitted in
clauses (i) through (vi), inclusive, of Section 3.02(a)) in such
Engine;

 

(D)          The
Company shall furnish to the Secured Party evidence reasonably satisfactory to
the Secured Party that the insurance required by Section 3.05 remains in
effect;

 

(E)           All
necessary action, if any, shall have been taken to continue in full force and
effect (i) so long as the Lien of the Senior Mortgage remains
undischarged, the perfection of the Senior Secured Party’s first-priority
perfected Lien on such Engine (subject to Permitted Liens) and (ii) the
Secured Party’s rights under this Mortgage;

 

(F)           All
necessary documents shall have been duly filed, registered or recorded in such
public offices as may be required fully to preserve the priority of the
interest of the Secured Party in such Engine;

 

(G)           Each
such lease shall be assigned by the Company to the Secured Party as security
for the performance of all of the Company’s obligations under this Mortgage
(with the Company retaining all rights of lessor thereunder, to the extent
consistent with this Section 3.02(a)(viii), if and for so long as there
shall

 

8

 

not have occurred
and be continuing a Special Default or an Event of Default), with the express
consent of such Permitted Air Carrier;

 

(H)          The
Company shall furnish to the Secured Party a written confirmation (which may be
contained in any relevant operative agreement) from the lessee and any owner,
lessor or mortgagee of any aircraft on which such Engine is installed by such
Lessee that each such party shall recognize the Company’s rights and interests
in, and the rights and interests of the Secured Party in the leased Engine and,
notwithstanding any contrary provisions of applicable Laws, its rights and
benefits under which are hereby waived to the extent in conflict with this
provision, no such party shall claim, as against the Company or the Secured
Party, any right, title or interest in such Engine as a result of such Engine
being subject to such lease or installed on any aircraft as a result of such
lease; 

 

(I)            In
connection with a lease to a Permitted Air Carrier which is not a U.S. Air
Carrier, all necessary governmental approvals, if any, required for such Engine
to be imported to, and exported from (upon repossession thereof by the Secured
Party or other termination or expiration of such lease), the applicable
jurisdiction shall have been obtained prior to commencement of any such lease,
and any foreign exchange permits necessary to allow all rent and other payments
provided for under such lease shall be in full force and effect; and the Company
shall have provided to the Secured Party a power-of-attorney, reasonably
satisfactory in form and substance to the Secured Party and, to the extent
permitted by applicable Law, valid and enforceable in the applicable
jurisdiction, permitting the Secured Party to exercise all rights of the
Company under such lease in such jurisdiction, upon the occurrence and
continuation of an Event of Default;

 

(J)            In
connection with a lease to a Permitted Air Carrier which is not a U.S. Air
Carrier, the Company shall have furnished the Secured Party a favorable opinion
of counsel, reasonably satisfactory to the Secured Party, in the country of
domicile of such Permitted Air Carrier, in form and substance reasonably
satisfactory to the Secured Party, that, subject to customary exceptions and
qualifications: (i) the terms of such lease and this Mortgage are the
legal, valid and binding obligations of the parties thereto enforceable under
the Laws of such jurisdiction, (ii) it is not necessary for the Secured
Party or any of the Lenders to register or qualify to do business in such
jurisdiction, if not already so registered or qualified, as a result, in whole
or in part, of the proposed lease, (iii) the Secured Party’s Lien in
respect of such Engine will be recognized in such jurisdiction and the Secured
Party shall have a perfected security interest (subject to Permitted Liens) in
the Engines subject to such lease under the Laws of such jurisdiction, (iv) the
Laws of such jurisdiction of domicile require fair compensation by the
government of such jurisdiction, payable in a currency freely convertible into
Dollars, for the loss of use of or title to such Engine in the event of the
requisition by such government of such use or title (unless the Company shall
provide insurance in the amounts required with respect to hull insurance under

 

9

 

Section 3.05
covering the requisition of use of or title to such Engine by the government of
such jurisdiction so long as such Engine is subject to such lease) and
(v) the agreement of such Permitted Air Carrier that its rights under the
lease are subject and subordinate to all the terms of this Mortgage is
enforceable against such Permitted Air Carrier under applicable Law and the Secured
Party shall be able to repossess such Engine, and return it to the United
States, without undue expense, penalty or delay, upon the occurrence and
continuation of an Event of Default;

 

(K)          At
any one time, not more than two of the Engines are subject to any Lease; and

 

(L)           The
Company shall reimburse the reasonable out-of-pocket fees and expenses,
including, without limitation, reasonable fees and disbursements of counsel,
incurred by the Secured Party in connection with any such lease.

 

Notwithstanding anything
to the contrary in this Section 3.02(a), the rights of any Lessee or other
transferee who receives possession of an Engine by reason of a transfer
permitted by this Section 3.02(a) (other than the transfer of an Engine which
is deemed an Event of Loss) shall be subject and subordinate to, and any lease
permitted by this Section 3.02(a) shall include a provision that makes it
expressly subject and subordinate to, all the terms of this Mortgage and to the
Lien of this Mortgage, including, without limitation, (i) the Secured
Party’s rights to foreclosure and possession pursuant to Section 4.01,
(ii) the Secured Party’s right to terminate and avoid such lease,
delivery, transfer or relinquishment of possession upon the occurrence and
continuation of a Subordinated Event of Default after the Lien of the Senior
Mortgage shall have been discharged and (iii) the right to require such
person to forthwith deliver such Engine subject to such transfer upon the
occurrence and continuation of a Subordinated Event of Default after the Lien
of the Senior Mortgage has been discharged. 
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 Engines.  No pooling arrangement, lease or other
relinquishment of possession of any Engine or Engine Documents shall in any way
discharge or diminish any of the Company’s obligations to the Secured Party
hereunder or constitute a waiver of the Secured Party’s rights or remedies
hereunder.  Except as otherwise provided
herein and without in any way relieving the Company from its primary obligation
for the performance of its obligations under this Mortgage, the Company may in
its sole discretion permit a Lessee to exercise any or all rights which the
Company would be entitled to exercise under Article III, and may cause a Lessee
to perform any or all of the Company’s obligations under Article III (provided
that a Lessee may not lease or otherwise in any manner deliver, transfer or
relinquish possession of an Engine except as expressly permitted by this
Mortgage), and the Secured Party agrees to accept actual and full performance
thereof by a Lessee in lieu of performance by the Company.  Any Wet Lease shall not constitute a
delivery, transfer or relinquishment of possession for purposes of
Section 3.02(a) and shall not be prohibited by the terms hereof.  Any event that constitutes or would, with the
passage of time, constitute an Event of Loss under paragraph (c), (d) or
(e) of the definition of such term (as set forth in Appendix A) shall not
be deemed to violate the provisions of this Section 3.02.

 

10

 

(b)           Operation
and Use.  The Company shall not, and
shall not allow any other person to, operate, use, maintain, service, repair or
overhaul the Engines (i) in violation of any Law binding on or applicable to
the Company or to any Engine, or any of the Engine Documents, or to the
operation, use, maintenance, service, repair or overhaul of, or similar
dealings in, any Engine, or (ii) in violation of any airworthiness certificate,
license or registration of any Governmental Authority relating to the Company
or to any Engine, except (1) immaterial or non-recurring violations with
respect to which corrective measures are taken promptly by the Company or a
Lessee, as the case may be, upon discovery thereof, and (2) to the extent
the Company or any Lessee is contesting the validity or application of any such
Law, rule, regulation, order, certificate, license or registration in good
faith in any reasonable manner which does not involve any material risk of the
sale, forfeiture or loss (including loss of use) of any Engine or any of the
Engine Documents or any interest therein or any discernible risk of criminal liability
or any material risk of civil penalty against any Secured Party or impair the
lien of the Mortgage.  The Company agrees
not to operate, use or locate any Engine, or allow any Engine to be operated,
used or located (A) in any area excluded from coverage by any insurance
required by the terms of Section 3.05, except in the case of a requisition
by the U.S. Government where the Company obtains an indemnity in lieu of such
insurance from the U.S. Government, or insurance from the U.S. Government,
covering such area, in accordance with Section 3.05(c) or (B) in any
recognized or threatened area of hostilities unless fully covered in accordance
with Appendix B by war-risk insurance as required by the terms of
Section 3.05 (including, without limitation, Section 3.05(c)), unless
the Engine is only temporarily located in such area as a result of an
emergency, equipment malfunction, navigational error, hijacking, weather
condition or other similar unforeseen circumstances, so long as the Company
diligently and in good faith proceeds to remove the Engine from such area
immediately.

 

(c)           Maintenance.  The Company, at its own cost and expense,
shall (or shall cause a Lessee to) maintain, service, repair and overhaul (or
cause to be maintained, serviced, repaired and overhauled) each Engine in
accordance with the requirements of an FAA or EASA approved maintenance program
so as to keep each Engine serviceable (except when undergoing overhaul) and in
as good operating condition as when initially subjected to the Lien hereof,
ordinary wear and tear excepted, and as may be necessary and required under
applicable Law, including the Federal Aviation Act, airworthiness directives,
and other applicable rules, regulations and requirements by any government
authority, 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 engines similar to such Engine operated by the
Company 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 engines similar to such Engine operated by the Lessee.  The Company agrees that it shall not enroll
the Engines (or any of them) in, or otherwise contract for the maintenance of
the Engines (or any of them) under, a “power-by-hour” or “maintenance cost per
hour” maintenance program other than a Qualified PBH Program.  The Company further agrees that the Engines
will be maintained, used, serviced, repaired, overhauled or inspected in
compliance with applicable Laws with respect to the maintenance of the Engines
and in compliance with each applicable airworthiness certificate, license and
registration of any Governmental Authority, including the FAA, relating to any Engine,
other than minor or nonrecurring violations with respect to which corrective
measures are taken upon discovery thereof and except to the extent the Company
is contesting in good faith the validity or application of any such Law or
requirement relating to any such certificate,

 

11

 

license
or registration in any reasonable manner which does not create a risk of sale,
loss or forfeiture of any Engine or the interest of the Secured Party therein,
any material risk of civil liability or any discernible risk of criminal
liability.  If an Engine becomes
unserviceable, the Company shall commence the restoration process with respect
to such Engine in as prompt a manner as is consistent with normal U.S. airline practice,
but in no event later than fourteen (14) days after such Engine becomes
unserviceable; provided, however, that the Company shall not be responsible for
any delays by a third-party maintenance provider unless such delay is caused by
a breach of an obligation of the Company to the third-party maintenance
provider.  If an Engine is not installed
on an airframe for a period in excess of thirty consecutive days and is not
undergoing maintenance during such period, the Company shall store such Engine
in accordance with the requirements of an FAA or EASA approved maintenance
program.  The Company agrees that the
Engines may only be serviced, overhauled and repaired in an FAA-approved maintenance
facility.  The Company shall maintain or
cause to be maintained all Engine Documents in respect of each Engine in
accordance with the requirements of the Company’s (or if such Engine is subject
to a Lease, Lessee’s) FAA or EASA approved maintenance program.

 

(d)           Identification
of Secured Party’s Interest.  On or
reasonably promptly after the Closing Date, the Company agrees to affix and
maintain (or cause to be affixed and maintained), at its expense, on each
Engine a nameplate bearing the inscription:

 

“THIS ENGINE IS
OWNED BY INDEPENDENCE AIR, INC. AND IS SUBJECT TO A MORTGAGE AND SECURITY
AGREEMENT IN FAVOR OF GENERAL ELECTRIC CAPITAL CORPORATION, AS SECURED PARTY.”

 

(such nameplate to be
replaced, if necessary, with a nameplate reflecting the name of any
successor).  Such nameplate may be
removed temporarily in the course of maintenance of an Engine.

 

Section 3.03.          Replacement
and Pooling of Parts; Alterations, Modifications and Additions.

 

(a)           Replacement
of Parts.  So long as an Engine is
subject to the Lien of this Mortgage, the Company, at its own cost and expense,
will promptly replace or cause to be replaced all Parts which may from time to
time be incorporated or installed in or attached to any 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 3.03(d) hereof
or if an 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 3.03(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 3.03(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

 

12

 

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); provided,
however, that the foregoing restriction as to the value and utility of
replacement parts shall not be applicable with respect to an Engine during any
period when such Engine is enrolled in a Qualified PBH Program.  No removal and replacement of Parts shall be
permitted for the purpose of diminishing the value, utility or remaining useful
life of any Engine, and neither the Company nor any Lessee shall be permitted
to remove or replace any Parts in any manner, for any reason, or on any basis
that would discriminate against the interests of the Secured Party in any
Engine (as compared to other aircraft engines of the same type owned, leased or
operated by the Company or any such Lessee, as the case may be).

 

(b)           Parts
Subject to Lien.  Except as otherwise
provided in Section 3.03(d) hereof, all Parts at any time removed from any
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 Engine and which meet the
requirements for replacement Parts specified in Section 3.03(a) hereof.  Immediately upon any replacement part
becoming incorporated or installed in or attached to an Engine as provided in
Section 3.03(a) hereof, without further act (subject only to Permitted Liens and
except in the case of replacement property temporarily installed on an
emergency basis), (i) the replaced Part shall thereupon be free and clear of
the Lien of this Mortgage and all rights of the Secured Party and shall no
longer be deemed a Part hereunder and (ii) the replacement part shall be
deemed a Part hereunder and such replacement Part shall become subject to the
Lien of this Mortgage and be deemed part of such Engine for all purposes hereof
to the same extent as the Parts originally incorporated or installed in or
attached to such Engine.

 

(c)           Pooling
of Parts.  Any Part removed from any
Engine as provided in Section 3.03(a) hereof may be subjected by the Company
(or any Lessee) to a normal pooling arrangement customary in the commercial
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 Engine in accordance with Sections 3.03(a) and 3.03(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 Engine in accordance with
Section 3.03(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, 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 Engine a further
replacement Part which is subject to the Lien of this Mortgage, free and clear
of all Liens except Permitted Liens.

 

(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 Engine as may be required to be made from
time to time to meet the applicable standards of the FAA or EASA, to the extent
made mandatory in respect of the Engines; provided, however, that
the Company in good faith and by appropriate proceedings may contest the
validity or application of any such mandatory modification in any reasonable
manner which does not

 

13

 

involve
any risk of loss, sale or forfeiture of any Engine, or result in any risk of criminal
liability or material civil liability to any Secured Party or materially
adversely affect the Secured Party’s interest in such Engine.  In addition, the Company, at its own expense,
may, or may permit a Lessee at its own cost and expense to, from time to time
make or cause to be made such alterations and modifications in and additions to
any Engine (each an “Optional Modification”) 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 deems are obsolete or no
longer suitable or appropriate for use in such Engine; provided, however,
that (i) no such Optional Modification shall materially diminish the value,
utility, or useful life of any Engine below its value, utility or useful life
immediately prior to such Optional Modification (assuming such Engine was in
the condition required by the Mortgage immediately prior to such Optional
Modification) and (ii) such Optional Modification shall have been approved
by the applicable Engine Manufacturer or the FAA or EASA, as applicable.  Except as otherwise expressly provided
herein, all Parts incorporated or installed in or attached or added to any
Engine as the result of any 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 Engine on the date that the Company originally
acquired such Engine 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 Engine pursuant to the terms of Section 3.02(c) hereof, the
terms of the insurance policies required to be carried hereunder or any
applicable law or the first sentence of this Section 3.03(d), and (iii) can be
removed from such Engine without materially diminishing the value, utility or
remaining useful life which such Engine would have had at the time of removal
had such alteration, modification or addition not occurred, assuming that such
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 the Lien of this Mortgage and all rights of
the Secured Party and such Part shall no longer be deemed a Part hereunder.

 

Section 3.04.          Event
of Loss and Release of Engines.

 

(a)           Event
of Loss With Respect to an Engine. 
Upon the occurrence of an Event of Loss with respect to an Engine, the
Company shall promptly (and in any event within ten (10) Business Days after
such occurrence) give the Secured Party written notice of such Event of
Loss.  The Company shall, within thirty
(30) days after the occurrence of an Event of Loss with respect to an Engine
give the Secured Party 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 30-day period, the Company shall be deemed
to have elected the option in clause (i) of the next sentence).  The Company may elect either to
(i) repay a principal amount of the Series A Loan in an amount equal to
the Termination Value of such Engine, plus accrued interest thereon and any
other amounts in accordance with Section 1.1(d) of the Loan Agreement (or,
if the Lien of the Senior Mortgage has been discharged, pay to the Secured
Party, to be held by the Secured Party as cash collateral under this Mortgage,
an amount equal to the Termination Value of such Engine), on or prior to the
earlier of (A) the ninety-first (91st) day following the Event of Loss and (B)
the second Business Day following the receipt of insurance

 

14

 

proceeds
with respect to such occurrence (but in any event not earlier than the date of
the Company’s election under the preceding sentence of this Section to make
payment under this clause (i)), or (ii) cause to be subjected to the Lien of
this Mortgage in replacement thereof not later than the ninetieth (90th) day
following the occurrence of such Event of Loss, a Replacement Engine, owned by
the Company and free and clear of all Liens except Permitted Liens; provided
that if the Company does not perform its obligation to effect such replacement
in accordance with this Section 3.04(a) during the period of time provided
herein, then the Company shall be deemed to have elected to make the payment
contemplated by clause (i) of this sentence within the period of time specified
therein.  The Company shall not be
entitled to elect the replacement option pursuant to clause (ii) of the
preceding sentence if, at the time the Company gives notice pursuant to the
preceding sentence there shall have occurred and be continuing a Special
Default or an Event of Default. 
Notwithstanding the foregoing, if (i) no Special Default or Event of
Default shall have occurred and be continuing and (ii) the Lien of the Senior
Mortgage has been discharged, the proceeds from the Event of Loss, less the
amount (if any) required to be held by the Secured Party as cash collateral in
order for the Company to comply with the ratio referred to in Section 2.7 of
the Indemnity Agreement, if such provision is applicable, shall be paid to the
Company.  A Replacement Engine for an
Engine suffering an Event of Loss must meet the following conditions:

 

(1)           be
the same model as the Engine to be replaced thereby, or an improved model,
manufactured by the same Engine Manufacturer;

 

(2)           have
a value, utility and remaining useful life, at least equal to, and is in at
least as good operating condition as, the Engine to be replaced thereby
(assuming that such Engine was of the value and utility and in the condition
and repair required by the terms hereof immediately prior to the occurrence of
the Event of Loss).  In determining the
value, utility and remaining useful life of a Replacement Engine, hours and
cycles since original delivery or last major overhaul, whichever is later,
shall be considered; and

 

(3)           have
been first placed in service after October 22, 1994, or, if different, meet
whatever conditions or requirements as may be required in order for the Secured
Party to be entitled to the benefits of Section 1110 of the Bankruptcy Code
with respect to such Replacement Engine in the event of a case under Chapter 11
of the Bankruptcy Code in which the Company is a debtor.

 

(b)           Effect
of Replacement or Payment.  Upon the
Company having provided a Replacement Engine as provided for in Section 3.04(a)
above, the Lien of this Mortgage shall attach to such Replacement Engine as
though no Event of Loss had occurred. 
Upon the Company having provided a Replacement Engine or having made a
repayment of the Loan (or having made a payment to the Secured Party of cash
collateral, if and to the extent required under Section 3.04(a)) pursuant to
Section 3.04(a), so long as no Special Default or Event of Default shall
have occurred and be continuing, the Secured Party shall, at the cost and
expense of the Company, release from the Lien of this Mortgage the Engine
subject to such Event of Loss, and all Engine Documents and Warranties relating
to such Engine, by executing and delivering to the Company such documents and
instruments as the Company may reasonably request to evidence such release and
shall assign without recourse or representation to the Company all claims it
may have against any other Person arising from the Event of Loss and the
Company

 

15

 

shall
receive all insurance proceeds and other proceeds from any award in respect of
condemnation, confiscation, seizure or requisition, including all investment
interest thereon, to the extent not previously applied to the purchase price of
the Replacement Engine as provided in Sections 3.04(d)(i) and 3.05 hereof.

 

(c)           Conditions
to Engine Replacement.  The Company’s
right to make a replacement under Section 3.04(a) hereof shall be subject to
the fulfillment, at the Company’s cost and expense, of the following conditions
precedent:

 

(1)           On
the date that the Replacement Engine is made subject to the Lien of this
Mortgage (the “Replacement Closing Date”), no Special Default or Event
of Default shall have occurred and be continuing;

 

(2)           On
the Replacement Closing Date, an executed counterpart of each of the following
shall have been delivered to the Secured Party, in each case in form and
substance reasonably satisfactory to the Secured Party:

 

(A)          a
Mortgage Supplement covering the Replacement Engine (which shall be filed for
recordation pursuant to the Federal Aviation Act);

 

(B)           such
Uniform Commercial Code financing statements covering the Lien created by this
Mortgage as deemed necessary by the Secured Party to protect the security
interests of the Secured Party in the Replacement Engine;

 

(C)           a
certificate of a qualified aircraft engineer (who may be an employee of the
Company) or, if the Lien of the Senior Mortgage shall have been discharged and
the Secured Party makes written request to the Company within five Business
Days after the Company shall have furnished to the Secured Party the
information referred to in Section 3.04(c)(5)(C), an independent appraiser
specified in such request (provided such appraiser is reasonably acceptable to
the Company), whose fees and expenses shall be paid by the Secured Party if the
appraiser’s report supports the certificate delivered by such engineer and paid
by the Company otherwise, certifying that such Replacement Engine meets all of
the requirements set forth in subclauses (1), (2) and (3) of Section 3.04(a),
as applicable; and

 

(D)          a
copy of a bill of sale, manufacturer’s invoice or other evidence of the Company’s
title with respect to the Replacement Engine.

 

(3)           The
Secured Party shall have received evidence satisfactory to the Secured Party as
to the due compliance with Section 3.05 hereof with respect to the Replacement
Engine;

 

(4)           On
the Replacement Closing Date, the Company shall be the owner of the Replacement
Engine and shall cause the Replacement Engine to be subjected to the Lien of this
Mortgage, free and clear of Liens (other than Permitted Liens);

 

16

 

(5)           The
Secured Party shall, at the expense of the Company, have received (A) an
opinion addressed to the Secured Party, reasonably satisfactory to the Secured
Party, to the effect that (i) the Replacement Engine has been made subject to
the Lien of this Mortgage, (ii) the Secured Party will be entitled to the
benefits of Section 1110 of the Bankruptcy Code (or any successor or replacement
statute) with respect to the Replacement Engine and (iii) to such further
effect as the Secured Party may reasonably request, (B) an opinion of FAA
counsel addressed to the Secured Party, reasonably satisfactory to the Secured
Party, respecting the due filing for recordation with the FAA of the Mortgage
Supplement with respect to such Replacement Engine, the perfection and priority
of the Lien of this Mortgage thereon and as to such other matters concerning
the Federal Aviation Act as the Secured Party may reasonably request and (C) at
least six Business Days before the Replacement Closing Date the information
specified in Section 6.11 of the Indemnity Agreement with respect to the
Replacement Engine as of a date within 30 days prior to the date such information
is furnished to the Secured Party; and

 

(6)           The
Company shall have taken such other actions and furnished such other
certificates and documents as the Secured Party shall have reasonably requested
in order that such Replacement Engine be duly and properly subjected to the
Lien of this Mortgage to the same extent as initially required under the
Transaction Documents with respect to the Engine so replaced.

 

(d)           Payments
Received on Account of an Event of Loss. 
If the Lien of the Senior Mortgage shall not have been discharged, 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 3.05 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 an Engine
shall be held and applied as provided in the Senior Mortgage and, after the
Senior Mortgage shall have been discharged, as between the Secured Party and
the Company, any such payments (other than as aforesaid) received at any time
by the Secured Party 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 an Engine and
such Engine is being replaced by the Company pursuant to Section 3.04(a)
hereof, such payments shall be paid over to, or retained by, the Secured Party
as security; and upon completion of such replacement (or upon the closing
therefor) and compliance with the provisions of Section 3.04(a) and (c) with
respect to the Event of Loss for which such payments are made, all such
payments, including all investment earnings thereon shall be promptly paid over
to, or retained by, the Company; and

 

(ii)           if
the Company has elected or is deemed to have elected to make the payment
referred to in clause (i) of the third sentence of Section 3.04(a),
such payments shall be applied as follows:

 

first,
if the sum described in such clause (i) has not then been paid in full by
the Company, such payments shall be deposited with the Secured Party as cash
collateral up to the amount required to be paid under such clause (i); and

 

17

 

second,
the balance, if any, shall be paid to, or retained by, the Company.

 

(e)           Requisition
of Use.  In the event of a
requisition for use by a Governmental Authority of an Engine not constituting
an Event of Loss, any payments received by the Secured Party or the Company (or
the Lessee of such Engine) from such government with respect to such
requisition shall be paid to or retained by the Company (or such Lessee, as the
case may be).

 

(f)            Application
of Payments During Existence of Event of Default.  After the Lien of the Senior Mortgage has
been discharged, any amount referred to in this Section 3.04 or Section 3.05
which is payable to or retainable by 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 a Special Default or an Event of Default shall have
occurred and be continuing, but shall be held by or paid over to the Secured
Party as security for the Obligations. 
Upon the earlier of (a) such time as there shall not be continuing any
such Special Default or Event of Default or (b) the termination of this
Mortgage in accordance with Section 7.01, such amount, and any interest
realized thereon pursuant to Section 6.01 hereof, shall be paid over to the
Company (or such Lessee) to the extent not previously applied in accordance
with the preceding sentence.

 

(g)           Release
of Cash Collateral.  If the Company
shall have paid to the Secured Party funds to be held as cash collateral
pursuant to Section 3.04(a) due to the occurrence of an Event of Loss with
respect to an Engine, upon (i) not less than five (5) Business Days’ prior
written notice from the Company to the Secured Party and (ii) the Company
causing a Replacement Engine for such Engine meeting the requirements of
Section 3.04(a) to be subject to the Lien of this Mortgage in accordance with
the provisions of Section 3.04(c) hereof, the Secured Party shall release to
the Company by wire transfer of immediately available funds the amount of such
cash collateral, plus any net earnings thereon pursuant to Section 6.01, then
subject to Lien of this Mortgage.

 

(h)           Permitted
Dispositions.  Upon not less than
fifteen (15) days’ prior written notice from the Company to the Secured Party,
provided no Special Default or Event of Default shall have occurred and be
continuing, the Secured Party shall release from the Lien of this Mortgage
pursuant to Section 3.04(b) one or more Engines specified in such notice (the “Disposed
Engines”) that the Company is disposing, or intends to dispose, in the
ordinary course of its business (a “Permitted Disposition”) if, but only
if, each of the following conditions is satisfied:

 

(1)           the
Company delivers to the Secured Party an Officer’s Certificate certifying that
(i) each of the Disposed Engines is surplus to the operational needs of the
Company and is not required to meet the fleet planning needs of the Company in
the ordinary course of its business, and (ii) the Company has not, and does not
intend to, acquire by any means whatsoever any replacement for any of the
Disposed Engines as support for the Company’s operations (it being expressly
understood that any purchase, lease or sublease of one or more other engines
and any other arrangement permitting the Company access to or use of one or
more other engines would all be considered a replacement of the Disposed
Engines within the meaning of this Section 3.04(h)(1)(ii)); and

 

18

 

(2)           the
Company shall have paid, in immediately available funds, in accordance with
clause (i) of the third sentence of Section 3.04(a), a prepayment of the
principal amount of the Series A Loan (plus accrued interest thereon and any
other amounts payable therewith in accordance with Section 1.1(d) of the
Loan Agreement) if the Lien of the Senior Mortgage is then in effect, in an
amount equal to the Termination Value of the Disposed Engine.  If (i) no Special Default or Event of Default
shall have occurred and be continuing, and (ii) the Lien of the Senior Mortgage
has been discharged, the proceeds from such Permitted Disposition, less the
amount (if any) required to be held by the Secured Party as cash collateral in
order for the Company to comply with the ratio referred to in Section 2.7 of
the Indemnity Agreement, if such provision is applicable, shall be paid to the
Company.

 

Section 3.05.          Insurance.

 

(a)           Obligation
to Insure.  The Company shall comply
with, or cause to be complied with, each of the provisions of Appendix B,
which provisions are hereby incorporated by this reference as if set forth in
full herein.

 

(b)           Insurance
for Own Account.  Nothing in Section
3.05 shall limit or prohibit (a) the Company from maintaining the policies of
insurance required under Appendix B with higher limits than those specified in
Appendix B, or (b) the Secured Party or any Beneficiary from obtaining
insurance for its own account (and any proceeds payable under such separate
insurance shall be payable as provided in the policy relating thereto);
provided, however, that no insurance may be obtained or maintained that would
increase the cost of, limit or otherwise adversely affect the coverage of any
insurance required to be obtained or maintained by the Company pursuant to this
Section 3.05 and Appendix B.

 

(c)           Indemnification
by Government in Lieu of Insurance. 
Secured Party agrees to accept, in lieu of insurance against any risk
with respect to any Aircraft or Engine described in Appendix B, indemnification
from, or insurance provided by, the U.S. Government, or upon the written
consent of Secured Party, other Governmental Authority, against such risk in an
amount that, when added to the amount of insurance, if any, against such risk
that the Company (or any Lessee) may continue to maintain, in accordance with
this Section 3.05, shall be at least equal to the amount of insurance against
such risk otherwise required by this Section 3.05.

 

(d)           Application
of Insurance Proceeds.  All proceeds
of insurance required to be maintained by the Company, in accordance with
Section 3.05 and Section B of Appendix B, in respect of any
property damage or loss, whether or not constituting an Event of Loss, shall be
adjusted, paid and applied in the manner specified in Section B of Appendix B.

 

Section 3.06.          Filings.  The Company, at its sole cost and expense,
shall promptly take, or cause to be taken, such action with respect to the
recording, filing, re-recording and re-filing of this Mortgage, each Mortgage
Supplement and any financing statements or other instruments as are necessary,
or reasonably requested by the Secured Party and appropriate, to

 

19

 

maintain,
so long as this Mortgage is in effect, the perfection and priority of the Lien
created by this Mortgage, or will furnish to the Secured Party 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 Secured Party
to take such action.  In addition, the
Company will pay any and all recording, stamp and other similar taxes payable
in connection with the execution, delivery, recording, filing, re-recording and
refiling of this Mortgage or any such financing statements or other
instruments.

 

Section 3.07.          Mergers
and Consolidations.  Neither the Company nor the Guarantor will
consolidate with or merge with or into any other Person or convey, transfer or
lease all or substantially all of its assets as an entirety to any Person (the
Person formed by such consolidation or into which the Company or the Guarantor
is merged or the Person which acquires by conveyance, transfer or lease
substantially all of the assets of the Company or the Guarantor as the case may
be, as an entirety, being referred to herein as the “Successor”)
unless:  

 

(i)            in
the case of a transaction involving the Company, the Successor of the Company
shall be a Certificated Air Carrier;

 

(ii)           in
the case of either the Company or the Guarantor, the Successor shall execute
and deliver to the Secured Party a duly authorized, valid, binding and
enforceable agreement in form and substance reasonably satisfactory to the
Secured Party containing an assumption by the Successor of the due and punctual
performance and observance of each covenant and condition of the Transaction
Documents to be performed or observed by the Company or the Guarantor, as the case
may be;

 

(iii)          no
Event of Default shall have occurred and be continuing at the time of the
proposed transaction, and no Potential Default or Event of Default shall arise
upon giving effect to such transaction; such transaction shall not materially
impair the ability of the Successor to perform the obligations of the Company
or the Guarantor, as the case may be, under the Transaction Documents to which
the Company or the Guarantor, as the case may be, is a party;

 

(iv)          (A)
in the case of the Company, the tangible net worth (determined in accordance
with GAAP) of the Successor, after giving effect to such transaction, shall not
be less than the greater of (1) the lesser of (x) the tangible net worth of the
Company immediately prior to such transaction and (y) the tangible net worth of
the Company as of December 31, 2001, and (2) [***]% of the tangible net worth
of the Company immediately before completion of such transaction; provided, that if the Guarantor owns more than 50% of the
capital stock of the Company immediately before such transaction, the net worth
test contained in this Section 3.07(iv)(A) shall not prevent the Company from
completing such transaction with the Guarantor;

 

(B) in
the case of the Guarantor, the tangible net worth (determined in accordance
with GAAP) of the Successor, after giving effect to such transaction, shall not
be less than the greater of (1) the lesser of (x) the tangible net worth of the
Guarantor immediately prior to such transaction and (y) the tangible net worth
of the Guarantor as of December 31, 2001, and (2) [***]% of the tangible net
worth of the Guarantor

 

20

 

immediately before
completion of such transaction; provided, that
if the Guarantor owns more than 50% of the capital stock of the Company
immediately before such transaction, the net worth test contained in this
Section 3.07(iv)(B) shall not prevent the Guarantor from completing such
transaction with the Company;

 

(v)           all
filings shall have been made as shall be necessary to preserve the perfection
and priority of the Lien of this Mortgage on the Collateral (subject to
Permitted Liens); and

 

(vi)          promptly
after the consummation of such transaction, the Company, or if such transaction
involved the Company, the Successor of the Company, shall deliver to the
Secured Party (A) an Officer’s Certificate of the Successor, certifying as to
compliance with the conditions of this Section 3.07 and (B) an opinion of
counsel reasonably acceptable to the Secured Party and in form and substance
reasonably acceptable to the Secured Party (1) stating that the agreements
entered into to effect such consolidation, merger, sale, conveyance, transfer,
or lease and such assumption agreements have been duly authorized, executed,
and delivered by the Successor and that they (and the Transaction Documents so
assumed) constitute legal, valid, and binding obligations of the Successor,
enforceable in accordance with their terms (in the case of the Transaction
Documents, to the same extent as each such Transaction Document was enforceable
against the Company or the Guarantor, as the case may be, immediately prior to
such transaction), (2) confirming compliance with Sections 3.07(i), 3.07(c)(ii)
and 3.07(c)(v), as applicable, and stating that all other conditions precedent
that are legal in nature provided for in this Mortgage and the other
Transaction Documents and relating to such transaction have been fulfilled, and
(3) addressing such other matters as the Secured Party may reasonably request.

 

Upon any consolidation or
merger, or any conveyance, transfer or lease of all or substantially all of the
assets of the Company as an entirety in accordance with this Section 3.07, the
Successor shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Agreement and the other Transaction
Documents with the same effect as if the Successor had been named as the
Company herein.  No such conveyance,
transfer or lease of all or substantially all of the assets of the Company as
an entirety shall have the effect of releasing the Company or any Person which
shall theretofore have become such in the manner prescribed in this Section
3.07 from the Company’s liability in respect of any Transaction Document to
which it is a party.

 

Section 3.08.          Notice
of Change of the Company’s Location. 
The Company will notify the Secured Party of any change in the location
of the Company (within the meaning of Section 9-307 of the Uniform
Commercial Code) promptly after making such change and in any event within a
reasonable period of time prior to the date by which it is necessary under
applicable Law to make any filing in order to prevent the lapse of perfection
(absent refiling) of financing statements filed under or with respect to this
Mortgage.

 

21

 

Section 3.09.          Inspection.

 

(a)           After
the Lien of the Senior Mortgage has been discharged, at all reasonable times,
the Secured Party and its authorized representatives (the “Inspecting Parties”)
may inspect the Engines (including without limitation, the Engine Documents and
Engine Containers) and the Company shall cooperate, and shall cause any Lessee
to cooperate, with the Inspecting Parties in connection with any such
inspection (including, without limitation, permitting any such Inspecting Party
to make copies of Engine Documents) at its own cost and expense.

 

(b)           Any
inspection of the Engines hereunder shall be limited to a visual inspection and
shall not include the disassembling, or opening of any components, of any
Engine, and no such inspection shall interfere with the Company’s or any Lessee’s
maintenance or use of any Engine.

 

(c)           With
respect to such rights of inspection, the Secured Party shall not:

 

(i)            have
any duty or liability to make, or any duty or liability arising out of, any
such visit, inspection or survey or failure to make any such visit, inspection
or survey; or

 

(ii)           so
long as no Event of Default has occurred and is continuing, exercise its
inspection rights hereunder other than on reasonable notice.

 

(d)           Each
person inspecting the Engines hereunder shall bear its own expenses in
connection with any such inspection, unless such person discovers, in
connection therewith, any material failure by the Company or any Lessee to
comply with the provisions of this Mortgage, in which case the Company shall
bear all such expenses that are reasonably incurred.

 

(e)           After
the Lien of the Senior Mortgage has been discharged, if requested by the
Secured Party, the Company shall provide, or shall cause any Lessee to provide,
to the Secured Party the date(s), if then scheduled, upon which any Engine
undergoes its next scheduled maintenance visit and next major check and next
off-the-wing maintenance, and shall advise the Secured Party of the name and
location of the relevant maintenance performer, if then selected, and shall, if
requested by the Secured Party in connection with a major check, at least 5
days prior to commencement of such major check or maintenance, make available
for inspection by the Secured Party all relevant Engine Documents at the
Company’s records facility in the United States, or at such Lessee’s records
facility, or at the premises of the maintenance performer.

 

22

 

ARTICLE 4.

 

REMEDIES OF THE
SECURED PARTY UPON A SUBORDINATED EVENT OF DEFAULT

 

Section 4.01.          Remedies
with Respect to Collateral.

 

(a)           Remedies
Available.  Upon the occurrence of
any Subordinated Event of Default and at any time thereafter so long as the same
shall be continuing, the Secured Party may do one or more of the following;
provided, however, that during any period an Engine is subject to the Civil
Reserve Air Fleet Program in accordance with the provisions of Section 3.02(a)
hereof and in possession of the U.S. Government, the Secured Party shall not,
on account of any Subordinated Event of Default, be entitled to exercise any of
the following remedies in such manner as to limit the Company’s control under
this Mortgage of such Engine, unless at least sixty (60) days’ (or such other
period as may then be applicable under the Civil Reserve Air Fleet Program)
written notice of such Subordinated Event of Default hereunder shall have been
given by the Secured Party 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 by Lessee) relating to such Engine:

 

(i)            cause
the Company, upon the written demand of the Secured Party, at the Company’s
expense, to deliver promptly, and the Company shall deliver promptly, all or
any of the Engines constituting the Collateral at such location designated by
the Secured Party within the continental United States of America, together in
each case with the Engine Documents for such Engine(s) as the Secured Party may
so demand, to the Secured Party or its order, or the Secured Party, at its
option, may enter upon the premises where all or any of such Engine(s) and/or
Engine Documents 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;

 

(ii)           sell
all or any part of the Collateral at public or private sale, whether or not the
Secured Party shall at the time have possession thereof, as the Secured Party
may determine, or lease or otherwise dispose of all or any part of the
Collateral as the Secured Party, 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; 

 

(iii)          apply
any cash collateral then held as provided in Section 4.04 hereof; or

 

(iv)          exercise
any or all of the rights and powers and pursue any and all remedies of a
secured party under applicable Law.

 

Upon every such taking of
possession of Collateral under this Section 4.01, the Secured Party may, from
time to time, make all such expenditures for maintenance, insurance, repairs,
replacements, alterations, additions and improvements to and of the Collateral,
as it shall consider to be commercially reasonable.  In each such case, the Secured Party shall
have the

 

23

 

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 Secured Party shall consider to be commercially reasonable, 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 Secured Party may determine; and the
Secured Party 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 Secured
Party under any provision of this Mortgage to collect and receive all cash held
by, or required to be deposited with, the Secured Party 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 Secured Party 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 Secured Party may be required or
authorized to make under any provision of this Mortgage, as well as
compensation for the services of all Persons engaged by the Secured Party.  If the income and proceeds of the Collateral
shall not be sufficient to pay in full the Obligations, the Company shall be
liable for any deficiency.

 

In addition, the Company
shall be liable for all reasonable legal fees and other costs and expenses
incurred by reason of the occurrence of any Subordinated Event of Default or
the exercise of the Secured Party’s remedies with respect thereto, including,
without limitation, all costs and expenses incurred in connection with the
retaking or return of any Engine in accordance with the terms hereof or under
applicable Law, which amounts shall, until paid, be secured by the Lien of this
Mortgage.

 

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

 

The Company agrees that
if a Subordinated Event of Default has occurred and is continuing, and only for
so long as the Secured Party is exercising its foreclosure rights with respect
to the Engines and requires use of an engine stand or container owned by the
Company (and not comprising a portion of the Collateral) for transporting an
Engine, the Company shall permit the Secured Party or its agents or
representatives to use such an engine stand or container suitable for use with
such Engine, available at the location of such Engine and which is not

 

24

 

otherwise
being used by the Company, for the sole purpose of transporting such
Engine.  The Secured Party shall return
each such engine stand or container to the location from which it was taken
promptly after it has transported such Engine using such engine stand or
container.

 

(b)           Notice
of Sale.  The Secured Party shall
give the Company at least fifteen (15) days’ prior written notice of the date
fixed for any public sale of any Engine or of 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 a reasonable opportunity to bid.

 

(c)           Senior
Mortgage.  Anything herein to the contrary notwithstanding, unless the Lien of the
Senior Mortgage shall have been discharged, the Secured Party shall not be
entitled to, and shall not proceed to foreclose the Lien of this Mortgage
against any of the Collateral or otherwise exercise any right or remedy
pursuant to this Mortgage attributable to the occurrence of a Subordinated
Event of Default, unless and until the Senior Secured Party shall have
exercised or concurrently be exercising one or more dispossessory remedies
under the Senior Mortgage with respect to the Engines, and in the exercise of
any of the Secured Party’s rights and remedies under this Mortgage, the Secured
Party may not exercise any such right or remedy in a manner inconsistent with,
or otherwise in a manner which would impair or impede or otherwise adversely
affect, the exercise of the rights and remedies of the Senior Secured Party
under the Senior Mortgage; it being expressly understood and agreed that the
Lien of this Mortgage on the Collateral shall at all times be junior and
otherwise subject and subordinate in all respects, to the Lien of the Senior
Mortgage.

 

Section 4.02.          Remedies
Cumulative.  Each and every right,
power and remedy herein specifically given to the Secured Party or otherwise in
this Mortgage shall be cumulative and shall be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and as often and in such order as may be deemed expedient by the
Secured Party, and the exercise or the beginning of the exercise of any power
or remedy shall not be construed to be a waiver of the right to exercise at the
time or thereafter any other right, power or remedy.  No delay or omission by the Secured Party in
the exercise of any right, remedy or power or in the pursuance of any remedy
shall impair any such right, power or remedy or be construed to be a waiver of
any default on the part of the Company or to be an acquiescence therein.

 

Section 4.03.          Discontinuance
of Proceedings.  If the Secured Party
shall have proceeded to enforce any right, power or remedy under this Mortgage
by foreclosure, entry or otherwise, and such proceedings shall have been discontinued
or abandoned for any reason, then and in every such case the Company and the
Secured Party shall be restored to their former positions and rights hereunder
with respect to the property, subject to the Lien of this Mortgage, and all
rights, remedies and powers of the Secured Party shall continue, as if no such
proceedings had been undertaken (but otherwise without prejudice).

 

Section 4.04.          Allocation
of Payments.  Notwithstanding any
other provisions of the Indemnity Agreement to the contrary, after the
occurrence and during the continuance of a

 

25

 

Subordinated
Event of Default, all amounts collected or received by the Secured Party or any
Beneficiary on account of the Obligations shall be paid over or delivered as
follows:

 

FIRST, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation
reasonable attorneys’ fees and expenses actually incurred) of the Secured Party
in connection with enforcing the rights of the Secured Party under the
Transaction Documents;

 

SECOND, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees and expenses actually incurred) of each of the
Beneficiaries in connection with enforcing its rights under the Transaction
Documents or otherwise with respect to the Obligations owing to such
Beneficiary;

 

THIRD, to all other
Obligations (other than as covered by Clause “FOURTH”, “FIFTH” and “SIXTH”
below) which shall have become due and payable under the Transaction Documents
or otherwise and not repaid pursuant to clauses “FIRST” through “SECOND” above;
and

 

FOURTH, to the payment of
all accrued and unpaid interest on the Obligations (calculated as provided in
the Indemnity Agreement);

 

FIFTH, to the payment of
the Guaranteed Amount then due and unpaid;

 

SIXTH, so long as either
the Lien of this Mortgage has not been discharged, or the Lien of the
Subordinated Spare Parts Mortgage has not been discharged, to the Secured Party
to be held as security under this Mortgage and/or the Subordinated Spare Parts
Mortgage in such proportion as the Secured Party may elect;

 

SEVENTH, to the payment
of the surplus, if any, to whoever may be lawfully entitled to receive such
surplus.

 

In carrying out the
foregoing, (i) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category
and (ii) if amounts available are insufficient to pay all amounts due
within any category, such available amounts shall be paid pro rata to the
parties entitled thereto based upon the amount due under such category to each
such party.

 

Section 4.05.          Turnover
of Payments to Senior Secured Party. 
Until the Lien of the Senior Mortgage shall have been discharged, the
Secured Party and each Beneficiary shall hold in trust for the benefit of the
Senior Secured Party and the Lenders and shall promptly pay to the Senior
Secured Party for the benefit of such Persons any proceeds of the Collateral
for distribution in accordance with the Senior Mortgage.

 

26

 

ARTICLE 5.

 

INTENTIONALLY
LEFT BLANK

 

ARTICLE 6.

 

SECURITY
FUNDS

 

Section 6.01.          Investment
of Security Funds.  Any monies paid
to or received by the Secured Party as cash collateral or 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 3.04(d),
3.04(f) and 3.05(d) hereof), but which the Secured Party 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 a Subordinated
Event of Default), shall, until paid to the Company or applied as provided herein,
be subject to the Lien of this Mortgage and be invested by the Secured Party at
the written authorization and direction of the Company (or, if a Subordinated
Event of Default shall have occurred and be continuing, the Secured Party) from
time to time at the sole expense and risk of the Company in Permitted
Investments.  All Permitted Investments
held by the Secured Party pursuant to this Section 6.01 shall either be (a)
registered in the name of, payable to the order of, or specially endorsed to,
the Secured Party or (b) held in an Eligible Account.  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 a Subordinated Event of Default shall have occurred and be
continuing.  The Secured Party shall not
be liable for any loss relating to a Permitted Investment made pursuant to this
Section 6.01.  The Company will promptly
pay to the Secured Party, 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).  Any
amount paid under the preceding sentence in respect of a net loss on
investments shall be subject to the Lien of this Mortgage and shall be held as
Collateral for as long as the Permitted Investments in respect of which it was
paid are required to be held as Collateral hereunder and shall be returned to
the Company whenever such Permitted Investments are required hereby to be
returned to the Company.

 

ARTICLE 7.

 

MISCELLANEOUS

 

Section 7.01.          Termination
of Mortgage.  

 

(a)           So long as no
Subordinated Default or Subordinated Event of Default shall have occurred and
be continuing and subject to Section 7.01(b) below, upon (or at any time after)
the later of (i) payment in full of the Loans and all other Senior Obligations,
or (ii) the Maturity Date (or if on the later of the dates set forth in the
preceding clauses (i) and (ii), a case is pending under the Bankruptcy Code in
which the Company is a debtor, then (x) if such case is under Chapter 11 of the
Bankruptcy Code, upon effectiveness of the Company’s plan of reorganization

 

27

 

in such Chapter 11 case if no Obligations are then due and unpaid, or
(y) if clause (x) is not applicable, at such time as all Obligations that
are allowed claims (within the meaning of Section 502 of the Bankruptcy Code)
in such case and secured under this Mortgage have been paid in full), the
Secured Party shall, upon the written request of the Company execute and
deliver to, or as directed in writing by, the Company an appropriate instrument
(in due form for recording) releasing the Engines and the balance of the
Collateral from the Lien of this Mortgage and, in such event, this Mortgage
shall terminate and this Mortgage shall be of no further force or effect.  If, upon the later of the dates determined in
accordance with the first sentence of this Section 7.01(a) (after giving effect
to any extension resulting from the parenthetical set forth following subclause
(ii) above), any Subordinated Default shall have occurred and be continuing,
then (A) if such Subordinated Default is fully cured by the Company prior to
the expiration of the grace period applicable to such Subordinated Default,
then the Secured Party shall release this Mortgage and the Collateral from the
Lien of this Mortgage promptly following such cure, and (B) if such
Subordinated Default matures into a Subordinated Event of Default as a result
of the Borrower’s failure to cure within the applicable grace period(s), then,
as long as such Subordinated Event of Default is continuing, the Secured Party
shall have and may exercise any and all rights contemplated by Article 4 hereof
and applicable law.

 

(b)           In the event that the
Company elects to, and makes, a prepayment in full of the Loans and other
Senior Obligations prior to the Maturity Date pursuant to and in compliance
with Section 1.1(c) of the Loan Agreement, then, so long as no Subordinated
Default or Subordinated Event of Default shall have occurred and be continuing,
upon (or at any time after) the later of (i)  ninety (90) days following
the provision of Acceptable Collateral in the amount and manner and for the
purposes specified in Section 2.6 of the Indemnity Agreement, and (ii) the
Designated Date (or if on the later of the dates set forth in the preceding
clauses (i) and (ii), a case is pending under the Bankruptcy Code in which the
Company is a debtor, then (x) if such case is under Chapter 11 of the
Bankruptcy Code, upon effectiveness of the Company’s plan of reorganization in
such Chapter 11 case if no Obligations are then due and unpaid, or (y) if
clause (x) is not applicable, at such time as all Obligations that are allowed
claims (within the meaning of Section 502 of the Bankruptcy Code) in such case
and secured under this Mortgage have been paid in full), the Secured Party
shall, upon the written request of the Company execute and deliver to, or as
directed in writing by, the Company an appropriate instrument (in due form for
recording) releasing the Pledged Spare Parts and the balance of the Collateral
from the Lien of this Mortgage and, in such event, this Mortgage shall
terminate and this Mortgage shall be of no further force or effect.  If, upon the later of the dates determined in
accordance with the first sentence of this Section 7.01(b) (after giving effect
to any extension resulting from the parenthetical set forth following subclause
(ii) above), then (A) if such Subordinated Default is fully cured by the
Company prior to the expiration of the grace period applicable to such
Subordinated Default, then the Secured Party shall release this Mortgage and
the Collateral from the Lien of this Mortgage promptly following such cure, and
(B) if such Subordinated Default matures into a Subordinated Event of Default
as a result of the Borrower’s failure to cure within the applicable grace
period(s), then, as long as such Subordinated Event of Default is continuing,
the Secured Party shall have and may exercise any and all rights contemplated
by Article 4 hereof and applicable law.

 

Section 7.02.          Alterations
to Mortgage.  No amendment to or
waiver of any provision of this Mortgage, nor consent to any departure by the
Company herefrom, shall in any

 

28

 

event
be effective unless the same shall be in writing and signed by the Secured
Party and the Company, and any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.

 

Section 7.03.          No
Legal Title to Collateral.  Neither
the Secured Party nor any of the Beneficiaries shall have legal title to any
part of the Collateral.  No transfer, by
operation of Law or otherwise, of any right, title or interest in respect of
any of the Obligations or any right, title and interest of the Secured Party or
any Beneficiary in and to the Collateral or this Mortgage shall operate to
terminate this Mortgage or entitle any successor or transferee to an accounting
or to the transfer to it of legal title to any part of the Collateral.

 

Section 7.04.          Sale
of the Engines by Secured Party Is Binding. 
Any sale or other conveyance of the Collateral, or any part thereof or
any interest therein by the Senior Secured Party or the Secured Party made
pursuant to and in accordance with the terms of the Senior Mortgage or this
Mortgage, respectively, shall bind the Secured Party and the Beneficiaries, and
shall be effective to transfer or convey all right, title and interest of the
Secured Party, the Beneficiaries and the Company, in and to such Collateral, or
such part thereof or 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 Secured Party.

 

Section 7.05.          Benefit
of Mortgage.  Nothing in this
Mortgage, whether express or implied, shall be construed to give to any Person
other than the Company, the Beneficiaries and the Secured Party any legal or
equitable right, remedy or claim under or in respect of this Mortgage.

 

Section 7.06.          Section 1110 of the
Bankruptcy Code.  It is the intention
of the parties hereto that the security interest created hereby entitles the
Secured Party on behalf of the Beneficiaries to all of the benefits of Section
1110 of Chapter 11 of the Bankruptcy Code in respect of the Engines and Engine
Documents in the event of the Company becomes a debtor under such Chapter.

 

Section 7.07.          Notices.  Unless otherwise expressly specified or
permitted by the terms hereof, any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served or sent by telefacsimile, United States mail, courier service or
overnight delivery and shall be effective when received addressed:

 

29

 

	
  (i)

  	
  if to the Company, at its office at

  
	
   

  	
   

  
	
   

  	
  Independence
  Air, Inc.

  
	
   

  	
  Executive
  Offices

  
	
   

  	
   

  
	
   

  	
  45200 Business
  Court

  
	
   

  	
  Dulles, VA 20166

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  General Counsel

  
	
   

  	
  Telephone:

  	
  (703) 650-6006

  
	
   

  	
  Telecopy:

  	
  (703) 650-6294

  
	
   

  	
  email:

  	
  rick.kennedy@flyi.com

  
	
   

  	
   

  
	
  (ii)

  	
  if to the Secured Party, at its office at

  
	
   

  	
   

  
	
   

  	
  c/o GE Capital
  Aviation Services, Inc.

  
	
   

  	
  201 High Ridge
  Road

  
	
   

  	
  Stamford,
  Connecticut 06927

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
  Customer
  Services

  
	
   

  	
  Telephone:

  	
  (203) 357-3776

  
	
   

  	
  Telecopy:

  	
  (203) 357-3201

  
	
   

  	
  Email:

  	
  nanotices@gecas.com

  
	
   

  	
   

  
	
  (iii)

  	
  if to any Beneficiary, at its address for notices to
  it provided under the Indemnity Agreement,

  

 

or, as to any
party, at such other address as such party shall from time to time designate by
written notice to the other parties in accordance with this Section 7.07.

 

Section 7.08.          Severability.  Should any one or more provisions of this
Mortgage be determined to be illegal or unenforceable by a court of any
jurisdiction, such provision shall be ineffective to the extent of such
illegality or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provisions in any
other jurisdiction.  The Company and the
Secured Party agree, as to such jurisdiction and to the extent permitted by
such jurisdiction’s Laws, to replace any provision of this Mortgage which is so
determined to be illegal or unenforceable by a valid provision which has as
nearly as possible the same effect; provided that such replacement provision
shall not expand the Company’s or the Secured Party’s obligations hereunder.

 

Section 7.09.          Separate
Counterparts.  This Mortgage may be
executed in any number of counterparts (and each of the parties hereto shall
not be required to execute the same counterpart).  Each counterpart of this Mortgage executed by
a party hereto shall be an original counterpart of this Mortgage, and all of
such counterparts together shall constitute one instrument.

 

30

 

Section 7.10.          Successors
and Assigns.  All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Company and its successors and permitted assigns, and the Secured Party and
its successors and permitted assigns, all as herein provided.

 

Section 7.11.          Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

Section 7.12.          Governing
Law; Submission to Jurisdiction; Venue. 

 

(a)           This
Mortgage and the rights and obligations of the parties hereunder shall be
construed in accordance with and be governed by the laws of the State of New
York.  Any legal action or proceeding
with respect to this Mortgage may be brought in the courts of the State of New
York or the United States for the Southern District of New York located in the
Borough of Manhattan, and, by execution and delivery of this Mortgage, each
party hereto hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts.  Each party hereto hereby further
irrevocably waives any claim that any such courts lack jurisdiction over such
party, and agrees not to plead or claim, in any legal action or proceeding with
respect to this Mortgage brought in any of the aforesaid courts, that any such
court lacks jurisdiction over such party. 
Each party hereto further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
it at its address specified pursuant to Section 7.07, such service to
become effective 30 days after such mailing. 
Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law or to commence legal proceedings
or otherwise proceed against any other party hereto in any other jurisdiction. 

 

(b)           Each
party hereto hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Mortgage brought in the courts
referred to in clause (a) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.

 

Section 7.13.          Waiver of Trial by Jury.  TO
THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO IRREVOCABLY WAIVES
ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF, OR IN CONNECTION WITH, THIS MORTGAGE OR ANY MATTER ARISING THEREUNDER.

 

[Remainder
of this page is blank.]

 

31

 

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

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GENERAL
  ELECTRIC CAPITAL

  CORPORATION, as agent for the Beneficiaries, as

  Secured Party

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

32

 

APPENDIX
A

 

DEFINITIONS RELATING TO THE

MORTGAGE AND SECURITY AGREEMENT

 

General Provisions

 

(a)           Unless
otherwise expressly provided, a reference to:

 

(i)            each
of “the Company,” “Secured Party” or any other person includes, without
prejudice to the provisions of any Transaction Document, any successor in
interest to it and any permitted transferee or permitted assignee of it;

 

(ii)           words
importing the plural include the singular and words importing the singular
include the plural;

 

(iii)          any
agreement, instrument or document, or any annex, schedule or exhibit
thereto, or any other part thereof, includes, without prejudice to the
provisions of any Transaction Document, that agreement, instrument or document,
or annex, schedule or exhibit, or part, respectively, as amended, modified
or supplemented from time to time in accordance with its terms and in
accordance with the Transaction Documents, and any agreement, instrument or
document entered into in substitution or replacement therefor;

 

(iv)          any
provision of any Law includes any such provision as amended, modified,
supplemented, substituted, reissued or reenacted prior to the Closing Date, and
thereafter from time to time;

 

(v)           the
words “Mortgage,” “this Mortgage,” “hereby,” “herein,” “hereto,” “hereof” and “hereunder”
and words of similar import when used in the Mortgage refer to the Mortgage as
a whole and not to any particular provision of the Mortgage;

 

(vi)          the
words “including,” “including, without limitation,” “including, but not limited
to,” and terms or phrases of similar import when used in the Mortgage, with
respect to any matter or thing, mean including, without limitation, such matter
or thing; and

 

(vii)         a
“Section,” an “Exhibit,” an “Appendix,” an “Annex” or a “Schedule” referred to
in the Mortgage, or in any annex thereto, is a reference to a section of,
or an exhibit, an appendix, an annex or a schedule to, the Mortgage or
such annex, respectively.

 

(b)           Each
exhibit, appendix, annex and schedule to the Mortgage is incorporated in,
and shall be deemed to be a part of, the Mortgage.

 

(c)           Headings
used in the Mortgage are for convenience only and shall not in any way affect
the construction of, or be taken into consideration in interpreting, the
Mortgage.

 

A-1

 

(d)           The
occurrence and continuance of a Default, Special Default, Subordinated Event of
Default or Event of Default shall not be deemed to prohibit the Company from
taking any action or exercising any right that is conditioned on no Default, Special
Default, Subordinated Event of Default or Event of Default having occurred and
be continuing if such Default, Special Default, Subordinated Event of Default
or Event of Default consists of the institution of reorganization proceedings
with respect to the Company under Chapter 11 of the Bankruptcy Code and the
trustee or debtor-in-possession in such proceedings shall have agreed to
perform its obligations under the Mortgage with the approval of the applicable
court and thereafter shall have continued to perform such obligations in
accordance with Section 1110 of the Bankruptcy Code.

 

Definitions

 

“Additional
Parts” has the meaning specified in Section 3.03(d) of
the Mortgage.

 

“Affiliate”
means, with respect to any person, any other person directly or indirectly
controlling, controlled by or under common control with such person.  For purposes of this definition, “control” means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise and “controlling,” “controlled by” and “under common control with” have
correlative meanings.

 

“Aircraft”
means an airframe on which an Engine is then installed.

 

“Bankruptcy
Code” means Title 11 of the United States Code.

 

“Beneficiaries”
has the meaning
given to such term in the Indemnity Agreement.

 

“Business
Day” means any day except Saturday, Sunday and any day which
shall be in New York City or Dulles, Virginia a day on which banking
institutions are authorized or required by Law to close.

 

“Certificated
Air Carrier” means a Person holding an air 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.

 

“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.

 

“Closing
Date” means the date on which the Loans are made pursuant to
the Loan Agreement.

 

“Collateral”
has the meaning given such term in Section 2.01 of the Mortgage.

 

A-2

 

“Collateral
Agent Agreement” has the meaning given such term in the Loan
Agreement.

 

“Company”
means Independence Air, Inc., a California corporation.

 

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

 

“Designated
Date” means the third (3rd) anniversary of the
Funding Date.

 

“Disposed
Engine” has the meaning set forth in Section 3.04(h).

 

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

 

“EASA”
means the European Aviation Safety Agency, and any agency or instrumentality
succeeding to its functions.

 

“Eligible
Account” means an account established by and with an Eligible
Institution at the request of the Secured Party, which institution agrees, for
all purposes of the New York UCC including Article 8 thereof, that (a) such
account shall be a “securities account” (as defined in Section 8-501
of the New York UCC), (b) such institution is a “securities intermediary”
(as defined in Section 8-102(a)(14) of the New York UCC), (c) all
property (other than cash) credited to such account shall be treated as a “financial
asset” (as defined in Section 8-102(9) of the New York UCC), (d) the
Secured Party shall be the “entitlement holder” (as defined in Section 8-102(7) of
the New York UCC) in respect of such account, (e) it will comply with all
entitlement orders issued by the Secured Party to the exclusion of the Company,
(f) it will waive or subordinate in favor of the Secured Party all claims
(including without limitation, claims by way of security interest, lien or
right of set-off or right of recoupment), and (g) the “securities
intermediary jurisdiction” (under Section 8-110(e) of the New
York UCC) shall be the State of New York.

 

“Eligible
Institution” a depository institution organized under the
Laws of the United States of America or any of the states thereof or the
District of Columbia (or any U.S. branch of a foreign bank), which has a
long-term unsecured debt rating from Moody’s and Standard & Poor’s of
at least A3 or its equivalent.

 

“Engine”
means (a) each of the engines listed in Annex A to each Mortgage
Supplement executed and delivered by the Company pursuant to the Loan Agreement
and (b) any and all Parts incorporated or installed in or attached or
appurtenant to such engine, and any and all Parts removed from such engine,
unless the Lien of the Mortgage shall not apply to such Parts in accordance
with Section 3.03 of the Mortgage. 
Upon substitution of a Replacement Engine in accordance with Section 3.04
of this Mortgage, any such Replacement Engine shall become subject to the
Mortgage and shall be an “Engine” for all purposes of this Mortgage and the
Loan Agreement.  Upon substitution of a
Replacement Engine in accordance with Section 3.04 of the Mortgage, the
Engine released pursuant to such Section shall no longer be subject to the
Mortgage, and such released Engine shall cease to be an “Engine.”  Each Engine shall be bare and shall not
include QEC or any other parts associated with any Aircraft.

 

A-3

 

“Engine
Container” means each engine container identified by serial
number on Annex A to each Mortgage Supplement.

 

“Engine
Documents” means all technical data, manuals and log books,
and all inspection, modification and overhaul records and other service,
repair, maintenance and technical records that are required by the Company’s
(or, in the case of any Engine subject to a Lease, such Lessee’s) maintenance
program in accordance with the requirements of the FAA to be maintained with
respect to the Engines or Parts, and such term shall include all additions,
renewals, revisions and replacements of any such materials from time to time
made, or required to be made, in accordance with FAA regulations, and in each
case in whatever form and by whatever means or medium (including, without
limitation, microfiche, microfilm, paper or computer disk) such materials may
be maintained or retained by or on behalf of the Company (provided, that all
such materials shall be maintained in the English language).

 

“Event
of Default” has the meaning given such term in the Loan
Agreement until the Lien of the Senior Mortgage shall have been discharged and
thereafter shall mean a Subordinated Event of Default.

 

“Event
of Loss” means, with respect to any Engine, any of the
following circumstances, conditions or events with respect to such Engine, for
any reason whatsoever:

 

(a)           the
destruction of such Engine, damage to such Engine beyond practical or economic
repair or rendition of such Engine permanently unfit for normal use by the
Company;

 

(b)           the
actual or constructive total loss of such Engine or any damage to such Engine,
or requisition of title or use of such Engine, which results in an insurance
settlement with respect to such Engine on the basis of a total loss or
constructive or compromised total loss;

 

(c)           any
theft, hijacking or disappearance of such Engine for a period of 90 consecutive
days or more;

 

(d)           any
seizure, condemnation, confiscation, or taking of, or requisition of title to,
such Engine by any Governmental Authority or purported Governmental Authority
(other than a requisition of use by the U.S. Government) for a period exceeding
90 consecutive days;

 

(e)           any
seizure, condemnation, confiscation, taking or requisition of use of such
Engine that continues until the earliest of (i) the date upon which such
Engine is modified, altered or adapted in such a manner as would render
conversion of such Engine for use in normal commercial passenger service impractical
or uneconomical, (ii) the date on which such Engine is operated or located
in any area excluded from coverage by any insurance policy required to be
maintained in respect of such Engine pursuant to the Mortgage (unless an
indemnity in lieu of insurance is provided to the Secured Party in accordance
with Section 3.05(c) of the Mortgage) or (iii) the date that is
90 days following the commencement of such loss of use (unless such loss of use
results from

 

A-4

 

action by the U.S. Government, in which case this clause (iii) shall
not apply to such loss of use); and

 

(f)            as
a result of any Law, rule, regulation, order or other action by the FAA, the
use of such Engine in the normal course of the Company’s business of passenger
air transportation is prohibited for a period expiring on the date that is 90
days following commencement of such prohibition, provided that if the
Company, prior to the expiration of such 90-day period, shall have
undertaken and shall be diligently carrying forward all steps which are
necessary or desirable to permit the normal use of such Engine by the Company,
then the date that is six (6) months following commencement of such
prohibition.

 

The date of such Event of
Loss shall be the date of such loss, damage, insurance settlement, seizure,
condemnation, confiscation, taking or requisition of title or use or
prohibition, except that, for purposes of clauses (c), (d), (e) and (f) above,
no Event of Loss shall be deemed to have occurred until the date of expiration
of the applicable period referred to therein.

 

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

 

“Federal
Aviation Act” means Part A of Subtitle VII of Title 49,
United States Code.

 

“Funding
Date” has the
meaning given such term in the Loan Agreement.

 

“Governmental
Authority” means (a) any federal, state, provincial or
similar government, and any body, board, department, commission, court,
tribunal, authority, agency or other instrumentality of any such government or
otherwise exercising any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other government entity
having jurisdiction over any matter contemplated by the Transaction Documents
or relating to the observance or performance of the obligations of any of the
parties to the Transaction Documents.

 

“Guarantor” means FLYi, Inc., a Delaware
corporation.

 

“Guaranty”
has the meaning
specified in the Indemnity Agreement.

 

“IAI
Transaction Documents” has
the meaning given to such term in the Indemnity Agreement.

 

“Indemnity
Agreement” means the Payment and Indemnity Agreement dated as
of February 18, 2005 among the Company, the Beneficiaries and the Secured
Party.

 

“Law”
means (a) any constitution, treaty, statute, law, decree, regulation,
order, rule or directive of any Governmental Authority, and (b) any
judicial or administrative interpretation or application of, or decision under,
any of the foregoing.

 

A-5

 

“Lease”
means any lease permitted by the terms of Section 3.02(a)(vii) of the
Mortgage.

 

“Lender”
has the meaning given to that term in the Loan Agreement.

 

“Lessee”
means any lessee permitted by the terms of Section 3.02(a) of the
Mortgage.

 

“Lien”
means any mortgage, pledge, lien, charge, encumbrance, lease, or security
interest affecting the title to or interest in property.

 

“Loans”
has the meaning given to that term in the Loan Agreement.

 

“Loan
Agreement” means the Loan Agreement dated as of February 17,
2005 among the Company, General Electric Capital Corporation, the Senior
Secured Party and the Lenders from time to time party thereto.

 

“Maturity
Date” means the fifth (5th) anniversary of the
Funding Date.

 

“Maximum
Deductible Amount” has the meaning set forth in Schedule II
to the Indemnity Agreement.

 

“Minimum
Liability Amount”
has the meaning set forth in Schedule II to the Indemnity Agreement..

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“Mortgage”
means the Subordinated Engine Mortgage and Security Agreement covering the
Collateral dated as of February 18, 2005, between the Company and the
Secured Party.

 

“Mortgage
Supplement” means any supplement to the Mortgage from time to
time executed and delivered.

 

“New
York UCC”  means the
Uniform Commercial Code as in effect in the State of New York.

 

“Obligations”
means the Guaranteed Amount (as defined in the Indemnity Agreement), and all
other obligations of every nature of the Company from time to time owed to the
Secured Party, the Beneficiaries or any of them under the Indemnity Agreement
or any other Transaction Document.

 

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

 

“Parts”
means any and all appliances, parts, instruments, appurtenances, modules, accessories,
and other equipment of whatever nature, other than QEC, which may from

 

A-6

 

time to time be incorporated or installed in or
attached to any Engine or removed therefrom unless the Lien of the Mortgage
shall not be applicable to such Parts in accordance with Section 3.03 of
the Mortgage.

 

“Permitted
Air Carrier” means (i) any U.S. Air Carrier or (ii) any
air carrier holding a valid air carrier operating certificate issued pursuant
to the applicable regulations of Transport Canada Aviation (or any successor
agency thereto).

 

 “Permitted Investments”
means (i) securities issued or directly and fully guaranteed by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof), the Federal Home Loan Mortgage Corporation, the Student Loan
Marketing Association and the Federal National Mortgage Association, in all
cases having a maturity of not more than 90 days or, in the case of auction
rate notes issued by any of the foregoing, having an action reset interval of
not more than 30 days; (ii) certificates of deposit, bankers’ acceptances,
repurchase agreements or time deposits issued or accepted or guaranteed by 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 or AA or
better by Standard & Poor’s 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 A1 by Standard & Poor’s 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 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
Liens” has them meaning given such term in Section 3.01
of the Mortgage.

 

“Person”
has the meaning given to such term in the Loan Agreement.

 

“Qualified
PBH Program” means
an engine maintenance arrangement with a third-party FAA licensed maintenance
and repair vendor that either (1) is subject to a tri-party agreement
among the vendor, the Company and the Secured Party that is satisfactory in
form and substance to the Secured Party in its sole discretion, or (2) meets
all of the following criteria:  (a) a
true and complete (except for the redaction of pricing information) copy of the
contract between the Company and such vendor shall have been provided to the
Secured Party and the Secured Party shall have approved the requirements of
such contract as to engine build standards to be met by the vendor, which
approval may be given or withheld in the Secured Party’s sole discretion, (b) the
Company and such vendor shall have jointly represented to the Secured Party, in
a written instrument acceptable to the Secured Party in its sole discretion,
that the copy of the contract between them provided to the Secured Party is a
true and complete copy of such contract, except for the redaction of pricing
information, (c) the Company and such vendor shall have jointly covenanted
and agreed for the benefit of the Secured Party and the Beneficiaries, in a
written instrument acceptable to the Secured Party in its sole discretion, that
they will not

 

A-7

 

amend any of the provisions
of such contract relating to engine build standard requirements without the
Secured Party’s prior written consent to such amendment; and (d) such
vendor agrees, for the benefit of the Secured Party and the Beneficiaries and
pursuant to documentation that is acceptable to the Secured Party in its sole
discretion, that it shall not assert a Lien against any Engine.

 

“Replacement
Closing Date” has the meaning given such term in Section 3.04(c) of
the Mortgage.

 

“Replacement
Engine” means an engine substituted for an Engine pursuant to
Section 3.04 of the Mortgage.

 

“Secured
Party” means General Electric Capital Corporation, in its
capacity as Secured Party under this Mortgage.

 

“Senior
Mortgage” means the Engine Mortgage and Security Agreement,
dated as of the date hereof, as amended, supplemented and otherwise modified
from time to time between the Company and General Electric Capital Corporation,
as secured party thereunder, which secures, among other things, the Company’s
obligations under the Loan Agreement.

 

“Senior
Obligations” means the “Obligations” as defined in the Senior
Mortgage.

 

“Senior
Secured Party” means the “Secured Party” as defined in the
Senior Mortgage.

 

“Series A
Loan” has the meaning set forth in the Loan Agreement.

 

“Special
Default” has the meaning given to that term in the Loan
Agreement until the Lien of the Senior Mortgage shall have been discharged and
thereafter shall mean any event pursuant to clauses (a), (b) or (f) of
the definition of “Subordinated Event of Default” or any event or condition
that with the lapse of time or giving of notice, or both, would constitute a “Subordinated
Event of Default” under clauses (a), (b) or (f) of such definition;
provided, however, that with respect to any payment contemplated by clause (b) of
such definition that is due upon demand, rather than within some specified
period following demand, no “Special Default” shall arise under this definition
unless and until any failure to pay continues for five (5) Business Days
following the date of such demand.

 

“Standard &
Poor’s” means Standard & Poor’s Rating Services.

 

“Subordinated
Default” means any event or condition that with the lapse of
time or giving of notice, or both, would constitute a “Subordinated Event of
Default”.

 

“Subordinated
Event of Default” means each of the following events, whether
any such event shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree
or order of any court or any order, rule or regulation of any
administrative or governmental body:

 

A-8

 

(a)           The
Company shall fail to pay any Guaranteed Amount (as defined in the Indemnity
Agreement) after the expiration of any grace period or the giving of any notice
(or both) applicable to the payment that the Company failed to make under an
IAI Transaction Document which resulted in such Guaranteed Amount becoming due;
or

 

(b)           The
Company or the Guarantor shall fail to pay any amount (other than any
Guaranteed Amount) payable hereunder or under any Transaction Document when due
and such failure shall continue for a period of ten Business Days after such
payment becomes due; or

 

(c)           Any
representation or warranty made by the Company or the Guarantor in Section 3.1
of the Indemnity Agreement or pursuant to any other Transaction Document, or
any amendment or modification of any Transaction Document, or in any report,
certificate or other document prepared by the Company or the Guarantor and
furnished pursuant to or in connection with any Transaction Document or any
amendment or modification thereof or waiver thereunder shall prove to have been
incorrect in any material respect when made, such incorrect representation or
warranty is material at the time in question, and, if curable, the same shall
remain uncured for a period in excess of 30 days after the date of written
notice thereof from the Secured Party; or

 

(d)           The
Company or the Guarantor shall fail to perform or observe any term, covenant or
agreement contained in this Mortgage or any other Transaction Document (other
than those referred to in clauses (a) and (b) above) on its part to
be performed or observed and such failure shall remain unremedied for a period
of 30 days after written notice of such failure shall have been given to the
Company by the Secured Party, unless such failure is capable of being corrected
and the Company or the Guarantor, as the case may be, shall be diligently proceeding
to correct such failure, in which case there shall be no Subordinated Event of
Default unless and until such failure shall continue unremedied for a period of
60 days after receipt of such notice; or

 

(e)           The
Company or the Guarantor shall consent to the appointment of or the taking of
possession by a receiver, trustee or liquidator of itself or of substantially
all of its property, or the Company or the Guarantor shall admit in writing its
inability to pay its debts generally as they come due, or does not pay its
debts generally as they become due or shall make a general assignment for the
benefit of creditors, or the Company or the Guarantor shall file a voluntary
petition in bankruptcy or a voluntary petition or an answer seeking
reorganization, liquidation or other relief in a case under any bankruptcy laws
or other insolvency laws (as in effect at such time), or the Company or the
Guarantor shall seek relief by voluntary petition, answer or consent, under the
provisions of any other bankruptcy or other similar law providing for the
reorganization or winding-up of corporations (as in effect at such time) or the
Company’s or the Guarantor’s board of directors shall adopt a resolution
authorizing any of the foregoing; or

 

(f)            An
order, judgment or decree shall be entered by any court of competent
jurisdiction appointing, without the consent of the Company or the Guarantor,

 

A-9

 

as the case may
be, a receiver, trustee or liquidator of the Company or the Guarantor or of
substantially all of their respective property, or substantially all of the
property of the Company or the Guarantor shall be sequestered, and any such
order, judgment or decree of appointment or sequestration shall remain in force
undismissed, unstayed and unvacated for a period of 60 days after the date of
entry thereof; or a petition against the Company or the Guarantor in a case
under any bankruptcy laws or other insolvency laws (as in effect at such time)
is filed and not withdrawn or dismissed within 60 days thereafter, or if, under
the provisions of any law providing for reorganization or winding-up of
corporations which may apply to the Company or the Guarantor, any court of
competent jurisdiction assumes jurisdiction, custody or control of the Company
or of substantially all of its property and such jurisdiction, custody or
control remains in force unrelinquished, unstayed and unterminated for a period
of 60 days; or

 

(g)           The
Company shall fail to carry and maintain, or cause to be carried and
maintained, insurance on and in respect of any Engine in accordance with the
provisions of Section 3.05 of this Mortgage; or

 

(h)           The
Company shall cease to be a Certificated Air Carrier; or

 

(i)            This
Mortgage shall for any reason cease to be a valid second-priority (or, if the
Senior Mortgage shall have been terminated, first-priority) perfected security
interest (subject to Permitted Liens) in favor of the Secured Party in the
Company’s right, title and interest in and to the Engines under the laws of the
United States of America and assuming that the Engines are located in the
United States of America (and, if any Engine is subject to a Lease to a Lessee
domiciled in any other jurisdiction, such jurisdiction, assuming that such
Engine is located in such jurisdiction); or

 

(j)            For
so long as the Lien of the Senior Mortgage has not been discharged, any “Event
of Default” as defined in the Loan Agreement (it being understood, for
avoidance of doubt, that if such Event of Default is cured or otherwise ceases
to exist it shall cease to be a Subordinated Event of Default); or

 

(k)           The
Loans shall be prepaid in full or in part prior to the Maturity Date in any
manner or under any circumstances other than as permitted by Section 1.1(c) or
required by Section 1.1(d) of the Loan Agreement.

 

“Subordinated
Spare Parts Mortgage” has the meaning given to that term in
the Loan Agreement.

 

“Taxes”
has the meaning given to that term in the Loan Agreement.

 

“Termination
Value” means, in the case of each Engine, the Termination
Value for such Engine (or the Engine that such Engine replaced) on Schedule III
to the Indemnity Agreement.

 

“Threshold
Amount” has the
meaning set forth in Schedule II to the Indemnity Agreement.

 

A-10

 

“Transaction
Documents” means the Indemnity Agreement, the Guaranty, this
Mortgage, the Subordinated Spare Parts Mortgage and each Mortgage Supplement.

 

“UCC” or “Uniform
Commercial Code” means the Uniform Commercial Code as in
effect in any applicable 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.

 

“U.S.
Government” means the federal government of the United
States, or any instrumentality or agency thereof the obligations of which are
guaranteed by the full faith and credit of the federal government of the United
States.

 

“Warranties”“
has the meaning given to that term in Section 2.01 of the Mortgage.

 

“Wet
Lease” means any arrangement whereby the Company or a Lessee
agrees to furnish an Aircraft to a third party pursuant to which such Aircraft
(including any Engines attached thereto) shall at all times be in the
operational control of, and insured by, the Company or such Lessee, provided
that the Company’s obligations under this Mortgage shall continue in full force
and effect notwithstanding any such arrangement.

 

A-11

 

APPENDIX
B

 

INSURANCE

 

Capitalized terms used but not defined herein shall
have the respective meanings set forth or incorporated by reference in Appendix
A to the Mortgage.

 

A.                    Bodily Injury Liability and Property Damage Liability Insurance.

 

1.             Except as provided in
paragraph 2 of this Section A, the Company will at all times carry
and maintain or cause to be carried and maintained, at no expense to the
Secured Party or any of the Lenders, on a non-discriminatory basis,
comprehensive airline liability insurance, including passenger legal liability,
bodily injury liability, products liability, property damage liability and contractual
liability (exclusive of manufacturer’s product liability insurance) with
respect to the Aircraft and the Engines (a) in an amount per occurrence
not less than the greater of (x) the amount of comprehensive airline legal
liability insurance from time to time applicable to aircraft owned or leased
and operated by the Company of the same type and operating on similar routes as
the Aircraft and (y) the Minimum Liability Amount, (b) of the type
and covering the same risks as from time to time applicable to aircraft
operated by the Company (or any lessee to whom such Engine is leased under and
in accordance with Section 3.02(a) hereof, a “Permitted Lessee”) of
the same type which comprise the Company’s (or such Permitted Lessee’s) fleet
and (c) which is maintained in effect with insurers or reinsurers of
recognized responsibility.  The Company
shall maintain cargo liability insurance in an amount not less than the amount
of cargo liability insurance maintained for other aircraft operated by the
Company.  Such insurance shall in any
event include cover for war risks and allied perils liability insurance in
accordance with London form AVN52D as in effect on January 1, 2005 or its
substantive equivalent, or in the case that such coverage is maintained through
the FAA, Chapter 443 of Title 49 of the United States Code as in effect on January 1,
2005, and such war risks and allied perils liability insurance shall be for an
amount not less than the greater of (i) the Minimum Liability Amount and (ii) the
amount carried by the Company in respect of similar aircraft owned or otherwise
operated by the Company.

 

2.             During any period
that the Aircraft or an Engine is on the ground and not in operation, the
Company may carry or cause to be carried, in lieu of the insurance required by
paragraph 1 above, insurance otherwise conforming to the provisions of
said paragraph 1 except that (a) the amounts of coverage shall not be
required to exceed the amounts of bodily injury liability and property damage
liability insurance from time to time applicable, in the case of the Aircraft,
to aircraft owned or leased by the Company (or any Permitted Lessee) of the
same or similar type as the Aircraft which comprise the Company’s (or such
Permitted Lessee’s) fleet, or, in the case of an Engine, to engines owned or
operated by the Company (or such Permitted Lessee) of the same type as such
Engine, and in any such case which are on the ground and not in operation and (b) the
scope of the risks covered and the type of insurance shall be consistent with
industry practice for airlines operating only similarly-sized equipment on
similar routes and the same as from time to time shall be applicable, in case
of Aircraft, to aircraft owned or leased by the Company (or any Permitted
Lessee) of the same or similar type which comprise the Company’s (or such
Permitted Lessee’s) fleet, or in the case of an Engine, to engines owned or
operated by the Company (or such Permitted Lessee) of the same type as such
Engine, and in any case which are on the ground and not in operation.

 

B-1

 

B.                    Insurance Against Loss or Damage to the Aircraft or the Engines.

 

1.             Except as provided in
paragraph 2 of this Section B and subject to the additional agreement
between the Company and the Secured Party set forth in Schedule II to the
Indemnity Agreement, the Company shall at all times carry and maintain or cause
to be carried and maintained in effect with insurers or reinsurers of
recognized responsibility (i) ”all risk” aircraft hull insurance covering
the Aircraft and the Engines, (ii) fire, transit and extended coverage of
Engines and Parts while removed from the Aircraft and not replaced by similar
components, and (iii) war risk and allied perils insurance, including governmental
confiscation and expropriation (other than by the government of registry of the
Aircraft) and hijacking insurance (collectively, “War Risk Insurance”); as contained in London form
LSW 555B or its substantive equivalent; or in the case that such insurance
is maintained through the FAA, Chapter 443 of Title 49 of the United States
Code as in effect on January 1, 2005; provided, further, that the
foregoing insurance shall at all times while the Engines are subject to this
Mortgage be for an amount in the aggregate applicable to all the Engines not
less than the Termination Value of the Engines, and that when any Engine is
installed on an Aircraft, the agreed value of that Aircraft under the relevant
policy shall be automatically increased by the amount of the Termination Value
of such Engine.

 

All losses will be adjusted with the insurers by the Company (giving
due regard to the interest of the Additional Insureds).  However, in the event that an Event of
Default has occurred and is continuing, all losses will be adjusted among the
Company, the insurers and the Senior Secured Party (if the Lien of the Senior
Mortgage shall not then have been discharged) and the Secured Party (if the
Lien of the Senior Mortgage shall then have been discharged).

 

As between the Secured Party and the Company, the insurance payments
for any property damage loss to any Engine not constituting an Event of Loss
with respect thereto shall be paid, to the extent such proceeds are not paid by
the insurer(s) directly to the person effecting the repair, as follows:  all payments in respect of losses less than
or equal to the Threshold Amount shall be paid to the Company (or any Permitted
Lessee if directed by the Company), and all payments with respect to losses
greater than the Threshold Amount shall be paid to the Senior Secured Party (if
the Lien of the Senior Mortgage shall not then have been discharged) and to the
Secured Party (if the Lien of the Senior Mortgage shall then have been
discharged), to be held as collateral security for the Obligations, and applied
to reimburse the Company for accomplishing repairs and/or replacements as
required, or to pay suppliers directly for such repairs and/or replacements as
directed by the Company (or any Permitted Lessee if directed by the Company).  In the case of any payment to the Secured
Party (other than in respect of an Event of Loss of an Engine), the Secured
Party shall, upon receipt of evidence reasonably 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, and any interest or income earned thereon, to the
Company or its order.

 

2.             During any period
that an Aircraft or an Engine is on the ground and not in operation, the
Company may carry or cause to be carried, in lieu of the insurance required by
paragraph 1 above, insurance otherwise conforming with the provisions of
said paragraph 1 except that the scope of the risks and the type of insurance
shall be consistent with industry practice for airlines operating only
similar-sized equipment on similar routes the same as from

 

B-2

 

time to time applicable to aircraft and engines owned or leased and
operated by the Company (or any Permitted Lessee) of the same or similar type
which comprise the Company’s (or such Permitted Lessee’s) fleet similarly on
the ground and not in operation, provided that, the Company shall maintain or
cause to be maintained insurance against risk of loss or damage to each Engine
in an amount at least equal to the Termination Value of such Engine during such
period that such Engine is on the ground and not in operation.

 

C.            Reports, Etc.  The Company will furnish, or cause to be
furnished, to the Secured Party on or before the Closing Date and annually on
or before the renewal dates of the Company’s (or the Permitted Lessee’s)
relevant insurance policies required hereunder, a report, signed by any
reputable recognized independent firm of insurance brokers selected by the
Company, which brokers may be regularly retained by the Company or any
Permitted Lessee (the “Insurance Broker”),
describing in reasonable detail the hull and liability insurance then carried
and maintained with respect to the Aircraft and the Engines and stating the
opinion of such firm that, to its knowledge, such insurance complies with the
terms of this Appendix B.  Such
information shall remain confidential as provided in Section 6.12 of the
Indemnity Agreement. The Company will cause such Insurance Broker to agree to
advise the Secured Party in writing of any default in the payment of premium
and of any other act or omission on the part of the Company (or any Permitted
Lessee) of which it has actual knowledge and which will invalidate or render
unenforceable, in whole or in part, any insurance as required by the terms
hereof and to advise the Secured Party at least thirty (30) days (seven (7) days
in the case of War Risk Insurance and ten (10) days in the case of
nonpayment of premium) prior to the cancellation, lapse or material adverse
change of any insurance maintained pursuant to this Appendix B, provided that,
in respect of the War Risk Insurance, the Insurance Broker shall provide for
such shorter period as may be obtainable in the international insurance
market.  In the event that the Company
shall fail to maintain or cause to be maintained insurance as herein provided,
the Secured Party may, at its sole option, provide such insurance and, in such
event, the Company shall, upon demand, reimburse the Secured Party for the cost
thereof.

 

D.            Deductibles.  The insurance required by Section B.1(i) hereof
may be subject to a per occurrence deductible. 
With respect to the Aircraft and the Engines when on-wing, such
deductible shall be no greater than the Maximum Deductible Amount for any one
occurrence.  Said deductible shall not
apply in the case of a total loss of the Aircraft.

 

E.             Terms of Insurance
Policies.  Any policies carried in
accordance with Sections A and B hereof covering the Aircraft and the
Engines, and any policies taken out in substitution or replacement for any such
policies, as applicable, (1) shall name the Senior Secured Party, the
Lenders, the Secured Party and each of the Beneficiaries (the “Additional
Insureds”) as additional insureds, as their interests may appear, (2) in
the case of hull insurance, shall name the Senior Secured Party (until the Lien
of the Senior Mortgage shall have been discharged) and the Secured Party (from
and after the time that the Lien of the Senior Mortgage shall have been
discharged) as sole loss payee to the extent provided in clause (12)
below, (3) shall provide that if the insurers cancel such insurance for
any reason whatsoever, or the same is allowed to lapse for nonpayment of
premium or if any material change is made in the insurance which adversely
affects the interest of any Additional Insured, such cancellation, lapse, or
change shall not be effective as to the Additional Insureds for thirty
(30) days (or ten (10) days in the case of nonpayment of premium)
after issuance to (but, in the case of War Risk Insurance,

 

B-3

 

seven (7) days after sending to) the Additional Insureds of
written notice by such insurers of such cancellation or change, provided,
however, that if, in respect of the War Risk Insurance, such policies
shall provide for such shorter period as may be available in the international
insurance market, (4) shall provide that in respect of the Additional
Insureds’ respective interests in such policies the insurance shall not be
invalidated by any action or inaction of the Company (or any Permitted Lessee)
and shall insure the respective interests of the Additional Insureds regardless
of any breach or violation of any warranty, declaration or condition contained
in such policies by the Company (or any Permitted Lessee), (5) shall be
primary without any right of contribution from any other insurance which is
carried by any Additional Insured, (6) shall expressly provide that all of
the provisions thereof, except the limits of liability, shall operate in the
same manner as if a separate policy covered each insured, (7) shall waive
any right of subrogation of the insurers or 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 any Additional Insured, (8) shall provide that
losses (other than for total loss of an Engine) shall be adjusted with the
Company (or, if an Event of Default or Special Default shall have occurred
which is continuing, with the Senior Secured Party (until the Lien of the
Senior Mortgage shall have been discharged) and the Secured Party (from and
after the time that the Lien of the Senior Mortgage shall have been
discharged)), (9) shall provide that the Additional Insureds are not
liable for any insurance premiums, (10) shall be effective with respect to
both domestic and international operations, (11) shall provide that (i) except
as specified in clause (iii) below, in the event of a loss involving
proceeds in excess of the Threshold Amount, all proceeds in respect of such
loss up to the amount of Termination Value for an affected Engine shall, to the
extent such proceeds are not paid by the insurer(s) directly to the person
effecting the repair, be payable to the Senior Secured Party (until the Lien of
the Senior Mortgage shall have been discharged) and the Secured Party (from and
after the time that the Lien of the Senior Mortgage shall have been discharged)
to be held by such Person (whether such payment is made to the Company (or any
Permitted Lessee) or any third party), it being understood and agreed that in
the case of any payment to the Secured Party otherwise than in respect of an
Event of Loss of the Engine, the Secured Party shall, upon receipt of evidence
reasonably 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 or the replacement of the Engine suffering the Event of
Loss, pay the amount of such payment, and any interest or income earned
thereon, to the Company or its order, (ii) except as specified in the
following clause (iii), all proceeds equal to or less than the Threshold
Amount (regardless of the total amount of proceeds resulting from such loss)
and any proceeds of any loss in excess of Termination Value for the Engine
suffering such loss shall be paid to the Company or its order and (iii) notwithstanding
anything to the contrary contained in the preceding clauses (i) and (ii),
if a Special Default shall have occurred and be continuing and the insurers
have been notified thereof by the Secured Party, all proceeds of loss shall be
paid to the Senior Secured Party (until the Lien of the Senior Mortgage shall
have been discharged) and the Secured Party (from and after the time that the
Lien of the Senior Mortgage shall have been discharged), (12) if separate
hull and war risk coverage is maintained, shall contain a 50/50 clause in
accordance with AVS 103, (13) shall operate on a worldwide basis
subject to certain territorial restrictions which are usual and customary in
the War Risks market from time to time and (14) shall contain a provision
entitling the Secured Party to initiate a claim if an Event of Default shall be
continuing.

 

B-4

 

F.             Reinsurance.  The Company shall procure that in respect of
insurances maintained by the Company in accordance with the provisions in this
Appendix B the insurers shall maintain, if such insurances do not provide for
direct coverage in the markets hereafter referred to, reinsurance covering
identical subject matter and risk for an amount which shall not be less than
100% of the coverage amount under Sections A and B hereof in Lloyd’s of
London or other internationally recognized aviation insurance and/or
reinsurance markets.  Such reinsurance
shall contain a customary “cut-through” endorsement and shall provide that any
payment by the reinsurers shall be made notwithstanding any bankruptcy,
insolvency or liquidation of the original insurer and/or that the original
insurer has made no payment under the original policies.

 

B-5

 

EXHIBIT A

 

SUBORDINATED MORTGAGE AND SECURITY

 

AGREEMENT SUPPLEMENT NO.     

 

Subordinated
Mortgage and Security Agreement Supplement No.     dated
           , 20     (“Mortgage Supplement”) of INDEPENDENCE AIR,
INC. (the “Company”).

 

W I T N E S S E T H:

 

WHEREAS,
the Subordinated Engine Mortgage and Security Agreement, dated as of February 18, 2005 (as supplemented, amended and
otherwise modified to date, the “Mortgage”),
between the Company and General Electric Capital Corporation, as agent for the
Beneficiaries (as defined therein), as Secured Party (the “Secured Party”), provides for the execution
and delivery of supplements thereto substantially in the form hereof which
shall particularly describe the Engines (such term and other defined terms in
the Mortgage being used herein with the same meanings) and Engine Containers;

 

NOW,
THEREFORE, this Mortgage Supplement WITNESSETH that the Company hereby confirms
that the Lien of the Mortgage on the Collateral covers all of the Company’s
right, title and interest in and to the property described on Annex A hereto.

 

To
have and to hold all and singular the aforesaid property unto the Secured
Party, its successors and assigns, for the benefit, security and protection of
the Secured Party, and for the uses and purposes and subject to the terms and
provision 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.

 

A-1

 

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

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

A-2

 

Annex A to

Subordinated Mortgage

and Security Agreement

Supplement No.     

 

DESCRIPTION OF ENGINES

 

ENGINES AND ENGINE CONTAINER 

 

	
  Engine Manufacturer

  	
   

  	
  Engine
  Model

  	
   

  	
  Engine
  Serial Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Engine
Container Serial Number:

 

 

Each
engine is of 750 or more “rated take-off horsepower” or the equivalent of such
horsepower.

 

A-3

 

SUBORDINATED MORTGAGE AND SECURITY

AGREEMENT SUPPLEMENT NO. 1

 

Subordinated
Mortgage and Security Agreement Supplement No. 1 dated February 18,
2005 (“Mortgage Supplement”) of
INDEPENDENCE AIR, INC. (the “Company”).

 

W I T N E S S E T H:

 

WHEREAS,
the Subordinated Engine Mortgage and Security Agreement, dated as of February 18, 2005 (as supplemented, amended and
otherwise modified to date, the “Mortgage”),
between the Company and General Electric Capital Corporation, as agent for the
Beneficiaries (as defined therein), as Secured Party (the “Secured Party”), provides for the execution
and delivery of supplements thereto substantially in the form hereof which
shall particularly describe the Engines (such term and other defined terms in
the Mortgage being used herein with the same meanings) and Engine Containers;

 

NOW,
THEREFORE, this Mortgage Supplement WITNESSETH that the Company hereby confirms
that the Lien of the Mortgage on the Collateral covers all of the Company’s
right, title and interest in and to the property described on Annex A hereto.

 

To
have and to hold all and singular the aforesaid property unto the Secured
Party, its successors and assigns, for the benefit, security and protection of
the Secured Party, and for the uses and purposes and subject to the terms and
provision 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.

 

1

 

IN
WITNESS WHEREOF, the Company has caused this Subordinated Mortgage and Security
Agreement Supplement No. 1 to be duly executed by one of its duly
authorized officers, as of the day and year first above written.

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

2

 

Annex A to

Subordinated Mortgage

and Security Agreement

Supplement No. 1

 

DESCRIPTION OF ENGINES

 

ENGINES AND ENGINE CONTAINER 

 

	
  Engine Manufacturer

  	
   

  	
  Engine
  Model

  	
   

  	
  Engine
  Serial Number

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950191

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-872483

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873416

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950192

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873044

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950205

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873689

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-872207

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-873155

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-950229

  
	
  General
  Electric

  	
   

  	
  CF34-3B1

  	
   

  	
  GE-E-872232

  

 

Each
engine is of 750 or more “rated take-off horsepower” or the equivalent of such
horsepower.

 

	
  Engine Container Serial Number

  
	
  9661

  
	
  073

  
	
  076

  
	
  9684

  
	
  054

  
	
  039

  
	
  9688

  
	
  9715

  
	
  051

  
	
  02571

  
	
  9675

  

 

3

 

Execution Version

 

 

 

 

SPARE PARTS MORTGAGE AND SECURITY AGREEMENT

 

 

Dated as of February 18, 2005

 

 

between

 

 

INDEPENDENCE AIR, INC.

 

 

and

 

 

GENERAL ELECTRIC CAPITAL CORPORATION,

 

 

as Secured Party

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1.  DEFINITIONS

  	
   

  
	
  Section
  1.01.  Certain Definitions

  	
   

  
	
  Section
  1.02.  Certain Rules of Construction

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2.  SECURITY

  	
   

  
	
  Section
  2.01.  Grant of Security Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3.  COVENANTS OF THE
  COMPANY

  	
   

  
	
  Section
  3.01.  Liens

  	
   

  
	
  Section 3.02.  Possession, Use,
  Designated Locations, Permitted Sales, Maintenance and Identification

  	
   

  
	
  Section
  3.03.  Maintenance of Collateral Ratio and Rotables Ratio

  	
   

  
	
  Section
  3.04.  Software

  	
   

  
	
  Section
  3.05.  Insurance

  	
   

  
	
  Section
  3.06.  Assurances and Filings

  	
   

  
	
  Section
  3.07.  [Intentionally Left Blank]

  	
   

  
	
  Section
  3.08.  Notice of Change of the Company’s Location

  	
   

  
	
  Section
  3.09.  Inspection

  	
   

  
	
  Section
  3.10.  Reports Regarding the Collateral

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4.  REMEDIES OF THE SECURED
  PARTY UPON AN EVENT OF DEFAULT

  	
   

  
	
  Section
  4.01.  Remedies with Respect to Collateral

  	
   

  
	
  Section
  4.02.  Remedies Cumulative

  	
   

  
	
  Section
  4.03.  Discontinuance of Proceedings

  	
   

  
	
  Section
  4.04.  Allocation of Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5.   INTENTIONALLY LEFT
  BLANK

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6.  SECURITY FUNDS

  	
   

  
	
  Section
  6.01.  Investment of Security Funds

  	
   

  
	
  Section
  6.02.  Investment of Cash Collateral

  	
   

  
	
  Section
  6.03.  Release of Cash Collateral

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7.  MISCELLANEOUS

  	
   

  
	
  Section
  7.01.  Termination of Mortgage

  	
   

  
	
  Section
  7.02.  Alterations to Mortgage

  	
   

  
	
  Section
  7.03.  No Legal Title to Collateral

  	
   

  
	
  Section
  7.04.  Sale of the Collateral by Secured Party Is Binding

  	
   

  
	
  Section
  7.05.  Benefit of Mortgage

  	
   

  
	
  Section
  7.06.  Section 1110 of the Bankruptcy Code

  	
   

  
	
  Section
  7.07.  Notices

  	
   

  
	
  Section
  7.08.  Severability

  	
   

  

 

i

 

	
  Section
  7.09.  Separate Counterparts

  	
   

  
	
  Section
  7.10.  Successors and Assigns

  	
   

  
	
  Section
  7.11.  Headings

  	
   

  
	
  Section
  7.12.  Governing Law

  	
   

  
	
   

  	
   

  
	
  APPENDIX
  A

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  APPENDIX
  B

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  
	
  APPENDIX
  C

  	
  Form of Appraisal Compliance Report

  	
   

  
	
   

  	
   

  	
   

  
	
  APPENDIX
  D

  	
  Form of Data Report

  	
   

  
	
   

  	
   

  	
   

  
	
  APPENDIX
  E

  	
  Form of Independent Appraiser’s Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT
  A

  	
  Supplemental Mortgage

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE
  I

  	
  Designated Locations

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULE
  II

  	
  Identified Spare Parts

  	
   

  

 

ii

 

SPARE PARTS MORTGAGE AND SECURITY AGREEMENT

 

This SPARE PARTS MORTGAGE
AND SECURITY AGREEMENT, dated as of February 18, 2005 (as the same may be
amended, supplemented, restated or otherwise modified from time to time, this “Mortgage”)
between INDEPENDENCE AIR, INC., a California corporation (the “Company”),
and GENERAL ELECTRIC CAPITAL CORPORATION, as agent for the Lenders (as defined
herein) (in such capacity, the “Secured Party”).

 

W I  T
N  E  S  S  E  T  H :

 

WHEREAS, the Company,
which is a certificated air carrier under Section 44705 of title 49 of the U.S.
Code, the Lenders and the Secured Party have entered into the Loan Agreement;
and

 

WHEREAS, the Lenders have
agreed, pursuant and subject to the terms and conditions of the Loan Agreement,
to make the Loans to the Company secured by, among other things, a Lien on the
Collateral; and

 

WHEREAS, the Company
desires by this Mortgage, among other things, to grant to the Secured Party for
the benefit of the Lenders a first priority perfected Lien on the Collateral in
accordance with the terms hereof, as security for the Obligations; and

 

WHEREAS, all things
necessary to make this Mortgage a legal, valid and binding obligation of the
Company and the Secured Party, for the uses and purposes herein set forth, in
accordance with its terms, have been done and performed and have occurred;

 

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 1.01.          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.

 

Section 1.02.          Certain
Rules of Construction.  The defined
terms and the other provisions of this Mortgage shall be construed in
accordance with the rules of construction set forth under the heading “General
Provisions” in Appendix A hereto.

 

 

ARTICLE 2.

 

SECURITY

 

Section 2.01.          Grant of Security Interest.  In
order to secure (i) the prompt payment when due of the Obligations and (ii) the
performance and observance by the Company of all agreements, covenants and
provisions contained herein and in the other Transaction Documents to the
extent same relate to the Obligations 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, the Company has
granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged
and confirmed and does hereby grant, bargain, sell, assign, transfer, convey,
mortgage, pledge and confirm unto the Secured Party, its successors and
assigns, for the security and benefit of the Lenders, a first priority security
interest in, and mortgage lien on, all 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)           all Spare Parts and Appliances (including all
Rotables, Repairables and Expendables), other than any Excluded Parts,
currently owned or hereafter acquired by the Company including any
replacements, substitutions or renewals therefor, and accessions thereto,
including but not limited to Spare Parts and Appliances (other than any
Excluded Parts) owned or hereafter acquired by the Company and located at (a)
the Designated Locations described on Schedule I attached hereto or (b) any
other place (such Spare Parts and Appliances, the “Pledged Spare Parts”);

 

(b)           the rights of the Company under any existing
or hereinafter acquired warranty or indemnity, express or implied, regarding
title, materials, workmanship, design or patent infringement or related matters
in respect of the Pledged Spare Parts to the extent such rights can be assigned
or pledged by the Company (the “Warranties”);

 

(c)           all insurance proceeds and requisition
proceeds with respect to any Pledged Spare Part;

 

(d)           all Software owned or hereafter acquired by
the Company, including any replacement, substitution or renewal thereof, as
well as all rights of the Company under any license or use agreement in respect
of any Software not owned by the Company and all rights of the Company under
any existing or hereinafter acquired service or support contracts or agreements
in respect of the Software (such licenses and support agreements collectively,
the “Software Support Agreements”);

 

(e)           all rents, revenues and other proceeds
collected or required to be collected by the Secured Party hereunder,
including, without limitation, all proceeds with respect to the sale or other
disposition by the Secured Party of any Pledged Spare Part or other Collateral
pursuant to the terms of this Mortgage;

 

(f)            all repair, maintenance and inventory
records, logs, tags, manuals and all other documents and materials similar
thereto (including, without limitation, any such 

 

2

 

records
(whether on paper or in an electronic format), logs, manuals, documents and
materials that are computer print-outs) at any time maintained, created or used
by the Company, and all records, logs, tags, documents and other materials
required at any time to be maintained by the Company by the FAA or under the
Federal Aviation Act, in each case with respect to any of the Pledged Spare
Parts (the “Spare Parts Documents”); and

 

(g)           all
proceeds of the foregoing;

 

PROVIDED, HOWEVER, that
notwithstanding any of the foregoing provisions of this Section 2.01, 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 Secured Party, to quiet enjoyment
of the Pledged Spare Parts and other Collateral (excluding, however, any
Collateral that is to be placed in the possession of the Secured Party pursuant
to the terms hereof), and peaceably and quietly, without hindrance or
molestation, to possess, use, retain and control the Pledged Spare Parts and
other Collateral (excluding, however, any Collateral that is to be placed in
the possession of the Secured Party pursuant to the terms hereof), and (ii) the
Company shall have the right, to the exclusion of the Secured Party, with
respect to the Warranties and the Software Support Agreements, to exercise in
the Company’s name all rights and powers as the beneficiary, owner and/or
licensee thereof and to retain any recovery or benefit resulting from the
enforcement of any warranty, indemnity or other contract right under the
Warranties and the Software Support Agreements;

 

TO HAVE AND TO HOLD the
Collateral unto the Secured Party, its successors and assigns, upon the terms
herein set forth, for the benefit, security and protection of the Secured
Party, 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
shall remain liable under the Warranties and the Software Support Agreements to
perform all of the obligations assumed by it thereunder, all in accordance with
and pursuant to the terms and provisions thereof, and the Secured Party shall
have no obligation or liability under the Warranties or Software Support
Agreements by reason of or arising out of the assignment hereunder, nor shall
the Secured Party be required or obligated in any manner to perform or fulfill
any obligations of the Company under any of the Warranties or Software Support
Agreements, or, except as herein expressly provided, to make any payment, or to
make any inquiry as to the nature or sufficiency of any payment received by it,
or present or file any claim, or take any action to collect or enforce the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

 

The Company does hereby
irrevocably constitute and appoint the Secured Party 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 Secured Party may deem to be necessary or advisable to collect such
property which 

 

3

 

constitutes Collateral;
provided that the Secured Party shall not exercise any such rights except upon
the occurrence and during the continuance of an Event of Default.  Without limiting the provisions of the
foregoing, during the continuance of any Event of Default, but subject to the
terms hereof and any mandatory requirements of applicable Law, the Secured
Party shall have the right under such power of attorney in its discretion to
file any claim or to take any other action or proceedings, either in its own
name or in the name of the Company or otherwise, that the Secured Party may reasonably
deem necessary or appropriate to protect and preserve the right, title and
interest of the Secured Party in and to the security intended to be afforded
hereby.  The Company hereby agrees that
promptly on receipt thereof, except as otherwise contemplated by the
Transaction Documents, it will transfer to the Secured Party any and all moneys
from time to time received by the Company constituting part of the Collateral,
for distribution by the Secured Party pursuant to this Mortgage.

 

The Company does hereby
warrant and represent that it has not sold or assigned, and hereby covenants
that it will not sell or assign, so long as this Mortgage shall remain in
effect and the Lien hereof shall not have been released pursuant to the
provisions hereof, any of its estate, right, title or interest hereby assigned,
to any Person other than the Secured Party, except as expressly permitted
herein, in any other Transaction Document or in the Subordinated Spare Parts
Mortgage.

 

The Company agrees that
at any time and from time to time, upon the written request of the Secured
Party, 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 Secured Party may reasonably deem necessary to perfect and protect the
priority of the security interests and assignments created hereby and to obtain
the full benefits of the security interest granted hereunder and of the rights
and powers herein granted.

 

ARTICLE 3.

 

COVENANTS
OF THE COMPANY

 

Section 3.01.          Liens.  The Company will not directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to the
Company’s interest in the Collateral, except:

 

(a)           the
Lien of this Mortgage and the Subordinated Spare Parts Mortgage;

 

(b)           the
rights of others under agreements or arrangements to the extent permitted by
Section 3.02 hereof;

 

(c)           Liens
for Taxes of the Company and its U.S. Federal tax law consolidated group either
not yet overdue or being contested in good faith by appropriate proceedings so
long as such Liens and such proceedings do not involve any material risk of the
sale, forfeiture or loss (including loss of use) of any Pledged Spare Part or
other portion of the Collateral or any interest therein or any discernible risk
of criminal liability 

 

4

 

or any material
risk of civil penalty against any Secured Party or impair the Lien of this
Mortgage;

 

(d)           materialmen’s,
mechanic’s, workmen’s, repairmen’s, employees’ or other like Liens arising in
the ordinary course of business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing
obligations that are not overdue or are being contested in good faith by appropriate
proceedings so long as such Liens and such proceedings do not involve any
material risk of civil penalty or any discernible risk of criminal liability
against any Secured Party or any material risk of the sale, forfeiture or loss
of any Pledged Spare Part or other portion of the Collateral or adversely
affect the Lien of this Mortgage;

 

(e)           Liens
arising out of any judgment or award against the Company, so long as such
judgment or award shall, within thirty (30) days after the entry thereof, have
been discharged or vacated, or execution thereof stayed pending appeal or shall
have been discharged, vacated or reversed within thirty (30) days after the
expiration of such stay and so long as during any such 30-day period there is
not, or any such judgment or award does not involve, any material risk of the
sale, forfeiture or loss (including loss of use) of any Pledged Spare Part or
other portion of the Collateral, or any interest therein or any discernible
risk of criminal liability or any material risk of civil penalty against any
Secured Party or impair the Lien of this Mortgage;

 

(f)            salvage
or similar rights of insurers under policies of insurance maintained by the
Company pursuant to Section 3.05 hereof;

 

(g)           any
other Lien with respect to which the Company shall have provided a bond, cash
collateral or other security adequate in the reasonable opinion of the Secured
Party;

 

(h)           Liens
attributable to the Secured Party; and

 

(i)            Liens
approved in writing by the Secured Party.

 

Liens described in
clauses (a) through (i) above are referred to herein as “Permitted Liens.”  The Company shall promptly, at its own
expense, take such action as may be necessary to duly discharge (by bonding or
otherwise) any such Lien on the Collateral other than a Permitted Lien arising
at any time.

 

Section 3.02.          Possession,
Use, Designated Locations, Permitted Sales, Maintenance and Identification.

 

(a)           Possession.  Without the prior written consent of the
Secured Party, the Company will not sell, lease, transfer or relinquish
possession of any Pledged Spare Part to anyone except as permitted by the
provisions of Sections 3.02(b) of this Mortgage and except that the
Company shall, subject to Section 3.03, have the right, in the ordinary course
of business, (i) to transfer possession of any Pledged Spare Part to the
manufacturer thereof or any other organization for testing, overhaul, repairs,
maintenance, alterations or modifications or to any Person for the purpose of
transport to any of the foregoing or (ii) to subject any Pledged Spare Part to
a pooling, 

 

5

 

exchange, borrowing or
maintenance servicing agreement arrangement and entered into in the ordinary
course of business (provided always that no such arrangement results in any
Pledged Spare Part being stored at a location other than one of the Designated
Locations, or being commingled with any Excluded Parts and/or any other Spare
Parts and/or Appliances that are not Pledged Spare Parts).

 

(b)           Use;
Designated Locations; Permitted Sales, Dispositions or Modifications.

 

(1)           Use.  Subject to the terms of this
Mortgage (including, without limitation, Section 3.03 hereof), the Company
shall have the right, at any time and from time to time at its own cost and
expense, without any release from or consent by the Secured Party, to:

 

(i)    incorporate in, install on, attach or make
appurtenant to, or use in, any aircraft, Engine or Spare Part or Appliance
(whether or not subject to any Lien and whether or not operated by the Company)
any Pledged Spare Part, free from the Lien of this Mortgage; and

 

(ii)   dismantle any Pledged Spare Part that has
become worn out or obsolete or unfit for use, and to scrap, sell, exchange or
dispose of any such Pledged Spare Part or any salvage resulting from such
dismantling, free from the Lien of this Mortgage.

 

(2)           Designated Locations.  The
Company shall keep the Pledged Spare Parts in a Secure Location at one or more
of the Designated Locations and, except as otherwise permitted under Sections
3.02(a) or 3.02(b)(1) of this Mortgage, shall not suffer or permit any Pledged
Spare Part to be stored at any other location. 
The Company shall not suffer or permit any Pledged Spare Parts at any
Designated Location to be commingled with any Excluded Parts.  The Company shall ensure that each Designated
Location is adequate for warehousing and storing the Pledged Spare Parts.  With respect to each Designated Location that
is leased (including any ground lease and any lease of any temporary buildings
or the like) or subleased by the Company, the Company shall have obtained from
the Company’s immediate landlord, and if requested by the Secured Party, from
each landlord in the chain back to the owner of the real property and the owner
of the improvements (whether permanent or temporary, if separate from the real
property), a waiver of any and all right or interest that such Person may
otherwise have in the Pledged Spare Parts and such Person’s consent, if
applicable, to access by the Secured Party and/or any Lender or any representative
of any of them to the premises in connection with the exercise of any rights or
remedies under or pursuant to this Mortgage (in each case, in form and
substance satisfactory to the Secured Party). 
In addition, with respect to each Designated Location owned by the
Company or any of its Affiliates, if any, the Company shall have obtained from
each other Person that may have an interest in the real property and/or the
improvements (whether permanent or temporary improvements) at such location (whether
as mortgagee or otherwise) a waiver of any and all right or interest that such
Person may otherwise have in the Pledged Spare Parts and such Person’s consent,
in the event that such Person shall have obtained possession and control of the
relevant premises from the Company or the Company’s Affiliate (whether upon
foreclosure or other exercise of remedies by such Person or otherwise), to
access by the Secured Party and/or any Lender or any representative of any of
them to the premises in connection with the exercise of any rights or remedies
under or pursuant to this Mortgage (in each case, in form and substance
satisfactory to the Secured Party).  The 

 

6

 

Company shall add as a Designated Location (in accordance
with this Section 3.02(b)(2)) any location where Pledged Spare Parts may be
stored by the Company from time to time. 
All Designated Locations shall be in the United States.  Upon adding a location that is to become a
Designated Location, the Company will furnish to the Secured Party the
following:

 

(i)            a Supplemental Mortgage duly executed by the
Company, identifying each location that is to become a Designated Location and
specifically subjecting the Pledged Spare Parts at such location to the Lien of
this Mortgage;

 

(ii)           an Opinion of Counsel, dated the date of
execution of said Supplemental Mortgage, stating that said Supplemental
Mortgage has been duly filed for recording in accordance with the provisions of
the Federal Aviation Act, and either: (a) no other filing or recording is
required in any other place within the United States in order to perfect the
Lien of this Mortgage on the Pledged Spare Parts held at the Designated
Locations specified in such Supplemental Mortgage under the laws of the United
States, or (b) if any such other filing or recording shall be required that
said filing or recording has been accomplished in such other manner and places,
which shall be specified in such Opinion of Counsel, as are necessary to
perfect the Lien of this Mortgage with respect to such Pledged Spare Parts; and

 

(iii)          an Officer’s Certificate stating that in the
opinion of the Officer executing the Officer’s Certificate, all conditions
precedent provided for in this Mortgage relating to the subjection of such
property to the Lien of this Mortgage have been complied with.

 

(3)           [Intentionally Left Blank]

 

(4)           Permitted Sales, Dispositions and
Modifications.  Unless a Special Default or an Event of
Default has occurred and is continuing and subject to the limitations contained
in Section 3.03 of this Mortgage, the Company may, in the ordinary course of
its business, sell, lease, transfer or dispose of any Pledged Spare Parts which
have become surplus to its normal operations free from the Lien of this Mortgage
and receive the full amount of the proceeds thereof.  In addition, the Company may modify or alter
any Pledged Spare Parts as the Company may deem appropriate in the proper
conduct of its business, so long as the Company remains in compliance at all
times with the requirements of Section 3.02(c) and Section 3.03 below, after
giving effect to any such modification or alteration.

 

(c)           Maintenance.  The Company:

 

(1)           shall maintain, or cause to be maintained, at
all times the Pledged Spare Parts in accordance with (x) all applicable Laws
issued by the FAA and (y) all applicable Laws issued by any other Governmental
Authority having jurisdiction over the Company or any such Pledged Spare Parts,
including making any modifications, alterations, replacements and additions
necessary therefor;

 

(2)           shall maintain, or cause to be maintained,
all records, logs and other materials required by the FAA or under the Federal
Aviation Act to be maintained in respect of the Pledged Spare Parts and shall
not modify its record retention procedures in respect of the 

 

7

 

Pledged Spare Parts unless such modification is
consistent with the Company’s FAA approved maintenance program; provided
however, that such modification shall not materially diminish the value of the
Pledged Spare Parts, taken as a whole;

 

(3)           shall maintain, or cause to be maintained on
a timely basis, the Pledged Spare Parts in good working order (other than
during periods of maintenance, overhaul, inspection and testing) and condition
and shall perform all maintenance thereon necessary for that purpose, excluding
(i) Pledged Spare Parts that have become worn out or unfit for use, beyond
economic repair or become obsolete or scrap, and (ii) Pledged Spare Parts that
are not required for the Company’s normal operations.  Notwithstanding anything herein to the
contrary, all Pledged Spare Parts located at Designated Locations other than
for the purpose of being maintained, altered, modified or overhauled shall have
a current and valid serviceable tag and shall be in compliance with such tag,
in each case to the extent required by applicable FAA regulations.

 

(d)           Identification of Secured Party’s Interest.  On
or prior to the Closing Date, the Company shall install signs, in size and form
reasonably satisfactory to the Secured Party, at each of the Designated
Locations and on each shelf, bin or other storage unit in which the Pledged
Spare Parts are stored and otherwise as may be directed by the Secured Party
within each Designated Location, bearing the inscription: “OWNED BY
INDEPENDENCE AIR, INC. AND MORTGAGED TO GENERAL ELECTRIC CAPITAL CORPORATION,
AS SECURED PARTY” (such sign to be replaced if there is a successor Secured
Party).

 

Section 3.03.          Maintenance of Collateral Ratio and Rotables
Ratio.

 

(a)           The
Company hereby agrees that the Company shall not at any time directly or
indirectly permit the Collateral Ratio to be greater than the Maximum
Collateral Ratio.  If, based upon an
Appraisal Compliance Report, the Collateral Ratio set forth therein is greater
than the Maximum Collateral Ratio, the Company shall within ten (10) Business
Days following the date of such Appraisal Compliance Report:

 

(i)            subject additional Spare Parts or Appliances
that are free and clear of all Liens other than Permitted Liens and are
otherwise acceptable to the Secured Party in its sole discretion (the “Additional
Parts”) to the Lien of this Mortgage in accordance with
Section 3.03(d) of this Mortgage;

 

(ii)           provide additional cash to the Secured Party
(any additional cash provided to the Secured Party pursuant to this Mortgage,
the “Cash Collateral”), and the provision of such Cash Collateral shall
be deemed to grant a security interest therein to the Secured Party, and to
make such Cash Collateral subject to the Lien of this Mortgage;

 

(iii)          prepay some or all of the Series B Loan
pursuant to Section 1.1(d) of the Loan Agreement; or

 

(iv)          any combination of the foregoing;

 

such that, the Collateral
Ratio, as recalculated giving effect to such action taken pursuant to this
Section 3.03(a) and, in the case of clause (i) of this Section 3.03(a), using
the Current Market 

 

8

 

Value of any such
additional Collateral determined pursuant to Section 3.03(d), would not be
greater than the Maximum Collateral Ratio.

 

(b)           The
Company hereby agrees that the Company shall not at any time directly or
indirectly permit the Rotables Ratio to be greater than the Maximum Rotables
Ratio.  If, based upon an Appraisal
Compliance Report, the Rotables Ratio set forth therein is greater than the
Maximum Rotables Ratio, the Company shall within ten (10) Business Days
following the date of such Appraisal Compliance Report:

 

(i)            subject additional Rotables that are free and
clear of all Liens other than Permitted Liens and are otherwise acceptable to
the Secured Party in its sole discretion (the “Additional Rotables”) to
the Lien of this Mortgage in accordance with Section 3.03(d) hereof;

 

(ii)           provide Cash Collateral to the Secured Party;

 

(iii)          prepay some or all of the Series B Loan
pursuant to Section 1.1(d) of the Loan Agreement; or

 

(iv)          any combination of the foregoing;

 

such that, the Rotables
Ratio, as recalculated giving effect to such action taken pursuant to this
Section 3.03(b) and, in the case of clause (i) of this Section 3.03(b), using
the Current Market Value of any Rotables included in such additional Collateral
determined pursuant to Section 3.03(d), would not be greater than the Maximum
Rotables Ratio.

 

(c)           In
order to comply with Section 3.03(a)(i) or (b)(i) of this Mortgage, the
Company shall add to a Designated Location, Spare Parts, Appliances or
Rotables, as the case may be (in each case other than Excluded Parts), that
were not included as Pledged Spare Parts on the preceding Valuation Date.

 

(d)           In
connection with the provision of additional Collateral pursuant to Section
3.03(a)(i) or 3.03(b)(i) of this Mortgage, the Company shall cause the
Independent Appraiser (only to the extent of the IAI Appraiser Responsibility)
to furnish to the Secured Party an Independent Appraiser’s Certificate signed
by the Independent Appraiser, dated as of a date after the most recent
Valuation Date, stating, in the opinion of the Independent Appraiser, the
Current Market Value of the Pledged Spare Parts included in such additional
Collateral (other than Cash Collateral), as of a date not earlier than the most
recent Valuation Date, and using the Physical Appraisal Methodology.  Each Independent Appraiser’s Certificate shall
be accompanied by an Appraisal Compliance Report determined as of a date not
earlier than the most recent Valuation Date.

 

(e)           If
the Company shall have provided Cash Collateral pursuant to Section 3.03(a) or
3.03(b), it may within 60 days after providing such Cash Collateral take
additional action pursuant to Section 3.03(a) or 3.03(b), as the case may be
(in each case excluding the right to provide Cash Collateral), including
directing the Secured Party to apply such Cash Collateral to the prepayment of
the Series B Loan, to cause the Collateral Ratio or the Rotables Ratio, as the
case may be, in each case calculated to exclude such Cash Collateral, not to be
greater than the 

 

9

 

Maximum Collateral Ratio
or the Maximum Rotables Ratio, as the case may be.  If pursuant to the Appraisal Compliance
Report referred to in Section 3.03(d) or any subsequent Appraisal Compliance
Report, the Collateral Ratio or the Rotables Ratio, as the case may be, is less
than the Maximum Collateral Ratio or the Maximum Rotables Ratio, as the case
may be, the Secured Party shall release the Cash Collateral in accordance with,
and to the extent provided in, Section 6.03 of this Mortgage.  If the Company fails to take any such action,
the Secured Party shall, on the 60th day after Cash Collateral is
posted, or earlier at the Company’s direction, apply such Cash Collateral to
prepay the Series B Loan in accordance with Section 1.1(d) of the Loan
Agreement, or, if an Event of Default exists and remedies are being exercised,
Article VII of the Loan Agreement, as applicable.

 

Section 3.04.          Software.  The Company shall at all times maintain a
Spare Parts inventory tracking system and shall comply with and timely perform
its obligations under any and all Software Support Agreements.  The Company shall consult with the Secured
Party and the Lenders prior to replacing the system utilized in tracking the
Pledged Spare Parts and preparing the necessary reports required pursuant to
Section 3.10 of this Mortgage.  Any
replacement system must be reasonably acceptable to the Secured Party.  The Company shall at all times cause each
vendor or licensor of any Software to recognize the rights in such Software
granted to the Secured Party under this Mortgage, including the right to access
and use such Software in connection with the exercise of remedies under Section
4.01.

 

Section 3.05.          Insurance.

 

(a)           Obligation
to Insure.  The Company shall comply
with, or cause to be complied with, each of the provisions of Appendix B,
which provisions are hereby incorporated by this reference as if set forth in
full herein.

 

(b)           Insurance
for Own Account.  Nothing in Section
3.05 shall limit or prohibit (a) the Company from maintaining the policies of
insurance required under Appendix B with higher limits than those specified in
Appendix B, or (b) the Secured Party or any Lender from obtaining
insurance for its own account (and any proceeds payable under such separate
insurance shall be payable as provided in the policy relating thereto);
provided, however, that no insurance may be obtained or maintained that would
increase the cost of, limit or otherwise adversely affect the coverage of any
insurance required to be obtained or maintained by the Company pursuant to this
Section 3.05 and Appendix B.

 

(c)           Indemnification
by Government in Lieu of Insurance. 
The Secured Party agrees to accept, in lieu of insurance against any
risk with respect to any aircraft or Engine described in Appendix B,
indemnification from, or insurance provided by, the U.S. Government, or upon
the written consent of the Secured Party, other Governmental Authority, against
such risk in an amount that, when added to the amount of insurance against such
risk that the Company may continue to maintain, in accordance with this
Section 3.05, shall be at least equal to the amount of insurance against
such risk otherwise required by this Section 3.05.

 

10

 

(d)           Application
of Insurance Proceeds.

 

(1)           All
insurance proceeds in respect of the Pledged Spare Parts in excess of the
Threshold Amount, up to an amount equal to the
amount of the Obligations, paid under the policies required to be
maintained by the Company pursuant to this Mortgage shall be held by or paid
over to the Secured Party as security for the Obligations and be invested
pursuant to Section 6.01 until such time as the Company elects to use such
proceeds to purchase additional Spare Parts that will become Pledged Spare
Parts or as otherwise provided in Section 6.03, and any amount in excess of the
Obligations shall be paid over to the Subordinated Secured Party to be held and
invested pursuant to the terms of the Subordinated Spare Parts Mortgage as
security for the “Obligations” as defined in the Subordinated Spare Parts
Mortgage.  If at any time the Collateral
Ratio is less than the Maximum Collateral Ratio and the Rotables Ratio is less
than the Maximum Rotables Ratio, any such proceeds then held by the Secured
Party shall be released and paid to the Company in accordance with Section
6.03.

 

(2)           Except
as expressly provided in Section 3.05(e) below, all proceeds of insurance in
respect of the Pledged Spare Parts required to be maintained by the Company in
accordance with this Mortgage in respect of any property damage or loss
involving proceeds less than the Threshold Amount shall be paid over to, and
retained by, the Company.

 

(e)           Application of Payments During Existence of
Event of Default.  Any amount referred to in this Section 3.05
which is payable to or retainable by the Company shall not be paid to or
retained by the Company, if at the time of such payment or retention a Special
Default or an Event of Default shall have occurred and be continuing, but shall
be held by or paid over to the Secured Party as security for the Obligations
and invested pursuant to Section 6.01. 
Upon the earlier of (a) such time as there shall not be continuing any
such Special Default or Event of Default or (b) the termination of this
Mortgage in accordance with Section 7.01, such amount, and any interest
realized thereon pursuant to Section 6.01 hereof, shall be paid over to the
Company to the extent not previously applied in accordance with the preceding
sentence, provided that if at the time of the termination of this
Mortgage a “Special Default” or “Subordinated Event of Default” (as such terms
are defined in the Subordinated Spare Parts Mortgage) has occurred and is
continuing, then such amount, and any such interest, not so previously applied
shall be held or paid over to the Subordinated Secured Party as security under
the Subordinated Spare Parts Mortgage and/or Subordinated Engine Mortgage in
such proportion as the Subordinated Secured Party may elect.

 

Section 3.06.          Assurances and Filings.

 

(a)           The Company, at its sole cost and expense,
shall duly execute, acknowledge and deliver, or shall cause to be executed,
acknowledged and delivered, all such further agreements, instruments,
certificates or documents, and shall do and cause to be done such further acts
and things, in any case, as Secured Party shall reasonably request for
accomplishing the purposes of this Mortgage including, without limitation,
ensuring that each of the Secured Party and the Independent Appraiser, subject,
in each case, to such Person executing any non-disclosure agreement as may be
required by the Software provider, remains at all times a third party
beneficiary of any Software Support Agreements.

 

(b)           The Company, at its sole cost and expense,
shall promptly take such action with respect to the recording, filing,
re-recording and re-filing of this Mortgage, each Supplemental 

 

11

 

Mortgage and any amendments or supplements
thereto, as shall be necessary to continue the perfection and priority of the
Lien created by this Mortgage with respect to the Pledged Spare Parts held at
Designated Locations.

 

(c)           The Company, at its sole cost and expense,
will cause this Mortgage and any amendments or supplements hereto (including
all Supplemental Mortgages), as well as all UCC financing statements and all
continuation statements (and any amendments necessitated by any consolidation
or merger of the Company, any conveyance, transfer or lease of all or
substantially all of the assets of the Company, or any change of the Company’s
location) in respect thereof to be prepared and, subject only to the execution
and delivery thereof by Secured Party, duly and timely filed and recorded, or
filed for recordation, to the extent permitted under the Federal Aviation Act
(with respect to this Mortgage and any amendments or supplements hereto
(including all Supplemental Mortgages)) or the UCC or similar law of any other
applicable jurisdiction (with respect to such financing statements and
continuation and/or amendments thereof). 
In addition, the Company will pay any and all recording, stamp and other
similar taxes payable, in connection with the execution, delivery, recording,
filing, re-recording and refiling of this Mortgage or any such financing
statements or other instruments.

 

Section 3.07.          [Intentionally
Left Blank].

 

Section 3.08.          Notice
of Change of the Company’s Location. 
The Company will notify the Secured Party of any change in the location
of the Company (within the meaning of Section 9-307 of the Uniform Commercial
Code) promptly after making such change and in any event within a reasonable
period of time prior to the date by which it is necessary under applicable Law
to make any filing in order to prevent the lapse of perfection (absent
refiling) of financing statements filed under or with respect to this Mortgage.

 

Section 3.09.          Inspection.

 

(a)           At
all reasonable times the Secured Party and its authorized representatives (the “Inspecting
Parties”) may inspect the Pledged Spare Parts located at Designated Locations
(including without limitation, the Spare Parts Documents and any computer files
maintained by the Company with respect to the Pledged Spare Parts) and the
Company shall cooperate with the Inspecting Parties in connection with any such
inspection (including, without limitation, providing Inspecting Parties
reasonable access to buildings or facilities at Designated Locations where such
Pledged Spare Parts are located and permitting any such Inspecting Party to
make copies of Spare Parts Documents and computer files (excluding the
Software)) at its own cost and expense. 
Additionally, the Independent Appraiser shall have such inspection
rights as permitted to the Inspecting Parties hereunder.  For the avoidance of doubt, however, this
Section 3.09 shall not be considered to limit the IAI Appraiser Responsibility
with respect to the audits contemplated by Section 3.10 hereof.

 

(b)           Any
inspection of the Pledged Spare Parts hereunder shall be limited to a visual
inspection, shall be in compliance with the Company’s work and safety rules at
the Designated Locations (and any applicable governmental rules and
regulations), and shall not include the disassembling, or opening of any
components, of any Pledged Spare Part, and no such inspection 

 

12

 

shall interfere with the
Company’s spare parts management operations or the maintenance or use of any
Pledged Spare Part or the maintenance and operation of its aircraft and
Engines.

 

(c)           With
respect to such rights of inspection, the Inspecting Parties shall not:

 

(i)            have
any duty or liability to make, or any duty or liability arising out of, any
such visit, inspection or survey or failure to make any such visit, inspection
or survey; or

 

(ii)           so
long as no Event of Default has occurred and is continuing, exercise its
inspection rights hereunder other than on reasonable notice.

 

(d)           Each
person inspecting the Pledged Spare Parts hereunder shall bear its own expenses
in connection with any such inspection, unless an Event of Default shall have
occurred and be continuing, in which case the Company shall bear all such
expenses; provided further that, any costs of the Independent Appraiser in
connection with the performance of his duties under Section 3.10 shall be for
the account of the Company.

 

Section 3.10.          Compliance
Reports Regarding the Collateral.

 

(a)           Report Dates.  On
each Data Report Date, the Company shall furnish the Independent Appraiser with
a Data Report that is certified (pursuant to an Officer’s Certificate) as a
true and correct copy of the data obtained from the Company’s spare parts
tracking system as of the final calendar day of the preceding month.  On or before the twentieth calendar day after
each Desk-Top Data Report Date (each such day, a “Desk-Top Appraisal Date”),
and after each Physical Appraisal Data Report Date (each such day, a “Physical
Appraisal Date”, and together with the Desk-Top Appraisal Date, each an “Appraisal
Date”), the Company shall cause the Independent Appraiser (only to the
extent of the IAI Appraiser Responsibility) to furnish to the Secured Party,
the Company and each Lender an Independent Appraiser’s Certificate signed by
the Independent Appraiser, dated as of a date no earlier than seven Business
Days prior to the applicable Appraisal Date. 
Each such Independent Appraiser’s Certificate shall state, in the
opinion of the Independent Appraiser, based in the case of a Desk-Top Appraisal
Date, upon use of the Desk-Top Appraisal Methodology, and in the case of a
Physical Appraisal Date, upon the use of the Physical Appraisal Methodology,
the Current Market Value of the Rotables, the Repairables and the Expendables
that are included in the Collateral (excluding any Cash Collateral, and
excluding any such Pledged Spare Parts as are out for repair or in transit and
consequently not located at a Designated Location) as of the final calendar day
of the month preceding the date of such Independent Appraiser’s Certificate
(the “Valuation Date”).

 

On
or prior to the tenth calendar day following the issuance of the Independent
Appraiser’s Certificate, the Company shall furnish to the Secured Party and
each Lender an Appraisal Compliance Report determined as of the applicable
Valuation Date.  The Appraisal Compliance
Report shall set forth the calculation of the Collateral Ratio and the Rotables
Ratio based on the Current Market Value of the relevant Collateral (taking into
account the relevant exclusions) set forth in such Independent Appraiser’s
Certificate, the amount of Cash Collateral 

 

13

 

held by the Secured Party, and the aggregate
outstanding principal amount of the Series B Loan, each as of the applicable
Valuation Date.

 

(b)           Binding
Determination.  Each of the Company,
the Secured Party and each Lender agree that any determination made by the
Independent Appraiser in any Independent Appraiser’s Certificate shall be
binding on each party, absent manifest error.

 

(c)           Independent Appraiser.  All
fees and expenses of the Independent Appraiser in preparing the Independent
Appraiser’s Certificates shall be for the account of the Company and shall be
paid to the Secured Party by the Company upon demand; provided, however, that
such fees and expenses to the extent incurred in the ordinary course of preparing
nine such Independent Appraiser’s Certificates based upon the Desk-Top
Appraisal Methodology and three such Independent Appraiser’s Certificates based
upon the Physical Appraisal Methodology shall not exceed the Independent
Appraiser’s Fee Amount (as such amount may be adjusted from time to time in
accordance herewith) during any consecutive 12-month period.  If the same Independent Appraiser is unable
to continue preparing the certificates, the Secured Party will select an
alternative independent appraiser of recognized standing.  If the Secured Party has a reasonable basis
for concluding that the performance of the Independent Appraiser that executed
the most recent Independent Appraiser’s Certificate delivered pursuant to this
Section 3.10 was unsatisfactory as to the quality, accuracy and/or timeliness
of work product, the Secured Party may, by written notice to the Company,
select an alternative independent appraiser of recognized standing to perform
the next required appraisal under this Section 3.10.  Each appraisal inspection pursuant to this
Section 3.10 shall be carried out during the Company’s normal business hours
and subject to the safety, security and workplace rules applicable at the
location where such appraisal is conducted and any applicable governmental
rules or regulations.

 

(d)           Access to Software.  If
the Company fails to prepare and deliver such Data Reports in the manner and
within the deadlines required pursuant to Section 3.10(a) hereof, upon the
request of the Secured Party, the Company shall immediately provide access to
the system and Software required to prepare Data Reports to the Secured Party
and the Independent Appraiser, or their respective agents or representatives.

 

ARTICLE 4.

 

REMEDIES
OF THE SECURED PARTY UPON AN EVENT OF DEFAULT

 

Section 4.01.          Remedies
with Respect to Collateral.

 

(a)           Remedies
Available.  Upon the occurrence of
any Event of Default and at any time thereafter so long as the same shall be
continuing, the Secured Party may do one or more of the following:

 

(i)            cause
the Company, upon the written demand of the Secured Party, at the Company’s
expense, to deliver promptly, and the Company shall deliver promptly, all or
any of the Pledged Spare Parts constituting the Collateral at the Designated
Locations, together in each case with the Spare Parts Documents for such
Pledged Spare Parts as the 

 

14

 

Secured Party may so
demand, to the Secured Party or its order, or the Secured Party, at its option,
may enter upon the premises where all or any of such Pledged Spare Parts and/or
Spare Parts Documents 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;

 

(ii)           sell
all or any part of the Collateral at public or private sale, whether or not the
Secured Party shall at the time have possession thereof, as the Secured Party
may determine, or lease or otherwise dispose of all or any part of the Collateral
as the Secured Party, 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;

 

(iii)          apply
any Cash Collateral then held as provided in Section 4.04 hereof; or

 

(iv)          exercise
any or all of the rights and powers and pursue any and all remedies of a
secured party under applicable Law.

 

Upon every such taking of
possession of Collateral under this Section 4.01, the Secured Party may, from
time to time, make all such expenditures for maintenance, insurance, repairs,
replacements, alterations, additions and improvements to and of the Collateral,
as it determines is commercially reasonable. 
In each such case, the Secured Party 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 Secured Party shall determine to be commercially reasonable, 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 Secured Party may determine; and the
Secured Party 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 Secured
Party under any provision of this Mortgage to collect and receive all cash held
by, or required to be deposited with, the Secured Party 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 Secured Party 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 Secured Party may be required or
authorized to make under any provision of this Mortgage, as well as
compensation for the services of all Persons engaged by the Secured Party.  If the income and proceeds of the Collateral
shall not be sufficient to pay in full the Obligations, the Company shall be
liable for any deficiency.

 

In addition, the Company
shall be liable for all reasonable legal fees and other costs and expenses
incurred by the Secured Party and any Lender by reason of the occurrence of any
Event of Default or the exercise of the Secured Party’s remedies with respect
thereto, 

 

15

 

including, without
limitation, all costs and expenses incurred in connection with the retaking or
return of any Pledged Spare Parts in accordance with the terms hereof or under
applicable Law, which amounts shall, until paid, be secured by the Lien of this
Mortgage.

 

If an Event of Default
shall have occurred and be continuing, at the request of the Secured Party the
Company shall promptly execute and deliver to the Secured Party such
instruments of title and other documents as the Secured Party may deem
necessary or advisable to enable the Secured Party or an agent or
representative designated by the Secured Party, at such time or times and place
or places as the Secured Party may specify, to obtain possession of all or any
part of the Collateral to which the Secured Party 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 Secured Party, the Secured Party may obtain a judgment
conferring on the Secured Party the right to immediate possession of the
Collateral and requiring the Company to execute and deliver such instruments
and documents to the Secured Party, to the entry of which judgment the Company
hereby specifically consents to the fullest extent it may lawfully do so.  If an Event of Default shall have occurred
and be continuing, the Company shall provide the Secured Party and the
Independent Appraiser or any of their agents or representatives, with full and
complete access to the system (including the Software) utilized by the Company
or its designees solely to track the Pledged Spare Parts and prepare the Data
Reports.

 

(b)           Notice
of Sale.  The Secured Party shall
give the Company at least fifteen (15) days’ prior written notice of the date
fixed for any public sale of any Pledged Spare Parts or of 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 a reasonable opportunity to bid.

 

Section 4.02.          Remedies
Cumulative.  Each and every right,
power and remedy herein specifically given to the Secured Party or otherwise in
this Mortgage shall be cumulative and shall be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and as often and in such order as may be deemed expedient by the Secured
Party, and the exercise or the beginning of the exercise of any power or remedy
shall not be construed to be a waiver of the right to exercise at the time or
thereafter any other right, power or remedy. 
No delay or omission by the Secured Party in the exercise of any right,
remedy or power or in the pursuance of any remedy shall impair any such right,
power or remedy or be construed to be a waiver of any default on the part of
the Company or to be an acquiescence therein.

 

Section 4.03.          Discontinuance
of Proceedings.  If the Secured Party
shall have proceeded to enforce any right, power or remedy under this Mortgage
by foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, then and in every such case the
Company and the Secured Party shall be restored to their former positions and
rights hereunder with respect to the property, subject to the Lien of this
Mortgage, and all rights, remedies and powers of the Secured Party shall
continue, as if no such proceedings had been undertaken (but otherwise without
prejudice).

 

16

 

Section 4.04.          Allocation
of Payments.  Notwithstanding any
other provisions of the Loan Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Secured Party or any Lender on account of the Obligations shall
be paid over or delivered as follows:

 

FIRST, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation
reasonable attorneys’ fees and expenses actually incurred) of the Secured Party
in connection with enforcing the rights of the Secured Party under the
Transaction Documents;

 

SECOND, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees and expenses actually incurred) of each of the
Lenders in connection with enforcing its rights under the Transaction Documents
or otherwise with respect to the Obligations owing to such Lender;

 

THIRD, to all other
Obligations (other than as covered by Clause “FOURTH”, “FIFTH” and “SIXTH”
below) which shall have become due and payable under the Transaction Documents
or otherwise and not repaid pursuant to clauses “FIRST” through “SECOND” above;
and

 

FOURTH, to the payment of
all accrued interest on the Obligations;

 

FIFTH, to the payment of
LIBOR Breakage Costs, if any, due under the Loan Agreement in respect of the
Loans;

 

SIXTH, to the payment of
the outstanding principal amount of the Loans, allocated between payment of the
Series A Loan and the Series B Loan in such priority and proportion as the
Secured Party may from time to time elect;

 

SEVENTH, so long as
either the Lien of the Subordinated Spare Parts Mortgage has not been
discharged, or the Lien of the Subordinated Engine Mortgage has not been
discharged, to the Subordinated Secured Party to be held as security under the
Subordinated Spare Parts Mortgage and/or Subordinated Engine Mortgage in such
proportion as the Subordinated Secured Party may elect;

 

EIGHTH, to the payment of
the surplus, if any, to whoever may be lawfully entitled to receive such
surplus.

 

In carrying out the
foregoing, (i) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category
and (ii) if amounts available are insufficient to pay all amounts due
within any category, such available amounts shall be paid pro rata to the
parties entitled thereto based upon the amount due under such category to each
such party.

 

17

 

ARTICLE 5.

 

INTENTIONALLY
LEFT BLANK

 

ARTICLE 6.

 

SECURITY
FUNDS

 

Section 6.01.          Investment
of Security Funds.  Any monies paid
to or received by the Secured Party as Cash Collateral (hereunder or under the
Loan Agreement) or 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 3.05(d) and 3.05(e) hereof), but which the Secured
Party is entitled to hold under the terms hereof or the terms of the Loan
Agreement pending the occurrence of some event or the performance of some act
(including, without limitation, the remedying of an Event of Default, whether
through the application thereof or otherwise), shall, until paid to the Company
or applied as provided herein, be subject to the Lien of this Mortgage and be
invested by the Secured Party at the written authorization and direction of the
Company (or, if a Special Default or an Event of Default shall have occurred
and be continuing, the Secured Party) from time to time at the sole expense and
risk of the Company in Permitted Investments. 
All Permitted Investments held by the Secured Party pursuant to this
Section 6.01 shall either be (a) registered in the name of, payable to the
order of, or specially endorsed to, the Secured Party or (b) held in an
Eligible Account.  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 Secured Party
shall not be liable for any loss relating to a Permitted Investment made
pursuant to this Section 6.01.  The
Company will promptly pay to the Secured Party, 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).

 

18

 

Section 6.02           Investing of Cash
Collateral.  The Company may from
time to time provide Cash Collateral to the Secured Party in accordance with
the terms and conditions of this Mortgage. 
The Secured Party agrees that any Cash Collateral provided by the
Company shall be retained and invested by the Secured Party in accordance with
the terms and conditions of Section 6.01 hereof.

 

Section 6.03           Release of Cash
Collateral. If the Collateral Ratio is less than the Maximum Collateral
Ratio and the Rotables Ratio is less than the Maximum Rotables Ratio, in each
case as most recently determined pursuant to Section 3.03 and Section
3.10, upon written request of the Company, the Secured Party shall, unless a
Special Default or an Event of Default has occurred and is continuing, pay to
the Company an amount of the Cash Collateral or insurance proceeds held by the
Secured Party pursuant to Section 3.03 or 3.05(d)(1), as the case may be, such
that the Collateral Ratio would not be greater than the Maximum Collateral
Ratio and the Rotables Ratio would not be greater than the Maximum Rotables
Ratio, in each case after giving effect to such payment.

 

ARTICLE 7.

 

MISCELLANEOUS

 

Section 7.01.          Termination
of Mortgage.  Upon (or at any time
after) payment in full of the unpaid principal of, and accrued interest on, the
Loans and all other Obligations then due and payable (and regardless of whether
any Default or Event of Default shall have occurred and be continuing), the
Secured Party shall, upon the written request of the Company execute and
deliver to, or as directed in writing by, the Company an appropriate instrument
(in due form for recording) releasing the Pledged Spare Parts and the balance
of the Collateral from the Lien of this Mortgage and, in such event, this
Mortgage shall terminate and this Mortgage shall be of no further force or
effect, provided that the Secured Party shall have no obligation to
release such Pledged Spare Parts and Collateral from the Lien of this Mortgage
or otherwise terminate this Mortgage prior to such payment in full.  Upon any release of any Pledged Spare Parts
from the Lien of this Mortgage in accordance with the terms of this Mortgage,
the Spare Parts Documents and other Collateral referred to in subsections (b),
(c), (d), (e), (f) and (g) of Section 2.01 relating to such Pledged Spare
Part shall also be released.

 

Section 7.02.          Alterations
to Mortgage.  This Mortgage shall not
be varied except in accordance with the Loan Agreement.

 

Section 7.03.          No
Legal Title to Collateral.  Neither
the Secured Party nor any of the Lenders shall have legal title to any part of
the Collateral.  No transfer, by
operation of Law or otherwise, of a Note or any right, title and interest of
the Secured Party or any Lender in and to the Collateral or this Mortgage shall
operate to terminate this Mortgage or entitle any successor or transferee to an
accounting or to the transfer to it of legal title to any part of the
Collateral.

 

Section 7.04.          Sale
of the Collateral by Secured Party Is Binding.  Any sale or other conveyance of the
Collateral, or any part thereof or any interest therein by the Secured Party
made pursuant to and in accordance with the terms of this Mortgage shall bind
the Secured 

 

19

 

Party and the Lenders,
and shall be effective to transfer or convey all right, title and interest of
the Secured Party, the Lenders and the Company, in and to such Collateral, or
such part thereof or 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 Secured Party.

 

Section 7.05.          Benefit
of Mortgage.  Nothing in this
Mortgage, whether express or implied, shall be construed to give to any Person
other than the Company, the Lenders and the Secured Party any legal or
equitable right, remedy or claim under or in respect of this Mortgage.

 

Section 7.06.          Section
1110 of the Bankruptcy Code.  It is
the intention of the parties hereto that the security interest created hereby
entitles the Secured Party, on behalf of the Lenders, to all of the benefits of
Section 1110 of Chapter 11 of the Bankruptcy Code with respect to all of the
Pledged Spare Parts and Spare Parts Documents (other than the Identified Spare
Parts and the Spare Parts Documents in respect of such Identified Spare Parts),
in the event the Company becomes a debtor under such Chapter 11.

 

Section 7.07.          Notices.  Unless otherwise expressly specified or
permitted by the terms hereof, any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served or sent by telefacsimile, United States mail, courier service or
overnight delivery and shall be effective when received addressed:

 

(i)            if
to the Company, at its office at

 

Independence Air, Inc.

Executive Offices

 

45200 Business Court

Dulles, VA 20166

 

Attention:              General
Counsel

Telephone:            (703)
650-6006

Telecopy:              (703)
650-6294

Email:                      rick.kennedy@flyi.com

 

 (ii)          if
to the Secured Party, at its office at

 

c/o GE Capital Aviation
Services, Inc.

201 High Ridge Road

Stamford, Connecticut 06927

Attention:              Customer Services

Telephone:            (203)
357-3776

Telecopy:              (203) 357-3201

Email:                      nanotices@gecas.com

 

20

 

(iii)          if
to any Lender, at its address for notices to it provided under the Loan
Agreement,

 

or, as to any
party, at such other address as such party shall from time to time designate by
written notice to the other parties in accordance with this Section 7.07.

 

Section 7.08.          Severability.  Should any one or more provisions of this
Mortgage be determined to be illegal or unenforceable by a court of any
jurisdiction, such provision shall be ineffective to the extent of such illegality
or unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.  The Company and the
Secured Party agree, as to such jurisdiction and to the extent permitted by
such jurisdiction’s Laws, to replace any provision of this Mortgage which is so
determined to be illegal or unenforceable by a valid provision which has as
nearly as possible the same effect; provided that such replacement provision
shall not expand the Company’s or the Secured Party’s obligations hereunder.

 

Section 7.09.          Separate
Counterparts.  This Mortgage may be
executed in any number of counterparts (and each of the parties hereto shall
not be required to execute the same counterpart).  Each counterpart of this Mortgage executed by
a party hereto shall be an original counterpart of this Mortgage, and all of
such counterparts together shall constitute one instrument.

 

Section 7.10.          Successors
and Assigns.  All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Company and its successors and permitted assigns, and the Secured Party and
its successors and permitted assigns, all as herein provided.

 

Section 7.11.          Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

Section 7.12.          Governing Law.  THIS
MORTGAGE 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.  The provisions of Sections 9.11 and 9.12
of the Loan Agreement are incorporated herein by reference, mutatis mutandis.

 

Section 7.13           Certification.  The Company hereby represents that it is a
certificated air carrier under Section 44705 of title 49 of the U.S. Code.

 

 

[Remainder of this page is blank.]

 

21

 

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

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
   

  	
  GENERAL
  ELECTRIC CAPITAL

  CORPORATION, as agent for the Lenders, as

  Secured Party

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

APPENDIX A

 

DEFINITIONS RELATING TO THE

MORTGAGE AND SECURITY AGREEMENT

 

General Provisions

 

(a)           Unless otherwise expressly provided, a
reference to:

 

(i)            each
of “the Company,” “Secured Party” or any other person includes, without
prejudice to the provisions of any Transaction Document, any successor in
interest to it and any permitted transferee or permitted assignee of it;

 

(ii)           words
importing the plural include the singular and words importing the singular
include the plural;

 

(iii)          any
agreement, instrument or document, or any annex, schedule or exhibit thereto,
or any other part thereof, includes, without prejudice to the provisions of any
Transaction Document, that agreement, instrument or document, or annex,
schedule or exhibit, or part, respectively, as amended, modified or
supplemented from time to time in accordance with its terms and in accordance
with the Transaction Documents, and any agreement, instrument or document
entered into in substitution or replacement therefor;

 

(iv)          any
provision of any Law includes any such provision as amended, modified,
supplemented, substituted, reissued or reenacted prior to the Closing Date, and
thereafter from time to time;

 

(v)           the
words “Mortgage,” “this Mortgage,” “hereby,” “herein,” “hereto,” “hereof” and “hereunder”
and words of similar import when used in the Mortgage refer to the Mortgage as
a whole and not to any particular provision of the Mortgage;

 

(vi)          the
words “including,” “including, without limitation,” “including, but not limited
to,” and terms or phrases of similar import when used in the Mortgage, with
respect to any matter or thing, mean including, without limitation, such matter
or thing; and

 

(vii)         a
“Section,” an “Exhibit,” an “Appendix,” an “Annex” or a “Schedule” referred to
in the Mortgage, or in any annex thereto, is a reference to a section of, or an
exhibit, an appendix, an annex or a schedule to, the Mortgage or such annex,
respectively.

 

(b)           Each exhibit, appendix, annex and schedule to
the Mortgage is incorporated in, and shall be deemed to be a part of, the
Mortgage.

 

(c)           Headings used in the Mortgage are for
convenience only and shall not in any way affect the construction of, or be
taken into consideration in interpreting, the Mortgage.

 

1

 

(d)           The occurrence and continuance of a Default,
Special Default or Event of Default referred to in Section 7.1 of the Loan
Agreement shall not be deemed to prohibit the Company from taking any action or
exercising any right that is conditioned on no Default, Special Default or
Event of Default having occurred and be continuing if such Default, Special
Default or Event of Default consists of the institution of reorganization
proceedings with respect to the Company under Chapter 11 of the Bankruptcy Code
and the trustee or debtor-in-possession in such proceedings shall have agreed
to perform its obligations under the Mortgage with the approval of the
applicable court and thereafter shall have continued to perform such
obligations in accordance with Section 1110 of the Bankruptcy Code.

 

Definitions

 

“Additional
Parts” has the meaning specified in Section 3.03(a) of the
Mortgage.

 

“Additional
Rotables” has the meaning specified in Section 3.03(b) of the
Mortgage.

 

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

 

“Affiliate”
means, with respect to any person, any other person directly or indirectly
controlling, controlled by or under common control with such person.  For purposes of this definition, “control” means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise and “controlling,” “controlled by” and “under common control with” have
correlative meanings.

 

“Appliance”
means an instrument, equipment, apparatus, a part, an appurtenance, or an
accessory used, capable of being used, or intended to be used, in operating or
controlling aircraft in flight, including a parachute, communication equipment,
and another mechanism installed in or attached to aircraft during flight, and
not a part of an aircraft, Engine, or Propeller.

 

“Appraisal”
means an appraisal of the Pledged Spare Parts completed with the either the
Desk-Top Appraisal Methodology or the Physical Appraisal Methodology, as the
case may be.

 

“Appraisal Compliance Report”
means, as of any date, an Officer’s Certificate of the Company providing
information relating to the calculation of the Rotables Ratio and the
Collateral Ratio, which shall be substantially in the form of Appendix C to
this Mortgage.

 

“Appraisal Date”
has the meaning set forth in Section 3.10(a) of the Mortgage.

 

“Appraisal Value”
means, with respect to any item of Collateral, the Current Market Value of such
Collateral as most recently determined pursuant to Section 3.03(d), 3.03(e) or
Section 3.10 of the Mortgage (including, without limitation, in connection with
an Independent Appraiser’s Certificate).

 

A-2

 

“Bankruptcy
Code” means Title 11 of the United States Code.

 

“Business
Day” means any day except Saturday, Sunday and any day which
shall be in New York City or Dulles, Virginia a day on which banking
institutions are authorized or required by Law to close.

 

“Cash Collateral”
has the meaning set forth in Section 3.03(a)(ii) of this Mortgage.

 

“Closing
Date” means the date on which the Loans are made pursuant to
the Loan Agreement.

 

“Collateral”
has the meaning given such term in Section 2.01 of this Mortgage.

 

“Collateral Agent Agreement” has
the meaning given such term in the Loan Agreement.

 

“Collateral Diminution Event”
means as of any Appraisal Date, if the Current Market Value of the Pledged
Spare Parts as a whole or of the Rotables included in the Collateral, as the
case may be, as of such Appraisal Date, is 10% (or more) lower than the Current
Market Value of the Pledged Spare Parts as a whole or of the Rotables included
within the Collateral, as of the immediately preceding Appraisal Date;
provided, however, if such 10% or more change in the Current Market Value of
the Pledged Spare Parts as a whole or of the Rotables included within the
Collateral is attributable primarily to a change in industry-wide market values
or to a change in the valuation methodology used by the Independent Appraiser,
then such change shall not constitute a “Collateral Diminution Event” for
purposes of this Mortgage.

 

“Collateral
Ratio” shall mean, as of any date, a percentage determined by
dividing (i) the aggregate outstanding principal amount of the Series B Loan
minus the amount of the Cash Collateral held by the Secured Party as of such
date by (ii) the Current Market Value of all Pledged Spare Parts, excluding (x)
those Pledged Spare Parts which are either in transit or out for repair and
consequently not located at a Designated Location as of such date, and (y)
those Pledged Spare Parts which are located at any Designated Location which is
at the premises of a third party maintenance facility.

 

“Company”
means Independence Air, Inc., a California corporation.

 

“CRJ
Equipment” means CRJ-100, CRJ-200, CRJ-700 and CRJ-900
aircraft and/or any Engines that are capable of being used to power any such
aircraft.

 

 “Current Market Value”
means, with respect to any item of Collateral, its current market value
determined on the basis of a hypothetical sale negotiated in an arm’s length
free market orderly liquidation transaction between a willing and able seller
and a willing and able buyer, neither of whom is under undue pressure to complete
the transaction, under then current market condition, as determined by the
Independent Appraiser.

 

“Data
Report” means
information and data relating to the Pledged Spare Parts supplied by the
Company to the Independent Appraiser necessary for the Independent Appraiser 

 

A-3

 

to
complete the Independent Appraiser’s Certificate, which shall be in the form of
an Officer’s Certificate of the Company substantially in the form of Appendix D
to the Mortgage.

 

“Data
Report Date” means
the sixth calendar day of each month, commencing with the first month following
the month in which the Funding Date occurs.

 

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

 

“Designated Locations”
means the locations designated from time to time by the Company at which the
Pledged Spare Parts may be maintained by or on behalf of the Company, which
initially shall be the locations set forth on Schedule I to this Mortgage and
shall include the additional locations designated by the Company pursuant to
Section 3.02(b)(2) of this Mortgage.

 

“Desk-Top Appraisal Date”
has the meaning set forth in Section 3.10(a) of the Mortgage.

 

“Desk-Top Appraisal Methodology”
means the Physical Appraisal Methodology, excluding the actions referred to in
clauses (vi), (vii) and (viii) of the definition of Physical Appraisal
Methodology.

 

“Desk-Top Data Report Date”
means each Data Report Date that is not a Physical Data Report Date.

 

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

 

“Eligible
Account” means an account established by and with an Eligible
Institution at the request of the Secured Party, which institution agrees, for
all purposes of the New York UCC including Article 8 thereof, that (a) such
account shall be a “securities account” (as defined in Section 8-501 of the New
York UCC), (b) such institution is a “securities intermediary” (as defined in
Section 8-102(a)(14) of the New York UCC), (c) all property (other than cash)
credited to such account shall be treated as a “financial asset” (as defined in
Section 8-102(9) of the New York UCC), (d) the Secured Party shall be the “entitlement
holder” (as defined in Section 8-102(7) of the New York UCC) in respect of such
account, (e) it will comply with all entitlement orders issued by the Secured
Party to the exclusion of the Company, (f) it will waive or subordinate in
favor of the Secured Party all claims (including without limitation, claims by
way of security interest, lien or right of set-off or right of recoupment), and
(g) the “securities intermediary jurisdiction” (under Section 8-110(e) of the
New York UCC) shall be the State of New York.

 

“Eligible
Institution” means a depository institution organized under
the Laws of the United States of America or any of the states thereof or the
District of Columbia (or any U.S. branch of a foreign bank), which has a
long-term unsecured debt rating from Moody’s and Standard & Poor’s of at
least A3 or its equivalent.

 

“Engine”
means an engine used, or intended to be used, to propel an aircraft, including
a part, appurtenance, and accessory of the Engine.

 

A-4

 

“Engine
Mortgage” has the meaning given such term in the Loan Agreement.

 

“Environmental
Laws” means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to
health and safety matters.

 

“Event
of Default” has the meaning given such term in the Loan
Agreement.

 

“Excluded Parts”
means (a) Hazardous Materials, (b) Propellers, (c) any Spare Part or
Appliance that is not capable of being used or installed on or intended to be
used or installed on CRJ Equipment, (d) any Spare Part or Appliance that is
suitable for installation on either a CRJ-700 or CRJ-900 aircraft or its
Engines, Propellers or Appliances but that is not suitable for installation on
a CRJ-200 aircraft or its Engines, Propellers or Appliances, and (e) any
Spare Part or Appliance that is suitable for installation on a Fairchild
Dornier 328Jet aircraft, a British Aerospace Jetstream 3201 aircraft, a British
Aerospace Jetstream 4101 aircraft, an Airbus A-319 aircraft or any of their
respective Engines, Propellers or Appliances.

 

“Expendable Parts”
or “Expendables” means those Spare Parts
and Appliances that, once used, cannot be re-used, and if not serviceable,
cannot be overhauled or repaired.

 

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

 

“Federal
Aviation Act” means Part A of Subtitle VII of Title 49,
United States Code.

 

“Financing
Statements” has the meaning set forth in the Loan Agreement.

 

“Governmental
Authority” means (a) any federal, state, provincial or
similar government, and any body, board, department, commission, court,
tribunal, authority, agency or other instrumentality of any such government or
otherwise exercising any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other government entity
having jurisdiction over any matter contemplated by the Transaction Documents
or relating to the observance or performance of the obligations of any of the
parties to the Transaction Documents.

 

“Hazardous Materials” means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Laws.

 

“IAI
Appraiser Responsibility” means the responsibility of the
Company to (i) make timely reimbursement to the Administrative Agent for
its payment of the Independent Appraiser’s fees and expenses (subject to the
limitation set forth in Section 3.10(c) of the Mortgage), (ii) provide the
Independent Appraiser with timely and accurate Data Reports, and 

 

A-5

 

(iii) in the case
of any Physical Appraisal, provide the Independent Appraiser with full and
complete access to all Designated Locations required by the Independent
Appraiser.

 

“Identified Spare Parts”
means the Spare Parts identified on Schedule II hereto.

 

“Independent Appraiser”
means Sage-Popovich, Inc. or, if Sage-Popovich, Inc. is no longer the
Independent Appraiser, any other Person selected by the Secured Party pursuant
to Section 3.10(c).

 

“Independent
Appraiser’s Certificate” means an Officer’s Certificate
delivered pursuant to Section 3.03(d), 3.03(e) or Section 3.10 of the Mortgage,
and substantially in the form of Appendix E to the Mortgage.

 

“Independent
Appraiser’s Fee Amount” has the meaning set forth in Schedule
3 to the Loan Agreement.

 

“Law”
means (a) any constitution, treaty, statute, law, decree, regulation,
order, rule or directive of any Governmental Authority, and (b) any
judicial or administrative interpretation or application of, or decision under,
any of the foregoing.

 

“Lender”
has the meaning given to that term in the Loan Agreement.

 

“Lien”
means any mortgage, pledge, lien, charge, encumbrance, lease, or security
interest affecting the title to or interest in property.

 

“Loans”
has the meaning given to that term in the Loan Agreement.

 

“Loan
Agreement” means the Loan Agreement dated as of February 17,
2005 among the Company, General Electric Capital Corporation, the Secured Party
and the Lenders from time to time party thereto.

 

“Maximum Collateral Ratio”
has the meaning set forth in Schedule 3 to the Loan Agreement.

 

“Maximum Deductible Amount”
has the meaning set forth in Schedule 3 to the Loan Agreement.

 

“Maximum Rotables Ratio”
has the meaning set forth in Schedule 3 to the Loan Agreement.

 

 “Minimum Liability Amount”
has the meaning set forth in Schedule 3 to the Loan Agreement.

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“Mortgage”
means the Spare Parts Mortgage and Security Agreement covering the Collateral
dated as of February 18, 2005, between the Company and the Secured Party.

 

A-6

 

“New
York UCC”  means the
Uniform Commercial Code as in effect in the State of New York.

 

“Note”
has the meaning given to that term in the Loan Agreement.

 

“Obligations”
has the meaning specified in the Loan Agreement.

 

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

 

“Permitted
Investments” means (i) securities issued or directly and
fully guaranteed by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), the Federal Home Loan
Mortgage Corporation, the Student Loan Marketing Association and the Federal
National Mortgage Association, in all cases having a maturity of not more than
90 days or, in the case of auction rate notes issued by any of the foregoing,
having an action reset interval of not more than 30 days; (ii) certificates of
deposit, bankers’ acceptances, repurchase agreements or time deposits issued or
accepted or guaranteed by 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 A or better by Moody’s or AA or better by Standard & Poor’s 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 A1 by Standard & Poor’s or P1 by Moody’s and having a
final maturity of 90 days or less from the date of purchase thereof or, in the
case of auction rate notes issued by any of the foregoing, having an auction
reset interval of not more than 30 days; provided that the aggregate amount at
any one time 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
Liens” has the meaning given such term in Section 3.01 of the
Mortgage.

 

“Person”
has the meaning given to such term in the Loan Agreement.

 

“Physical Appraisal”
means an appraisal of the Pledged Spare Parts conducted by the Independent
Appraiser using the Physical Appraisal Methodology.

 

“Physical Appraisal Data Report
Date” means the Data Report Date occurring on the sixth
calendar day of the fourth month following the Funding Date, and thereafter on
the sixth calendar day of the fourth month after the preceding Physical
Appraisal Data Report Date; provided that, if at any time, a Collateral
Diminution Event has occurred as of a Data Report Date occurring after a
Physical Appraisal Date (or, if a Physical Appraisal Date has not yet occurred,
after the Funding Date) but prior to the next succeeding Data Report Date (and
is not cured as of the next succeeding Data Report Date, if any, occurring
prior to such next succeeding 

 

A-7

 

Data Report Date), then
the next Physical Appraisal Data Report Date shall be such next succeeding Data
Report Date.

 

“Physical Appraisal Date” has
the meaning given such term in Section 3.10(a) of the Mortgage.

 

“Physical
Appraisal Methodology” means, in determining an opinion as to
the Current Market Value of the Pledged Spare Parts, taking at least the
following actions:  (i) reviewing the
Data Report prepared as of the applicable Valuation Date; (ii) reviewing the
Independent Appraiser’s internal value database for values applicable to the
Pledged Spare Parts; (iii) developing a representative sampling of a reasonable
number of the different Pledged Spare Parts for which a market check will be
conducted; (iv) checking other sources, such as manufacturers, other airlines,
U.S. Government procurement data and airline parts pooling price lists, for
current market prices of the sample parts referred to in clause (iii); (v)
establishing an assumed ratio of Serviceable Parts to Unserviceable Parts as of
the applicable Valuation Date based upon information provided by the Company
and the Independent Appraiser’s limited physical review of the Pledged Spare
Parts referred to in the following clause (vi); (vi) visiting Designated
Locations selected by the Independent Appraiser where in the aggregate up to
80% (by measure of Appraisal Value) of the Pledged Spare Parts are kept by the
Company to conduct a physical inspection of the Pledged Spare Parts;
(vii) conducting a limited review of the inventory reporting system
applicable to the Pledged Spare Parts, including checking information reported
in such system against information determined through physical inspection
pursuant to the preceding clause (vi); and (viii) reviewing a sampling of the
Spare Parts Documents (including tear-down reports).

 

 “Pledged Spare Parts” has
the meaning set forth in clause (a) of the first paragraph of Section 2.01 of
the Mortgage.

 

“Propeller”
includes a part, appurtenance, and accessory of a propeller.

 

“Repairable”
means those Spare Parts and Appliances that can be economically restored or
repaired to a serviceable condition, but have a life that is considerably less
than the life of the flight equipment to which they are related.

 

 “Rotable” means those Spare
Parts and Appliances that can be repeatedly and economically restored to a
serviceable condition over a period approximating the life of the flight
equipment to which they are related.

 

“Rotables Ratio”
shall mean, as of any date, a percentage determined by dividing (i) the
aggregate outstanding principal amount of the Series B Loan minus the amount of
the Cash Collateral held by the Secured Party as of such date by (ii) the
aggregate Current Market Value of all Rotables that are Pledged Spare Parts,
excluding (x) those Rotables which are either in transit or out for repair and
consequently not located at a Designated Location as of such date, and (y)
those Rotables which are located at any Designated Location which is at the
premises of a third party maintenance facility.

 

A-8

 

“Secure Location”
means an area in a Designated Location to which access is controlled by lock
and key, supported by an appropriate security system, and which is accessible
only to authorized employees of the Company.

 

“Secured
Party” means General Electric Capital Corporation, in its
capacity as Secured Party under this Mortgage.

 

“Series A
Loan” has the meaning set forth in the Loan Agreement.

 

“Series B
Loan” has the meaning set forth in the Loan Agreement.

 

“Serviceable Parts”
means Pledged Spare Parts in condition satisfactory for incorporation in,
installation on, attachment or appurtenance to or use in an aircraft, Engine or
other Pledged Spare Part.

 

“Software”
means any and all computer programs and inventory management systems,
including, but not limited to all source code and user interfaces associated
therewith as well as all data files used as input thereto and data files or
other records generated thereby, used by the Company to track and manage the
location, use and maintenance status of Spare Parts and Appliances.

 

“Software Support Agreements”
has the meaning given to that term in Section 2.01 of the Mortgage.

 

“Spare Part”
means an accessory, appurtenance, or part of an aircraft (except an Engine or
Propeller), Engine (except a Propeller), Propeller, or Appliance, that is to be
installed at a later time in an aircraft, Engine, Propeller or Appliance.

 

“Spare
Parts Documents” has the meaning set forth in clause (f) of
the first paragraph of Section 2.01 of the Mortgage.

 

“Special
Default” has the meaning given to that term in the Loan
Agreement.

 

“Standard
& Poor’s” means Standard & Poor’s Rating Services.

 

“Subordinated
Engine Mortgage” has
the meaning given to that term in the Loan Agreement.

 

“Subordinated
Spare Parts Mortgage” has the meaning given to that term in
the Loan Agreement.

 

“Subordinated
Secured Party” means the Collateral Agent as defined in the
Collateral Agent Agreement.

 

“Supplemental
Mortgage” means a Supplemental Mortgage and Security
Agreement in substantially the form of Exhibit A to this Mortgage.

 

“Taxes”
has the meaning given to that term in the Loan Agreement.

 

A-9

 

“Threshold
Amount” has the meaning set forth in Schedule 3 to the
Loan Agreement.

 

“Transaction
Documents” means the Loan Agreement, each Note, this
Mortgage, the Engine Mortgage and each Supplemental Mortgage.

 

“UCC”
or “Uniform Commercial Code” means the
Uniform Commercial Code as in effect in any applicable jurisdiction.

 

“Unserviceable Parts”
means Pledged Spare Parts that are not Serviceable Parts.

 

“U.S.
Government” means the federal government of the United
States, or any instrumentality or agency thereof the obligations of which are
guaranteed by the full faith and credit of the federal government of the United
States.

 

“Valuation
Date” has the meaning given to that term in Section 3.10(a)
of the Mortgage.

 

“Warranties”
has the meaning given to that term in Section 2.01(b) of the Mortgage.

 

A-10

 

APPENDIX B

 

INSURANCE

 

Capitalized terms
used but not defined herein shall have the respective meanings set forth or
incorporated by reference in Appendix A to the Mortgage.

 

A.            Liability Insurance

 

The Company will carry or
cause to be carried at all times, at no expense to any Secured Party, third
party liability insurance with respect to the Pledged Spare Parts, which is (i)
of amount and scope as is usually carried by airlines engaged in the same or
similar business, similarly situated with Company and owning or operating
similar spare parts for aircraft and engines and covering risks of the kind
customarily insured against by the Company for equipment similar to the Pledged
Spare Parts and in any event in an amount not less than the Minimum Liability
Amount, and (ii) maintained in effect with insurers of recognized
responsibility (such insurers being referred to herein as “Approved Insurers”).

 

The Company will carry or
cause to be carried at all times, at no expense to any Secured Party, with
Approved Insurers third party liability insurance covering the Designated
Locations where any Pledged Spare Parts shall be located.  Pursuant to Section C below, the Secured
Party and the Lenders shall be named as Additional Insureds under any such
insurance policy.

 

B.            Property Insurance

 

The Company will carry or
cause to be carried at all times, at no expense to Secured Party or any Lender,
with Approved Insurers insurance covering physical damage to the Pledged Spare
Parts, of the type covering the same risks as are usually carried by airlines
engaged in the same or similar business as Company and covering risks of the
kind customarily insured against by Company and providing for the reimbursement
of the actual expenditure incurred in repairing or replacing any damaged or
destroyed Pledged Spare Part or, if not repaired or replaced, for the payment of
the amount it would cost (determined as of the date of loss) to repair or
replace such Pledged Spare Part with proper deduction for obsolescence and
physical depreciation.

 

The Company will carry or
cause to be carried at all times, at no expense to any Secured Party, with
Approved Insurers property insurance covering the Designated Locations where
any Pledged Spare Parts shall be located.

 

Any policies of insurance
carried in accordance with this Section B covering the Pledged Spare Parts
and any policies taken out in substitution or replacement for any such policies
shall provide that (A) all insurance proceeds paid under such policies as a
result of the occurrence of any loss or damage with respect to any Pledged
Spare Parts involving proceeds in excess of the Threshold Amount up to an
amount equal to the unpaid amount of the Obligations 

 

B-1

 

will be paid to the
Secured Party, and (B) the entire amount of any insurance proceeds in
respect of Pledged Spare Parts up to the Threshold Amount shall be paid to the
Company or its order; provided however that if a Special Default or
Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by the Secured Party or any other Person, the amount of
any proceeds up to the Threshold Amount of any loss with respect to the Pledged
Spare Parts shall not be paid to the Company, but shall instead be paid to the
Secured Party notwithstanding the preceding clause (B) of this paragraph.

 

C.            General Provisions

 

Any policies of insurance
carried in accordance with Sections A and B, including any policies taken
out in substitution or replacement for such policies:

 

(a)           shall name the Secured Party and each Lender
as an additional insured (collectively, the “Additional Insureds”), as
their respective interests may appear;

 

(b)           in the case of Section A, shall provide that,
in respect of the interests of the Additional Insureds in such policies, the
insurance shall not be invalidated or impaired by any act or omission
(including misrepresentation and nondisclosure) by the Company or any other
Person (including, without limitation, use of the Pledged Spare Parts for
illegal purposes) and shall insure the Additional Insureds regardless of any breach
or violation of any representation, warranty, declaration, term or condition
contained in such policies by the Company;

 

(c)           shall provide that, if the insurers cancel
such insurance for any reason whatsoever, including nonpayment of premium, or
if any material change is made in the insurance which adversely affects the
interest of any of the Additional Insureds, such cancellation or change shall
not be effective as to the Additional Insureds for 30 days (10 days for
nonpayment of premiums or cancellation by the Company) after receipt by the
Additional Insureds of written notice by such insurers of such cancellation or
change;

 

(d)           shall waive any right of recourse,
subrogation, setoff, recoupment, counterclaim or other deduction against any
Additional Insured;

 

(e)           shall be primary without right of
contribution from any other insurance that may be available to any Additional
Insured;

 

(f)            in the case of Section A, shall provide that
all of the liability insurance provisions thereof, except the limits of
liability, shall operate in all respects as if a separate policy had been
issued covering each party insured thereunder; and

 

(g)           shall provide that none of the Additional
Insureds shall be liable for any insurance premium.

 

D.            Reports, Etc.

 

On or prior to the
Closing Date and on or prior to each renewal date of the insurance policies
required hereunder, the Company will furnish or cause to be furnished to the 

 

B-2

 

Secured Party insurance
certificates describing in reasonable detail the insurance maintained by the
Company hereunder and a report, signed by the Company’s regularly retained
independent insurance broker (the “Insurance Broker”), stating the
opinion of such Insurance Broker that all premiums in connection with the
insurance then due have been paid and that the insurance terms are in
compliance with the requirements of this Appendix B.  Such information shall remain confidential as
provided in Section 9.9 of the Loan Agreement.  The Company will cause such Insurance Broker
to agree to advise the Secured Party in writing of any default in the payment
of premium as required by the terms hereof and to advise the Secured Party at
least thirty (30) days (ten (10) days in the case of nonpayment of premium)
prior to the cancellation or material adverse change of any insurance
maintained pursuant to this Appendix B. 
In the event that the Company shall fail to maintain or cause to be
maintained insurance as herein provided, the Secured Party may, at its sole
option, provide such insurance and, in such event, the Company shall, upon
demand, reimburse the Secured Party for the cost thereof.

 

E.             Reinsurance

 

The Company shall procure
that in respect of insurances maintained by the Company in accordance with the
provisions in this Appendix B the insurers shall maintain, if such insurances
do not provide for direct coverage in the markets hereafter referred to,
reinsurance covering identical subject matter and risk for an amount which
shall not be less than 100% of the coverage amount under Sections A and B
hereof in Lloyd’s of London or other internationally recognized aviation
reinsurance markets.  Such reinsurance
shall contain a customary “cut-through” endorsement and shall provide that any
payment by the reinsurers shall be made notwithstanding any bankruptcy,
insolvency or liquidation of the original insurer and/or that the original
insurer has made no payment under the original policies.

 

F.             Deductibles

 

The
insurance required to be carried by Section B hereof may be subject to a per
occurrence deductible in an amount not to exceed the Maximum Deductible Amount
for any one occurrence.

 

B-3

 

APPENDIX C

 

FORM OF APPRAISAL COMPLIANCE REPORT

 

[Address
to each Lender and to the Secured Party]

 

Appraisal Compliance Report Under the Spare Parts Mortgage and Security
Agreement

 

Ladies
and Gentlemen:

 

We refer to the Spare
Parts Mortgage and Security Agreement (the “Mortgage”), dated as of           ,
between Independence Air, Inc. (the “Company”) and General Electric
Capital Corporation (the “Secured Party”).  Terms defined in the Mortgage and used herein
have such respective defined meanings. 
The Company hereby certifies that:

 

1.             This Appraisal Compliance Report is based
upon an Independent Appraiser’s Certificate (the “Relevant Appraisal”)
dated [                       ].  The Valuation Date for purposes of the
Relevant Appraisal was [                       ]
(the “Relevant Valuation Date”).

 

2.             Based on the Relevant Appraisal, the
following sets forth the calculation of the Collateral Ratio as of the Relevant
Valuation Date:

	
  a.

  	
  The
  Current Market Value of the Collateral, is at least

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  b.

  	
  The
  Current Market Value of the Collateral and either (A) in transit or out for
  repair and consequently not located at a Designated Location as of the
  Relevant Valuation Date, or (B) located at a Designated Location that is
  at the premises of a third party maintenance facility as of the Relevant
  Valuation Date, in each case as set forth in the accompanying Independent
  Appraiser’s Certificate, is at least

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  c.

  	
  The
  aggregate principal amount of the Series B Loan outstanding as of the
  Relevant Valuation Date

  	
   

  	
  $[          ]

  

 

C-1

 

	
  d.

  	
  The
  amount of the Cash Collateral as of the Relevant Valuation Date

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  e.

  	
  The
  Collateral Ratio ((c - d) ÷ (a - b))

  	
   

  	
    [          ]%

  

 

3.             Based on the Relevant Appraisal, the
following sets forth the calculation of the Rotables Ratio as of the Relevant
Valuation Date:

 

	
  a.

  	
  The
  Current Market Value of the Rotables included in the Collateral, is at least

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  b.

  	
  The
  Current Market Value of the Rotables included in the Collateral and either
  (A) in transit or out for repair and consequently not located at a Designated
  Location as of the Relevant Valuation Date, or (B) located at a
  Designated Location that is at the premises of a third party maintenance
  facility as of the Relevant Valuation Date, in each case as set forth in the
  accompanying Independent Appraiser’s Certificate, is at least

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  c.

  	
  The
  aggregate principal amount of the Series B Loan outstanding as of the
  Relevant Valuation Date

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  d.

  	
  The
  amount of the Cash Collateral as of the Relevant Valuation Date

  	
   

  	
  $[          ]

  
	
   

  	
   

  	
   

  	
   

  
	
  e.

  	
  The
  Rotables Ratio ((c - d) ÷ (a - b))

  	
   

  	
    [          ]%

  

 

[3.            [This paragraph 3 to be included
only in the first Appraisal Compliance Report delivered as of the Funding Date:  The
Company expressly represents and warrants to each 

 

C-2

 

addressee
of this Appraisal Compliance Report that all information provided by the
Company to the Independent Appraiser for purposes of preparing the Relevant
Appraisal was and remains true and correct as of the Funding Date.]

 

Dated:    [                 ]

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

C-3

 

APPENDIX D

 

FORM OF DATA REPORT

 

[Address
to each Lender, to the Secured Party and the Independent Appraiser]

 

                        ,
20  

 

Data Report Under the Spare Parts Mortgage and Security Agreement

 

Ladies
and Gentlemen:

 

We refer to the Spare
Parts Mortgage and Security Agreement (the “Mortgage”), dated as of           ,
between Independence Air, Inc. (the “Company”) and General Electric
Capital Corporation (the “Secured Party”).  Terms defined in the Mortgage and used herein
have such respective defined meanings. 
The Company hereby certifies that:

 

1.             Attached hereto as Exhibit 1 is a report
that correctly sets forth the following information as of the date hereof with
respect to each Pledged Spare Part:

 

i)              Manufacturer’s part number;

 

ii)             part description;

 

iii)            related aircraft model(s) in summary form;

 

iv)           classification as Rotable, Repairable or
Expendable;

 

v)            quantity on hand;

 

vi)           the Company’s cost basis;

 

vii)          each Pledged Spare Part out for repair; and

 

viii)         each Pledged Spare Part in transit.

 

2.             The respective values of all Rotables,
Repairables and Expendables stored at a Designated Location calculated on a
historical basis, by Designated Location, are                    .

 

D-1

 

3.             Attached hereto as Exhibit 2 is a report
that correctly sets forth the following information as of the date hereof with
respect to each Pledged Spare Part:

 

i)              Rotable/Repairable/Expendable Asset Report by
total quantity and value by part number;

 

ii)             Rotable, Repairable and Expendable by
Designated Location;

 

iii)            Rotable/Repairable/Expendable asset summary
values;

 

iv)           Repairable allocation summary quantity and value by Designated
Location; and

 

v)            Rotable allocation summary quantity and value
by Designated Location.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title

  
	
   

  	
   

  	
  Date:

  

 

D-2

 

APPENDIX
E

 

FORM OF INDEPENDENT APPRAISER’S CERTIFICATE

 

 

[Address
to each Lender and to the Secured Party]

 

 

Independent Appraiser’s Certificate Under the Spare Parts Mortgage and
Security Agreement

 

Ladies
and Gentlemen:

 

We refer to the Spare
Parts Mortgage and Security Agreement (the “Mortgage”), dated as of             ,
between Independence Air, Inc. (the “Company”) and General Electric
Capital Corporation (the “Secured Party”).  Terms defined in the Mortgage and used herein
have such respective defined meanings. 
The Independent Appraiser hereby certifies that as of the
Data Report Date of [insert date]:

 

1.             The aggregate Appraisal Value of (x) all
Rotables that are included within the Pledged Spare Parts and that are located
at a Designated Location is $[                 ],
(y) all Repairables that are included within the Pledged Spare Parts and that
are located at a Designated Location is $[                 ],
and (z) all Expendables that are included within the Pledged Spare Parts and
that are located at a Designated Location is $[                 ].

 

2.             The aggregate Appraisal Value of all Rotables
that are included within the Pledged Spare Parts and that are in transit or
outside a Designated Location for maintenance or at a Designated Location that
is at the premises of a third party maintenance facility is $[      ].

 

3.             The aggregate Appraisal Value of all Pledged
Spare Parts and that are in transit or outside a Designated Location for
maintenance or at a Designated Location that is at the premises of a third
party maintenance facility is $[      ].

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF INDEPENDENT APPRAISER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Date:

  

 

E-1

 

EXHIBIT A

 

FORM OF SUPPLEMENTAL MORTGAGE AND SECURITY AGREEMENT

(To Add Designated Locations)

SUPPLEMENTAL MORTGAGE No.      

 

SUPPLEMENTAL MORTGAGE NO.
       , dated as of              
of INDEPENDENCE AIR, INC., a California corporation (together with its
successors and assigns, the “Company”).

 

WHEREAS, the Company,
which is a certificated air carrier under Section 44705 of title 49 of the U.S.
Code, and General Electric Capital Corporation, as agent for the Lenders (as
defined in the Mortgage referenced below), as Secured Party (the “Secured
Party”), have heretofore executed and delivered a Spare Parts Mortgage and
Security Agreement dated as of February 18, 2005 (which is more fully described
on Schedule II hereto and as the same may be further amended, modified,
supplemented and restated from time to time, the “Mortgage”), and terms
defined in the Mortgage and used herein have such defined meanings unless
otherwise defined herein;

 

WHEREAS, the Mortgage
grants a Lien on, among other things, certain Spare Parts and Appliances to
secure (subject to the provisions of the Mortgage) the payment of the Loans and
the other obligations under the Loan Agreement and the other Transaction
Documents; and

 

WHEREAS, the Company has
previously designated the locations at which the Pledged Spare Parts may be
stored by the Company in the Mortgage;

 

WHEREAS, the Company, as
provided in the Mortgage, is hereby executing and delivering to the Secured
Party this Supplemental Mortgage for the purposes of adding locations at which
the Pledged Spare Parts may be stored by the Company; and

 

WHEREAS, all things
necessary to make this Supplemental Mortgage the valid, binding and legal
obligation of the Company, including all proper corporate action on the part of
the Company, have been done and performed and have happened;

 

NOW, THEREFORE, THIS
SUPPLEMENTAL MORTGAGE, WITNESSETH, that (i) the location(s) listed on Schedule
I hereto shall be deemed and considered [a] Designated Location(s) at which
Pledged Spare Parts may be maintained by or on behalf of the Company for all
purposes under and pursuant to the Mortgage, and (ii) the location(s) listed on
Schedule I [is/are] hereby added as [a] Designated Locations, in addition to
and not in lieu of, any of the other Designated Locations specified in the
Mortgage.

 

This Supplemental
Mortgage 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.

 

A-1

 

THIS SUPPLEMENTAL
MORTGAGE IS DELIVERED IN THE STATE OF NEW YORK. 
THIS SUPPLEMENTAL MORTGAGE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

Delivery of an executed
counterpart of a signature page to this Supplemental Mortgage by telecopier
shall be effective as delivery of an original executed counterpart of this
Supplemental Mortgage.

 

IN WITNESS WHEREOF, this
Supplemental Mortgage has been duly executed and delivered all as of the date
first above written.

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
				

 

A-2

 

SCHEDULE I TO

SUPPLEMENTAL MORTGAGE NO.      

 

ADDITIONAL DESIGNATED LOCATION[S]

 

A-3

 

SCHEDULE II TO

SUPPLEMENTAL MORTGAGE NO.      

 

DESCRIPTION OF MORTGAGE

 

The
Spare Parts Mortgage and Security Agreement between Independence Air, Inc. and
General Electric Capital Corporation, as more fully described as follows:

 

	
   

  	
   

  	
  DATE

  	
   

  	
  DATE OF

  RECORDING

  	
   

  	
  DOCUMENT OR

  CONVEYANCE

  NO.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mortgage

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Supplemental Mortgage No. 1

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

A-4

 

SCHEDULE I

DESIGNATED LOCATIONS

 

IAD

Independence Air

23321 Autopilot Dr

Dulles VA 20166

Tel: 703-650-1645 Fax: 703-650-1693

 

LINSR

Independence Air

Washington Dulles International Airport,

Concourse A, MX Parts Store (AU-250)

Dulles VA 20166

Tel: 703-572-3392 Fax: 703-572-3438

 

MCO

Independence Air

9809 Tradeport Drive

Orlando, FL. 32827

Tel: 407-825-2580 
Fax: 407-825-2584

 

CAE

Independence Air

2625 Aviation Way

West Columbia SC 29170

Tel: 803-822-0535    Fax:
803-822-5428

 

ORD

Independence Air

O’Hare International Airport

Terminal 2 Lower Level E10

Chicago, IL. 60666

Tel: 773-686-2806 
Fax:
773-686-2805

 

HOT

Independence Air

525 Airport Road, Hangar A14

Memorial Field Airport

Hot Springs, AR. 71913

Tel: 501-318-1342  Fax:
501-318-0487

 

I-1

 

HSV

Reebaire Services

Huntsville Int’l Airport Gate3

20042 Glenn Hearn Blvd

Huntsville, AL. 35824

Tel: 256-503-3921 Fax: 256-772-4497

 

TYS

Reebaire Services

1925 Alcoa Hwy Bay 1

Alcoa, TN. 37701-3190

Tel: 865-342-1061  Fax:
865-342-1068

 

I-2

 

SCHEDULE
II

 

IDENTIFIED SPARE PARTS

 

	
  ASSET NUM

  	
   

  	
  DESCRIPTION

  	
   

  	
  ITEM_NBR

  	
   

  	
  IN-

  SERVICE 

  DATE

  	
   

  	
  FLEETCODE

  	
   

  	
  PO NUM

  	
   

  	
  ACCT_UNIT

  	
   

  	
  TAG_NBR

  	
   

  	
  ASSET TYPE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3906

  	
   

  	
  FUEL SOLENOID

  VALVE

  	
   

  	
  692545-17

  	
   

  	
  12/1/1991

  	
   

  	
  J41/CRJ/328

  	
   

  	
   

  	
   

  	
  15200ACA2

  	
   

  	
   

  	
   

  	
  ENGPART

  
	
  3990

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1991

  	
   

  	
  CRJ

  	
   

  	
   

  	
   

  	
  15200ACA2

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  3986

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1991

  	
   

  	
  CRJ

  	
   

  	
  IP00041000

  	
   

  	
  15200HG12

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  3989

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1991

  	
   

  	
  CRJ

  	
   

  	
  IP00024177

  	
   

  	
  15200HG13

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4448

  	
   

  	
  PNUEMATIC VALVE ASSY

  	
   

  	
  2099K021000

  	
   

  	
  2/1/1992

  	
   

  	
  J41/CRJ

  	
   

  	
  IP00004477

  	
   

  	
  15200HG19

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4273

  	
   

  	
  COMPUTER AHRS

  	
   

  	
  622-9336-400

  	
   

  	
  3/1/1993

  	
   

  	
  CRJ

  	
   

  	
  RO00151897

  	
   

  	
  15200ACA3

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4387

  	
   

  	
  BOTTLE FIRE EX

  	
   

  	
  36500018-3

  	
   

  	
  9/1/1993

  	
   

  	
  CRJ

  	
   

  	
  RO00163084

  	
   

  	
  15200HG12

  	
   

  	
  R6489

  	
   

  	
  AIRPART

  
	
  4390

  	
   

  	
  RECORDER, FLIGHT (CRJ)

  	
   

  	
  S800-3000-00

  	
   

  	
  9/1/1993

  	
   

  	
  CRJ

  	
   

  	
  IP0004477A

  	
   

  	
  15200HG13

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  5163

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1993

  	
   

  	
  CRJ

  	
   

  	
  IP00013398

  	
   

  	
  15200HG12

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  5162

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1993

  	
   

  	
  CRJ

  	
   

  	
  IP00012690

  	
   

  	
  15200HG12

  	
   

  	
  39977

  	
   

  	
  AIRPART

  
	
  5164

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1993

  	
   

  	
  CRJ

  	
   

  	
   

  	
   

  	
  15200ACA2

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4447

  	
   

  	
  PNUEMATIC VALVE ASSY

  	
   

  	
  2099K021000

  	
   

  	
  6/1/1994

  	
   

  	
  J41/CRJ

  	
   

  	
   

  	
   

  	
  15200IAD2

  	
   

  	
   

  	
   

  	
  AIRPART

  

 

II-1

Execution Version

 

 

 

SUBORDINATED SPARE PARTS MORTGAGE AND SECURITY AGREEMENT

 

 

Dated as of February 18, 2005

 

 

between

 

 

INDEPENDENCE AIR, INC.

 

 

and

 

 

GENERAL ELECTRIC CAPITAL CORPORATION,

 

 

as Secured Party

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1.  DEFINITIONS

  	
   

  
	
   

  	
  Section
  1.01.  Certain Definitions

  	
   

  
	
   

  	
  Section
  1.02.  Certain Rules of Construction

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2.  SECURITY

  	
   

  
	
   

  	
  Section
  2.01.  Grant of Security Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3.  COVENANTS OF THE
  COMPANY

  	
   

  
	
   

  	
  Section
  3.01.  Liens

  	
   

  
	
   

  	
  Section
  3.02.  Possession, Use, Designated Locations, Permitted Sales,
  Maintenance and Identification

  	
   

  
	
   

  	
  Section
  3.03.  [Intentionally Left Blank]

  	
   

  
	
   

  	
  Section
  3.04.  Software

  	
   

  
	
   

  	
  Section
  3.05.  Insurance

  	
   

  
	
   

  	
  Section
  3.06.  Assurances and Filings

  	
   

  
	
   

  	
  Section
  3.07.  Mergers and Consolidation

  	
   

  
	
   

  	
  Section
  3.08.  Notice of Change of the Company’s Location

  	
   

  
	
   

  	
  Section
  3.09.  Inspection

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4.  REMEDIES OF THE SECURED
  PARTY UPON A SUBORDINATED EVENT OF DEFAULT

  	
   

  
	
   

  	
  Section
  4.01.  Remedies with Respect to Collateral

  	
   

  
	
   

  	
  Section
  4.02.  Remedies Cumulative

  	
   

  
	
   

  	
  Section
  4.03.  Discontinuance of Proceedings

  	
   

  
	
   

  	
  Section
  4.04.  Allocation of Payments

  	
   

  
	
   

  	
  Section
  4.05.  Turnover of Payments to Senior Secured Party

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5.   INTENTIONALLY LEFT
  BLANK

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6.  SECURITY FUNDS

  	
   

  
	
   

  	
  Section
  6.01.  Investment of Security Funds

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7.  MISCELLANEOUS

  	
   

  
	
   

  	
  Section
  7.01.  Termination of Mortgage

  	
   

  
	
   

  	
  Section
  7.02.  Alterations to Mortgage

  	
   

  
	
   

  	
  Section
  7.03.  No Legal Title to Collateral

  	
   

  
	
   

  	
  Section
  7.04.  Sale of the Collateral by Secured Party Is Binding

  	
   

  
	
   

  	
  Section
  7.05.  Benefit of Mortgage

  	
   

  
	
   

  	
  Section
  7.06.  Section 1110 of the Bankruptcy Code

  	
   

  
	
   

  	
  Section
  7.07.  Notices

  	
   

  
	
   

  	
  Section
  7.08.  Severability

  	
   

  
	
   

  	
  Section
  7.09.  Separate Counterparts

  	
   

  
	
   

  	
  Section
  7.10.  Successors and Assigns

  	
   

  

 

i

 

	
   

  	
  Section
  7.11.  Headings

  	
   

  
	
   

  	
  Section
  7.12.  Governing Law; Submission to Jurisdiction; Venue

  	
   

  
	
   

  	
  Section
  7.13.  Waiver of Trial by Jury

  	
   

  
	
   

  	
  Section
  7.14.  Certification

  	
   

  
	
   

  	
   

  
	
  APPENDIX
  A

  	
   

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  APPENDIX
  B

  	
   

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT
  A

  	
   

  	
  Supplemental
  Mortgage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE
  I

  	
   

  	
  Designated
  Locations

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE
  II

  	
   

  	
  Identified
  Spare Parts

  	
   

  
					

 

ii

 

SUBORDINATED SPARE PARTS MORTGAGE AND SECURITY AGREEMENT

 

This SUBORDINATED SPARE
PARTS MORTGAGE AND SECURITY AGREEMENT, dated as of February 18, 2005 (as the
same may be amended, supplemented, restated or otherwise modified from time to
time, this “Mortgage”) between INDEPENDENCE AIR, INC., a California
corporation (the “Company”), and GENERAL ELECTRIC CAPITAL CORPORATION,
as agent for the Beneficiaries under the Indemnity Agreement (as defined
herein) (in such capacity, the “Secured Party”).

 

W I  T
N  E  S  S  E  T  H :

 

WHEREAS, as a condition
to the Lenders entering into the Loan Agreement, the Company, which is a
certificated air carrier under Section 44705 of title 49 of the U.S. Code, has
entered into the Indemnity Agreement to support certain payment obligations due
and owing to the Beneficiaries under the IAI Transaction Documents; and

 

WHEREAS, the Company
desires by this Mortgage, among other things, to grant to the Secured Party for
the benefit of the Beneficiaries a Lien on the Collateral in accordance with
the terms hereof, as security for the Obligations; and

 

WHEREAS, all things
necessary to make this Mortgage a legal, valid and binding obligation of the
Company and the Secured Party, for the uses and purposes herein set forth, in
accordance with its terms, have been done and performed and have occurred;

 

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 1.01.          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.

 

Section 1.02.          Certain
Rules of Construction.  The defined
terms and the other provisions of this Mortgage shall be construed in
accordance with the rules of construction set forth under the heading “General
Provisions” in Appendix A hereto.

 

ARTICLE 2.

 

SECURITY

 

Section
2.01.          Grant of Security Interest.  In
order to secure (i) the prompt payment when due of the Obligations and (ii) the
performance and observance by the Company of all agreements, 

 

iii

 

covenants
and provisions contained herein and in the other Transaction Documents to the
extent same relate to the Obligations 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, the Company has
granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged
and confirmed and does hereby grant, bargain, sell, assign, transfer, convey,
mortgage, pledge and confirm unto the Secured Party, its successors and
assigns, for the security and benefit of the Lenders, a security interest in,
and mortgage lien on, all 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”) (it being expressly understood and agreed that the security interest
granted hereunder in the Collateral shall be junior, and otherwise subject and
subordinate in all respects, to the security interest granted in the Collateral
under the Senior Mortgage):

 

(a)           all Spare Parts and Appliances (including all
Rotables, Repairables and Expendables), other than any Excluded Parts,
currently owned or hereafter acquired by the Company including any
replacements, substitutions or renewals therefor, and accessions thereto,
including but not limited to Spare Parts and Appliances (other than Excluded
Parts) owned or hereafter acquired by the Company and located at (a) the
Designated Locations described on Schedule I attached hereto or (b) any other
place (such Spare Parts and Appliances, the “Pledged Spare Parts”);

 

(b)           the rights of the Company under any existing
or hereinafter acquired warranty or indemnity, express or implied, regarding
title, materials, workmanship, design or patent infringement or related matters
in respect of the Pledged Spare Parts to the extent such rights can be assigned
or pledged by the Company (the “Warranties”);

 

(c)           all insurance proceeds and requisition
proceeds with respect to any Pledged Spare Part;

 

(d)           all Software owned or hereafter acquired by
the Company, including any replacement, substitution or renewal thereof, as
well as all rights of the Company under any license or use agreement in respect
of any Software not owned by the Company and all rights of the Company under
any existing or hereinafter acquired service or support contracts or agreements
in respect of the Software (such licenses and support agreements collectively,
the “Software Support Agreements”);

 

(e)           all rents, revenues and other proceeds
collected or required to be collected by the Secured Party hereunder,
including, without limitation, all proceeds with respect to the sale or other
disposition by the Secured Party of any Pledged Spare Part or other Collateral
pursuant to the terms of this Mortgage;

 

(f)            all repair, maintenance and inventory
records, logs, tags, manuals and all other documents and materials similar
thereto (including, without limitation, any such records (whether on paper or
in an electronic format), logs, manuals, documents and materials that are
computer print-outs) at any time maintained, created or used by the Company,
and all records, logs, tags, documents and other materials required at any time

 

2

 

to
be maintained by the Company by the FAA or under the Federal Aviation Act, in
each case with respect to any of the Pledged Spare Parts (the “Spare Parts
Documents”); and

 

(g)           all
proceeds of the foregoing;

 

PROVIDED, HOWEVER, that
notwithstanding any of the foregoing provisions of this Section 2.01, 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 Secured Party, to quiet enjoyment
of the Pledged Spare Parts and other Collateral (excluding, however, any
Collateral that is to be placed in the possession of the Secured Party pursuant
to the terms hereof), and peaceably and quietly, without hindrance or
molestation, to possess, use, retain and control the Pledged Spare Parts and
other Collateral (excluding, however, any Collateral that is to be placed in
the possession of the Secured Party pursuant to the terms hereof), and
(ii) the Company shall have the right, to the exclusion of the Secured
Party, with respect to the Warranties and the Software Support Agreements, to
exercise in the Company’s name all rights and powers as the beneficiary, owner
and/or licensee thereof and to retain any recovery or benefit resulting from
the enforcement of any warranty, indemnity or other contract right under the
Warranties and the Software Support Agreements;

 

TO HAVE AND TO HOLD the
Collateral unto the Secured Party, its successors and assigns, forever, upon
the terms herein set forth, for the benefit, security and protection of the
Secured Party, 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
shall remain liable under the Warranties and the Software Support Agreements to
perform all of the obligations assumed by it thereunder, all in accordance with
and pursuant to the terms and provisions thereof, and the Secured Party shall
have no obligation or liability under the Warranties or Software Support
Agreements by reason of or arising out of the assignment hereunder, nor shall
the Secured Party be required or obligated in any manner to perform or fulfill
any obligations of the Company under any of the Warranties or Software Support
Agreements, or, except as herein expressly provided, to make any payment, or to
make any inquiry as to the nature or sufficiency of any payment received by it,
or present or file any claim, or take any action to collect or enforce the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

 

The Company does hereby
irrevocably constitute and appoint the Secured Party 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
Secured Party may deem to be necessary or advisable to collect such property
which constitutes Collateral; provided that the Secured Party shall not
exercise any such rights except upon the occurrence and during the continuance
of an Event of Default; provided, further, that the exercise of
such rights shall at all times be subject to the rights of the Senior Secured
Party 

 

3

 

under the Senior Mortgage
and to the provisions of Sections 4.01(c) and 4.05 of this Mortgage.  Without limiting the provisions of the
foregoing, during the continuance of any Event of Default, but subject to the
terms hereof and any mandatory requirements of applicable Law, the Secured
Party shall have the right under such power of attorney in its discretion to
file any claim or to take any other action or proceedings, either in its own
name or in the name of the Company or otherwise, that the Secured Party may
reasonably deem necessary or appropriate to protect and preserve the right,
title and interest of the Secured Party in and to the security intended to be
afforded hereby.  The Company hereby
agrees that, if the Lien of the Senior Mortgage has been discharged, promptly
on receipt thereof, except as otherwise contemplated by the Transaction
Documents, it will transfer to the Secured Party any and all moneys from time
to time received by the Company constituting part of the Collateral, for
distribution by the Secured Party pursuant to this Mortgage.

 

The Company does hereby
warrant and represent that it has not sold or assigned, and hereby covenants
that it will not sell or assign, so long as this Mortgage shall remain in
effect and the Lien hereof shall not have been released pursuant to the
provisions hereof, any of its estate, right, title or interest hereby assigned,
to any Person other than the Secured Party, except as provided in the Senior
Mortgage or as expressly permitted herein, or in any other Transaction
Document.

 

The Company agrees that
at any time and from time to time, upon the written request of the Secured
Party, 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 Secured Party may reasonably deem necessary to perfect and protect the
priority of the security interests and assignments created hereby and to obtain
the full benefits of the security interest granted hereunder and of the rights
and powers herein granted.

 

ARTICLE 3.

 

COVENANTS
OF THE COMPANY

 

Section 3.01.          Liens.  The Company will not directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to the
Company’s interest in the Collateral, except:

 

(a)           the
Lien of this Mortgage and the Senior Mortgage;

 

(b)           the
rights of others under agreements or arrangements to the extent permitted by
Section 3.02 hereof;

 

(c)           Liens
for Taxes of the Company and its U.S. Federal tax law consolidated group either
not yet due or payable or being contested in good faith by appropriate
proceedings so long as such Liens and such proceedings do not involve any
material risk of the sale, forfeiture or loss (including loss of use) of any
Pledged Spare Part or other portion of the Collateral or any interest therein
or any discernible risk of criminal liability or any material risk of civil
penalty against any Secured Party or impair the Lien of this Mortgage;

 

4

 

(d)           materialmen’s,
mechanic’s, workmen’s, repairmen’s, employees’ or other like Liens arising in
the ordinary course of business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing
obligations that are not overdue or are being contested in good faith by
appropriate proceedings so long as such Liens and such proceedings do not
involve any material risk of civil penalty or any discernible risk of criminal
liability against any Secured Party or any material risk of the sale,
forfeiture or loss of any Pledged Spare Part or other portion of the Collateral
or adversely affect the Lien of this Mortgage;

 

(e)           Liens
arising out of any judgment or award against the Company, so long as such
judgment or award shall, within thirty (30) days after the entry thereof, have
been discharged or vacated, or execution thereof stayed pending appeal or shall
have been discharged, vacated or reversed within thirty (30) days after the
expiration of such stay and so long as during any such 30-day period there is
not, or any such judgment or award does not involve, any material risk of the
sale, forfeiture or loss (including loss of use) of any Pledged Spare Part or
other portion of the Collateral, or any interest therein or any discernible
risk of criminal liability or any material risk of civil penalty against any
Secured Party or impair the Lien of this Mortgage;

 

(f)            salvage
or similar rights of insurers under policies of insurance maintained by the
Company pursuant to Section 3.05 hereof;

 

(g)           any
other Lien with respect to which the Company shall have provided a bond, cash
collateral or other security adequate in the reasonable opinion of the Secured
Party;

 

(h)           Liens
attributable to the Secured Party; and

 

(i)            Liens
approved in writing by the Secured Party.

 

Liens described in
clauses (a) through (i) above are referred to herein as “Permitted Liens.”  The Company shall promptly, at its own
expense, take such action as may be necessary to duly discharge (by bonding or
otherwise) any such Lien on the Collateral other than a Permitted Lien arising
at any time.

 

Section 3.02.          Possession,
Use, Designated Locations, Permitted Sales, Maintenance and Identification.

 

(a)           Possession.  Without the prior written consent of the
Secured Party, the Company will not sell, lease, transfer or relinquish
possession of any Pledged Spare Part to anyone except as permitted by the
provisions of Sections 3.02(b) of this Mortgage and except that the
Company shall have the right, in the ordinary course of business, (i) to
transfer possession of any Pledged Spare Part to the manufacturer thereof or
any other organization for testing, overhaul, repairs, maintenance, alterations
or modifications of such Pledged Spare Parts or to any Person for the purpose
of transport to any of the foregoing or (ii) to subject any Pledged Spare Part
to a pooling, exchange, borrowing or maintenance servicing agreement
arrangement and entered into in the ordinary course of business (provided
always that no such arrangement results in any Pledged Spare Part being stored
at a location other than one of the Designated Locations, or being

 

5

 

commingled with any
Excluded Parts and/or any other Spare Parts and/or Appliances that are not
Pledged Spare Parts).

 

(b)           Use;
Designated Locations; Permitted Sales, Dispositions or Modifications.

 

(1)           Use.  Subject to the terms of this
Mortgage, the Company shall have the right, at any time and from time to time
at its own cost and expense, without any release from or consent by the Secured
Party, to:

 

(i)    incorporate in, install on, attach or make
appurtenant to, or use in, any aircraft, Engine or Spare Part or Appliance
(whether or not subject to any Lien and whether or not operated by the Company)
any Pledged Spare Part, free from the Lien of this Mortgage; and

 

(ii)   dismantle any Pledged Spare Part that has become
worn out or obsolete or unfit for use, and to scrap, sell, exchange or dispose
of any such Pledged Spare Part or any salvage resulting from such dismantling,
free from the Lien of this Mortgage.

 

(2)           Designated Locations.  The
Company shall keep the Pledged Spare Parts in a Secure Location at one or more
of the Designated Locations and, except as otherwise permitted under Sections
3.02(a) or 3.02(b)(1) of this Mortgage, shall not suffer or permit any Pledged
Spare Part to be stored at any other location. 
The Company shall not suffer or permit any Pledged Spare Parts at any
Designated Location to be commingled with any Excluded Parts.  The Company shall ensure that each Designated
Location is adequate for warehousing and storing the Pledged Spare Parts.  With respect to each Designated Location that
is leased (including any ground lease and any lease of any temporary buildings
or the like) or subleased by the Company, the Company shall have obtained from
the Company’s immediate landlord, and if requested by the Secured Party, from
each landlord in the chain back to the owner of the real property and the owner
of the improvements (whether permanent or temporary, if separate from the real
property), a waiver of any and all right or interest that such Person may
otherwise have in the Pledged Spare Parts and such Person’s consent, if
applicable, to access by the Secured Party and/or any Beneficiary or any
representative of any of them to the premises in connection with the exercise
of any rights or remedies under or pursuant to this Mortgage (in each case, in
form and substance satisfactory to the Secured Party).  In addition, with respect to each Designated
Location owned by the Company or any of its Affiliates, if any, the Company
shall have obtained from each other Person that may have an interest in the
real property and/or the improvements (whether permanent or temporary
improvements) at such location (whether as mortgagee or otherwise) a waiver of
any and all right or interest that such Person may otherwise have in the
Pledged Spare Parts and such Person’s consent, in the event that such Person
shall have obtained possession and control of the relevant premises from the
Company or the Company’s Affiliate (whether upon foreclosure or other exercise
of remedies by such Person or otherwise), to access by the Secured Party and/or
any Beneficiary or any representative of any of them to the premises in
connection with the exercise of any rights or remedies under or pursuant to
this Mortgage (in each case, in form and substance satisfactory to the Secured
Party).  The Company shall add as a
Designated Location (in accordance with this Section 3.02(b)(2)) any location
where Pledged Spare Parts may be stored by the Company from time to time.  At any time that the Company, acting pursuant
to the Senior Mortgage, adds a location that is to become

 

6

 

 a “Designated
Location” under the Senior Mortgage, the Company shall concurrently add such
location as Designated Location under this Mortgage.  All Designated Locations shall be in the
United States.  Upon adding a location
that is to become a Designated Location, the Company will furnish to the Secured
Party the following:

 

(i)            a Supplemental Mortgage duly executed by the
Company, identifying each location that is to become a Designated Location and
specifically subjecting the Pledged Spare Parts at such location to the Lien of
this Mortgage;

 

(ii)           an Opinion of Counsel, dated the date of
execution of said Supplemental Mortgage, stating that said Supplemental
Mortgage has been duly filed for recording in accordance with the provisions of
the Federal Aviation Act, and either: (a) no other filing or recording is
required in any other place within the United States in order to perfect the
Lien of this Mortgage on the Pledged Spare Parts held at the Designated
Locations specified in such Supplemental Mortgage under the laws of the United
States, or (b) if any such other filing or recording shall be required that
said filing or recording has been accomplished in such other manner and places,
which shall be specified in such Opinion of Counsel, as are necessary to
perfect the Lien of this Mortgage with respect to such Pledged Spare Parts; and

 

(iii)          an Officer’s Certificate stating that in the
opinion of the Officer executing the Officer’s Certificate, all conditions
precedent provided for in this Mortgage relating to the subjection of such
property to the Lien of this Mortgage have been complied with.

 

(3)           [Intentionally Left Blank]

 

(4)           Permitted Sales, Dispositions and
Modifications.  Unless a Special Default or an Event of
Default has occurred and is continuing and subject to the limitations contained
in Section 3.03 of the Senior Mortgage until such time as the Lien of the
Senior Mortgage shall have been discharged, the Company may, in the ordinary
course of its business, sell, lease, transfer or dispose of any Pledged Spare
Parts which have become surplus to its normal operations free from the Lien of
this Mortgage and receive the full amount of the proceeds thereof.  If (i) no Special Default or Event of Default
has occurred and is continuing and (ii) the Lien of the Senior Mortgage has
been discharged, the Company may, in the ordinary course of its business, sell,
lease, transfer or dispose of any Pledged Spare Parts which have become surplus
to its normal operations free from the Lien of this Mortgage, and the proceeds
from any such sale, lease, transfer or disposition, less the amount (if any)
required to be held by the Secured Party as cash collateral in order for the
Company to comply with the ratio referred to in Section 2.7 of the Indemnity
Agreement, if such provision is applicable, shall be paid to the Company.  In addition, the Company may modify or alter
any Pledged Spare Parts as the Company may deem appropriate in the proper
conduct of its business, so long as the Company remains in compliance at all
times with the requirements of Section 3.02(c) hereof and Section 3.03 of the
Senior Mortgage until such time as the Lien of the Senior Mortgage shall have
been discharged, after giving effect to any such modification or alteration.

 

(c)           Maintenance.  The Company:

 

7

 

(1)           shall maintain, or cause to be maintained, at
all times the Pledged Spare Parts in accordance with (x) all applicable Laws
issued by the FAA and (y) all applicable Laws issued by any other Governmental
Authority having jurisdiction over the Company or any such Pledged Spare Parts,
including making any modifications, alterations, replacements and additions
necessary therefor;

 

(2)           shall maintain, or cause to be maintained,
all records, logs and other materials required by the FAA or under the Federal
Aviation Act to be maintained in respect of the Pledged Spare Parts and shall
not modify its record retention procedures in respect of the Pledged Spare
Parts unless such modification is consistent with the Company’s FAA approved
maintenance program; provided however, that such modification shall not
materially diminish the value of the Pledged Spare Parts, taken as a whole;

 

(3)           shall maintain, or cause to be maintained on
a timely basis, the Pledged Spare Parts in good working order (other than
during periods of maintenance, overhaul, inspection and testing) and condition
and shall perform all maintenance thereon necessary for that purpose, excluding
(i) Pledged Spare Parts that have become worn out or unfit for use, beyond
economic repair or become obsolete or scrap, and (ii) Pledged Spare Parts that
are not required for the Company’s normal operations.  Notwithstanding anything herein to the
contrary, all Pledged Spare Parts located at Designated Locations other than
for the purpose of being maintained, altered, modified or overhauled shall have
a current and valid serviceable tag and shall be in compliance with such tag,
in each case to the extent required by applicable FAA regulations.

 

(d)           Identification of Secured Party’s Interest.  On
or prior to the Closing Date, the Company shall install signs, in size and form
reasonably satisfactory to the Secured Party, at each of the Designated
Locations and on each shelf, bin or other storage unit in which the Pledged
Spare Parts are stored and otherwise as may be directed by the Secured Party
within each Designated Location, bearing the inscription: “OWNED BY
INDEPENDENCE AIR, INC. AND MORTGAGED TO GENERAL ELECTRIC CAPITAL CORPORATION,
AS SECURED PARTY” (such sign to be replaced if there is a successor Secured
Party).

 

Section 3.03.          [Intentionally
Left Blank]

 

Section 3.04.          Software.  The Company shall at all times maintain a
Spare Parts inventory tracking system and shall comply with and timely perform
its obligations under any and all Software Support Agreements.  If the Lien of the Senior Mortgage shall have
been discharged, the Company shall consult with the Secured Party prior to
replacing the system utilized in tracking the Pledged Spare Parts.  If the Lien of the Senior Mortgage shall have
been discharged, any replacement system must be reasonably acceptable to the
Secured Party.  The Company shall at all
times cause each vendor or licensor of any Software to recognize the rights in
such Software granted to the Secured Party under this Mortgage, including the
right to access and use such Software in connection with the exercise of
remedies under Section 4.01.

 

8

 

Section 3.05.          Insurance.

 

(a)           Obligation
to Insure.  The Company shall comply
with, or cause to be complied with, each of the provisions of Appendix B,
which provisions are hereby incorporated by this reference as if set forth in
full herein.

 

(b)           Insurance
for Own Account.  Nothing in Section
3.05 shall limit or prohibit (a) the Company from maintaining the policies of
insurance required under Appendix B with higher limits than those specified in
Appendix B, or (b) the Secured Party or any Beneficiary from obtaining
insurance for its own account (and any proceeds payable under such separate
insurance shall be payable as provided in the policy relating thereto); provided,
however, that no insurance may be obtained or maintained that would increase
the cost of, limit or otherwise adversely affect the coverage of any insurance
required to be obtained or maintained by the Company pursuant to this
Section 3.05 and Appendix B.

 

(c)           Indemnification
by Government in Lieu of Insurance. 
The Secured Party agrees to accept, in lieu of insurance against any
risk with respect to any aircraft or Engine described in Appendix B,
indemnification from, or insurance provided by, the U.S. Government, or upon
the written consent of the Secured Party, other Governmental Authority, against
such risk in an amount that, when added to the amount of insurance against such
risk that the Company may continue to maintain, in accordance with this Section 3.05,
shall be at least equal to the amount of insurance against such risk otherwise
required by this Section 3.05.

 

(d)           Application
of Insurance Proceeds.  If the Lien
of the Senior Mortgage shall not have been discharged, all insurance proceeds
in respect of the Pledged Spare Parts, other than any insurance proceeds which
the Senior Mortgage provides are payable to the Secured Party rather than the
Senior Secured Party, shall be held and applied as provided in the Senior
Mortgage.  After the Senior Mortgage
shall have been discharged, and with respect to any insurance proceeds that the
Senior Mortgage provides are payable to the Secured Party rather than the
Senior Secured Party, all insurance proceeds in respect of the Pledged Spare
Parts, except as expressly provided in Section 3.05(e) below, shall be paid and
applied as follows:  (i) all such
insurance proceeds in excess of the Threshold Amount, up to an amount equal to
the amount of the Obligations then outstanding, shall be paid over to the
Secured Party as security for the Obligations and be invested pursuant to
Section 6.01 until such time as the Company elects to use such proceeds to
purchase additional Spare Parts that will become Pledged Spare Parts, and (ii)
except as expressly provided in Section 3.05(e) below, all such proceeds up to
the Threshhold Amount and all such proceeds in excess of the amount of the
Obligations then outstanding, if any, shall be paid to the Company.

 

(e)           Application of Payments During Existence of
Event of Default.  After the Lien of the Senior Mortgage shall
have been discharged, and with respect to any insurance proceeds that the
Senior Mortgage provides are payable to the Secured Party rather than the
Senior Secured Party, any amount referred to in this Section 3.05 which is
payable to or retainable by the Company shall not be paid to or retained by the
Company, if at the time of such payment or retention a Special Default or an
Event of Default shall have occurred and be continuing, but shall be held by or
paid over to the Secured Party as security for the Obligations and invested
pursuant to Section 6.01.  Upon the
earlier of (a) such time as there shall not be continuing any 

 

9

 

such Special Default or Event of Default or
(b) the termination of this Mortgage in accordance with Section 7.01, such
amount, and any interest realized thereon pursuant to Section 6.01 hereof, less
the amount thereof (if any) as has been applied by the Secured Party in payment
of all or a portion of the Obligations in accordance with Article 4 hereof,
shall be paid over to the Company.

 

Section 3.06.          Assurances and Filings.

 

(a)           The Company, at its sole cost and expense,
shall duly execute, acknowledge and deliver, or shall cause to be executed,
acknowledged and delivered, all such further agreements, instruments,
certificates or documents, and shall do and cause to be done such further acts
and things, in any case, as Secured Party shall reasonably request for
accomplishing the purposes of this Mortgage including, without limitation,
ensuring that the Secured Party, subject to such Person executing any
non-disclosure agreement as may be required by the Software provider, remains
at all times a third party beneficiary of any Software Support Agreements.

 

(b)           The Company, at its sole cost and expense,
shall promptly take such action with respect to the recording, filing,
re-recording and re-filing of this Mortgage, each Supplemental Mortgage and any
amendments or supplements thereto, as shall be necessary to continue the
perfection and priority of the Lien created by this Mortgage with respect to
the Pledged Spare Parts held at Designated Locations.

 

(c)           The Company, at its sole cost and expense,
will cause this Mortgage and any amendments or supplements hereto (including
all Supplemental Mortgages), as well as all UCC financing statements and all
continuation statements (and any amendments necessitated by any consolidation
or merger of the Company, any conveyance, transfer or lease of all or substantially
all of the assets of the Company, or any change of the Company’s location) in
respect thereof to be prepared and, subject only to the execution and delivery
thereof by Secured Party, duly and timely filed and recorded, or filed for
recordation, to the extent permitted under the Federal Aviation Act (with
respect to this Mortgage and any amendments or supplements hereto (including
all Supplemental Mortgages)) or the UCC or similar law of any other applicable
jurisdiction (with respect to such financing statements and continuation and/or
amendments thereof).  In addition, the
Company will pay any and all recording, stamp and other similar taxes payable,
in connection with the execution, delivery, recording, filing, re-recording and
refiling of this Mortgage or any such financing statements or other
instruments.

 

Section 3.07.          Mergers
and Consolidations Neither the Company nor the Guarantor will consolidate
with or merge with or into any other Person or convey, transfer or lease all or
substantially all of its assets as an entirety to any Person (the Person formed
by such consolidation or into which the Company or the Guarantor is merged or
the Person which acquires by conveyance, transfer or lease substantially all of
the assets of the Company or the Guarantor as the case may be, as an entirety,
being referred to herein as the “Successor”) unless:

 

(i)            in
the case of a transaction involving the Company, the Successor of the Company
shall be a Certificated Air Carrier;

 

10

 

(ii)           in
the case of either the Company or the Guarantor, the Successor shall execute
and deliver to the Secured Party a duly authorized, valid, binding and
enforceable agreement in form and substance reasonably satisfactory to the
Secured Party containing an assumption by the Successor of the due and punctual
performance and observance of each covenant and condition of the Transaction
Documents to be performed or observed by the Company or the Guarantor, as the
case may be;

 

(iii)          no
Event of Default shall have occurred and be continuing at the time of the
proposed transaction, and no Default or Event of Default shall arise upon
giving effect to such transaction; such transaction shall not materially impair
the ability of the Successor to perform the obligations of the Company or the
Guarantor, as the case may be, under the Transaction Documents to which the
Company or the Guarantor is a party

 

(iv)          (A)
in the case of the Company, the tangible net worth (determined in accordance
with GAAP) of the Successor, after giving effect to such transaction, shall not
be less than the greater of (1) the lesser of (x) the tangible net worth of the
Company immediately prior to such transaction and (y) the tangible net worth of
the Company as of December 31, 2001, and (2) [***]% of the tangible net worth
of the Company immediately before completion of such transaction; provided, that if the Guarantor owns more than 50% of the
capital stock of the Company immediately before such transaction, the net worth
test contained in this Section 3.07(iv)(A) shall not prevent the Company from
completing such transaction with the Guarantor;

 

(B) in
the case of the Guarantor, the tangible net worth (determined in accordance
with GAAP) of the Successor, after giving effect to such transaction, shall not
be less than the greater of (1) the lesser of (x) the tangible net worth of the
Guarantor immediately prior to such transaction and (y) the tangible net worth
of the Guarantor as of December 31, 2001, and (2) [***]% of the tangible net
worth of the Guarantor immediately before completion of such transaction; provided, that if the Guarantor owns more than 50% of the
capital stock of the Company immediately before such transaction, the net worth
test contained in this Section 3.07(iv)(B) shall not prevent the Guarantor from
completing such transaction with the Company;

 

(v)           all
filings shall have been made as shall be necessary to preserve the perfection
and priority of the Lien of this Mortgage on the Collateral (subject to Permitted
Liens); and

 

(vi)          promptly
after the consummation of such transaction, the Company, or if such transaction
involved the Company, the Successor of the Company, shall deliver to the
Secured Party (A) an Officer’s Certificate of the Successor, certifying as to
compliance with the conditions of this Section 3.07 and (B) an opinion of
counsel reasonably acceptable to the Secured Party and in form and substance
reasonably acceptable to the Secured Party (1) stating that the agreements
entered into to effect such consolidation, merger, sale, conveyance, transfer,
or lease and such assumption agreements have been duly authorized, executed,
and delivered by the Successor and that they (and the Transaction Documents so
assumed) constitute legal, valid, and binding obligations of the Successor,
enforceable in accordance with their terms (in the case of 

 

11

 

the Transaction
Documents, to the same extent as each such Transaction Document was enforceable
against the Company or the Guarantor, as the case may be, immediately prior to
such transaction), (2) confirming compliance with Sections 3.07(i), 3.07(c)(ii)
and 3.07(c)(v), as applicable, and stating that all other conditions precedent
that are legal in nature provided for in this Mortgage and the other
Transaction Documents and relating to such transaction have been fulfilled, and
(3) addressing such other matters as the Secured Party may reasonably request.

 

Upon any consolidation or
merger, or any conveyance, transfer or lease of all or substantially all of the
assets of the Company as an entirety in accordance with this Section 3.07, the
Successor shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Agreement and the other Transaction
Documents with the same effect as if the Successor had been named as the
Company herein.  No such conveyance,
transfer or lease of all or substantially all of the assets of the Company as
an entirety shall have the effect of releasing the Company or any Person which
shall theretofore have become such in the manner prescribed in this Section
3.07 from the Company’s liability in respect of any Transaction Document to
which it is a party.

 

Section 3.08.          Notice
of Change of the Company’s Location. 
The Company will notify the Secured Party of any change in the location
of the Company (within the meaning of Section 9-307 of the Uniform
Commercial Code) promptly after making such change and in any event within a
reasonable period of time prior to the date by which it is necessary under
applicable Law to make any filing in order to prevent the lapse of perfection
(absent refiling) of financing statements filed under or with respect to this
Mortgage.

 

Section 3.09.          Inspection.

 

(a)           After
the Lien of the Senior Mortgage shall have been discharged, at all reasonable
times the Secured Party and its authorized representatives (the “Inspecting
Parties”) may inspect the Pledged Spare Parts located at Designated
Locations (including without limitation, the Spare Parts Documents and any
computer files maintained by the Company with respect to the Pledged Spare
Parts) and the Company shall cooperate with the Inspecting Parties in
connection with any such inspection (including, without limitation, providing Inspecting
Parties reasonable access to buildings or facilities at Designated Locations
where such Pledged Spare Parts are located and permitting any such Inspecting
Party to make copies of Spare Parts Documents and computer files (excluding the
Software)) at its own cost and expense.

 

(b)           Any
inspection of the Pledged Spare Parts hereunder shall be limited to a visual
inspection, shall be in compliance with the Company’s work and safety rules at
the Designated Locations (and any applicable governmental rules and
regulations), and shall not include the disassembling, or opening of any
components, of any Pledged Spare Part, and no such inspection shall interfere
with the Company’s spare parts management operations or the maintenance or use
of any Pledged Spare Part.

 

12

 

(c)           With
respect to such rights of inspection, the Inspecting Parties shall not:

 

(i)            have
any duty or liability to make, or any duty or liability arising out of, any
such visit, inspection or survey or failure to make any such visit, inspection
or survey; or

 

(ii)           so
long as no Event of Default has occurred and is continuing, exercise its
inspection rights hereunder other than on reasonable notice.

 

(d)           Each
person inspecting the Pledged Spare Parts hereunder shall bear its own expenses
in connection with any such inspection, unless an Event of Default shall have
occurred and be continuing, in which case the Company shall bear all such
expenses.

 

Section 3.10.          [Intentionally Left Blank]

 

ARTICLE 4.

 

REMEDIES
OF THE SECURED PARTY UPON A SUBORDINATED EVENT OF DEFAULT

 

Section 4.01.          Remedies
with Respect to Collateral.

 

(a)           Remedies
Available.  Upon the occurrence of
any Subordinated Event of Default and at any time thereafter so long as the
same shall be continuing, the Secured Party may do one or more of the
following:

 

(i)            cause
the Company, upon the written demand of the Secured Party, at the Company’s
expense, to deliver promptly, and the Company shall deliver promptly, all or
any of the Pledged Spare Parts constituting the Collateral at the Designated
Locations, together in each case with the Spare Parts Documents for such
Pledged Spare Parts as the Secured Party may so demand, to the Secured Party or
its order, or the Secured Party, at its option, may enter upon the premises
where all or any of such Pledged Spare Parts and/or Spare Parts Documents 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;

 

(ii)           sell
all or any part of the Collateral at public or private sale, whether or not the
Secured Party shall at the time have possession thereof, as the Secured Party
may determine, or lease or otherwise dispose of all or any part of the
Collateral as the Secured Party, 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;

 

(iii)          apply
any cash collateral then held as provided in Section 4.04 hereof; or

 

13

 

(iv)          exercise
any or all of the rights and powers and pursue any and all remedies of a
secured party under applicable Law.

 

Upon every such taking of
possession of Collateral under this Section 4.01, the Secured Party may, from
time to time, make all such expenditures for maintenance, insurance, repairs,
replacements, alterations, additions and improvements to and of the Collateral,
as it determines is commercially reasonable. 
In each such case, the Secured Party 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 Secured Party shall determine to be commercially reasonable, 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 Secured Party may determine; and the
Secured Party 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 Secured
Party under any provision of this Mortgage to collect and receive all cash held
by, or required to be deposited with, the Secured Party 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 Secured Party 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 Secured Party may be required or
authorized to make under any provision of this Mortgage, as well as
compensation for the services of all Persons engaged by the Secured Party.  If the income and proceeds of the Collateral
shall not be sufficient to pay in full the Obligations, the Company shall be
liable for any deficiency.

 

In addition, the Company
shall be liable for all reasonable legal fees and other costs and expenses
incurred by the Secured Party and any Beneficiary by reason of the occurrence
of a Subordinated Event of Default or the exercise of the Secured Party’s
remedies with respect thereto, including, without limitation, all costs and
expenses incurred in connection with the retaking or return of any Pledged
Spare Parts in accordance with the terms hereof or under applicable Law, which
amounts shall, until paid, be secured by the Lien of this Mortgage.

 

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

 

14

 

and be continuing, the
Company shall provide the Secured Party or any of its agents or
representatives, with full and complete access to the system (including the
Software) utilized by the Company or its designees solely to track the Pledged
Spare Parts.

 

(b)           Notice
of Sale.  The Secured Party shall
give the Company at least fifteen (15) days’ prior written notice of the date
fixed for any public sale of any Pledged Spare Parts or of 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 a reasonable opportunity to bid.

 

(c)           Senior
Mortgage.  Anything herein to the contrary notwithstanding, unless the Lien of the
Senior Mortgage shall have been discharged, the Secured Party shall not be
entitled to, and shall not proceed to foreclose the Lien of this Mortgage
against any of the Collateral or otherwise exercise any right or remedy
pursuant to this Mortgage attributable to the occurrence of a Subordinated
Event of Default, unless and until the Senior Secured Party shall have
exercised or concurrently be exercising one or more dispossessory remedies
under the Senior Mortgage with respect to the Pledged Spare Parts, and in the
exercise of any of the Secured Party’s rights and remedies under this Mortgage,
the Secured Party may not exercise any such right or remedy in a manner
inconsistent with, or otherwise in a manner which would impair or impede or
otherwise adversely affect, the exercise of the rights and remedies of the
Senior Secured Party under the Senior Mortgage; it being expressly understood
and agreed that the Lien of this Mortgage on the Collateral shall at all times
be junior and otherwise subject and subordinate in all respects, to the Lien of
the Senior Mortgage.

 

Section 4.02.          Remedies
Cumulative.  Each and every right,
power and remedy herein specifically given to the Secured Party or otherwise in
this Mortgage shall be cumulative and shall be in addition to every other
right, power and remedy herein specifically given or now or hereafter existing
at law, in equity or by statute, and each and every right, power and remedy
whether specifically herein given or otherwise existing may be exercised from
time to time and as often and in such order as may be deemed expedient by the
Secured Party, and the exercise or the beginning of the exercise of any power
or remedy shall not be construed to be a waiver of the right to exercise at the
time or thereafter any other right, power or remedy.  No delay or omission by the Secured Party in
the exercise of any right, remedy or power or in the pursuance of any remedy
shall impair any such right, power or remedy or be construed to be a waiver of
any default on the part of the Company or to be an acquiescence therein.

 

Section 4.03.          Discontinuance
of Proceedings.  If the Secured Party
shall have proceeded to enforce any right, power or remedy under this Mortgage
by foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason, then and in every such case the
Company and the Secured Party shall be restored to their former positions and
rights hereunder with respect to the property, subject to the Lien of this
Mortgage, and all rights, remedies and powers of the Secured Party shall
continue, as if no such proceedings had been undertaken (but otherwise without
prejudice).

 

Section 4.04.          Allocation
of Payments.  Notwithstanding any
other provisions of the Indemnity Agreement to the contrary, after the
occurrence and during the continuance of a 

 

15

 

Subordinated Event of
Default, all amounts collected or received by the Secured Party or any
Beneficiary on account of the Obligations shall be paid over or delivered as
follows:

 

FIRST, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation
reasonable attorneys’ fees and expenses actually incurred) of the Secured Party
in connection with enforcing the rights of the Secured Party under the
Transaction Documents;

 

SECOND, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees and expenses actually incurred) of each of the
Beneficiaries in connection with enforcing its rights under the Transaction
Documents or otherwise with respect to the Obligations owing to such Beneficiary;

 

THIRD, to all other
Obligations (other than as covered by Clause “FOURTH”, “FIFTH” and “SIXTH”
below) which shall have become due and payable under the Transaction Documents
or otherwise and not repaid pursuant to clauses “FIRST” through “SECOND” above;
and

 

FOURTH, to the payment of
all accrued and unpaid interest on the Obligations (calculated as provided in
the Indemnity Agreement);

 

FIFTH, to the payment of
the Guaranteed Amount then due and unpaid;

 

SIXTH, so long as either
the Lien of this Mortgage has not been discharged, or the Lien of the
Subordinated Engine Mortgage has not been discharged, to the Secured Party to
be held as security under this Mortgage and/or Subordinated Engine Mortgage in
such proportion as the Secured Party may elect;

 

SEVENTH, to the payment
of the surplus, if any, to whoever may be lawfully entitled to receive such
surplus.

 

In carrying out the
foregoing, (i) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category
and (ii) if amounts available are insufficient to pay all amounts due
within any category, such available amounts shall be paid pro rata to the
parties entitled thereto based upon the amount due under such category to each
such party.

 

Section 4.05.          Turnover
of Payments to Senior Secured Party. 
Until the Lien of the Senior Mortgage shall have been discharged, the
Secured Party and each Beneficiary shall hold in trust for the benefit of the
Senior Secured Party and the Lenders and shall promptly pay to the Senior
Secured Party for the benefit of such Persons any proceeds of the Collateral
for distribution in accordance with the Senior Mortgage.

 

16

 

ARTICLE 5.

 

INTENTIONALLY
LEFT BLANK

 

ARTICLE 6.

 

SECURITY
FUNDS

 

Section 6.01.          Investment
of Security Funds.  Any monies paid
to or received by the Secured Party as cash collateral hereunder or 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
3.05(d) and 3.05(e) hereof), but which the Secured Party 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 a Subordinated
Event of Default, whether through the application thereof or otherwise), shall,
until paid to the Company or applied as provided herein, be subject to the Lien
of this Mortgage and be invested by the Secured Party at the written
authorization and direction of the Company (or, if a Special Default or a
Subordinated Event of Default shall have occurred and be continuing, the
Secured Party) from time to time at the sole expense and risk of the Company in
Permitted Investments.  All Permitted
Investments held by the Secured Party pursuant to this Section 6.01 shall
either be (a) registered in the name of, payable to the order of, or specially
endorsed to, the Secured Party or (b) held in an Eligible Account.  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 a Subordinated Event of Default shall have occurred and be
continuing.  The Secured Party shall not
be liable for any loss relating to a Permitted Investment made pursuant to this
Section 6.01.  The Company will promptly
pay to the Secured Party, 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).

 

Section 6.02           [Intentionally Left
Blank]

 

Section 6.03           [Intentionally Left
Blank]

 

ARTICLE 7.

 

MISCELLANEOUS

 

Section 7.01.          Termination
of Mortgage.

 

(a)           So long as no Subordinated Default or
Subordinated Event of Default shall have occurred and be continuing and subject
to Section 7.01(b) below, upon (or at any time after) the later of (i) payment
in full of the Loans and all other Senior Obligations, or (ii) the Maturity
Date (or if on the later of the dates set forth in the preceding clauses (i)
and (ii), a case is pending under the Bankruptcy Code in which the Company is a
debtor, then (x) if such case is under 

 

17

 

Chapter 11 of the Bankruptcy Code, upon
effectiveness of the Company’s plan of reorganization in such Chapter 11 case
if no Obligations are then due and unpaid, or (y) if clause (x) is not
applicable, at such time as all Obligations that are allowed claims (within the
meaning of Section 502 of the Bankruptcy Code) in such case and secured under
this Mortgage have been paid in full), the Secured Party shall, upon the
written request of the Company execute and deliver to, or as directed in
writing by, the Company an appropriate instrument (in due form for recording)
releasing the Pledged Spare Parts and the balance of the Collateral from the
Lien of this Mortgage and, in such event, this Mortgage shall terminate and
this Mortgage shall be of no further force or effect.  If, upon the later of the dates determined in
accordance with the first sentence of this Section 7.01(a) (after giving effect
to any extension resulting from the parenthetical set forth following subclause
(ii) above), any Subordinated Default shall have occurred and be continuing,
then (A) if such Subordinated Default is fully cured by the Company prior to
the expiration of the grace period applicable to such Subordinated Default,
then the Secured Party shall release this Mortgage and the Collateral from the
Lien of this Mortgage promptly following such cure, and (B) if such
Subordinated Default matures into a Subordinated Event of Default as a result
of the Borrower’s failure to cure within the applicable grace period(s), then,
as long as such Subordinated Event of Default is continuing, the Secured Party
shall have and may exercise any and all rights contemplated by Article 4 hereof
and applicable law.

 

(b)           In the event that the Company elects to, and
makes, a prepayment in full of the Loans and other Senior Obligations prior to
the Maturity Date pursuant to and in compliance with Section 1.1(c) of the Loan
Agreement, then, so long as no Subordinated Default or Subordinated Event of
Default shall have occurred and be continuing, upon (or at any time after) the
later of (i)  ninety (90) days following the provision of Acceptable Collateral
in the amount and manner and for the purposes specified in Section 2.6 of the
Indemnity Agreement, and (ii) the Designated Date (or if on the later of
the dates set forth in the preceding clauses (i) and (ii), a case is pending
under the Bankruptcy Code in which the Company is a debtor, then (x) if such
case is under Chapter 11 of the Bankruptcy Code, upon effectiveness of the
Company’s plan of reorganization in such Chapter 11 case if no Obligations are
then due and unpaid, or (y) if clause (x) is not applicable, at such time
as all Obligations that are allowed claims (within the meaning of Section 502
of the Bankruptcy Code) in such case and secured under this Mortgage have been
paid in full), the Secured Party shall, upon the written request of the Company
execute and deliver to, or as directed in writing by, the Company an
appropriate instrument (in due form for recording) releasing the Pledged Spare
Parts and the balance of the Collateral from the Lien of this Mortgage and, in
such event, this Mortgage shall terminate and this Mortgage shall be of no
further force or effect.  If, upon the
later of the dates determined in accordance with the first sentence of this
Section 7.01(b) (after giving effect to any extension resulting from the
parenthetical set forth following subclause (ii) above), then (A) if such
Subordinated Default is fully cured by the Company prior to the expiration of
the grace period applicable to such Subordinated Default, then the Secured
Party shall release this Mortgage and the Collateral from the Lien of this
Mortgage promptly following such cure, and (B) if such Subordinated Default
matures into a Subordinated Event of Default as a result of the Borrower’s
failure to cure within the applicable grace period(s), then, as long as such
Subordinated Event of Default is continuing, the Secured Party shall have and
may exercise any and all rights contemplated by Article 4 hereof and applicable
law.

 

18

 

Section 7.02.          Alterations
to Mortgage.  No amendment to or
waiver of any provision of this Mortgage, nor consent to any departure by the
Company herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Secured Party and the Company, and any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.

 

Section 7.03.          No
Legal Title to Collateral.  Neither
the Secured Party nor any of the Beneficiaries shall have legal title to any
part of the Collateral.  No transfer, by
operation of Law or otherwise, of any right, title or interest in respect of
any of the Obligations or any right, title and interest of the Secured Party or
any Beneficiary in and to the Collateral or this Mortgage shall operate to
terminate this Mortgage or entitle any successor or transferee to an accounting
or to the transfer to it of legal title to any part of the Collateral.

 

Section 7.04.          Sale
of the Collateral by Secured Party Is Binding.  Any sale or other conveyance of the
Collateral, or any part thereof or any interest therein by the Senior Secured
Party or the Secured Party made pursuant to and in accordance with the terms of
the Senior Mortgage or this Mortgage, respectively, shall bind the Secured
Party and the Beneficiaries, and shall be effective to transfer or convey all
right, title and interest of the Secured Party, the Beneficiaries and the
Company, in and to such Collateral, or such part thereof or 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 Secured Party.

 

Section 7.05.          Benefit
of Mortgage.  Nothing in this
Mortgage, whether express or implied, shall be construed to give to any Person
other than the Company, the Beneficiaries and the Secured Party any legal or
equitable right, remedy or claim under or in respect of this Mortgage.

 

Section 7.06.          Section
1110 of the Bankruptcy Code.  It is
the intention of the parties hereto that the security interest created hereby
entitles the Secured Party, on behalf of the Beneficiaries, to all of the
benefits of Section 1110 of Chapter 11 of the Bankruptcy Code with respect to
all of the Pledged Spare Parts and Spare Parts Documents (other than the
Identified Spare Parts and the Spare Parts Documents in respect of such
Identified Spare Parts), in the event the Company becomes a debtor under such
Chapter 11.

 

Section 7.07.          Notices.  Unless otherwise expressly specified or
permitted by the terms hereof, any notice or other communication herein
required or permitted to be given shall be in writing and may be personally
served or sent by telefacsimile, United States mail, courier service or overnight
delivery and shall be effective when received addressed:

 

19

 

(i)            if
to the Company, at its office at

 

Independence Air, Inc.

Executive Offices

 

45200 Business Court,
Suite 100

Dulles, VA 20166

 

Attention:              General
Counsel

Telephone:            (703)
650-6006

Telecopy:              (703)
650-6294

email:      rick.kennedy@flyi.com

 

(ii)           if
to the Secured Party, at its office at

 

c/o GE Capital Aviation
Services, Inc.

201 High Ridge Road

Stamford, Connecticut 06927

Attention:              Customer Services

Telephone:            (203)
357-3776

Telecopy:              (203) 357-3201

Email:                      nanotices@gecas.com

 

(iii)          if
to any Beneficiary, at its address for notices to it provided under the
Indemnity Agreement,

 

or, as to any
party, at such other address as such party shall from time to time designate by
written notice to the other parties in accordance with this Section 7.07.

 

Section 7.08.          Severability.  Should any one or more provisions of this
Mortgage be determined to be illegal or unenforceable by a court of any jurisdiction,
such provision shall be ineffective to the extent of such illegality or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.  The Company and the
Secured Party agree, as to such jurisdiction and to the extent permitted by
such jurisdiction’s Laws, to replace any provision of this Mortgage which is so
determined to be illegal or unenforceable by a valid provision which has as
nearly as possible the same effect; provided that such replacement provision
shall not expand the Company’s or the Secured Party’s obligations hereunder.

 

Section 7.09.          Separate
Counterparts.  This Mortgage may be
executed in any number of counterparts (and each of the parties hereto shall
not be required to execute the same counterpart).  Each counterpart of this Mortgage executed by
a party hereto shall be an original counterpart of this Mortgage, and all of
such counterparts together shall constitute one instrument.

 

20

 

Section 7.10.          Successors
and Assigns.  All covenants and
agreements contained herein shall be binding upon, and inure to the benefit of,
the Company and its successors and permitted assigns, and the Secured Party and
its successors and permitted assigns, all as herein provided.

 

Section 7.11.          Headings.  The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

 

Section 7.12.          Governing
Law; Submission to Jurisdiction; Venue.

 

(a)           This
Mortgage and the rights and obligations of the parties hereunder shall be
construed in accordance with and be governed by the laws of the State of New
York.  Any legal action or proceeding
with respect to this Mortgage may be brought in the courts of the State of New
York or the United States for the Southern District of New York located in the
Borough of Manhattan, and, by execution and delivery of this Mortgage, each
party hereto hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts.  Each party hereto hereby further
irrevocably waives any claim that any such courts lack jurisdiction over such
party, and agrees not to plead or claim, in any legal action or proceeding with
respect to this Mortgage brought in any of the aforesaid courts, that any such
court lacks jurisdiction over such party. 
Each party hereto further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
it at its address specified pursuant to Section 7.07, such service to become
effective 30 days after such mailing. 
Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law or to commence legal proceedings
or otherwise proceed against any other party hereto in any other jurisdiction.

 

(b)           Each
party hereto hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Mortgage brought in the
courts referred to in clause (a) above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.

 

Section 7.13.          Waiver
of Trial by Jury.  TO THE EXTENT
PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT OF
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, OR IN
CONNECTION WITH, THIS MORTGAGE OR ANY MATTER ARISING THEREUNDER.

 

Section 7.14.          Certification.  The Company hereby represents that it is a
certificated air carrier under Section 44705 of title 49 of the U.S. Code.

 

[Remainder of this page is blank.]

 

21

 

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

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GENERAL
  ELECTRIC CAPITAL

  CORPORATION, as agent for the Beneficiaries, as

  Secured Party

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

S

APPENDIX A

 

DEFINITIONS RELATING TO THE

 

MORTGAGE AND SECURITY AGREEMENT

 

General Provisions

 

(a)           Unless otherwise expressly provided, a
reference to:

 

(i)            each
of “the Company,” “Secured Party” or any other person includes, without
prejudice to the provisions of any Transaction Document, any successor in
interest to it and any permitted transferee or permitted assignee of it;

 

(ii)           words
importing the plural include the singular and words importing the singular
include the plural;

 

(iii)          any
agreement, instrument or document, or any annex, schedule or exhibit thereto,
or any other part thereof, includes, without prejudice to the provisions of any
Transaction Document, that agreement, instrument or document, or annex,
schedule or exhibit, or part, respectively, as amended, modified or
supplemented from time to time in accordance with its terms and in accordance
with the Transaction Documents, and any agreement, instrument or document
entered into in substitution or replacement therefor;

 

(iv)          any
provision of any Law includes any such provision as amended, modified,
supplemented, substituted, reissued or reenacted prior to the Closing Date, and
thereafter from time to time;

 

(v)           the
words “Mortgage,” “this Mortgage,” “hereby,” “herein,” “hereto,” “hereof” and “hereunder”
and words of similar import when used in the Mortgage refer to the Mortgage as
a whole and not to any particular provision of the Mortgage;

 

(vi)          the
words “including,” “including, without limitation,” “including, but not limited
to,” and terms or phrases of similar import when used in the Mortgage, with
respect to any matter or thing, mean including, without limitation, such matter
or thing; and

 

(vii)         a
“Section,” an “Exhibit,” an “Appendix,” an “Annex” or a “Schedule” referred to
in the Mortgage, or in any annex thereto, is a reference to a section of, or an
exhibit, an appendix, an annex or a schedule to, the Mortgage or such annex,
respectively.

 

(b)           Each exhibit, appendix, annex and schedule to
the Mortgage is incorporated in, and shall be deemed to be a part of, the
Mortgage.

 

(c)           Headings used in the Mortgage are for
convenience only and shall not in any way affect the construction of, or be
taken into consideration in interpreting, the Mortgage.

 

A-1

 

(d)           The occurrence and continuance of a Default,
Special Default, Subordinated Event of Default or Event of Default shall not be
deemed to prohibit the Company from taking any action or exercising any right
that is conditioned on no Default, Special Default, Subordinated Event of
Default or Event of Default having occurred and be continuing if such Default,
Special Default, Subordinated Event of Default or Event of Default consists of
the institution of reorganization proceedings with respect to the Company under
Chapter 11 of the Bankruptcy Code and the trustee or debtor-in-possession in
such proceedings shall have agreed to perform its obligations under the
Mortgage with the approval of the applicable court and thereafter shall have
continued to perform such obligations in accordance with Section 1110 of the
Bankruptcy Code.

 

Definitions

 

“Affiliate”
means, with respect to any person, any other person directly or indirectly
controlling, controlled by or under common control with such person.  For purposes of this definition, “control” means the power, directly or
indirectly, to direct or cause the direction of the management and policies of
such person, whether through the ownership of voting securities or by contract
or otherwise and “controlling,” “controlled by” and “under common control with” have
correlative meanings.

 

“Appliance”
means an instrument, equipment, apparatus, a part, an appurtenance, or an
accessory used, capable of being used, or intended to be used, in operating or
controlling aircraft in flight, including a parachute, communication equipment,
and another mechanism installed in or attached to aircraft during flight, and
not a part of an aircraft, Engine, or Propeller.

 

“Bankruptcy
Code” means Title 11 of the United States Code.

 

“Beneficiaries”
has the meaning
given to such term in the Indemnity Agreement.

 

“Business
Day” means any day except Saturday, Sunday and any day which
shall be in New York City or Dulles, Virginia a day on which banking
institutions are authorized or required by Law to close.

 

“Certificated
Air Carrier” means a Person holding an air 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.

 

“Closing
Date” means the date on which the Loans are made pursuant to
the Loan Agreement.

 

“Collateral”
has the meaning given such term in Section 2.01 of this Mortgage.

 

“Collateral Agent Agreement” has
the meaning given such term in the Loan Agreement.

 

“Company”
means Independence Air, Inc., a California corporation.

 

A-2

 

“CRJ
Equipment” means
CRJ-100, CRJ-200, CRJ-700 and CRJ-900 aircraft and/or any Engines that are
capable of being used to power any such aircraft.

 

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

 

“Designated
Date” means the third (3rd) anniversary of the
Funding Date.

 

“Designated
Locations” means the locations designated from time to time
by the Company at which the Pledged Spare Parts may be maintained by or on
behalf of the Company, which initially shall be the locations set forth on
Schedule I to this Mortgage and shall include the additional locations
designated by the Company pursuant to Section 3.02(b)(2) of this Mortgage.

 

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

 

“Eligible
Account” means an account established by and with an Eligible
Institution at the request of the Secured Party, which institution agrees, for
all purposes of the New York UCC including Article 8 thereof, that (a) such
account shall be a “securities account” (as defined in Section 8-501 of the New
York UCC), (b) such institution is a “securities intermediary” (as defined in
Section 8-102(a)(14) of the New York UCC), (c) all property (other than cash)
credited to such account shall be treated as a “financial asset” (as defined in
Section 8-102(9) of the New York UCC), (d) the Secured Party shall be the “entitlement
holder” (as defined in Section 8-102(7) of the New York UCC) in respect of such
account, (e) it will comply with all entitlement orders issued by the Secured
Party to the exclusion of the Company, (f) it will waive or subordinate in
favor of the Secured Party all claims (including without limitation, claims by
way of security interest, lien or right of set-off or right of recoupment), and
(g) the “securities intermediary jurisdiction” (under Section 8-110(e) of the
New York UCC) shall be the State of New York.

 

“Eligible
Institution” means a depository institution organized under
the Laws of the United States of America or any of the states thereof or the
District of Columbia (or any U.S. branch of a foreign bank), which has a
long-term unsecured debt rating from Moody’s and Standard & Poor’s of at
least A3 or its equivalent.

 

“Engine”
means an engine used, or intended to be used, to propel an aircraft, including
a part, appurtenance, and accessory of the Engine.

 

“Environmental
Laws” means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to
health and safety matters.

 

“Event
of Default” has the meaning given such term in the Loan
Agreement until the Lien of the Senior Mortgage shall have been discharged and
thereafter shall mean a Subordinated Event of Default.

 

A-3

 

“Excluded
Parts” means (a) Hazardous Materials, (b) Propellers, (c) any
Spare Part or Appliance that is not capable of being used or installed on or
intended to be used or installed on CRJ Equipment, (d) any Spare Part or
Appliance that is suitable for installation on either a CRJ-700 or CRJ-900
aircraft or its Engines, Propellers or Appliances but that is not suitable for
installation on a CRJ-200 aircraft or its Engines, Propellers or Appliances,
and (e) any Spare Part or Appliance that is suitable for installation on a
Fairchild Dornier 328Jet aircraft, a British Aerospace Jetstream 3201 aircraft,
a British Aerospace Jetstream 4101 aircraft, an Airbus A-319 aircraft or any of
their respective Engines, Propellers or Appliances.

 

“Expendable Parts”
or “Expendables” means those Spare Parts
and Appliances that, once used, cannot be re-used, and if not serviceable,
cannot be overhauled or repaired.

 

“Federal
Aviation Act” means Part A of Subtitle VII of Title 49,
United States Code.

 

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

 

“Funding Date”
has the meaning given such term in the Loan Agreement.

 

“Governmental
Authority” means (a) any federal, state, provincial or
similar government, and any body, board, department, commission, court,
tribunal, authority, agency or other instrumentality of any such government or
otherwise exercising any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other government entity
having jurisdiction over any matter contemplated by the Transaction Documents
or relating to the observance or performance of the obligations of any of the
parties to the Transaction Documents.

 

“Guarantor” means FLYi, Inc., a Delaware corporation.

 

“Hazardous Materials” means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Laws.

 

“IAI
Transaction Documents” has
the meaning given to such term in the Indemnity Agreement.

 

“Identified
Spare Parts” means
the Spare Parts identified on Schedule II hereto.

 

“Indemnity
Agreement” means the Payment and Indemnity Agreement dated as
of February 18, 2005 among the Company, the Beneficiaries and the Secured
Party.

 

“Law”
means (a) any constitution, treaty, statute, law, decree, regulation,
order, rule or directive of any Governmental Authority, and (b) any
judicial or administrative interpretation or application of, or decision under,
any of the foregoing.

 

A-4

 

“Lender”
has the meaning given to that term in the Loan Agreement.

 

“Lien”
means any mortgage, pledge, lien, charge, encumbrance, lease, or security
interest affecting the title to or interest in property.

 

“Loans”
has the meaning given to that term in the Loan Agreement.

 

“Loan
Agreement” means the Loan Agreement dated as of February 17,
2005, as amended from time to time, among the Company, General Electric Capital
Corporation, the Senior Secured Party and the Lenders from time to time party
thereto.

 

“Maturity
Date” means the fifth (5th) anniversary of the
Funding Date.

 

“Maximum
Deductible Amount” has the meaning set forth in Schedule II
to the Indemnity Agreement.

 

“Minimum
Liability Amount” has the meaning set forth in Schedule II to
the Indemnity Agreement.

 

“Moody’s”
means Moody’s Investors Service, Inc.

 

“Mortgage”
means the Subordinated Spare Parts Mortgage and Security Agreement covering the
Collateral dated as of February 18, 2005, between the Company and the Secured
Party.

 

“New
York UCC”  means the
Uniform Commercial Code as in effect in the State of New York.

 

“Obligations”
means the Guaranteed Amount (as defined in the Indemnity Agreement), and all
other obligations of every nature of the Company from time to time owed to the
Secured Party, the Beneficiaries or any of them under the Indemnity Agreement
or any other Transaction Document.

 

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

 

“Permitted
Investments” means (i) securities issued or directly and
fully guaranteed by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), the Federal Home Loan
Mortgage Corporation, the Student Loan Marketing Association and the Federal
National Mortgage Association, in all cases having a maturity of not more than
90 days or, in the case of auction rate notes issued by any of the foregoing,
having an action reset interval of not more than 30 days; (ii) certificates of
deposit, bankers’ acceptances, repurchase agreements or time deposits issued or
accepted or guaranteed by 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 A or better by Moody’s or AA 

 

A-5

 

or better by
Standard & Poor’s 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 A1 by Standard & Poor’s
or P1 by Moody’s and having a final maturity of 90 days or less from the date
of purchase thereof or, in the case of auction rate notes issued by any of the
foregoing, having an auction reset interval of not more than 30 days; provided
that the aggregate amount at any one time 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
Liens” has the meaning given such term in Section 3.01 of the
Mortgage.

 

“Person”
has the meaning given to such term in the Loan Agreement.

 

“Pledged Spare Parts” has
the meaning set forth in clause (a) of the first paragraph of Section 2.01 of
the Mortgage.

 

“Propeller”
includes a part, appurtenance, and accessory of a propeller.

 

“Repairable”
means those Spare Parts and Appliances that can be economically restored or
repaired to a serviceable condition, but have a life that is considerably less
than the life of the flight equipment to which they are related.

 

“Rotable” means
those Spare Parts and Appliances that can be repeatedly and economically
restored to a serviceable condition over a period approximating the life of the
flight equipment to which they are related.

 

“Secure Location”
means an area in a Designated Location to which access is controlled by lock
and key, supported by an appropriate security system, and which is accessible
only to authorized employees of the Company.

 

“Secured
Party” means General Electric Capital Corporation, in its
capacity as Secured Party under this Mortgage.

 

“Senior
Mortgage” means the Spare Parts Mortgage and Security
Agreement,  dated as of the date hereof,
between the Company and General Electric Capital Corporation, as secured party
thereunder, which secures, among other things, the Company’s obligations under
the Loan Agreement.

 

“Senior
Obligations” means the “Obligations” as defined in the Senior
Mortgage.

 

“Senior
Secured Party” means the “Secured Party” as defined in the
Senior Mortgage.

 

A-6

 

“Serviceable Parts”
means Pledged Spare Parts in condition satisfactory for incorporation in,
installation on, attachment or appurtenance to or use in an aircraft, Engine or
other Pledged Spare Part.

 

“Software”
means any and all computer programs and inventory management systems,
including, but not limited to all source code and user interfaces associated
therewith as well as all data files used as input thereto and data files or
other records generated thereby, used by the Company to track and manage the
location, use and maintenance status of Spare Parts and Appliances.

 

“Software Support Agreements”
has the meaning given to that term in Section 2.01 of the Mortgage.

 

“Spare Part”
means an accessory, appurtenance, or part of an aircraft (except an Engine or
Propeller), Engine (except a Propeller), Propeller, or Appliance, that is to be
installed at a later time in an aircraft, Engine, Propeller or Appliance.

 

“Spare
Parts Documents” has the meaning set forth in clause (f) of
the first paragraph of Section 2.01 of the Mortgage.

 

“Special
Default” has the meaning given to that term in the Loan
Agreement until the Lien of the Senior Mortgage shall have been discharged and
thereafter shall mean any event pursuant to clauses (a), (b) or (f) of the
definition of “Subordinated Event of Default” or any event or condition that
with the lapse of time or giving of notice, or both, would constitute a “Subordinated
Event of Default” under clauses (a), (b) or (f) of such definition; provided,
however, that with respect to any payment contemplated by clause (b) of such
definition that is due upon demand, rather than within some specified period
following demand, no “Special Default” shall arise under this definition unless
and until any failure to pay continues for five (5) Business Days following the
date of such demand.

 

“Standard
& Poor’s” means Standard & Poor’s Rating Service.

 

“Subordinated
Default” means any event or condition that with the lapse of
time or giving of notice, or both, would constitute a “Subordinated Event of
Default”.

 

 “Subordinated Engine Mortgage” has the meaning given to that term in the
Loan Agreement

 

“Subordinated
Event of Default” means each of the following events, whether
any such event shall be voluntary or involuntary or come about or be effected
by operation of law or pursuant to or in compliance with any judgment, decree
or order of any court or any order, rule or regulation of any administrative or
governmental body:

 

(a)           The
Company shall fail to pay any Guaranteed Amount (as defined in the Indemnity
Agreement) after the expiration of any grace period or the giving of any notice
(or both) applicable to the payment that the Company failed to make under an
IAI Transaction Document which resulted in such Guaranteed Amount becoming due;
or

 

A-7

 

(b)           The
Company or the Guarantor shall fail to pay any amount (other than any
Guaranteed Amount) payable hereunder or under any Transaction Document when due
and such failure shall continue for a period of ten Business Days after such
payment becomes due; or

 

(c)           Any
representation or warranty made by the Company or the Guarantor in
Section 3.1 of the Indemnity Agreement or pursuant to any other
Transaction Document, or any amendment or modification of any Transaction
Document, or in any report, certificate or other document prepared by the
Company or the Guarantor and furnished pursuant to or in connection with any
Transaction Document or any amendment or modification thereof or waiver
thereunder shall prove to have been incorrect in any material respect when
made, such incorrect representation or warranty is material at the time in
question, and, if curable, the same shall remain uncured for a period in excess
of 30 days after the date of written notice thereof from the Secured Party; or

 

(d)           The
Company or the Guarantor shall fail to perform or observe any term, covenant or
agreement contained in this Mortgage or any other Transaction Document (other
than those referred to in clauses (a) and (b) above) on its part to be
performed or observed and such failure shall remain unremedied for a period of
30 days after written notice of such failure shall have been given to the
Company by the Secured Party, unless such failure is capable of being corrected
and the Company or the Guarantor, as the case may be, shall be diligently
proceeding to correct such failure, in which case there shall be no
Subordinated Event of Default unless and until such failure shall continue
unremedied for a period of 60 days after receipt of such notice; or

 

(e)           The
Company or the Guarantor shall consent to the appointment of or the taking of
possession by a receiver, trustee or liquidator of itself or of substantially
all of its property, or the Company or the Guarantor shall admit in writing its
inability to pay its debts generally as they come due, or does not pay its
debts generally as they become due or shall make a general assignment for the
benefit of creditors, or the Company or the Guarantor shall file a voluntary
petition in bankruptcy or a voluntary petition or an answer seeking
reorganization, liquidation or other relief in a case under any bankruptcy laws
or other insolvency laws (as in effect at such time), or the Company or the
Guarantor shall seek relief by voluntary petition, answer or consent, under the
provisions of any other bankruptcy or other similar law providing for the
reorganization or winding-up of corporations (as in effect at such time) or the
Company’s or the Guarantor’s board of directors shall adopt a resolution
authorizing any of the foregoing; or

 

(f)            An
order, judgment or decree shall be entered by any court of competent
jurisdiction appointing, without the consent of the Company or the Guarantor,
as the case may be, a receiver, trustee or liquidator of the Company or the
Guarantor or of substantially all of their respective property, or
substantially all of the property of the Company or the Guarantor shall be
sequestered, and any such order, judgment or decree of appointment or
sequestration shall remain in force undismissed, unstayed and unvacated for a
period of 60 days after the date of entry thereof; or a petition against the 

 

A-8

 

Company or the
Guarantor in a case under any bankruptcy laws or other insolvency laws (as in
effect at such time) is filed and not withdrawn or dismissed within 60 days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to the Company or the Guarantor,
any court of competent jurisdiction assumes jurisdiction, custody or control of
the Company or of substantially all of its property and such jurisdiction,
custody or control remains in force unrelinquished, unstayed and unterminated
for a period of 60 days; or

 

(g)           The
Company shall fail to carry and maintain, or cause to be carried and
maintained, insurance on and in respect of the Pledged Spare Parts in
accordance with the provisions of Section 3.05 of this Mortgage; or

 

(h)           The
Company shall cease to be a Certificated Air Carrier; or

 

(i)            This
Mortgage shall for any reason cease to be a valid second-priority (or, if the
Senior Mortgage shall have been terminated, first-priority) perfected security
interest (subject to Permitted Liens) in favor of the Secured Party in the
Company’s right, title and interest in and to the Pledged Spare Parts under the
laws of the United States of America;

 

(j)            For
so long as the Lien of the Senior Mortgage has not been discharged, any “Event
of Default” as defined in the Loan Agreement (it being understood, for
avoidance of doubt, that if such Event of Default is cured or otherwise ceases
to exist it shall cease to be a Subordinated Event of Default); or

 

(k)           The
Loans shall be prepaid in full or in part prior to the Maturity Date in any
manner or under any circumstances other than as permitted by Section 1.1(c) or
as required by Section 1.1(d) of the Loan Agreement.

 

“Supplemental
Mortgage” means a Supplemental Mortgage and Security Agreement
in substantially the form of Exhibit A to this Mortgage.

 

“Taxes”
has the meaning given to that term in the Loan Agreement.

 

“Threshold
Amount” has the meaning set forth in Schedule II to the
Indemnity Agreement.

 

“Transaction
Documents” means the Indemnity Agreement, the Guaranty, this
Mortgage, the Subordinated Engine Mortgage and each Supplemental Mortgage.

 

“UCC”
or “Uniform Commercial Code” means the
Uniform Commercial Code as in effect in any applicable jurisdiction.

 

“U.S.
Government” means the federal government of the United
States, or any instrumentality or agency thereof the obligations of which are
guaranteed by the full faith and credit of the federal government of the United
States.

 

“Warranties”
has the meaning given to that term in Section 2.01 of the Mortgage.

 

A-9

 

APPENDIX B

 

APPENDIX B

 

INSURANCE

 

Capitalized terms
used but not defined herein shall have the respective meanings set forth or
incorporated by reference in Appendix A to the Mortgage.

 

A.            Liability Insurance

 

The Company will carry or
cause to be carried at all times, at no expense to any Secured Party, third
party liability insurance with respect to the Pledged Spare Parts, which is (i)
of amount and scope as is usually carried by airlines engaged in the same or
similar business, similarly situated with Company and owning or operating
similar spare parts for aircraft and engines and covering risks of the kind
customarily insured against by the Company for equipment similar to the Pledged
Spare Parts and in any event in an amount not less than the Minimum Liability
Amount, and (ii) maintained in effect with insurers of recognized
responsibility (such insurers being referred to herein as “Approved Insurers”).

 

The Company will carry or
cause to be carried at all times, at no expense to any Secured Party, with
Approved Insurers third party liability insurance covering the Designated
Locations where any Pledged Spare Parts shall be located.  Pursuant to Section C below, the Secured Party
and the Lenders shall be named as Additional Insureds under any such insurance
policy.

 

B.            Property Insurance

 

The Company will carry or
cause to be carried at all times, at no expense to Secured Party or any Lender,
with Approved Insurers insurance covering physical damage to the Pledged Spare
Parts, of the type covering the same risks as are usually carried by airlines
engaged in the same or similar business as Company and covering risks of the
kind customarily insured against by Company and providing for the reimbursement
of the actual expenditure incurred in repairing or replacing any damaged or
destroyed Pledged Spare Part or, if not repaired or replaced, for the payment
of the amount it would cost (determined as of the date of loss) to repair or replace
such Pledged Spare Part with proper deduction for obsolescence and physical
depreciation.

 

The Company will carry or
cause to be carried at all times, at no expense to any Secured Party, with
Approved Insurers property insurance covering the Designated Locations where
any Pledged Spare Parts shall be located.

 

Any policies of insurance
carried in accordance with this Section B covering the Pledged Spare Parts
and any policies taken out in substitution or replacement for any such policies
shall provide that (A) if the Lien of the Senior Mortgage shall not have been
discharged, all insurance proceeds in respect of the Pledged Spare Parts, other
than any insurance proceeds which the Senior Mortgage provides are payable to
the Secured Party rather than the Senior

 

B-1

 

Secured Party, shall be
held and applied as provided in the Senior Mortgage, (B) after the Senior
Mortgage shall have discharged, and with respect to any insurance proceed that
the Senior Mortgage provides are payable to the Secured Party rather than the
Senior Secured Party, all insurance proceeds in respect of the Pledged Spare
Parts paid under such policies as a result of the occurrence of any loss or
damage with respect to any Pledged Spare Parts involving proceeds in excess of
the Threshold Amount up to an amount equal to the unpaid amount of the
Obligations will be paid to the Secured Party and thereafter released to the
Company for the purchase of replacement Spare Parts that upon acquisition will
become Pledged Spare Parts, and (C) the entire amount of any insurance
proceeds in respect of Pledged Spare Parts up to the Threshold Amount shall be
paid to the Company or its order; provided however that if, following
the discharge of the Lien of the Senior Mortgage, a Special Default or
Subordinated Event of Default shall have occurred and be continuing and the
insurers have been notified thereof by the Secured Party or any other Person,
the amount of any proceeds up to the Threshold Amount of any loss with respect
to the Pledged Spare Parts shall not be paid to the Company, but shall instead
be paid to the Secured Party notwithstanding the preceding clause (C) of this
paragraph.

 

C.            General Provisions

 

Any policies of insurance
carried in accordance with Sections A and B, including any policies taken
out in substitution or replacement for such policies:

 

(a)           shall name the Secured Party and each
Beneficiary as an additional insured (collectively, the “Additional Insureds”),
as their respective interests may appear;

 

(b)           in the case of Section A, shall provide that,
in respect of the interests of the Additional Insureds in such policies, the
insurance shall not be invalidated or impaired by any act or omission
(including misrepresentation and nondisclosure) by the Company or any other
Person (including, without limitation, use of the Pledged Spare Parts for
illegal purposes) and shall insure the Additional Insureds regardless of any
breach or violation of any representation, warranty, declaration, term or
condition contained in such policies by the Company;

 

(c)           shall provide that, if the insurers cancel
such insurance for any reason whatsoever, including nonpayment of premium, or
if any material change is made in the insurance which adversely affects the
interest of any of the Additional Insureds, such cancellation or change shall
not be effective as to the Additional Insureds for 30 days (10 days for
nonpayment of premiums or cancellation by the Company) after receipt by the
Additional Insureds of written notice by such insurers of such cancellation or
change;

 

(d)           shall waive any right of recourse,
subrogation, setoff, recoupment, counterclaim or other deduction against any
Additional Insured;

 

(e)           shall be primary without right of
contribution from any other insurance that may be available to any Additional
Insured;

 

(f)            in the case of Section A, shall provide that
all of the liability insurance provisions thereof, except the limits of
liability, shall operate in all respects as if a separate policy had been
issued covering each party insured thereunder; and

 

B-2

 

(g)           shall provide that none of the Additional
Insureds shall be liable for any insurance premium.

 

D.            Reports, Etc.

 

On or prior to the Closing
Date and on or prior to each renewal date of the insurance policies required
hereunder, the Company will furnish or cause to be furnished to the Secured
Party insurance certificates describing in reasonable detail the insurance
maintained by the Company hereunder and a report, signed by the Company’s
regularly retained independent insurance broker (the “Insurance Broker”),
stating the opinion of such Insurance Broker that all premiums in connection
with the insurance then due have been paid and that the insurance terms are in
compliance with the requirements of this Appendix B.  Such information shall remain confidential as
provided in Section 6.11 of the Indemnity Agreement.  The Company will cause such Insurance Broker
to agree to advise the Secured Party in writing of any default in the payment
of premium as required by the terms hereof and to advise the Secured Party at
least thirty (30) days (ten (10) days in the case of nonpayment of
premium) prior to the cancellation or material adverse change of any insurance
maintained pursuant to this Appendix B. 
In the event that the Company shall fail to maintain or cause to be
maintained insurance as herein provided, the Secured Party may, at its sole
option, provide such insurance and, in such event, the Company shall, upon
demand, reimburse the Secured Party for the cost thereof.

 

E.             Reinsurance

 

The Company shall procure
that in respect of insurances maintained by the Company in accordance with the
provisions in this Appendix B the insurers shall maintain, if such insurances
do not provide for direct coverage in the markets hereafter referred to,
reinsurance covering identical subject matter and risk for an amount which
shall not be less than 100% of the coverage amount under Sections A and B
hereof in Lloyd’s of London or other internationally recognized aviation
reinsurance markets.  Such reinsurance
shall contain a customary “cut-through” endorsement and shall provide that any
payment by the reinsurers shall be made notwithstanding any bankruptcy,
insolvency or liquidation of the original insurer and/or that the original
insurer has made no payment under the original policies.

 

F.             Deductibles

 

The
insurance required to be carried by Section B hereof may be subject to a per
occurrence deductible in an amount not to exceed the Maximum Deductible Amount
for any one occurrence.

 

B-3

 

EXHIBIT A

 

FORM OF SUBORDINATED SUPPLEMENTAL MORTGAGE AND
SECURITY AGREEMENT

(To Add Designated Locations)

SUBORDINATED SUPPLEMENTAL MORTGAGE No.           

 

SUBORDINATED SUPPLEMENTAL
MORTGAGE NO.          (this “Supplemental
Mortgage”), dated as of              
of INDEPENDENCE AIR, INC., a California corporation (together with its
successors and assigns, the “Company”).

 

WHEREAS, the Company,
which is a certificated air carrier under Section 44705 of title 49 of the U.S.
Code, and General Electric Capital Corporation, as agent for the Beneficiaries
(as defined in the Mortgage referenced below), as Secured Party (the “Secured
Party”), have heretofore executed and delivered a Subordinated Spare Parts
Mortgage and Security Agreement dated as of February 18, 2005 (which is more
fully described on Schedule II hereto and as the same may be further amended,
modified, supplemented and restated from time to time, the “Mortgage”),
and terms defined in the Mortgage and used herein have such defined meanings
unless otherwise defined herein;

 

WHEREAS, the Mortgage
grants a Lien on, among other things, certain Spare Parts and Appliances to
secure (subject to the provisions of the Mortgage) the payment of the
Obligations under the Transaction Documents; and

 

WHEREAS, the Company has
previously designated the locations at which the Pledged Spare Parts may be
stored by the Company in the Mortgage;

 

WHEREAS, the Company, as
provided in the Mortgage, is hereby executing and delivering to the Secured
Party this Supplemental Mortgage for the purposes of adding locations at which
the Pledged Spare Parts may be stored by the Company; and

 

WHEREAS, all things necessary
to make this Supplemental Mortgage the valid, binding and legal obligation of
the Company, including all proper corporate action on the part of the Company,
have been done and performed and have happened;

 

NOW, THEREFORE, THIS
SUPPLEMENTAL MORTGAGE, WITNESSETH, that (i) the location(s) listed on Schedule
I hereto shall be deemed and considered [a] Designated Location(s) at which
Pledged Spare Parts may be maintained by or on behalf of the Company for all
purposes under and pursuant to the Mortgage, and (ii) the location(s) listed on
Schedule I [is/are] hereby added as [a] Designated Locations, in addition to
and not in lieu of, any of the other Designated Locations specified in the
Mortgage.

 

This Supplemental
Mortgage 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.

 

A-1

 

THIS SUPPLEMENTAL
MORTGAGE IS DELIVERED IN THE STATE OF NEW YORK. 
THIS SUPPLEMENTAL MORTGAGE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

Delivery of an executed
counterpart of a signature page to this Supplemental Mortgage by telecopier
shall be effective as delivery of an original executed counterpart of this
Supplemental Mortgage.

 

IN WITNESS WHEREOF, this
Subordinated Supplemental Mortgage No.     has been duly
executed and delivered all as of the date first above written.

 

	
   

  	
  INDEPENDENCE
  AIR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
				

 

A-2

 

SCHEDULE I TO

SUBORDINATED SUPPLEMENTAL MORTGAGE NO.    

 

ADDITIONAL DESIGNATED LOCATION[S]

 

A-3

 

SCHEDULE II TO

SUBORDINATED SUPPLEMENTAL MORTGAGE NO.     

 

DESCRIPTION OF MORTGAGE

 

The
Subordinated Spare Parts Mortgage and Security Agreement between Independence
Air, Inc. and General Electric Capital Corporation, as more fully described as
follows:

 

 

	
   

  	
   

  	
  DATE

  	
   

  	
  DATE OF

  RECORDING

  	
   

  	
  DOCUMENT OR

  CONVEYANCE

  NO.

  
	
  Mortgage

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subordinated
  Supplemental Mortgage No. 1

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

A-4

 

SCHEDULE I

DESIGNATED LOCATIONS

 

IAD

Independence Air

23321 Autopilot Dr

Dulles VA 20166

Tel: 703-650-1645 Fax: 703-650-1693

 

LINSR

Independence Air

Washington Dulles International Airport,

 Concourse A, MX Parts Store
(AU-250)

Dulles VA 20166

Tel: 703-572-3392 Fax: 703-572-3438

 

MCO

Independence Air

9809 Tradeport Drive

Orlando, FL. 32827

Tel: 407-825-2580 
Fax: 407-825-2584

 

CAE

Independence Air

2625 Aviation Way

West Columbia SC 29170

Tel: 803-822-0535    Fax:
803-822-5428

 

ORD

Independence Air

O’Hare International Airport

Terminal 2 Lower Level E10

Chicago, IL. 60666

Tel: 773-686-2806 
Fax:
773-686-2805

 

HOT

Independence Air

525 Airport Road, Hangar A14

Memorial Field Airport

Hot Springs, AR. 71913

Tel: 501-318-1342  Fax:
501-318-0487

 

I-1

 

HSV

Reebaire Services

Huntsville Int’l Airport Gate3

20042 Glenn Hearn Blvd

Huntsville, AL. 35824

Tel: 256-503-3921 Fax: 256-772-4497

 

TYS

Reebaire Services

1925 Alcoa Hwy Bay 1

Alcoa, TN. 37701-3190

Tel: 865-342-1061  Fax:
865-342-1068

 

I-2

 

SCHEDULE II

 

IDENTIFIED SPARE PARTS

 

	
  ASSET

  NUM

  	
   

  	
  DESCRIPTION

  	
   

  	
  ITEM_NBR

  	
   

  	
  IN-

  SERVICE

  DATE

  	
   

  	
  FLEETCODE

  	
   

  	
  PO NUM

  	
   

  	
  ACCT_UNIT

  	
   

  	
  TAG_NBR

  	
   

  	
  ASSET TYPE

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3906

  	
   

  	
  FUEL SOLENOID VALVE

  	
   

  	
  692545-17

  	
   

  	
  12/1/1991

  	
   

  	
  J41/CRJ/328

  	
   

  	
   

  	
   

  	
  15200ACA2

  	
   

  	
   

  	
   

  	
  ENGPART

  
	
  3990

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1991

  	
   

  	
  CRJ

  	
   

  	
   

  	
   

  	
  15200ACA2

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  3986

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1991

  	
   

  	
  CRJ

  	
   

  	
  IP00041000

  	
   

  	
  15200HG12

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  3989

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1991

  	
   

  	
  CRJ

  	
   

  	
  IP00024177

  	
   

  	
  15200HG13

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4448

  	
   

  	
  PNUEMATIC VALVE ASSY

  	
   

  	
  2099K021000

  	
   

  	
  2/1/1992

  	
   

  	
  J41/CRJ

  	
   

  	
  IP00004477

  	
   

  	
  15200HG19

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4273

  	
   

  	
  COMPUTER AHRS

  	
   

  	
  622-9336-400

  	
   

  	
  3/1/1993

  	
   

  	
  CRJ

  	
   

  	
  RO00151897

  	
   

  	
  15200ACA3

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4387

  	
   

  	
  BOTTLE FIRE EX

  	
   

  	
  36500018-3

  	
   

  	
  9/1/1993

  	
   

  	
  CRJ

  	
   

  	
  RO00163084

  	
   

  	
  15200HG12

  	
   

  	
  R6489

  	
   

  	
  AIRPART

  
	
  4390

  	
   

  	
  RECORDER, FLIGHT (CRJ)

  	
   

  	
  S800-3000-00

  	
   

  	
  9/1/1993

  	
   

  	
  CRJ

  	
   

  	
  IP0004477A

  	
   

  	
  15200HG13

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  5163

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1993

  	
   

  	
  CRJ

  	
   

  	
  IP00013398

  	
   

  	
  15200HG12

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  5162

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1993

  	
   

  	
  CRJ

  	
   

  	
  IP00012690

  	
   

  	
  15200HG12

  	
   

  	
  39977

  	
   

  	
  AIRPART

  
	
  5164

  	
   

  	
  ELT ASSY

  	
   

  	
  ELT 910

  	
   

  	
  12/1/1993

  	
   

  	
  CRJ

  	
   

  	
   

  	
   

  	
  15200ACA2

  	
   

  	
   

  	
   

  	
  AIRPART

  
	
  4447

  	
   

  	
  PNUEMATIC VALVE ASSY

  	
   

  	
  2099K021000

  	
   

  	
  6/1/1994

  	
   

  	
  J41/CRJ

  	
   

  	
   

  	
   

  	
  15200IAD2

  	
   

  	
   

  	
   

  	
  AIRPART

  

 

II-1

 

Execution Version

 

 

PAYMENT AND INDEMNITY AGREEMENT

 

dated as of February 18,
2005

among

INDEPENDENCE AIR, INC.,

as Obligor,

the BENEFICIARIES

identified on Schedule 1 hereto

and

GENERAL ELECTRIC CAPITAL CORPORATION 

as Collateral Agent

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE I - DEFINITIONS

  
	
   

  	
  SECTION 1.1.

  	
  Definitions

  
	
   

  	
  SECTION 1.2.

  	
  Other
  Definitions

  
	
   

  	
   

  	
   

  
	
  ARTICLE II - PAYMENT PROVISIONS AND OTHER
  COVENANTS OF OBLIGOR

  
	
   

  	
  SECTION 2.1.

  	
  Payment
  Agreement

  
	
   

  	
  SECTION 2.2.

  	
  Reinstatement,
  etc.

  
	
   

  	
  SECTION 2.3.

  	
  Waiver, etc.

  
	
   

  	
  SECTION 2.4.

  	
  Withholding
  Taxes.

  
	
   

  	
  SECTION 2.5.

  	
  Other Taxes.

  
	
   

  	
  SECTION 2.6

  	
  Provision of
  Acceptable Collateral

  
	
   

  	
  SECTION 2.7

  	
  LDTV Ratio

  
	
   

  	
   

  	
   

  
	
  ARTICLE III - REPRESENTATIONS AND
  WARRANTIES

  
	
   

  	
  SECTION 3.1.

  	
  Representations
  and Warranties

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV - INDEMNITY

  
	
   

  	
  SECTION 4.1.

  	
  Indemnity
  Obligations

  
	
   

  	
  SECTION 4.2.

  	
  Payments;
  Interest

  
	
   

  	
   

  	
   

  
	
  ARTICLE V - AGREEMENTS OF THE BENEFICIARIES

  
	
   

  	
  SECTION 5.1.

  	
  Quiet Enjoyment

  
	
   

  	
  SECTION 5.2.

  	
  Agreements
  under Subordinated Mortgages

  
	
   

  	
  SECTION 5.3.

  	
  Ceasing to
  be a GE Affiliate

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI - MISCELLANEOUS PROVISIONS

  
	
   

  	
  SECTION 6.1.

  	
  Binding on
  Successors and Assigns; Assignment of Agreement

  
	
   

  	
  SECTION 6.2.

  	
  Amendments,
  etc.

  
	
   

  	
  SECTION 6.3.

  	
  Notices

  
	
   

  	
  SECTION 6.4.

  	
  No Waiver;
  Remedies

  
	
   

  	
  SECTION 6.5.

  	
  Section Captions

  
	
   

  	
  SECTION 6.6.

  	
  Severability

  
	
   

  	
  SECTION 6.7.

  	
  Entire
  Agreement

  
	
   

  	
  SECTION 6.8.

  	
  Counterparts

  
	
   

  	
  SECTION 6.9.

  	
  Governing Law;
  Submission to Jurisdiction; Venue

  
	
   

  	
  SECTION 6.10.

  	
  WAIVER OF TRIAL
  BY JURY

  
	
   

  	
  SECTION 6.11.

  	
  Engine Reports

  
	
   

  	
  SECTION 6.12.

  	
  Confidentiality

  

 

i

 

	
  Schedule I

  	
  -

  	
  Beneficiaries

  
	
   

  	
   

  	
   

  
	
  Schedule II

  	
  -

  	
  Certain
  Information

  
	
   

  	
   

  	
   

  
	
  Schedule III

  	
  -

  	
  Engines

  
	
   

  	
   

  	
   

  
	
  Schedule IV

  	
  -

  	
  GE Deferral
  Leases

  
	
   

  	
   

  	
   

  
	
  Schedule V

  	
  -

  	
  GE Deferral Amount

  
	
   

  	
   

  	
   

  
	
  Schedule VI

  	
  -

  	
  Maximum Deferral
  Amount

  

 

ii

 

PAYMENT AND INDEMNITY AGREEMENT

 

THIS PAYMENT AND
INDEMNITY AGREEMENT (this “Agreement”), dated as of February 18, 2005,
is among INDEPENDENCE AIR, INC. (the “Obligor” or “IAI”); each of
the BENEFICIARIES identified on Schedule 1 hereto and such other Beneficiaries
as may from time to time be party hereto in accordance herewith; and GENERAL
ELECTRIC CAPITAL CORPORATION (“GECC”), in its capacity as agent for the
Beneficiaries (“Collateral Agent”) under the Collateral Agent Agreement
and the Subordinated Mortgages (as defined in Section 1.1).

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, the Obligor and
GECC are entering into a Loan Agreement secured by certain spare parts and
aircraft engines dated as of the date hereof (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the “Loan
Agreement”), with the Obligor, as borrower, and GECC, as Administrative
Agent and Lender;

 

WHEREAS, as a condition
to GECC entering into the Loan Agreement with the Obligor, the Obligor is
required to execute and deliver this Agreement and the Subordinated Mortgages;

 

WHEREAS, the Obligor
wishes to support certain payment obligations to the Beneficiaries under the
IAI Transaction Documents (as defined below);

 

WHEREAS, the Obligor has
duly authorized the execution, delivery and performance of this Agreement;

 

WHEREAS, it is in the
best interests of the Obligor to execute this Agreement and the Subordinated
Mortgages inasmuch as the Obligor will derive substantial direct and indirect
benefits from the transactions contemplated by the Loan Agreement and the other
“Transaction Documents” (as defined in the Loan Agreement); and

 

WHEREAS, the Obligor
desires to execute this Agreement;

 

NOW, THEREFORE, for good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.1.  Definitions.  In addition to the terms defined in the
introductory paragraphs to this Agreement, the terms set out below have the
following meanings when used in this Agreement:

 

“Acceptable
Collateral” means a letter of credit issued by a bank organized under the laws of the United
States or any State thereof, or the New York branch of a major 

 

 

international bank, in each case for only so long as its long-term
Dollar denominated unsecured debt (or if it does not have long-term unsecured
Dollar denominated debt, its parent corporation’s long-term unsecured Dollar
denominated debt) carries a rating from Standard & Poor’s of A or better,
or another security arrangement that affords at least the same degree of
certainty of payment.

 

“Affiliate” means, with respect to any person, any other
person directly or indirectly controlling, controlled by or under common
control with such person.  For purposes
of this definition, “control”
means the power, directly or indirectly, to direct or cause the direction of
the management and policies of such person, whether through the ownership of
voting securities or by contract or otherwise and “controlling,” “controlled
by” and “under common control
with” have correlative meanings.

 

“Applicable Law”  means all applicable laws, statutes,
treaties, rules, codes, ordinances, regulations, permits, certificates, and
orders, all binding interpretations thereof, and all requirements and mandatory
conditions of licenses and permits, of any Governmental Authority, and
judgments, decrees, injunctions, writs, orders, or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.

 

“Applicable Rate” has the meaning
given in Section 2.1(b).

 

“Bankruptcy
Code” means Title 11 of the United States Code, as the
same may be amended.

 

“Beneficiary” means each GE Affiliate
that is now or hereafter becomes a party to an IAI Transaction Document,
including, without limitation, each of the Beneficiaries identified on Schedule
I, but only if and so long as such Beneficiary is a GE Affiliate, and any
assignee of, or holder of a participation interest in, such Beneficiary’s
interest under any IAI Transaction Documents made in accordance with the
applicable requirements of the IAI Transaction Documents (after or prior to the
date hereof), but only if and so long as such assignee or such holder of a
participation interest is a GE Affiliate; provided that any Beneficiary which
is not a signatory to this Agreement shall, at the request of Obligor, execute
and deliver to Obligor (unless Applicable Law prohibits such execution and/or
delivery) a counterpart of this Agreement prior to Obligor making a payment to
such Beneficiary under this Agreement.

 

“Business Day” means any day other than
(i) a Saturday, Sunday or other day on which banks in New York City or Dulles,
Virginia are authorized or required by law to close, and (ii) as used in the
term “Interest Determination Date”, any day which is a Business Day described
in clause (i) above and which is also a day for trading by and between banks in
the London interbank Eurodollar market.

 

“Certificated Air Carrier” has the
meaning specified in the Subordinated Mortgages.

 

“Collateral” means Spare Parts
Collateral and Engine Collateral, collectively.

 

2

 

“Collateral Agent Agreement” means the Collateral Agent Agreement dated
as of the date hereof between GECC, and the Beneficiaries, as the same may from
time to time be supplemented, amended or modified in accordance with its terms.

 

“Default Interest Rate” means the
Applicable Rate plus 2 percent per annum.

 

“Early Termination Leases” means,
collectively, (i) the leveraged leases with respect to the CRJ-200 aircraft
specified in the definition of Existing Early Termination Agreement, which
leases are described in more detail in the Existing Early Termination
Agreement, and (ii) the leveraged lease transactions with respect to the ten
CRJ-200 aircraft bearing manufacturer’s serial numbers 7500, 7520, 7527, 7528,
7544, 7545, 7561, 7553, 7572 and 7652, in each case as in existence on the date
hereof and as the same may be further amended, supplemented, restated or
otherwise modified from time to time, but in each case only for so long as a GE
Affiliate remains the owner participant thereunder.

 

“Engines” means, collectively, all
of the engines listed on Schedule III hereto (together with any
additions thereto or replacements thereof in accordance with the terms of the
Subordinated Engine Mortgage).

 

“Engine Collateral” means all of the Engines and such other items
as are included within the definition of “Collateral” in the Subordinated
Engine Mortgage.

 

“Engine Documents” has the meaning specified in the Subordinated
Engine Mortgage.

 

“Engine Containers” means each
engine container identified by serial number on Schedule III hereto.

 

“Existing Early Termination Agreement”
means that certain Omnibus Amendment Agreement dated as of January 7, 2005
among Borrower, Guarantor, Export Development Canada and certain other parties
thereto with respect to ten CRJ-200 aircraft bearing manufacturer’s serial
numbers 7594, 7599, 7601, 7720, 7723, 7737, 7739, 7740, 7759, and 7768.

 

“GE Affiliate” means GECC and each
Affiliate of GECC.

 

“GE
Deferral Amount” means, as of any date of determination,
(i) with respect to any particular GE Deferral Lease, the amount shown on Schedule
V hereto with respect to such lease for the month in which the date of
determination occurs, plus all accrued but unpaid “basic rent” (howsoever
titled or described) under such lease through and including the date of
determination, and (ii) with respect to all of the GE Deferral Leases, the
aggregate sum of the amounts shown on Schedule V hereto with respect to
each of the GE Deferral Leases for the month in which the date of determination
occurs, plus all accrued but unpaid “basic rent” (howsoever titled or
described) under all such leases through and including the date of
determination.

 

3

 

“GE
Deferral Lease” means any of the leases described on Schedule
IV hereto, as the same may be further amended, supplemented, restated or
otherwise modified from time to time, but only for so long as the owner
participant thereunder remains a GE Affiliate.

 

“GE
Deferral Lease Obligations” means, collectively, all obligations of the Company under the GE
Deferral Leases and the “operative documents” (howsoever titled or described)
relating to each such GE Deferral Lease, including, without limitation, the
obligation to make payments of “basic rent” (howsoever titled or described) in
full as and when due pursuant to the terms thereof, the obligation to make
default interest payments, make-whole payments and/or payments for breakages
costs (in each case howsoever titled or described) in respect of any payments
not made when due, and all other payment and performance obligations of the
Company thereunder, regardless of whether any such payment or performance
obligation of the Company is expressed thereunder as being owed by the Company
to a GE Affiliate or to some other party for the account of the GE Affiliate
(it being expressly acknowledged and agreed that, pursuant to the express terms
of a GE Deferral Leases and the “operative documents” relating thereto, certain
payments are to be made by the Company to a security trustee or equivalent
person or agent for the account of all interested parties, including the equity
or owner participant therein as well as the lender or loan participants
therein).

 

“Governmental Authority” means any (a)
governmental entity, board, bureau, agency or instrumentality, (b)
administrative or regulatory authority (including any central bank or similar
authority) or (c) court, judicial authority or arbitrator, in each case,
whether foreign or domestic.

 

“Guaranteed Amount” means the GE
Deferral Lease Obligations and any other amount that a Beneficiary would have
received directly from IAI, or which would have been paid by IAI for a
Beneficiary’s account to a lender or other creditor of a Beneficiary (or any
trustee of a trust of which such Beneficiary is the beneficiary), under any IAI
Transaction Document upon IAI’s due performance under such IAI Transaction
Document, including, without limitation, such amounts as have become due and
owing by IAI in accordance with the terms of such IAI Transaction Document and
Applicable Law as a result of a breach by IAI, an event of loss, a claim for
indemnity or expense reimbursement, or any other circumstance or event giving
rise to a payment obligation of IAI under any IAI Transaction Document.

 

“Guarantor” means FLYi, Inc., a Delaware
corporation.

 

“Guaranty” means a Guaranty
substantially in the form of Exhibit C to the Loan Agreement, duly completed
and executed by Guarantor for the benefit of, among others, the Collateral
Agent and the Beneficiaries.

 

“IAI Transaction Documents” means,
without limitation, each GE Deferral Lease, each Early Termination Lease and
all “operative documents” (howsoever titled or described) relating to each GE
Deferral Lease and each Early Termination Lease.

 

“Identified Spare Parts” has the meaning
specified in the Subordinated Spare Parts Mortgage.

 

4

 

“Interest Period” means, with respect to
any amount for which interest is determined under Section 2.1(b), the period
commencing on the date such amount is due (or, thereafter, the last day of the
immediately preceding Interest Period) and ending on the third month
thereafter; provided, that (i) if any Interest Period would end on
a day other than a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day and (ii) any Interest Period that
commences on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the third calendar month
thereafter) shall end on the last Business Day of the next calendar month.

 

“Interest Rate Determination Date”
means, with respect to any Interest Period for a Loan, the second Business Day
prior to the first day of such Interest Period.

 

“LDTV Ratio” has the meaning
specified in the Loan Agreement.

 

“LIBOR Rate” means, with respect to
any Interest Period, the rate appearing on Bloomberg Page BBAM 1 screen service
(or on any successor or substitute page of such service, or any successor to or
substitute for such service, providing rate quotations comparable to those
currently provided on such page of such service) at approximately 11:00
a.m., London time, on the Interest Rate Determination Date for such Interest
Period, as the rate for dollar deposits with a maturity of three months.  In the event that such rate is not available
at such time for any reason, then the  “LIBOR
Rate” for such Interest Period shall be the average (rounded upwards to the
nearest 1/100%), as determined by the Collateral Agent, of the per annum
interest rates at which dollar deposits of amounts comparable to the aggregate
amount of all Guaranteed Amounts and for a maturity of three months are offered
by the principal London offices of the Reference Banks, in each case offered to
prime banks in the London interbank market, in each case at or about 11:00
a.m., London time, on the Interest Rate Determination Date for such Interest
Period.

 

“Loans” has
the meaning specified in the Loan Agreement.

 

“Material Adverse Effect”
means a material adverse effect on (i) the business or financial condition of
the Obligor individually or the Guarantor and its Subsidiaries (including the
Borrower) taken as a whole, (ii) the Collateral or (iii) the material
impairment of the ability of the Obligor to perform, or the Beneficiaries to
enforce, the obligations of Obligor under the IAI Transaction Documents.

 

“Maximum
Deferral Amount” means,
as of any date of determination, the amount shown on Schedule VI
attached hereto for the month in which the date of determination occurs, plus
all accrued but unpaid “basic rent” (howsoever titled or described) under all
of the GE Deferral Leases in the aggregate through and including the date of
determination.  Notwithstanding the
foregoing, the parties hereto acknowledge and agree that (i) the amount shown
on Schedule VI attached hereto with respect to each month shown on such
schedule reflects the “maximum” amount of the GE Deferral Amount with respect
to all of the GE Deferral Leases in the aggregate as reflected on Schedule V
hereto, assuming due and punctual payment by the Borrower of all ‘basic rent” (howsoever
titled or described) when due under the 

 

5

 

GE Deferral Leases, during the period from
and including the first day of such month through and including the Maturity
Date, and (ii) in the event any of the leases described on Schedule IV
attached hereto ceases to be a GE Deferral Lease because the owner participant
thereunder is no longer a GE Affiliate, then, this Agreement shall be amended
to incorporate a new version of Schedule V, recalculated to reflect the
deletion of such lease from the pool of GE Deferral Leases on the same basis
and using the same methodology as originally used to calculated Schedule V
as in effect on the date hereof.

 

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

 

“Persons” or “persons”
means individuals, firms, partnerships, joint ventures, trusts, trustees,
Governmental Authorities, organizations, associations, corporations, limited
liability companies or any committees, departments, authorities and other
bodies thereof, corporate or incorporate, whether having distinct legal status
or not, or any member of any of the same.

 

“Pledged Spare Parts” has the
meaning specified in the Subordinated Spare Parts Mortgage.

 

“Reference Banks” means (a) Deutsche Bank, (b)
Citibank, N.A., (c) JPMorgan Chase Bank, and (d) such other bank or banks as
may from time to time be agreed by the IAI and the Collateral Agent.

 

“Roll-Up Date”
means March 31st, June 30th, September 30th
and December 31st of each year, commencing with March 31, 2005.

 

“Senior Mortgages”
has the meaning specified in the Loan Agreement.

 

“Spare Parts Collateral” means all of the Pledged Spare Parts and such
other items as are included within the definition of “Collateral” in the
Subordinated Spare Parts Mortgage.

 

“Spare Parts Documents” has the
meaning specified in the Subordinated Spare Parts Mortgage.

 

“Subordinated Engine Mortgage” means the
Subordinated Engine Mortgage and Security Agreement dated as of the date hereof
between IAI and the Collateral Agent, as supplemented by Mortgage Supplement
No. 1 thereto pursuant to which all of the Engines described on Schedule III
hereto are subjected to the Lien thereof and as the same may from time to time
be further supplemented, amended or modified.

 

“Subordinated Mortgages” means,
collectively, the Subordinated Engine Mortgage and the Subordinated Spare Parts
Mortgage.

 

6

 

“Subordinated Spare Parts Mortgage”
means the Subordinated Spare Parts Mortgage and Security Agreement dated as of
the date hereof between IAI and the Collateral Agent, as the same may from time
to time be supplemented, amended or modified.

 

“Subsidiary”
means, as to any Person, any other Person of which at least a majority of the
voting stock (or equivalent equity interests) is owned or controlled by such first
Person and/or by one or more other Subsidiaries of such first Person.

 

“Taxes” means
all taxes, charges, fees, levies or other assessments (including income, gross
receipts, profits, withholding, excise, property, sales, use, license,
occupation and franchise taxes and including any related interest, penalties or
other additions) imposed by any jurisdiction or taxing authority (whether
international, foreign or domestic).

 

“Transaction Documents” means,
collectively, this Agreement, the Guaranty, the Collateral Agent Agreement, the
Subordinated Engine Mortgage and the Subordinated Spare Parts Mortgage.

 

SECTION 1.2.        Other Definitions. 
Capitalized terms not defined herein shall have the respective meanings
set forth in the Subordinated Spare Parts Mortgage.

 

ARTICLE II

PAYMENT PROVISIONS AND OTHER COVENANTS OF OBLIGOR

 

SECTION 2.1.        Payment Agreement.

 

(a)           The
Obligor, as primary obligor and not as surety, hereby agrees to fully and
promptly pay to each Beneficiary the Guaranteed Amount when due to such Beneficiary
under the applicable IAI Transaction Document.

 

(b)           If the Obligor should fail to pay any
Guaranteed Amount (other than interest) when due in accordance with Section
2.1(a) hereof, for the purposes of determining the Guaranteed Amount hereunder,
and notwithstanding the provisions of the applicable IAI Transaction Document
for determining interest on amounts not paid by the Obligor when due, the rate
of interest payable on such Guaranteed Amount not paid when due shall be the
higher of (x) the rate per annum specified for such purpose in the applicable
IAI Transaction Document (notwithstanding any termination or rejection of such
IAI Transaction Document) and (y) the LIBOR Rate plus 4.75% (such higher
amount, the “Applicable Rate”); provided that Obligor shall be entitled
to a credit against any interest accruing hereunder to the extent that Obligor
actually pays interest under the applicable IAI Transaction Document to which
the unpaid Guaranteed Amount relates, so that the aggregate amount of interest
payable by Obligor in respect of the Guaranteed Amount (taking into account the
interest it actually pays under the applicable IAI Transaction Document to
which the unpaid Guaranteed Amount relates) equals, but does not exceed, the
Applicable Rate.  If a Guaranteed Amount
(other than interest) due hereunder and unpaid is no longer accruing interest
under an applicable IAI Transaction Document, then the Obligor shall pay
interest on such Guaranteed Amount on each Roll-Up Date to the applicable
Beneficiary at a rate equal to the Applicable Rate.  If any amount of accrued 

 

7

 

interest payable in accordance with the immediately
preceding sentence is not paid on a Roll-Up Date, then such amount shall be
added to the applicable Guaranteed Amount on such Roll-Up Date.

 

(c)           The
Obligor further agrees to pay on demand all reasonable and actual costs and
expenses of the Collateral Agent and the Beneficiaries, if any (including,
without limitation, reasonable counsel fees and expenses), in connection with
the enforcement (whether through negotiations, legal proceedings or otherwise)
of the Transaction Documents (including, without limitation, reasonable fees
and expenses of one counsel for the Collateral Agent and one counsel for all of
the Beneficiaries in connection with the enforcement of their rights under the
Transaction Documents).

 

(d)           This
agreement constitutes a continuing, irrevocable, absolute and unconditional
agreement to make payment of each Guaranteed Amount when due (and not of
collection), and the Obligor specifically agrees that it shall not be necessary
or required that any Beneficiary exercise any right, assert any claim or demand
or enforce any remedy whatsoever against any Person before or as a condition to
the enforcement of its obligations hereunder. 
If a Beneficiary receives an amount in payment of any Guaranteed Amount
under an IAI Transaction Document after it has received payment of such
Guaranteed Amount under this Agreement and all other Guaranteed Amounts then
due and payable, it shall hold such amount in trust for the benefit of the
Obligor and promptly pay such amount to the Obligor.  If a Beneficiary receives a payment of a
Guaranteed Amount under this Agreement, the Obligor shall be subrogated to the
Beneficiary’s claims under the IAI Transaction Documents relating to that
payment; provided that right of subrogation shall be subject and
subordinate to the Beneficiary’s rights under the IAI Transaction Documents
until all of the Guaranteed Amounts then due and payable have been paid in
full.

 

SECTION 2.2.        Reinstatement, etc. 
The Obligor agrees that this Agreement shall continue to be effective or
be reinstated, as the case may be, if at any time any payment (in whole or in
part) of any portion of the Guaranteed Amount is invalidated, declared to be
fraudulent or preferential, set aside, rescinded or must otherwise be restored
by the Beneficiaries or the Collateral Agent, including upon the insolvency,
bankruptcy or reorganization of the Obligor or otherwise, all as though such
payment had not been made.

 

SECTION 2.3.        Waiver, etc. 
The Obligor hereby waives (i) promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed Amount
and (ii) any requirement that any Beneficiary or the Collateral Agent protect,
secure, perfect or insure any security interest or Lien, or any property
subject thereto, or exhaust any right or take any action against any Person
(including any other obligor) or entity or any collateral securing the
Guaranteed Amount.

 

SECTION 2.4.        Withholding Taxes.   Notwithstanding any other provision of this
Agreement, if the Obligor determines that any Indemnified Tax is required to be
deducted or withheld from any Guaranteed Amount payable by the Obligor
hereunder, (i) the amount payable by the Obligor shall be increased by the
amount of such Indemnified Tax so that the net amount actually received by the
applicable Beneficiary (after reduction for all Indemnified Taxes and all other
Taxes payable by such Beneficiary by reason of the receipt or accrual of such
increased 

 

8

 

amount) equals the
amount that would have been received by such Beneficiary if no such Indemnified
Tax had been imposed, (ii) the Obligor shall pay any amount deducted or
withheld to the appropriate taxing authority, (iii) the Obligor shall notify as
soon as practicable the Beneficiary of such deduction or withholding and the
amount thereof and (iv) the Obligor shall provide to the Beneficiary such
statements or receipts as are reasonably satisfactory to the Beneficiary
evidencing payment of such Indemnified Tax. 
As used in this Section 2.4 the term “Indemnified Tax” means any
Tax required to be deducted or withheld from any Guaranteed Amount payable
pursuant to this Agreement to a Beneficiary to the extent such Tax
(a) would not have been imposed on the Beneficiary or withheld from
payments to the Beneficiary if the Obligor had paid the amount required to be
paid by the Obligor under the IAI Transaction Document in respect of which the
Guaranteed Amount is payable, or (b) is a Tax that the Beneficiary would
have been indemnified against by the Obligor pursuant to the applicable IAI
Transaction Documents if this Agreement were a IAI Transaction Document and
amounts payable pursuant to this Agreement were subject to the “general tax
indemnity” provisions of such IAI Transaction Documents.  If the Obligor has paid, or is required to
pay, any amount pursuant to this Section 2.4, the provisions, if any, in
the applicable IAI Transaction Documents regarding the applicable Beneficiary’s
obligation to contest indemnified Taxes and to pay to the Obligor refunds of
indemnified Taxes and savings in respect of Taxes resulting from the payment of
indemnified Taxes shall apply mutatis  mutandis to such
Beneficiary and the Obligor in respect of Indemnified Taxes and amounts payable
under this Section 2.4.

 

SECTION 2.5.        Other Taxes. 
The Obligor shall pay all transfer, stamp, documentary or other similar
taxes, assessments and charges which may be payable in respect of the
execution, delivery, performance, filing, recording or enforcement of the
Transaction Documents or of any amendment of, or waiver or consent under or
with respect to, the Transaction Documents and will hold each Beneficiary
harmless against loss or liability resulting from nonpayment or delay in
payment of any such tax required to be paid by the Obligor.

 

SECTION 2.6.      Provision of Acceptable
Collateral.  In
connection with any exercise by the Obligor of its right under Section 1.1(c)
of the Loan Agreement to make a prepayment of the Loans, the Obligor shall
enter into such security arrangements as the Collateral Agent, in its
reasonable discretion, deems acceptable to provide Acceptable Collateral in an
amount equal to the Maximum Deferral Amount determined as of the date of such
prepayment, and providing for periodic adjustment to reflect the Maximum
Deferral Amount in effect from time to time, as security for the payment and
performance by the Obligor of the GE Deferral Lease Obligations, which
arrangements shall provide that such Acceptable Collateral shall remain in
place for so long as the Subordinated Mortgages would have remained in place
pursuant to the terms thereof in the absence of any prepayment of the Loans
pursuant to Section 1.1(c) of the Loan Agreement.

 

SECTION 2.7.      LDTV Ratio.  The Obligor hereby expressly
acknowledges that it has agreed that it may not voluntarily prepay the Loans
unless it fulfills its obligations under Section 2.6 above and that such
agreement is of the essence of the transactions contemplated by the Transaction
Documents and by the Loan Agreement and the “Transaction Documents” as defined
therein.  If Acceptable Collateral has
not been provided under Section 2.6 above and for any reason the Loans are
prepaid in full at any time prior to the Maturity Date (other than prepayments
pursuant to the requirements of Section 1.1(d) of the Loan Agreement), then the

 

9

 

Obligor hereby expressly acknowledges and
agrees that, unless and until the Liens of both Subordinated Mortgages shall
have been released in accordance with their respective terms,  the Obligor’s covenant in respect of the LDTV
Ratio set forth in Section 4.1(f) of the Loan Agreement, together with all
related definitions and provisions in the Loan Agreement and the Senior
Mortgages (including, without limitation, the provisions thereof governing the
release of Collateral when the LDTV Ratio is satisfied), shall be deemed to be
incorporated by reference as though set forth in full herein and the Obligor
shall be bound by all of the terms thereof, mutatis mutandis, as though
references therein to the “Borrower” shall be deemed to be references to the
Obligor and references therein to the “Administrative Agent” shall be deemed to
be references to the Collateral Agent.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

SECTION 3.1.        Representations and Warranties.  The Obligor represents and warrants to each
Beneficiary and the Collateral Agent as set forth below.

 

(a)           Organization;
Powers.  The
Obligor is (i) duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation, (ii) is qualified to do business
in, and is in good standing in, every jurisdiction where such qualification is
required, except where the failure to be so qualified would not result in
losses or liabilities which could reasonably be expected to have a Material
Adverse Effect, (iii) has all requisite corporate power and authority to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease and to carry on its business as now conducted
or proposed to be conducted.  The Obligor’s
name as it appears in its Articles of Incorporation, its jurisdiction of
incorporation, its organizational identification number in its jurisdiction of
incorporation, and its federal employer identification number are as follows:

 

	
  Name

  	
   

  	
  Jurisdiction of

  Incorporation

  	
   

  	
  Organizational ID

  No.

  	
   

  	
  F.E.I.N.

  
	
  Independence
  Air, Inc.

  	
   

  	
  California

  	
   

  	
  C1654054

  	
   

  	
  77-0291749

  

 

(b)           Authorization;
Enforceability. 
The execution and delivery of the Transaction Documents to which it is a
party by the Obligor and the performance by the Obligor of its obligations
thereunder are within the Obligor’s corporate powers, have been duly authorized
by all necessary corporate action of Obligor and do not require any stockholder
approval, or approval or consent of any trustee or holder of indebtedness or
obligations of the Obligor except such as have been duly obtained.  This Agreement has been duly executed and
delivered by the Obligor and the other Transaction Documents to which the
Obligor is a party will be duly executed and delivered by the Obligor when
required by this Agreement.  This
Agreement constitutes, and each of the other Transaction Documents to which the
Obligor is a party when executed and delivered by the Obligor will constitute,
a legal, valid and binding obligation of the Obligor, enforceable against the
Obligor in accordance with its terms, subject to 

 

10

 

applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.

 

(c)           No
Violation.  The execution and
delivery by the Obligor of the Transaction Documents to which it is a party and
the performance by the Obligor of its obligations thereunder do not and will
not (a) violate any provision of the Articles of Incorporation or By-Laws
of the Obligor, (b) violate any law applicable to or binding on the
Obligor or (c) violate or constitute any default under, or result in the
creation of any Lien (other than as permitted under the Subordinated Mortgages)
upon any Collateral under, any indenture, mortgage, chattel mortgage, deed of
trust, conditional sales contract, lease, loan or other material agreement,
instrument or document to which the Obligor is party or by which the Obligor or
any of its properties is bound.

 

(d)           Governmental Approvals.  The execution and
delivery by the Obligor of the Transaction Documents to which it is a party and
the performance by the Obligor of its obligations thereunder do not and will
not require the consent or approval of, or the giving of notice to, or the
registration with, or the recording or filing of any documents with, or the
taking of any other action in respect of, any Governmental Authority, other
than the filings described in paragraph (g) hereof.

 

(e)           Licenses,
Permits, etc.  The Obligor is a
Certificated Air Carrier and holds all licenses, permits and franchises from
the appropriate Governmental Authorities necessary to authorize the Obligor to
lawfully engage in air transportation and to carry on scheduled commercial
passenger service as currently conducted, except where the failure to so hold
any such license, permit or franchise would not have a Material Adverse Effect.

 

(f)            Compliance
with Laws.  Each of the Obligor and
its Subsidiaries is in compliance with all laws, regulations and orders of any
governmental or regulatory authority or agency applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.

 

(g)           Filings.  Except for (i) the
filing for recordation (and recordation) with the FAA of the Subordinated
Mortgages, and (ii) the filing of one or more Uniform Commercial Code
financing statements naming the Obligor as debtor and the Collateral Agent as
secured party and describing the Collateral with the Secretary of State of the
State of California (UCC Division) (and continuation statements relating
thereto at periodic intervals), no further action, including any filing or
recording of any document (including any financing statement in respect thereof
under Article 9 of the UCC) is necessary in order to establish and perfect the
Collateral Agent’s security interest created under the Subordinated Mortgages
in the Collateral as against the Obligor and any other Person, in each case, in
any applicable jurisdiction in the United States.

 

(h)           Section
1110.  The Collateral Agent is
entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to
the Engines, Engine Documents, Pledged Spare Parts (other than the Identified
Spare Parts) and Spare Parts Documents (other than the Spare 

 

11

 

Parts
Documents relating to the Identified Spare Parts) in the event of a case under
Chapter 11 of the Bankruptcy Code in which Obligor is a debtor.

 

ARTICLE IV

INDEMNITY 

Section 4.1.            Indemnity Obligation. 
The Obligor agrees to indemnify and hold harmless on a net after-tax basis
each of (i) GECC (in its capacity as Collateral Agent and otherwise),
(ii) each Beneficiary and (iii) each of their respective successors
and permitted assigns in such capacities, agents, servants, officers, employees
and directors (hereinafter in this Article IV referred to individually as
an “Indemnitee,” and collectively as “Indemnitees”) against any
and all liabilities, obligations, losses, damages, penalties, claims, demands,
actions, suits, judgments and any and all costs and expenses (including reasonable
attorneys’ fees, disbursements and other charges) (for the purposes of this
Article IV the foregoing are collectively called “Losses”) of
whatsoever kind and nature imposed on or incurred or suffered by any of the
Indemnitees in any way relating to, or arising out of, or by reason of any
investigation, litigation, or other proceedings (including any threatened
investigation, assertion of a claim or demand for Losses, litigation or other
proceedings) relating to the Subordinated Mortgages or the exercise or
enforcement by the Collateral Agent of any of the terms, rights, or remedies
hereunder, or in any way relating to or arising out of the manufacture,
ownership, ordering, purchase, delivery, control, acceptance, lease,
possession, operation, condition, sale, return or other disposition, or use of
the Collateral (including latent or other defects, whether or not
discoverable), the violation of an Applicable Law with respect to or arising
otherwise in connection with the Collateral, or any tort (including 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) with respect to or arising otherwise in connection with the Collateral
(but excluding any such Losses to the extent consisting of Taxes or to the
extent incurred by reason of (i) the gross negligence or willful misconduct of
such Indemnitee or (ii) breaches by such Indemnitee of any IAI Transaction
Document to which it is a party).

 

Section 4.2.            Payments; Interest.  
Any amount payable to any Indemnitee on account of a Loss shall be paid
within 30 days after receipt by the Obligor of a written demand therefor from
such Indemnitee accompanied by a written statement describing in reasonable
detail the Loss that are the subject of and basis for such indemnity and the
computation of the amount payable.  Any
payments made pursuant to this Section 4.2 directly to an Indemnitee or to the
Obligor, as the case may be, shall be made in immediately available funds at
such bank or to such account as is specified by the payee in written directions
to the payor or, if no such directions are given, by check of the payor payable
to the order of the payee and mailed to the payee by certified mail, return
receipt requested, postage prepaid to its address referred to in Section
6.3.  To the extent permitted by
Applicable Law, interest at a rate per annum equal to the Default Interest Rate
shall be paid, on demand, on any amount or indemnity not paid when due pursuant
to this Section 4.2 until the same is paid. 
Such interest shall be paid in the same manner as the unpaid amount in
respect of which such interest is due.

 

12

 

ARTICLE V

AGREEMENTS 

OF THE BENEFICIARIES

 

SECTION 5.1.        Quiet Enjoyment. 
Each Beneficiary and the Collateral Agent agrees as to itself with the
Obligor that, so long as no Event of Default shall have occurred and be
continuing, such person shall not (and shall not permit any of its Affiliates
or other person claiming by, through or under it to) take or cause to be taken
any action contrary to the Obligor’s right to quiet enjoyment of the
Collateral, and to possess, use, retain and control the Collateral and all
revenues, income and profits derived therefrom without hindrance.

 

SECTION 5.2.        Agreements under Subordinated Mortgages.  Each Beneficiary agrees to comply with its
obligations under the Subordinated Mortgages.

 

SECTION 5.3.        Ceasing
to be a GE Affiliate.  If any
Beneficiary shall cease to be a GE Affiliate, it shall thereupon cease to have
any rights under this Agreement and the other Transaction Documents, including
any right to any payment hereunder whether or not such payment became due
hereunder prior to the time that it ceased to be a GE Affiliate.  The foregoing shall in no way limit the
rights of a Beneficiary under the IAI Transaction Documents.

 

ARTICLE VI

MISCELLANEOUS PROVISIONS

 

SECTION 6.1.        Binding
on Successors and Assigns; Assignment of Agreement.  This Agreement shall be binding upon and
inure to the benefit of each party hereto and its respective successors and
permitted assigns; provided, however, that the Obligor may not
assign any of its obligations hereunder without the prior written consent of
the Beneficiaries, and no Beneficiary may assign any of its rights or
obligations hereunder except, in connection with an assignment of such
Beneficiary’s interest under any IAI Transaction Documents, to the assignee of
such interest that is a GE Affiliate.

 

SECTION 6.2.        Amendments, etc. 
No amendment to or waiver of any provision of this Agreement, nor
consent to any departure by the Obligor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Beneficiaries
and the Obligor, and any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

 

SECTION 6.3.        Notices.    All
notices, requests and other communications provided for in this Agreement shall
be given or made in writing and delivered by hand or courier service, mailed by
certified or registered mail or sent by telecopy to the intended recipient as
specified below or, as to any party, at such other address as is designated by
that party in a notice to each other party. 
Except as otherwise provided in this Agreement, all
such communications shall be deemed to have been duly given or made upon
receipt.

 

13

 

	
  To
  Obligor:

  	
  Independence
  Air, Inc.

  45200 Business Court, Suite 100

  Dulles, Virginia  20166

  Attention:              General Counsel

  Telephone:            (703) 650-6006

  Telecopy:              (703) 650-6294

  Email:                      rick.kennedy@flyi.com

  
	
   

  	
   

  
	
  To
  the Beneficiaries:

  	
  General
  Electric Capital Corporation

  c/o GE Capital Aviation Services, Inc.

  201 High Ridge Road

  Stamford, CT  06927

  

  Attention:              Customer Services

  Telephone:            (203) 357-3776

  Telecopy:              (203) 357-3201

  Email:                      Nanotices@gecas.com

  
	
   

  	
   

  
	
  To
  Collateral Agent:

  	
  General
  Electric Capital Corporation

  c/o GE Capital Aviation Services, Inc.

  201 High Ridge Road

  Stamford, CT  06927

  

  Attention:              Customer Services

  Telephone:            (203) 357-3776

  Telecopy:              (203) 357-3201

  Email:                      Nanotices@gecas.com

  

 

SECTION 6.4.        No Waiver;
Remedies.  No failure on the part of
any party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. 
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

 

SECTION 6.5.        Section Captions.  Section captions used in this Agreement
are for convenience of reference only and shall not affect the construction of
this Agreement.

 

SECTION 6.6.        Severability.  
Any provision of this Agreement 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 6.7.        Entire Agreement. 
This Agreement, the Subordinated
Mortgages and the other Transaction Documents constitute the entire
understanding among the parties hereto 

 

14

 

with respect to the subject matter hereof and supersede any prior agreements,
written or oral, with respect thereto.

 

SECTION 6.8.        Counterparts. 
This Agreement may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement.

 

SECTION 6.9.        Governing Law; Submission to Jurisdiction; Venue.

 

(a)           This
Agreement and the rights and obligations of the parties hereunder and
thereunder shall be construed in accordance with and be governed by the laws of
the State of New York.  Any legal action
or proceeding with respect to this Agreement may be brought in the courts of
the State of New York or the United States for the Southern District of New
York located in the Borough of Manhattan, and, by execution and delivery of
this Agreement, each party hereto hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts.  Each party hereto
hereby further irrevocably waives any claim that any such courts lack
jurisdiction over such party, and agrees not to plead or claim, in any legal
action or proceeding with respect to this Agreement brought in any of the
aforesaid courts, that any such court lacks jurisdiction over such party.  Each party hereto further irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at its address specified pursuant to
Section 6.3, such service to become effective 30 days after such
mailing.  Nothing herein shall affect the
right of any party hereto to serve process in any other manner permitted by law
or to commence legal proceedings or otherwise proceed against any other party
hereto in any other jurisdiction.

 

(b)           Each
party hereto hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
courts referred to in clause (a) above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.

 

SECTION 6.10.      WAIVER OF TRIAL BY JURY.  TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF, OR IN CONNECTION WITH, ANY
TRANSACTION DOCUMENT OR ANY MATTER ARISING THEREUNDER.

 

SECTION 6.11       Engine
Reports.  The Obligor shall, by the
tenth Business Day of March, June, September and December of each year,
commencing with such date in March of 2005, furnish to the Collateral Agent an
Officer’s Certificate of the Obligor stating, with respect to each Engine as of
the last day of the calendar month immediately preceding the date of such
Officer’s Certificate (each such Officer’s Certificate being sometimes referred
to herein as an “Engine Report”): (A) if such Engine is then installed
on an airframe, the Obligor’s tail number of such airframe, or, if not so
installed, the status (e.g., in storage, undergoing overhaul, etc.) and
location of such Engine, (B) the hours and cycles of operation of such
Engine since new and 

 

15

 

since
its last major overhaul, and (C) the most limiting life limited part on such
engine, (the “limiter”), and the cycles remaining on such limiter.

 

SECTION 6.12       Confidentiality.  Neither the Collateral Agent nor any
Beneficiary shall disclose any nonpublic information relating to the Obligor
(provided to it by the Obligor) or any Transaction Document to any other Person
without the consent of the Obligor, other than (a) to such Collateral Agent’s
or Beneficiary’s Affiliates and its officers, directors, employees, agents and
advisors and, as contemplated by Section 6.1, to actual or prospective
assignees, and then, in all such cases, only with an undertaking by the party
to whom such information is disclosed to keep such information confidential,
(b) as required by any law, rule or regulation or judicial process, (c) as
requested or required by any state, federal or foreign authority or examiner
regulating banks or banking, and (d) to the extent reasonably necessary in
connection with any dispute related to, or enforcement of, the Transaction
Documents.

 

Notwithstanding
anything to the contrary set forth herein or in any other agreement to which
the parties hereto are parties or by which they are bound, the obligations of
confidentiality contained herein and therein, as they relate to the
transactions described in the Transaction Documents (the “Transaction”),
shall not apply to the U. S. federal tax structure or U. S. federal tax
treatment of the Transaction, and each party hereto (and any employee,
representative, or agent of any party hereto) may disclose to any and all
persons, without limitation of any kind, the U. S. federal tax structure and U.
S. federal tax treatment of the Transaction. 
The preceding sentence is intended to cause the Transaction to be treated
as not having been offered under conditions of confidentiality for purposes of
Section 1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations
promulgated under Section 6011 of the Internal Revenue Code of 1986, as
amended, and shall be construed in a manner consistent with such purpose.  In addition, each party hereto acknowledges
that it has no proprietary or exclusive rights to the U. S. federal tax
structure of the Transaction or any U. S. federal tax matter or U. S. federal
tax idea related to the Transaction.

 

[Signature
page follows]

 

16

 

IN WITNESS WHEREOF, each
party hereto has caused this Agreement to be duly executed and delivered by its
officer thereunto duly authorized as of the date first above written.

 

 

	
   

  	
  INDEPENDENCE AIR, INC.,

  
	
   

  	
   as Obligor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GENERAL ELECTRIC
  CAPITAL

  CORPORATION, as Collateral Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

	
   

  	
  BENEFICIARIES:

  
	
   

  	
   

  
	
   

  	
  GENERAL ELECTRIC
  CAPITAL

  CORPORATION, as Beneficiary

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WINDY CITY HOLDINGS,
  INC.,

  
	
   

  	
    as Beneficiary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AFS INVESTMENTS XI,
  INC., as Beneficiary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AFS
  INVESTMENTS XLI LLC, as Beneficiary,by

  its member, AFS Investments XLI, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  AFS INVESTMENTS XLII
  LLC, as Beneficiary,

  by its member, AFS Investments XLII, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Schedule I

 

BENEFICIARIES

 

1.             General
Electric Capital Corporation

 

2.             Windy
City Holdings, Inc.

 

3.             AFS
Investments XI, Inc.

 

4.             AFS
Investments XLI LLC

 

5.             AFS
Investments XLII LLC

 

I-1

 

Schedule II

 

CERTAIN INFORMATION

 

1.             Certain Definitions:

 

“Maximum Deductible Amount” as used in (1) the
Subordinated Spare Parts Mortgage means the standard market spares deductible
in existence from time to time in the worldwide airline insurance marketplace,
but in no event greater then $100,000, any one occurrence, and (2) the
Subordinated Engine Mortgage, $250,000.

 

“Minimum Liability Amount” means $[***].

 

“Threshold Amount” means $[***].

 

2.             Additional
Agreement Concerning Insurance:  The Collateral Agent and the Obligor hereby
expressly agree that, if General Electric Capital Corporation or any of its
Affiliates are at any time permitting, as a discretionary matter, lower amounts
or lesser scope of War Risk Insurance than the amounts and scope of such
insurance required under paragraph B.1 of Appendix B to the Subordinated Engine
Mortgage for carriers similarly situated to the Obligor, the Obligor shall
receive comparable treatment from the Collateral Agent in its capacity as
Secured Party under the Subordinated Engine Mortgage.

 

II-1

 

Schedule III

 

ENGINES

 

 

	
  Engine Type

  	
   

  	
  Engine S/N

  	
   

  	
  Termination Value

  
	
  CF34-3B1

  	
   

  	
  GE-E-950191

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-872483

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-873416

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-950192

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-873044

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-950205

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-873689

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-872207

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-873155

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-950229

  	
   

  	
  $

  	
  [***]

  
	
  CF34-3B1

  	
   

  	
  GE-E-872232

  	
   

  	
  $

  	
  [***]

  

 

 

“Engine
Containers” means the
eleven (11) engine containers bearing manufacturer’s serial numbers 9661, 073,
076, 9684, 054, 039, 9688, 9715, 051, 02571 and 9675.

 

III-1

 

Schedule IV

 

GE DEFERRAL LEASES

 

1.             Lease Agreement [***] dated as of July 22,
1998 between Wachovia Bank, National Association, as successor by merger to
First Union National Bank, as owner trustee, as lessor, and Independence Air,
Inc., formerly known as Atlantic Coast Airlines, as lessee.

 

2.             Lease Agreement [***] dated as of July 31,
2001 between Wachovia Bank, National Association, as successor by merger to
First Union National Bank, as owner trustee, as lessor, and Independence Air,
Inc., formerly known as Atlantic Coast Airlines, as lessee.

 

3.             Lease Agreement [***] dated as of July 31,
2001 between Wachovia Bank, National Association, as successor by merger to
First Union National Bank, as owner trustee, as lessor, and Independence Air,
Inc., formerly known as Atlantic Coast Airlines, as lessee.

 

4.             Lease Agreement [***] dated as of July 31,
2001 between Wachovia Bank, National Association, as successor by merger to
First Union National Bank, as owner trustee, as lessor, and Independence Air,
Inc., formerly known as Atlantic Coast Airlines, as lessee.

 

5.             Lease Agreement [***] dated as of July 31,
2002 between Wachovia Bank, National Association, as owner trustee, as lessor,
and Independence Air, Inc., formerly known as Atlantic Coast Airlines, as
lessee.

 

6.             Lease Agreement [***] dated as of July 31,
2002 between Wachovia Bank, National Association, as owner trustee, and, as
lessor, and Independence Air, Inc., formerly known as Atlantic Coast Airlines,
as lessee.

 

7.             Lease Agreement [***] dated as of September
12, 2002 between Wachovia Bank, National Association, as owner trustee, as
lessor, and Independence Air, Inc., formerly known as Atlantic Coast Airlines,
as lessee.

 

8.             Lease Agreement [***] dated as of September
13, 2002 between Wachovia Bank, National Association, as owner trustee, as
lessor, and Independence Air, Inc., formerly known as Atlantic Coast Airlines,
as lessee.

 

9.             Lease Agreement [***] dated as of October 18,
2002 between Wachovia Bank, National Association, as owner trustee, as lessor,
and Independence Air, Inc., formerly known as Atlantic Coast Airlines, as
lessee.

 

10.           Lease Agreement [***] dated as of October 23,
2002 between Wachovia Bank, National Association, as owner trustee, as lessor,
and Independence Air, Inc., formerly known as Atlantic Coast Airlines, as
lessee.

 

11.           Lease Agreement [***] dated as of November
13, 2002 between Wachovia Bank, National Association, as owner trustee, as
lessor, and Independence Air, Inc., formerly known as Atlantic Coast Airlines,
as lessee.

 

IV-1

 

12.           Lease Agreement [***] dated as of November
26, 2002 between Wachovia Bank, National Association, as owner trustee, as
lessor, and Independence Air, Inc., formerly known as Atlantic Coast Airlines,
as lessee.

 

13.           Lease Agreement [***] dated as of December 4,
2002 between Wachovia Bank, National Association, as owner trustee, as lessor,
and Independence Air, Inc., formerly known as Atlantic Coast Airlines, as
lessee.

 

IV-2

 

Schedule V

 

GE
DEFERRAL AMOUNT

 

V-1

 

Schedule VI

 

MAXIMUM
DEFERRAL AMOUNT

 

VI-1Exhibit 10.55

 

as
of February    , 2005

 

Form of Equity Issuance
Agreement

 

A form of Equity Issuance
Agreement substantially in this format will be provided to certain lessors and
lenders.

 

Ladies
and Gentlemen:

 

This
letter agreement (the “Agreement”) supplements one or more Agreement to
Amend Operative Documents (“AAOD”) executed by the parties.  In consideration for the agreements of the
undersigned [Owner/Loan] Participant (as defined in the AAOD) (“Beneficiary”)  set forth in the AAOD, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, FLYi, Inc. (“FLYi”) and Beneficiary agree as follows.
Capitalized terms that are not defined in this Agreement shall have the
meanings given to them in the AAOD.

 

Section 1.                                          Issuance of Shares.

 

Subject to the (a) effectiveness of the AAOD and (b) satisfaction
of any requirements of the Nasdaq National Market (“Nasdaq”), FLYi
shall, not later than fifteen days after the Restructuring Date deliver to the
Beneficiary the number of shares of common stock of FLYi set forth on the
attached Schedule 1 (the “Shares”).

 

Section 2.                                          Representations and
Warranties.

 

(a)                                  FLYi represents and warrants that as of the
date of this Agreement and as of the Restructuring Date:

 

(i)                                     the execution, delivery and performance of this
Agreement by FLYi have been duly authorized by all necessary corporate action
on the part of FLYi;

 

(ii)                                  this Agreement has been duly executed and delivered
by FLYi, and constitutes the legal, valid and binding obligation of FLYi,
enforceable against FLYi in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by general principles of
equity;

 

(iii)                               the
issuance of the Shares hereunder has been duly authorized by all necessary
corporate action on the part of FLYi, and

 

(iv)                              when
delivered to the Beneficiary in accordance with this Agreement, the Shares will
be duly and validly issued and fully paid and non-assessable and not subject to
any preemptive or other similar rights.

 

(b)                                 The Beneficiary represents and warrants that
as of the date of this Agreement and as of the Restructuring Date:

 

 

(i)                                     the execution, delivery and performance of this Agreement
by the Beneficiary have been duly authorized by all necessary corporate action,
limited liability company action, partnership action or banking or trust
company action, as the case may be, on the part of the Beneficiary; and

 

(ii)                                  this Agreement has been duly executed and delivered
by the Beneficiary and constitutes the legal, valid and binding obligation of
Beneficiary, enforceable against the Beneficiary in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the rights of creditors generally and by
general principles of equity.

 

(c)                                  The Beneficiary:

 

(i)                                     represents that it is acquiring the Shares for its
own account or for an account with respect to which it exercises sole
investment discretion, and that it or such account, as the case may be, is an “accredited
investor” within the meaning of Rule 501(a) (1), (2), (3) or (7) under
the Securities Act (an “Institutional Accredited Investor”) or a “qualified
institutional buyer” within the meaning of Rule 144A;

 

(ii)                                  represents that it is acquiring the Shares for
investment purposes and not with a view to distribution thereof;

 

(iii)                               acknowledges
that the Shares are being offered in a transaction not involving any public
offering within the meaning of Section 4(2) of the Securities Act,
have not been registered under the Securities Act and may be re-offered,
resold, pledged or otherwise transferred only as permitted in paragraph (iv) below;

 

(iv)                              agrees
that (A) it will not re-offer, resell, pledge or otherwise transfer
Shares, other than (1) in a transaction entitled to an exemption from
registration provided by Rule 144 under the Securities Act (if available),
(2) in an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act, (3) to an Institutional Accredited
Investor pursuant to any other exemption from the registration requirements of
the Securities Act, subject in each case to the receipt by FLYi (I) from
the proposed transferee of a letter substantially in the form of this Section 2(c) and
(II) from the transferor of such other evidence as FLYi may request
(including presentation of an opinion from transferor’s
counsel, which opinion must be reasonably acceptable to FLYi) to the effect that such re-offer, resale, pledge
or transfer is exempt from registration under the Securities Act and in
compliance with other applicable laws, or (4) pursuant to a registration
statement as described in Section 3 hereof; and (B) it will, and each
subsequent holder is required to, notify any purchaser, pledgee or other
transferee of the Shares from it of the resale restrictions referred to in the
preceding clause (A);

 

 

(v)                                 acknowledges that the certificate representing the
Shares will bear the following legend:

 

 “THE HOLDER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ACKNOWLEDGES THAT SUCH SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND
AGREES THAT (A) IT WILL NOT RE-OFFER, RESELL, PLEDGE OR OTHERWISE TRANSFER
SUCH SECURITIES OTHER THAN (1) IN A TRANSACTION ENTITLED TO AN EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
(2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL “ACCREDITED INVESTOR”
WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT PURSUANT TO ANY OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT IN EACH CASE TO THE RECEIPT BY
FLYI, INC., (I) FROM THE PROPOSED TRANSFEREE OF A LETTER CERTIFYING THAT
SUCH PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR ACQUIRING THE
SECURITIES FOR ITS OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO
DISTRIBUTION THEREOF AND CONTAINING CERTAIN OTHER CERTIFICATIONS,
REPRESENTATIONS AND AGREEMENTS SET FORTH IN THE AGREEMENT DATED AS OF FEBRUARY __,
2005, BETWEEN FLYI, INC., AND THE BENEFICIARY AND (II) FROM THE
TRANSFEROR SUCH OTHER EVIDENCE AS FLYI, INC., MAY REQUEST (INCLUDING
PRESENTATION OF AN OPINION FROM TRANSFEROR’S COUNSEL, WHICH OPINION MUST BE
REASONABLY ACCEPTABLE TO FLYI) TO THE EFFECT THAT SUCH RE-OFFER, RESALE, PLEDGE
OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND IN COMPLIANCE
WITH OTHER APPLICABLE LAWS, OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT; AND (B) IT WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER, PLEDGEE OR OTHER TRANSFEREE OF
SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN THE PRECEDING
CLAUSE (A).”;

 

(vi)                              represents
that it (A) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Shares; (B) has had the opportunity to ask questions of FLYi about,
and to receive to its satisfaction information about, the business and
financial condition of FLYi; (C) is fully capable of understanding and
evaluating the risks associated with the ownership of the Shares; (D) has
the ability to bear the economic risks of an investment in the Shares; and (E) is
capable of and understands that it may be required to bear the financial risks
of an investment in the Shares for an indefinite period of time; and

 

 

(vii)                           acknowledges
that FLYi will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements, and agrees that if any of
such acknowledgements, representations and agreements is no longer accurate, it
will promptly notify FLYi.

 

Section 3.                                          Registration of the
Shares.

 

(a)                                  FLYi shall prepare and, as soon as
practicable but in no event after May 16, 2005, file with the Securities
and Exchange Commission a registration statement on the applicable form (the “Registration
Statement”) covering the resale of the Shares.  FLYi shall use commercially reasonable
efforts to cause the Registration Statement (i) to be declared effective
under the Securities Act of 1933 (“Securities Act”), and (ii) to
continue the effectiveness of such Registration Statement until the earlier of (A) the
second anniversary of the date the Shares are issued or (B) the expiration
of the holding period under Rule 144(k) under the Securities Act that
would be applicable to a sale by a non-affiliate (as defined in Rule 144)
of FLYi.

 

(b)                                 Notwithstanding anything herein to the
contrary, FLYi may suspend availability of the Registration Statement and the
related prospectus for a discrete period of time, upon (i) issuance by the
SEC of a stop order suspending effectiveness of the Registration Statement or
the initiation of proceedings under Section 8(d) or 8(e) of the
Securities Act, (ii) occurrence of any event or the existence of any fact
as a result of which the Registration Statement may contain an untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, or (iii) the occurrence or
existence of any pending development that in the reasonable discretion of FLYi,
makes it appropriate to suspend the availability of the Registration Statement.

 

(c)                                  In the case of clause (b)(ii) above,
FLYi shall prepare as promptly as practicable a post-effective amendment to the
Registration Statement or supplement to the related prospectus or any document
incorporated therein or file any other document that would be incorporated
therein so that such Registration Statement does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made.

 

(d)                                 FLYi will use commercially reasonable best
efforts to ensure that the use of the Registration Statement and related
prospectus may be resumed (i) in the case of clause (b)(i) above, as
promptly as practicable, and (ii) in the case of clause (b)(ii) above,
as soon as, in the sole judgment of FLYi, public disclosure of such event or fact
would not be prejudicial to or contrary to the interests of FLYi or, if
necessary to avoid unreasonable burden or expense, as soon as practicable
thereafter and (z) in the case of clause (b)(iii) above, as soon as in the
reasonable discretion of FLYi, such suspension is no longer appropriate.

 

 

Section 4.                                          Notices.

 

All
notices relating to this Agreement shall be in writing, and given by U.S. mail,
courier service or facsimile or any other customary means of communication, and
any such notice shall be effective when delivered to the recipient thereof, to
its address (including email address or facsimile number, as the case may be)
set forth below its signature of this Agreement.

 

Section 5.                                          Miscellaneous.

 

(a)                                  This Agreement may be executed in counterparts.  Any counterpart may be executed by facsimile
signature and such facsimile signature shall be deemed an original.  Each counterpart of this Agreement including
a signature page executed by each of the parties hereto shall be an
original, but all of such counterparts together shall constitute one
instrument.

 

(b)                                 This Agreement, including all schedules,
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; provided that, notwithstanding the foregoing, the
provisions of the AAOD and any confidentiality agreement between the parties
entered into in connection with the transactions contemplated hereby shall
survive the execution and delivery of this Agreement.

 

(c)                                  The provisions of this Agreement may be
modified or amended only by an instrument or instruments in writing signed by
each party hereto.

 

Section 6.                                          Governing Law; Consent
to Jurisdiction; Waiver of Jury Trial.

 

(a)                                  THIS AGREEMENT 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 AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK.

 

(b)                                 Each of the parties hereto, to the extent it
may do so under applicable law, for purposes hereof, hereby (i) irrevocably
submits itself to the non-exclusive jurisdiction of the courts of the State of
New York sitting in the City of New York and the courts of the Commonwealth of
Virginia sitting in the County of Fairfax and to the non-exclusive jurisdiction
of the U.S. District Court for the Southern District of New York and the
Eastern District of Virginia, for the purposes of any suit, action or other
proceeding arising out of this Agreement, the subject matter hereof or thereof
or any of the transactions contemplated hereby or thereby brought by any party
or parties hereto or thereto, or their successors or permitted assigns and (ii) waives,
and agrees not to assert, by way of motion, as a defense, or otherwise, in any
such suit, action or proceeding, that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the

 

 

subject matter hereof or any of the transactions contemplated hereby
may not be enforced in or by such courts.

 

(c)                                  EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY OR THEREBY OR THE SUBJECT MATTER OF ANY OF THE FOREGOING.

 

[Signature pages follow immediately.]

 

 

The
parties hereto have signed this Agreement as of the date first written above.

 

	
   

  	
  Sincerely yours,

  
	
   

  	
   

  
	
   

  	
  FLYI,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  45200 Business Court

  
	
   

  	
  Dulles, Virginia 20166

  
	
   

  	
  Attn:

  	
  [        ]

  
	
   

  	
  Fax:

  	
  [(   )
      -       ]

  
	
   

  	
  Tel:

  	
  (703) 650-6000

  
	
   

  	
   

  
	
  Acknowledged and agreed:

  	
   

  
	
   

  	
   

  
	
   

  	
  (Beneficiary)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Attn:

  	
  [        ]

  	
   

  
	
  Fax:

  	
  [(    )    -       ]

  	
   

  
	
  Tel:

  	
  (     )
       -        

  	
   

  
								

 

 

	
   

  	
  Name
  of Beneficiary

  	
   

  	
  Number
  of Shares

  
	
   

  	
   

  	
   

  	
  [Insert # Shares]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}]]