CONFORMED COPY
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ENGINE SECURITY AGREEMENT
Dated as of December 30, ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇ AIRLINES CORPORATION,
as Borrower
and
FLEET CAPITAL CORPORATION,
as Lender
relating to
TWO (2) GENERAL ELECTRIC MODEL CF34-3B1 AIRCRAFT ENGINES
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TABLE OF CONTENTS
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Page
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ARTICLE 1. INTERPRETATION.................................................. 1
Section 1.01 Definitions.............................................. 1
Section 1.02 References............................................... 1
Section 1.03 Headings................................................. 1
ARTICLE 2. SECURITY INTEREST............................................... 1
Section 2.01 Security Interest........................................ 1
ARTICLE 3. INVESTMENT OF SECURITY FUNDS.................................... 3
Section 3.01 Investment of Security Funds............................. 3
ARTICLE 4. COVENANTS....................................................... 3
Section 4.01 Possession; Operation and Use; Maintenance; Title........ 3
(a) General.................................................. 3
(b) Possession............................................... 3
(c) Operation and Use........................................ 6
(d) Maintenance.............................................. 7
Section 4.02 Inspection............................................... 8
Section 4.03 Replacement and Pooling of Parts; Alterations,
Modification and Additions; Event of Loss................ 8
(a) Replacement of Parts..................................... 8
(b) Title to Parts........................................... 9
(c) Pooling of Parts Leasing................................. 9
(d) Alterations, Modifications and Additions................. 9
(e) Event of Loss with Respect to an Engine.................. 10
Section 4.04 Requisition for Use...................................... 12
Section 4.05 Insurance................................................ 13
(a) Public Liability and Property Damage Insurance........... 13
(b) Insurance Against Loss or Damage to the Engines.......... 14
(c) Additional Insureds; Loss Payment........................ 14
(d) Deductibles and Self-Insurance........................... 14
(e) Application of Insurance Proceeds........................ 15
(f) Insurance for Own Account................................ 15
(g) Reports, etc............................................. 16
(h) Right to Pay Premiums.................................... 16
(i) Certain Payments Held as Security........................ 16
Section 4.06 Liens.................................................... 17
Section 4.07 Recordation and Further Assurances....................... 17
(a) Recordation of this Agreement............................ 17
(b) Further Assurances....................................... 17
(c) Engine Warranty.......................................... 18
ARTICLE 5. EVENTS OF DEFAULT; REMEDIES..................................... 18
Section 5.01 Events of Default........................................ 18
Section 5.02 Remedies................................................. 18
Section 5.03 Application of Proceeds.................................. 20
Section 5.04 Lender May Purchase...................................... 20
ARTICLE 6. MISCELLANEOUS................................................... 21
Section 6.01 Notices.................................................. 21
Section 6.02 Waiver................................................... 21
Section 6.03 Amendments............................................... 21
Section 6.04 Successors and Assigns................................... 21
Section 6.05 Survival of Representations, Warranties and Covenants.... 21
Section 6.06 Severability............................................. 21
Section 6.07 Counterparts............................................. 21
Section 6.08 Setoff................................................... 22
Section 6.09 GOVERNING LAW............................................ 22
Schedule I Description of Engines
Appendix A Definitions
Exhibit A Security Agreement Supplement
Exhibit B List of Countries .
ENGINE SECURITY AGREEMENT
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This ENGINE SECURITY AGREEMENT, dated as of December 30, 1999 (this
"Agreement"), is between MIDWAY AIRLINES CORPORATION, a Delaware corporation
(herein, together with its successors and permitted assigns, the "Borrower") and
FLEET CAPITAL CORPORATION, a Rhode Island corporation (together with its
successors and permitted assigns, the "Lender").
WHEREAS, the Lender has agreed to make the Loan to the Borrower under
the Loan Agreement dated as of December 30, 1999 (the "Loan Agreement") between
the Borrower and the Lender, upon and subject to the terms and conditions
therein contained;
WHEREAS, it is a condition precedent to the Lender's obligations to
the Borrower under the Loan Agreement to make the Loan that the Borrower
executes and delivers this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE 1.
INTERPRETATION
Section 1.01 Definitions. Capitalized terms used herein and defined
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in Appendix A shall, except as such definitions may be specifically modified in
the body of this Agreement for the purposes of a particular section, paragraph
or clause, have the meanings given such terms in Appendix A. Unless the
context otherwise requires, (i) all definitions of documents shall refer to such
documents as they may now or later be amended or supplemented, and (ii) all
definitions of parties shall be deemed to include the successors and permitted
assigns of such parties.
Section 1.02 References. References in this Agreement to sections,
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paragraphs, clauses, appendices, schedules and exhibits are to sections,
paragraphs, clauses, appendices, schedules and exhibits in and to this Agreement
unless otherwise specified.
Section 1.03 Headings. The captions and headings of the various
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sections, paragraphs and clauses of this Agreement and the table of contents are
for convenience of reference only and shall not modify, define, expand or limit
any of the terms or provisions hereof.
ARTICLE 2.
SECURITY INTEREST
Section 2.01 Security Interest. As security for the payment and
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performance of the Obligations (whether as scheduled, upon acceleration or
otherwise, including, without limitation,
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all indebtedness, liabilities, fees, indemnities and obligations of Borrower to
Lender arising under or relating to the Operative Agreements, including, but not
limited to, repayment of the principal of the Loan and payment of interest
thereon, and of all costs of collection and enforcement of the Obligations, the
Borrower hereby mortgages, pledges and assigns to the Lender, and hereby creates
in and grants to the Lender a continuing security interest in, but none of its
obligations or liabilities respecting, all of the Borrower's right, title and
interest in and to the following, whether now owned or hereafter acquired
(collectively, the "Collateral"):
(a) the aircraft engines listed on Schedule I hereto or as otherwise
identified in any Security Agreement Supplement hereto (each hereinafter
referred to, so long as the same shall not have been released from the Lien of
this Security Agreement pursuant to the terms hereof, as an "Engine", and
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collectively, the "Engines"), which terms shall also include any Replacement
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Engine which becomes subject to the Lien of this Security Agreement pursuant to
the terms hereof from and after the time such Replacement Engine becomes subject
to such Lien, unless and until thereafter released from such Lien pursuant to
the terms hereof; together, with all appliances, equipment and accessories
thereto, by whomsoever manufactured, in which the Borrower now has or in the
future acquires rights, and installed in or appurtenant to said Engines.
(b) subject to Section 4.07(c), the Engine Warranty to the extent the
same relates to the continuing rights of the Borrower in respect of any
warranty, express or implied, as to title, materials, workmanship, design or
patent infringement with respect to the Engines and to any service life policy,
engine performance guarantee and indemnity provisions with respect to the
Engines together with all rights, powers, privileges, options and other benefits
of the Borrower thereunder with respect to the Engines; reserving to the
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Borrower, however, (i) all of the Borrower's rights and interests in and to the
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Engine Warranty as and to the extent that the same relate to engines other than
the Engines, (ii) so long as the Engine Manufacturer shall not have received
notice that the Lender has declared the Loan Agreement to be in default and has
commenced the exercise of remedies thereunder, the right to demand, accept and
retain all rights in and to all property, data and services which the Engine
Manufacturer is obligated to provide or does provide pursuant to the Engine
Warranty, as the case may be, and the right to take all other actions and enjoy
all other benefits of the "Airline" or the "Operator" thereunder and (iii) all
of the Borrower's rights under any and all letter agreements, "concessions" and
or "special guarantees" (as defined in the General Terms Agreement), including
without limitation, those found in Exhibit D of the General Terms Agreement;
(c) all substitutions, replacements and renewals of all property
covered by the Lien hereof and all property which shall hereafter become
physically attached or incorporated in all property covered by the Lien hereof,
in each case to the extent the Borrower now has or in the future acquires rights
in the same; and
(d) insurance proceeds to the extend the Borrower is a loss payee with
respect to such proceeds pursuant to Section 4.05(c) hereof.
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TO HAVE AND TO HOLD all and singular of the aforesaid property unto
the Lender, and its successors and assigns, as security as aforesaid.
IT IS HEREBY COVENANTED AND DECLARED by and between the parties hereto
and their respective successors and assigns that the terms upon which the
Collateral shall be held, used and operated are as set forth in the following
provisions of this Agreement.
ARTICLE 3.
INVESTMENT OF SECURITY FUNDS
Section 3.01 Investment of Security Funds. Any insurance proceeds
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and other payments in respect of an Event of Loss paid to or retained by the
Lender which are required to be paid to the Borrower or applied for the benefit
of the Borrower, but which the Lender 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 Borrower or applied as provided herein, be held by the Lender in a
segregated account and invested by the Lender from time to time at the
direction, risk and expense of the Borrower in Permitted Investments. There
shall be promptly remitted to the Borrower any gain (including interest
received) realized as the result of any such investment (net of any fees,
commissions and other expenses, if any, incurred in connection with such
investment) unless a Specified Default shall have occurred and be continuing, in
which case such gains shall be held or applied in accordance with the preceding
sentence. The Borrower will promptly pay to the Lender, on demand, the amount of
any loss 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 other monies paid to or retained by the Lender which are
required to be paid to the Borrower or applied for the benefit of the Borrower,
but which the Lender 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), may, until paid to the
Borrower or applied as provided herein, be held by the Lender in the manner of
its discretion and the Lender shall have no obligation to hold such monies in a
separate account and may commingle such monies with its general or other funds.
ARTICLE 4.
COVENANTS
Section 4.01 Possession; Operation and Use; Maintenance; Title.
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(a) General. Except as otherwise expressly provided herein,
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the Borrower (and any Permitted Lessee) shall be entitled to operate, use,
locate, employ or otherwise utilize or not utilize the Engines in any lawful
manner or place in accordance with the Borrower's (or such Permitted Lessee's)
business judgment.
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(b) Possession. The Borrower shall not lease, or otherwise
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in any manner deliver, relinquish or transfer possession of any Engine to any
Person or install any Engine, or permit any Engine to be installed, on any
airframe without the prior consent of the Lender, provided, however, that so
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long as (A) only in the case of clause (x) below, no Event of Default shall have
occurred and be continuing, and (B) all approvals, consents or authorizations
required from the Aeronautical Authority in connection with any such lease or
such delivery, transfer or relinquishment of possession have been obtained and
remain in full force and effect, the Borrower (or, except in the case of clause
(x) below, any Permitted Lessee) may, without the prior consent of the Lender:
(i) enter into a charter or wet lease or other similar
arrangement under which the Borrower (or such Permitted Lessee) has operational
control of an airframe and the Engine installed thereon in the course of the
Borrower's business (which shall not be considered a transfer of possession
hereunder), provided that the Borrower's obligations hereunder and under the
other Operative Agreements shall continue in full force and effect
notwithstanding any such charter or wet lease or other similar arrangement;
(ii) deliver possession of an Engine to the manufacturer
thereof or to any organization for testing, service, repair, maintenance,
overhaul work or other similar purposes or for alterations or modifications or
additions required or permitted by the terms hereof;
(iii) subject an Engine to interchange or pooling agreements
or arrangements which are applicable to other similar property owned by or
leased to the Borrower (or such Permitted Lessee) and are entered into by the
Borrower (or such Permitted Lessee) in the course of its airline business with
any air carrier, provided, that (A) no such agreement or arrangement shall under
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any circumstances result in, contemplate or require the transfer of title to any
Engine and (B) if the Borrower's title to any Engine shall nevertheless 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 Borrower shall
comply with Section 4.03(e) hereof in respect thereof;
(iv) install an Engine on an airframe owned by the Borrower
(or such Permitted Lessee) free and clear of all Liens except (A) Permitted
Liens, (B) those which apply only to the engines (other than the Engines),
appliances, parts, instruments, appurtenances, accessories, furnishings and
other equipment (other than Parts) installed on such airframe, and (C) those
created by the rights of other air carriers under interchange or pooling
agreements or other arrangements customary in the airline industry which do not
contemplate, permit or require the transfer of title to such airframe or engines
installed thereon;
(v) install an Engine on an airframe leased to the
Borrower (or such Permitted Lessee) or purchased by the Borrower (or such
Permitted Lessee) subject to a conditional sale or other security agreement, but
only if such airframe is free and clear of all Liens, except (i) the rights of
the parties to such lease, or any such secured financing arrangement, covering
such airframe and (ii) Liens of the type permitted by Section 4.01(b)(iv);
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(vi) install an Engine on an airframe owned by the
Borrower (or such Permitted Lessee), leased by the Borrower (or such Permitted
Lessee) or purchased by the Borrower (or such Permitted Lessee) subject to a
conditional sale or other security agreement under circumstances where neither
clause (iv) nor clause (v) above is applicable, provided that any such
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installation (so long as the same shall be continuing) shall be deemed an Event
of Loss with respect t o such Engine and the Borrower shall comply with Section
4.03(e) hereof;
(vii) transfer possession of an Engine while installed on
an aircraft which is subject to the CRAF Program (as defined below) to the
United States of America or any instrumentality thereof pursuant to the Civil
Reserve Air Fleet Program (as established and administered pursuant to Executive
Order 11490, as amended, as superseded by United States Executive Order No.
12656) or any similar or substitute program ("CRAF Program"), in which event
Borrower (or such Permitted Lessee) shall promptly notify Lender in writing of
any such transfer of possession and, in the case of any transfer pursuant to the
CRAF Program, in such notification shall identify by name, address and telephone
numbers the Contracting Office Representatives of the Military Airlift Command
of the United States Air Force to whom notices must be given and to whom
requests or claims must be made to the extent applicable under the CRAF Program;
(viii) transfer possession of an Engine to the United States
of America, or to a foreign government, when required by Applicable Law (it
being understood that nothing in this clause (viii) shall relieve the Borrower
from its obligations under Section 4.03(e) if such transfer becomes an Event of
Loss), in which event Borrower shall promptly notify Lender in writing of any
such transfer of possession;
(ix) transfer possession of an Engine to the United States
of America or any instrumentality or agency thereof pursuant to a lease,
contract or other instrument;
(x) subject to the provisions of this Section 4.01(b),
enter into a lease with respect to any Engine to any Permitted Lessee if (A)
Borrower shall provide written notice to Lender at least 10 days prior to
entering into any such lease, (B) in any such case, the lessee under such lease
is not subject to a proceeding or final order under applicable bankruptcy,
insolvency or reorganization laws on the date such lease is entered into, (C) in
the event that the lessee under such lease is a foreign air carrier or Person
based in a country other than the United States, the United States maintains
normal diplomatic relations with the country in which such proposed lessee is
principally based at the time such lease is entered into and (D) in the event
that the lessee under such lease is a foreign air carrier or Person based in a
country other than the United States, prior to the effectiveness of such lease
Lender shall have received an opinion of counsel to Borrower (reasonably
acceptable to Lender) to the effect that (I) the terms of the proposed lease
will be legal, valid, binding and (subject to customary exceptions) enforceable
against the proposed lessee in the country in which the proposed lessee is
principally based, (II) there exist no possessory rights in favor of the lessee
under such lease under the laws of such lessee's country of domicile that would,
upon bankruptcy or insolvency of or other default by the Borrower and assuming
that at such time such
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lessee is not insolvent or bankrupt, prevent or unreasonably delay the return or
repossession of the Engines in accordance with and when permitted by the terms
of Section 5.02(a) upon the exercise by Lender of its remedies under Section
5.02(a), (III) the laws of such lessee's country of domicile would give
recognition to Borrower's title to such Engine, (IV) all filings, if any,
required to be made in such jurisdiction in connection with the execution of
such lease in order to protect the interest of Lender in such Engine have been
made, (V) it is not necessary for the Lender to register or qualify to do
business in such jurisdiction, if not already so registered or qualified, as a
result of the proposed lease, and (VI) there is no tort liability for owners not
in possession of aircraft in such country more onerous than under the laws of
the United States or any state thereof (it being agreed that in the event such
opinion cannot be given in a form reasonably satisfactory to the Lender, such
opinion will be waived if insurance reasonably satisfactory to the Lender is
provided to cover the risk of such tort liability);
provided that (1) the rights of any transferee who receives possession by reason
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of a transfer permitted by this Section 4.01(b) (other than by a transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to all
the terms hereof; (2) no pooling agreement, sublease or other relinquishment of
possession of any Engine shall discharge or diminish any of Borrower's
obligations to Lender hereunder or under any other Operative Agreements or
constitute a waiver of Lender's rights or remedies thereunder, and the Borrower
shall remain primarily liable hereunder for the performance of all the terms and
conditions of this Agreement and all of the terms and conditions of this
Agreement and the other applicable Operative Agreements shall remain in effect;
(3) the Borrower shall provide evidence reasonably satisfactory to Lender that
the insurance required by Section 4.05 remains in effect; (4) all necessary
documents shall have been duly filed or recorded in applicable public offices as
may be required to preserve the first priority security interest of Lender in
the Engines; and (5) Borrower shall reimburse Lender, on an After Tax Basis, for
all of their reasonable out-of-pocket expenses (including fees and disbursements
of counsel) in connection with any such lease or transfer.
In the case of any lease permitted under this Section 4.01(b), (i) the
Borrower will include in such lease appropriate provisions which (a) make such
lease expressly subject and subordinate to all of the terms of this Agreement,
including the rights of the Lender to avoid such lease in the exercise of its
rights to repossession of the Engines hereunder and thereunder; and (b)
expressly prohibit any further subleasing of the Engines. Except as otherwise
provided herein and without in any way relieving the Borrower from its primary
obligation for the performance of its obligations under this Agreement, the
Borrower may in its sole discretion permit a Permitted Lessee to exercise any or
all rights which the Borrower would be entitled to exercise under this
Agreement, and may cause a Permitted Lessee to perform any or all of the
Borrower's obligations under this Agreement, and the Lender agrees that full
performance by a Permitted Lessee of the obligations of the Borrower hereunder
shall constitute performance by the Borrower.
(c) Operation and Use. The Borrower shall not operate, use or locate
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any Engine, or suffer any Engine to be operated, used or located (i) in any area
excluded from coverage by any insurance required by the terms of Section 4.05
hereof, except in the case of a requisition by the
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United States of America where the Borrower obtains (and provides evidence of)
indemnity from the Government for the benefit of the Additional Insureds against
substantially the same risks and for at least the amounts of the insurance
required by Section 4.05 hereof covering such area, or (ii) outside the United
States or Canada in any recognized or, in the Borrower's reasonable judgment,
threatened area of hostilities unless covered by war risk insurance, or in
either case (x) unless such Engine is operated or used under contract with the
Government under which contract the Government assumes liability for
substantially the same risks in at least the same amounts as would be covered by
such insurance, or (y) except to the extent attributable primarily to causes
beyond the reasonable control of the Borrower or any Permitted Lessee or
primarily to circumstances involving an isolated occurrence or series of events
not in the ordinary course of the regular operations of the Borrower or any
Permitted Lessee, and the Borrower or Permitted Lessee is diligently trying to
rectify the situation. The Borrower shall not permit any Engine to be used or
operated in violation of any Applicable Law or in violation of any certificate,
license or registration relating to such Engines issued by any competent
governmental authority, unless (i) the validity thereof is being contested in
good faith and by appropriate proceedings which do not involve a non-de minimis
danger of the sale, forfeiture or loss of such Engine or the first priority Lien
of this Agreement, any risk of criminal liability or any material risk of civil
liability against Lender, (ii) it is not possible for the Borrower (or a
Permitted Lessee) to comply with the laws of a jurisdiction other than the
United States (or other than any jurisdiction in which the aircraft (on which
such Engine is installed) is then registered) because of a conflict with the
applicable laws of the United States (or such jurisdiction in which the aircraft
(on which such Engine is installed) is then registered), or (iii) it is for
minor, unanticipated, or non-recurring violations that the Borrower is
diligently trying to rectify which do not render such Engine liable to any risk
of condemnation, destruction, seizure or confiscation by any authority.
(d) Maintenance. The Borrower, at its own cost and expense, shall
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service, repair, maintain, overhaul and test each Engine or cause the same to be
done in accordance with (1)(i) a maintenance program approved by the
Aeronautical Authority and (ii) maintenance standards required by, or no less
stringent than those required by, the FAA or the central civil aviation
authority of Canada, France, Germany, Japan, The Netherlands or the United
Kingdom, and shall keep or cause to be kept each Engine in such operating
condition as may be necessary to enable the applicable certificate, license and
registration relating to such Engine to be maintained in good standing at all
times under the applicable rules and regulations of the Aeronautical Authority,
except when the applicable certificate, license or registration relating to
engines of the same type as such Engines has been withdrawn by the Aeronautical
Authority, provided, however, that in the event of such withdrawal, subject to
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Section 4.05 hereof, so long as the Borrower (or a Permitted Lessee) is taking
or causing to be taken all necessary action to promptly correct the condition
which caused such withdrawal, no Event of Default shall arise from such
withdrawal and (2) except during periods when a Permitted Lease is in effect,
the same standards Borrower uses with respect to similar engines of similar
powers in its fleet and operated (whether owned or leased) by Borrower in
similar circumstances and during any period in which a Permitted Lease is in
effect, the same standards the Permitted Lessee uses with respect to similar
engines of similar powers in its fleet and operated (whether owned or leased) by
the Permitted Lessee in similar circumstances. Nothing herein shall
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be deemed to prevent the Borrower (or a Permitted Lessee) from taking such
Engine out of service for maintenance or modifications permitted hereunder or
storage in accordance with applicable Aeronautical Authority requirements and
sound practice for such storage. The Borrower shall maintain or cause to be
maintained all records, logs and other documents required by the Aeronautical
Authority to be maintained in respect of such Engine in English. Borrower
further agrees that the Engines will be maintained, used, serviced, repaired,
overhauled or inspected in compliance with Applicable Law with respect to the
maintenance of the Engines and compliance with each applicable certificate,
license and registration relating to any Engine issued by the Aeronautical
Authority.
Section 4.02 Inspection.
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(a) At all reasonable times, but upon at least 5 Business Days' prior
notice to the Borrower (unless an Event of Default shall have occurred and be
continuing, in which event no prior notice of any kind is required) and at a
time and place reasonably acceptable to the Borrower, the Lender or its
authorized representatives (which may include the Engine Manufacturer) may at
its own expense and risk conduct a visual walk-around inspection of any Engine
and may inspect the books and records of the Borrower relating to the operation
and maintenance thereof and the Borrower shall provide copies of such books and
records to the Lender or its authorized representatives at its reasonable
request; provided that (a) any such inspection shall be subject to the safety,
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security and workplace rules applicable at the location where such inspection is
conducted and any applicable governmental rules or regulations, (b) in the case
of an inspection during a maintenance visit, such inspection shall not interfere
with the normal conduct of such maintenance visit or extend the time required
for such maintenance visit or, in any event, at any time interfere with the use
or operation of any Engine or with the normal conduct of the Borrower's or a
Permitted Lessee's business, and (c) the Borrower shall not be required to
undertake or incur any additional liabilities in connection with any such
inspection. All information obtained in connection with any such inspection
shall be held confidential by the Lender and shall not be furnished or disclosed
by it to anyone other than its bank examiners, auditors, accountants, agents and
legal counsel and any Person with whom the Lender is in good faith conducting
negotiations relating to the possible transfer and sale of the Loan, if such
Person shall have entered into an agreement similar to that contained in this
Section 4.02 whereby such Person agrees to hold such information confidential,
and except as may be required by an order of any court or administrative agency
or by any statute, rule, regulation or order of any governmental authority or as
may be necessary to enforce the terms of this Agreement. The Lender shall have
no duty to make any such inspection and shall not incur any liability or
obligation by reason of not making any such inspection.
(b) If requested by Lender, Borrower shall provide, or shall cause
any Permitted Lessee to provide, with respect to any Engine, the date (if then
scheduled) upon which the next scheduled off the airframe maintenance, and shall
advise Lender of the name and location (if then known) of the relevant
maintenance performer.
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Section 4.03 Replacement and Pooling of Parts; Alterations,
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Modification and Additions; Event of Loss.
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(a) Replacement of Parts. Except as otherwise provided in the
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proviso to the third sentence of Section 4.03(d) or if an Engine to which a Part
relates has suffered an Event of Loss, the Borrower, at its own cost and
expense, will promptly replace all Parts that may from time to time become worn
out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In addition, in
the ordinary course of maintenance, service, repair, overhaul or testing, the
Borrower (or a Permitted Lessee), at its own cost and expense, may remove any
Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or permanently rendered unfit for use, provided that the
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Borrower (or such Permitted Lessee), at its own cost and expense, shall, except
as otherwise provided in the proviso to the third sentence of Section 4.03(d),
replace such Parts as promptly as practicable with replacement Parts or
temporary replacement parts as provided in Section 4.03(c) hereof. All
replacement Parts shall be free and clear of all Liens except for pooling
arrangements to the extent permitted by Section 4.03(c) and Permitted Liens and
shall be in as good operating condition as, and shall have a value and utility
at least equal to, the Parts replaced assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof.
(b) Title to Parts. Except as otherwise provided in the proviso to
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the third sentence of Section 4.03(d), all Parts at any time removed from any
Engine shall remain subject to the Lien of this Agreement, 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 that meet the
requirements for replacement Parts specified in Section 4.03(a). Immediately
upon any replacement Part becoming incorporated or installed in or attached to
an Engine as provided in Section 4.03(a), without further act, (i) title to the
replaced Part shall thereupon be free and clear of all rights of the Lender and
shall no longer be deemed a Part hereunder; (ii) title to such replacement Part
shall thereupon become subject to the Lien of this Agreement 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 Leasing. Any Part removed from any Engine as
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provided in Section 4.03(a) may be subjected by the Borrower (or a Permitted
Lessee) to a pooling or parts leasing agreement or arrangement of a type
customary in the airline industry entered into in the ordinary course of the
Borrower's (or such Permitted Lessee's) business, provided the part replacing
such removed Part shall be incorporated or installed in or attached to such
Engine in accordance with Sections 4.03(a) and 4.03(b) 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 4.03(a) may be owned by another airline or vendor as
customary in the airline industry, subject to a pooling or parts leasing
arrangement, provided that the Borrower (or a Permitted Lessee), at its expense
--------
as promptly thereafter as reasonably practicable, either (i) causes title to
such temporary replacement part to become subject to the Lien of this Agreement,
free and clear of all Liens except Permitted Liens, at which time such temporary
replacement part shall
9
become a Part or (ii) replaces such temporary replacement part by incorporating
or installing in or attaching to such Engine a further replacement Part owned by
the Borrower (or such Permitted Lessee) free and clear of all Liens except
Permitted Liens and which meets the requirements of Section 4.03(a) and which
shall become subject to the Lien of this Agreement in accordance with Section
4.03(b).
(d) Alterations, Modifications and Additions. The Borrower, at its
----------------------------------------
own expense, shall make (or cause to be made) alterations and modifications in
and additions to any Engine as may be required to be made from time to time by
Applicable Law or in order to maintain the insurance required under Section 4.05
regardless of upon whom such requirements are, by their terms, nominally
imposed; provided, that the Borrower may, in good faith and with due diligence
--------
and by appropriate procedure, contest the validity or application of any such
standard in any reasonable manner which does not adversely affect in a non de
minimis way the first priority Lien of this Agreement and does not involve any
non-de minimis risk of sale, forfeiture or loss of any Engine or the first
priority Lien of this Agreement, any in a non de minimis way risk of civil
penalty or any risk of criminal liability being imposed on Lender. In addition,
the Borrower (or a Permitted Lessee), at its own expense, may from time to time
make or cause to be made such alterations and modifications in and additions to
any Engine as the Borrower (or such Permitted Lessee) may deem desirable in the
proper conduct of its business, provided further that no such alteration,
--------
modification or addition diminishes, the value, utility or condition of such
Engine below the value, utility or condition thereof immediately prior to such
alteration, modification or addition, assuming such Engine was then in the
condition required to be maintained by the terms of this Agreement. Title to
all Parts incorporated or installed in or attached or added to any Engine as the
result of any alteration, modification or addition effected by the Borrower (or
a Permitted Lessee) shall, without further act, become subject to the Lien of
this Agreement; provided that the Borrower (or such Permitted Lessee) may, at
--------
any time remove any such Part from an Engine if (i) such Part 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 at the time of delivery
thereof hereunder or any Part in replacement of, or in substitution for, any
such original Part, (ii) such Part is not required to be incorporated or
installed in or attached or added to such Engine pursuant to the terms of
Section 4.01(d) or the first sentence of this Section 4.03(d) and (iii) such
Part can be removed from such Engine without diminishing or impairing the value,
condition or utility which such Engine would have had at the time of removal had
such alteration, modification or addition not been effected by the Borrower (or
such Permitted Lessee) assuming such Engine was otherwise maintained in the
condition required by this Agreement. Upon the removal by the Borrower (or such
Permitted Lessee) of any such Part as above provided and the installation of a
Replacement Part as provided herein (if applicable), title thereto shall,
without further act, be free and clear of all rights of the Lender and such Part
shall no longer be deemed a Part hereunder. Borrower shall repair all damage to
an Engine resulting from any such installation and/or removal of additions so as
to restore such Engine to its condition prior to installation, ordinary wear and
tear excepted assuming such Engine was in the condition and repair then required
to be maintained by the terms hereof.
10
(e) Event of Loss with Respect to an Engine. Upon the occurrence of
---------------------------------------
an Event of Loss with respect to an Engine, Borrower shall forthwith (and in any
event within five (5) Business Days after such occurrence) give the Lender
written notice of such Event of Loss and within thirty (30) days of such Event
of Loss, Borrower shall give Lender written notice and of its election to
perform one of the following options (it being agreed that if the Borrower shall
not have given the Lender such notice of such election, the Borrower shall be
deemed to have elected to perform the option identified in clause (i) below):
(i) on a date specified by the Borrower in such notice, which
date shall be a date not later than forty-five (45) days after the occurrence of
such Event of Loss, prepay in whole the Loan made in respect of such Engine
pursuant to Section 2.04(a) of the Loan Agreement and immediately upon such
prepayment and without further act, such Engine shall thereupon be released from
the Lien of this Agreement and no longer be deemed an Engine hereunder; provided
that if the Borrower shall elect to perform the option referred to in clause
(ii) below and shall fail for any reason to make the replacement in accordance
with such clause (ii) on or prior to the date of replacement specified therein,
the Borrower, shall, on the next succeeding Business Day following the date of
replacement specified therein, prepay in whole the Loan made in respect of such
Engine pursuant to Section 2.04(a) of the Loan Agreement; or
(ii) so long as no Specified Default has occurred and is
continuing at the time notice is given or at the time of replacement, on a date
specified by the Borrower in such notice, which date shall be a date not later
than forty-five (45) days after the occurrence of such Event of Loss, substitute
a Replacement Engine for such Engine and in such event, immediately upon the
effectiveness of such substitution on the date set forth in such notice and
without further act, (x) the Replacement Engine shall thereupon be deemed an
Engine hereunder for all purposes hereof and become subject to the Lien of this
Agreement, and (y) the replaced Engine shall thereupon be released from the Lien
of this Agreement and no longer be deemed an Engine hereunder; provided that,
upon the substitution of a Replacement Engine, the following conditions shall be
satisfied at the Borrower's sole cost and expense and the Lender agrees to
reasonably cooperate with the Borrower to the extent necessary to enable it to
timely satisfy such conditions:
(a) the following documents shall be duly authorized,
executed and delivered by the respective party or parties thereto, and an
executed counterpart of each shall be delivered to the Lender:
(1) a Security Agreement Supplement covering the
Replacement Engine, which shall have been duly filed for recordation with
the FAA;
(2) a full warranty ▇▇▇▇ of sale (as to title) covering
the Replacement Engine, executed by the owner thereof in favor of the
Borrower;
(3) Uniform Commercial Code financing statements
covering the interest created by this Agreement as are deemed necessary or
desirable
11
by counsel for the Lender to protect the first priority security interest
of the Lender in the Replacement Engine;
(4) an opinion of qualified FAA counsel as to the due
recordation of the Security Agreement Supplement and all other documents or
instruments the recordation of which is necessary to perfect and protect
the first priority security interest of the Lender in the Replacement
Engine; and
(5) evidence of compliance with the insurance
provisions of Section 4.05 with respect to such Replacement Engine;
(b) the Borrower shall furnish (or cause to be furnished
to) the Lender with an opinion, reasonably satisfactory in form and substance to
the Lender, of the Borrower's counsel, which may be the Borrower's General
Counsel, to the effect that such bills of sale or other documents reasonably
requested by the Lender are sufficient to convey title to such Replacement
Engine to the Borrower; and
(c) the Replacement Engine, in Lender's reasonable
judgment, shall be of at least equal value, remaining useful life and utility,
and in as good operating condition, as the Engine it replaces assuming such
Engine had been maintained in the condition required hereunder (but in any such
case, without regard to hours or cycles remaining to such Engine's next expected
removal)and the Borrower shall furnish an Officer's Certificate to the Lender to
such effect;
Upon prepayment by the Borrower as set forth in clause (i) above, (x)
the Lender shall, at the expense of the Borrower, execute and deliver to the
Borrower such documents and instruments as the Borrower shall reasonably request
to evidence (on public record or otherwise) the release of the Lender's security
interest in and to the Engine subject to an Event of Loss; (y) the Lender shall,
at the request and expense of the Borrower, assign to the Borrower all claims it
may have against any other Person relating to an Event of Loss giving rise to
such prepayment (other than those in respect of insurance maintained by the
Lender pursuant to Section 4.05(f)) and (z) the Borrower shall be entitled to
receive all insurance proceeds (other than those reserved to others under
Section 4.05(f) hereof) and proceeds in respect of any Event of Loss giving rise
to such prepayment to the extent not previously applied to the reduction of the
Borrower's prepayment obligation under clause (i) above.
Upon satisfaction of all conditions to the substitution of the
replaced Engine as set forth in clause (ii) above, (x) the Lender shall, at the
expense of the Borrower, execute and deliver to the Borrower such documents and
instruments as the Borrower shall reasonably request to evidence (on public
record or otherwise) the release of the Lender's security interest in and to the
replaced Engine; (y) the Lender shall, at the request and expense of the
Borrower, assign to the Borrower all claims it may have against any other Person
relating to an Event of Loss giving rise to such substitution (other than those
in respect of insurance maintained by the Lender pursuant to
12
Section 4.05(f)) and (z) the Borrower shall be entitled to receive all insurance
proceeds (other than those reserved to others under Section 4.05(f) hereof) and
proceeds in respect of any Event of Loss giving rise to such replacement to the
extent not previously applied to the purchase price of the Replacement Engine as
provided in Sections 4.05(e)(i) and 4.04.
Section 4.04 Requisition for Use. In the event of a requisition for
-------------------
use by any government of an Engine (including the Government pursuant to the
CRAF Program), the Borrower shall promptly notify the Lender of such requisition
and, if the same does not constitute an Event of Loss, all of the Borrower's
obligations under this Agreement shall continue to the same extent as if such
requisition had not occurred except to the extent that the performance or
observance of any obligation by the Borrower shall have been prevented or
delayed by such requisition, provided that the Borrower's obligations for the
--------
payment of money and under Section 4.05 (except, in the case of Section 4.05,
while an assumption of liability by the government of the United States of the
scope referred to in Section 4.01(c) is in effect) shall not be reduced, delayed
or affected by such requisition. Any payments received by the Lender or the
Borrower from such government with respect to the use of such Engine shall be
paid over to, or retained by, the Borrower. In the event of an Event of Loss of
an Engine resulting from the requisition for use by a government of such Engine,
the Borrower will comply with the terms of Section 4.03(e).
Section 4.05 Insurance.
---------
(a) Public Liability and Property Damage Insurance. Subject to the
----------------------------------------------
rights of the Borrower under Section 4.05(d), the Borrower shall, without
expense to the Lender, maintain or cause to be maintained in effect at all times
with insurers of nationally or internationally recognized responsibility public
liability insurance (including, without limitation, aircraft third party,
passenger legal liability, property damage, general third party legal liability
and product liability coverage but excluding manufacturer's product liability
coverage) with respect to the Engines in an amount not less than the greater of
(i) the amount which Borrower may carry from time to time on other similar
engines in its fleet and operated by Borrower (whether owned or leased) and (ii)
the Minimum Liability Amount; provided that an agreement of the Government for
--------
the benefit of the Additional Insureds to insure against or indemnify for
substantially the same risks to at least the same amount shall satisfy the
requirements of this Section 4.05(a), provided that on or prior to the date of
--------
such agreement, the Borrower shall provide an Officer's Certificate of the
Borrower certifying that any such insurance or indemnity provides protection no
less favorable than insurance coverage that would comply with this Section 4.05.
Such insurance shall be of the type usually carried by the Borrower with respect
to similar engines, and covering risks of the kind customarily insured against
by the Borrower.
During any period that an Engine is not used or in operation , the
Borrower may modify the insurance required by this Section 4.05(a) to modify the
amounts of public liability and property damage insurance, the scope of the
risks covered and the type of insurance, in all circumstances to conform to such
insurance customary in the United States airlines industry for regional air
carriers similarly situated with the Borrower in respect of similar engines
which are not
13
used or in operation, and stored or hangared, except that in all instances, the
amounts of coverage and scope of risk covered and the type of insurance shall be
at a minimum no less favorable than the insurance as from time to time
applicable to similar engines owned or leased by Borrower not used, not in
operation, and stored or hangared.
(b) Insurance Against Loss or Damage to the Engines. Subject to the
-----------------------------------------------
rights of the Borrower under Section 4.05(d), the Borrower shall, without
expense to the Lender, maintain or cause to be maintained in effect at all times
with insurers of nationally recognized responsibility either (x) all risk,
agreed value, ground and flight hull insurance, which may, except as provided
below, exclude war risks and allied perils, or (y) other personal property
insurance, in any such case, covering the Engines for an amount at all times
(even when an Engine is not used and operated or in storage), with respect to
each Engine, not less than (A) in the case of clause (x), such amounts as are
customarily carried by Borrower under its hull insurance policies for similar
aircraft and (B) in the case of clause (y), at any time, 110% of the principal
amount of the related Loan then outstanding. Such insurance shall be of the type
usually carried by the Borrower with respect to similar engines, and covering
risks of the kind customarily insured against by the Borrower. If and to the
extent that the Borrower or a Permitted Lessee installs an Engine on an aircraft
which is being operated (A) on routes where it maintains war risk, hijacking or
allied perils insurance in effect with respect to other similar owned or leased
aircraft in its fleet, (B) on routes (other than routes within the United
States, Canada, Mexico, Bermuda and islands other than Cuba in the Caribbean
Basin) where the custom in the industry is to carry war risk insurance or (C) in
any area of recognized hostilities, the Borrower or such Permitted Lessee shall
maintain or cause to be maintained such insurance in effect with respect to such
Engine which is installed on such aircraft in the amount at least equal to
replacement value from time to time. An agreement by the Government to insure
against or indemnify for substantially the same risks to at least the same
amount will satisfy any of the requirements of this Section 4.05(b).
(c) Additional Insureds; Loss Payment. The Borrower shall cause all
---------------------------------
policies of insurance carried in accordance with Section 4.05(a) to name the
Additional Insureds as their respective interests may appear as additional
insureds. Such policies shall provide with respect to such Additional Insureds
that (i) none of their respective interests in such policies shall be
invalidated by any act or omission or breach of warranty or condition contained
in such policies by the Borrower or, in the case of any particular Additional
Insured, any other Additional Insured; (ii) no cancellation or lapse of coverage
for nonpayment of premium or otherwise, and no substantial change of coverage
which adversely affects the interests of any such Additional Insured, shall be
effective as to such Additional Insured until 30 days (or such lesser period as
may be applicable in the case of any war risk coverage) after receipt by such
Additional Insured of written notice from the insurers of such cancellation,
lapse or change; (iii) they shall have no liability for premiums, commissions,
calls, assessments or advances with respect to such policies; (iv) such policies
will be primary without any right of contribution from any other insurance
carried by such Additional Insureds; (v) the insurers waive any rights of set-
off, counterclaim, deduction or subrogation against such Additional Insureds;
(vi) shall apply worldwide and have no territorial restrictions or limitations
(except, in the case of war, hijacking or related perils insurance, as otherwise
permitted hereunder);
14
and (vii) shall contain a 50/50% Clause per Lloyd's Aviation Underwriter's
Association Standard Policy Form AVS 103. Each liability policy shall provide
that all the provisions thereof, except the limits of liability, shall operate
in the same manner as if there were a separate policy covering each insured and
each hull policy shall provide that the exercise by the insurer of rights of
subrogation derived from rights retained by the Borrower will not delay payment
of any claim that would otherwise be payable but for such rights of subrogation.
Each policy of insurance (except in the case of any hull policy maintained by
the Borrower in respect of an aircraft to which the Engine is attached or has
been removed but not yet replaced) shall name the Lender as loss payee; provided
--------
that, so long as the insurers shall not have received written notice that an
----
Event of Default has occurred and is continuing, if insurance proceeds in the
aggregate equal $2,000,000 or less, then such proceeds shall be payable to the
Borrower and, notwithstanding the foregoing, any amounts up to the aggregate
amount of principal of and interest accrued on the Loan outstanding from time to
time (i) of any proceeds which in the aggregate exceed $2,000,000, (ii) of any
proceeds in respect of a total loss or an Event of Loss or (iii) if the insurers
shall have received written notice that an Event of Default has occurred and is
continuing, any proceeds with respect to any single loss, shall be payable to
such loss payee.
(d) Deductibles and Self-Insurance. The Borrower may from time to
------------------------------
time self-insure, by way of deductible or premium adjustment provisions in
insurance policies or otherwise, the risks required to be insured against
pursuant to this Section 4.05 in such amounts as are then self-insured with
respect to similar owned or leased engines in the Borrower's fleet but in no
case shall such self-insurance in the aggregate exceed on an annual basis, on a
per occurrence or on fleetwide basis, an amount equal to 4% of the Borrower's
tangible net worth, calculated as at the end of the Borrower's immediately
preceding fiscal year (but in no event to exceed $15,000,000). A deductible per
occurrence that is not in excess of the prevailing standard market deductible
for similar aircraft and engines shall be permitted, for each aircraft and
engine in the Borrower's fleet, in addition to such self-insurance.
(e) Application of Insurance Proceeds. As between the Lender and the
---------------------------------
Borrower, any payments received under policies of property insurance required to
be maintained under Section 4.05(b) (except in the case of any hull policy
maintained by the Borrower in respect of an aircraft to which the Engine is
attached or has been removed but not yet replaced), shall be applied as follows:
(i) if such payments are received with respect to loss or
damage not constituting an Event of Loss with respect to an Engine, payments in
the aggregate of $2,000,000 or less shall be paid over to or retained by the
Borrower and, subject to Section 4.05(c), any payments which in the aggregate
are greater than $2,000,000 shall be paid over to or retained by the Lender for
payment to the Borrower only upon performance of its repair or replacement
obligation; and
(ii) if such payments are received with respect to an Event of
Loss with respect to an Engine and the Engine is not being replaced pursuant to
Section 4.03(e), so much of
15
such payments as shall not exceed the amount required to be prepaid by the
Borrower pursuant to Section 2.04(a) of the Loan Agreement shall, if not already
paid by the Borrower, be applied in reduction of the Borrower's prepayment
obligation and if such amounts shall have been paid, to reimburse the Borrower,
and the balance, if any, of such payments shall be promptly paid over to or
retained by the Borrower; and
(iii) if such payments are received with respect to an Event of
Loss with respect to the an Engine and the Engine is being replaced by the
Borrower pursuant to clause (i) of Section 4.03(e), such payments shall be paid
over to, or retained by the Borrower, provided that if the Borrower has not
--------
completed such replacement, such payments shall be paid over to, or retained by,
the Lender as security, and upon completion of such replacement, be paid over to
or retained by the Borrower.
(f) Insurance for Own Account. Nothing in this Section 4.05 shall
-------------------------
prohibit the Lender, the Borrower or any Additional Insured from obtaining
insurance with respect to the Engines for its own account (including, without
limitation, in the case of the Borrower, hull insurance under the same policies
maintained pursuant to this Section 4.05 in amounts in excess of those required
to be maintained pursuant to this Section 4.05) and any proceeds payable
thereunder shall be payable as provided in the insurance policy relating
thereto, provided that no such insurance may be obtained which would limit or
--------
otherwise adversely affect the availability of coverage or payment of any
insurance required to be obtained or maintained pursuant to this Section 4.05,
it being understood that all salvage rights to the Engines shall remain with the
Borrower's insurers at all times.
(g) Reports, etc. Borrower will furnish to the Lender (A) on or
------------
prior each Funding Date, insurance certificates describing in reasonable detail
the insurance maintained by Borrower as required pursuant to this Section 4.05,
(B) prior to the cancellation, lapse or expiration of the insurance policies
required pursuant to this Section 4.05, evidence of renewal of such insurance
policies, and (C) on or prior to each Funding Date and on or before the renewal
dates of the insurance policies carried by the Borrower pursuant to this Section
4.05, a report signed by a firm of aircraft insurance brokers, not affiliated
with the Borrower, appointed by the Borrower and reasonably satisfactory to the
Lender, stating the opinion of such firm that all premiums in connection with
the insurance then due have been paid and the insurance then carried and
maintained on the Engines complies with the terms hereof and, in the case of
renewal insurance, that such renewal insurance will on and after the effective
date thereof so comply with the terms hereof, provided that all information
--------
contained in such report shall be held confidential by the Lender, and shall not
be furnished or disclosed by it to anyone except its legal counsel, insurance
brokers or advisors, bona fide prospective transferees of the Lender and their
respective agents (provided that they shall agree for the benefit of the
--------
Borrower to hold all such information similarly confidential) or as may be
required by Applicable Law. The Borrower will instruct such firm to give prompt
written advice to the Lender of any default in the payment of any premium and of
any other act or omission on the part of the Borrower of which it has knowledge
and which would in such firm's opinion invalidate or render unenforceable, in
whole or in any material part, any insurance on the Engines. The Borrower will
also instruct such firm to advise the Lender in writing at least 30 days
16
prior to the termination or cancellation of, or material adverse change in, such
insurance carried and maintained on the Engines pursuant to this Section 4.05
(or such lesser period as may be applicable in the case of war risk coverage).
(h) Right to Pay Premiums. The Additional Insureds shall have the
---------------------
rights but not the obligations of an additional named insured. None of Lender
and the other Additional Insureds shall have any obligation to pay any premium,
commission, assessment or call due on any such insurance (including
reinsurance). Notwithstanding the foregoing, in the event of cancellation of
any insurance due to the nonpayment of premiums, each of Lender and the other
Additional Insureds shall have the option, in its sole discretion, to pay any
such premium in respect of the Engines that is due in respect of the coverage
pursuant to this Agreement and to maintain such coverage, as Lender or the other
Additional Insureds may require, until the scheduled expiry date of such
insurance and, in such event, Borrower shall, upon demand, reimburse Lender and
the other Additional Insureds for amounts so paid by them.
(i) Certain Payments Held as Security. Any amount referred to in
---------------------------------
this Section 4.05 which is payable to the Borrower shall not be paid to the
Borrower, or, if it has been previously paid directly to the Borrower, shall not
be retained by the Borrower, if at the time of such payment a Specified Default
shall have occurred and be continuing, but shall be paid to and held by the
Lender as security for the Obligations, unless and until applied by Lender to
Lender's obligations and at such time as there shall not be continuing any such
Specified Default, to the extent such amounts have not been so applied, such
amount and any gain realized as a result of Permitted Investments required to be
made pursuant to Section 3.01 shall be paid over to the Lender.
Section 4.06 Liens. The Borrower shall not directly or indirectly
-----
voluntarily or involuntarily create, incur, assume or suffer to exist any Lien
on or with respect to any Engine or title thereto or any interest therein or in
this Agreement except (a) the respective rights of the Lender and the Borrower
as provided herein and the rights of the parties to the other Operative
Agreements; (b) the rights of others under agreements or arrangements to the
extent expressly permitted in Sections 4.01(b) and 4.03(c); (c) Liens for taxes
either not yet due or being contested in good faith by appropriate proceedings
(and for which adequate reserves have been provided if required in accordance
with generally accepted accounting principles) so long as such proceedings do
not involve any non-de minimis risk of the sale, forfeiture or loss of an Engine
or the Lien of this Agreement or any risk of criminal liability or any material
risk of civil penalty against Lender; (d) Liens of suppliers, mechanics,
workers, repairers, employees, airport operators, air traffic control
authorities or other like Liens arising in the ordinary course of business and
for amounts the payment of which is either not yet delinquent or is being
contested in good faith (and for which adequate reserves have been provided if
required in accordance with generally accepted accounting principles) by
appropriate proceedings, so long as such proceedings do not involve a non-de
minimis risk of the sale, forfeiture or loss of an Engine or the first priority
Lien of this Agreement or any risk of criminal liability or any material risk of
civil penalty against Lender; (e) Liens arising out of judgments or awards
against the Borrower so long as there shall be in effect with respect to which a
stay of execution; (f) salvage and similar rights of insurers under policies of
insurance maintained with
17
respect to the Engines; (h) Liens with respect to which the Borrower (or any
Permitted Lessee) has provided a bond or other security adequate in the good
faith opinion of the Lender; and (i) any Lien which may be created pursuant to
the Chattel Mortgage and Security Agreement between the Borrower and American
Airlines, Inc. dated as of April 25, 1996, provided any such Lien shall only
constitute a "Permitted Lien" to the extent it is waived by the American
Airlines, Inc. on or prior to January 31, 2000. Liens described in clauses (a)
through (i) above are referred to herein as "Permitted Liens." The Borrower
shall promptly, at its own expense, take such action as may be necessary to duly
discharge (by bonding or otherwise) any Lien other than a Permitted Lien arising
at any time.
Section 4.07 Recordation and Further Assurances.
----------------------------------
(a) Recordation of this Agreement. The Borrower shall cause this
-----------------------------
Agreement, any Security Agreement Supplements, and any and all additional
instruments which shall be executed pursuant to the terms hereof to be kept,
filed and recorded and to be re-executed, refiled and re-recorded at all times
with the FAA or other Aeronautical Authority to the extent required to perfect
and preserve the first priority security interest of the Lender in the Engines
and/or as Lender shall reasonably request.
(b) Further Assurances. The Borrower and the Lender will each
------------------
promptly and duly execute and deliver to the other such further documents and
assurances and take such further action as the other may from time to time
reasonably request in order to more effectively carry out the intent and purpose
of this Agreement and to establish and protect the rights and remedies created
or intended to be created in favor of the Lender and the Borrower hereunder,
including, without limitation, if requested by the Lender or the Borrower, the
execution and delivery of supplements or amendments hereto, in recordable form,
subjecting any replacement or substituted engine to this Agreement and the
recording or filing of counterparts hereof, or of financing statements with
respect hereto; provided, however, the Lender will not be required to take any
-------- -------
action under this Section 4.07(b) to the extent such action would be
inconsistent with the terms of this Agreement or impose any additional liability
on Lender hereunder or under any other Operative Agreement.
(c) Engine Warranty. The Borrower shall use commercially reasonable
---------------
efforts to obtain the consent of the Engine Manufacturer to the collateral
assignment of the Borrower's right, title and interest in, to and under the
Engine Warranty to the Lender pursuant to the Granting Clauses hereof. If such
consent is obtained, the Borrower shall send an executed original of such
consent to the Lender promptly after execution thereof.
ARTICLE 5.
EVENTS OF DEFAULT; REMEDIES
Section 5.01 Events of Default. The occurrence of any Event of
-----------------
Default under the Loan Agreement shall constitute an Event of Default hereunder.
18
Section 5.02 Remedies. Upon the occurrence of any Event of Default
--------
and at any time thereafter so long as the same shall be continuing, the Lender
may, at its option, declare this Agreement to be in default by a notice to the
Borrower (provided that this Agreement shall be deemed to have been declared in
--------
default without the necessity of such notice upon the occurrence of any Event of
Default described in paragraph (f), (g) or (h) of Section 8.01 of the Loan
Agreement); and at any time thereafter unless the Borrower shall have remedied
all outstanding Events of Default prior to the Lender having (w) accelerated the
Loans pursuant to Section 9.01 of the Loan Agreement, (x) taken any action to
physically repossess the Engines, or (y) incurred any obligation or commitment
to a third party or otherwise irreversibly changed its position in reliance upon
the occurrence and continuation of such Event of Default, the Lender may do, and
the Borrower shall comply with, one or more of the following with respect to all
or any part of the Engines, as the Lender in its sole discretion shall elect, to
the extent permitted by, and subject to compliance with any mandatory
requirements of, Applicable Law then in effect and without any way affecting any
rights which the Borrower may have under Applicable Law (except as otherwise
waived or limited (to extent permitted by Applicable Law) hereunder or under any
other Operative Agreement); provided that during any period an Engine is
--------
installed on an aircraft which is subject to the Civil Reserve Air Fleet Program
in accordance with the provisions of Section 4.01(b) and in the possession of
the United States government or an instrumentality or agency thereof, the Lender
shall not, on account of any Event of Default, be entitled to do any of the
following in such manner as to limit the Borrower's control under this Agreement
(or any Permitted Lessee's control under any Permitted Lease permitted by the
terms of this Agreement) of any of the Engines, unless at least 60 days' (or
such lesser period, if any, as may then be applicable under the Military Airlift
Command Program of the United States Government) notice of default hereunder
shall have been given by the Lender by registered or certified mail to the
Borrower (or any Permitted Lessee) with a copy addressed to the Contracting
Office Representative for the Military Airlift Command of the United States Air
Force under any contract with Borrower (or any Permitted Lessee) relating to the
aircraft on which an Engine is then installed:
(a) cause the Borrower, upon the written demand of the Lender, at
the Borrower's expense, to deliver promptly, and the Borrower shall deliver
promptly, all or such part of the Engines (together with all records, logs,
manuals, data, and inspection, modification and overhaul records and other
documents maintained with respect thereto or pertaining thereto, but only to the
extent any such records and other items are required to be maintained by
Applicable Law ("Required Records")) as the Lender may so demand to the Borrower
or its order, or the Lender, at its option, may enter upon the premises where
all or any part of the Engines (or any such Required Records) is located and
take immediate possession (to the exclusion of the Borrower and all Persons
claiming under or through the Borrower) of and remove any and all Engines, all
without liability accruing to the Lender for or by reason of such entry or
taking of possession or removal, whether for the restoration of damage to
property caused by such taking or otherwise;
(b) sell all or any part of the Engines at public or private sale,
whether or not the Lender shall at the time have possession thereof, as the
Lender may determine, or otherwise dispose of, hold, use, operate, lease to
others or keep idle all or any part of the Engines as the Lender, in its
19
sole discretion, may determine (and in connection therewith, Lender may use
Borrower's premises for storage pending lease or sale or for holding a sale
without liability for rent or costs or any other matter whatsoever for a period
not to exceed sixty (60) days following the date that the Lender takes actual
possession of the Engines after the occurrence of an Event of Default), all free
and clear of any rights or claims of whatsoever kind of the Borrower;
(c) apply to any court having jurisdiction to appoint a receiver or
receivers for the Engines, such receivers to have all the powers and rights of
the Lender as provided herein and by applicable law and all the normal power and
rights of receivers in like circumstances (including the right to sell, lease,
dispose of, repair, improve or modify any of the Engines) until the sale of all
the Engines or sooner termination of any such receivership; or
(d) exercise any or all of the rights and powers and pursue any and
all remedies of a secured party under the Uniform Commercial Code of the State
of New York (whether or not in effect in the jurisdiction where the Engine is
located) and under any other applicable law.
Upon every taking of possession of any part of the Engines under this
Section 4.02, to the extent permitted by Applicable Law, the Lender may, from
time to time, at the expense of the Borrower, make all such expenditures for
maintenance, insurance, repairs, replacements, alterations, additions and
improvements to and of any of the Engines, as it may reasonably deem proper. In
each such case, the Lender shall have the right to maintain, use, operate,
store, lease, control or manage all or any part of the Engines and to exercise
all rights and powers of the Borrower in relation to any part of the Engines in
connection therewith, as the Lender shall deem best, including the right to
enter into any and all such agreements with respect to the maintenance,
insurance, use, operation, storage, leasing, control, management or disposition
of any and all of the Engines as the Lender may determine; and the Lender shall
be entitled to collect and receive directly all tolls, rents, revenues, income,
and profits of all or any part of the Engines, without prejudice, however, to
the right of the Lender under any provision of this Agreement to collect and
receive all cash held by, or required to be deposited with, the Agreement
hereunder. Such tolls, rents, revenues, income, and profits may be applied to
pay the expenses of use, operation, storage, leasing, control, management or
disposition of all or any part of the Engines, and of all maintenance, repairs,
replacements, alterations, additions and improvements, and to make all payments
which the Lender may be required or may elect to make, if any, for taxes,
assessments, insurance or other proper charges upon any or all of the Engines
(including the employment of engineers and accountants to examine, inspect and
make reports upon the properties and books and records of the Borrower), and all
other payments which the Lender may be required or authorized to make under any
provision of this Agreement, as well as just and reasonable compensation for the
services of all Persons (other than the Lender's employees) properly engaged and
employed by the Lender.
In addition, the Borrower 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 Lender's remedies with respect thereto,
including all costs and expenses incurred in connection with the retaking or
return of the Engines (or any Required Records) in accordance with the terms
hereof
20
and under the Uniform Commercial Code of the State of New York, which amounts
shall, until paid, be secured by the Lien of this Agreement.
If an Event of Default shall have occurred and be continuing, at the
request of the Lender, the Borrower shall promptly execute and deliver to the
Lender such instruments of title and other documents as the Lender may deem
necessary or advisable to enable the Lender or an agent or representative
designated by the Lender, at such time or times and place or places as the
Lender may specify, to obtain possession of any or all of the Engines. If the
Borrower shall for any reason fail to execute and deliver such instruments and
documents after such request by the Lender, the Lender may obtain a judgment
conferring on the Lender the right to immediate possession and requiring the
Borrower to execute and deliver such instruments and documents to the Lender, to
the entry of which judgment the Borrower hereby specifically consents to the
fullest extent it may lawfully do so.
The Lender shall give the Borrower at least five (5) Business Days
prior written notice of any public sale or of the date on or after which any
private sale will be held, which notice the Borrower hereby agrees is reasonable
notice.
Section 5.03 Application of Proceeds. Except as may otherwise be
-----------------------
required by Applicable Law, any moneys or property actually received by the
Lender pursuant to the exercise of any rights or remedies referred to in this
Article 5 shall (subject to the determination of the Lender as to use of such
moneys and property in connection with the exercise of such rights or remedies
and as to the manner of such exercise) be applied in accordance with Section
9.01(d) of the Loan Agreement.
Section 5.04 Lender May Purchase. At any public sale under this
-------------------
Article 5, the Lender or its nominee may bid for and purchase the property
offered for sale, and, upon compliance with the terms of sale, may hold, retain
and dispose of such property without further accountability therefor, except as
otherwise required by Applicable Law. The Lender need not be present at such
sale. For the purpose of making payment for the Subject Collateral or any part
thereof so purchased, any claim for any amounts owing under the Note, the Loan
Agreement or hereunder or under any other Obligation owed by the Borrower to the
Lender may be used by the Lender as a credit against the purchase price.
ARTICLE 6.
MISCELLANEOUS
Section 6.01 Notices. All notices or other communications pursuant
-------
hereto shall be in writing and shall be given as provided in Section 11.01 of
the Loan Agreement.
Section 6.02 Waiver. To the extent permitted by Applicable Law, no
------
failure on the part of the Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right, remedy, power or privilege under
this Agreement shall operate as a waiver of such right,
21
remedy, power or privilege, nor shall any single or partial exercise of any
right, remedy, power or privilege under this Agreement preclude any other or
further exercise of any such right, remedy, power or privilege or the exercise
of any other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
Section 6.03 Amendments. Neither this Agreement nor any of the terms
----------
hereof may be terminated, amended, supplemented, waived or modified orally, but
only by an instrument in writing signed by the Lender and the Borrower.
Section 6.04 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the Borrower, the Lender and their respective
successors and permitted assigns. The Borrower shall not assign or transfer its
rights under this Agreement without the prior written consent of the Borrower.
Section 6.05 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
All representations, warranties and covenants made in this Agreement or in any
certificate or other document delivered pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement or such
certificate or other document (as the case may be) or any deemed repetition of
any such representation or warranty.
Section 6.06 Severability. To the extent permitted by Applicable
------------
Law, any provision of this Agreement that 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 of this Agreement, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
Section 6.07 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties to this Agreement may execute this
Agreement by signing any such counterpart.
Section 6.08 Setoff. Whenever an Event of Default shall have
------
occurred and be continuing, Borrower hereby irrevocably authorizes Lender to set
off the Obligations under this Agreement and the other Operative Agreements or
otherwise owed to Lender against all deposits and credits of Borrower with, and
any and all claims of Borrower against, Lender (excluding any amounts held by
the Lender (or held by the any Affiliate thereof) pursuant to Lease Agreement
[587ML]).
Section 6.09 GOVERNING LAW.
-------------
(a) THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
22
CONSTRUCTION, VALIDITY AND PERFORMANCE. THIS AGREEMENT HAS BEEN DELIVERED IN THE
STATE OF NEW YORK.
(b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
IRREVOCABLY AGREES, ACCEPTS AND SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY AND COUNTY OF NEW YORK AND OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, IN CONNECTION WITH ANY
LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTER RELATING TO OR
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT; PROVIDED, HOWEVER, TO THE
-------- -------
EXTENT PERMITTED BY APPLICABLE LAW, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION IN ORDER TO REALIZE ON THE ENGINES OR ANY OTHER
COLLATERAL OR ANY OTHER SECURITY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
IN FAVOR OF LENDER, AND BORROWER EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY
HAVE TO THE VENUE OF SUCH COURTS.
(c) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY IRREVOCABLY CONSENTS AND AGREES THAT THE SERVICE OF ANY AND ALL LEGAL
PROCESS, SUMMONS, NOTICES AND DOCUMENTS OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE MADE BY MAILING COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESS SET FORTH PURSUANT
TO SECTION 11.01 OF THE LOAN AGREEMENT. EACH PARTY HERETO AGREES THAT SERVICE
UPON IT, OR ANY OF ITS AGENTS, IN EACH CASE IN ACCORDANCE WITH THIS SECTION
6.09(c), SHALL CONSTITUTE VALID AND EFFECTIVE PERSONAL SERVICE UPON SUCH PARTY,
AND EACH PARTY HERETO HEREBY AGREES THAT THE FAILURE OF ANY OF ITS AGENTS TO
GIVE ANY NOTICE OF SUCH SERVICE TO ANY SUCH PARTY SHALL NOT IMPAIR OR AFFECT IN
ANY WAY THE VALIDITY OF SUCH SERVICE ON SUCH PARTY OR ANY JUDGMENT RENDERED IN
ANY ACTION OR PROCEEDING BASED THEREON.
(d) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN
ANY OF THE ABOVE-NAMED COURTS, THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT
THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT MAY NOT BE ENFORCED IN OR BY
SUCH COURTS.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO
HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
23
OR CAUSE OF ACTION IN ANY COURT IN ANY JURISDICTION BASED UPON OR ARISING OUT OF
OR RELATING TO THIS AGREEMENT.
24
IN WITNESS WHEREOF, the Lender and the Borrower have each caused this
Agreement to be duly executed by their authorized officers as of the day and
year first above written.
MIDWAY AIRLINES CORPORATION, as Borrower
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
General Counsel
: FLEET CAPITAL CORPORATION, as Lender
By: /s/ ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Title: Vice President
25
Schedule I to
Engine Security Agreement
-------------------------
Each aircraft engine listed below shall constitute an "Engine"
as such term is defined in the Security Agreement:
ENGINES
-------
Manufacturer Manufacturer's Model Manufacturer's Serial No.
------------ -------------------- -------------------------
General Electric Company CF34-3B1 GE-E-872554
Each Engine is of 750 or more "rated take-off horsepower" or the equivalent of
such horsepower.
APPENDIX A
DEFINITIONS
GENERAL PROVISIONS
The following terms shall have the following meanings for all purposes
of the Operative Agreements (as defined below), unless otherwise defined in an
Operative Agreement or the context thereof shall otherwise require. In the case
of any conflict between the provisions of this Appendix and the provisions of
any Operative Agreement, the provisions of such Operative Agreement shall
control the construction of such Operative Agreement.
Unless the context otherwise requires, (i) references to agreements
shall be deemed to mean such agreements as amended and supplemented from time to
time, and any agreement, instrument or document entered into in substitution or
replacement therefor, and (ii) references to parties to agreements shall be
deemed to include the successors and permitted assigns of such parties.
"Additional Insureds" means the Lender.
-------------------
"Aeronautical Authority" means as of any time of determination, the FAA or
----------------------
other governmental authority having jurisdiction over the Engines under the laws
of the country in which the airframe (on which an Engine is installed) is then
registered.
"Affiliate" means, with respect to any Person, any other Person directly or
---------
indirectly controlling 50% or more of any class of voting securities of such
Person or otherwise controlling, controlled by or under common control with such
Person. For the purposes of this definition, "control" (including "controlled
by" and "under common control with") shall mean 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.
"After Tax Basis" means a basis such that any payment to be received or
---------------
deemed to be received by a Person shall be supplemented by a payment to such
Person so that the sum of such payments, after deduction of all taxes (taking
into account any related credits or deductions) resulting from the actual or
constructive receipt or accrual of such payments, shall be equal to the payment
to be received.
"Applicable Law" means all applicable laws, treaties, judgments, decrees,
--------------
injunctions, writs and orders of any court, governmental agency or authority and
rules, regulations, orders, directives, licenses and permits of any governmental
body, instrumentality, agency or authority.
"Applicable Rate" shall mean, (i) with respect to Loan A the rate per annum
---------------
set forth in Section 2.03(a)(i) of the Loan Agreement; and (ii) with respect to
Loan B, the rate established one (1) Business Day prior to the second Funding
Date, equal to the sum of (x), the four (4) year U.S.
Treasury Constant Maturities as shown in the Federal Reserve Statistical Release
H.15 as of such date plus (y) 2.95%.
"Average Life Date" means, for either Note, the date which follows the
-----------------
prepayment date by a period equal to the Remaining Weighted Average Life of such
Note.
"Bankruptcy Code" means Title 11 of the United States Code, as amended, and
---------------
any successor thereto.
"Borrower" means Midway Airlines Corporation, a Delaware corporation, and
--------
its successors and permitted assigns.
"Borrower Documents" means the Operative Agreements to which the Borrower
------------------
is a party.
"Business Day" means any day other than a Saturday or Sunday or other day
------------
on which commercial banks are authorized or required by law to close in New York
City, Charlotte, North Carolina or Providence, Rhode Island.
"Citizen of the United States" means a citizen of the United States as
----------------------------
defined in (S)40102(a)(15) of the Transportation Code, or any analogous part of
any successor or substituted legislation or regulation at the time in effect.
"Code" means the United States Federal Internal Revenue Code of 1986, as
----
amended from time to time, or any similar legislation of the United States
enacted to supersede, amend, or supplement such Code (and any reference to a
provision of the Code shall refer to any successor provision(s), however
designated).
"Collateral" means all property which at the time of any determination is
----------
subject to a Lien in favor of Lender granted by Borrower under the Security
Agreement or under any other Operative Agreements, including, but not limited
to, the Engines.
"CRAF Program" has the meaning specified in Section 4.01(b)(vii) of the
------------
Security Agreement.
"Default" means any event or condition which, with the lapse of time or the
-------
giving of notice, or both, would constitute an Event of Default.
"Dollars", "Dollar" and "$" means dollars in lawful currency of the United
------- ------ -
States.
"Engine" means (A) each of the two General Electric CF34-3B1 Series 200
------
aircraft engines, identified by manufacturer's serial number in such Security
Agreement Supplements executed and delivered from time to time pursuant to the
Security Agreement, so long as a Replacement Engine shall not have been
substituted therefor pursuant to Section 4.03(e) of the Security Agreement, and
(B) a Replacement Engine, so long as another Replacement Engine shall not have
been substituted therefor pursuant to Section 4.03(e) of the Security Agreement,
whether or not such engine or
Replacement Engine, as the case may be, is from time to time installed on any
aircraft, and including in each case all Parts incorporated or installed in or
attached thereto and any and all Parts removed therefrom so long as title to
such Parts remains subject to the Lien of the Security Agreement under the terms
of Section 4.03 of the Security Agreement. The term "Engines" means, as of any
-------
date of determination, the two engines each of which is an Engine on that date.
"Engine Manufacturer" means General Electric Company, a New York
-------------------
corporation.
"Engine Manufacturer's Consent" means the Consent and Agreement of the
-----------------------------
Engine Manufacturer to the assignment of portions of the Engine Warranty
pursuant to Section 2.01 of the Security Agreement.
"Engine Warranty" means the General Terms Agreement No. CF34-0897-065 in
---------------
respect of the Engines provided to the Borrower by the Engine Manufacturer.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
-----
regulations and rulings issued thereunder all as amended and in effect from time
to time.
"ERISA Plan" means, individually or collectively, an employee benefit plan,
----------
as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA or any
applicable regulation thereunder or a plan or individual retirement account
which is subject to Section 4975(c) of the Code;
"Event of Default" has the meaning given to such term in Section 8.01 of
----------------
the Loan Agreement.
"Event of Loss" means any of the following events with respect to an
-------------
Engine:
(i) any theft, hijacking or disappearance of such property for a
period of 15 consecutive days (provided that, so long as Borrower shall be
diligently pursuing recovery of such property, such period shall be
extended to 45 consecutive days) or more;
(ii) destruction, damage beyond economic repair or rendition of such
property permanently unfit for normal use for any reason whatsoever;
(iii) any event which results in an insurance settlement with respect
to such property on the basis of an actual, constructive or compromised
total loss;
(iv) condemnation, confiscation or seizure of, or requisition of
title to or use of such property by the Government or any foreign
government or purported government (or in the case of any such
condemnation, confiscation, seizure or requisition of title, by the
Government) or any agency or instrumentality thereof, for a period in
excess of (A) in the case of any condemnation, confiscation, seizure or
requisition of use, 180 consecutive days or (B) in the case of any
condemnation, confiscation or seizure of, or requisition of title, 15
consecutive days;
(v) as a result of any law, rule, regulation, order or other action
by the Aeronautical Authority, the use of the Engines in the normal course
of air transportation shall have been prohibited by virtue of a condition
affecting all General Electric CF34-3B1 Series 200 aircraft engines for a
period of 180 consecutive days, unless the Borrower, prior to the
expiration of such 180-day period, shall be diligently carrying forward all
necessary and desirable steps to permit normal use of the Engines and shall
within 12 months have conformed at least one General Electric CF34-3B1
Series 200 aircraft engine (but not necessarily an Engine) to the
requirements of any such law, rule, regulation, order or action, and shall
be diligently pursuing conformance of the Engines in a non-discriminatory
manner; and
(vi) the requisition or taking of use thereof by any government, and
any divestiture of title or ownership deemed to be an Event of Loss with
respect to an Engine under Section 4.01(b)(iii) or 4.01(b)(vi) of the
Security Agreement.
The date of such Event of Loss shall be (aa) the 16/th/ day following loss of
such property or its use due to theft or disappearance or the 46/th/ day
following such loss if such period shall have been extended; (bb) the date of
any destruction, damage beyond economic repair or rendition of such property
permanently unfit for normal use; (cc) the date of any insurance settlement on
the basis of an actual, constructive or compromised total loss; (dd) the 181/st/
day following condemnation, confiscation, seizure or requisition of title to
such property by the Government or a foreign government referred to in clause
(iv) above (or the 16/th/ day in the case of appropriation of title); and (ee)
the last day of the applicable period referred to in clause (v) above.
"Expenses" has the meaning given to such term in Section 7.01(a) of the
--------
Loan Agreement.
"Federal Aviation Administration" or "FAA" means the United States Federal
-------------------------------- ---
Aviation Administration and any successor agency or agencies thereto.
"Funding Date" means, in respect of each Loan, the Business Day on which
------------
the relevant Loan is, or is to be, advanced by the Lender to the Borrower;
"Government" means the United States of America or an agency or
----------
instrumentality thereof the obligations of which bear the full faith and credit
of the United States of America.
"Indemnitee" means Lender and each Affiliate, officer, director, employee,
----------
agent, servant, successor and permitted assigns of Lender.
"Lease Agreement [N587ML]" means the Lease Agreement [N587ML] dated as of
------------------------
December 30, 1999, between Fleet National Bank, as Lessor and the Borrower, as
Lessee.
"Lender" means Fleet Capital Corporation, a Rhode Island corporation, and
------
its successors and permitted assigns.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease,
----
security interest, claim, or other similar interest of any nature whatsoever.
"Loan" means the aggregate unpaid principal balance at any time of the
----
amounts advanced by the Lender to the Borrower pursuant to the Loan Agreement,
whether as Loan A or Loan B.
"Loan A" has the meaning specified in Section 2.01(a)(i) of the Loan
------
Agreement.
"Loan A Engine" means the Engine to be financed by the proceeds of Loan A.
-------------
"Loan Agreement" means the Loan Agreement, dated as of December 30, 1999,
--------------
between the Borrower and the Lender.
"Loan B" has the meaning specified in Section 2.01(a)(ii) of the Loan
------
Agreement.
"Loan B Engine" means the Engine to be financed by the proceeds of Loan B.
-------------
"Make-Whole Premium" means with respect to the prepayment of any Note (x)
------------------
except in the case of any prepayment pursuant to Section 2.04(a) of the Loan
Agreement, until the first anniversary of the date thereof, an amount equal to
3% of the amount of the principal being prepaid and (y) otherwise, the then
current rate for United States treasury securities (United States Treasury Bills
on a discounted basis shall be converted to a bond equivalent) with a maturity
date closest to the applicable Average Life Date (the "Treasury Rate"), plus 295
basis points, shall be subtracted from the sum of: (1) the United States
Treasury securities rate which was used by the Lender in calculating the
Applicable Rate at Note commencement, plus (2) 295 basis points. If the result
is zero or a negative number, the Make-Whole Premium shall be zero. If the
result is a positive number, then the remaining payments due under such Note at
the time of prepayment shall be discounted to present value over the remaining
term of such Note, utilizing the then current Treasury Rate plus 295 basis
points. The remaining principal balance under such Note shall be subtracted
from the result of the present value calculation. The resulting amount of such
subtraction calculation shall be the Make-Whole Premium due Lender from
Borrower. Lender and Borrower agree that any Make-Whole Premium required to be
paid in connection with a Note does not constitute a penalty, but rather a
reasonable calculation of the investment loss that could be sustained by Lender
resulting from a prepayment of such Note. For purposes hereof, the Treasury
Rate shall be the "Bid Yield" calculated by reference to the "Treasury Bonds,
Notes and Bills" figures published in The Wall Street Journal on or next
-----------------------
preceding the termination date. In the event that The Wall Street Journal is
-----------------------
not published or does not publish "Treasury Bonds, Notes and Bills" figures for
four consecutive business days, a comparable reference shall be selected by
Lender in its reasonable discretion.)
"Maturity Date" means the earlier of (i) with respect to each Loan, the
-------------
date falling eighty-four (84) months after the relevant Funding Date of such
Loan or (ii) the date upon which all amounts due to Lender under the Loan
Agreement, the Notes and the other Operative Agreements shall have been paid or
shall be payable in full in accordance with the terms thereof.
"Minimum Liability Amount" shall mean $300,000,000.
------------------------
"Note" or "Notes" means each of the secured promissory notes issued by the
---- -----
Borrower to the Lender from time to time pursuant to the Loan Agreement.
"Obligations" means all indebtedness, liabilities, fees, indemnities and
-----------
obligations of Borrower and any other Person to Lender arising under or relating
to the Operative Agreements, including, but not limited to, repayment of the
principal of the Loan and payment of interest thereon.
"Officer's Certificate" means as to any company a certificate signed by a
---------------------
Responsible Officer of such company.
"Operative Agreements" means the Loan Agreement, the Notes, the Security
--------------------
Agreement and the Security Agreement Supplements.
"Parts" means any and all appliances, parts, instruments, components,
-----
appurtenances, accessories, furnishings, seats, and other equipment of whatever
nature (other than complete Engines and temporary replacement parts as provided
in Section 4.03(a) of the Security Agreement) which may from time to time be
incorporated or installed in or attached to any Engine, exclusive of any items
leased by the Borrower from third parties and not required in the operation of
any Engine.
"Past Due Rate" means a rate equal to the rate per annum announced from
-------------
time to time by Citibank, N.A. as its prime rate plus three percent (3%) per
annum.
"Payment Date" means, with respect to each Loan, each date listed under the
------------
heading "Payment Date" in Schedule I to the relevant Note.
"Permitted Air Carrier" means (a) any Section 1110 Person and (b) any
---------------------
foreign air carrier that is principally based in any foreign country listed on
Exhibit B to the Security Agreement, except those that do not maintain normal
diplomatic relations with the United States.
"Permitted Investments" means (a) direct obligations of the United States
---------------------
of America or any agency or instrumentality thereof, (b) obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, (c) any mutual fund the portfolio of which is limited to obligations of
the type described in clauses (a) and (b), (d) certificates of deposit issued
by, or bankers' acceptances of, or time deposits or a deposit account with, any
bank, trust company, or national banking association incorporated or doing
business under the laws of the United States of America or one of the states
thereof, having a combined capital and surplus of at least $100,000,000 and
having a rating of "A" or better from the ▇▇▇▇▇ Bank Watch Service. Unless
otherwise specified in writing by the Lender, all such Permitted Investments
shall mature not later than 30 days from the date of purchase.
"Permitted Lease" means any lease agreement between the Borrower and a
---------------
Permitted Lessee as permitted by Section 4.01(b) of the Security Agreement.
"Permitted Lessee" means (a) any Permitted Air Carrier, (b) any airframe or
----------------
engine manufacturer, or Affiliate of such a manufacturer, who is domiciled in
the United States of America
or a country listed on Exhibit B to the Security Agreement or (c) the United
States of America or any instrumentality or agency thereof.
"Permitted Lien" has the meaning given to such term in Section 4.06 of the
--------------
Security Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, joint stock company, trust, unincorporated organization, association,
corporation, institution, limited liability company or government (federal,
state, local, foreign or any agency, instrumentality, division or body thereof)
or other entity of whatever nature.
"Remaining Weighted Average Life" means on a given date with respect to any
-------------------------------
Note the number of days equal to the quotient obtained by dividing (i) the sum
of each of the products obtained by multiplying (a) the amount of each then
remaining scheduled payment of principal of such Note by (b) the number of days
from and including such prepayment date to but excluding the dates on which each
such payment of principal is scheduled to be made; by (ii) the then outstanding
principal amount of such Note.
"Replacement Engine" means a General Electric CF34-3B1 Series 200 engine
------------------
(or engine of the same manufacturer of a comparable or an improved model) which
replaces an Engine pursuant to Section 4.03(e) of the Security Agreement and
which shall have become subject to the Lien of the Security Agreement pursuant
to Section 4.03(e) thereof.
"Responsible Officer" means, with respect to any party, any Vice President
-------------------
or other corporate officer of a party who, in the normal performance of his or
her operational responsibilities, with respect to the subject matter of any
covenant, agreement or obligation of such party pursuant to any Operative
Agreement, would have responsibility for and knowledge of such matter and the
requirements of any Operative Agreement with respect thereto.
"Section 1110" means 11 U.S.C. (S) 1110 or any successor or analogous
-------------
section of the federal bankruptcy law in effect from time to time.
"Section 1110 Person" means a Citizen of the United States who is an air
-------------------
carrier holding a valid air carrier operating certificate issued pursuant to 49
U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.
"Security Agreement" means the Engine Security Agreement, dated as of
------------------
December 30, 1999, between the Borrower and the Lender.
"Security Agreement Supplement" means any supplement to the Security
-----------------------------
Agreement, substantially in the form of Exhibit A to the Security Agreement,
entered into between the Borrower and the Lender for the purpose of identifying
the Engines (or a Replacement Engine) by manufacturer's serial numbers and
subjecting the Engines (or a Replacement Engine) to the Lien of the Security
Agreement, including any amendment thereto entered into subsequent to the first
Funding Date.
"Specified Default" means (a) an event or condition described in Section
-----------------
8.01(a), (f), (g) or (h) of the Loan Agreement that, after the giving of notice
or lapse of time, or both, would become an Event of Default, or (b) any Event of
Default.
"Tax" or "Taxes" means all license, recording, documentary, registration
--- -----
and other fees and all taxes (including, without limitation, income, gross
receipts, sales, rental, use, value added, property (tangible and intangible),
ad valorem, excise and stamp taxes), fees, levies, imposts, recording duties,
-- -------
duties, charges, assessments or withholdings of any nature whatsoever, together
with any assessments, penalties, fines, additions to tax or interest thereon.
"Transaction Costs" means those costs and expenses set forth in Section
-----------------
10.01(a) of the Loan Agreement.
"Transportation Code" means Title 49 of the United States Code, subtitle
-------------------
VII, as amended and in effect on the date of the Loan Agreement or as
subsequently amended, or any successor or substituted legislation at the time in
effect and applicable, and the regulations promulgated pursuant thereto.
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
-----------------------
from time to time in any relevant jurisdiction.
"United States", "U.S." or "US" means the United States of America.
------------- ---- --
Exhibit A to
Engine Security Agreement
-------------------------
ENGINE SECURITY AGREEMENT SUPPLEMENT
------------------------------------
This ENGINE SECURITY AGREEMENT SUPPLEMENT, dated as of December ___,
1999 (this "Security Agreement Supplement"), is between MIDWAY AIRLINES
CORPORATION, a Delaware corporation (herein, together with its successors and
permitted assigns, the "Borrower") and FLEET CAPITAL CORPORATION, a Rhode Island
corporation (together with its successors and permitted assigns, the "Lender").
WHEREAS, the Borrower and the Lender have entered into the Engine
Security Agreement dated as of December 30, 1999 (the "Security Agreement"),
covering two (2) General Electric model CF34-3B1 aircraft engines bearing
manufacturer's serial numbers GE-E-_____ and GE-E-_____, each of which is of
750 or more "rated take-off horsepower" or the equivalent of such horsepower
(collectively, the "Engines") (terms used in this Security Agreement Supplement
having the meanings assigned thereto in the Security Agreement).
WHEREAS, the Security Agreement has been duly recorded with the FAA
on _______________, as Conveyance Number ________________ pursuant to the
Transportation Code;
WHEREAS, this Security Agreement Supplement relates to the engine(s)
and/or lease(s) described in Schedule I hereto; and
WHEREAS, the Security Agreement provides for the execution and
delivery from time to time of Security Agreement Supplements, each substantially
in the form hereof, for the purpose of subjecting an aircraft engine to the Lien
of the Security Agreement.
NOW, THEREFORE, as security for the payment and performance of the
Obligations (whether as scheduled, upon acceleration or otherwise, including,
without limitation, all indebtedness, liabilities, fees, indemnities and
obligations of Borrower and any other Person to Lender arising under or relating
to the Operative Agreements, including, but not limited to, repayment of the
principal of the Loan and payment of interest thereon and of all costs of
collection and enforcement of the Obligations, the Borrower hereby mortgages,
pledges and assigns to the Lender, and hereby creates in and grants to the
Lender a continuing security interest in, but none of its obligations or
liabilities respecting, all of the Borrower's right, title and interest in and
to the property described in Schedule I to this Security Agreement Supplement.
This Security Agreement Supplement shall be construed as supplemental
to the Security Agreement and shall form a part thereof; and the Security
Agreement is hereby incorporated by reference herein to the same extent as if
fully set forth herein and is hereby ratified, approved and confirmed in all
respects.
IN WITNESS WHEREOF, the Lender and the Borrower have each caused this
Security Agreement Supplement to be duly executed by their authorized officers
as of the day and year first above written.
MIDWAY AIRLINE CORPORATION, as Borrower
By: __________________________________________
Name:
Title:
FLEET CAPITAL CORPORATION, as Lender
By: __________________________________________
Name:
Title:
Exhibit B to
Engine Security Agreement
-------------------------
List of Countries - Permitted for Re-Registration and Subleasing
----------------------------------------------------------------
Argentina Italy
Australia Japan
Austria Luxembourg
Belgium Mexico
Canada Netherlands
Denmark New Zealand
Finland Norway
France Portugal
Germany Spain
Iceland Sweden
Ireland Switzerland
United Kingdom