1
EXHIBIT 10.81
SECURITY AGREEMENT AND CHATTEL MORTGAGE
(AIRCRAFT NO.N524MC)
(SPARE ENGINE NOS. 517790 and 517602)
THIS SECURITY AGREEMENT AND CHATTEL MORTGAGE is dated as of September 5,
1997, (this "Mortgage"), and entered into by and between ATLAS AIR, INC., a
Delaware corporation (the "Lessee"), ATLAS FREIGHTER LEASING II, INC., a
Delaware corporation ("Company" or "Lessor"), and BANKERS TRUST COMPANY, as
administrative agent for and representative of (in such capacity, the "Agent")
the financial institutions ("Lenders") party to the Credit Agreement referred to
below.
PRELIMINARY STATEMENTS
Company has entered into a credit agreement dated as of September 5, 1997
(said credit agreement, as it may be amended, restated, supplemented or
otherwise modified from time to time, being the "Credit Agreement") with
Lenders, ▇▇▇▇▇▇▇ ▇▇▇▇▇ Credit Partners L.P., as Syndication Agent, and Agent,
pursuant to which Lenders have agreed, on the terms and conditions set forth in
the Credit Agreement, to make term loans to Company in the principal amount of
up to $185 million (the "Loans") to enable Company to refinance certain
indebtedness currently encumbering the Aircraft Collateral (as defined below).
The indebtedness with respect to Loans made by Lenders is to be evidenced by
certain promissory notes of Company to the order of Lenders of even date
herewith issued under and pursuant to the Credit Agreement (such promissory
notes, as they may be amended, modified, supplemented, renewed, converted or
extended from time to time, being the "Notes"). It is a condition precedent to
the making by Lenders of the Loans under the Credit Agreement that this Mortgage
be executed, delivered and filed for recordation.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make the Loans, Company hereby agrees with Agent as follows:
-1-
2
SECTION 1. Mortgage and Grant of Security.
To secure the due and punctual payment of the Notes, together with accrued
interest thereon, and all other amounts from time to time payable by Company
under the Credit Agreement, this Mortgage and the other Loan Documents (as
defined below) (including payment of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the United States
Bankruptcy Code), and to secure performance of all obligations and covenants of
Company under the Credit Agreement, this Mortgage and the other Loan Documents
(all such payment and performance obligations of Company, the "Secured
Obligations"), Company hereby mortgages to Agent, for the benefit of Lenders,
and their respective successors and assigns, and hereby grants and assigns to
Agent, for the benefit of Lenders, and their respective successors and assigns,
a first priority security interest in the Aircraft and the Spare Engines (the
"Aircraft Collateral") and a first priority security interest in all estate,
right, title and interest of Company in, to and under, the other below described
property wherever the same may be located (the "Aircraft Related Collateral"):
(a) Aircraft Collateral. All of Company's right, title and interest in and
to:
(i) the airframe (the Aircraft except for the Engines or engines from
time to time installed thereon), which is described on Schedule I hereto
and any replacement airframe which may be substituted for such airframe in
accordance with the provisions of Section 4(f) hereof together with any and
all Parts (as hereinafter defined) incorporated or installed in or attached
to such airframe and all Parts removed from such airframe until such Parts
are replaced in accordance with Section 4(e) hereof (such airframe,
together with any replacement airframe and all such Parts, hereinafter
referred to as the "Airframe");
(ii) each of the engines and spare engines (the "Spare Engines"),
which are listed in Schedule II hereto or which are described in a
Supplemental Chattel Mortgage (a "Supplemental Chattel Mortgage")
substantially in the form of Exhibit A attached hereto, supplementing this
Mortgage, and listed by manufacturer's serial numbers in such Schedule or
in such Supplemental Chattel Mortgage, whether or not from time to time
thereafter installed on the airframe or on any other airframe or aircraft,
and any replacement engine which may be substituted for such engine or
spare engine in accordance with the provisions of Section 4(f) hereof,
together, in each case, with any and all Parts incorporated or installed in
or attached thereto and any and all Parts removed therefrom, until such
Parts are replaced in accordance with Section 4(e) hereof (each such
engine, and replacement engine, together with any and all such Parts,
hereinafter referred to as an "Engine" and collectively, the "Engines");
-2-
3
(iii) all appliances, parts, instruments, appurtenances, accessories,
furnishings and other equipment of whatever nature (other than complete
Engines, Spare Engines or engines), which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or
Spare Engine, including all such appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment purchased by
Company for incorporation or installation in or attachment to the Airframe
or any Engine or Spare Engine pursuant to the terms of any agreement
whether or not identified in a Supplemental Chattel Mortgage (collectively
referred to herein as "Parts"); and
(iv) all records, logs and other materials required by applicable law
or regulation to be maintained and all other records, logs and materials
maintained in the ordinary course of business with respect to the
properties described in paragraphs (i), (ii) and (iii) above (together with
such Airframe and Engines (other than the Spare Engines), the "Aircraft").
(b) Aircraft Related Collateral. All of Company's right, title and interest
in and to:
(i) all the tolls, rents, issues, profits, revenues and other income
of the property subject or required to be subject to the lien of this
Mortgage including, without limitation, all payments or proceeds payable to
Company after termination of the Lease with respect to the Aircraft and
Spare Engines as the result of the sale, lease or other disposition
thereof, and all estate, right, title interest of every nature whatsoever
of Company in and to the same and every part thereof;
(ii) all monies and securities deposited or required to be deposited
with Agent pursuant to any term of this Mortgage and held or required to be
held by Agent hereunder or paid to Agent in accordance with the terms of
the Lease;
(iii) the contractual rights of the Company under any purchase or
modification agreement or manufacturer's warranty, together with all
rights, powers, privileges, options, licenses and other benefits of Company
(including such indemnities, rights of assignment, rights and remedies for
breach of any warranty and/or claims for damages, rights to receive title
to parts and materials to the extent same relates to the Aircraft or Spare
Engines including any agreement assigned therewith;
-3-
4
(iv) all amounts payable to Company by any manufacturer, supplier or
vendor of any of the Aircraft Collateral or any component thereof pursuant
to any warranty or indemnity covering any such Aircraft Collateral;
(v) all amounts payable as proceeds of insurance, as an award or
otherwise in connection with any confiscation, condemnation, requisition or
other taking of any Aircraft Collateral to the extent payable to Company
under the Lease or to Agent hereunder;
(vi) the Lease, including without limitation all Basic Rent,
Supplemental Rent, insurance proceeds, requisition, indemnity and other
payments of any kind thereunder, and including all rights of Company, as
lessor, to execute any election or option or to give any notice, consent,
waiver or approval under or in respect of the Lease or to accept any
surrender of any of the Aircraft or Spare Engines or any part thereof, as
well as any rights, powers or remedies on the part of the Lessor, whether
arising under the Lease or by statute or at law or in equity, or otherwise,
arising out of any Lease Event of Default (as defined in the Lease),
including, without limitation, all rights under Section 1110 of the
Bankruptcy Code; and
(vii) all proceeds of any and all of the properties described above,
including, without limitation, all payments under insurance proceeds or
payment under any indemnity, payable by reason of any loss or damage to the
Aircraft, any Engine or any Spare Engine.
Company shall deliver to Agent an executed chattel paper original
counterpart of each Lease and the Lease Supplements covering the Aircraft and
Spare Engines. All property referred to in this granting clause, whenever
acquired by the Lessor under the Lease, shall secure all Secured Obligations.
Company does hereby warrant and represent that it has not assigned or pledged,
and hereby covenants that it will not assign or pledge, so long as the
assignment hereunder shall remain in effect, any of its right, title or interest
hereby assigned to anyone other than Agent, and that it will not, except as
provided herein or in the Credit Agreement, enter into any agreement amending or
supplementing any purchase agreement, modification agreement to the extent such
agreement relates to the Aircraft or Spare Engines, or execute any waiver or
modification of, or consent under, any such agreement, or settle or compromise
any claim arising under any such agreement or submit or consent to the
submission of any dispute, difference or other matter arising under or in any
respect of any such agreement to arbitration thereunder.
-4-
5
SECTION 2. Definitions.
Unless the context otherwise requires, the following terms shall have the
following meanings for all purposes of this Mortgage and shall be equally
applicable to both the singular and the plural forms of such terms. Terms
defined in the Credit Agreement and not otherwise defined herein are used herein
as therein defined.
"Acceptable Alternate Airframe" means a Boeing 747-200 which is in
cargo configuration capable of immediate operation in the business of
Lessee and has a maximum gross takeoff weight of at least 800,000 pounds
and is of the equivalent or greater residual value, condition, utility,
airworthiness, and remaining useful life and which shall have been
maintained, serviced, repaired and overhauled in substantially the same
manner as Lessee maintains, services, repairs and overhauls similar
airframes utilized by Lessee and without in any way discriminating against
such airframe.
"Acceptable Alternate Engine" means a General Electric CF6-50E2
aircraft engine for the aircraft bearing U.S. registration numbers N523MC,
N524MC, N526MC and N527MC or an engine of the same or another manufacturer
of equivalent or greater residual value, condition, utility, airworthiness,
and remaining useful life and suitable for installation and use on the
Airframe; provided that such engine shall be of the same make, model and
manufacturer as the other engines installed on the Airframe, shall be an
engine of a type then being utilized by Lessee on other Boeing 747-200
aircraft operated by Lessee, and shall have been maintained, serviced,
repaired and overhauled in substantially the same manner as Lessee
maintains, services, repairs and overhauls similar engines utilized by
Lessee and without in any way discriminating against such engine.
"ACMI Contract" means (i) any contract entered into by Lessee pursuant
to which Lessee furnishes the aircraft, crew, maintenance and insurance and
customers bear all other operating expenses and (ii) any similar contract
in which the customer provides the flight crew, all in accordance with
Lessee's historical practices.
"Act" means the Federal Aviation Act of 1958, as amended and
recodified in ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, or any similar legislation of
the United States enacted to supersede, amend or supplement such Act and
the rules and regulations promulgated thereunder.
-5-
6
"Agent" has the meaning specified in the first paragraph of this
instrument.
"Aircraft" has the meaning specified in Section 1 hereof.
"Aircraft Collateral" has the meaning specified in Section 1 hereof.
"Aircraft Related Collateral" has the meaning specified in Section 1
hereof.
"Airframe" has the meaning specified in Section 1 hereof.
"Company" has the meaning specified in the first paragraph of this
instrument.
"Credit Agreement" has the meaning specified in the Preliminary
Statements.
"Domestic Air Carrier" means any United States "domestic air carrier,"
as defined in Part 121 of the Federal Aviation Regulations, that is
operating in accordance with the operating certificate and appropriate
operations specifications issued under Part 121 or any successor
regulations.
"Engine" has the meaning specified in Section 1 hereof.
"Event of Default" means any Event of Default as defined in the Credit
Agreement.
"Lease" means that certain Lease Agreement, dated as of September __,
1997, by and between Atlas Freighter Leasing II, Inc., as Lessor, and Atlas
Air, Inc., as Lessee, for the lease of the Aircraft and Spare Engines,
together with any amendments, modifications, supplements or additions
thereto.
"Lessee" means Atlas Air, Inc.
"Lessor" has the meaning specified in the first paragraph of this
Mortgage.
"Loans" has the meaning specified in the Preliminary Statements.
-6-
7
"Mortgage" has the meaning specified in the first paragraph of this
instrument.
"Notes" has the meaning specified in the Preliminary Statements.
"Parts" has the meaning specified in Section 1 hereof.
"Secured Obligations" has the meaning specified in Section 1 hereof.
"Spare Engines" has the meaning specified in Section 1 hereof.
"Supplemental Chattel Mortgage" has the meaning specified in Section 1
hereof.
SECTION 3. Representations and Warranties.
Company hereby represents and warrants that, in the case of the Airframe or
each Engine or each Spare Engine initially or subsequently mortgaged hereunder
on the date the Airframe, such Engine or Spare Engine is mortgaged hereunder as
follows:
(a) Company has good and marketable title to the Aircraft Collateral
free and clear of all Liens except for the lien of this Mortgage and
Permitted Encumbrances and the Lease and has full power and authority to
mortgage and grant the lien and security interest in the Aircraft
Collateral and Aircraft Related Collateral intended by the terms hereof and
in the manner aforesaid and has not assigned or pledged any of its right,
title or interest hereby assigned to anyone other than Agent.
(b) Company is a "citizen of the United States" as defined in Section
40102(15) of Title 49 of the United States Code.
(c) Ownership of the Airframe is duly registered in the name of
Company in accordance with the Act; and the Airframe is not registered
under the laws of any other country.
(d) This Mortgage or a Supplemental Chattel Mortgage, as the case may
be, is in due form for recording in accordance with the Act and has been
duly filed for recording in accordance with the Act against the Aircraft or
such Engine(s) or Spare Engine as the case may be.
-7-
8
(e) An airworthiness certificate has been duly issued under the Act
for the Aircraft (evidence of which has been supplied to Agent), and the
airworthiness certificate for the Aircraft is in full force and effect.
(f) The Aircraft, Engines and Spare Engines are in such condition so
as to comply with the requirements of Section 4(c) hereof; and the
insurance required by Section 4(g) hereof is in full force and effect.
(g) This Mortgage or this Mortgage as supplemented by a Supplemental
Chattel Mortgage constitutes the legally valid and binding obligation of
Company enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, or similar laws or equitable principles relating to or limiting
creditors' rights generally, and creates a valid, perfected and first
priority mortgage on and security interest in the Aircraft Collateral,
securing the payment and performance of the Secured Obligations.
(h) Company has delivered to Agent for filing financing statements
under Article 9 of the Uniform Commercial Code of the States of Colorado
and New York and such other states as may be required with respect to that
portion of the Aircraft Collateral not covered by the filing system
established under the Act and with respect to the Aircraft Related
Collateral; and except for the filings described in this paragraph and in
paragraph (d) above of this Section 3, no filing or recording of any
instrument shall be required to establish and perfect a first priority
security interest in the Aircraft Collateral and Aircraft Related
Collateral under the laws of the United States or any State thereof.
(i) The chief place of business and the chief executive office of
Company is located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
SECTION 4. Covenants.
Company hereby covenants that so long as this Mortgage is in effect:
(a) Liens. Company will not directly or indirectly create, incur,
assume or suffer to exist any Lien, on or with respect to any of the
Aircraft Collateral, or Aircraft Related Collateral, title thereto or any
interest therein, except the lien of this Mortgage and Permitted
Encumbrances, including the Lease. Company will promptly, at its own
expense, take such action as may be
-8-
9
necessary to duly discharge any such Lien not excepted above if the same
shall arise at any time.
(b) Taxes. Company will pay, and hereby indemnifies Agent from and
against, any and all fees and taxes, levies, imposts, duties, charges or
withholdings, together with any penalties, fines or interest thereon (any
of the foregoing for the purposes of this Section 4(b) being called a
"Tax"), which may from time to time be imposed on or asserted against Agent
or any Lender or the Airframe or any Engine or any Spare Engine or any part
thereof or interest therein by any Federal, state or local government or
other taxing authority in the United States or by any foreign government or
subdivision thereof or by any foreign taxing authority in connection with,
relating to or resulting from: (i) the Airframe or any Engine or any Spare
Engine or any part thereof of interest therein; (ii) the manufacture,
purchase, ownership, mortgaging, lease, sublease, use, storage,
maintenance, sale or other disposition of the Airframe or any Engine or any
Spare Engine; (iii) any rentals or other earnings therefor or arising
therefrom or the income or other proceeds received with respect thereto; or
(iv) this Mortgage; provided, however, that there shall be excluded from
any indemnification any Lessor Tax (as defined in the Lease) and unless the
payment of any such Tax shall be a condition to the enforceability of this
Mortgage or the perfection of the lien hereof or unless proceedings shall
have been commenced to foreclose any lien which may have attached as
security for such Tax, nothing in this Section shall require the payment of
any Tax so long as and to extent that validity thereof shall be contested
in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and Company shall have set aside on its books adequate
reserves with respect thereto in accordance with generally accepted
accounting principles.
(c) Registration; Maintenance and Operation. Company, at its own cost
and expense, (i) will be a "citizen of the United States" as defined in
Section 40102(15) of Title 49 of the United States Code; (ii) will cause
ownership of the Aircraft and Spare Engines to be duly registered and
remain duly registered in the name of Company in accordance with the Act;
and (iii) will cause Lessee to service, repair, inspect, test, maintain,
overhaul the Airframe and each Engine and each Spare Engine and install
replacement equipment and parts on the Aircraft, each Engine and each Spare
Engine (A) so as to keep the Airframe and each Engine and each Spare Engine
in such operating condition as may be required to permit the Airframe and
each Engine to be utilized in commercial operations, (B) so as to enable
the airworthiness certification of the Airframe to be maintained in good
standing at all times under
-9-
10
the Act, except when aircraft of the same type, model or series as the
Airframe (powered by engines of the same type as those with which the
Airframe shall be equipped at the time of grounding) registered in the
United States have been grounded by the FAA; provided, however, that if
following its issuance, the United States FAA airworthiness certificate of
the Aircraft shall be withdrawn, then subject to the provisions of Section
4(f) hereof, so long as Company is diligently 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, (C) in
accordance with Lessee's FAA-approved maintenance, inspection and
maintenance control programs, and in the same manner and with the same care
used by Lessee with respect to the same or similar aircraft and engines
owned or operated by Lessee so as to keep the same in as good operating
condition as when originally mortgaged hereunder, ordinary wear and tear
excepted, which practices shall at all times be at or above the standard of
the industry in the United States for prudent maintenance of similar
equipment, and (D) in such manner as may be necessary to maintain in full
force all warranties of the manufacturers thereof. Company shall maintain,
or shall cause Lessee to maintain, all records, logs and other materials
which may be required to permit the Airframe, each Engine and each Spare
Engine to be so utilized.
Company will comply in all material respects with all airworthiness
directives, mandatory notes or modifications or similar requirements
affecting the same (including those issued by the manufacturer or supplier)
in such condition so as to comply with the provisions of this Mortgage and
the rules and regulations of the FAA from time to time in force and
applicable to the Aircraft, Engines and Spare Engines. Neither the Airframe
nor any Engine nor any Spare Engine will be maintained, used or operated in
violation of any law or any rule, regulation or order of any government or
governmental authority having jurisdiction (domestic or foreign), or in
violation of any airworthiness certificate, license or registration
relating to the Airframe or such Engine or such Spare Engine issued by any
such authority, and in the event that such laws, rules, regulations or
orders require alteration of the Airframe or any Engine or any Spare
Engine, Company, at its own cost and expense, will conform thereto or
obtain conformance therewith and will maintain the same in proper operating
condition under such laws, rules, regulations and orders; provided,
however, that Company may, in good faith (after having delivered to Agent
an Officer's Certificate stating the facts with respect thereto), contest
the validity or application of any such law, rule, regulation or order in
any reasonable manner which does not, in Agent's opinion, adversely affect
the interests under this Mortgage of Agent or any Lender.
-10-
11
Company will not operate, use or locate the Airframe or any Engine or
any Spare Engine, (I) in any area in which any insurance required to be
maintained pursuant to Section 4(g) shall not be at the time in full force
and effect, or in any area excluded from coverage by an insurance policy in
effect with respect to the Airframe or such Engine or such Spare Engine,
except in the case of a requisition for use by the United States of
America, and then only if Company obtains indemnity or "war risk" insurance
in lieu of such insurance from the United States of America against the
risks and in the amounts required by said Section covering such area, or
(II) in any recognized or threatened area of hostilities unless fully
covered to Agent's satisfaction by war risk and political risk and allied
perils insurance or unless the Airframe or such Engine or such Spare Engine
is operated or used under contract with the Government of the United States
of America under which contract that Government provides "war risk"
insurance or assumes liabilities for any damages, loss, destruction or
failure to return possession of the Airframe or such Engine or such Spare
Engine at the end of the term of such contract and for injury to persons or
damage to property of others.
Company shall not use the Aircraft or any Spare Engines nor suffer it
to be used in any manner or for any purpose excepted from any of the
insurance on or in respect of the Aircraft or any Spare Engines or for the
purpose of carriage of goods of any description excepted from such
insurance nor do, or permit to be done, anything which, or admit to do
anything the admission of which, may invalidate any of such insurance.
(d) Possession. Company will not, without the prior written consent of
Agent, sell, assign, lease or otherwise in any manner deliver, transfer or
relinquish possession or control of, or transfer the right, title or
interest of Company in, the Airframe or any Engine or any Spare Engine
except that Company may enter into and perform all provisions and terms of
the Lease and Lessee or the Company, unless a Potential Event of Default or
Event of Default shall have occurred and be continuing, without the prior
written consent of Agent, may take the following actions so long as the
actions to be taken shall not deprive the Agent of the first priority Lien
of this Mortgage on the assets subject hereto and so long as the actions to
be taken shall not deprive Company as Lessor of the protections of Section
1110 of the Bankruptcy Code with respect to the Aircraft or Spare Engines
nor shall such actions deprive the Agent of the protections of Section 1110
of the Bankruptcy Code with respect to the Aircraft or Spare Engines as
assignee of Company's rights under this Mortgage:
-11-
12
(i) transfer possession of the Airframe or any Engine or Spare
Engine other than by lease to the United States of America or any
instrumentality thereof pursuant to the Civil Reserve Air Fleet
Program (as administered pursuant to Executive Order 12656, or any
substitute order) or any similar or substitute programs;
(ii) transfer possession of the Airframe or any Engine or Spare
Engine to the manufacturer thereof for testing or other similar
purposes or any other organization for service, repairs, maintenance
or overhaul or, to the extent permitted by Section 4(e) hereof, for
alterations or modifications;
(iii) subject any Engine or Spare Engine to normal interchange or
pooling agreements or arrangements of the type customary in the United
States airline industry and entered into by Company or Lessee in the
ordinary course of business which do not contemplate or require the
transfer of title to, use for the remainder of its useful life, or
registration of the Airframe or title to, or use for the remainder of
its useful life of such Engine or Spare Engine; provided, however if
Company's title to or use for the remainder of its useful life, of the
Airframe or any Engines or Spare Engines shall be divested under any
such agreement or arrangement, such divesture shall be deemed to be an
Event of Loss with respect to the Airframe or such Engine or Spare
Engine and Company shall comply with Section 4(f) in respect thereof;
(iv) install an Engine or Spare Engine on an airframe which is
owned by Lessee; provided that such airframe is free and clear of all
Liens on property of Lessee except (A) Liens permitted under the
Lease, (B) Liens that apply only to the engines (other than the
Engines or Spare Engines), appliances, parts, instruments,
appurtenances, accessories, furnishings and other equipment (other
than Parts) installed on such airframe (but not to the airframe as an
entirety), and (C) the rights of any Domestic Air Carrier, under
normal interchange agreements which are customary in the airline
industry and do not contemplate or require the transfer of title to
such airframe or the engines installed thereon;
(v) install an Engine or Spare Engine on an airframe leased to
Lessee or owned by Lessee subject to a conditional sale or other
security agreement, provided: (A) such airframe is free and clear of
all Liens, except the rights of the parties to the lease or
conditional sale or other security agreement covering such airframe
and except Liens of the
-12-
13
type permitted by clause (iv) above; and (B) Agent shall have received
from the lessor, conditional vendor or secured party and each of the
purchasers, mortgagees and encumbrancers of such lessor, conditional
vendor or secured party of such airframe a written agreement (which
may be the lease, conditional sale agreement or mortgage covering such
airframe), whereby such lessor, conditional vendor or secured party
and each of the purchasers, mortgagees and encumbrancers of such
lessor, conditional vendor or secured party expressly and effectively
agrees that neither it nor its successors and assigns will acquire or
claim any right, title or interest in any Engine or Spare Engine by
reason of such Engine or Spare Engine being installed on such airframe
at any time when such Engine or Spare Engine is subject to this
Mortgage;
(vi) install an Engine or Spare Engine on an airframe owned or
leased by 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 divesture of title to such
Engine or Spare Engine resulting from such installation shall be
deemed to be an Event of Loss with respect to such Engine or Spare
Engine and Company shall comply with Section 4(f) in respect thereof;
(vii) authorize or permit the Lessee to enter into an ACMI
Contract or wet lease for the Airframe and the Engines and Spare
Engines or engines installed thereon with any third party pursuant to
which Company has operational control of the Airframe and any Engines
and Spare Engines installed thereon such operation to be performed
solely by individuals under the operational control of Company
possessing all current certificates and licenses that would be
required under the applicable laws of the United States for the
performance by such employees of similar functions within the United
States; provided that Company's obligations hereunder shall continue
in full force and effect notwithstanding any such ACMI Contract or wet
lease;
provided, however, that the rights of any transferee who receives
possession of the Airframe or any Engine or Spare Engine permitted by the
terms hereof shall be made subject and subordinate to, and the Leases
shall be made expressly subject and subordinate to, the lien and security
interest of this Mortgage and all of Agent's rights hereunder and Company
shall remain primarily liable hereunder for the performance of all the
terms of this Mortgage to the same extent as if such transfer had not
occurred, and any such instrument of transfer shall include appropriate
provisions for the maintenance and insurance of the
-13-
14
Airframe or such Engine or Spare Engine, and any such instrument of
transfer (other than the Lease) shall expressly prohibit any further
transfer of the Airframe or such Engine or Spare Engine or any assignment
of the rights thereunder; and provided, further, that no such lease,
pooling arrangement or other transfer or relinquishment of the possession
of the Airframe or any Engine or Spare Engine shall in any way discharge
or diminish any of Company's obligations to Agent hereunder or under the
Credit Agreement. In the event Agent shall have received from the lessor,
conditional vendor or secured party of any airframe leased to Lessee or
purchased by Lessee subject to a conditional sale or other security
agreement, a written agreement complying with clause (B) of Section
4(d)(v), and the lease or conditional sale or other security agreement
covering such airframe also covers an engine, engines or spare engines
owned by the lessor under such lease, conditionally owned by the
conditional vendor under such conditional sale agreement, or subject to
such security agreement, Agent hereby agrees for the benefit of such
lessor, conditional vendor or secured party that Agent will not acquire or
claim, as against such lessor, conditional vendor or secured party, any
right, title or interest in any such engine or spare engine as the result
of such engine or spare engine being installed on the Airframe at any time
while such engine or spare engine is subject to such lease or conditional
sale or other security agreement and owned by such lessor, conditionally
owned by such conditional vendor or subject to such security agreement.
(e) Replacement and Pooling of Parts: Alterations, Modifications and
Additions.
(i) Except as otherwise provided in Section 4(e)(iv), Company, at
its own cost and expense, will promptly replace all Parts, which may
from time to time be incorporated or installed in or attached to the
Airframe or any Engine or Spare Engine and which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason
whatsoever. In addition, in the ordinary course of maintenance,
service, repair or testing, Company 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, except as otherwise provided in Section
4(e)(iv), Company at its own cost and expense shall replace such Parts
as promptly as practicable. All replacement Parts shall be owned by
Company free and clear of all Liens (except Permitted Encumbrances and
the Lease, and for pooling arrangements to the extent permitted by
-14-
15
Section 4(e)(ii)), 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 property were in the condition and repair required to be
maintained by the terms hereof.
All Parts at any time removed from the Airframe or any Engine or
any Spare Engine shall remain the property of Company and shall remain
subject to the lien and security interest of this Mortgage, no matter
where located until such time as such Parts shall be replaced by parts
which have been incorporated or installed in or attached to the
Airframe or any Engine or Spare Engine and which meet the requirements
for replacement parts specified above. Immediately upon any
replacement Part becoming incorporated or installed in or attached to
the Airframe or any Engine or Spare Engine as above provided, without
further act, (A) title to such replacement Part shall vest in and such
replacement part shall become the property of Company and shall become
subject to the lien and security interest of this Mortgage and shall
be deemed part of the Airframe or such Engine or Spare Engine for all
purposes hereof to the same extent as the property originally
comprising, or installed on, such Airframe or such Engine or Spare
Engine, and (B) title to the replaced part shall no longer be the
property of Company and shall thereupon become free and clear of all
rights of Agent hereunder and shall no longer be deemed a Part
hereunder.
(ii) Any Part removed from the Airframe or any Engine or Spare
Engine as provided in Section 4(e)(i) may be subjected by Company or
Lessee to a normal pooling arrangement of the type customary in the
airline industry entered into by Lessee in the ordinary course of its
business and entered into with Domestic Air Carriers that are not the
subject of any bankruptcy, insolvency, or similar proceeding,
voluntary or involuntary, provided the Part replacing such removed
Part shall be incorporated or installed in or attached to the Airframe
or such Engine or Spare Engine in accordance with Section 4(e)(i) as
promptly as possible after the removal of such removed part. In
addition, any replacement Part when incorporated or installed in or
attached to the Airframe or any Engine or Spare Engine in accordance
with Section 4(e)(i) may be owned subject to such a pooling
arrangement, provided Company, at its expense, as promptly thereafter
as possible, either (A) causes such replacement Part to become subject
to the lien and security interest of this Mortgage in accordance with
Section 4(e)(i) by Company's acquiring title thereto for the benefit
of Agent free and clear
-15-
16
of all Liens (except Permitted Encumbrances and the Lease) or (B)
replaces such replacement Part by incorporating or installing in or
attaching to the Airframe or such Engine or Spare Engine a further
replacement Part owned by Company free and clear of all Liens (except
Permitted Encumbrances and the Lease).
(iii) Company, at its own cost and expense, shall make or cause
to be made such alterations and modifications in and additions to the
Airframe and the Engines and Spare Engines as may be required from
time to time to meet the standards of the FAA or other governmental
authority having jurisdiction; provided that Company may, in good
faith, contest the validity or application of any such standard in any
reasonable matter that shall not adversely affect the Lien of this
Mortgage or Lenders' interests therein. Company also agrees, at its
own cost and expense, to make or cause to be made such alterations and
modifications in and additions to the Airframe and the Engines and
Spare Engines as may be required from time to time to meet the
standards or requirements of any directive issued by a manufacturer
relating to the Airframe or any Engine or Spare Engine. In addition so
long as no Potential Event of Default or Event of Default shall have
occurred and be continuing, Company, at its own cost and expense, may
from time to time make such alterations and modifications in and
additions to the Airframe and any Engine or Spare Engine as Company
may deem desirable in the proper conduct of its business or to
accommodate the business of Lessee, provided no such alteration,
modification or addition diminishes the value or utility or impairs
the condition or airworthiness of the Airframe or such Engine or Spare
Engine below the value, utility, condition or airworthiness thereof
immediately prior to such alteration, modification or addition
assuming the Airframe or such Engine or Spare Engine were then in the
condition and airworthiness required to be maintained by the terms of
this Mortgage.
(iv) All Parts incorporated or installed in or attached to or
added to the Airframe or any Engine or Spare Engine as the result of
such alteration, modification or addition shall, without further act,
become the property of, and title to such parts shall vest in Company
and shall be subject to the lien and security interest of this
Mortgage; provided, that, so long as no Potential Event of Default or
Event of Default shall have occurred and be continuing, Company may
remove and not replace any such Part if it (A) is in addition to, and
not in replacement of or in substitution for, any Part incorporated or
installed in or attached to the
-16-
17
Airframe or such Engine or Spare Engine on the date hereof, on the
date the Engine or Spare Engine first becomes subject to the lien of
this Mortgage, or any Part in replacement of or substitution for any
such Part, (B) is not required to be incorporated or installed in or
attached or added to the Airframe or such Engine or Spare Engine
pursuant to the terms of Section 4(c) hereof or any other provision of
this Mortgage and (C) can be removed from the Airframe, such Engine or
Spare Engine without diminishing or impairing the value, utility or
airworthiness which the Airframe or such Engine or Spare Engine would
have had at such time had such alteration, modification or addition
not occurred, assuming the Aircraft Collateral was otherwise in the
condition required by this Mortgage. Upon the removal by Company of
any such Part, as above provided, title thereto shall, without further
act, be free and clear of all rights of the Agent hereunder and such
Part shall no longer be deemed a Part hereunder.
(v) Pursuant to the terms of the Leases, all obligations of
Company pursuant to this Section 4(e) shall be performed by the
Lessee, at the Lessee's own cost and expense, and all Parts and
alterations, improvements or modifications in and additions to the
Aircraft shall become subject to the Lien of this Mortgage and shall
be leased to the Lessee under the applicable Lease. In no event shall
the Lessor bear any liability or cost whatsoever for (i) any
alteration or modification of, or addition to, the Airframe or any
Engine or Spare Engine, (ii) any grounding of the Aircraft, (iii)
suspension of certification of the Aircraft, or (iv) loss of revenue
suffered by the Company for any reason whatsoever.
(f) Event of Loss.
(i) If an Event of Loss shall occur with respect to an Airframe
or an Engine or Spare Engine, Company will promptly notify Agent
thereof in writing (in any event within five (5) days of such
occurrence) and will, not later than 180 days after the receipt of
Proceeds in connection with such Event of Loss, mortgage hereunder,
by complying with all of the terms of subsection (ii) below and
otherwise taking all necessary actions to provide that Company (and
the Agent upon foreclosure of Company's interest in the Lease) will
continue to be entitled to the benefits of Section 1110 of the
Bankruptcy Code with respect to the replacement airframe or engine
referred to below, an
-17-
18
Acceptable Alternate Airframe or Acceptable Alternate Engine free of
all Liens (other than Permitted Encumbrances and the Lease). Upon
compliance with the preceding sentence within such 180-day period,
Agent will execute and deliver to Company a partial release, in
recordable form, releasing the lien of this Mortgage to the extent
that it covers such Airframe or Engine or Spare Engine with respect to
which such Event of Loss has occurred. Such Acceptable Alternate
Airframe or Acceptable Alternate Engine shall thereupon constitute an
"Airframe" or an "Engine" or "Spare Engine", as the case may be, for
all purposes hereof and shall be deemed to constitute part of the
Aircraft.
(ii) Whenever Company shall subject any Airframe or Engine to the
lien and security interest of this Mortgage (as contemplated by
paragraph (i) above), Company will on or prior thereto:
(A) deliver to Agent and duly file for recording under the
Act, a Supplemental Chattel Mortgage substantially in the form of
Exhibit A hereto duly executed by Company appropriately
describing such engine to be subjected to the lien and security
interest of this Mortgage;
(B) deliver to Agent for filing financing statements under
Article 9 of the Uniform Commercial Code of the States of
Colorado and New York (or such other States as may be required at
such time) covering the security interest created by this
Mortgage to perfect the security interest of Agent in the
Airframe or Engine or Spare Engine to be subjected to the lien
and security interest of this Mortgage;
(C) deliver to Agent an Officers' Certificate dated the date
of execution of said Supplemental Chattel Mortgage, stating:
(I) that the representations and warranties contained
in Section 3 hereof are true and correct on and as of such
date of execution with respect to such Airframe or Engine or
Spare Engine and Company;
(II) that, upon consummation of the terms of this
Section 4(f), no Potential Event of Default or Event of
Default will exist; and
-18-
19
(III) that all conditions precedent contemplated in
this Section 4(f)(ii) have been complied with.
(D) furnish Agent with evidence of compliance with the
insurance provisions of Section 4(g) hereof with respect to such
Airframe or Engine or Spare Engine as Agent may reasonably
request;
(E) furnish Agent with a warranty (as to title) ▇▇▇▇ of
sale, in form and substance reasonably satisfactory to Agent with
respect to such Airframe or Engine or Spare Engine;
(F) furnish Agent with such evidence of title such as the
▇▇▇▇ of sale as Agent may reasonably request concerning such
Airframe or Engine or Spare Engine;
(G) cause to be delivered to Agent an appraisal by the
Approved Appraisers relating to the Airframe or Engine or Spare
Engine to be subjected to the lien and the security interest of
this Mortgage stating that it has a value and utility at least
equal to, and in as good operating condition as the Airframe or
Engine or Spare Engine subject to such Event of Loss immediately
prior to such Event of Loss, assuming compliance by Company with
all the terms of this Mortgage with respect to such Airframe or
Engine or Spare Engine; and
(H) cause to be delivered to Agent an opinion or opinions of
counsel dated the date of execution of such Supplemental Chattel
Mortgage, stating:
(I) that the Airframe or Engine or Spare Engine
specifically described in said Supplemental Chattel
Mortgage, is free and clear of all recorded Liens,
(II) that said Supplemental Chattel Mortgage (1) has
been duly authorized, executed and delivered by Company, and
(2) creates a valid, perfected and first priority security
interest in and to the Airframe or Engine or Spare Engine
described in said Supplemental Chattel Mortgage, enforceable
against all third parties and securing the payment of all
obligations purported to be
-19-
20
secured thereby and that all action required to perfect
fully such security interest has been taken and completed,
(III) that said Supplemental Chattel Mortgage has been
duly filed for recordation in accordance with the provisions
of the Act to continue the perfection and priority of the
security interest intended to be created by the Mortgage,
and
(IV) that Company (and the Agent upon succeeding to
Company's interest in the Lease) will continue to be
entitled to the benefits of Section 1110 of the Bankruptcy
Code with respect to the lease of the Airframe or Engine or
Spare Engine described in said Supplemental Chattel
Mortgage.
(V) as to such other matters as Agent may reasonably
request.
Promptly upon the recording of each Supplemental Chattel Mortgage
under the Act, Company will cause to be delivered to Agent an opinion
of counsel for Company as to the due recording of such Supplemental
Chattel Mortgage in accordance with the Act.
(iii) With respect to the Airframe or any Engine or Spare Engine
as between the Agent and Company, any payments on account of an Event
of Loss (other than insurance proceeds or other payments the
application of which is provided for in Section 4(g) below and under
the terms of the Credit Agreement) received from any government
authority or other person shall be applied as follows:
(A) if such payments are received with respect to an Event
of Loss to an Airframe or Engine or Spare Engine that has been or
is being replaced by Company pursuant to the terms hereof, so
long as there shall exist no Event of Default or Potential Event
of Default, such payment shall be paid over to or retained by
Company or Lessee upon satisfaction of the conditions for
replacement contained in paragraph (ii) above and until such time
shall be held by Agent in accordance with the provisions hereof
as security for the Secured Obligations; and
-20-
21
(B) if such payments are received with respect to an Event
of Loss with respect to which no replacement is being effected,
such payments shall be applied to the prepayment of the Notes
required pursuant to the terms of the Credit Agreement and shall
be held pursuant to the terms of this Mortgage, and the balance,
if any, shall be paid over to or retained by Company.
(iv) In the event of a requisition for use by the United States
Government of the Airframe or any Engine or Spare Engine, Company
shall promptly notify Agent of such requisition and all of Company's
obligations under this Mortgage shall continue to the same extent as
if such requisition had not occurred. Any payments received by Agent
or Company from the United States Government for the use of the
Airframe or such Engine or Spare Engine, shall be paid over to, or
retained by, Company.
(v) Any amount referred to in paragraph (iii) or (iv) of this
Section 4(f) which is payable to or retained by Company shall not be
paid to Company or retained by Company, if at the time of such payment
or retention any Event of Default or a Potential Event of Default
shall have occurred and be continuing, but shall be held by or paid
over to Agent as security for the obligations of Company under this
Mortgage and the other Loan Documents, and, if Agent shall declare the
Credit Agreement to be in default, shall be applied against Company's
obligations hereunder and thereunder as and when due. At such time as
there shall not be continuing any such Event of Default or Potential
Event of Default, such amount shall be paid to Company to the extent
not previously applied in accordance with the preceding sentence. In
addition, and whether or not there shall exist an Event of Default or
Potential Event of Default, until such time as Company shall request
to be paid any amount referred to in paragraph (iii) or (iv) in order
to effect the mortgaging hereunder of a replacement Airframe or Engine
or Spare Engine, any amounts referred to in paragraphs (iii) or (iv)
of this Section 4(f) shall be held by the Agent as security for the
obligations of Company under this Mortgage and the other Loan
Documents.
(g) Insurance.
(i) Company will cause Lessee at all times to carry and maintain on or
with respect to the Aircraft and Spare Engines, at Lessee's own cost and
expense, public liability (including without limitation, contractual
liability, cargo
-21-
22
liability, passenger legal liability, bodily injury and product liability,
but excluding manufacturer's product liability) and property damage
insurance with insurers of recognized responsibility and reputation in
amounts, of the type and covering the risks customarily carried with
respect to similar aircraft by corporations engaged in the same or similar
business and similarly situated with Lessee but in no event in an amount
less than $500,000,000 per occurrence (which shall include war risk,
governmental confiscation and expropriation and allied perils coverage).
During any period when the Aircraft and Spare Engines are on the ground
and not in operation, Lessee may carry or cause to be carried, in lieu of
insurance required by this Section, insurance otherwise conforming with
the provisions of this Section except that the amounts of coverage shall
not be required to exceed the amounts of comprehensive airline liability
insurance, and the scope of risk covered and type of insurance shall be
the same, as are customarily carried with respect to similar aircraft on
the ground by corporations engaged in the same or similar business and
similarly situated with Lessee. Any policies of insurance carried in
accordance with this Section 4(g) and any policies taken out in
substitution or replacement of any such policies (A) shall be amended to
name Agent and Lenders as additional named insureds, (B) shall be primary
without right of contribution from any other insurance which is carried by
Lessee, (C) shall expressly provide that all provisions thereof, except
the limits of the liability, shall operate in the same manner as if there
were a separate policy covering each insured, and (D) shall provide that
the insurer shall waive any right of subrogation against Agent or Lenders.
(ii) Company will cause Lessee at all times to carry and maintain with
insurers of recognized responsibility and reputation on or with respect to
the Aircraft and Spare Engines, at Lessee's own cost and expense, aircraft
ground and flight all-risk hull insurance as well as fire and extended
coverage insurance on Engines and other equipment while removed from the
Airframe or airframe (which shall include war risk, governmental
confiscation and expropriation (other than by the United States
Government) and allied perils including (A) strikes, riots, civil
commotions or labor disturbances, (B) any malicious act or act of sabotage
and (C) hijacking (air piracy) or any unlawful seizure or wrongful
exercise of control of the Aircraft or Spare Engines or crew in flight
(including any attempt at such seizure or control) made by any person or
persons aboard the Aircraft or another aircraft acting without the consent
of the insured, if and to the extent the same shall be maintained by
Lessee with respect to similar aircraft owned or operated by Lessee on the
same routes or if the Aircraft or another aircraft is operated on routes
where the custom is for Domestic Carriers similarly situated with Lessee
flying comparable routes with similar aircraft to carry such insurance, of
the type usually carried by
-22-
23
corporations engaged in the same or similar business and similarly
situated with Lessee; provided that such insurance (including any
self-insurance to the extent permitted below) shall at all times be for an
amount not less than the greater of the amount required by the applicable
Lease and $50,000,000. During any period when the Aircraft or Spare
Engines, as the case may be, are on the ground and not in operation Lessee
may carry or cause to be carried, in lieu of the insurance required by
this Section, insurance otherwise conforming hereto except that the scope
of risk covered and type of insurance shall be the same as are from time
to time customarily carried with respect to similar aircraft or spare
engines by corporations engaged in the same or similar business and
similarly situated with Lessee for aircraft and spare engines on the
ground in an amount at least equal to the applicable amount provided
above. All such insurance shall name Agent and Lenders as additional
insureds and loss payees to the extent their interest may appear and shall
provide that any loss to the Airframe or an Engine or Spare Engine in
excess of $2,000,000 (and, if a Potential Event of Default or Event of
Default has occurred and is continuing, any such loss) shall be payable to
Agent for the benefit of Lenders; and shall be primary without right of
contribution from any other insurance which is carried by Agent with
respect to its interest therein.
Lessee may self-insure, by way of deductible or equivalent provisions
in insurance policies, the risks required to be insured against pursuant
to this Section 4(g)(ii) in such reasonable amounts as are then applicable
to other similar aircraft or spare engines in Lessee's fleet which are of
a value comparable to the Aircraft or Spare Engines, as the case may be,
and as are not substantially greater than amounts self-insured by
corporations engaged in the same or similar business and similarly
situated with Lessee; provided, however, that Company shall not permit
Lessee to self-insure in an amount in excess of $1,000,000 without the
prior written consent of Agent.
(iii) Any policies of insurance required pursuant to either paragraph
(i) or paragraph (ii) above shall: (A) be amended to name Agent and
Lenders as additional named insureds, but without Agent or Lenders being
thereby liable for premiums; (B) provide that in respect of the interest
of Agent or Lenders in such policies the insurance shall not be
invalidated by any action or inaction of Lessee and shall insure the
interests of Agent and Lenders regardless of any breach or violation by
Lessee or any Person (other than Agent) of any warranty, declaration,
condition or exclusion from coverage contained in such policies; (C)
provide that if such insurance is cancelled, or if any material change is
made in the coverage which affects the interest of Agent or any Lender, or
if such insurance is allowed to lapse for nonpayment of premium, such
cancellation,
-23-
24
change or lapse shall not be effective as to Agent for thirty (30) days
(seven (7) days, or such shorter or longer period as may from time to time
be customarily available in the industry, in the case of any war risk and
allied perils coverage) after receipt by Agent of written notice from such
insurers of such cancellation, change or lapse; (D) be in full force and
effect throughout any geographical areas at any time traversed by the
Aircraft or Spare Engines and shall be payable in U.S. dollars; (E) waive
any right of the insurers to any setoff or counterclaim or any other
deduction, whether by attachment or otherwise in respect of any liability
of Agent; and (F) waive all rights of subrogation against Agent.
(iv) In the case of a lease or contract with the United States or any
agency or instrumentality thereof in respect of the Airframe or any Engine
or Spare Engine, a valid agreement by the United States or such agency or
instrumentality to indemnify Lessee against the same risks against which
Lessee is required hereunder to insure shall be considered adequate
insurance with respect to the Airframe or such Engine or Spare Engine to
the extent of the risks and in the amounts that are the subject of any
such agreement to indemnify.
(v) On or prior to the date hereof, and annually thereafter on or
prior to January 31, Company will cause the Lessee to furnish to Agent (A)
a report signed by a firm of independent aircraft insurance brokers,
appointed by Lessee and not objected to by Agent, describing in reasonable
detail acceptable to Agent the insurance then carried and maintained on or
with respect to the Aircraft and the Engines and Spare Engines and stating
that in the opinion of such firm such insurance complies with the terms of
this Section 4(g) and is adequate to protect the interests of Lessee,
Company and Agent, and (B) certificates of the insurer or insurers
evidencing the insurance covered by the report. Lessee will cause such
brokers to advise Agent in writing (x) promptly of any default in the
payment of any premium and of any other act or omission on the part of
Lessee of which such firm has knowledge and which might invalidate or
render unenforceable, in whole or in part, any insurance on the Aircraft
or any Engine or Spare Engine and (y) at least thirty (30) days prior to
the expiration or termination date, or date of effectiveness of any
material change, of any insurance carried and maintained on the Aircraft
or Spare Engines hereunder.
(vi) All insurance payments and other payments received by Agent or
Company from insurance referred to in paragraph (ii) above shall be, if
received by Company, immediately paid to Agent and shall be held by Agent
as security
-24-
25
for the Secured Obligations and all other obligations required to be paid
in accordance with the terms of this Mortgage and the Credit Agreement and
such payments shall be paid to Company upon compliance by Company with the
terms of Subsection 4(f) with respect to the replacement of an airframe or
an engine, as the case may be, provided that no Potential Event of Default
or Event of Default shall have occurred and be continuing.
All insurance payments and other payments received by Agent or Company
from insurance referred to in paragraph (ii) above and paid other than as
a result of an Event of Loss shall be paid by Agent to or be retained by
Company, and promptly applied by Company to the extent necessary to repair
the damage to the Airframe or the Engine or Spare Engine for which such
insurance was paid, provided that Agent shall not be required to make any
such payment to Company if a Potential Event of Default or Event of
Default has occurred and is continuing, but shall be held or paid over to
Agent as security for the obligations of Company under this Mortgage and
the other Loan Documents, and, if Agent shall declare the Credit Agreement
to be in default, shall be applied against Company's obligations hereunder
and thereunder as and when due. Retention by Agent of any amounts pursuant
to the preceding sentence shall not relieve Company of its obligations to
make promptly all repairs and replacements required by Sections 4(c) and
(e) hereof and to pay for the same with Company's funds or cause payment
of the same under the Lease by the Lessee.
(vii) Nothing in this Section 4(g) shall prohibit Agent, or any
Lender from obtaining insurance with respect to the Aircraft or Spare
Engines for its own account. Company may, at its own expense, carry
insurance with respect to its interest in the Aircraft or Spare Engines in
amounts in excess of that required to be maintained by this Section 4(g).
No insurance maintained by Agent or any Lender shall prevent Company from
causing Lessee to carry the insurance required or permitted by this
Section or adversely affect such insurance or the cost thereof. Proceeds
of any such insurance carried by Agent or Lender shall be paid as provided
in the insurance policy relating thereto and Agent shall have no duty to
obtain any such insurance.
(h) Inspection. Company will permit, and cause Lessee to permit, any
officers, employees or authorized representatives of Agent to inspect, at
Lessee's cost and expense under the Lease, the Aircraft Collateral and Aircraft
Related Collateral. or any part thereof, and to examine, copy or make extracts
from, any and all books, records and documents in the possession of Company
relating to such Collateral or any part thereof and performance of this
Mortgage, all at such reasonable times and as often
-25-
26
as may be requested. Agent shall have no duty to make any such inspection or
examination and shall not incur any liability or obligation by reason of making
or not making any such inspection or examination.
(i) Insignia. Company shall, at its own cost and expense, or pursuant to
the Lease, cause the Airframe and each Engine and Spare Engine included in the
Aircraft Collateral to be legibly marked (in a reasonably prominent location,
which in the case of the Airframe shall be adjacent to the airworthiness
certificate) with such a plate, disk, or other marking of customary size, and
bearing the legend "Owned by Atlas Freighter Leasing, II Inc. and Mortgaged to
Bankers Trust Company, as Agent" or such other legend, as shall in the opinion
of Agent be appropriate or desirable to evidence the fact that it is subject to
the lien and security interest created by this Mortgage. Company shall not
remove or deface, or permit to be removed or defaced, any such plate, disk, or
other marking or the identifying manufacturer's serial number, and, in the event
of such removal or defacement, shall promptly cause such plate, disk, or other
marking or serial number to be promptly replaced. Except as provided above,
Company shall not allow the name of any person, association or corporation to be
placed on the Airframe or any Engine or Spare Engine as a designation that might
be interpreted as a claim of ownership or of any security interest therein,
except that any permitted lessee may place its customary colors and insignia or
the insignia of the manufacturer on the Airframe or any Engine or Spare Engine.
SECTION 5. Remedies.
(a) If any Event of Default shall occur and be continuing, then Agent
may, without notice of any kind to Company, exercise in respect of the
Aircraft Collateral and Aircraft Related Collateral, (i) all the rights and
remedies of a secured party on default under the Uniform Commercial Code as
in effect at the time in any applicable jurisdiction (whether or not the
Uniform Commercial Code applies to the affected Aircraft Collateral), (ii)
any and all remedies under the Leases and all of the rights and remedies of
the Lessor under the Lease, (iii) all the rights and remedies provided for
in this Mortgage, the Credit Agreement and any other Loan Document, and in
any other agreement between Company and Agent, and (iv) such other rights
and remedies as may be provided by law or otherwise.
(b) After an Event of Default has occurred and is continuing, Agent
may, without notice, take possession of the Aircraft Collateral or any part
thereof and may exclude Company and Lessee, and all persons claiming under
Company or Lessee, wholly or partly therefrom. At the request of Agent,
-26-
27
Company shall promptly deliver or cause Lessee to deliver to Agent or to
whomsoever Agent shall designate, at such time or times and place or places
as Agent may specify, and fly or cause to be flown to such airport or
airports in the United States as Agent may specify, without risk or expense
to Agent, the Aircraft Collateral or any part thereof. In addition, Company
will provide, or cause Lessee to provide, without cost or expense to Agent,
storage facilities for the Aircraft Collateral. If Company or Lessee shall
for any reason fail to deliver the Aircraft Collateral or any part thereof
after demand by Agent, Agent may, without being responsible for loss or
damage, (i) obtain a judgment conferring on Agent the right to immediate
possession or requiring Company and Lessee to deliver immediate possession
of the Aircraft Collateral or any part thereof to Agent, the entry of which
judgment Company hereby specifically consents and the Lessor's consent to
which will be obtained by Company under the Lease, or (ii) with or without
such judgment, pursue the Aircraft Collateral or any part thereof wherever
it may be found and may enter any of the premises of Company and Lessee
where the Aircraft Collateral may be and search for the Aircraft Collateral
and take possession of and remove the same. Company agrees to pay to Agent,
upon demand, all expenses incurred in taking any such action; and all such
expenses shall, until paid, be secured by the lien of this Mortgage. Upon
every such taking of possession, Agent may, from time to time, make all
such reasonable expenditures for maintenance, insurance, repairs,
replacements, alterations, additions and improvements to and of the
Aircraft Collateral, as it may deem proper. In each such case, Agent shall
have the right to maintain, use, operate, store, lease, control or manage
the Aircraft Collateral or any part thereof and to carry on the business
and exercise all rights and powers of Company relating to the Aircraft
Collateral, as Agent shall deem best, including the right to enter into any
and all such agreements with respect to the maintenance, use, operation,
storage, leasing, control, management or disposition of the Aircraft
Collateral or any part thereof as Agent may determine. Further, after the
occurrence and during the continuation of an Event of Default, Agent shall
be entitled to collect and receive directly all tolls, rents, revenues,
issues, income, products and profits of the Aircraft Collateral or any part
thereof, including without limitation, all payments under any of the
Leases. Such tolls, rents, revenues, issues, income, products and profits
shall be applied to pay the expenses of the use, operation, storage,
leasing, control, management or disposition of the Aircraft Collateral, and
of all maintenance, insurance, repairs, replacements, alterations,
additions and improvements, and to make all payments which Agent may be
required or may elect to make, if any, for taxes, assessments, or other
proper charges upon the Aircraft Collateral and all other payments which
Agent may be required or authorized to make under any provision of this
Mortgage, as well as just and reasonable compensation for the
-27-
28
services of Agent and of all persons properly engaged and employed for such
purposes by Agent.
(c) Agent, with or without taking possession of the Aircraft
Collateral, may, without notice:
(i) to the extent permitted by law, sell at one or more sales, as
an entirety or in separate lots or parcels, the Aircraft Collateral or
any part thereof, at public or private sale, at such place or places
and at such time or times and upon such terms, including terms of
credit (which may include the retention of title by Agent to the
property so sold), as Agent may determine, whether or not the Aircraft
Collateral shall be at the place of sale; and
(ii) proceed to protect and enforce its rights under this
Mortgage by suit, whether for specific performance of any covenant
herein contained or in aid of the exercise of any power herein granted
or for the foreclosure of this Mortgage and the sale of the Aircraft
Collateral under the judgment or decree of a court of competent
jurisdiction or for the enforcement of any other right.
(d) After an Event of Default has occurred and is continuing, Company
agrees to the fullest extent that it lawfully may, that it and Lessee will
not (and hereby irrevocably waives its right to) at any time plead, or
claim the benefit or advantage of, any appraisement, valuation, stay,
extension, moratorium, or redemption law now or hereafter in force, in
order to prevent or hinder the enforcement of this Mortgage or the absolute
sale of the Aircraft Collateral. Company, for itself and all who may claim
under it, waives, to the extent that it lawfully may, all right to have all
or any portion of the Aircraft Collateral marshalled upon any foreclosure
hereof.
(e) Each and every remedy of Agent shall be cumulative and shall not
be exclusive of any other remedies provided now or hereafter at law, in
equity or otherwise. Company shall reimburse Agent, upon demand, for all
fees and other expenses paid or incurred by Agent in exercising any rights,
powers or remedies granted hereby. All such fees and expenses shall, until
paid, be secured by the lien of this Mortgage.
(f) Notwithstanding anything to the contrary contained in this
Mortgage or the Lease, the Agent shall at all times have the right, to the
-28-
29
exclusion of Company, to declare the Lease in default in accordance with
its terms and to exercise all remedies set forth in the Leases.
SECTION 6. Application of Proceeds.
The proceeds of amounts received pursuant to the Lease (including, without
limitation, amounts received in connection with the exercise by Lessee of any
purchase option or Event of Loss) and the proceeds of any sale, lease or other
disposition of all or any of the Aircraft Collateral or Aircraft Related
Collateral under this Mortgage and all other sums realized by Agent pursuant to
this Mortgage or any proceedings hereunder shall be applied in the following
order of priority:
First: To the payment of the costs and expenses of such sale, lease,
disposition or other realization, including reasonable compensation to
Agent's agents and counsel, and all expenses, liabilities and advances made
or incurred by Agent in connection therewith, including, without
limitation, taxes upon or with respect to the sale, lease, disposition or
realization and the payment of taxes and Liens, if any, prior to the lien
and security interest of this Mortgage (except any taxes or Liens to which
the respective sale, lease, disposition or realization shall have been
subject) and to the payment of expenses and the reimbursement of payments
incurred or made by Agent pursuant to Section 9 hereof;
Second: To the ratable payment of interest accrued and unpaid on the
Notes to and including the date of such application;
Third: To the ratable payment of principal of the Notes, which payment
shall be applied to the principal installments of the Notes in the manner
specified by the Credit Agreement; and
Fourth: To the payment of all other amounts payable by Company under
the Credit Agreement, this Mortgage or any other Loan Document, and
otherwise to Company or to such other Person(s) as may lawfully be
entitled, or as any court of competent jurisdiction may direct, the
remainder.
SECTION 7. Agent as Attorney.
Company hereby irrevocably appoints Agent the true and lawful attorney of
Company (with full power of substitution) in the name, place and stead of, and
at the expense of, Company at any time after the occurrence and during the
continuation of an Event of Default (i) to ask, demand, collect, ▇▇▇ for,
recover, compound, receive
-29-
30
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Aircraft Collateral and Aircraft Related Collateral, (ii)
to make all necessary transfers of all or any part of the Aircraft Collateral
and Aircraft Related Collateral in connection with any sale, lease or other
disposition made pursuant hereto, (iii) to execute and deliver for value all
necessary or appropriate bills of sale, assignments and other instruments in
connection with any such sale, lease or other disposition, and (iv) generally to
do, at Agent's option and Company's cost and expense, at any time, or from time
to time, all acts and things that Agent deems necessary to protect, preserve or
realize upon the Aircraft Collateral and Aircraft Related Collateral and Agent's
security interest therein, in order to effect the intent of this Mortgage, all
as fully and effectively as Company might do, Company hereby ratifying and
confirming all that its said attorney (or any substitute) shall lawfully do
hereunder and pursuant hereto.
SECTION 8. Cash Collateral.
All monies received by Agent to be held and applied under this Section, and
all monies if any, required to be paid to Agent hereunder, which disposition is
not elsewhere herein otherwise specifically provided for, shall be held by Agent
and applied from time to time as provided herein and in the Credit Agreement and
the other Loan Documents and shall be held in an account in the name of Agent
and invested in Cash Equivalents for the benefit and at the risk of Company.
SECTION 9. Agent's Right to Perform.
If Company fails to make any payment required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, Agent
may itself make such payment or perform or comply with such agreement
(including, without limitation, the agreement of Company to maintain insurance
pursuant to Section 4(g) hereof), and the amount of such payment and the amount
of the reasonable expenses of Agent incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may be,
together with interest thereon at the rate specified in the Credit Agreement
from time to time, shall be payable by Company to Agent on demand and shall
constitute additional indebtedness secured by the lien and security interest of
this Mortgage.
SECTION 10. Further Assurances.
-30-
31
Company at its expense will promptly and duly execute and deliver such
documents and assurances and take such action as may be necessary or desirable,
or as Agent may from time to time request, in order to correct any defect, error
or omission which may at any time hereafter be discovered in the contents of
this Mortgage or in the execution or delivery hereof, and/or in order to more
effectively carry out the intent and purpose of this Mortgage and to establish,
protect and perfect the rights, remedies and security interests created or
intended to be created in favor of Agent hereunder, including, without
limitation, the execution, delivery and filing of any instruments with the FAA
and of any Uniform Commercial Code financing and continuation statements with
respect to the security interests created hereby, in form and substance
satisfactory to Agent, in such jurisdictions as Agent may reasonably request.
Company hereby authorizes Agent to file any such statements without the
signature of Company to the extent permitted by applicable law.
SECTION 11. Continuing Security Interest.
This Mortgage shall create a continuing security interest in the Aircraft
Collateral and Aircraft Related Collateral and shall (a) remain in full force
and effect until the indefeasible payment in full of the Secured Obligations,
(b) be binding upon Company, its successors and assigns and (c) inure, together
with the rights and remedies of Agent hereunder, to the benefit of Agent and its
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (c), Agent or any Lender may, subject to any restrictions
contained in the Credit Agreement, assign or otherwise transfer any of its
interests in the Credit Agreement or in any Note to any other person or entity,
and such other benefits in respect thereof granted to Agent or any Lender herein
or otherwise. Upon the indefeasible payment in full of the Secured Obligations,
the security interest granted hereby shall terminate and all rights to the
Aircraft Collateral and Aircraft Related Collateral shall revert to Company.
Upon any such termination. Agent will execute and deliver to Company, at
Company's expense, such instruments of release and termination as Company may
reasonably request to evidence such termination.
SECTION 12. Miscellaneous.
Any provision of this Mortgage which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by
-31-
32
applicable law, Company hereby waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect. No term or
provision of this Mortgage may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by Company and Agent. The
captions and headings in this Mortgage are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
SECTION 13. Consent to Jurisdiction and Service of Process.
All judicial proceedings brought against Company with respect to this
Mortgage may be brought in any state or federal court of competent jurisdiction
in the State of New York or Colorado and by execution and delivery of this
Mortgage Company accepts for itself and in connection with the Aircraft
Collateral and Aircraft Related Collateral, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Mortgage. Company
hereby agrees that service of process in any such proceeding in any such court
may be made by registered or certified mail return receipt requested to Company
at its address provided on the signature pages of the Mortgage, such service
being hereby acknowledged by Company to be effective and binding service in
every respect. A copy of any such process so served shall be mailed by
registered mail to Company, at its address specified in Section 15 hereof,
except that unless otherwise provided by applicable law, any failure to mail
such copy shall not affect the validity of service of process. If any agent
appointed by Company refuses to accept service, Company hereby agrees that
service upon it by mail shall constitute sufficient notice. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of Agent to bring proceedings against Company in the courts of
any other jurisdiction.
SECTION 14. GOVERNING LAW; TERMS.
THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY
PROVISION OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
AIRCRAFT COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement,
terms used in Article 9 of the Uniform Commercial Code in the State of New York
are used herein as therein defined.
-32-
33
SECTION 15. Addresses for Notices.
All notices and other communications provided for hereunder shall be in
writing (including facsimile communication) and mailed or telecopied or
delivered to Company or Agent, as the case may be, addressed to it at the
address of such party specified on the signature page hereof, or as to either
party at such other address as shall be designated by such party in a written
notice to each other party complying as to delivery with the terms of this
Section 15. All such notices and other communications shall, when mailed, be
effective when deposited in the mails, addressed as aforesaid.
SECTION 16. Counterparts.
This Mortgage may be executed in one or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same Mortgage.
[Remainder of page intentionally left blank.]
-33-
34
IN WITNESS WHEREOF, Company and Agent have caused this Mortgage to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
ATLAS FREIGHTER LEASING II, INC.
By:
-------------------------------
Name:
Title:
Notice Address:
Atlas Freighter Leasing II, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Treasury and
Secretary
BANKERS TRUST COMPANY,
as Agent
By:
-------------------------------
Name:
Title:
Notice Address:
Bankers Trust Company
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
35
SCHEDULE I
to Security Agreement
and Chattel Mortgage
AIRFRAME
================================================================================
Manufacturer's United States
Manufacturer Model Serial Number Registry No.
--------------------------------------------------------------------------------
Boeing 747-2D7B 21784 N524MC
================================================================================
36
SCHEDULE II-A
to Security Agreement
and Chattel Mortgage
ENGINES
================================================================================
Manufacturer's
Manufacturer Model Serial Number
--------------------------------------------------------------------------------
General Electric CF6-50E2 528419
--------------------------------------------------------------------------------
General Electric CF6-50E2 517343
--------------------------------------------------------------------------------
General Electric CF6-50E2 517545
--------------------------------------------------------------------------------
General Electric CF6-50E2 517791
================================================================================
Each such engine having 750 or more rated takeoff horsepower or the equivalent
thereof.
37
SCHEDULE II-B
to Security Agreement
and Chattel Mortgage
SPARE ENGINES
================================================================================
Manufacturer's
Manufacturer Model Serial Number
--------------------------------------------------------------------------------
General Electric CF6-50E2 517790
--------------------------------------------------------------------------------
General Electric CF6-50E2 517602
================================================================================
Each such engine having 750 or more rated takeoff horsepower or the equivalent
thereof.
38
EXHIBIT A
to Security Agreement
and Chattel Mortgage
SUPPLEMENTAL CHATTEL MORTGAGE NO.
THIS SUPPLEMENTAL CHATTEL MORTGAGE is dated _________, 199[ ] between Atlas
Freighter Leasing II, Inc., a Delaware corporation (the "Company"), and Bankers
Trust Company, as Administrative Agent for and representative of (in such
capacity, "Agent") the financial institutions ("Lenders") party to the Credit
Agreement dated as of September __, 1997 among Company, the Lenders, ▇▇▇▇▇▇▇
Sachs Credit Partners L.P., as Syndication Agent, and Agent.
Company and Mortgagee have heretofore entered into a Security Agreement and
Chattel Mortgage dated _______________, 1997 (the "Mortgage") and the terms
defined therein and not otherwise defined herein are used herein as therein
defined. The Mortgage provides for the execution and delivery of supplements
thereto substantially in the form hereof, for the purpose of particularly
describing each Engine and Spare Engine subjected to the lien of the Mortgage
pursuant to Section 4(f) thereof, and shall specifically mortgage such Engine
and Spare Engine to Agent.
The Mortgage relates to the Engine(s) and Spare Engine(s) described below
and a counterpart of the Mortgage has been recorded by the Federal Aviation
Administration on __________, 1997, and has been assigned Conveyance No. ______.
NOW, THEREFORE, that, to secure the due and punctual payment and
performance of the Secured Obligations and in consideration of the premises and
of the covenants contained in the Mortgage, Company hereby mortgages to Agent,
its successors and assigns, and grants and assigns to Agent, its successors and
assigns, a first priority purchase money security interest in all estate, right,
title and interest of Company in and to the property described in Schedule I
annexed hereto (whether or not such Engine or Spare Engine shall be installed on
or attached to the Airframe), and the proceeds thereof.
This Supplemental Chattel Mortgage shall be construed as supplemental to
the Mortgage and shall form a part thereof, and the Mortgage is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
39
EXHIBIT A
Page 2
THIS SUPPLEMENTAL CHATTEL MORTGAGE IS INTENDED TO BE DELIVERED IN THE STATE
OF NEW YORK AND SHALL BE GOVERNED BY THE INTERNAL LAWS OF THAT STATE.
This Supplemental Chattel Mortgage may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Supplemental Chattel Mortgage.
[Balance of page intentionally left blank]
40
EXHIBIT A
Page 3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Chattel Mortgage to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
ATLAS FREIGHTER LEASING II, INC.
By:
--------------------------------
Name:
Title:
Notice Address:
Atlas Freighter Leasing II, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Treasurer and Secretary
BANKERS TRUST COMPANY,
as Agent
By:
---------------------------------
Name:
Title:
Notice Address:
Bankers Trust Company
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
41
SCHEDULE I-A
to Supplemental
Chattel Mortgage
SCHEDULE OF ENGINES
================================================================================
Manufacturer's United States
Manufacturer Model Serial Number Registry No.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Such engine having 750 or more rated takeoff horsepower or the equivalent
thereof
42
SCHEDULE I-B
to Supplemental
Chattel Mortgage
SCHEDULE OF SPARE ENGINES
================================================================================
Manufacturer's United States
Manufacturer Model Serial Number Registry No.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
Such engine having 750 or more rated takeoff horsepower or the equivalent
thereof