CREDIT AGREEMENT

Exhibit 10.2

 

 

CREDIT AGREEMENT [HSH/AS B737-800]

 

dated as of October 19, 2005

 

among

 

ALASKA AIRLINES, INC.

as Borrower

 

EACH SENIOR LOAN PARTICIPANT

IDENTIFIED ON SCHEDULE I HERETO

Loan Participants,

 

and

 

HSH NORDBANK AG NEW YORK BRANCH

Security Agent

 

 

Vedder, Price, Kaufman & Kammholz, P.C.

 

SkyBlue Capital LLC

TABLE OF CONTENTS

 

 

 

i

CREDIT AGREEMENT [HSH/AS B737-800]

 

THIS CREDIT AGREEMENT [HSH/AS B737-800] dated as of October 19, 2005 is among (i)  ALASKA AIRLINES, INC. , an Alaska corporation (the “ Borrower ”), (ii)  EACH LOAN PARTICIPANT IDENTIFIED ON SCHEDULE I HERETO , and (iv)  HSH NORDBANK AG NEW YORK BRANCH , as the Security Agent acting on behalf of the Loan Participants.

 

W I T N E S S E T H :

 

WHEREAS , concurrently with the execution and delivery of this Agreement, the Borrower and the Security Agent are entering into the Mortgage and Security Agreement [HSH/AS B737-800] dated as of the date hereof (the “ Mortgage ”) pursuant to which the Borrower agrees, among other things, that Loan Certificates issued hereunder and all other obligations hereunder or under any other Operative Document will be secured by the mortgage and security interest created by the Borrower in favor of the Security Agent.

 

NOW , THEREFORE , in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

 

Section 1. Certain Definitions . Except as otherwise defined in this Agreement, including its annexes, schedules and exhibits, terms used herein in capitalized form shall have the meanings attributed thereto in Annex A.

 

Unless the context otherwise requires, any reference herein to any of the Operative Documents refers to such document as it may be modified, amended or supplemented from time to time in accordance with its terms and the terms of each other agreement restricting the modification, amendment or supplement thereof.

 

Section 2. Commitments; Borrower’s Notice of Payment Dates; Closing Procedure .

 

2.1 Subject to the terms and conditions of this Agreement, each Loan Participant agrees to make a secured loan to the Borrower in respect of each Advance (herein called, for such Advance, a “ Drawing ”) on a Borrowing Date to be designated pursuant to Section 2.2, but in no event later than the Commitment Termination Date. In the case of each Loan Participant, such Drawing shall be equal to the lesser of (i) such Loan Participant’s Maximum Commitment minus the aggregate amount of outstanding Drawings made by such Loan Participant prior to such Borrowing Date and (ii) such Loan Participant’s Participation Percentage set forth opposite such Loan Participant’s name in Schedule II hereto [***] multiplied by the amount of such Advance (for each Loan Participant, such Loan Participant’s “ Commitment ” with respect to such Advance); provided that at no time shall the aggregate amount of Drawings made by the Loan Participants in respect of any Aircraft be more than

 

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

[Credit Agreement HSH/AS B737-800]

 

[***] * of the Advance Payment Base Price for such Aircraft. The Drawings shall be made in separate series (each, a “ Series ”) with respect to each Aircraft.

 

If any Loan Participant shall default in its obligation to make the amount of its Commitment available pursuant to this Section 2.1 in respect of any Advance, no other Loan Participant shall have an obligation to increase the amount of its Commitment for such Advance and the obligations of the non-defaulting Loan Participants shall remain subject to the terms and conditions set forth in this Agreement. Without limiting the above, if the Security Agent disburses a Loan Participant’s Commitment in relation to an Advance without first having received funds from a Loan Participant, then the Loan Participant hereby indemnifies the Security Agent against any loss it may incur as a result of such failure to fund by the Loan Participant.

 

As more particularly set forth in Section 5, Borrower shall execute and deliver to each Loan Participant with appropriate insertions a Loan Certificate to evidence such Loan Participant’s Maximum Commitment. The Loan Certificates shall be issued such that each Loan Participant receives a Loan Certificate. Each Drawing shall be evidenced by this Agreement, the Loan Certificate with respect thereto, and notations made from time to time by each Loan Participant in its books and records, including computer records. Each Loan Participant shall record in its books and records, including computer records, the principal amount of the Drawings owing to it from time to time. Absent evidence to the contrary, each Loan Participant’s books and records shall constitute presumptive evidence of the accuracy of the information contained therein. Failure by any Loan Participant to make any such notation or record shall not affect the obligations of Borrower to such Loan Participant with respect to the repayment of its Drawings.

 

2.2 (a) The Borrower agrees to give the Security Agent at least five (5) Business Days’ prior written notice (the “ Funding Notice ”) of the Effective Date and the Borrowing Date for each Advance, which Borrowing Date shall be a Business Day not later than the Commitment Termination Date and shall not be a date before the scheduled date set forth in Schedule III for such Advance, which notice shall specify any funding instructions and shall be in substantially the form of Exhibit A. On the date of the execution and delivery of this Agreement and the satisfaction of the conditions precedent in Section 4.1 (the “ Effective Date ”), the Loan Participants shall make Drawings (subject to the limitations set forth in Section 2.1) in respect of certain Advances which were paid by Borrower prior to the Effective Date. The proceeds of such Drawings shall be paid to Borrower; provided, however, that Borrower shall remain responsible for, and shall have paid, its Cash Contribution for each Aircraft for which such Advances have been paid.

 

(b) In the event that any Drawing shall not be consummated in accordance with the terms hereof on the Effective Date or the Borrowing Date specified in a Funding Notice, the Loan Participants and the Borrower shall cooperate with each other to arrange a mutually acceptable postponement of such date provided that such date may not be more than 90 days

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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after the Borrowing Date anticipated in Schedule III (the “ Delayed Borrowing Date ”). In the event that the Drawing shall not be consummated in accordance with the terms by 11:00 a.m. (New York time) on the Delayed Borrowing Date or, if earlier, the date on which the Borrower notifies the Loan Participants that the Drawing will not occur, the Loan Participants may cancel or terminate any funding arrangements that they may have made to enable them to fund their Commitments and the Borrower shall pay to each Loan Participant on demand their Break Amount (as reasonably determined by such Loan Participants and certified to the Borrower). In consideration of making their funds available on the Effective Date or the specified Borrowing Date, the Borrower shall compensate the Loan Participants for their net loss of earnings on such funds, by paying the Loan Participants interest on the aggregate amount thereof (calculated on the basis of a 360-day year and actual days elapsed) at a rate equal to the Loan Participants’ cost of funds for the period from and including the Effective Date or the specified Borrowing Date to but excluding the earlier of (x) the Business Day on which the Borrowing shall actually occur, (y) the Business Day on which the Borrower shall notify the Loan Participants that the Borrowing will not occur prior to the Delayed Borrowing Date (if such notice is given prior to 10:00 a.m. (New York time) or if later, until the Business Day subsequent to such notice date), or (z) the Delayed Borrowing Date.

 

2.3 On the Effective Date, each Loan Participant, through or on behalf of the Security Agent, agrees to pay the amount of its Commitment for the initial Advance to the Manufacturer by wire transferring (or by making other arrangements reasonably satisfactory to the Security Agent and the Manufacturer) such amounts to account or accounts specified in the applicable Funding Notice, subject to continued compliance with the limitations set forth in Section 2.1, to such other account as the Borrower shall direct the Security Agent in writing, from time to time to reimburse Borrower for previously funded Advances. On the Borrowing Date for each subsequent Drawing specified in a Borrower’s notice referred to in Section 2.2, subject to the terms and conditions of this Agreement, each Loan Participant, through or on behalf of the Security Agent, agrees to pay the amount of its Commitment for each such Advance directly to the Manufacturer by wiring such amounts to the account or accounts specified in the applicable Funding Notice.

 

2.4 The Borrower agrees that the actual transfer of the proceeds of Drawings to the bank designated by the Borrower for credit to the Manufacturer’s or the Borrower’s account (as applicable) maintained at such bank shall constitute conclusive evidence that the Drawings were made, and neither the failure of any Holder to endorse on the schedule attached to any Loan Certificate the amount of its Drawing, nor any failure of the bank designated by the Borrower to credit proceeds of a Drawing to the Manufacturer’s or the Borrower’s account (as applicable) maintained at such bank, nor any failure of the Manufacturer to credit proceeds of a Drawing to the account of the Borrower maintained on the books and records of the Manufacturer, shall affect the Borrower’s obligations hereunder.

 

The closing with respect to each Drawing shall take place at the offices of Vedder Price Kaufman & Kammholz, P.C., 805 Third Avenue, New York, New York 10022.

 

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Section 3. Terms of Loan Certificates; Fees; Cancellation of Facility Amount and Renewal Options .

 

3.1 Each Loan Certificate shall bear interest and be repaid in accordance with the applicable terms of this Agreement and the Mortgage.

 

3.2 In consideration of the Loan Participants’ Commitments hereunder, the Borrower shall pay to the Security Agent for the account of each Loan Participant on the Effective Date the front end fee specified in the Fee Letter, based on the amount of US$172,000,000.

 

3.3 The Borrower shall pay to the Security Agent the Agency Fee specified in the Fee Letter [***].

 

3.4 The Borrower shall pay to the Security Agent for the account of each Loan Participant, the Commitment Fee [***] *

 

3.5 The Borrower may at any time permanently and irrevocably cancel or reduce some or all of the Facility Amount provided that such Facility Amount is not the subject of a Drawing or a Funding Notice, and further provided that such cancellation or reduction shall be a minimum of $5,000,000 and in $500,000 multiples thereof, and the amount thereof shall be specified in a written notice to the Security Agent five (5) Business Days before the effective date of such cancellation. A notice of cancellation under this Section 3.5 is irrevocable.*

 

3.6 [***]*

 

Section 4. Conditions .

 

4.1 Conditions Precedent to the Effectiveness of the Commitments . It is agreed that the Commitments of each Loan Participant and the effectiveness of this Agreement are subject to the satisfaction prior to or on the Effective Date of the following conditions precedent:

 

(a) The following documents shall have been duly authorized, executed and delivered by the party or parties thereto, shall each be satisfactory in form and substance to the Security Agent and (except for the [***]) shall be in full force and effect and executed counterparts shall have been delivered to the Security Agent and its counsel:

 

(i) the Mortgage;

 

(ii) a copy of the Boeing Purchase Agreement certified by the Secretary or an Assistant Secretary of the Borrower as being a true and accurate copy of the same, provided that such copy may be redacted and shall not include any pricing

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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information therein or any provisions thereof not assigned, and also provided that, receipt of such document will be strictly subject to Section 13;

 

(iii) the Consent and Agreement;

 

(iv) such Loan Participant’s Loan Certificate; and

 

(v) [***] *

 

(b) The Security Agent (with sufficient copies for each Loan Participant) shall have received the following, in each case in form and substance satisfactory to it:

 

(i) a certificate of good standing and certified copy of the Articles of Incorporation and By-laws of the Borrower and a copy of resolutions of the board of directors of the Borrower or the executive committee thereof, certified by the Secretary or an Assistant Secretary of the Borrower, duly authorizing the execution, delivery and performance by the Borrower of this Agreement, the Mortgage and each other document required to be executed and delivered by the Borrower on each Delivery Date in accordance with the provisions hereof and thereof; and

 

(ii) a certificate of the Borrower as to the Person or Persons authorized to execute and deliver this Agreement, the other Operative Documents, and any other documents to be executed on behalf of the Borrower in connection with the transactions contemplated hereby and as to the signature of such person or persons.

 

(c) The Security Agent (with sufficient copies for each Loan Participant) shall have received opinions addressed to such Loan Participant and the Security Agent from the Legal Department for the Borrower in form and substance reasonably satisfactory to the addressees thereof.

 

(d) The Security Agent (with sufficient copies for each Loan Participant) shall have received an opinion addressed to such Loan Participant and the Security Agent from counsel to Manufacturer, in respect of the Boeing Purchase Agreement and the Consent and Agreement, in form and substance reasonably satisfactory to the addressees thereof.

 

(e) The Security Agent (with sufficient copies for each Loan Participant) shall have received a certificate of the Borrower that the aggregate amount of Advances in connection with each Aircraft shall be sufficient when paid to the Manufacturer in accordance with this Agreement to satisfy the obligation of the Borrower with respect to all advance payments due and payable for each such Aircraft (including payments by the Borrower specified in Section 4.1(f)) under the Boeing Purchase Agreement. ›

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(f) Such Loan Participant shall have received evidence in form and substance reasonably satisfactory to such Loan Participant that Borrower shall have paid to Manufacturer its Cash Contribution in respect of the applicable Aircraft.

 

(g) In respect of Advances paid prior to the Effective Date, any liens over the Mortgage Estate granted by the Borrower to finance such Advances shall be released and terminated.

 

(h) A Uniform Commercial Code financing statement or statements covering all the security interests created by or pursuant to the granting clause of the Mortgage shall have been executed and delivered by the Borrower, and such financing statement or statements shall have been duly filed in all places deemed necessary or advisable in the opinion of counsel for the Loan Participants, and any additional Uniform Commercial Code financing statements deemed advisable by any Loan Participant or its counsel shall have been executed and delivered by the Borrower and duly filed and all other action shall have been taken as is deemed necessary or advisable, in the opinion of counsel for the Loan Participants, to establish and perfect the Security Agent’s security interest in the Boeing Purchase Agreement.

 

(i) Each Loan Participant shall have received from Vedder, Price, Kaufman & Kammholz, P.C., special counsel for the Loan Participants, an opinion satisfactory in substance and form to such Loan Participant, as to such matters incident to the transactions contemplated hereby as such Loan Participant may reasonably request.

 

(j) The Security Agent shall have received for the account of the Loan Participants the front end fee specified in Section 3.2 and, for its own account, the Agency Fee specified in Section 3.3. The Security Agent shall disburse to each Loan Participant such front end fee upon receipt thereof in the amounts due and payable to each Loan Participant as separately agreed.

 

(k) Since December 31, 2004, there shall have been no material and adverse change in the financial or operational condition of the Borrower and no event or circumstance shall have occurred which in the reasonable judgment of any Loan Participant had or would be reasonably likely to have a Material Adverse Effect.

 

4.2 Conditions Precedent to the Loan Participants’ Participation in each Advance . It is agreed that the obligations of each Loan Participant to lend all or any portion of its Commitment to the Borrower in respect of each Advance (including Advances made by Borrower or a third-party financier prior to the Effective Date) is subject to the satisfaction prior to or on the Borrowing Date for such Advance of the following conditions precedent:

 

(a) The Security Agent shall have received due notice with respect to the Borrowing Date for such Advance pursuant to Section 2 (or shall have waived such notice either in writing or as provided in Section 2).

 

(b) After the date of the execution and delivery of this Agreement, (A) no change shall have occurred in applicable law or regulations thereunder which would make it a violation of law or regulations for such Loan Participant to make such Advance, to acquire its Loan Certificate(s) or to realize the benefits of the security afforded by the Mortgage, and (B)

 

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[Credit Agreement HSH/AS B737-800]

 

there shall have been no material and adverse change in the LIBO market which would materially impair the ability of a Loan Participant to make an Advance hereunder.

 

(c) The Borrower shall have paid to the Manufacturer its Cash Contribution in respect of the applicable Aircraft.

 

(d) On such Borrowing Date, (A) the representations and warranties of the Borrower contained in Section 7 shall be true and accurate as though made on and as of such date except to the extent that such representations and warranties relate solely to an earlier date (in which case such representations and warranties shall be true and accurate on and as of such earlier date), (B) no event shall have occurred and be continuing which constitutes (or would, with the passage of time or the giving of notice or both, constitute) an Event of Default, (C) since December 31, 2004, there shall have been no change in the Borrower and its Subsidiaries which would amount to a Material Adverse Effect, and (D) no event or circumstance shall have occurred which in the reasonable judgment of any Holder had or would be reasonably likely to have a Material Adverse Effect.

 

(e) The Security Agent shall have received for the account of the Loan Participants all fees specified in Sections 3.2, 3.3 and 3.4 that are due and payable on or prior to such Borrowing Date. The Security Agent shall distribute to each Loan Participant such fees as separately agreed.

 

Section 5. The Certificates .

 

5.1 Form of Loan Certificates . The Loan Certificates shall each be substantially in the form set forth below, as follows:

 

 

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[Credit Agreement HSH/AS B737-800]

 

ALASKA AIRLINES, INC.

 

LOAN CERTIFICATE

 

 

Alaska Airlines, Inc. (the “ Borrower ”) hereby promises to pay to                                      (“ Lender ”), or registered transferees, the principal sum of                                               ($                      ), or, if less, the aggregate unpaid principal amount of all Drawings made by Lender to Borrower pursuant to that certain Credit Agreement [HSH/AS B737-800] of even date herewith among Borrower, Lender, HSH Nordbank AG New York Branch, as Security Agent thereunder and certain other lenders named therein, payable in full on the Final Repayment Date, together with interest on the unpaid principal amount hereof from time to time outstanding from and including the date hereof until such principal amount is paid in full. The Interest Periods for the Series of Drawings evidenced by this Note (and accordingly the Applicable Rates) can vary in accordance with the definition of Interest Period in the Credit Agreement. Interest shall accrue with respect to each Interest Period at the Applicable Rate in effect for such Interest Period and shall be payable in arrears on each Interest Payment Date and on the date this Loan Certificate is paid in full. This Loan Certificate shall bear interest at the applicable Past Due Rate on any principal hereof, and, to the extent permitted by applicable law, interest and other amounts due hereunder, not paid when due (whether at stated maturity, by acceleration or otherwise), for any period during which the same shall be overdue, payable on demand by the Holder hereof.

 

Interest shall be payable with respect to the first but not the last day of each Interest Period. Interest shall be calculated on the basis of a year of 360 days and actual number of days elapsed. If any sum payable hereunder falls due on a day which is not a Business Day, then such sum shall be payable on the next succeeding Business Day; provided that, in the case of principal of and interest hereon payable on an Interest Payment Date, if by virtue of such extension such payment would fall in the next succeeding month, such sum shall be payable on the next preceding Business Day.

 

Borrower hereby acknowledges and agrees that this note is one of the Loan Certificates referred to in, evidences indebtedness incurred under, and is subject to the terms and provisions of, the Credit Agreement including, without limitation, the repayment in full of a Series of Drawings made in respect of an Aircraft upon the Delivery Date of such Aircraft. The Credit Agreement, to which reference is hereby explicitly made, sets forth said terms and provisions, including those under which this Loan Certificate may or must be paid prior to its due date or may have its due date accelerated.

 

All payments of principal, Break Amount, if any, and interest and other amounts to be made to the Holder hereof or under the Mortgage and Security Agreement [HSH/AS B737-800] dated as of October 19, 2005 (as amended or supplemented from time to time, herein called the “ Mortgage ”, the terms defined therein and not otherwise defined herein being used herein with the same meanings) between the Borrower and HSH Nordbank AG New York Branch, as

 

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[Credit Agreement HSH/AS B737-800]

 

Security Agent thereunder, shall be made in accordance with the terms of the Credit Agreement and the Mortgage.

 

Principal and interest and other amounts due hereon shall be payable in Dollars in immediately available funds prior to 1:00 p.m., New York, New York time, on the due date thereof, to the Security Agent at the Payment Office and the Security Agent shall, subject to the terms and conditions of the Mortgage, remit all such amounts so received by it to the Holder hereof in accordance with the terms of the Mortgage at such account or accounts at such financial institution or institutions as the Holder hereof shall have designated to the Security Agent in writing, in immediately available funds, such payment to be made, in the case of any such designated account in New York, New York, prior to 3:00 p.m., New York time, on the due date thereof. In the event the Security Agent shall fail to make any such payment as provided in the immediately foregoing sentence after its receipt of funds at the place and prior to the time specified above, the Security Agent agrees to compensate the Holder hereof for loss of use of funds in a commercially reasonable manner. All such payments by the Borrower and the Security Agent shall be made free and clear of and without reduction for or on account of all wire or other like charges.

 

Each Holder hereof, by its acceptance of this Loan Certificate, agrees that, except as otherwise expressly provided in the Mortgage, each payment received by it in respect hereof shall be applied, first, to the payment of any amount (other than the principal of or interest on this Loan Certificate) due in respect of this Loan Certificate, second, to the payment of interest hereon (as well as any interest on overdue principal and, to the extent permitted by law, interest and other amounts payable hereunder) due and payable hereunder, third, to the payment of the principal of this Loan Certificate then due, fourth, the balance, if any, remaining thereafter, to the payment of the principal of this Loan Certificate remaining unpaid, and fifth, in the manner set forth in clause “fifth” of Section 5.4(e) of the Credit Agreement.

 

This Loan Certificate is one of the Loan Certificates referred to in the Mortgage which have been or are to be issued by the Borrower pursuant to the terms of the Mortgage. The Mortgage Estate is held by the Security Agent as security, in part, for the Loan Certificates. Reference is hereby made to the Mortgage and the Credit Agreement referred to therein for a statement of the rights and obligations of the Holder hereof, and the nature and extent of the security for this Loan Certificate and of the rights and obligations of the other Holders, and the nature and extent of the security for the other Loan Certificates, as well as for a statement of the terms and conditions of the trusts created by the Mortgage, to all of which terms and conditions in the Mortgage and such Credit Agreement each Holder hereof agrees by its acceptance of this Loan Certificate.

 

There shall be maintained a Certificate Register for the purpose of registering transfers and exchanges of Loan Certificates at the office of the Security Agent set forth in the Credit Agreement or at the office of any successor security agent in the manner provided in Section 5.8 of the Credit Agreement. As provided in the Credit Agreement and the Mortgage and subject to certain limitations set forth therein, this Loan Certificate or any interest herein may, subject to the next following paragraph, be assigned or transferred, and the Loan Certificates are exchangeable for a like aggregate original principal amount of Loan Certificates of a like Series of any authorized denomination, as requested by the Holder surrendering the same.

 

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Prior to the due presentment for registration of transfer of this Loan Certificate, the Borrower and the Security Agent shall deem and treat the person in whose name this Loan Certificate is registered on the Certificate Register as the absolute owner of this Loan Certificate and the Holder for the purpose of receiving payment of all amounts payable with respect to this Loan Certificate and for all other purposes whether or not this Loan Certificate is overdue, and neither the Borrower nor the Security Agent shall be affected by notice to the contrary.

 

This Loan Certificate is subject to prepayment as permitted by Sections 5.10 and 5.11 of the Credit Agreement and to acceleration by the Security Agent as provided in Section 3.1 of the Mortgage, and the Holder hereof, by its acceptance of this Loan Certificate, agrees to be bound by said provisions.

 

This Loan Certificate is subject to purchase by the Manufacturer following an Event of Default pursuant to the Consent and Agreement.

 

This Loan Certificate shall be governed by and construed in accordance with the law of the State of New York.

 

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IN WITNESS WHEREOF , the Borrower has caused this Loan Certificate to be executed in its corporate name by its officer thereunto duly authorized, as of the date hereof.

 

 

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5.2 Terms of Loan Certificates; Drawings . (a) On the Effective Date, the Borrower shall issue a Loan Certificate to each Loan Participant in an aggregate original principal amount equal to such Loan Participant’s Maximum Commitment (or their respective nominees). The Borrower shall be entitled to make Drawings against each Loan Certificate in accordance with Sections 2.1 and 4.

 

(b) Each Loan Certificate shall bear interest on the unpaid principal amount thereof from time to time outstanding from and including the date thereof until such principal amount is paid in full. Such interest shall accrue with respect to each Interest Period at the Applicable Rate in effect for such Interest Period and shall be payable in arrears on each Interest Payment Date and on the date such Loan Certificate is paid in full. The Interest Periods for the Series of Drawings can vary in accordance with the definition of Interest Period. Interest shall be payable with respect to the first but not the last day of each Interest Period. Interest hereunder and under the Loan Certificates shall be calculated on the basis of a year of 360 days and actual number of days elapsed.

 

(c) If any sum payable under the Loan Certificates or under the Mortgage falls due on a day which is not a Business Day, then such sum shall be payable on the next succeeding Business Day; provided that, in the case of principal of and interest hereon payable on an Interest Payment Date, if by virtue of such extension such payment would fall in the next succeeding month, such sum shall be payable on the next preceding Business Day.

 

(d) The principal of the Drawings of each Series shall be due and payable in full upon the earlier of (i) the first Business Day of the month (being an Interest Payment Date) in which the Delivery Date of the Aircraft related to such Series shall occur, as notified by the Borrower to the Security Agent five (5) Business Days prior to such day; and (ii) the Final Repayment Date.

 

(e) Each Loan Certificate shall bear interest at the Past Due Rate on any principal thereof and, to the extent permitted by applicable law, interest (other than interest accrued at the Past Due Rate) and other amounts due thereunder and hereunder, not paid when due (whether at stated maturity, by acceleration or otherwise), for any period during which the same shall be overdue, payable on demand by the respective Holder given through the Security Agent.

 

(f) The Loan Certificates shall be executed on behalf of the Borrower by one of its authorized officers. Loan Certificates bearing the signatures of individuals who were at any time the proper officers of the Borrower shall bind the Borrower, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the delivery of such Loan Certificates or did not hold such offices at the respective dates of such Loan Certificates. No Loan Certificates shall be issued hereunder except those provided for in Section 5.2(a) and any Loan Certificates issued in exchange or replacement therefor pursuant to the terms of this Agreement.

 

5.3 Tax Forms . (a) The Security Agent agrees, to the extent required by applicable law, to withhold from each payment due hereunder or under any Loan Certificate United States

 

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federal withholding taxes at the appropriate rate, and, on a timely basis, to deposit such amounts with an authorized depository and make such reports, filings and other reports in connection therewith, and in the manner, required under applicable law.

 

(b) The Security Agent shall furnish no later than March 15 of each year to each Holder a U.S. Treasury Form 1042-S (or similar forms as at any relevant time in effect), if applicable, indicating payment in full of any Taxes withheld from any payments by the Security Agent to such Holder together with all such other information and documents reasonably requested by such Holder and necessary or appropriate to enable such Person to substantiate a claim for credit or deduction with respect thereto for income tax purposes of any jurisdiction with respect to which such Person is required to file a tax return.

 

(c) The Security Agent need only perform its obligations under Sections 5.3(a) and (b) for a Holder which is a Non-U.S. Person, if such Holder has furnished to the Security Agent (and the Security Agent has furnished to the Borrower a copy of) either:

 

(i) a properly completed and currently effective U.S. Treasury Form W-8BEN (or such substitute or successor form as may be required by the United States Treasury Department) during the calendar year in which the payment is made (or at such other times as applicable law may require), and has not notified the Security Agent of the withdrawal of such Form prior to the date of each interest payment; or

 

(ii) a properly completed and currently effective U.S. Treasury Form W-8 ECI or other certificate or form establishing exemption from withholding of United States federal income tax during each calendar year in which the payment is made (or at such other times as applicable law may require), and has not notified the Security Agent of the withdrawal of such Form or certificate prior to the date of each interest payment, then no amount shall be withheld from payments under the Loan Certificates held by such Holder in respect of United States federal income tax.

 

(d) Each Holder shall indemnify and hold harmless the Security Agent and the Borrower against any claim for United States federal withholding taxes which the Security Agent improperly fails to withhold on payments to such Holder, except that, [***] with respect to such payment and withholding, the indemnification required by this Section shall apply only if such failure to withhold is a direct result of the failure by such Holder to provide the required certificate or Form or the invalidity of any certificate or Form provided by such Holder pursuant to this Section 5.3 (it being understood that the provision of such certificate or form shall constitute a representation by the relevant Holder as to such Holder’s qualification for complete exemption from United States federal gross income tax withholding or, in the event of a change in law or regulation for which the Borrower is obligated to hold harmless the Holder pursuant to Section 8, for partial exemption from such withholding).

 

5.4 Distribution of Funds Received . (a) The Security Agent shall establish and maintain an account (the “ Payment Account ”), into which all amounts payable hereunder shall be paid.

 

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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(b) Provided that no Event of Default has occurred and is then continuing, each installment of interest payable on the Loan Certificates shall be distributed as promptly as possible on or after the date that such amount is deposited in the Payment Account and becomes immediately available to the Security Agent:

 

First , to the Loan Participants ratably, without priority of one over the other, to the payment in full of the aggregate amount of interest due under the Loan Certificates in an amount equal to (i) accrued interest at the rate provided in each Loan Certificate, (ii) any overdue interest thereon, and (iii) Break Amount, if any;

 

Second , the balance, if any, thereof thereafter remaining to the Borrower or such other Person(s) as may then lawfully be entitled thereto.

 

(c) Provided that no Event of Default has occurred and is then continuing, upon the first Business Day of the month in which the Delivery Date of the related Aircraft occurs, each payment made by the Borrower as repayment of the relevant Series of Drawings shall be distributed as promptly as possible on or after the date that such amount is deposited in the Payment Account and becomes immediately available to the Security Agent:

 

First , to the Loan Participants ratably, without priority of one over the other, to the payment in full of the aggregate amount of interest due under the Loan Certificates in respect of the Series of Drawings being repaid in an amount equal to (i) accrued interest at the rate provided in each Loan Certificate, and (ii) any overdue interest thereon plus the Break Amount, if any, due to the Loan Participants in respect of such payment;

 

Second , to the Loan Participants ratably, without priority of one over the other, to the payment in full of the outstanding principal amount of the Series of Drawings made by the Loan Participants which is being repaid;

 

Third , the balance, if any, thereof thereafter remaining to the Borrower or such other Person(s) as may then lawfully be entitled thereto.

 

(d) Upon any partial optional repayment of the Loan Certificates pursuant to Section 5.11(a) hereof, the amount paid by Borrower shall be applied against the amounts which Borrower is obligated to pay in connection with such prepayment pursuant to Section 5.11(a) (it being understood that no prepayment shall be permitted under Section 5.11(a) unless the Borrower pays a sufficient amount to satisfy the amounts owed by it under Section 5.11(a) in connection with such prepayment).

 

(e) After an Event of Default shall have occurred, and so long as such Event of Default shall be continuing, all amounts deposited in the Payment Account and all proceeds resulting from a sale of any of the Mortgage Estate shall be applied in the following order of priority:

 

First , to the extent not theretofore paid by or on behalf of the Borrower, to pay all costs and expenses of the Security Agent incurred in connection with the performance of its duties hereunder or under any other Operative Document, including reasonable attorneys’ fees and expenses and all costs and expenses incurred by the Security Agent in connection with its

 

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[Credit Agreement HSH/AS B737-800]

 

entering upon, taking possession of, holding, operating, managing, selling or otherwise disposing of the Mortgage Estate or any part thereof, any and all Taxes, assessments or other charges of any kind prior to the Lien of any Operative Document that the Security Agent determined in good faith to pay or be paid, and all amounts payable to the Security Agent hereunder or under any of the Operative Documents in respect of any indemnities or other obligations of the Borrower;

 

Second , to the Loan Participants ratably, without priority of one over the other, to the payment of all accrued and unpaid interest (including Break Amount, if any, and interest on account of overdue payments of principal and interest) then due the Loan Participants under this Agreement or any of Loan Certificates;

 

Third , to the Loan Participants ratably, without priority of one over the other, to the payment of any other amount, indebtedness or obligations (other than principal) due and payable to the Loan Participants under any Operative Documents;

 

Fourth , to the Loan Participants ratably, without priority of one over the other, to the payment in full of the principal amount of the Loan Certificates;

 

Fifth , the balance, if any, thereof thereafter remaining, to the Borrower or such other Person(s) as may then lawfully be entitled thereto.

 

If the Security Agent purchases and subsequently sells the Aircraft to a third party, any net sale proceeds (after deduction of all relevant costs, including maintenance, storage and insurance) which exceed the debt advances for such Aircraft shall be deposited in the Payment Account and distributed under this Section 5.4.

 

5.5 Method of Payment . Principal and interest and other amounts due hereunder or under the Loan Certificates or in respect hereof or thereof shall be payable in Dollars in immediately available funds prior to 1:00 p.m., New York, New York time, on the due date thereof, to the Security Agent at the Payment Office and the Security Agent shall, subject to the terms and conditions of Section 5.4, remit all such amounts so received by it to the Holders at such account or accounts at such financial institution or institutions as the Holders shall have designated to the Security Agent in writing, in immediately available funds for distribution to the relevant Holders, such payment to be made, in the case of any such designated account in New York, New York, prior to 3:00 p.m., New York time, on the due date thereof.

 

In the event the Security Agent shall fail to make any such payment as provided in the immediately foregoing sentence after its receipt of funds at the place and prior to the time specified above, the Security Agent agrees to compensate the Holders for loss of use of funds in a commercially reasonable manner.

 

All such payments by the Borrower and the Security Agent shall be made free and clear of and without reduction on account of all wire and other like charges. Prior to the due presentment for registration of transfer of any Loan Certificate, the Borrower and the Security Agent may deem and treat the Person in whose name any Loan Certificate is registered on the Certificate Register as the absolute owner of such Loan Certificate for the purpose of receiving payment of all amounts payable with respect to such Loan Certificate and for all other purposes

 

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[Credit Agreement HSH/AS B737-800]

 

whether or not such Loan Certificate shall be overdue, and neither the Borrower nor the Security Agent shall be affected by any notice to the contrary.

 

If the Security Agent disburses funds on a payment date without first having received funds from the Borrower and if the Borrower subsequently fails to make such payment before the end of the day, then on the next Business Day on demand from the Security Agent, each Loan Participant which has received such funds will refund to the Security Agent the amount advanced by the Security Agent which such Loan Participant received.

 

5.6 Termination of Interest in Mortgage Estate . None of the Security Agent, any Loan Participant and any Holder shall, as such, have any further interest in, or other right with respect to, the Mortgage Estate with respect to any Aircraft when and if the principal amount of, Break Amount on, if any, interest on and other amounts due under all Drawings of the related Series held by such Holder and all other sums due to such Holder hereunder and under the other Operative Documents in respect of such Aircraft shall have been paid in full; provided, however, that the interests and rights of the Loan Participants in and with respect to the mortgage and security interests created by the Mortgage shall continue (except with respect to any Aircraft as to which the related Series of Drawings has been repaid) after all such amounts have been paid in full so long as the Commitments have not terminated. Upon payment in full of any Series of Drawings, the Security Agent shall release that portion of the Mortgage Estate which relates solely to the applicable Aircraft from the Lien of the Mortgage.

 

5.7 Registration, Transfer and Exchange of Loan Certificates . The Security Agent agrees with the Borrower that the Security Agent shall keep a register (herein sometimes referred to as the “ Certificate Register ”) in which provision shall be made for the registration of Loan Certificates of each Series and the registration of transfers of Loan Certificates of such Series.

 

Prior to the due presentment for registration of the transfer of any Loan Certificate, the Borrower and the Security Agent shall deem and treat the person in whose name such Loan Certificate is registered on the Certificate Register as the absolute owner of such Loan Certificate, and the Holder for the purpose of receiving payment of all amounts payable with respect to such Loan Certificate, and for all other purposes whether or not such Loan Certificate is overdue, and neither the Borrower nor the Security Agent shall be affected by notice to the contrary.

 

The Certificate Register shall be kept at the office of the Security Agent set forth in this Agreement or at the office of any successor Security Agent, and the Security Agent is hereby appointed “Certificate Registrar” for the purpose of registering Loan Certificates and transfers of Loan Certificates as herein provided.

 

Upon surrender for registration of transfer of any Loan Certificate at the office of the Security Agent set forth in this Agreement and upon delivery by the Security Agent to the Borrower of such surrendered Loan Certificate, the Borrower shall execute, and the Security Agent shall deliver, in the name of the designated transferee or transferees, one or more new Loan Certificates of a like aggregate principal amount.

 

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[Credit Agreement HSH/AS B737-800]

 

At the option of the Holder, its Loan Certificates may be exchanged for other Loan Certificates of any authorized denominations, of a like aggregate principal amount, upon surrender of the Loan Certificates to be exchanged at the office of the Security Agent specified in the Credit Agreement. Each new Loan Certificate issued upon transfer or exchange shall be in a principal amount of at least [***] * (except as may be necessary to evidence the entire outstanding principal amount of a Loan Certificate) and dated the Effective Date. Whenever any Loan Certificates are so surrendered for exchange, the Borrower shall execute and deliver the Loan Certificates which the Holder making the exchange is entitled to receive.

 

Each Holder may also assign to any assignee an interest in any Loan Certificate held by it and the Security Agent shall, upon receipt of a written request of such assignee, accompanied by such proof of such assignment as the Security Agent may reasonably require, register in the name of such assignee such interest in such Loan Certificate and thereafter such assignee shall be a Holder for all purposes of the Operative Documents (subject to any limitations in the instrument of assignment).

 

All Loan Certificates issued upon any registration of transfer or exchange of Loan Certificates shall be the valid obligations of the Borrower evidencing the same obligations, and entitled to the same security and benefits under the Mortgage and this Agreement, as the Loan Certificates surrendered upon such registration of transfer or exchange.

 

Every Loan Certificate presented or surrendered for registration of transfer or exchange, shall (if so required by the Security Agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Security Agent duly executed by the Holder thereof or his attorney duly authorized in writing, and the Security Agent may require evidence satisfactory to it as to the compliance of any such transfer with the Securities Act and the securities laws of any applicable state.

 

The Security Agent shall make a notation on each new Loan Certificate or Loan Certificates of the then available Commitment on the old Loan Certificate or Loan Certificates with respect to which such new Loan Certificate is issued, the current outstanding principal and the date to which interest accrued on such old Loan Certificate or Loan Certificates has been paid and the extent, if any, to which any interest therein has been subject to a registered assignment.

 

The Security Agent shall not be required to register the transfer of or exchange any surrendered Loan Certificates as above provided during the five calendar day period preceding the due date of any payment on such Loan Certificates.

 

Any Holder may transfer any or all of its Loan Certificates to any Person. The Borrower and the Security Agent shall treat the Person in whose name each Loan Certificate is

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

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[Credit Agreement HSH/AS B737-800]

 

registered on the Certificate Register as the Holder with respect thereto for all purposes hereof until due presentment for registration of transfer as provided in this Section 5.7.

 

The Security Agent shall give the Borrower and each Holder notice of such transfer of a Loan Certificate under this Section 5.7.

 

5.8 Mutilated, Destroyed, Lost or Stolen Loan Certificates . If any Loan Certificate shall become mutilated, destroyed, lost or stolen, the Borrower shall, upon the written request of the affected Holder, execute and deliver in replacement thereof, a new Loan Certificate, in the same principal amount, dated the date of such Loan Certificate and designated as issued under the Mortgage.

 

If the Loan Certificate being replaced has become mutilated, such Loan Certificate shall be surrendered to the Security Agent and the original thereof shall be furnished to the Borrower by the Security Agent.

 

If the Loan Certificate being replaced has been destroyed, lost or stolen, the affected Holder shall furnish to the Borrower and the Security Agent such security or indemnity as may be reasonably required by them to hold the Borrower and the Security Agent harmless and evidence satisfactory to the Borrower and the Security Agent of the destruction, loss or theft of such Loan Certificate and of the ownership thereof, provided, however, that if the affected Holder is an original party to this Agreement or an Affiliate thereof, the written notice of such destruction, loss or theft and such ownership and the written undertaking of such Holder delivered to the Borrower and the Security Agent to hold harmless the Borrower and the Security Agent in respect of the execution and delivery of such new Loan Certificate shall be sufficient evidence, security and indemnity.

 

5.9 Payment of Expenses on Transfer . Upon the issuance of a new Loan Certificate or new Loan Certificates pursuant to Section 5.7 or 5.8, the Borrower and/or the Security Agent may require from the party requesting such new Loan Certificate or Loan Certificates payment of a sum sufficient to reimburse the Borrower and/or the Security Agent for, or to provide funds for, the payment of any tax or other governmental charge in connection therewith or any charges and expenses connected with such tax or other governmental charge paid or payable by the Borrower or the Security Agent, and any out of pocket expenses, including legal fees (for external counsel) incurred, of the Borrower or the Security Agent.

 

5.10 Prepayment . (a) On at least five Business Days prior written notice, the Borrower may prepay on the date specified in such notice of prepayment, in whole or in part, the Loan Certificates then outstanding at the principal amount thereof (or portion thereof to be repaid), and provided that any partial prepayment shall be in an aggregate original principal amount of at least $5,000,000 and in $500,000 multiples thereof, and the amount thereof shall be specified in such written notice. The Security Agent will give prompt notice of the Borrower’s intent to prepay to the Holders.

 

(b) Upon the occurrence of a cancellation of the Boeing Purchase Agreement with respect to any Aircraft for any reason whatsoever, the aggregate outstanding principal amount of all Drawings relating to such Aircraft shall become due and payable in 10 days, and

 

18

[Credit Agreement HSH/AS B737-800]

 

the Borrower shall prepay the Loan Certificates to the extent of such Drawings, together with accrued interest thereon to the date of prepayment plus any Break Amount and all other amounts due thereunder and hereunder and under the other Operative Documents with respect to such Aircraft to the Holders. The Security Agent will give notice of prepayment to the Holders under this Section 5.10(b) promptly.

 

(c) In the event that a Loan Participant is entitled to a payment under Section 5.13 or Section 8.2 (an “ Affected Loan Participant ”), the Borrower, the Security Agent and the Affected Loan Participant shall cooperate for a period of sixty (60) days to:

 

(i) first, restructure the Loan for the Affected Loan Participant so as to eliminate the need for any such payment (it being agreed that the Affected Loan Participant shall have no obligation to proceed with such restructuring to the extent such restructuring would:

 

(1) result in an adverse regulatory consequence for the Affected Loan Participant; or

 

(2) involve any unreimbursed or unindemnified cost for the Affected Loan Participant; or

 

(3) be inconsistent with the Affected Loan Participant’s internal policies); or

 

(ii) if no restructuring can be arranged, attempt, with the Borrower acting as marketing agent, to find an entity reasonably satisfactory to the Security Agent to purchase the Affected Loan Participant’s Loan Certificate and assume the Affected Loan Participant’s Commitment.

 

The Affected Loan Participant shall be paid (by the purchasing entity or the Borrower) the outstanding principal balance of its Loan Certificate, all accrued and unpaid interest thereon, any Break Amount incurred (calculated as if such purchase were a prepayment of such Affected Loan Participant’s Loan Certificate) and all other amounts owed to the Affected Loan Participant hereunder, thereunder or under any other Operative Document as a condition precedent to such purchase.

 

In the event the Borrower is unable to find a purchaser of the Affected Loan Participant’s Loan Certificate, then, so long as no Default or Event of Default shall have occurred and be continuing on at least five (5) Business Days’ prior written notice, the Borrower may prepay on the date specified in its notice of prepayment, in whole the Affected Loan Participant’s Loan Certificate at the principal amount thereof together with accrued and unpaid interest thereon to the date of prepayment plus the Break Amount, if any, and all other amounts due to the Affected Loan Participant hereunder, thereunder and under the other Operative Documents.

 

(d) In the event that the Manufacturer refunds any amounts under the Boeing Purchase Agreement relating to payments made thereunder for which proceeds of any Drawing were used to pay (or to reimburse the Borrower) or otherwise relating to any Aircraft, a principal

 

19

[Credit Agreement HSH/AS B737-800]

 

amount of the Drawings (and any Break Amount related thereto) relating to such Aircraft equal to such refund shall become immediately due and payable.

 

(e) Any notice of prepayment delivered pursuant to Sections 5.10(a), (b) or (c) shall be irrevocable and shall identify the amount to be prepaid and the Series of Drawings (if applicable) subject to prepayment.

 

5.11 Provisions Relating to Prepayment . (a) Notice of prepayment having been given, the principal amount of the Loan Certificates so to be prepaid, plus accrued interest thereon to the date of prepayment, together with the Break Amount, if any, shall become due and payable on the prepayment date.

 

(b) On the date fixed for prepayment under Section 5.10, immediately available funds in Dollars shall be deposited by the Borrower in the account of the Security Agent at the place and by the time and otherwise in the manner provided in Section 5.5, in an amount equal to the principal amount of Loan Certificates to be prepaid together with accrued and unpaid interest thereon to the date fixed for such prepayment, all Break Amounts, if any, and all other amounts due to the Holders of the Loan Certificates hereunder, thereunder and under the other Operative Documents.

 

(c) Each Holder of a Loan Certificate shall furnish to the Borrower, with a copy to the Security Agent, a certificate setting forth in reasonable detail the calculation of the Break Amount due to such Holder, which certificate shall be presumptively correct, absent manifest error.

 

5.12 Increased Costs . (a) The Borrower shall pay directly to each Holder from time to time such amounts as such Holder may determine to be necessary to compensate such Holder for any increase in actual costs that such Holder determines are attributable to its making or maintaining of its Commitment or the loans evidenced by its Loan Certificates or funding arrangements utilized in connection with such loans, or any reduction in any amount receivable by such Holder hereunder in respect of any of Commitments, such loans or such arrangements (such increases in costs and reductions in amounts receivable being herein called “ Additional Costs ”), resulting from any Regulatory Change that:

 

(i) imposes any tax that is the functional equivalent of any reserve, special deposit or similar requirement of the sort covered by Section 5.12(a)(ii); or

 

(ii) imposes or modifies any reserve, special deposit or similar requirements (including any Reserve Requirement) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Holder (including, without limitation, any of such loans or any deposits referred to in the definition of “LIBO Rate” in Annex A), or any such obligations; or

 

(iii) imposes any other condition affecting this Agreement or the Loan Certificates (or any of such extensions of credit or liabilities) or any such obligation.

 

(b) Without limiting the effect of the foregoing provisions of this Section 5.12 (but without duplication), the Borrower shall pay directly to each Holder of a Loan Certificate

 

20

[Credit Agreement HSH/AS B737-800]

 

from time to time on request such amounts as such Holder may determine to be necessary to compensate such Holder (or, without duplication, the holding company of which such Holder is a subsidiary) for any increase in actual costs that it determines are attributable to the maintenance by such Holder (or any lending office or such holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful so long as compliance therewith is standard banking practice in the relevant jurisdiction) of any court or governmental or monetary authority following:

 

(i) any Regulatory Change; or

 

(ii) implementing any risk-based capital guideline or other similar requirement hereafter issued by any government or governmental or supervisory authority, of capital in respect of its Commitments or Loan Certificates or funding arrangements utilized in connection with the Loan Certificates; such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Holder (or any lending office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request.

 

(c) Each Holder shall notify the Borrower of any event occurring after the date of this Agreement entitling such Holder to compensation under Sections 5.12(a) or (b) as promptly as practicable, but in any event within 30 days, after such Holder obtains actual knowledge thereof, provided that:

 

(i) such Holder shall, with respect to compensation payable pursuant to this Section 5.12 in respect of any Additional Costs resulting from such event, only be entitled to payment under this Section 5.12 for Additional Costs incurred from and after the date such Holder does give such notice; and

 

(ii) each Holder will use commercially reasonable efforts (at the Borrower’s expense) to mitigate the amount of the Additional Costs associated with such event, including designating a different lending office for the Loan Certificates of such Holder affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Holder, result in any economic, legal or regulatory disadvantage to such Holder (other than economic disadvantages for which the Borrower agrees to indemnify such Holder and which indemnity is acceptable to such Holder in its discretion acting reasonably based on its credit assessment of the Borrower).

 

(d) Each Holder will furnish to the Borrower an officer’s certificate setting forth in reasonable detail:

 

(i) the events giving rise to such Additional Costs;

 

(ii) the basis for determining and allocating such Additional Costs; and

 

(iii) the amount of each request by such Holder for compensation under Sections 5.12(a) or (b) (subject, however, to any limitations such Holder may require in

 

21

[Credit Agreement HSH/AS B737-800]

 

respect of disclosure of confidential information relating to its capital structure), together with a statement that the determinations and allocations made in respect of the Additional Costs comply with the provisions of this Section 5.12 including as provided in the last proviso of this Section 5.12(c).

 

Determinations and allocations by any Holder for purposes of this Section 5.12 of the effect of any Regulatory Change pursuant to Section 5.12(a), or of the effect of capital maintained pursuant to Section 5.12(b), on its costs or rate of return of maintaining its Commitment or Loan Certificate or its funding, or on amounts receivable by it in respect of Loan Certificates, and of the amounts required to compensate such Holder under this Section 5.12, shall be conclusive absent manifest error, provided that such determinations and allocations are made on a reasonable basis and, in the case of allocations, are made fairly.

 

(e) The Borrower shall not be required to make payments under this Section to any Holder if (i) a claim hereunder arises through circumstances peculiar to such Holder and which do not affect commercial lenders in the same jurisdiction generally; (ii) such Holder is required by Section 5.12(f) to sell its Loan Certificates to a designated purchaser (which may be the Borrower) but fails to do so (other than as a result of such designated Person failing to purchase such Loan Certificates; (iii) such Holder is not also seeking indemnification against similar increased costs, to the extent it is entitled to do so, in transactions with substantial borrowers (it being agreed that an officer’s certificate to the contrary from any such Holder shall constitute conclusive evidence of such fact); or (iv) the claim arises out of a voluntary relocation by such Holder of its lending office (it being understood that any such relocation effected pursuant to Section 5.12(c)(ii) is not “voluntary”).

 

(f) If any Holder gives notice of a claim against the Borrower under Section 5.12(c), the Borrower shall have the right by notice to such Holder to request such Holder to sell, without representation or warranty (except for its own acts), its Loan Certificates on a Business Day not fewer than ten days after the giving of such notice (the “Purchase Date” ) to a Person (which may be the Borrower) designated by the Borrower (the “Purchaser” ) at a purchase price equal to either (A) the sum of (i) the aggregate outstanding principal amount of the Loan Certificates held by such Holder, plus (ii) accrued interest to the Purchase Date, plus (iii) any Break Amount as if such Loan Certificates were being prepaid pursuant to Section 5.10 plus (iv) all other amounts owing to such Holder under the Operative Documents, or (B) a lesser amount than the preceding clause (A), so long as the Borrower pays an additional amount sufficient to cover the amount of such shortfall (as compared to such clause (A)).

 

5.13 Illegality . Notwithstanding any other provision of this Agreement or the Mortgage, if any Holder (an “ Illegal Holder ”) shall notify the Security Agent that the introduction after the date of this Agreement of or any change after the date of this Agreement or any other Operative Document in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Holder to make, fund or allow to remain outstanding its Loan Certificate, then such Holder shall, promptly after becoming aware of the same, deliver to the Borrower through the Security Agent a certificate to that effect, and, if the Security Agent on behalf of such Holder so requires, the Borrower shall attempt to cure such illegality or otherwise, within 10 days of such notification, the Borrower shall prepay the aggregate outstanding principal amount of the Loan Certificate

 

22

[Credit Agreement HSH/AS B737-800]

 

held by such Illegal Holder in full, together with accrued interest thereon to the date of prepayment plus all Break Amount, if any, and all other amounts due thereunder and hereunder and under the other Operative Documents to such Illegal Holder.

 

Section 6. Extent of Interest of Holders . No Holder shall have any further interest in, or other right with respect to, the mortgage and security interests created by the Mortgage when and if the principal and interest on the Loan Certificate held by such Holder and all other sums payable to such Holder hereunder, under the Mortgage and under such Loan Certificate shall have been paid in full, provided, however, that the interests and rights of the Loan Participants in and with respect to the mortgage and security interests created by the Mortgage shall continue after all such amounts have been paid in full so long as the Commitments have not terminated.

 

Section 7. Borrower’s Representations and Warranties . The Borrower represents and warrants that on the date hereof and on each Borrowing Date:

 

(a) the Borrower is a corporation duly organized and validly existing in good standing pursuant to the laws of the State of Alaska; is duly qualified to do business as a foreign corporation in each jurisdiction in which its operations or the nature of its business requires, except where the failure to be so qualified would not have a Material Adverse Effect; is a U.S. Air Carrier; has its “location” (as such term is defined in Article 9 of the Uniform Commercial Code) in the State of Alaska; and has the corporate power and authority to engage in air transport and to carry on scheduled passenger service as presently conducted, to purchase the Aircraft under the Boeing Purchase Agreement and to enter into and perform its obligations under the Operative Documents;

 

(b) the execution, delivery and performance by the Borrower of the Operative Documents to which it is a party have been duly authorized by all necessary corporate action on the part of the Borrower, do not require any stockholder approval, or approval or consent of any trustee or holders of any indebtedness or obligations of the Borrower except such as have been duly obtained and are in full force and effect, and none of the execution, delivery or performance by Borrower of such Operative Documents contravenes any law, judgment, government rule, regulation or order binding on the Borrower or the Articles of Incorporation or By-laws of the Borrower or contravenes the provisions of, or constitutes a default under, or results in the creation of any Lien (other than Permitted Liens) upon the property of the Borrower under, any indenture, mortgage, contract or other agreement to which the Borrower is a party or by which it or its properties may be bound or affected;

 

(c) neither the execution and delivery by the Borrower of the Operative Documents nor the performance by the Borrower of its obligations thereunder requires the consent or approval of, the giving of notice to, or the registration with, or the taking of any other action in respect of any Federal, state or foreign government authority or agency, except for (A) the orders, permits, waivers, exemptions, authorizations and approvals of the regulatory authorities having jurisdiction over the operation of the Aircraft by the Borrower, which orders, permits, waivers, exemptions, authorizations and approvals, if any, concurrently required to be obtained and in full force and effect have been duly obtained and are in full force and effect except for those orders, permits, waivers, exemptions, authorizations and approvals the failure to obtain which would not have a Material Adverse Effect, and (B) any filings, registrations or

 

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[Credit Agreement HSH/AS B737-800]

 

applications specifically described in this Agreement (the items referred to in (A) and (B) collectively referred to as “ Permits ”);

 

(d) the Operative Documents to which the Borrower is a party each constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with the terms thereof except as such enforceability may be limited by equitable principles or applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally;

 

(e) there is no pending or (to the best of Borrower’s knowledge) threatened action or proceeding before any court, arbitrator or administrative agency that individually (or in the aggregate in the case of any group of related lawsuits) is expected by the Borrower to have a Material Adverse Effect;

 

(f) except for the filing of financing statements (and continuation statements at periodic intervals) with respect to the interests created by such documents under the Uniform Commercial Code of Alaska and such other states as may be specified in the opinion furnished pursuant to Section 4.1(i) hereof, no further action, including any filing or recording of any document (including any financing statement in respect thereof under Article 9 of the Uniform Commercial Code of any applicable jurisdiction), is necessary or advisable in order to establish and perfect the first mortgage Lien on the Boeing Purchase Agreement (and, from the date of any Engine Warranty Substitution, the CFM Purchase Agreement) and the rest of the Mortgage Estate in favor of the Security Agent pursuant to the Mortgage in any applicable jurisdiction in the United States;

 

(g) there has not occurred any event which constitutes a Default or an Event of Default under the Mortgage which is presently continuing;

 

(h) the statements of financial position of the Borrower as of December 31 of the year prior to the Borrowing Date, and the related statements of earnings and cash flow of the Borrower in all material respects for the year and fiscal quarter, as the case may be, then ended, copies of which have been furnished to each Loan Participant, fairly present the financial condition of the Borrower at such date and the results of operations and cash flow of the Borrower for the period ended on such dates, in accordance with generally accepted accounting principles consistently applied, and subject, to normal year-end adjustments, and since December 31 of the year prior to the Borrowing Date, there has been no material and adverse change in such condition or operations;

 

(i) the Boeing Purchase Agreement (and, from the date of any Engine Warranty Substitution, the CFM Purchase Agreement) is in full force and effect and neither the Borrower nor, to the knowledge of the Borrower, the Manufacturer (or, from the date of any Engine Warranty Substitution, the Engine Manufacturer) is in default of any of its material obligations thereunder. Except as contemplated by the Mortgage and Liens granted to third-party financiers and released and terminated prior to the Effective Date, the Borrower has neither assigned nor granted any Lien in its rights under either Purchase Agreement in respect of any of the Aircraft or the Engines;

 

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[Credit Agreement HSH/AS B737-800]

 

(j) assuming the Loan Participants are acquiring their Loan Certificates in the ordinary course of their normal business operations for their own accounts, the issuance of the Loan Certificates to the initial Loan Participants will not require registration of the Loan Certificates pursuant to the Securities Act;

 

(k) the Borrower has filed or caused to be filed all Federal, state, local and (in the Borrower’s opinion) foreign tax returns which are required to be filed and has paid or caused to be paid or provided adequate reserves for the payment of all taxes shown to be due and payable on such returns or (except to the extent being contested in good faith and by appropriate proceedings and for the payment of which adequate reserves have been provided in accordance with generally accepted accounting principles) on any assessment received by the Borrower, to the extent that such taxes have become due and payable, except such returns or taxes as to which the failure to file or pay, as the case may be, could not be reasonably expected to materially and adversely affect the assets, operations or financial condition, of the Borrower;

 

(l) the Borrower is not:

 

(i) to the best of its knowledge, in default under any indenture, mortgage, lease or credit agreement or under any other agreement or instrument of a material nature to which the Borrower is now a party or by which it is bound, and no event has occurred and is continuing which, under the provisions of any such indenture, mortgage, credit agreement or other material agreement or instrument, with the lapse of time or the giving of notice, or both, would constitute a default thereunder (it being understood that maintenance issues concerning leased or mortgaged aircraft that create technical defaults in relation to which no action has been taken by the relevant lessor or mortgagor are not, for the purposes of this representation, “defaults”); or

 

(ii) in violation of any law, order, injunction, decree, rule or regulation applicable to the Borrower of any court or administrative body, which default or violation would reasonably be expected to materially and adversely affect the operations or financial condition of the Borrower or the Borrower’s ability to execute, deliver and perform its obligations under the Operative Documents;

 

(m) (i) no material liability to the Pension Benefit Guaranty Corporation (other than liability for premiums) which would reasonably be expected to have a Material Adverse Effect has been incurred by the Borrower with respect to any Plan;

 

(ii) there has been no event or condition which presents a material risk of termination of any Plan by the Pension Benefit Guaranty Corporation which would reasonably be expected to have a Material Adverse Effect;

 

(iii) no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Plan which would reasonably be expected to have a Material Adverse Effect; and

 

(iv) no amount of “withdrawal liability,” as that term is used in Section 4201 of ERISA, which would reasonably be expected to have a Material Adverse Effect has been or is expected to be incurred by the Borrower nor has the Borrower or

 

25

[Credit Agreement HSH/AS B737-800]

 

any affiliate of the Borrower been notified by any multi-employer plan (within the meaning of Section 3(37)(A) of ERISA) that such multi-employer plan is in reorganization or insolvency within the meaning of Section 4241 or Section 4245 of ERISA or that such multi-employer plan intends to terminate or has been terminated under Section 4041A of ERISA where such reorganization, insolvency or termination which would reasonably be expected to have a Material Adverse Effect (for purposes of this subclause (m), the term “affiliate” shall mean any corporation or person which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower or is under common control (within the meaning of Section 414(c) of the Code) with the Borrower);

 

(n) the Borrower is not an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 and the Borrower is not a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935;

 

(o) none of the information relating to any Aircraft, its price and/or any Delivery Date furnished by or on behalf of the Borrower to the Security Agent or any Loan Participant in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(p) no part of the proceeds of any Drawing hereunder will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board of Governors of the Federal Reserve, including Regulations U and X;

 

(q) the Security Agent has, or will have upon the filing of a UCC-1 in Alaska, a duly perfected first priority security interest in the Boeing Purchase Agreement and, from the date of any Engine Warranty Substitution, the CFM Purchase Agreement (subject to Permitted Liens);

 

(r) the Mortgage Estate is free and clear of all Liens (except Liens contemplated by the Mortgage and Permitted Liens);

 

(s) (i) there are no pre-delivery deposit payments or other advances with respect to any Aircraft other than the Advances listed on Schedule III (including, for the avoidance of doubt, the Engine Substitution Contribution);

 

(ii) the Borrower has paid in full all Advances which have become due and owing with respect to any Aircraft (including, without limitation, the Advances due and payable upon the execution of the Boeing Purchase Agreement) and has not received, directly or indirectly, any refund or credit from the Manufacturer with respect to any portion thereof;

 

26

[Credit Agreement HSH/AS B737-800]

 

(iii) Schedule III sets forth in full and accurate detail, with respect to each Aircraft:

 

(1) the aggregate amount of Advances made by the Borrower prior to the date hereof (net of any and all refunds and credits received from the Manufacturer prior to the date hereof) with respect to such Aircraft;

 

(2) the scheduled dates and amounts of each Advance due with respect to such Aircraft after the date hereof; and

 

(3) the scheduled delivery date for such Aircraft;

 

(iv) assuming that each Aircraft is delivered on its Delivery Date in the condition required by the terms of the Boeing Purchase Agreement, each of the Aircraft shall be in such condition as is necessary to be certified by the Federal Aviation Administration as to type and airworthiness and to meet the requirements necessary to obtain an airworthiness certificate under the Federal Aviation Act; and

 

(v) [***] *

 

(t) the Borrower has no financings with either the Manufacturer or the Engine Manufacturer which contain an event of default triggered by the failure of the Borrower to meet financial performance standards; and

 

(u) the value of the Security Agent’s Lien over the Purchase Agreements and its other rights in relation to the Purchase Agreements under the Operative Documents (with Purchase Agreements for the purpose of this Section 7(u) only to include all Excluded Provisions) is not adversely affected by the omission of the Excluded Provisions from the Purchase Agreements for the purposes of the Operative Documents, such that, the Security Agent would receive a higher price than the [***]* Price (as defined in the Consent and Agreement) were it not for the Security Agent’s rights over the Purchase Agreements excluding the Excluded Provisions, provided however, that the parties acknowledge that the Engine Substitution will affect the value of the Security Agent’s Lien, and that the representation in this Section 7(u) does not apply in relation to any Engine Substitution.

 

Section 8. Indemnities .

 

8.1 [***]*

 

8.2 Withholding Taxes .

 

(a) Except as provided in this Section 8.2, the Borrower shall have no liability to any Holder in the event any withholding Tax is imposed on payments made to holders of the Loan Certificate(s).

*	Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

27

[Credit Agreement HSH/AS B737-800]

 

(b) [***] *

 

8.3 Interest . The Borrower will pay to each Indemnitee on demand, to the extent permitted by applicable law, interest on any amount of indemnity not paid when due pursuant to this Section 8 until the same shall be paid, at the Past Due Rate.

 

Section 9. Covenants of the Borrower . The Borrower hereby covenants for the benefit of all Loan Participants, as follows:

 

(a) Borrower Merger . For so long as the Mortgage remains in force, the Borrower shall not enter into any merger or consolidation, or sell, transfer, lease or convey all or a substantial part of its assets, unless, only in the case of such merger or consolidation:

 

(i) no Default or Event of Default shall have occurred and be continuing or would result therefrom;

 

(ii) the Borrower is the surviving corporation or, if otherwise, such other Person or continuing corporation (herein called “ Successor Corporation ”) shall be a corporation incorporated under the laws of a state of the United States, shall be a U.S. Air Carrier, and after giving effect to such merger, consolidation, sale, transfer, lease or conveyance, the net worth of the Successor Corporation is not less than the greater of (1) the lesser of Borrower’s tangible net worth immediately before the Merger and Borrower’s tangible net worth on December 31, 2004 and (2) 75% of Borrower’s tangible net worth immediately before the Merger;

 

(iii) in the case of a Successor Corporation, such Successor Corporation shall:

 

(1) execute, prior to or contemporaneously with the consummation of such transaction, such agreements, if any, as are in the reasonable opinion of the Security Agent necessary or advisable to evidence the assumption by the Successor Corporation of liability for all of the obligations of the Borrower under the Mortgage and the other Operative Documents;

 

(2) make such recordings and filings, and take such other action with respect to the Operative Documents, as shall be necessary or advisable in the reasonable opinion of the Loan Participants