SECURITY AGREEMENT

EXHIBIT 10.26

 

Execution Version

 

CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT REQUEST PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE OMITTED CONFIDENTIAL INFORMATION APPEARS ON FOUR (4) PAGES OF THIS EXHIBIT.

 

 

SECURITY AGREEMENT

 

dated as of August 31, 2005

 

between

 

A IR T RAN A IRWAYS , I NC .,

Borrower

 

and

 

T HE R OYAL B ANK OF S COTLAND PLC N EW Y ORK B RANCH ,

Security Agent

 

 

Loan Certificates covering

Advance Payments relating to

Twelve (12) Boeing model 737-7BD Aircraft

each to be equipped with

Two (2) CFM International model CFM56 engines

 

TABLE OF CONTENTS

 

 

i

 

ANNEX A – Definitions

EXHIBIT A – Form of Loan Certificate

SCHEDULE 1 – Purchase Agreement Reserved Provisions

SCHEDULE 2 – GTA Reserved Provisions

 

ii

SECURITY AGREEMENT

 

T HIS S ECURITY A GREEMENT , dated as of August 31, 2005 (this “Security Agreement”), is by and between A IR T RAN A IRWAYS , I NC . (the “ Borrower ”) and T HE R OYAL B ANK OF S COTLAND PLC N EW Y ORK B RANCH , as Security Agent for the Lenders (together with its successors hereunder in such capacity, the “ Security Agent ”).

 

RECITALS:

 

W HEREAS , Borrower desires by this Security Agreement, among other things (i) to provide for the issuance by Borrower to the Lenders of Loan Certificates evidencing participation by the Lenders in the secured loans as provided in the Credit Agreement, and (ii) to provide for the assignment, mortgage and pledge by Borrower to Security Agent, as the Collateral hereunder, among other things, certain of Borrower’s right, title and interest in and to the Purchase Agreement and the GTA, as security for, among other things, Borrower’s obligations to the Lenders, and for the benefit and security of the Lenders;

 

W HEREAS , all things have been done to make the Loan Certificates, when executed by Borrower and issued and delivered hereunder, the valid obligations of Borrower; and

 

W HEREAS , all things necessary to make this Security Agreement the valid, binding and legal obligation of Borrower, for the uses and purposes herein set forth and in accordance with its terms, have been done and performed and have happened;

 

GRANTING CLAUSE:

 

N OW , T HEREFORE , T HIS S ECURITY A GREEMENT W ITNESSETH , that, to secure the prompt payment of the principal amount of, interest on, and all other amounts due with respect to all Loan Certificates and (subject to Section 14 of the Credit Agreement) all Equipment Notes, and to secure Borrower’s prompt and complete payment, performance and observance of (x) all the agreements, covenants, and provisions herein, in the Credit Agreement and the other Operative Agreements, the Loan Certificates and (subject to Section 14 of the Credit Agreement) in the Loan Agreement, all Mortgages and all Equipment Notes, for the benefit of the Lenders and (subject to Section 14 of the Credit Agreement) the holders of all Equipment Notes, and (y) all other Secured Obligations, and in consideration of the premises and of the covenants herein, and of the acceptance of the Loan Certificates by the holders thereof, and for other good and valuable consideration the receipt and adequacy whereof are hereby acknowledged, Borrower hereby grants to Security Agent (and its successors in trust and assigns), for the security and benefit of the Lenders and (subject to Section 14 of the Credit Agreement) the holders of the Equipment Notes and all other Persons holding Secured Obligations, a security interest in and Lien on all Borrower’s right, title and interest in, to, and under the following described property, rights, and privileges, whether now existing or hereafter acquired (which, collectively, together with all property hereafter specifically subject to the Lien of this Security Agreement by the terms hereof or any supplement hereto, are included within, and are referred to as, the “Collateral”):

 

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(1) Subject to the terms and conditions of the Consent and Agreement, the Purchase Agreement, including, without limitation, (i) the right to purchase each of the Aircraft pursuant to and in accordance with the Purchase Agreement upon valid tender by Airframe Manufacturer; (ii) all claims for damages in respect of each of the Aircraft arising as a result of any default by Airframe Manufacturer under the Purchase Agreement or by any vendor or other supplier of components or other parts or equipment installed on or in any of the Aircraft referred to therein, including, without limitation, all warranty, service life policy and indemnity provisions contained in the Purchase Agreement and all claims thereunder; (iii) any and all rights of Borrower to compel performance of the terms of the Purchase Agreement in respect of the Aircraft; and (iv) all of Borrower’s rights and interests in or arising out of any payments or deposits made or to be made by Borrower to Airframe Manufacturer or amounts paid, or to be paid, by Airframe Manufacturer to Borrower in respect of the Aircraft, together with all rights, powers, privileges, options and other benefits of Borrower in respect thereof, including, without limitation, the right to make all waivers and agreements, to give and receive all notices and other instruments or communications, and to take such action upon the occurrence of a default in respect of such provisions, including the commencement, conduct and consummation of legal, administrative or other proceedings, as shall be permitted thereby or by law, and to do any and all other things which Borrower is or may be entitled to do in respect of such provisions;

 

(2) Subject to the terms and conditions of the Engine Consent and Agreement, the GTA, including, without limitation, (i) all claims for damages in respect of each of the Engines arising as a result of any default by the Engine Manufacturer under the GTA or by any vendor or other supplier of components or other parts or equipment installed on or in any of the Engines referred to therein, including, without limitation, all warranty and indemnity provisions contained in the GTA and all claims thereunder; and (ii) any and all rights of Borrower to compel performance of the terms of the GTA in respect of the Engines, together with all rights, powers, privileges, options and other benefits of Borrower in respect thereof, including, without limitation, the right to make all waivers and agreements, to give and receive all notices and other instruments or communications, and to take such action upon the occurrence of a default in respect of such provisions, including the commencement, conduct and consummation of legal, administrative or other proceedings, as shall be permitted thereby or by law, and to do any and all other things which Borrower is or may be entitled to do in respect of such provisions;

 

(3) all payments or proceeds with respect to either the Purchase Agreement or the GTA in respect of the Aircraft and/or the Engines or any part thereof as the result of the sale or other disposition thereof, and all estate, right, title and interest of every nature whatsoever of Borrower in and to the same and every part thereof;

 

(4) all monies and securities deposited or required to be deposited with Security Agent pursuant to any term of this Security Agreement or required to be held by Security Agent hereunder;

 

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(5) any and all property that may, from time to time, by delivery or by other writing of any kind, for the purposes hereof be in any way subjected to the lien and the security interest hereof or be expressly conveyed, mortgaged, assigned, transferred, deposited, in which a security interest may be granted by the Borrower and/or pledged by the Borrower, or by any Person authorized to do so on its behalf or with its consent, to and with the Security Agent, including (without limitation) under and pursuant to any of the Related Mortgages, who is hereby authorized to receive the same at any and all times as and for additional security hereunder; and

 

(6) all proceeds of the foregoing.

 

Any and all properties referred to in this Granting Clause which are hereafter acquired by Borrower, shall, without further conveyance, assignment or act by Borrower or Security Agent thereby become and be subject to the security interest hereby granted as fully and completely as though specifically described herein; provided, however, that all rights and interests in and to the Purchase Agreement and the GTA as and to the extent the same relate to aircraft and engines other than the Aircraft and the Engines are reserved to and retained by Borrower.

 

Anything in this Security Agreement to the contrary notwithstanding:

 

(1) Borrower shall at all times remain liable (A) to Airframe Manufacturer to perform all the duties and obligations of “Customer” under the Purchase Agreement, and (B) to Engine Manufacturer to perform all the duties and obligations of “Airline” under the GTA, in each case to the same extent as if this Security Agreement had not been executed;

 

(2) Security Agent’s exercise of any of the rights assigned hereunder shall not release Borrower from any of its duties or obligations to Airframe Manufacturer under the Purchase Agreement or to Engine Manufacturer under the GTA, except to the extent that such exercise constitutes performance of such duties and obligations;

 

(3) except as provided in the next paragraph, neither Security Agent nor any Lender shall have any obligation or liability under the Purchase Agreement or the GTA by reason of, or arising out of, this Security Agreement, or be obligated to perform any of Borrower’s obligations or duties under the Purchase Agreement or the GTA, or to make any payment thereunder, or to make any inquiry as to the sufficiency of any payment received by any of them, or to present or file any claim or to take any other action to collect or enforce any claim for any payment assigned under this Security Agreement; and

 

(4) During the existence of an Event of Default, Security Agent shall be entitled to exercise the rights and powers under and with respect to the Purchase Agreement, as and to the extent provided in the Consent and Agreement, and with respect to the GTA, as and to the extent provided in the Engine Consent and Agreement, without the necessity of enforcing the Lien of this Security Agreement or exercising any remedies hereunder.

 

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Notwithstanding anything to the contrary in this Security Agreement, the Consent and Agreement or the Engine Consent and Agreement, but without in any way releasing Borrower from any of its duties or obligations under the Purchase Agreement, the GTA, or this Security Agreement, Security Agent confirms for the benefit of Airframe Manufacturer and Engine Manufacturer that, insofar as the provisions of the Purchase Agreement or the GTA relate to the Aircraft or the Engines (respectively), in exercising any rights under the Purchase Agreement or under the GTA, or in making any claim with respect to the Aircraft, Engines or other goods and services delivered or to be delivered pursuant to the Purchase Agreement or the GTA, the terms and conditions thereof (including warranty disclaimers, liability exclusions, indemnity, and insurance) shall apply to and bind Security Agent to the same extent as Borrower. At Borrower’s cost and expense, Security Agent further agrees, expressly for the benefit of Airframe Manufacturer and Engine Manufacturer, that upon the written request of Airframe Manufacturer or Engine Manufacturer, Security Agent will promptly execute and deliver such further assurances and documents and take such further action as Airframe Manufacturer or Engine Manufacturer reasonably requests in order to obtain the full benefits of Security Agent’s agreements in this paragraph. Borrower and Security Agent understand and acknowledge that no further assignment of the Purchase Agreement or GTA, including, without limitation, assignments for security purposes, are permitted without the express written consent of Airframe Manufacturer or Engine Manufacturer (as the case may be) except as otherwise provided in the Consent and Agreement and the Engine Consent and Agreement.

 

Notwithstanding any of the foregoing provisions of this Granting Clause, but subject to the express provisions of the other articles of this Security Agreement, so long as an Event of Default has not occurred and is continuing and, if legally permitted by Law to do so, Security Agent has not commenced the exercise of remedies under Section 4 hereof and except as provided in the Consent and Agreement and in the Engine Consent and Agreement, Borrower shall have the right, to the exclusion of Security Agent and any others claiming by, through or under Security Agent, to exercise in Borrower’s name all rights and powers of (x) the “Customer” with respect to the Aircraft under the Purchase Agreement and (y) the “Airline” with respect to the Engines under the GTA, provided , that, Borrower may not enter into any change order or other termination, amendment, modification or supplement to or give or accept any waiver or consent under, either the Purchase Agreement or the GTA to the extent related to the Collateral without the written consent of Security Agent if such change order, amendment, modification, supplement, waiver or consent would:

 

(1) change the time of or the amount of any Advance or the manner in which any Advance can be returned or credited to Borrower under the Purchase Agreement;

 

(2) result in the rescission, cancellation or termination of the Purchase Agreement or the GTA, except with respect to a rescission, cancellation or termination to the extent Airframe Manufacturer has the right to rescind, cancel or terminate the Purchase Agreement pursuant to the Consent and Agreement;

 

(3) result in the increase in the purchase price with respect to an Aircraft unless Borrower pays the amount of such increase to Airframe Manufacturer as an additional advance payment under the Purchase Agreement;

 

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(4) materially diminish the rights assigned hereunder to, or potentially increase the liabilities and obligations of, Security Agent; or

 

(5) modify the configuration and/or specification of an Aircraft in a manner which diminishes the value, utility or useful life of such Aircraft;

 

provided, if Borrower seeks to effectuate any change order, amendment, modification, supplement, waiver or consent which would materially diminish the rights assigned hereunder to, or potentially increase the liabilities and obligations of, Security Agent or modify the configuration and/or specification of an Aircraft in a manner which diminishes the value, utility or useful life of such Aircraft, Borrower shall give prior written notice to Security Agent thereof and Security Agent shall have ten (10) Business Days after receipt of such notice to object to such change order, amendment, modification, supplement, waiver or consent.

 

HABENDUM CLAUSE:

 

T O H AVE A ND T O H OLD all and singular the aforesaid property unto Security Agent, its successors and assigns, in trust for the benefit and security of the Lenders, and for the uses and purposes and subject to the terms and provisions set forth in this Security Agreement.

 

Borrower, Agent and Security Agent further agree as follows:

 

1. D EFINITIONS

 

The terms defined in Annex A, when capitalized as in Annex A, have the same meanings when used in this Security Agreement. Annex A also contains rules of usage that control construction in this Security Agreement.

 

2. T HE C ERTIFICATES

 

2.1 Form of Loan Certificates .

 

The Loan Certificates shall be substantially in the form of Exhibit A.

 

2.2 Terms of Loan Certificates; Drawings .

 

(a) On the Borrowing Date coinciding with the Effective Date, Borrower shall issue a Series of Loan Certificate to each Lender in an aggregate original principal amount equal to such Lender’s Maximum Commitment in respect of each Aircraft. Borrower shall be entitled to make Drawings under each Loan Certificate in accordance with Section 2(a) of the Credit Agreement.

 

(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. Interest hereunder and under the Loan Certificates shall be calculated on the basis of a year of 360 days and actual number of days

 

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elapsed. If any amount payable under the Loan Certificates or under the Operative Agreements falls due on a day which is not a Business Day, then such amount shall be payable on the next succeeding Business Day; provided that, in the case of principal of and interest on the Loan Certificates payable on a 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. Notwithstanding any provisions in the Operative Agreements to the contrary, if the Interest Period in respect of a Series of Loan Certificates is scheduled to commence on a date that is less than one (1) month prior to the scheduled Delivery Date of the Aircraft to which such Series relates, Borrower, upon written notice to Security Agent given by Borrower within three (3) Business Days prior to the commencement of such Interest Period, may designate that, for purposes of such Series of Loan Certificates, such Interest Period shall end on such scheduled Delivery Date and the Applicable Rate for such Interest Period shall be calculated accordingly.

 

(c) The principal amount of each Loan Certificate shall be due and payable in full upon the earlier of (1) the Delivery Date of the Aircraft to which such Loan Certificate relates, but only with respect to the applicable Series of Loan Certificates; and (2) the Commitment Termination Date (the “Maturity Date”).

 

(d) Each Loan Certificate shall bear interest at the Past Due Rate on any unpaid principal amount 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 Lender (which may be given through Security Agent).

 

(e) The Loan Certificates shall be executed on behalf of Borrower by one of its authorized officers. Loan Certificates bearing the signatures of individuals who were at any time the proper officers of Borrower shall bind 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 2.2(a) and any Loan Certificates issued in exchange or replacement therefor pursuant to the terms of this Security Agreement.

 

2.3 Taxes .

 

(a) Security Agent (as agent for Borrower) shall exclude and withhold at the appropriate rate from each payment of principal of, interest on, and other amounts due from Borrower to any Lender hereunder or under each Loan Certificate any and all withholding taxes applicable thereto as required by Law. Security Agent agrees (1) to act as such withholding agent in accordance with Treasury Regulation 1.1441-1(b)(2)(iv) and, in connection therewith, (2) whenever any present or future taxes or similar charges are required by applicable Law to be withheld with respect to any amounts payable by Borrower hereunder or in respect of the Loan Certificates, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the Lenders, (3) to file any necessary withholding tax returns or statements when due, and (4) as promptly as possible after the payment thereof, to deliver to each Lender (with a copy to Borrower) appropriate receipts, if reasonably available, showing the payment thereof, together with such additional documentary evidence as any such Lender

 

6

reasonably requests from time to time. In accordance with the foregoing, Security Agent further agrees to provide Borrower with a properly completed and executed Form W-8IMY certifying that Security Agent has agreed to be treated as a U.S. Person with respect to payments received from Borrower hereunder. Such Form W-8IMY shall be provided by Security Agent prior to the due date of any amounts payable by Borrower hereunder. For the avoidance of doubt, by failing to comply with this Section 2.3(a), Security Agent shall be in breach of the foregoing covenant and responsible for damages resulting therefrom.

 

(b) In the case of a Lender that is a Non-U.S. Person, such Lender shall furnish such Security Agent with a properly completed and executed withholding certificate on Form W-8BEN, W-8IMY or W-8ECI (or any successor forms) and/or such other applicable documentation as may be necessary or desirable to enable such Lender to claim an exemption from, or reduced rate of, such taxes. Provided that such Lender has furnished Security Agent with the requested forms and other documentation duly executed by such Lender and has not notified Security Agent of the withdrawal or inaccuracy of such form prior to the date of each interest payment, only the reduced amount (if any) required by applicable law or treaty shall be withheld from payments under the Loan Certificates held by such Lender in respect of United States federal income tax. In the case of a Lender that is a U.S. Person and (1) not an Exempt Recipient that has furnished to the Security Agent a properly completed and currently effective U.S. Treasury Form W-9 or (2) that is an Exempt Recipient (not required to deliver an IRS Form W-8), no amount shall be withheld from payments under the Loan Certificates held by such Lender in respect of United States federal income tax. If any Lender has notified Security Agent that any of the foregoing forms or certificates is withdrawn or inaccurate, or if the Internal Revenue Code or the regulations thereunder or the administrative interpretation thereof are at any time after the date hereof amended to require such withholding of United States federal income taxes from payments under the Loan Certificates held by such Lender, or if such withholding is otherwise required, Security Agent agrees to withhold from each payment due to the relevant Lender withholding taxes at the appropriate rate under applicable Law, and will, as more fully provided above, on a timely basis, deposit such amounts with an authorized depository and make such returns, filings, and other reports in connection therewith, and in the manner required under applicable Law. For purposes of this paragraph, an “Exempt Recipient” is a Person described in Code §6049(b)(4). Notwithstanding any other provision of this paragraph, a Lender that is a Non-U.S. Person shall not be required to deliver any form pursuant to this paragraph that such Lender is not legally able to deliver.

 

(c) If, for any reason, Security Agent (or any successor institution acting as Security Agent) is unable to provide Borrower with a properly completed and executed Form W-8IMY, Borrower shall exclude and withhold at the appropriate rate from each payment of Original Amount of, interest on, and other amounts due from Borrower to any Lender hereunder or under each Loan Certificate it holds any and all withholding taxes applicable thereto as required by Law. Borrower agrees (1) whenever any present or future taxes or similar charges are required by applicable Law to be withheld with respect to any amounts payable hereunder or in respect of the Loan Certificates, to withhold such amounts and timely pay the same to the appropriate authority in the name and on behalf of the Lenders, (2) to file any necessary withholding tax returns or statements when due, and (3) as promptly as possible after the payment thereof, to deliver to each Lender appropriate receipts, if reasonably available, showing the payment thereof, together with such additional documentary evidence as any such Lender reasonably

 

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requests from time to time. Furthermore, all necessary documentation addressed in Section 2.3(b) hereof shall be furnished to Borrower prior to the due date of any amounts payable by Borrower hereunder to enable such Lender to claim an exemption from, or reduced rate of, such taxes.

 

(d) Borrower shall not have any liability hereunder to Security Agent or any Lender for Security Agent’s failure to withhold taxes in the manner provided for herein or for any false, inaccurate, or untrue evidence provided by any Lender hereunder.

 

2.4 Distribution of Funds Received .

 

(a) All amounts payable hereunder shall be paid to Security Agent for application and distribution as provided herein.

 

(b) Except as provided in clause (c) below, each payment made by Borrower of the principal of, interest on or other amount in respect of the Loan Certificates shall be distributed by Security Agent as promptly as possible on or after the date that such amount is paid to Security Agent and becomes immediately available to Security Agent:

 

F IRST , to the payment in full of the aggregate amount of interest due under and Break Loss (if any) and, except as provided in clause “Second” below, all other amounts due under or in respect of the Loan Certificates; and

 

S ECOND , to the payment in full of the unpaid principal amount of the Loan Certificates then due.

 

(c) After an Event of Default shall have occurred, and so long as such Event of Default shall be continuing and one or more Series of the Loan Certificates have been subject to the provisions of Section 4.1(b) or (c), all payments in respect of the Loan Certificates and all proceeds of any of the Collateral and all other amounts held by Security Agent hereunder shall be distributed in the following order of priority:

 

F IRST , to the extent not theretofore paid by or on behalf of Borrower, to pay all costs and expenses of Security Agent incurred in connection with the performance of its duties hereunder or under any other Operative Agreement, including reasonable attorneys’ fees and expenses and all costs and expenses incurred by Security Agent in connection with its entering upon, taking possession of, holding, operating, managing, selling or otherwise disposing of the Collateral or any part thereof, any and all Taxes, assessments or other charges of any kind prior to the Lien of any Operative Agreement that Security Agent determined in good faith to pay or be paid, and all amounts payable to Security Agent hereunder or under any of the Operative Agreements in respect of any indemnities or other obligations of Borrower;

 

S ECOND , to the payment of the unpaid principal amount of, and all accrued and unpaid interest on, all of the Loan Certificates (including

 

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Break Loss, if any, and interest on account of overdue payments of principal and interest) and all other Obligations;

 

T HIRD , subject to Section 14 of the Credit Agreement, so much of such payments or amounts remaining to pay in full all other Secured Obligations, whether or not then due (by reason of acceleration or otherwise); and

 

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

 

(d) Distributions among the Loan Certificates shall be made ratably, without priority of one Loan Certificate over another, in accordance with the respective amounts due or unpaid as appropriate to the particular distribution, except for distributions in respect of amounts owing under Section 2.3 or 2.10(b) of this Security Agreement, Sections 3(f), 3(g) or 10 of the Credit Agreement or elsewhere where payments are due to particular Lenders or other Persons, in which event distributions in respect thereof shall be made to the Lender(s) or Person(s) entitled thereto.

 

2.5 Method of Payment .

 

The principal amount of, interest on, and other amount due under each Loan Certificate or hereunder will be payable in Dollars by wire transfer of immediately available funds not later than 12:00 Noon, New York time, on the due date of payment to Security Agent for distribution in the manner provided herein. Notwithstanding the foregoing or any provision in any Loan Certificate to the contrary, Security Agent will pay or cause to be paid all amounts to be paid by Borrower hereunder and under any Loan Certificate to the holder thereof (including all amounts distributed pursuant to Section 2.4 of this Security Agreement) by transferring, or causing to be transferred, by wire transfer of immediately available funds in Dollars, promptly after receipt to an account maintained by such holder with a bank located in the continental United States the amount to be distributed to such holder, for credit to the account of such holder maintained at such bank. If Security Agent fails to initiate the transfer by federal wire transfer of any such payment as provided in the foregoing sentence after its receipt of funds by reason of its failure to use ordinary care, Security Agent shall compensate such holders for loss of use of funds at the Applicable Rate until such payment is made, and Security Agent shall be entitled to any interest earned on such funds until such payment is made. Any payment made hereunder shall be made without any presentment or surrender of any Loan Certificate, except that, in the case of the final payment in respect of any Loan Certificate, such Loan Certificate shall be surrendered to Security Agent for cancellation promptly after such payment. Notwithstanding any other provision of this Security Agreement to the contrary, Security Agent shall not be required to make, or cause to be made, wire transfers as aforesaid before the first Business Day on which it is practicable for Security Agent to do so in view of the time of day when the funds to be so transferred were received by it if such funds were received after 12:00 Noon, New York time, at the place of payment. Before the due presentment for registration of transfer of any Loan Certificate, Borrower and Security Agent shall deem and treat the Person in whose name any Loan Certificate is registered on the Certificate Register as the absolute owner and holder of such Loan Certificate for the purpose of receiving payment of all amounts payable with respect to

 

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such Loan Certificate and for all other purposes, and neither Borrower nor Security Agent shall be affected by any notice to the contrary. So long as any signatory to the Credit Agreement or nominee thereof shall be a registered Lender, all payments and distributions to it shall be made to the account of such Lender specified in Schedule 1 of the Loan Agreement, and otherwise in the manner provided in or pursuant to the Credit Agreement, unless and until it specifies some other account or manner of payment by notice to Security Agent consistent with this Section 2.5.

 

2.6 [Intentionally Omitted].

 

2.7 Registration, Transfer and Exchange of Loan Certificates .

 

Security Agent shall keep a register (the “Certificate Register”) in which Security Agent shall provide for the registration of Loan Certificates and the registration of transfers of Loan Certificates. No such transfer shall be given effect unless and until registered hereunder. Security Agent shall keep the Certificate Register at its Administrative Office. Security Agent is hereby appointed “Certificate Registrar” for the purpose of registering Loan Certificates and transfers of Loan Certificates as herein provided. A holder of any Loan Certificate intending to exchange such Loan Certificate shall surrender such Loan Certificate to Security Agent at its Administrative Office, together with a written request from the registered holder thereof for the issuance of a new Loan Certificate, specifying (in the case of a surrender for transfer) the name(s) and address(es) of the new holder(s). Upon surrender for registration of transfer of any Loan Certificate, Borrower shall execute, and Security Agent shall authenticate and deliver, in the name(s) of the designated transferee(s), one or more new Loan Certificate of a like aggregate original principal amount and Series. At the Lender’s option, Loan Certificates may be exchanged for other Loan Certificates of any authorized denominations of a like aggregate original principal amount and Series, upon surrender of the Loan Certificates to be exchanged to Security Agent at its Administrative Office. Whenever any Loan Certificates are so surrendered for exchange, Borrower shall execute, and Security Agent shall authenticate and deliver, the Loan Certificates which the Lender making the exchange is entitled to receive. All Loan Certificates issued upon any registration of transfer or exchange of Loan Certificates (whether under this Section 2.7 or under Section 2.8 or otherwise under this Security Agreement) shall be the valid obligations of Borrower evidencing the same respective obligations, and entitled to the same security and benefits under this Security Agreement, as the Loan Certificates surrendered upon such registration of transfer or exchange. Every Loan Certificate presented or surrendered for registration of transfer, shall (if so required by Security Agent) be duly endorsed, or be accompanied by a Transfer Agreement as required under Section 9 of the Credit Agreement in form satisfactory to Security Agent duly executed by the Lender or such holder’s attorney duly authorized in writing. Security Agent shall make a notation on each new Loan Certificate of the amount of principal amounts of Drawings previously made under, and the payments of principal previously made, on the old Loan Certificate or Loan Certificates with respect to which such new Loan Certificate is issued and the date to which interest on such old Loan Certificate or Loan Certificates has been paid. Interest shall be deemed to have been paid on such new Loan Certificate to the date on which interest shall have been paid on such old Loan Certificate, and the principal amounts of Drawings and all payments of the principal marked on such new Loan Certificate, as provided above, shall be deemed to have been made thereon. Security Agent shall not be required to exchange any surrendered Loan Certificates as provided above during the 10-day period preceding the due date of any payment on such Loan Certificate. Borrower and

 

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Security Agent shall in all cases deem the Person in whose name any Loan Certificate shall have been issued and registered as the absolute owner and holder of such Loan Certificate for the purpose of receiving payment of all amounts payable by Borrower with respect to such Loan Certificate, and for all other purposes, until Borrower receives from Security Agent a notice stating otherwise and such change is reflected on the Certificate Register. Security Agent will promptly notify Borrower of each registration of a transfer of a Loan Certificate. Subject to compliance by the Lender and its transferee (if any) of the requirements in this Section 2.7, Security Agent and Borrower shall use all reasonable efforts to issue new Loan Certificates upon transfer or exchange within ten (10) Business Days of the date a Loan Certificate is surrendered for transfer or exchange.

 

2.8 Mutilated, Destroyed, Lost or Stolen Loan Certificates .

 

If any Loan Certificate shall become mutilated, destroyed, lost, or stolen, upon the written request of the holder of such Loan Certificate, Borrower shall execute, and Security Agent shall authenticate and deliver, in replacement thereof, a new Loan Certificate of a like aggregate original principal amount and Series, dated the same date, and captioned as issued in connection with the Aircraft. If the Loan Certificate being replaced has become mutilated, such Loan Certificate shall be surrendered to Security Agent and a photocopy thereof shall be furnished to Borrower. If the Loan Certificate being replaced has been destroyed, lost, or stolen, the holder of such Loan Certificate shall furnish to Borrower and Security Agent (a) such security or indemnity as they require to save Borrower and Security Agent harmless, and (b) evidence satisfactory to Borrower and Security Agent of the destruction, loss, or theft of such Loan Certificate and of the ownership thereof. If a “qualified institutional buyer” of the type referred to in paragraph (a)(1)(i)(A), (B), (D), or (E) of Rule 144A under the Securities Act (a “QIB”) is the holder of any such destroyed, lost, or stolen Loan Certificate, then the written indemnity of such QIB, signed by an authorized officer thereof, in favor of, delivered to, and in form reasonably satisfactory to Borrower shall be accepted as satisfactory indemnity and security, and no further indemnity or security shall be required as a condition to the execution and delivery of such new Loan Certificate. Subject to the Lender’s compliance with the requirements in this Section 2.8, Security Agent and Borrower shall use all reasonable efforts to issue new Loan Certificates within ten (10) Business Days after receiving the Lender’s written request therefor.

 

2.9 Payment of Expenses on Transfer; Cancellation .

 

(a) No service charge shall be made to a Lender for any registration of transfer or exchange of Loan Certificates, but Security Agent, as Certificate Registrar, may require payment from any such Lender of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Loan Certificates and any charges and expenses connected with such tax or other governmental charge paid or payable by Borrower or Security Agent, as the case may be.

 

(b) Security Agent shall cancel all Loan Certificates surrendered for replacement, redemption, transfer, exchange, payment, or cancellation, and shall destroy the cancelled Loan Certificates.

 

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2.10 Prepayment .

 

(a) Borrower may prepay in full the Loan Certificates affected thereby upon at least five (5) Business Days’ prior written notice to Security Agent and the relevant Lenders upon and in connection with the occurrence of any one of the following events: (1) Indemnified Withholding Taxes are then payable by Borrower and Borrower becomes entitled to prepay such Loan Certificates pursuant to Section 10(c)(i) of the Credit Agreement, (2) Increased Costs are then payable by Borrower and Borrower becomes entitled to prepay such Loan Certificates pursuant to Section 3(f) of the Credit Agreement or (3) it becomes unlawful for a Lender to maintain the indebtedness evidenced by such Loan Certificate and Borrower becomes entitled to prepay such Loan Certificates pursuant to Section 3(g) of the Credit Agreement (each an “Optional Prepayment Triggering Event”). If a prepayment date is not a Payment Date, Borrower shall pay, in addition to the unpaid principal amount of the relevant Loan Certificate, together with accrued interest thereon to the date of prepayment, and all other amounts due thereunder and hereunder and under the Operative Agreements, any Break Loss associated with any such prepayment.

 

(b) Borrower shall prepay the unpaid principal amount of the applicable Series, or all Series, of Loan Certificates, in full, but not in part, together with accrued interest thereon to the date of prepayment and all other amounts due thereunder and hereunder and under the other Operative Agreements to Security Agent as follows (1) all Series of Loan Certificates shall be prepaid upon the termination of the Purchase Agreement by Borrower or Airframe Manufacturer; (2) all Series of Loan Certificates shall be prepaid upon the termination of the GTA by Borrower or Engine Manufacturer; (3) the applicable Series of Loan Certificates shall be prepaid upon the termination or cancellation by Borrower or by Airframe Manufacturer of the order under the Purchase Agreement for the Aircraft to which such Series of Loan Certificates relate; or (4) the applicable Series of Loan Certificates shall be prepaid if Airframe Manufacturer extends the Scheduled Delivery Month of an Aircraft to which such Series of Loan Certificates relate to a date that is greater than three (3) months from the last day of the Scheduled Delivery Month in respect of such Aircraft. Borrower will give notice of prepayment to Security Agent and the relevant Lenders under this Section 2.10(b) promptly after the occurrence of any event specified in clauses (1) through (4) of the preceding sentence. The date of prepayment shall be as specified in Borrower’s prepayment notice, but not earlier than five (5) Business Days after the date of such notice nor later than thirty (30) days after the date of the event giving rise to such prepayment. If a prepayment date under this Section 2.10(b) is not a Interest Payment Date, Borrower shall pay, in addition to the amounts described above, any Break Loss associated with any such prepayment.

 

(c) Any notice of prepayment delivered by Borrower pursuant to paragraph (a) or (b) above shall state: (1) the prepayment date, (2) the prepayment price, (3) the applicable basis for determining the prepayment price, (4) any Break Loss associated with such prepayment, and (5) that on the prepayment date, the amounts specified in paragraphs (a) and (b) above as appropriate will become due and payable upon each such Loan Certificate.

 

(d) Borrower shall not be entitled to reborrow amounts prepaid on the Loan Certificates.

 

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2.11 Provisions Relating to Prepayment .

 

(a) No prepayment of any unpaid principal amount of the Loan Certificates may be made except to the extent and in the manner expressly provided in this Security Agreement.

 

(b) Notice of prepayment having been given, the unpaid principal amount of the Loan Certificates so to be prepaid, plus accrued interest thereon to the date of prepayment, together with the Break Loss, if any, shall become due and payable on the prepayment date.

 

3. E VENTS O F D EFAULT

 

“Event of Default” means any of the following events:

 

(a) Borrower fails to pay (1) principal of and, interest on, any Loan Certificate when due, and such failure shall continue unremedied for a period of three (3) Business Days, or (2) any other amount payable by it to Security Agent or the Lenders under this Security Agreement or the other Operative Agreements when due, and such failure continues for a period in excess of ten (10) Business Days after Borrower has received written notice from Security Agent of the failure to make such payment when due;

 

(b) Borrower fails to observe or perform (or caused to be observed and performed) in any material respect any other covenant, agreement, or obligation of Borrower in any Operative Agreement, and such failure continues unremedied for a period of thirty (30) days from and after the date Borrower receives written notice thereof from Security Agent, unless such failure is capable of being corrected and Borrower is diligently proceeding to correct such failure, in which case there shall be no Event of Default unless and until such failure continues unremedied for a period of 120 days after receipt of such notice;

 

(c) any representation or warranty made by Borrower in any Operative Agreement proves to have been untrue or inaccurate in any material respect as of the date made, is material at the time in question, and remains uncured for a period in excess of thirty (30) days from and after the date of written notice thereof from Security Agent to Borrower unless such failure is capable of being corrected and Borrower is diligently proceeding to correct such failure, in which case there shall be no Event of Default unless and until such failure continues unremedied for a period of 120 days after receipt of such notice;

 

(d) Borrower consents to the appointment of or taking possession by a receiver, trustee, or liquidator of itself or of a substantial part of its property, or Borrower admits in writing its inability to pay its debts generally as they come due or makes a general assignment for the benefit of its creditors, or Borrower files a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation, or other relief as debtor under any bankruptcy Laws or insolvency Laws (as in effect at such time), or an answer admitting the material allegations of a petition filed against it in any such case, or Borrower seeks relief as debtor by voluntary petition, answer, or consent under the provisions of any other bankruptcy or similar Law providing for the reorganization or winding-up of corporations (as in effect at such time), or Borrower seeks an agreement, composition, extension, or adjustment with its creditors under such laws;

 

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(e) an order, judgment, or decree is entered by any court of competent jurisdiction appointing, without Borrower’s consent, a receiver, trustee, or liquidator of Borrower or of all or substantially all of its property, or all or substantially all of the property of Borrower is sequestered, or any other relief in respect of Borrower as a debtor is granted under any bankruptcy Laws or other insolvency Laws (as in effect at such time), and any such order, judgment, decree, or decree of appointment or sequestration remains in force undismissed, unstayed, and unvacated for a period of ninety (90) days after the date of entry thereof;

 

(f) a petition against Borrower in a proceeding under any bankruptcy Laws or other insolvency Laws (as in effect at such time) is filed and not withdrawn or dismissed within ninety (90) days thereafter, or if, under the provisions of any Law providing for reorganization or winding-up of corporations that applies to Borrower, any court of competent jurisdiction assumes jurisdiction, custody, or control of Borrower or of substantially all of the property of Borrower, and such jurisdiction, custody, or control remains in force unrelinquished, unstayed, and unterminated for a period of ninety (90) days; or

 

(g) subject to Section 14 of the Credit Agreement, an “Event of Default” (as defined in any Related Mortgage) exists.

 

4. R EMEDIES

 

4.1 General; Acceleration .

 

(a) If an Event of Default shall occur and be continuing, the Security Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable Law. Without limiting the generality of the foregoing, the Security Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by Law referred to below) to or upon Borrower or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Security Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Security Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by Law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Borrower, which right or equity of redemption is hereby waived and released. At any public or private sale the Lenders shall be entitled to credit against the purchase price bid at such sale all or any part of the unpaid amounts of Loan Certificates or other Secured Obligations. Borrower further agrees, at the Security Agent’s request, to make the Collateral available to the Security Agent at places which the Security Agent shall reasonably select, whether at Borrower’s premises or elsewhere. The Security Agent shall apply the net proceeds of any action taken by it pursuant to this Section 4.1,

 

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after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Security Agent and the Lenders hereunder, including, without limitation, reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the Secured Obligations, in such order as Security Agent may elect consistent with Section 2.4, and only after such application and after the payment by Security Agent of any other amount required by a