EXECUTION COPY
MORTGAGE AND SECURITY AGREEMENT
[Frontier/HLB]
Dated as of
May 23, 2002
BETWEEN
FRONTIER AIRLINES, INC.,
Borrower
AND
HAMBURGISCHE LANDESBANK -GIROZENTRALE-,
as Administrative Agent on behalf of the Lenders
-------------------------------
Two (2) Airbus Model A319-111 Aircraft
Table of Contents
Page
Article I DEFINITIONS AND INTERPRETIVE MATTERS...........................................................3
Section 1.01 Definitions.......................................................................3
Section 1.02 Certain Interpretive Matters.....................................................13
Article II THE NOTES.....................................................................................15
Section 2.01 Form of Notes....................................................................15
Section 2.02 Terms of Notes...................................................................20
Section 2.03 Termination of Interest in Mortgage Estate.......................................20
Article III REGISTRATION AND MAINTENANCE; OPERATION; POSSESSION AND LEASES; INSIGNIA......................21
Section 3.01 Registration and Maintenance.....................................................21
Section 3.02 Operation........................................................................21
Section 3.03 Possession and Leases............................................................21
Section 3.04 Insignia.........................................................................24
Article IV REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS....................24
Section 4.01 Replacement of Parts.............................................................24
Section 4.02 Pooling of Parts; Temporary Replacement Parts....................................24
Section 4.03 Alterations, Modifications and Additions.........................................25
Section 4.04 Improvements Owned by Others.....................................................25
Section 4.05 Substitution of Engines..........................................................25
Article V LOSS, DESTRUCTION, REQUISITION, ETC...........................................................26
Section 5.01 Event of Loss With Respect to the Aircraft.......................................26
Section 5.02 Event of Loss With Respect to an Engine..........................................26
Section 5.03 Application of Payments From Governmental Authorities for Requisition of
Title, Etc.......................................................................27
Section 5.04 Requisition for Use of the Aircraft by the United States Government or
the Government of Registry of the Aircraft.......................................27
Section 5.05 Application of Payments During Existence of Special Defaults or Events of
Default..........................................................................28
Article VI INSURANCE.....................................................................................28
Section 6.01 Bodily Injury Liability and Property Damage Liability Insurance..................28
Section 6.02 Insurance Against Loss or Damage to the Aircraft.................................29
Section 6.03 Reports, Etc.....................................................................30
Section 6.04 Self-Insurance...................................................................31
Section 6.05 Additional Insurance by Borrower.................................................31
Section 6.06 Indemnification by Government in Lieu of Insurance...............................31
Section 6.07 Application of Payments During Existence of a Special Default or an Event
of Default.......................................................................31
Section 6.08 Terms of Insurance Policies......................................................32
Article VII MISCELLANEOUS.................................................................................33
Section 7.01 Termination of Mortgage..........................................................33
Section 7.02 No Legal Title to Mortgage Estate in the Lenders.................................33
Section 7.03 Sale of Aircraft by Administrative Agent is Binding..............................34
Section 7.04 Mortgage for Benefit of Administrative Agent and Lenders.........................34
Section 7.05 No Action Contrary to Borrower's Rights; Quiet Enjoyment.........................34
Section 7.06 Notices..........................................................................34
Section 7.07 Administrative Agent's Right to Perform for Borrower.............................35
Section 7.08 Severability.....................................................................35
Section 7.09 No Oral Modifications or Continuing Waivers......................................35
Section 7.10 Successors and Assigns...........................................................35
Section 7.11 Headings.........................................................................35
Section 7.12 GOVERNING LAW; Counterparts......................................................35
MORTGAGE AND SECURITY AGREEMENT [Frontier/HLB]
MORTGAGE AND SECURITY AGREEMENT [Frontier/HLB], dated as of May 23, 2002, between FRONTIER
AIRLINES, INC., a Colorado corporation (the "Borrower"), and HAMBURGISCHE LANDESBANK -GIROZENTRALE-, a
Landesbank organized under the laws of Germany, as Administrative Agent on behalf of the Lenders
(together with its successors hereunder in such capacity, the "Administrative Agent").
WHEREAS, all capitalized terms used herein shall have the respective meanings set forth or
referred to in Article I hereof;
WHEREAS, the Borrower desires by this Mortgage, among other things (i) to provide for the
issuance by the Borrower to each Lender of Notes evidencing participation by each Lender in each Loan as
provided in the Credit Agreement, and (ii) to provide for the assignment, mortgage and pledge by the
Borrower to the Administrative Agent, as the Mortgage Estate hereunder, the Borrower's right, title and
interest in and to each Aircraft and the payments and other amounts received in respect thereof in
accordance with the terms hereof, as security for, among other things, the Borrower's obligations to the
Lenders, and for the benefit and security of the Lenders;
WHEREAS, all things have been done to make the Notes, when executed by the Borrower and issued
and delivered hereunder, the valid obligations of the Borrower; and
WHEREAS, all things necessary to make this Mortgage the valid, binding and legal obligation of
the 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
NOW, THEREFORE, THIS MORTGAGE AND SECURITY AGREEMENT WITNESSETH, that, to secure the prompt
payment of the principal of and Break Amount (if any) and interest on, and all other amounts due under
and with respect to, all Notes from time to time outstanding hereunder and the performance and
observance by the Borrower of all the agreements, covenants and provisions for the benefit of the
Lenders herein and in the Credit Agreement and the Notes contained, and the prompt payment of any and
all amounts from time to time owing hereunder and under the Credit Agreement and the other Operative
Documents by the Borrower to the Lenders, and for the uses and purposes and subject to the terms and
provisions hereof, and in consideration of the premises and of the covenants herein contained, and of
the acceptance of the Notes by the Lenders, and of the sum of $1 paid to the Borrower at or before the
delivery hereof, the receipt whereof is hereby acknowledged, the Borrower has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell,
assign, transfer, convey, mortgage, pledge and confirm, unto the Administrative Agent and its successors
and assigns, for the security and benefit of the Lenders, as aforesaid, a security interest in and
mortgage lien upon, all right, title and interest of the Borrower in, to and under the following
described property, rights and privileges (which collectively, including all property hereafter
specifically subjected to the Lien of this Mortgage by a Mortgage Supplement or any other mortgage
supplemental hereto, shall constitute the "Mortgage Estate"), to wit:
1. each Aircraft (including the Airframe and the associated Engines) as more particularly
described in the relevant Mortgage Supplement and all replacements thereof and substitutions therefor to
which the Borrower shall from time to time acquire title as provided herein or any such replacements or
substitutions therefor, as provided in this Mortgage, and all records, logs and other documents at any
time maintained with respect to the foregoing property;
2. the FAA Xxxx of Sale and Warranty Xxxx of Sale issued by AVSA, S.A.R.L. to the
Borrower in respect of each Aircraft;
3. Clause 12 (Warranties and Service Life Policy) and Clause 13 (Patent Indemnity) of the
Purchase Agreement insofar as they relate to the Aircraft or any element thereof, the warranties and
indemnities, including all limitations thereto, provided in Section 2 of Exhibit B in the Engine
Agreement and all claims arising under such provisions in respect of the Engines and the Bills of Sale
(reserving to the Borrower, however, all of the Borrower's other rights and interest in and to the
Purchase Agreement and the Engine Agreement) together with all rights, powers, privileges, options and
other benefits of the Borrower in respect of such provisions (subject to such reservation) with respect
to the Airframes or the Engines, 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 the Borrower is or may be entitled to do in respect of
such provisions (subject to such reservation), subject, with respect to the Purchase Agreement, to the
terms and conditions of the Consent and Agreement and, with respect to the Engine Agreement, the Engine
Consent and Agreement;
4. all payments or proceeds payable to the Borrower with respect to each Aircraft or any
part thereof as the result of the sale, lease or other disposition thereof, and all estate, right, title
and interest of every nature whatsoever of the Borrower in and to the same and every part thereof;
5. all insurance and requisition proceeds and all other payments of any kind with respect
to the Aircraft, including but not limited to the insurance required hereunder but excluding any credits
provided to the Borrower by any manufacturer, seller or supplier of the Aircraft or any Engine or Part;
6. all monies and securities deposited or required to be deposited with the
Administrative Agent or the Lenders pursuant to any term of this Mortgage or required to be held by the
Administrative Agent in the name of the Lenders hereunder; and
7. all proceeds of any of the foregoing.
Any and all properties referred to in this Granting Clause which are hereafter acquired by the Borrower,
shall, without further conveyance, assignment or act by the Borrower or the Administrative Agent or the
Lenders thereby become and be subject to the security interest hereby granted as fully and completely as
though specifically described herein.
Notwithstanding any of the foregoing provisions of this Granting Clause, but subject to the
express provisions of the other articles of this Mortgage, so long as no Event of Default shall have
occurred and be continuing, the Borrower shall have the right, to the exclusion of the Administrative
Agent and any others claiming by, through or under the Administrative Agent, (i) to quiet enjoyment of
each Aircraft, Airframe and Engine, and to possess, use, retain and control each Aircraft, Airframe and
Engine and all revenues, income and profits derived therefrom and (ii) with respect to the Assigned
Warranties, to exercise in the Borrower's name all rights and powers under the Assigned Warranties and
to retain any recovery or benefit resulting from the enforcement of any warranty or indemnity or other
obligation under the Assigned Warranties.
HABENDUM CLAUSE
TO HAVE AND TO HOLD all and singular the aforesaid property unto the Administrative 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 Mortgage.
The Borrower does hereby constitute the Administrative Agent the true and lawful attorney of
the Borrower (which appointment is coupled with an interest), irrevocably, with full power (in the name
of the Borrower or otherwise) to ask, require, demand, receive, compound and give acquittance for any
and all monies and claims for monies (in each case including insurance and requisition proceeds) due and
to become due under or arising out of the Operative Documents and all other property which now or
hereafter constitutes part of the Mortgage Estate, to endorse any checks or other instruments or orders
in connection therewith and to file any claims or to take any action or to institute any proceedings
which the Administrative Agent may deem to be necessary or advisable in the premises; provided that the
Administrative Agent agrees not to exercise such power of attorney unless an Event of Default shall be
continuing.
The Borrower does hereby warrant and represent that (except as permitted herein) it has not
assigned or pledged any of its right, title, and interest hereby assigned to anyone other than the
Administrative Agent.
IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:
Article I.
DEFINITIONS AND INTERPRETIVE MATTERS
Section 1.01 Definitions. For all purposes of this Mortgage the following terms shall have the following
meanings (such definitions to be equally applicable to both the singular and plural forms of the terms
defined). Any agreement referred to below shall mean such agreement as amended, supplemented and
modified from time to time in accordance with the applicable provisions thereof and of the other
Operative Documents. Unless otherwise specified, Section and Article references are to Sections and
Articles of this Mortgage:
"Additional Costs" is defined in Section 10(h) of the Credit Agreement.
"Additional Insured(s)" means, collectively, the Administrative Agent and the Lenders.
"Administrative Agent" means Hamburgische Landesbank -Girozentrale-, solely in its capacity as
Administrative Agent on behalf of the Lenders, and any successor thereto in such capacity.
"Affiliate" means, with respect to any Person, any other Person which directly or indirectly
controls, is controlled by, or under common control with, such Person. The term "control" means the
possession, directly or indirectly of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
"Aircraft" means each Airframe together with the two (2) Engines referenced in the Mortgage
Supplement relating to such Airframe, whether or not such Engines are installed on such Airframe or any
other airframe, and, where the context permits, all logs, manuals and data and inspection, modification
and overhaul records required to be maintained with respect to the foregoing property.
"Airframe" means: (i) each Airbus A319-111 aircraft (excluding Engines or engines from
time-to-time installed thereon) specified by United States Registration Number and Manufacturer's Serial
Number in the related Mortgage Supplement; and (ii) any and all related Parts.
"Applicable Margin" means, with respect to Option A, *% per annum, or with respect to Option
B, *% per annum.
"Applicable Rate" means, with respect to each Loan for any Interest Period, a rate per annum
equal to (a) until clause (b) hereof shall be applicable, LIBOR for such Interest Period plus the
Applicable Margin (calculated on the basis of a year of 360 days and actual number of days elapsed) and
(b) from and after the date the Fixed Rate shall have become effective following its determination in
accordance with Section 25(a) of the Credit Agreement, the Fixed Rate (calculated on the basis of a year
of 360 days consisting of 12 30-day months).
"Assigned Warranties" means all right, title and interest of the Borrower in, to and under the
warranties covered in clause 3 of the Granting Clause.
"Balloon Amount" means, with respect to each Loan, *% of the Original Amount of such Loan.
"Bankruptcy Code" means the provisions of title 11 of the United States Code, 11 X.X.X.xx.xx. 101
et seq.
"Break Amount" means, as at any date of determination, the amount, if any, equal to the sum of
LIBOR Break Amount and, during any Fixed Rate Period, Swap Breakage Loss.
"Bills of Sale" means, for any Aircraft, collectively, an FAA Xxxx of Sale and a Warranty Xxxx
of Sale relating to such Aircraft in favor of Borrower.
"Business Day" means any day other than a Saturday or Sunday or a day on which commercial banks
are required or authorized to close in Xxx Xxxx, Xxx Xxxx, Xxxxxxxxx, Xxxxxxx, and Denver, Colorado and,
if such day relates to the advance of a Loan, the determination of any Interest Payment Date, any
payment or prepayment of a Loan or setting of the Applicable Rate, or any notice in respect of any
thereof, any day on which Dollar transactions are effected in the eurodollar markets in London, England.
"Civil Reserve Air Fleet Program" or "CRAF" means the Civil Reserve Air Fleet Program
administered by the United States Government or any substantially similar program.
"Commitment" in respect of any Aircraft has the meaning specified in Section 2(a) of the Credit
Agreement.
"Consent and Agreement" means, for any Aircraft, the Manufacturer Consent and Agreement
[Frontier/HLB], dated as of the Delivery Date for such Aircraft, of AVSA in respect of such Aircraft.
"Credit Agreement" means that certain Credit Agreement [Frontier/HLB], dated as of the date
hereof, among the Borrower, the Lenders and the Administrative Agent, as such Credit Agreement may be
amended or supplemented from time to time pursuant to the applicable provisions thereof.
"Delivery Date" means, for each Aircraft, the date of the initial Mortgage Supplement for such
Aircraft, which date shall be the date the Lenders deliver the Loan in respect of such Aircraft to the
Borrower.
"Default" means any event which, with the giving of notice or the lapse of time or both if not
timely cured or remedied, would become an Event of Default.
"Dollars", "Dollar" and "$" means the lawful currency of the United States of America.
"Engine" means, for or in respect of any Airframe, (i) each of the two (2) CFM International,
Inc. Model CFM56-5B5/P engines listed by Manufacturer's Serial Numbers in the initial Mortgage
Supplement for such Airframe, whether or not from time to time installed on such Airframe or any other
airframe; (ii) any Replacement Engine which may from time to time be substituted for any such Engine
pursuant to the terms hereof; and (iii) in each case, any and all related Parts. The term "Engines"
means, for or in respect of any Airframe, as of any date of determination, both Engines relating to such
Airframe then subject to the lien hereof. Except as otherwise set forth herein, at such time as a
Replacement Engine shall be substituted for an Engine pursuant to the terms hereof, such replaced Engine
shall cease to be an Engine hereunder.
"Engine Agreement" means General Terms Agreement No. 6-13616 dated as of June 30, 2000 between
CFM International, Inc. and Societe Nationale D'Etude et de construction de Moteurs iAviation and the
Borrower.
"Engine Consent and Agreement" means, for any Aircraft, the Engine Consent and Agreement
[Frontier/HLB] dated as of the Delivery Date of such Aircraft of the Engine Manufacturer in respect of
such Aircraft.
"Engine Manufacturer" means CFM International, Inc.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"Event of Default" has the meaning specified in Section 11(a) of the Credit Agreement.
"Event of Loss" with respect to any Aircraft, Airframe or Engine means any of the following
events with respect to such property: (i) the loss of such property, or of the use thereof, due to the
destruction of or damage to such property which renders repair uneconomical or which renders such
property permanently unfit for normal use by the Borrower for any reason whatsoever; (ii) any damage to
such property which results in the receipt of insurance proceeds with respect to such property on the
basis of an actual, constructive or compromised total loss; (iii) theft, hijacking or disappearance of
such property for a period in excess of 90 days (or, if earlier, the date on which the Borrower has
confirmed to the Administrative Agent in writing that it cannot recover such property); (iv) the
confiscation, condemnation, or seizure of, or requisition of (x) title to, or use of, such property by
any governmental or purported governmental authority (other than a requisition of use by the government
of the United States of America or any agency or instrumentality thereof which bears the full faith and
credit of the government of the United States of America) or (y) use by any other government or
governmental authority for a period in excess of 60 consecutive days; (v) as a result of any law, rule,
regulation, order or other action by the FAA or other similar governmental body of the government of
registry of such Aircraft having jurisdiction, use of such type of property in the normal course of the
business of air transportation shall have been prohibited for a period of six consecutive months, unless
the Borrower, prior to the expiration of such six-month period, shall have undertaken and shall be
diligently carrying forward all steps which are necessary and desirable to permit the normal use of such
property by the Borrower, but in any event if such use shall have been prohibited for a period of
12 months; and (vi) any event treated as an Event of Loss pursuant to Section 3.03(d) hereof.
An Event of Loss with respect to an Aircraft shall be deemed to have occurred if an Event of
Loss occurs with respect to the related Airframe.
"Expense" or "Expenses" means any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, out of pocket costs, expenses and disbursements (including reasonable legal fees
and expenses) of whatever kind and nature but excluding internal costs and expenses such as salaries,
any amounts that would be included in Break Amount, and overhead of whatsoever kind and nature.
"FAA Xxxx of Sale" means, for each Aircraft, a xxxx of sale on AC Form 8050-2 or such other
form as may be approved by the FAA in favor of the Borrower from Seller in respect of such Aircraft.
"Federal Aviation Act" means subtitle VII of Title 49 of the United States Code, or any
successor provision.
"Federal Aviation Administration" and "FAA" mean the United States Federal Aviation
Administration and any successor agency or agencies thereto.
"FedWire" means the funds transfer system used to transfer reserve balances for immediately
available credit among the member banks of the United States Federal Reserve System.
"Final Maturity Date" means with respect to each Loan, the Interest Payment Date falling on or
closest to the twelve year anniversary date of the Delivery Date of the applicable Aircraft.
"Fixed Rate" means the Applicable Rate if the Applicable Rate is determined in accordance with
clause (b) of the definition thereof. The Fixed Rate shall be specified in an Indenture Supplement.
"Fixed Rate Period" means any period during which the Applicable Rate is determined by
reference to the Fixed Rate.
"Floating Rate Period" means the period during which the Applicable Rate is determined by
reference to clause (a) of the definition thereof.
"GAAP" means generally accepted accounting principles, consistently applied.
"Governmental Authority" means any nation or government, any state, county, city, town,
district, board, bureau, office, commission, any other municipality or other political subdivision
thereof (including any educational facility, utility or other Person operated thereby), and any court,
agency, department, authority or other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Inchoate Liens" mean inchoate Liens of the type described in Section 9(d)(ii) of the Credit
Agreement for taxes not yet due and Section 9(d)(iii) of the Credit Agreement (other than, in the case
of said clause (iii), contested Liens).
"Indemnified Amounts" means, with respect to any Person, any and all claims, losses,
liabilities, obligations, damages, penalties, actions, judgments, suits, proceedings in contract or tort
including such Person's strict liability in tort, and related costs and expenses of any nature
whatsoever (including reasonable attorneys' fees and disbursements and other costs of investigation or
defense, including those incurred upon any appeal).
"Indemnified Party," "Indemnitee," or "Indemnitees" means, collectively, the Administrative
Agent, the Lenders and each of their respective successors, permitted assigns, directors, officers, and
employees.
"Interest Payment Date" means, with respect to each Loan, the three month anniversary date of
the Delivery Date of the applicable Aircraft and thereafter on the corresponding date of each succeeding
third month; provided that, if (x) except during the Fixed Rate Period, any such date shall not be a
Business Day, then the relevant Interest Payment Date shall be the next succeeding Business Day unless
by virtue of such extension such date would fall in the next succeeding calendar month, in which case
the relevant Interest Payment Date shall be the next preceding Business Day and (y) there shall be no
such corresponding day in any such month, then the relevant Interest Payment Date shall be the last
Business Day of such month.
"Interest Period" means, in respect of any Loan, each three month period from and including the
Delivery Date or any Interest Payment Date to, but excluding, the next subsequent Interest Payment Date.
"Lenders" means the lenders that are party to the Credit Agreement identified under the caption
"Lenders" on the signature pages thereto or that, pursuant to Section 24(c) thereof, shall become a
"Lender" thereunder, together with their respective successors and permitted transferees and assigns.
"Lender Lien" means any Lien on any part of the Mortgage Estate arising as a result of or in
connection with (a) claims against or affecting the Administrative Agent or the Lenders and that are not
related to the transactions contemplated by the Operative Documents, (b) any act or omission of any such
party (including, in the case of the Administrative Agent, such Person in its individual capacity or in
its capacity as agent) that is not related to the transactions contemplated by the Operative Documents,
or (c) Taxes (including claims therefor) or other losses, costs or expenses imposed on any such party
(including, in the case of the Administrative Agent, such Person in its individual capacity or in its
capacity as agent) for which Borrower is not obligated to indemnify pursuant to the Credit Agreement or
any other Operative Document.
"Leverage Option" means the option of the Company to select, for either Aircraft, Option A or
Option B. The initial Mortgage Supplement for each Aircraft shall designate whether the Borrower has
selected Option A or Option B with respect to such Aircraft.
"LIBOR" means, in relation to any Interest Period, the rate (rounded upwards to the nearest
1/16 of 1%) for deposits in United States Dollars for that period quoted on Telerate page 3750 (British
Bankers' Association Interest Settlement Rates) (or such other page as may replace such Page 3750 on
such system) as being the rate at which deposits in United States Dollars are offered in the London
Interbank Market for the same or substantially similar period at, or about, 11:00 a.m. (London time) on
the second London Business Day before the first day of such Interest Period on which any amount is
required to be funded for the purpose of this Agreement, or if, on such date, no rate is displayed,
LIBOR shall mean the rate for deposits of an amount comparable to the Loan in United States Dollars for
that period determined by the Administrative Agent to be the arithmetic mean of the rates offered by
Citibank N.A., Barclays Bank plc and Hamburgische Landesbank -Girozentrale- at 11:00 a.m. London time on
the second London Business Day before the first day of the relevant period for that relevant period.
"LIBOR Break Amount" means the amount or amounts, if any, required to compensate each Lender
for any losses, costs or expenses (excluding loss of profit) which it may incur as the result of the
prepayment (including a prepayment following acceleration) (or the failure to make any such prepayment
on the date irrevocably scheduled therefor) of any Note (or interest thereon) held by it on a date other
than the immediately succeeding Interest Payment Date or in an amount different than the amount to be
paid on such date pursuant to the terms of the Operative Documents, including, without limitation,
losses, costs or expenses incurred in connection with unwinding or liquidating any deposits or funding
or financing arrangement with its funding sources, as determined by such Lender absent manifest error.
Without limiting the effect of the preceding sentence, such compensation shall include an amount equal
to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal
amount of such Lender so prepaid from the date of prepayment to the immediately succeeding Interest
Payment Date (the "Break Period") over (ii) the amount of interest component of the amount such Lender
would have obtained from leading banks in the London interbank market for Dollar deposits of leading
banks in an amount comparable to such principal amount and with a maturity comparable to the Break
Period (as determined by such Lender absent manifest error).
"Lien" means any mortgage, pledge, lien, claim, encumbrance, lease, security interest or other
lien of any kind on property.
"Loan" in respect of each Aircraft means the money borrowed on the Delivery Date for such
Aircraft by the Borrower from the Lenders.
"Maintenance Program" means the maintenance program for the Aircraft of the Borrower which is
approved by the government of registry of the Aircraft.
"Majority Lenders" means, as of any date of the determination thereof, Lenders holding at least
66?% of the aggregate outstanding principal amount of all Loans and Commitments on a combined basis and
following the termination of the Commitments, Lenders holding at least 66?% of the aggregate outstanding
principal amount of all Loans not yet reimbursed by the Borrower.
"Manufacturer" means Airbus G.I.E., in its capacity as manufacturer of the Aircraft, and its
successors and assigns.
"Moody's" means Xxxxx'x Investors Service.
"Mortgage" and "this Mortgage" mean this Mortgage and Security Agreement [Frontier/HLB],
including any Mortgage Supplement and each other supplement from time to time entered into pursuant
hereto.
"Mortgage Estate" means the "Mortgage Estate" as defined in the Granting Clause hereof.
"Mortgage Supplement" means a supplement to this Mortgage substantially in the form of
Exhibit A, which shall particularly describe each Airframe and associated Engines, or any Replacement
Engine, included in the property of the Borrower covered by this Mortgage, or any other supplement
hereto.
"Notes" or "Promissory Notes" means the promissory notes issued pursuant to Section 2.02(a) and
any such notes issued in exchange or replacement therefore pursuant to Section 10 of the Credit
Agreement.
"Note Register" has the meaning specified in Section 10(c) of the Credit Agreement.
"Notional Swap Transaction" means a hypothetical interest rate exchange transaction, the
economic terms of which are set forth on Exhibit C to the Loan Agreement, governed by the terms of the
Swap Form.
"Operative Documents" means the Credit Agreement, the Mortgage, any Mortgage Supplement, the
Notes, each Consent and Agreement and each Engine Consent and Agreement, and any amendments, of
supplements of any of the foregoing.
"Option A" means, for either Aircraft, a Loan in respect of such Aircraft in the aggregate
principal amount of $*.
"Option B" means, for either Aircraft, a Loan in respect of such Aircraft in the aggregate
principal amount of $*.
"Original Amount" means, with respect to a Note, the stated original amount (that is,
principal) of such Note, and, with respect to all the Notes of any Series, means the aggregate stated
original amounts of such Notes, which shall, on the Delivery Date for the Aircraft of the related
Series, equal the amount of the Loan for such Aircraft. The aggregate Original Amount for each Series
of Notes shall be (i) if Option A is selected by the Borrower, $* and (ii) if Option B is selected by
the Borrower, $* with respect to each Aircraft.
"Parts" means all appliances, parts, instruments, appurtenances, accessories, furnishings and
other equipment of whatever nature (other than complete Engines or engines), which are from time to time
incorporated or installed in or attached to an Airframe or any Engine and all such items which are
subsequently removed therefrom so long as the Lien of this Mortgage shall cover the same pursuant to the
terms hereof; provided, however, that improvements described in Section 4.04 hereof shall not fall
within the definition of Parts.
"Past Due Rate" means (i) during the Floating Rate Period, a per annum rate equal to the
Applicable Rate plus *% calculated on the basis of a year of 360 days and actual number of days elapsed
and (ii) during the Fixed Rate Period, a per annum rate equal to 2.0% plus the higher of (x) the
Applicable Rate and (y) LIBOR plus the Applicable Margin.
"Payment Office" means the bank and account number of the Administrative Agent referred to in
Schedule I to the Credit Agreement.
"Permitted Investments" means those investments described in Section 15 of the Credit Agreement.
"Permitted Lien" means any Lien permitted under Section 9(d) of the Credit Agreement.
"Person" means any individual, corporation, limited liability company, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended) or any "plan" (as such term is defined in
Section 4975(e)(1) of the Code) which has been established or maintained or contributed to by the
Borrower or an Affiliate that, together with the Borrower, is treated as a single employer under
Section 414(b), (c) or (m) of the Code.
"Purchase Agreement" means the Airbus A318/A319 Purchase Agreement dated as of March 10, 2000
between AVSA, S.A.R.L. and Borrower, relating to the purchase by the Borrower of the Aircraft, as
originally executed or as modified, amended or supplemented in accordance with the terms thereof, but
only insofar as the foregoing relates to the Aircraft.
"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as the same may be modified and supplemented and in effect from time to time.
"Regulatory Change" means any change after the date hereof in any Federal, state or foreign law
or regulation (including Regulation D of the Federal Reserve Board) or the adoption or making after such
date of any interpretation, directive or request under any Federal, state or foreign law or regulation
(whether or not having the force of law) by any Governmental Authority charged with the interpretation
or administration thereof that, in each case, is applicable to the Lenders.
"Related Transaction" means a leveraged leasing transaction involving Aircraft 1243 or Aircraft
TBD as contemplated by Section 2(d) of the Credit Agreement.
"Replacement Engine" means any engine substituted for an Engine pursuant to Section 13(a) of
the Credit Agreement.
"Reserve Requirement" means, for any Lender with respect to any Note, the average maximum rate
at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained by such Lender in respect of such Note under Regulation D by member banks of
the Federal Reserve System in New York City with deposits exceeding one billion Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D or as otherwise applicable under other
requirements applicable to such Lender). Without limiting the effect of the foregoing, the Reserve
Requirement includes any other reserves required to be maintained by such member banks or the Lenders by
reason of any Regulatory Change with respect to any category of extensions of credit or other assets
that includes the Notes.
"S&P" means Standard & Poors Ratings Service .
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means AVSA, S.A.R.L., a wholly-owned subsidiary of the Manufacturer.
"Series" has the meaning specified in Section 2.02(a) hereof. A Note of a particular Series
shall be designated as such by reference to the manufacturer's serial number of the Aircraft in respect
of which such Note was issued.
"Special Default" means a Default under any of Sections 11(a)(i), 11(a)(ii) or 11(a)(vii) of
the Credit Agreement.
"Stipulated Insured Amount" for any Aircraft as of any date of determination means an amount
equal to 110% of the aggregate principal amount then outstanding on the Notes of the Series issued in
respect of such Aircraft.
"Swap Break Amount" means, as of any date (the "Swap Termination Date") on which Break Amount
may be payable under the Operative Documents and for any Lender (a negative number always being lesser
than a positive number and a more negative number always being less than another negative number that is
closer to zero) the amount such Lender (as floating rate payor) will require in accordance with market
practice to have paid to it on such date (such amount to be expressed as a positive number), or the
amount such Lender (as floating rate payor) is willing to pay in accordance with market practice on such
date (such amount to be expressed as a negative number), in either case, to terminate the Notional Swap
Transaction on such date with respect to, and to the extent of, the then outstanding principal amount of
the Loan subject to prepayment or purchase. The term "Lender" as used in this definition means either a
Lender in its own right or a Lender acting through a swap agent.
"Swap Breakage Gain" means, as to any Lender, the absolute value of the Swap Break Amount for
such Lender if the Swap Break Amount is a negative number.
"Swap Breakage Loss" means, as to any Lender, the value of the Swap Break Amount for such
Lender if the Swap Break Amount is a positive number.
"Swap Form" means the standard form of Master Agreement published in 1992 (or any successor
swap form) by, and incorporating by reference therein the definitions and provisions contained in the
1991 (or any successor definitions) ISDA Definitions of the International Swap Dealers Association, Inc.
(the "Definitions").
"Swap Transaction" means, for any Lender, the Swap Transaction of such Lender described in
Section 25(a) of the Credit Agreement.
"Tax" or "Taxes" means any and all fees (including, without limitation, license, documentation
and registration fees), taxes (including, without limitation, income, gross receipts, sales, rental,
use, turnover, value added, property (tangible and intangible), excise and stamp taxes), licenses,
levies, imposts, duties, recording charges or fees, charges, assessments, or withholdings of any nature
whatsoever, together with any assessments, penalties, fines, additions to tax and interest thereon.
"U.S. Air Carrier" means any United States air carrier as to which there is in force a
certificate issued pursuant to Section 41102(a) of the Federal Aviation Act, and which is a citizen of
the United States (as defined in 49 X.X.X.xx. 40102(a)(15)) holding an air carrier operating certificate
issued by the Secretary of Transportation pursuant to chapter 447 of title 49 (or the equivalent
authority issued by the Civil Aeronautics Board under the predecessor regulatory laws, rules and
regulations) for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo or
which may operate as an air carrier by certification or otherwise under any successor or substitute
provisions therefor or in the absence thereof.
"War Risk Insurance" has the meaning assigned to such term in Section 6.02 hereof.
"Warranty Xxxx of Sale" means, for any Aircraft, a full warranty xxxx of sale in favor of the
Borrower from AVSA, S.A.R.L. in respect of such Aircraft.
"Wet Lease" means any arrangement whereby the Borrower agrees to furnish an Airframe and
associated Engines or engines installed thereon to a third party pursuant to which such Airframe and
Engines or engines (i) are operated by pilots who are regular employees of the Borrower, and (ii) such
property is maintained by the Borrower.
Section 1.02 Certain Interpretive Matters. For purposes of the Operative Documents and all such Notes and
other documents, unless the context otherwise requires: (a) unless otherwise specifically provided
therein, any accounting term used in any Operative Document shall have the meaning customarily given
such term in accordance with GAAP, and all financial computations thereunder shall be computed in
accordance with GAAP consistently applied (that certain items or computations are explicitly modified by
the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing); (b) all
other undefined capitalized terms contained in any of the Operative Documents shall, unless the context
indicates otherwise, have the meanings provided for by the Uniform Commercial Code as in effect in the
State of New York to the extent the same are used or defined therein; (c) references to any amount as on
deposit or outstanding on any particular date means such amount at the close of business on such day;
(d) the words "herein," "hereof" and "hereunder" and other words of similar import used in any Operative
Document refer to such Operative Documents as a whole, including all annexes, exhibits and schedules, as
the same may from time to time be amended, restated, amended and restated, supplemented or otherwise
modified, and not to any particular section, subsection or clause contained in such Operative Document
or any such annex, exhibit or schedule; (e) references to any Section, Schedule or Exhibit are
references to Sections, Schedules and Exhibits in or to such Operative Document (or the Note or other
document in which the reference is made), and references to any paragraph, subsection, clause or other
subdivision within any Section or definition refer to such paragraph, subsection, clause or other
subdivision of such Section or definition; (f) the words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation"; the word "or" is not exclusive; (g) references
to any law or regulation refer to that law or regulation as amended from time to time and include any
successor law or regulation; (h) references to any agreement refer to that agreement as from time to
time amended or supplemented or as the terms of such agreement are waived or modified in accordance with
its terms; (i) references to Persons include their respective successors and assigns (to the extent and
only to the extent permitted by the Operative Document) or, in the case of Governmental Authorities,
Persons succeeding to the relevant functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes and regulations;
(j) headings are for purposes of reference only and shall not otherwise affect the meaning or
interpretation of any provision hereof; and (k) wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter
genders.
Article II
THE NOTES
Section 2.01. Form of Notes. The Notes shall each be substantially in the form set forth below, as follows:
FRONTIER AIRLINES, INC.
PROMISSORY NOTE DUE 2014
ISSUED IN CONNECTION WITH ONE AIRBUS MODEL A319-111 AIRCRAFT
WITH MANUFACTURER'S SERIAL NUMBER ____ AND INITIALLY BEARING
UNITED STATES FEDERAL AVIATION ADMINISTRATION REGISTRATION NUMBER _______ AND TWO CFM INTERNATIONAL
MODEL CFM56-5B5/P ENGINES
BEARING MANUFACTURER'S SERIAL NUMBERS ________ AND _________
New York, New York
No. R-
Series: ______
$ [Delivery Date]
Frontier Airlines, Inc. (the "Borrower") hereby promises to pay to __________________, or
registered transferees, the principal sum of ___________________ Dollars, in 48 consecutive
installments, equal to the amounts, and payable on the Interest Payment Dates, set forth in Annex A
hereto, together with interest payable on each such Interest Payment Date on the unpaid principal amount
hereof from the date hereof, or the immediately preceding Interest Payment Date, to (but excluding) such
Interest Payment Date until such principal amount is paid in full. If any sum payable under this Note
falls due on a day which is not a Business Day, then such sum shall be payable on the next succeeding
Business Day, unless such Business Day falls in the following month, in which case such sum shall be
payable on the Business Day immediately prior thereto. Interest on this Note shall be payable at the
Applicable Rate (calculated on the basis of a 360-day year and the actual number of days elapsed (unless
interest on this Note shall be calculated by reference to the Fixed Rate, in which case such interest
shall be calculated on the basis of a year of 360 day consisting of 12 30-day months)). In no
contingency or event whatsoever shall the rate or amount of interest paid by Borrower under this Note
exceed the maximum amount permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that a court determines that the Lender has
received interest hereunder in excess of the maximum amount permitted by such law, (i) the Lender shall
apply such excess to any unpaid principal owed by Borrower to the Lender or, if the amount of such
excess exceeds the unpaid balance of such principal, the Lender shall promptly refund such excess
interest to Borrower and (ii) the provisions hereof shall be deemed amended to provide for such
permissible rate. All sums paid, or agreed to be paid, by Borrower which are, or hereafter may be
construed to be, compensation for the use, forbearance or detention of money shall, to the extent
permitted by applicable law, be amortized, prorated, spread and allocated throughout the full term of
all such indebtedness until the indebtedness is paid in full. This Note 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 Lender
given through the Administrative Agent.
All payments of principal, Break Amount and Additional Costs, if any, and interest and all
other amounts to be made to the Lender hereunder or under the Mortgage and Security Agreement
[Frontier/HLB] dated as of May 23, 2002 (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 Hamburgische Landesbank -Girozentrale-, as Administrative Agent
thereunder or under the other Operative Documents, shall be made in accordance with the terms of the
Mortgage and the other Operative Documents.
Principal and interest and all other amounts due hereunder shall be payable in Dollars in
immediately available funds prior to 11:00 a.m., New York, New York time, on the due date thereof, to
the Administrative Agent at the Payment Office and the Administrative Agent shall, subject to the terms
and conditions of the Mortgage, remit all such amounts so received by it to the Lender hereof in
accordance with the terms of the Mortgage at the account set forth in Schedule I to the Credit
Agreement, or to such account or accounts at such financial institution or institutions as the Lender
may designate to the Administrative Agent in writing from time to time, in immediately available funds,
such payment to be made, in the case of any such designated account in New York, New York, prior to
1:00 p.m., New York time, on the due date thereof. In the event the Administrative 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 Administrative Agent agrees to compensate the
Lender for loss of use of funds in a commercially reasonable manner. All such payments by the Borrower
and the Administrative Agent shall be made free and clear of and without reduction for or on account of
all wire or other like charges.
The Lender, by its acceptance of this Note, 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 Note) due in respect of this Note,
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 Note then due and fourth, the balance, if any, remaining
thereafter, to the payment of the principal of this Note remaining unpaid, in the manner set forth in
the last sentence of Section 10(b) of the Credit Agreement.
This Note is one of the Notes 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
Administrative Agent as security for the benefit of the Lenders, in part, for the Notes. Reference is
hereby made to the Mortgage and the Credit Agreement referred to therein for a statement of the rights
and obligations of the Lender, and the nature and extent of the security for this Note, and the nature
and extent of the security for the other Notes, 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 the Lender agrees by its acceptance of this Note.
There shall be maintained a Note Register for the purpose of registering transfers and
exchanges of Notes at the office of the Administrative Agent or at the office of any successor
administrative agent in the manner provided in Section 10(c) of the Credit Agreement. As provided in
the Credit Agreement and subject to certain limitations set forth therein, this Note or any interest
herein may, subject to the next following paragraph, be assigned or transferred, and the Notes are
exchangeable for a like aggregate original principal amount of Notes of a like Series of any authorized
denomination, as requested by the Lender surrendering the same.
Prior to the due presentment for registration of transfer of this Note, the Borrower and the
Administrative Agent shall deem and treat the person in whose name this Note is registered on the Note
Register as the absolute owner of this Note and the Lender for the purpose of receiving payment of all
amounts payable with respect to this Note and for all other purposes whether or not this Note is
overdue, and neither the Borrower nor the Administrative Agent shall be affected by notice to the
contrary.
This Note is subject to prepayment as permitted by Sections 10(f) and 10(g) of the Credit
Agreement and to acceleration by the Administrative Agent as provided in Section 12(a) of the Credit
Agreement, and the Lender, by its acceptance of this Note, agrees to be bound by said provisions.
This Note shall be governed by and construed in accordance with the law of the State of New
York.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed in its corporate name by
its officer thereunto duly authorized, as of the date hereof.
FRONTIER AIRLINES, INC.
By:____________________________
Its:___________________________
Annex A to Note
SCHEDULE OF PRINCIPAL PAYMENTS
Interest Payment Date
(falling on or closest to) Principal Amount to be paid1
Section 2.02 Terms of Notes. (a) (a) On the Delivery Date of each Aircraft the Borrower shall issue Notes
in respect of such Aircraft (the Notes issued in respect of each Aircraft shall be referred to as a
"Series") in an aggregate original principal amount of the Original Amount therefor to each Lender (or
their respective nominees) in such amounts as shall be set forth in Schedule II to the Credit Agreement
for such Aircraft (based on the selected Leverage Option).
(b) Each Note shall bear interest payable on each Interest Payment Date at the Applicable Rate on the unpaid
principal amount thereof from the date thereof in the case of the first Interest Payment Date, or
otherwise from the immediately preceding Interest Payment Date, to (but excluding) the following
Interest Payment Date until such principal amount is paid in full. Interest hereunder and under the
Notes shall be calculated on the basis of a year of 360 days and actual number of days elapsed (unless
interest on the Notes shall be calculated by reference to the Fixed Rate, in which case such interest
shall be calculated on the basis of a year of 360 days consisting of 12 30-day months). If any sum
payable under the Notes or under this Mortgage falls due on a day which is not a Business Day, then such
sum shall be payable on the next succeeding Business Day, unless such Business Day falls in the
following month, in which case such sum shall be payable on the Business Day immediately prior thereto.
(c) The principal of the Notes of each Series shall be due and payable in 48 consecutive installments as set
forth in Schedule 1 to the Mortgage Supplement for such Series, the first such installment to be due on
the first Interest Payment Date following the date of issuance of such Series of Notes. Schedule I to
the Mortgage Supplement for each Series shall be determined as follows: the Original Amount for such
Series shall be amortized on an annuity basis (using, as the discount rate, *%) down to the applicable
Balloon Amount, payable on the Final Maturity Date for such Notes. The Administrative Agent shall
prepare Schedule I to the applicable Mortgage Supplement and the amortization schedule for each Note
based on the methodology described in the preceding sentence.
(d) Each Note shall bear interest at the Past Due Rate on any principal thereof and, to the extent permitted
by applicable law, interest 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 Lenders given through the Administrative Agent. Any such late payment
shall bear interest at the Past Due Rate.
(e) The Notes shall be executed on behalf of the Borrower by one of its authorized officers. Notes 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 Notes or did not hold such offices at the respective dates of such Notes. No Notes
shall be issued hereunder except those provided for in Section 2.02(a) and any Notes issued in exchange
or replacement therefor pursuant to the terms of this Mortgage. Each Note of any Series issued under
this Section 2.02 shall be dated the Delivery Date of the related Aircraft.
Section 2.03 Termination of Interest in Mortgage Estate. No Lender shall, as such, have any further
interest in, or other right with respect to, the Mortgage Estate relating to any Aircraft when and if
the principal amount of and Break Amount and Additional Costs, if any, and interest on and other amounts
due under all Notes held by such Lender and all other sums due to such Lender hereunder and under the
other Operative Documents in respect of such Aircraft shall have been paid in full.
Article III
REGISTRATION AND MAINTENANCE; OPERATION; POSSESSION AND LEASES; INSIGNIA
Section 3.01 Registration and Maintenance. The Borrower shall: (1) (a) on the Delivery Date for each
Aircraft, cause such Aircraft to be duly registered in its name (if not so registered) and, at all times
thereafter, to remain duly registered in the United States of America in its name under the Federal
Aviation Act and (b) on the Delivery Date for each Aircraft, cause this Mortgage to be duly recorded in
the name of the Administrative Agent for the benefit of the Lenders and, at all times thereafter, so
long as any Note shall be outstanding or any amount shall be owing to any Lender, cause this Mortgage to
be so maintained of record as a first priority and perfected mortgage on the Aircraft; (2) maintain,
service, repair, and overhaul (or cause to be maintained, serviced, repaired, and overhauled) each
Aircraft (and any engine which is not an Engine but which is installed on an Aircraft) (a) so as to keep
such Aircraft in as good condition as when delivered to the Borrower by the Manufacturer (ordinary wear
and tear excepted) and so as to keep such Aircraft in good operating condition and in such condition as
may be necessary to enable the airworthiness certification for such Aircraft to be maintained in good
standing at all times under the Federal Aviation Act except when (i) such Aircraft is being serviced,
repaired, maintained, overhauled, tested or modified as permitted or required by the terms of this
Mortgage or (ii) all Airbus A319-100 aircraft of comparable vintage and/or configuration have been
grounded by the FAA, and (b) in accordance with the Maintenance Program for such Aircraft and without in
any way discriminating against such Aircraft, and (3) maintain or cause to be maintained in English all
records, logs and other materials required to be maintained in respect of the Aircraft by the FAA.
Section 3.02 Operation. The Borrower will not maintain, use, service, repair, overhaul or operate the
Aircraft in violation of any law, rule, regulation, treaty, or order of any government or governmental
authority (domestic or foreign) having jurisdiction, or in violation of any airworthiness certificate,
license or registration relating to the Aircraft issued by any such authority except the Borrower may
contest in good faith the validity or application of any such law, rule, regulation, treaty, order,
certificate, license or registration, so long as there is no material risk of the sale, forfeiture or
loss of any Aircraft, any Airframe or any Engine, or the Administrative Agent's interest therein. The
Borrower will not operate or fly any Aircraft in or to any war zone or any area of threatened or
recognized hostility or in any area excluded from coverage by any insurance required to be maintained by
the terms of Article VI (or any indemnity issued in lieu thereof); provided, however, that the failure
of the Borrower to comply with the provisions of this sentence shall not give rise to an Event of
Default hereunder where such failure is an extraordinary occurrence attributable to a hijacking, medical
emergency, equipment malfunction, weather condition, navigational error or similar event.
Section 3.03 Possession and Leases. The Borrower will not, without the prior written consent of the
Administrative Agent at the direction of the Lenders, which consent (and direction) will not be
unreasonably withheld or delayed, lease or otherwise in any manner deliver, transfer or relinquish
possession of any Airframe or any Engine or install or permit any Engine to be installed on any airframe
other than an Airframe; provided that so long as no Event of Default shall have occurred and be
continuing at the time of such delivery, transfer or relinquishment of possession or installation and
the Borrower shall continue to comply with the provisions of Section 3.01 and Article VI, the Borrower
may, without the prior written consent of the Administrative Agent:
(a) subject any Engine to normal pooling or similar arrangements customary in the airline industry and
entered into by the Borrower in the ordinary course of its business with a U.S. Air Carrier or any other
air carrier approved in writing by the Administrative Agent at the direction of the Lenders (which
approval will not be unreasonably withheld or delayed); provided that (i) no such agreement or
arrangement contemplates or requires the transfer of title to any Engine and (ii) if the Borrower's
title to any Engine shall be divested under any such agreement or arrangement, such divestiture shall be
deemed to be an Event of Loss with respect to such Engine and the Borrower shall comply with
Section 5.02 hereof in respect thereof;
(b) deliver possession of any Airframe or any Engine to the Manufacturer or the Engine Manufacturer, or to
any Person for testing, service, repair, maintenance or overhaul work on any Airframe or any Engine or
for alterations or modifications in or additions to the Airframe(s) or Engine(s);
(c) install an Engine on an airframe owned by the Borrower, leased to the Borrower, or owned or purchased by
the Borrower subject to a conditional sale or other security agreement, provided that (a) such airframe
is free and clear of all Liens, except (i) in the case of airframes leased to the Borrower or owned or
purchased by the Borrower subject to a conditional sale or other security agreement, the rights of the
parties to the lease or conditional sale agreement or other security agreement covering such airframe,
or their assignee, (ii) Permitted Liens, and (iii) the rights of other air carriers under normal
interchange agreements which are customary in the airline industry and do not contemplate, permit or
require the transfer of title to the airframe or engines installed thereon, and (b) any such lease,
conditional sale or other security agreement provides that such Engine shall not become subject to the
lien of such lease, conditional sale or other security agreement, notwithstanding the installation
thereof on such airframe, and the inclusion in such agreement of a provision similar to the last
paragraph of this Section 3.03 shall satisfy such requirement;
(d) install an Engine on an airframe owned by the Borrower, leased to the Borrower or purchased by the
Borrower subject to a conditional sale or other security agreement under circumstances where
paragraph 3.03(c) above is inapplicable, provided that such installation shall be deemed an Event of Loss
with respect to such Engine and the Borrower shall comply with Section 5.02 hereof in respect thereof,
the Administrative Agent not intending hereby to waive any right or interest it may have to or in such
Engine under applicable law until compliance by the Borrower with such Section 5.02;
(e) transfer possession of any Airframe or any Engine to the United States of America or any instrumentality
or agency thereof pursuant to CRAF so long as the Borrower shall promptly notify the Administrative
Agent upon transferring possession of such Airframe or any Engine to the United States of America or any
agency or instrumentality thereof pursuant to such program and provide the Administrative Agent with the
name and address of the Contracting Office Representative for the Military Aircraft Command of the
United States Air Force to whom notice must be given in the event the Administrative Agent desires to
give notice as provided in Section 12 of the Credit Agreement;
(f) transfer possession of any Airframe or any Engine to the United States of America or any instrumentality
or agency thereof which bears the full faith and credit of the United States of America; and
(g) enter into a lease with (i) any U.S. Air Carrier approved in writing by the Administrative Agent at the
direction of the Lenders, which approval (or direction) shall not be unreasonably withheld, and which is
authorized by an applicable Governmental Authority to conduct commercial airline operations and to
operate A319-111 aircraft, or (ii) any other Person approved in writing by the Administrative Agent at
the direction of the Lenders.
The rights of any transferee who receives possession by reason of a transfer permitted by this
Section 3.03 (other than the transfer of an Engine deemed an Event of Loss) shall be subject and
subordinate to (and, in the case of any lease, shall be expressly subject and subordinate to) all the
terms of this Mortgage; provided that in the case of the use of an Aircraft in CRAF the subject and
subordinate requirements herein shall be subject to the notice specified in Section 12 of the Credit
Agreement and other requirements of the CRAF program. In the case of any lease, the Borrower shall
remain primarily liable hereunder for the performance of all of the terms of this Mortgage, and the
terms of any such lease shall not permit any lessee to take any action not permitted to be taken by the
Borrower hereunder with respect to the Aircraft and may permit the Borrower to cure any default by the
lessee and to terminate the lease upon such default.
Any Wet Lease or similar arrangement under which the Borrower maintains operational control of
an Aircraft shall not constitute a delivery, transfer or relinquishment of possession for purposes of
this Section 3.03 so long as such Wet Lease shall be for a term (including any renewals) not in excess
of three months and is wet leased to a U.S. Air Carrier.
The Administrative Agent agrees, for the benefit of the Borrower, and for the benefit of any
mortgagee or any other Lender of a security interest in any engine owned by the Borrower, any lessor of
any engine leased to the Borrower and any conditional vendor of any engine purchased by the Borrower
subject to a conditional sale agreement or any other security agreement, that no interest shall be
created hereunder in any engine so owned, leased or purchased and that neither the Administrative Agent
nor its successors or assigns will acquire or claim, as against the Borrower or any such mortgagee,
lessor or conditional vendor or any other Lender of a security interest or interest in such engine as
the result of such engine being installed on an Airframe; provided, however, that such agreement of the
Administrative Agent shall not be for the benefit of any lessor or secured party of any airframe leased
to the Borrower or purchased by the Borrower subject to a conditional sale or other security agreement
or for the benefit of any mortgagee of or any other Lender of a security interest in an airframe owned
by the Borrower, unless such lessor, conditional vendor, other secured party or mortgagee has agreed
(which agreement may be contained in such lease, conditional sale or other security agreement or
mortgage and may consist of a paragraph similar to this paragraph) that neither it nor its successors or
assigns will acquire, as against the Administrative Agent, any right, title or interest in an Engine as
a result of such Engine being installed on such airframe.
Section 3.04 Insignia. On or prior to the Delivery Date, or as soon thereafter as practicable, the Borrower
agrees to affix and maintain (or cause to be affixed and maintained) in the cockpit of each Airframe and
on each Engine a nameplate bearing the inscription:
Mortgaged To
Hamburgische Landesbank -Girozentrale-, as Administrative Agent
(such nameplate to be replaced, if necessary, with a nameplate reflecting the name of any successor to
the Administrative Agent as permitted under the Operative Documents).
Nothing herein contained shall prohibit the Borrower from placing its customary colors and
insignia on each Airframe or any Engine or from otherwise operating the Aircraft in its livery.
Article IV
REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS
Section 4.01 Replacement of Parts. The Borrower will promptly replace or cause to be replaced all Parts
which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever, except as otherwise
provided in Section 4.03. All replacement parts (other than replacement parts temporarily installed as
provided in Section 4.02) shall be free and clear of all Liens (except Permitted Liens), and shall be in
as good an operating condition, and shall have a value and utility substantially equal to, the Parts
replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the
terms hereof. All Parts at any time removed from any Airframe or any Engine shall remain subject to the
Lien of this Mortgage, no matter where located, until such time as such Parts shall be replaced by parts
which meet the requirements for replacement parts specified above. Upon any replacement part becoming
incorporated or installed in or attached to any Airframe or any Engine, without further act (subject
only to Permitted Liens and any arrangement permitted by Section 4.02 hereof), (i) such replacement part
shall become subject to the Lien of this Mortgage and be deemed a Part for all purposes hereof to the
same extent as the Parts originally incorporated or installed in or attached to such Airframe or such
Engine and (ii) the replaced Part shall no longer be deemed a Part hereunder.
Section 4.02 Pooling of Parts; Temporary Replacement Parts. Any Part removed from any Airframe or any
Engine as provided in Section 4.01 hereof may be subjected by the Borrower to a pooling arrangement of
the type which is permitted for Engines by Section 3.03(a) hereof; provided that the part replacing such
removed Part shall be incorporated or installed in or attached to such Airframe or Engine in accordance
with Section 4.01 as promptly as practicable after the removal of such removed Part. In addition, the
Borrower may use temporary parts or pooled parts on an Aircraft as temporary replacements for Parts,
provided that the Borrower as promptly thereafter as practicable, either (1) causes such pooled or
temporary replacement part to become subject to the Lien of this Mortgage free and clear of all Liens
other than Permitted Liens or (2) replaces such replacement part with a further replacement part owned
by the Borrower which meets the requirements of Section 4.01 and which shall become subject to the Lien
of this Mortgage, free and clear of all Liens other than Permitted Liens.
Section 4.03 Alterations, Modifications and Additions. The Borrower will make (or cause to be made) such
alterations, modifications and additions to the Airframes and Engines as may be required to meet the
applicable standards of the FAA, subject to clauses (2)(a)(i) and (ii) of Section 3.01. In addition,
the Borrower may from time to time make such alterations and modifications in and additions to any
Airframe or any Engine as the Borrower may deem desirable in the proper conduct of its business,
including removal of Parts which the Borrower deems to be obsolete or no longer suitable or appropriate
for use on such Airframe or such Engine; provided that no such alteration, modification, removal or
addition impairs the condition or airworthiness of such Airframe or such Engine, or diminishes the
value, utility and remaining useful life of such Airframe or such Engine below the value, utility or
remaining useful life thereof immediately prior to such alteration, modification, removal or addition,
assuming that such Airframe or such Engine is in the condition required hereunder. All parts
incorporated or installed in or attached or added to an Airframe or an Engine as the result of such
alteration, modification or addition (except those parts described in Section 4.04 hereof which the
Borrower has leased from others and Parts which may be removed by the Borrower pursuant to the next
sentence) (the "Additional Part" or "Additional Parts") shall, without further act, become subject to
the Lien of this Mortgage. Notwithstanding the foregoing, the Borrower may remove any Additional Part,
provided that such Additional Part (i) is in addition to, and not in replacement of or substitution for,
any Part originally incorporated or installed in or attached to any Airframe or any Engine at the time
of delivery thereof hereunder or any Part in replacement of or substitution for any such Part, (ii) is
not required to be incorporated or installed in or attached or added to any Airframe or any Engine
pursuant to the terms of Article III hereof or the first sentence of this Section 4.03, and (iii) can be
removed from such Airframe or such Engine without impairing the airworthiness of such Airframe or such
Engine or diminishing the value, utility and remaining useful life of such Airframe or such Engine which
such Airframe or such Engine would have had at such time had such alteration, modification or addition
not occurred. Upon the removal thereof as provided above, such Additional Parts shall be deemed free of
the Lien of this Mortgage.
Section 4.04 Improvements Owned by Others. Notwithstanding any other provision of this Mortgage, the
Borrower may install or permit to be installed in an Aircraft audio-visual, entertainment, telephonic or
other passenger convenience equipment owned by third parties (or owned jointly by the Borrower and
others) and leased or otherwise furnished to the Borrower in the ordinary course of business, provided
that such equipment meets all requirements for removal of Additional Parts as specified in Section 4.03,
and the Lien of this Mortgage shall not attach thereto and the rights of the owners therein shall not
constitute a default under the Operative Documents.
Section 4.05 Substitution of Engines. So long as no Default or Event of Default shall have occurred and be
continuing, Borrower shall have the right at its option at any time on at least five Business Days'
prior written notice, to terminate the Lien of this Mortgage with respect to any Engine. In such event,
and at the time of such termination, the Borrower shall replace such Engine hereunder by complying with
the terms of Section 5.02 hereof to the same extent as if an Event of Loss had occurred with respect to
such Engine (other than the time periods allowed for such replacement), and the Administrative Agent (at
the direction of the Lenders) shall release the replaced Engine from the Lien of this Mortgage as
provided in Section 5.02.
Article V
LOSS, DESTRUCTION, REQUISITION, ETC.
Section 5.01 Event of Loss With Respect to the Aircraft. Upon the occurrence of an Event of Loss with
respect to an Airframe or an Airframe and the Engines and/or engines then installed thereon, the
Borrower shall forthwith give the Administrative Agent and the Lenders written notice of such Event of
Loss but in any event within five days of such occurrence. On the earlier of (x) the 90th day following
the occurrence of such Event of Loss or (y) the fifth Business Day following the receipt of the
insurance proceeds in respect of such Event of Loss, the Borrower shall pay or cause to be paid to the
Administrative Agent an amount equal to the aggregate amount of the payment or payments of principal,
Break Amount (if any), Additional Costs, interest and other amounts then due on or in respect of the
Notes of the Series issued with respect to such Airframe and all other amounts due under the Operative
Documents.
Section 5.02 Event of Loss With Respect to an Engine. Upon the occurrence of an Event of Loss with respect
to an Engine under circumstances in which there has not occurred an Event of Loss with respect to an
Airframe, the Borrower shall forthwith give the Administrative Agent and the Lenders written notice
thereof (but in any event within ten days of such occurrence) and shall, within 60 days after the
occurrence of such Event of Loss (or, in the case of an Event of Loss described in clause (vi) of the
definition thereof, within 90 days after the Chief Financial Officer, Treasurer, any Vice President or
other officer of the Borrower elected by the Borrower's Board of Directors has received actual knowledge
of such Event of Loss), as replacement for the Engine with respect to which such Event of Loss occurred,
subject to the Lien of this Mortgage another CFM International, Inc. Model CFM56-5B5/P engine (or an
engine of the same manufacturer of an equivalent or an improved model and suitable for installation and
use on the Airframes and compatible with the other Engines mortgaged hereunder) free and clear of all
Liens (other than Inchoate Liens) and having a value and utility at least equal to, and being in as good
an operating condition, as the Engine subject to such Event of Loss, assuming such Engine was maintained
in accordance with the provisions of this Mortgage. Prior to or at the time of any such conveyance, the
Borrower will (i) cause a Mortgage Supplement with respect to such Replacement Engine to be duly
executed and filed for recording pursuant to the Federal Aviation Act, (ii) furnish the Administrative
Agent with an opinion of the Borrower's counsel to the effect that such Replacement Engine is owned by
Borrower free and clear of all Liens (other than Inchoate Liens), and that upon execution and filing of
the Mortgage Supplement or other required document the Replacement Engine will be subject to the Lien of
the Mortgage on a first priority and perfected basis; provided that, in the case of any such Lien which
ranks on par with or ahead in priority to the Lien of the Mortgage, the Borrower may satisfy the
foregoing requirement if the Borrower shall have provided a bond or other security in respect of such
Lien in an amount and under terms reasonably satisfactory to the Administrative Agent at the direction
of the Lenders, (iii) furnish a certificate signed by a duly authorized officer of the Borrower stating
with respect to any Replacement Engine: (1) a description of the Engine suffering the Event of Loss,
which shall be identified by manufacturer's serial number; (2) a description of the Replacement Engine
(including the manufacturer's name and serial number); (3) that on the date of the Mortgage Supplement
relating to the Replacement Engine the Borrower will be the owner of such Replacement Engine free and
clear of all Liens except Permitted Liens, that such Replacement Engine will be on such date in good
working order (subject to maintenance permitted or required by this Mortgage) and condition and that
such Replacement Engine is of the same or an improved model of the Engine; and (4) that each of the
conditions specified in this Section 5.02 with respect to such Replacement Engine has been satisfied and
(iv) furnish the Administrative Agent with such evidence of compliance with the insurance provisions of
Article VI hereof with respect to such Replacement Engine as the Administrative Agent may reasonably
request. Upon compliance by the Borrower with all of the terms of this Section 5.02 and Section 13(a)
of the Credit Agreement such Engine shall thereupon cease to be an Engine secured hereunder. For all
purposes hereof, each such Replacement Engine shall, after such conveyance, be deemed an "Engine"
hereunder.
Section 5.03 Application of Payments From Governmental Authorities for Requisition of Title, Etc. Any
payments (other than insurance proceeds the application of which is provided for in Article VI) received
at any time by the Borrower or the Administrative Agent from any governmental authority or other Person
with respect to an Event of Loss (other than a requisition for use by the government of the United
States of America not constituting an Event of Loss) will be applied as follows:
1. If payments are received with respect to an Airframe (or an Airframe or any
Engines or engines then installed thereon), after reimbursement of the Administrative Agent and the
Lenders for reasonable costs and expenses, so much of such payments remaining as shall not exceed the
amounts required to be paid by the Borrower pursuant to Section 5.01 shall be paid to the Administrative
Agent and applied in reduction of the Borrower's obligation to pay such other amounts, if not already
paid by the Borrower, or, if already paid by the Borrower, shall be applied to reimburse the Borrower
for its payment of such amounts, and following the foregoing application, the balance, if any, of such
payments shall be paid to the Borrower; and
2. If such payments are received with respect to an Engine under circumstances
contemplated by Section 5.02 hereof, so much of such payments remaining after reimbursement of the
Administrative Agent and the Lenders for reasonable costs and expenses shall be paid over to, or
retained by, the Borrower, provided that the Borrower shall have fully performed, or will perform, the
terms of Section 5.02 with respect to the Event of Loss for which such payments are made.
Section 5.04 Requisition for Use of the Aircraft by the United States Government or the Government of
Registry of the Aircraft. In the event of the requisition for use of an Airframe or the Engines or
engines installed on such Airframe by the government of the United States of America or any other
government of registry of an Aircraft or any instrumentality or agency of any thereof or a CRAF
activation, in either case not constituting an Event of Loss, the Borrower shall promptly notify the
Administrative Agent of such requisition or activation, and all of the Borrower's obligations under this
Mortgage with respect to such Aircraft shall continue to the same extent as if such requisition or
activation had not occurred. All payments received by the Administrative Agent or the Borrower from
such government for the use of such Airframe and Engines or engines shall be paid over to, or retained
by, the Borrower.
Section 5.05 Application of Payments During Existence of Special Defaults or Events of Default. Any amount
referred to in this Article V which is payable to or retainable by the Borrower shall not be paid to or
retained by the Borrower if at the time of such payment or retention a Special Default or an Event of
Default shall have occurred and be continuing, but shall be held by or paid over to the Administrative
Agent as security for the obligations of the Borrower under this Mortgage and, if the Administrative
Agent declares this Mortgage to be in default pursuant to Section 12 of the Credit Agreement, applied
against the Borrower's obligations hereunder as and when due. At such time as there shall not be
continuing any such Special Default or Event of Default, such amount shall be paid to the Borrower to
the extent not previously applied in accordance with the preceding sentence.
Article VI
INSURANCE
Section 6.01 Bodily Injury Liability and Property Damage Liability Insurance.
(a) Except as provided in paragraph (b) of this Section 6.01, and subject to the self insurance to the
extent permitted by Section 6.04 and the provisions of Section 6.08, the Borrower will at all times
carry and maintain or cause to be carried and maintained, on a non-discriminatory basis and with
insurers of internationally recognized responsibility acceptable to the Administrative Agent (which
acceptability not to be unreasonably withheld or delayed), airline liability insurance, including
passenger legal liability, bodily injury liability, war risk and allied perils liability, property
damage liability, and contractual liability (exclusive of manufacturer's product liability insurance)
with respect to each Aircraft in an amount per occurrence not less than $*. The Borrower shall maintain
cargo liability insurance in an amount not less than the amount of cargo liability insurance maintained
for other aircraft operated by the Borrower.
(b) During any period that an Aircraft is on the ground and not in operation, the Borrower may carry or
cause to be carried, in lieu of the insurance required by paragraph (a) above, and subject to the
self-insurance to the extent permitted by Section 6.04, insurance otherwise conforming to the provisions
of said paragraph (a) except that (i) the amounts of coverage shall not be required to exceed the
amounts of bodily injury liability and property damage liability insurance from time to time applicable
to aircraft owned or leased by major U.S. carriers of the same or similar type as such Aircraft which
are on the ground and not in operation and (ii) the scope of the risks covered and the type of insurance
shall be consistent with industry practice and the same as from time to time shall be applicable to
aircraft owned or leased by major U.S. carriers of the same or similar type which are on the ground and
not in operation and will be consistent with industry practice.
Section 6.02 Insurance Against Loss or Damage to the Aircraft.
(a) Except as provided in paragraph (b) of this Section 6.02 and the provisions of Section 6.08, and subject
to the provisions of Section 6.04 permitting self-insurance, the Borrower shall at all times carry and
maintain or cause to be carried and maintained, on a non-discriminatory basis, in effect with insurers
of internationally recognized responsibility acceptable to the Administrative Agent (which acceptability
not to be unreasonably withheld or delayed) (i) "all risk" aircraft hull insurance covering each
Aircraft (with flight, taxiing and ingestion coverages), (ii) fire, transit and extended coverage of
Engines and Parts while removed from an Aircraft (providing insurance for replacement value), and
(iii) war risk and allied perils insurance, including governmental confiscation and expropriation (other
than by the government of registry of an Aircraft) and hijacking insurance (collectively, "War Risk
Insurance"); provided that, in the case of War Risk Insurance, such insurance shall only be required to
be maintained (x) with respect to the buy-backs covering strikes, sabotage, confiscation and hijacking
contained in London Form LSW 555B and (y) with respect to terms and provisions of War Risk Insurance in
addition to those covered by the preceding clause (x), (A) if and to the extent the same is maintained
by the Borrower with respect to other aircraft owned or operated by the Borrower on the same routes or
(B) if an Aircraft is operated in a war zone (unless the Borrower obtains indemnification in lieu
thereof pursuant to Section 6.06 hereof) or (C) if and to the extent the same is industry standard for
major U.S. carriers operating similarly-sized aircraft on similar routes; provided, further, that the
foregoing insurance shall at all times while an Aircraft is subject to this Mortgage be for an amount
(taking into account self-insurance to the extent permitted by Section 6.04) not less than the
Stipulated Insured Amount. In the case of a loss with respect to an engine (other than an Engine)
installed on an Airframe, the Administrative Agent shall hold any payment received by it of any hull
insurance proceeds in respect of such loss for account of the Borrower or any other third party to the
extent the Borrower or such third party is entitled to receive such proceeds.
Except during a period when a Special Default or an Event of Default has occurred and is
continuing (in which case all losses will be adjusted by the loss payee), all losses will be adjusted
with the insurers by the Borrower (giving due regard to the interest of the Administrative Agent). It
is agreed that all insurance payments received under insurance policies required to be maintained by the
Borrower pursuant to this Section 6.02 as the result of the occurrence of an Event of Loss will be
applied as follows:
1. if such payments are received with respect to an Airframe (or such Airframe
and the Engines and/or engines installed thereon), payments as shall not exceed the amounts due pursuant
to Section 10(f)(ii) of the Credit Agreement shall be applied, after reimbursement of the Administrative
Agent for reasonable costs and expenses, in reduction of the Borrower's obligation to pay such amounts,
if not already paid by the Borrower, or, if already paid by the Borrower, shall be applied to reimburse
the Borrower for its payment of such amounts and the balance, if any, of such payments remaining
thereafter will be paid over to, or retained by, the Borrower; and
2. if such payments are received with respect to an Engine under the
circumstances contemplated by Section 5.02 hereof, such payments shall be paid over to, or retained by,
the Borrower, provided that the Borrower shall have fully performed or, concurrently therewith, will
fully perform the terms of Section 5.02 with respect to the Event of Loss for which such payments are
made.
The insurance payments for any property damage loss to any Airframe or any Engine not
constituting an Event of Loss with respect thereto or with respect to an Event of Loss of an Engine
shall be paid as follows: all payments in respect of losses less than or equal to $* shall be paid to
the Borrower, and all payments with respect to losses greater than $* shall be paid to the
Administrative Agent, to be held as collateral security for the Borrower's obligations hereunder, and
applied to reimburse the Borrower for accomplishing repairs and/or replacements as required, or to pay
suppliers directly for such repairs and/or replacements as directed by the Borrower. In the case of any
payment to the Administrative Agent (other than in respect of an Event of Loss of an Aircraft), the
Administrative Agent shall, upon receipt of evidence reasonably satisfactory to it that the damage
giving rise to such payment shall have been repaired or that such payment shall then be required to pay
for repairs then being made or the replacement of the Engine suffering the Event of Loss, pay the amount
of such payment, and any interest or income earned thereon, to the Borrower or its order.
(b) During any period that an Aircraft is on the ground and not in operation, the Borrower may carry or
cause to be carried, in lieu of the insurance required by paragraph (a) above, and subject to the
self-insurance to the extent permitted by Section 6.04, insurance otherwise conforming with the
provisions of said paragraph (a), except that the scope of the risks and the type of insurance shall be
the same as from time to time applicable to aircraft owned or leased and operated by major U.S. carriers
of the same or similar type similarly on the ground and not in operation, provided that, subject to the
self-insurance to the extent permitted by Section 6.04, the Borrower shall maintain insurance against
risk of loss or damage to such Aircraft in an amount at least equal to the Stipulated Insured Amount
during such period that such Aircraft is on the ground and not in operation.
Section 6.03 Reports, Etc. The Borrower will furnish, or cause to be furnished, to the Administrative Agent
on or before each Delivery Date and annually on or before the renewal dates of the Borrower's relevant
insurance policies, a report, signed by a recognized independent firm of insurance brokers, which
brokers may be regularly retained by the Borrower (the "Insurance Brokers"), describing in reasonable
detail the hull and liability insurance then carried and maintained with respect to each Aircraft and
stating the opinion of such firm that, to the best of its knowledge, such insurance complies with the
terms of Article VI. Such information shall remain confidential as provided in Section 21 of the Credit
Agreement. The Borrower will cause the Insurance Brokers to agree to advise the Administrative Agent in
writing (a) of any default in the payment of premium and of any other act or omission on the part of the
Borrower of which it has actual knowledge and which will invalidate or render unenforceable, in whole or
in part, any insurance as required by the terms hereof, (b) at least thirty (30) days (seven (7) days in
the case of War Risk Insurance) prior to the cancellation (but not scheduled expiration) or material
adverse change of any insurance maintained pursuant to this Article VI, provided that, in respect of the
War Risk Insurance, if the notice period specified above is not obtainable, the Insurance Brokers shall
provide for as long a period of prior notice as shall then be obtainable and (c) if any of the insurance
required by this Article VI are not renewed on the same terms (save as to premium and period of cover
and as the Administrative Agent might otherwise have notified to the Insurance Brokers to be acceptable
to the Administrative Agent) seven (7) days prior to expiry thereof. In the event that the Borrower
shall fail to maintain or cause to be maintained insurance as herein provided, the Administrative Agent
may, at its sole option, provide such insurance and, in such event, the Borrower shall, upon demand,
reimburse the Administrative Agent for the cost thereof.
Section 6.04 Self-Insurance. The Borrower may self-insure, by way of deductible, premium adjustment
provisions in insurance policies, or otherwise, under a program applicable to all aircraft in the
Borrower's fleet, the risks required to be insured against pursuant to Sections 6.01 and 6.02 but in no
case shall the self-insurance with respect to an Aircraft exceed $* per occurrence; provided that no
deductible shall be applicable in the case of a total loss of an Airframe. In the event the prevailing
industry minimum deductible for aircraft similar to the Aircraft increases, the Borrower and
Administrative Agent shall consult one another toward a mutually agreeable modified deductible, such
modified deductible to be effective only upon the written consent of the Administrative Agent (on behalf
of the Lenders). Notwithstanding the foregoing, if the Borrower's consolidated shareholders' equity
shall exceed $*, then the levels of self-insurance otherwise permitted by this Section 6.04 may be
increased by $* per Aircraft per occurrence.
Section 6.05 Additional Insurance by Borrower. The Borrower may carry for its own account at its sole cost
and expense insurance with respect to its interest in the Aircraft, provided that such insurance does
not prevent the Borrower from carrying the insurance required or permitted by this Article VI or
adversely affect such insurance provided hereunder or the cost thereof.
Section 6.06 Indemnification by Government in Lieu of Insurance. Notwithstanding any provisions of this
Article VI requiring insurance, the Administrative Agent on behalf of the Lenders agrees to accept, in
lieu of insurance against any risk with respect to the Aircraft, indemnification from, or insurance
provided by, the government of the United States of America or any agency or instrumentality thereof the
obligations of which are supported by the full faith and credit of the government of the United States
of America, against such risk in an amount which, when added to the amount of insurance against such
risk maintained by the Borrower shall be at least equal to the amount of insurance against such risk
otherwise required by this Article VI (taking into account self insurance permitted by Section 6.04).
The Borrower shall furnish, in advance of attachment of such indemnity or insurance, if practical to do
so, a certificate of a responsible financial or legal officer of the Borrower confirming in reasonable
detail the amount and scope of such indemnification or insurance and that such indemnification or
insurance complies with the preceding sentence.
Section 6.07 Application of Payments During Existence of a Special Default or an Event of Default. Any
amount referred to in this Article VI which is payable to or retainable by or to be held for the benefit
of the Borrower shall not be paid to or retained by or held for the benefit of the Borrower if at the
time of such payment or retention a Special Default or an Event of Default shall have occurred and be
continuing, but shall be held by or paid over to the Administrative Agent, as security for the
obligations of the Borrower under this Mortgage and, if the Administrative Agent or any Lender, as
applicable, shall have declared this Mortgage or the Credit Agreement to be in default, applied against
the Borrower's obligations hereunder as and when due. At such time as there shall not be continuing any
such Special Default or Event of Default, such amount shall be paid to the Borrower to the extent not
previously applied in accordance with the preceding sentence.
Section 6.08 Terms of Insurance Policies. Any policies carried in accordance with Sections 6.01 and 6.02
covering the Aircraft, and any policies taken out in substitution or replacement for any such policies,
as applicable, (1) shall name the Additional Insureds as additional insureds, as their interests may
appear, (2) shall name the Administrative Agent (on behalf of the Lenders) as sole loss payee to the
extent provided in clause (12) below, (3) may provide for self-insurance to the extent permitted in
Section 6.04, (4) shall provide that if the insurers cancel such insurance for any reason whatsoever, or
if any material change is made in the insurance which adversely affects the interest of any Additional
Insured, such cancellation or change shall not be effective as to the Additional Insureds for thirty
(30) days after receipt by (but, in the case of War Risk Insurance, seven (7) days after sending to) the
Additional Insureds of written notice by such insurers of such cancellation or change, provided,
however, that if, in respect of the War Risk Insurance, any notice period specified above is not
obtainable, such policies shall provide for as long a period of prior notice as shall then be
obtainable, (5) shall provide that in respect of the Additional Insureds' respective interests in such
policies the insurance shall not be invalidated by any action or inaction of the Borrower and shall
insure the respective interests of the Additional Insureds regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the Borrower, (6) shall be primary
without any right of contribution from any other insurance which is carried by any Additional Insured,
(7) shall expressly provide that all of the provisions thereof, except the limits of liability, shall
operate in the same manner as if a separate policy covered each insured, (8) shall waive any right of
subrogation of the insurers or any right of the insurers to set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of any Additional Insured but
only to the extent of the indemnities provided under the Credit Agreement, (9) shall provide that losses
(other than for total loss of an Aircraft) shall be adjusted with the Borrower (or, if an Event of
Default shall have occurred which is continuing, with the Administrative Agent), (10) shall provide that
the Additional Insureds are not liable for any insurance premiums, (11) shall be effective with respect
to both domestic and international operations, (12) shall provide that (i) except as specified in
clause (iii) of this sub-section, in the event of a loss involving payments in excess of $*, all payments
in respect of such loss up to the amount of Stipulated Insured Amount (whether such payment is made to
the Borrower or any third party) shall be paid to the Administrative Agent on behalf of the Lenders, it
being understood and agreed that in the case of any payment to the Administrative Agent otherwise than
in respect of an Event of Loss of an Aircraft, the Administrative Agent shall, upon receipt of evidence
reasonably satisfactory to it that the damage giving rise to such payment shall have been repaired or
that such payment shall then be required to pay for repairs then being made or the replacement of the
Engine suffering the Event of Loss, pay the amount of such payment, and any interest or income earned
thereon, to the Borrower or its order, (ii) except as specified in clause (iii) of this sub-section, all
proceeds of $* or less (regardless of the total amount of proceeds resulting from such loss) and any
payments of any loss in excess of Stipulated Insured Amount for an Aircraft shall be paid to the
Borrower or its order and (iii) notwithstanding anything to the contrary contained in the preceding
clauses (i) and (ii), if a Special Default or an Event of Default shall have occurred and be continuing
and the insurers have been notified thereof by the Administrative Agent, all payments of loss shall be
paid to the Administrative Agent, (13) if war risk coverage is maintained, shall contain a 50/50 clause
as per AVS 103, and (14) if the policy (or policies) contains (or contain) an electronic date
recognition exclusion such as AVN 2000, to include AVN 2001 and AVN 2002 or such other writebacks for
hull and liability coverage as are customary for commercial airlines in the United States.
Article VII
MISCELLANEOUS
Section 7.01 Termination of Mortgage. (a) (a) Upon (or at any time after) payment in full of the principal
of and interest on and Break Amount, if any, and Additional Costs and all other amounts due under, or
otherwise due to the Lenders hereunder and under the other Operative Documents and provided that there
shall then be no other amounts due to the Lenders and the Administrative Agent hereunder or under the
Credit Agreement or the other Operative Documents or otherwise secured hereby, the Administrative Agent
shall execute and deliver to or as directed in writing by the Borrower an appropriate instrument
releasing the Aircraft from the Lien of this Mortgage, and the Administrative Agent shall execute and
deliver such instrument as aforesaid and, at the Borrower's expense, will execute and deliver such other
instruments or documents as may be reasonably requested by the Borrower to give effect to such release;
provided, however, that this Mortgage and the trusts created hereby shall earlier terminate and this
Mortgage shall be of no further force or effect and the rights of the Lenders and the Administrative
Agent shall terminate (and the Administrative Agent, at the Lenders' direction, shall release, by an
appropriate instrument, the Mortgage Estate and the Aircraft from the Lien of this Mortgage) upon any
sale or other final disposition by the Administrative Agent, at the Lenders' direction, of all property
part of the Mortgage Estate and the final distribution by the Administrative Agent of all monies or
other property or proceeds constituting part of the Mortgage Estate in accordance with the terms
hereof. Except as aforesaid otherwise provided, this Mortgage and the trusts created hereby shall
continue in full force and effect in accordance with the terms hereof.
(b) In addition, upon (or at any time after) payment in full of the principal of and interest on and Break
Amount and Additional Cost, if any, and all other amounts due under, or otherwise due to the Lenders
hereunder and under the other Operative Documents with respect to any Aircraft and provided that no
Default shall be continuing and there shall then be no other amounts due to the Lenders and the
Administrative Agent hereunder or under the Loan Agreement or the other Operative Documents or otherwise
secured hereby in respect of such Series of Notes with respect to any Aircraft, the Administrative
Agent, at the Lenders' direction, shall execute and deliver to or as directed in writing by the Borrower
an appropriate instrument releasing such Aircraft relating to such Series from the Lien of this
Mortgage, and the Administrative Agent, at the Lenders' direction, shall execute and deliver such
instrument as aforesaid and, at the Borrower's expense, will execute and deliver such other instruments
or documents as may be reasonably requested by the Borrower to give effect to such release.
Section 7.02 No Legal Title to Mortgage Estate in the Lenders. The Lenders shall not have legal title to
any part of the Mortgage Estate. No transfer, by operation of law or otherwise, of any Note or other
right, title and interest of the Lenders in and to the Mortgage Estate or hereunder shall operate to
terminate this Mortgage or entitle the Lenders or any successor or transferee of the Lenders to an
accounting or to the transfer to it of legal title to any part of the Mortgage Estate.
Section 7.03 Sale of Aircraft by Administrative Agent is Binding. Any sale or other conveyance of any
Aircraft by the Administrative Agent, at the Lenders' direction, made pursuant to the terms of this
Mortgage shall bind the Lenders and shall be effective to transfer or convey all right, title and
interest of the Administrative Agent, the Borrower and the Lenders in and to such Aircraft. No
purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency
or regularity of such sale or conveyance or as to the application of any sale or other proceeds with
respect thereto by the Administrative Agent.
Section 7.04 Mortgage for Benefit of Administrative Agent and Lenders. Nothing in this Mortgage, whether
express or implied, shall be construed to give to any person other than the Borrower, the Administrative
Agent and the Lenders any legal or equitable right, remedy or claim under or in respect of this Mortgage.
Section 7.05 No Action Contrary to Borrower's Rights; Quiet Enjoyment. Notwithstanding any of the
provisions of this Mortgage to the contrary, so long as no Event of Default shall have occurred and be
continuing, each of the Administrative Agent and Lenders agrees that neither it nor any Person claiming
by, through or under it, will not take any action in violation of the Borrower's rights, including the
right to quiet enjoyment, possession and use of the Aircraft in accordance with the terms of this
Mortgage by Borrower.
Section 7.06 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all notices,
requests, demands, authorizations, directions, consents, waivers or documents provided or permitted by
this Mortgage to be made, given, furnished or filed shall be in writing, mailed by certified mail,
postage prepaid, or by confirmed telex, or by confirmed telecopy or electronic mail and (i) if to the
Administrative Agent, addressed to it at its office at Hamburgische Landesbank -Girozentrale-,
Xxxxxxx-Xxxxxxxxx-Xxxxx 00, X-00000 Xxxxxxx, Xxxxxxx, Attention: Dept. Airlines/Xxxxxxx Xxxxxxxxx,
telephone: x00-00-0000-0000, telecopier: x00-00-0000-0000, (ii) if to the Borrower, addressed to it at
its office at Frontier Center One, 0000 Xxxxx Xxxx, Xxxxxx, XX 00000, Attention: Chief Financial
Officer, telecopy: (000) 000-0000, or (iii) if to the Lenders, addressed to such party at such address
as such party shall have furnished by notice to the Borrower and the Administrative Agent, or, until an
address is so furnished, addressed to the address of such party (if any) set forth on Schedule I to the
Credit Agreement. Whenever any notice in writing is required to be given by the Borrower, the
Administrative Agent or the Administrative Agent or the Lenders to any of the other of them, such notice
shall be deemed given and such requirement satisfied when such notice is received, if such notice is
received, if such notice is mailed by certified mail, postage prepaid, or is sent by confirmed telex, or
by confirmed telecopy addressed as provided above. Any party hereto may change the address to which
notices to such party will be sent by giving notice of such change to the other parties to this Mortgage.
Section 7.07 Administrative Agent's Right to Perform for Borrower. If the Borrower fails to make any
payment or to perform or comply with any of its agreements contained herein, then (but in each case,
other than in the case of failure to maintain insurance as required hereunder, no earlier than five
Business Days after notice to Borrower as to the occurrence of such failure, whether or not it shall yet
constitute an Event of Default hereunder) the Administrative Agent may itself make such payment or
perform or comply with such agreement but shall not be obligated hereunder to do so, and the amount of
such payment and the amount of the reasonable expenses of the Administrative Agent incurred in
connection with such payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Past Due Rate, shall be payable by Borrower upon demand.
Section 7.08 Severability. Any provision of this Mortgage which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 7.09 No Oral Modifications or Continuing Waivers. No terms or provisions of this Mortgage or the
Notes may be changed, waived, discharged or terminated orally, but only by an instrument in writing
signed by the party or other Person against whom enforcement of the change, waiver, discharge or
termination is sought and any other party or other Person whose consent is required pursuant to this
Mortgage; and any waiver of the terms hereof or of any Note shall be effective only in the specific
instance and for the specific purpose given.
Section 7.10 Successors and Assigns. All covenants and agreements contained herein shall be binding upon,
and inure to the benefit of, each of the parties hereto and the successors and assigns of each, all as
herein provided. Any request, notice, direction, consent, waiver or other instrument or action by the
Lenders shall bind the successors and assigns of the Lenders.
Section 7.11 Headings. The headings of the various Articles and Sections herein and in the table of
contents hereto are for the convenience of reference only and shall not define or limit any of the terms
or provisions hereof.
Section 7.12 GOVERNING LAW; Counterparts. THIS MORTGAGE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE. This Mortgage may be executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Mortgage to be duly executed by their
respective officers thereunto duly authorized, as of the day and year first above written, and
acknowledge that this Mortgage has been made and delivered in the City of New York, and this Mortgage
having become effective only upon such execution and delivery.
FRONTIER AIRLINES, INC.,
as Borrower
By:____________________________
Name:__________________________
Title:_________________________
HAMBURGISCHE LANDESBANK -GIROZENTRALE-,
as Administrative Agent
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
[Mortgage and Security Agreement [Frontier/HLB]
EXHIBIT A
to
Mortgage
MORTGAGE SUPPLEMENT
MORTGAGE SUPPLEMENT [Frontier/HLB] No. _____ dated ___________, ____ (this "Mortgage
Supplement") of Frontier Airlines, Inc. (herein called the "Borrower").
W I T N E S S E T H:
WHEREAS, the Mortgage and Security Agreement [Frontier/HLB] dated as of May 23, 2002 (the
"Mortgage") between the Borrower and Hamburgische Landesbank -Girozentrale-, as Administrative Agent (the
"Administrative Agent"), provides for the execution and delivery of a supplement thereto substantially
in the form hereof which shall particularly describe the Aircraft (such term and other defined terms in
the Mortgage being herein used with the same meanings) and any Replacement Engine included in the
Mortgage Estate, and shall specifically mortgage such Aircraft or Replacement Engine, as the case may
be, to the Administrative Agent.
WHEREAS2, the Mortgage relates to the Airframe and Engines described below and a counterpart of
the Mortgage is attached hereto and made a part hereof and this Mortgage Supplement, together with such
counterpart of the Mortgage, is being filed for recordation on the date hereof with the Federal Aviation
Administration as one document.
WHEREAS3, the Mortgage and Mortgage Supplement [Frontier/HLB] dated _______________ have been
duly recorded pursuant to Subtitle VII of Title 49 of the United States Code on __________, ____, as one
document and have been assigned Conveyance No. _________;
NOW, THEREFORE, this Mortgage Supplement witnesseth, that, to secure the prompt payment of the
principal of and Break Amount (if any) and interest on, and all other amounts due with respect to, all
Notes from time to time outstanding under the Mortgage and the performance and observance by the
Borrower of all the agreements, covenants and provisions for the benefit of the Lenders in the Mortgage
and in the Credit Agreement and the Notes contained, and the prompt payment of any and all amounts from
time to time owing under the Mortgage or the Credit Agreement or the other Operative Documents by the
Borrower to the Lenders, and for the uses and purposes and subject to the terms and provisions of the
Mortgage, and in consideration of the premises and of the covenants contained in the Mortgage, and of
the acceptance of the Notes by the Lenders, and of the sum of $1 paid to the Borrower at or before the
delivery hereof, the receipt whereof is hereby acknowledged, the Borrower has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell,
assign, transfer, convey, mortgage, pledge and confirm, unto the Administrative Agent and its successors
and assigns, for the security and benefit of the Lenders, in the trust created by the Mortgage, a
security interest in and mortgage lien upon, all right, title and interest of the Borrower in, to and
under the following described property:
AIRFRAME
One airframe identified as follows:
FAA Manufacturer's
Manufacturer Model Registration Number Serial Number
------------ ----- ------------------- -------------
Airbus G.I.E. A319-111
together with all Parts, appliances, equipment, instruments and accessories (including, without
limitation, radio and radar) from time to time thereto belonging, owned by the Borrower and installed in
or appurtenant to said aircraft.
AIRCRAFT ENGINES
Two (2) aircraft engines, each such engine
having 750 or more rated takeoff horsepower
or the equivalent thereof, identified as follows:
Manufacturer's
Manufacturer Model Serial Number
------------ ----- -------------
CFM International, Inc. CFM56-5B5/P
together with all Parts, equipment and accessories thereto belonging, by whomsoever manufactured, owned
by the Borrower and installed in or appurtenant to said aircraft engines.
Together with all substitutions, replacements and renewals of the property above described, and
all property owned by the Borrower which shall hereafter become physically attached to or incorporated
in the property above described, whether the same are now owned by the Borrower or shall hereafter be
acquired by it.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the Administrative Agent, its
successors and assigns, for the benefit and security of the Lenders for the uses and purposes and
subject to the terms and provisions set forth in the Mortgage.
AND, FURTHER, the Borrower hereby acknowledges that the Airframe and/or Engines referred to in
this Mortgage Supplement have been delivered to the Borrower and are included in the property of the
Borrower and are subject to the Lien of the Mortgage.
The principal of the Notes of the Series issued in respect of the Aircraft identified above
shall be due and payable in 48 equal quarterly installments down to the Balloon Amount, as set forth on
Schedule 1 hereto. The Borrower has selected Option __ in respect of such Aircraft.
This Mortgage Supplement shall be construed as supplemental to the Mortgage and shall form a
part thereof, and the Mortgage is hereby incorporated by reference herein and is hereby ratified,
approved and confirmed.
This Mortgage Supplement is being delivered in the State of New York.
IN WITNESS WHEREOF, the Borrower has caused this Mortgage Supplement to be duly executed by one
of its officers thereunto authorized, this ____ day of ________, ____.
FRONTIER AIRLINES, INC.
By:____________________________
Name:__________________________
Title:_________________________
[Mortgage and Security Agreement [Frontier/HLB]]
SCHEDULE 1
SCHEDULE OF PRINCIPAL PAYMENTS
Interest Payment Date Principal Amount to
(falling on or closest to) be Paid
-------------------------- -------
[OMITTED FROM COUNTERPART FILED WITH FAA
FOR CONFIDENTIALITY PURPOSES]
