Security Trust Agreement

Exhibit 10.2


EXECUTION COPY


SECURITY TRUST AGREEMENT


Dated as of May 5, 1999


between


AIRCRAFT FINANCE TRUST
and


THE ADDITIONAL GRANTORS REFERRED TO HEREIN
as the Grantors


and


BANKERS TRUST COMPANY,
as the Security Trustee and the Operating Bank


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TABLE OF CONTENTS


PAGE
----


ARTICLE I DEFINITIONS..........................................................1
Section 1.01 Definitions..............................................1
Section 1.02 Construction and Usage...................................6


ARTICLE II SECURITY............................................................6
Section 2.01 Grant of Security........................................6
Section 2.02 Security for Obligations.................................9
Section 2.03 Representations and Warranties of the Grantors...........9
Section 2.04 Grantors Remain Liable..................................10
Section 2.05 Delivery of Collateral..................................11
Section 2.06 Maintenance of Security Trustee Accounts................11
Section 2.07 The Grantor and the Accounts............................12
Section 2.08 As to the Assigned Documents............................13
Section 2.09 As to Security Collateral, Beneficial Interest
Collateral and Investment Collateral....................15
Section 2.10 Further Assurances......................................16
Section 2.11 Place of Perfection; Records............................17
Section 2.12 Voting Rights; Dividends; Etc...........................17
Section 2.13 Transfers and Other Encumbrances; Additional
Shares or Interests.....................................18
Section 2.14 Security Trustee Appointed Attorney-in-Fact.............18
Section 2.15 Security Trustee May Perform............................19
Section 2.16 Covenant to Pay.........................................19
Section 2.17 Delivery of Collateral Supplements......................19
Section 2.18 Annual Opinion..........................................19


ARTICLE III REMEDIES..........................................................20
Section 3.01 Remedies................................................20


ARTICLE IV SECURITY INTEREST ABSOLUTE.........................................21
Section 4.01 Security Interest Absolute..............................21


ARTICLE V THE SECURITY TRUSTEE AND THE OPERATING BANK.........................22
Section 5.01 Authorization and Action................................22
Section 5.02 Absence of Duties.......................................22
Section 5.03 Representations or Warranties...........................22
Section 5.04 Reliance; Agents; Advice of Counsel.....................23
Section 5.05 No Individual Liability.................................24
Section 5.06 The Operating Bank......................................25 3


ARTICLE VI SUCCESSOR TRUSTEES AND OPERATING BANK..............................25
Section 6.01 Resignation and Removal of Security Trustee.............25
Section 6.02 Appointment of Successor................................25
Section 6.03 The Operating Bank......................................25


ARTICLE VII AGREEMENT AMONG SECURED PARTIES...................................26
Section 7.01 Subordination and Priority..............................26
Section 7.02 Exercise of Remedies....................................27
Section 7.03 Further Agreements of Subordination.....................27
Section 7.04 Rights of Subrogation...................................29
Section 7.05 Further Assurances of Subordinated Representatives......29
Section 7.06 No Change in Rights in Collateral.......................29
Section 7.07 Waiver of Marshalling and Similar Rights................29
Section 7.08 Enforcement.............................................30
Section 7.09 Obligations Not Affected................................30
Section 7.10 Waiver..................................................30
Section 7.11 Senior Obligations and Subordinated Obligations
Unimpaired..............................................31
Section 7.12 Upon Discharge of Obligations...........................31


ARTICLE VIII INDEMNITY AND EXPENSES...........................................31
Section 8.01 Indemnity...............................................31
Section 8.02 Holders' Indemnity......................................32
Section 8.03 No Compensation from Secured Parties....................32
Section 8.04 Security Trustee Fees...................................32


ARTICLE IX MISCELLANEOUS......................................................33
Section 9.01 Amendments; Waivers; Etc................................33
Section 9.02 Addresses for Notices...................................33
Section 9.03 No Waiver; Remedies.....................................34
Section 9.04 Severability............................................34
Section 9.05 Continuing Security Interest; Assignments...............35
Section 9.06 Release and Termination.................................35
Section 9.07 Currency Conversion.....................................35
Section 9.08 Governing Law...........................................36
Section 9.09 Jurisdiction............................................36
Section 9.10 Counterparts............................................36
Section 9.11 Table of Contents, Headings, Etc........................37


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SCHEDULES


Schedule I Pledged Stock, Pledged Beneficial Interest and Pledged Debt Schedule II Non-Trustee Account Information Schedule III Trade Names Schedule IV Chief Place of Business and Chief Executive or Registered Office


EXHIBITS


Exhibit A Form of Secured Party Supplement Exhibit B-1 Form of Collateral Supplement Exhibit B-2 Form of Grantor Supplement Exhibit C Form of Non-Trustee Account Letter Exhibit D Form of Consent and Agreement


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SECURITY TRUST AGREEMENT


This SECURITY TRUST AGREEMENT (this "Agreement"), dated as of May 5, 1999, is made between AIRCRAFT FINANCE TRUST, a Delaware statutory business trust (the "Issuer"), the ISSUER SUBSIDIARIES listed on the signature pages of, or who otherwise become grantors under, this Agreement (together with the Issuer, the "Grantors") and BANKERS TRUST COMPANY, a New York banking corporation ("Bankers Trust").


PRELIMINARY STATEMENTS:


(1) The Issuer and Bankers Trust have entered into the Indenture pursuant to which the Issuer is issuing the Notes and Bankers Trust has been appointed the Trustee.


(2) The Issuer is the owner of (i) all of the beneficial interest (the "Pledged Beneficial Interest") in certain Issuer Subsidiaries and all of the outstanding shares of capital stock of the other Issuer Subsidiaries (the "Pledged Stock"), all as described in the attached Schedule I and (ii) the indebtedness of certain Issuer Subsidiaries (the "Pledged Debt"), all as described in the attached Schedule I.


(3) The Issuer Subsidiaries are or may from time to time be parties to lease and sub-lease contracts and servicing agreements with respect to the Initial Aircraft, and they may enter into lease and sub-lease contracts and servicing agreements with respect to Additional Aircraft.


(4) The Issuer and the Issuer Subsidiaries may from time to time grant additional security for the benefit of the Secured Parties.


(5) It is a condition precedent to the issuance of the Notes by the Issuer that each Grantor grant the security interests required by this Agreement.


(6) Each Grantor will derive substantial direct and indirect benefit from the issuance of the Notes and from the Related Documents.


(7) Bankers Trust is willing to act as the Security Trustee and the Operating Bank under this Agreement.


NOW, THEREFORE, in consideration of the premises, each Grantor hereby agrees with the Security Trustee for its benefit and the benefit of the other Secured Parties as follows:


ARTICLE I
DEFINITIONS


Section 1.01 Definitions. (a) Certain Defined Terms. For the purposes of this Agreement, the following terms have the meanings indicated below:


"Account Collateral" has the meaning specified in Section 2.01. 6


"Account Letters" has the meaning specified in Section 2.07(a).


"Additional Grantor" has the meaning specified in Section 9.01.


"Agreed Currency" has the meaning specified in Section 9.07.


"Agreement" has the meaning specified in the recital of parties to this Agreement.


"Agreement Collateral" means, collectively, the Assigned Agreement Collateral, the Lease Collateral and the Servicing Collateral.


"Assigned Agreements" has the meaning specified in Section 2.01


"Assigned Agreement Collateral" has the meaning specified in Section 2.01.


"Assigned Documents" means, collectively, the Assigned Agreements, the Assigned Leases and the Service Provider Documents included in the Servicing Collateral.


"Assigned Leases" has the meaning specified in Section 2.01.


"Bankers Trust" has the meaning specified in the recital of parties to this Agreement.


"Bankers Trust Fee Letter" means the fee agreement dated as of May 5, 1999 between the Issuer and Bankers Trust.


"Beneficial Interest Collateral" has the meaning specified in Section 2.01.


"Certificated Security" means a certificated security (as defined in Section 8-102(a)(4) of the UCC) other than a Government Security.


"Collateral" has the meaning specified in Section 2.01.


"Collateral Supplement" means a supplement to this Agreement in substantially the form attached as Exhibit B-1 executed and delivered by a Grantor.


"Government Security" means any security issued or guaranteed by the United States of America or an agency or instrumentality thereof that is maintained in book-entry on the records of the Federal Reserve Bank of New York and is subject to Revised Book-Entry Rules.


"Grantors" has the meaning specified in the recital of parties to this Agreement.


"Grantor Supplement" means a supplement to this Agreement in substantially the form attached as Exhibit B-2 executed and delivered by an Issuer Group Member.


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"Indenture" means the Trust Indenture dated as of May 5, 1999 between the Issuer, the Administrative Agent and the Trustee.


"Indenture Obligations" means, in respect of any class of Notes, all obligations of the Issuer under and in respect of such class of Notes including all obligations of the Issuer to make payments of principal of, interest on (including Registration Step-Up Interest, Maturity Step-Up Interest, Additional Interest and interest following the filing of a petition initiating any proceeding referred to in Section 7.03(a)) and premium (including Sale Premium), if any, on such class of Notes, all obligations to pay any fees, expenses or other amounts under or in respect of such class of Notes, the Indenture or any Related Document in respect of such class of Notes, and all obligations in respect of any amendment, modification, extension, renewal or refinancing of such class of Notes.


"Instrument" means any "instrument" as defined in Section 9-105(1)(i) of the UCC.


"Investment Collateral" has the meaning specified in Section 2.01.


"Issuer" has the meaning specified in the recital of parties to this Agreement.


"Lease Assignment Documents" means, in respect of any Assigned Lease, (a) any agreement providing for the novation thereof to substitute, or the assignment thereof to, an Issuer Group Member as the lessor, (b) any agreement or instrument supplemental to this Agreement for the purpose of effecting and/or perfecting the assignment of, and the grant of a lien upon, such Assigned Lease in favor the Security Trustee under any Applicable Law (other than the law of the State of New York), (c) any notice provided to the lessee thereof of the assignment thereof pursuant to this Agreement and/or such supplement, (d) any acknowledgment of such assignment by such lessee and (e) any undertaking of quiet enjoyment given by the Security Trustee in respect thereof.


"Lease Collateral" has the meaning specified in Section 2.01.


"Non-Trustee Account Banks" has the meaning specified in Section 2.07.


"Non-Trustee Account Collateral" has the meaning specified in Section 2.01.


"Obligor" has the meaning specified in Section 2.07.


"Operating Bank" means the Person acting, at the time of determination, as the operating bank under this Agreement. The initial Operating Bank is Bankers Trust.


"Owner Trustee Fee Agreement" means the fee agreement dated as of May 5, 1999 between the Owner Trustee and the Issuer.


"Pledged Beneficial Interest" has the meaning specified in the preliminary statements to this Agreement.


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"Pledged Debt" has the meaning specified in the preliminary statements to this Agreement.


"Pledged Stock" has the meaning specified in the preliminary statements to this Agreement.


"Received Currency" has the meaning specified in Section 9.07.


"Relevant Collateral" has the meaning specified in Section 2.09(a).


"Revised Book-Entry Rules" means 31 C.F.R. ss. 357 (Treasury bills, notes and bonds); 12 C.F.R. ss. 615 (book-entry securities of the Farm Credit Administration); 12 C.F.R. ss.ss. 910 and 912 (book-entry securities of the Federal Home Loan Banks); 24 C.F.R. ss. 81 (book-entry securities of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation); 12 C.F.R. ss. 1511 (book-entry securities of the Resolution Funding Corporation); 31 C.F.R. ss. 354 (book-entry securities of the Student Loan Marketing Association); and any substantially comparable book-entry rules of any other Federal agency or instrumentality.


"Secured Collateral Provider" means any of or, in its plural form, all of the Secured Service Providers, Secured Swap Providers and Secured Credit Facility Providers.


"Secured Collateral Provider Document" means any of or, in its plural form, all of the Service Provider Documents, Swap Agreements and Credit Facilities.


"Secured Credit Facility" means any Eligible Credit Facility in respect of which the provider has delivered to the Security Trustee a Secured Party Supplement.


"Secured Credit Facility Obligations" means the obligations of the Issuer now or hereafter existing under any Secured Credit Facilities to Secured Credit Facility Providers.


"Secured Credit Facility Provider" means the provider of any Secured Credit Facility.


"Secured Obligations" means, collectively, the Indenture Obligations with respect to all classes of Notes, the Secured Service Provider Obligations, the Additional Servicer Amounts, the Secured Credit Facility Obligations and the Secured Swap Provider Obligations.


"Secured Party" means any of or, in the plural form, all of the Security Trustee, each other Secured Service Provider, each Holder, each Secured Credit Facility Provider and each Secured Swap Provider.


"Secured Party Supplement" means a supplement to this Agreement in substantially the form attached as Exhibit A executed and delivered to the Security Trustee by a Service Provider, a Swap Provider or a Secured Credit Facility Provider.


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"Secured Service Provider" means any of the Security Trustee, the Trustee, the Operating Bank, the Servicer, the Administrative Agent, the Reference Agent, the Financial Advisor, the Capital Markets Advisor and each other provider (including any Authorized Agent) of a Secured Service Provider Document.


"Secured Service Provider Document" means any of any Service Provider Document listed under clause (a) of the definition of that term and any other service agreement entered into by an Issuer Group Member in accordance with the Indenture in respect of which the counterparty has executed and delivered to the Security Trustee a Secured Party Supplement.


"Secured Service Provider Obligations" means, collectively, the obligations now or hereafter existing of any Issuer Group Member to a Service Provider under a Secured Service Provider Document other than the Additional Servicer Amounts.


"Secured Swap Agreement" means a Swap Agreement in respect of which the Swap Provider has executed and delivered to the Security Trustee a Secured Party Supplement.


"Secured Swap Provider" means the Swap Provider of a Secured Swap Agreement.


"Secured Swap Provider Obligations" means the obligations of the Issuer now or hereafter existing under the Secured Swap Agreements.


"Securities Account" means a securities account as defined in Section 8-501(a) of the UCC maintained in the name of the Security Trustee as "entitlement holder" (as defined in Section 8-102(a)(7) of the UCC) on the books and records of the Operating Bank or another Securities Intermediary in the State of New York.


"Securities Intermediary" means any "securities intermediary" of the Security Trustee as defined in 31 C.F.R. Section 357.2 or Section 8-102(a)(14) of the UCC.


"Security Collateral" has the meaning specified in Section 2.01(a).


"Security Trustee" means the Person appointed, at the time of determination, as the security trustee under this Agreement. The initial Security Trustee is Bankers Trust.


"Security Trustee Account" means any Account other than a Non-Trustee Account.


"Senior Creditors" means the Secured Parties to whom the Senior Obligations are owed.


"Senior Obligations" means, with respect to any Secured Obligation (other than Secured Service Provider Obligations and all Secured Credit Facility Obligations that constitute Expenses), all other Obligations the payment of which constitute a Prior Ranking Amount.


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"Senior Representative" means the Controlling Party.


"Service Provider Documents" means (a) the Administrative Agency Agreement, the Trust Agreement (with respect to the obligations of the Issuer to the Owner Trustee), the Indenture (with respect to the obligations of the Issuer to the Trustee), the Reference Agency Agreement, the Servicing Agreement, the Financial Advisory Agreement, the Capital Markets Advisory Agreement, any Additional Servicing Agreement, the Bankers Trust Fee Agreement, the Owner Trustee Fee Agreement and this Agreement (with respect to the obligations of the Grantors to the Security Trustee and the Operating Bank) and (b) any other service agreement entered into by any Issuer Group Member pursuant to the Indenture.


"Subordinated Creditors" means, at any time, the holders and owners of Subordinated Obligations.


"Subordinated Obligations" means (a)with respect to the Secured Service Provider Obligations and Secured Credit Facility Obligations that constitute Expenses, all other Obligations and (b) with respect to any other Secured Obligations, all Obligations as to which the payment of such Secured Obligation constitutes a Prior Ranking Amount.


"Subordinated Representative" means, at any time, any trustee or representative of any holders or owners (or, in the absence of any such person, such holders and owners) of any Secured Obligations other than the Senior Representative at such time.


"UCC" means the Uniform Commercial Code as in effect on the date of determination in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Agreement relating to such perfection or effect of perfection or non-perfection.


"Uncertificated Security" means an uncertificated security (as defined in Section 8-102(a)(18) of the UCC) other than a Government Security.


(b) Terms Defined in the Indenture. For all purposes of this Agreement, all capitalized terms used, but not defined in, this Agreement shall have the respective meanings assigned to such terms in the Indenture.


Section 1.02 Construction and Usage. The conventions of construction and usage set forth in Section 1.02 of the Indenture are hereby incorporated by reference in this Agreement.


ARTICLE II
SECURITY


Section 2.01 Grant of Security. To secure the Secured Obligations, each Grantor hereby assigns and pledges to the Security Trustee for its benefit and the benefit of the Secured


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Parties (except, with respect to any Secured Collateral Provider Documents under clause (h) or clause (i) below, the related Secured Collateral Provider), and hereby grants to the Security Trustee for its benefit and the benefit of the Secured Parties (except, with respect to any Secured Collateral Provider Documents under clause (h) or clause (i) below, the related Secured Collateral Provider) a security interest in, all of such Grantor's right, title and interest in and to the following (collectively, the "Collateral"):


(a) with respect to each Grantor, all of the following (the "Security Collateral"):


(i) the Pledged Stock and the certificates representing such Pledged Stock, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Stock;


(ii) the Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt;


(iii) all additional shares of the capital stock of any Issuer Group Member from time to time acquired by such Grantor in any manner, including the capital stock of any Issuer Group Member that may be formed from time to time, and the certificates representing such additional shares of the capital stock and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such additional shares; and


(iv) all additional indebtedness from time to time owed to such Grantor by any Issuer Group Member and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness;


(b) with respect to each Grantor, all of the following (the "Beneficial Interest Collateral"):


(i) the Pledged Beneficial Interests, all certificates, if any, from time to time representing all of such Grantor's right, title and interest in the Pledged Beneficial Interest, any contracts and instruments pursuant to which any such Pledged Beneficial Interests are created or issued and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Beneficial Interest; and


(ii) all of such Grantor's right, title and interest in all additional beneficial interests from time to time acquired by such Grantor in any manner, all certificates, if any, from time to time representing such additional beneficial interests and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such additional beneficial interests;


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(c) with respect to each Grantor, all of the following (collectively, the "Non-Trustee Account Collateral"):


(i) all of the Non-Trustee Accounts in such Grantor's name, all funds or any other interest held or required by the terms of the Indenture to be held in, and all certificates and instruments, if any, from time to time representing or evidencing, such Non-Trustee Accounts;


(ii) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Security Trustee for or on behalf of such Grantor in substitution for or in addition to any or all of the then existing Non-Trustee Account Collateral; and


(iii) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Non-Trustee Account Collateral;


(d) with respect to each Grantor, all right of such Grantor in and to each Security Trustee Account at any time or from time to time established and all cash, investment property, Permitted Account Investment, other Investments, securities, instruments or other property (including all "financial assets" within the meaning of Section 8-102(a)(9) of the UCC) at any time or from time to time credited to any such Security Trustee Account (collectively, the "Account Collateral");


(e) all other investment property (as defined in Section 9-115(1)(f) of the UCC) of each Grantor including written notification of the following (the "Investment Collateral"):


(i) all Permitted Account Investments made or acquired from or with the proceeds of any Non-Trustee Account Collateral of such Grantor from time ...