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Aircraft Chattel Mortgage, Security Agreement

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EXHIBIT 10(b)

Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents

AIRCRAFT CHATTEL MORTGAGE, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS, dated as of June 29, 2001 (as amended, modified, or supplemented from time to time, including, without limitation, by the execution and delivery of Supplements (as defined herein), this "Agreement"), by ABX AIR, INC., a Delaware corporation (together with its successors and assigns, the "Debtor"), and WACHOVIA BANK, N.A., a national banking association, as collateral agent (herein, together with its successors and assigns in such capacity, the "Collateral Agent"), on behalf of the Secured Creditors (as defined below):

PRELIMINARY STATEMENTS:

(1) Except as otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. Certain terms used herein are defined in Section 1 hereof.

(2) This Agreement is one of the "Collateral Documents" described in, and is made pursuant to, that certain Amended and Restated Credit Agreement dated as of June 29, 2001, by and among Airborne Express, Inc., a Delaware corporation ("Express") and formerly known as Airborne Freight Corporation, a Delaware corporation ("AFC"), ABX Air, Inc., a Delaware corporation ("ABX" and Express, each, a "Borrower" and together, jointly and severally, the "Borrowers"), the financial institutions named as lenders therein (together with their respective successors and assigns, the "Lenders" and, each individually, a "Lender"), and Wachovia Bank, N.A., a national banking association ("Wachovia"), as the Administrative Agent for the Lenders under the agreement and in its capacity as collateral agent, which agreement amends and restates that certain Credit Agreement dated as of July 27, 2000, by and among AFC, the Lenders, and Wachovia as Administrative Agent, as amended by that certain First Amendment to Credit Agreement dated as of April 20, 2001, by and among Airborne, Inc., a Delaware corporation ("Airborne"), the Lenders, and Wachovia as Administrative Agent, as further amended by that certain Second Amendment to Credit Agreement dated as of May 31, 2001, by and among Airborne, the Lenders, and Wachovia as Administrative Agent (collectively, together with any and all concurrent or subsequent exhibits, schedules, extensions, supplements, amendments or modifications thereto, the "Credit Agreement"). Pursuant to a Joinder Agreement dated as of December 26, 2000, Airborne assumed AFC's obligations as "Borrower" under the Credit Agreement, and AFC was released from its obligations as "Borrower" under the Credit Agreement.

(3) The Credit Agreement provides for, among other things, loans or advances, the issuance of letters of credit, and other extensions of credit to or for the benefit of the Borrowers of up to $275,000,000, with such loans or advances being evidenced by promissory notes (the "Facility Notes").

(4) AFC entered into an Indenture dated as of December 15, 1992, as supplemented by that certain First Supplemental Indenture dated as of September 15, 1995, relating to Express' 7.35% Notes, as further supplemented by that certain Second Supplemental Indenture Relating to AFC's 8-7/8% Notes Due 2002 dated February 12, 1997, and as further supplemented by that certain Third Supplemental Indenture dated as of the Closing Date (herein, as amended or otherwise modified, restated, supplemented or replaced from time to time, the "Indenture"), pursuant to which Express, formerly known as AFC, (i) may issue and sell its debentures, notes, or other evidences of indebtedness and (ii) has, prior to the date hereof, issued and sold to certain purchasers (the "Noteholders," such term to include their successors and assigns) (A) $100,000,000 aggregate original principal amount of its "7.35% Notes due 2005," (the "1995 Notes") and (B) $100,000,000 aggregate original principal amount of its "8-7/8% Notes Due December 15, 2002" (the "1992 Notes," and together with the 1995 Notes, the "Indenture Debt," such term to include all debentures, notes, or other evidences of indebtedness issued pursuant to the Indenture in addition to, issued in exchange for, or issued in replacement of any Indenture Debt existing on the date hereof). Express, in its capacity as issuer of the Indenture Debt, together with its successors and assigns, shall be referred to herein as the "Indenture Debt Issuer."

(5) Subject to certain exceptions which are not applicable hereto, Section 1008 of the Indenture prohibits the Debtor from creating any security interests in certain of the Debtor's property unless the Indenture Debt is equally and ratably secured by such security interest.

(6) This Agreement is made in favor of the Collateral Agent for the benefit of the Lenders and the Noteholders (collectively the "Secured Creditors") to equally and ratably secure the Secured Obligations (as defined herein).

(7) It is a condition precedent to the making of Loans and the issuance of, and participation in, Letters of Credit under the Credit Agreement that the Debtor shall have executed and delivered to the Collateral Agent this Agreement.

(8) The Debtor desires to execute this Agreement to satisfy the conditions described in the preceding paragraphs (5) and (7).

1. DEFINITIONS

As used in this Agreement, the following terms shall have the following definitions:

"Act" shall mean the Federal Aviation Act of 1958, as amended from time to time.

"Aggregate Principal Obligations" shall mean the sum of (a) the Indenture Principal Obligations, plus (b) the Facility Principal Obligations.

"Agreement" shall mean this Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents, any concurrent or subsequent exhibits or schedules to this Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents, and any extensions, supplements, amendments or modifications to this Aircraft Chattel Mortgage, Security Agreement, and Assignment of Rents, and/or to any such exhibits or schedules, including, without limitation, any and all Supplements executed and delivered from time to time as provided herein.

"Airframe" shall mean each of those certain airframes identified on Schedule I hereto, and each of those airframes identified on Schedule I to any Supplement, together with any and all Parts from time to time incorporated or installed in or attached to any of such Airframes or required to be subject to the lien of this Agreement, and all improvements, additions, and appurtenances thereto, substitutions thereof and replacements thereto, whether now or hereafter attached thereto or installed thereon.

"Avoided Payment" shall have the meaning given such term in Section 4.7(c).

"Borrower" and "Borrowers" shall have the meanings provided in the Preliminary Statements of this Agreement.

"Collateral" shall have the meaning provided in Section 2.1.

"Collateral Agent" shall mean the Administrative Agent under the Credit Agreement, or its designee(s), in its capacity as collateral agent hereunder.

"Collateral Agent Expenses" shall mean (a) all costs or expenses which Debtor is required to pay or cause to be paid under this Agreement or any other Collateral Document and which are paid or advanced by the Collateral Agent pursuant to the provisions of the Collateral Documents; (b) all taxes and insurance premiums of every nature and kind which Debtor is required to pay or cause to be paid under this Agreement or any other Collateral Document and which are paid or advanced by the Collateral Agent pursuant to the provisions of any Collateral Document; (c) all filing, recording, publication and search fees paid or incurred by the Collateral Agent in connection with the transactions contemplated by this Agreement or the other Collateral Documents; (d) all costs and expenses paid or incurred by the Collateral Agent (with or without suit), to correct any default or enforce any provisions of any Collateral Document or in gaining possession of, maintaining, handling, preserving, storing, refurbishing, appraising, selling, preparing for sale and/or advertising to sell the Collateral, whether or not a sale is consummated; (e) all costs and expenses of suit paid or incurred by the Collateral Agent in enforcing or defending this Agreement or any other Collateral Document; and (f) attorneys' fees and expenses paid or incurred by the Collateral Agent in advising, structuring, drafting, reviewing, amending, terminating, enforcing, defending or concerning this Agreement or any other Collateral Document, whether or not suit is brought, and including any action brought in any Insolvency Proceeding.

"Collateral Documents" shall have the meaning given such term in the Credit Agreement.

"Credit Agreement" shall have the meaning provided in the Preliminary Statements of this Agreement.

"Debtor" has the meaning given in such term in the first paragraph of this Agreement.

"Designated Location" shall mean each of the parcels of real property listed on Schedule II, attached hereto and made a part hereof, and any additional parcels of real property described from time to time on any schedules to any Supplement.

"Distributable Amount" shall have the meaning given such term in Section 4.7(b).

"Engine" or "Engines" shall mean each aircraft engine described in Schedule I hereto, and each of those engines identified from time to time on Schedule I to any Supplement, (or, if any such engine shall be replaced pursuant to this Agreement, then such replacement aircraft engine) (each of which engines has 750 or more rated takeoff horsepower or the equivalent thereof), together with any and all Parts so long as the same shall be either incorporated or installed in or attached to such aircraft engine or required to be subject to the Lien of this Agreement as provided herein, and all improvements, appurtenances and additions thereto, substitutions thereof and replacements thereto, whether now or hereafter attached thereto or installed thereon. Each such engine shall constitute an "Engine" for all purposes hereof whether or not from time to time installed on an Airframe or on any other airframe or located on the ground.

"Event of Default," as used in this Agreement, unless otherwise stated, shall have the same meaning given such term in Section 4.1.

"FAA" shall mean the United States Federal Aviation Administration, or any successor or replacement administration or governmental agency having the same or similar authority and responsibilities.

"Facility Notes" has the meaning given such term in the Preliminary Statements.

"Facility Obligations" shall mean all "Obligations" as such term is defined in the Credit Agreement.

"Facility Principal Obligations" shall mean, at any time, the sum of (a) aggregate outstanding principal amount of all Loans under the Credit Agreement, plus (b) the outstanding principal amount of all Reimbursement Obligations under the Credit Agreement, plus (c) the Outstanding Letter of Credit Exposure, plus (d) the principal amount of all other loans or advances which constitute a portion of the Facility Obligations.

"Geneva Convention" shall mean the Convention on the International Recognition of Rights in Aircraft made at Geneva, Switzerland on June 19, 1948, (effective 17 September 1953), together with the necessary enacting rules and regulations promulgated by any particular signatory country.

"Indenture" shall have the meaning given such term in the Preliminary Statements of this Agreement.

"Indenture Debt" shall have the meaning provided in the Preliminary Statements of this Agreement.

"Indenture Debt Issuer" shall the meaning given such term in the Preliminary Statements of this Agreement.

"Indenture Documents" shall mean the Indenture, all documents or instruments evidencing the Indenture Debt and all other documents now or hereafter executed and delivered by the Indenture Debt Issuer, either of the Borrowers, or Debtor for the benefit of the Trustee or Noteholders.

"Indenture Principal Obligations" shall mean, at any time, the outstanding principal amount of all debentures, notes, or other evidences of indebtedness issued under or pursuant to the Indenture Documents.

"Information Disclosure Certificate" shall mean that certain Information Disclosure Certificate delivered by or on behalf of the Debtor pursuant to the Credit Agreement.

"Insolvency Proceeding" shall mean any proceeding commenced by or against any person or entity, under any provision of the federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including, but not limited to, assignments for the benefit of creditors, formal or informal moratoriums, compositions or extensions with some or all creditors.

"Judicial Officer or Assignee" shall mean any trustee, receiver, controller, custodian, assignee for the benefit of creditors or any other person or entity having powers or duties like or similar to the powers and duties of a trustee, receiver, controller, custodian or assignee for the benefit of creditors.

"Lender" and "Lenders" shall have the meaning provided in the Preliminary Statements of this Agreement.

"Lenders' Percentage" shall mean, with respect to a given amount, the portion of such amount determined by the ratio by which the Facility Principal Obligations bear to the Aggregate Principal Obligations.

"Letter of Credit Reserve Account" shall have the meaning given such term in Section 4.7(b).

"Noteholder" shall have the meaning provided in the Preliminary Statements of this Agreement.

"Noteholders' Percentage" shall mean, with respect to a given amount, the portion of such amount determined by the ratio by which the Indenture Principal Obligations bear to the Aggregate Principal Obligations.

"Outstanding Letters of Credit Exposure" shall mean at any time the undrawn face amount of all outstanding Letters of Credit then issued and outstanding under the Credit Agreement (assuming compliance with all requirements for drawing).

"Parts" shall mean all appliances, avionics (including, without limitation, radio, radar, navigation systems, or other electronic equipment), parts, components, instruments, appurtenances, attachments, accessories, furnishings and other equipment of whatever nature (including, without limitation, any Engine, engine, airframe, Propeller, or propeller) and any replacements of the foregoing, which may from time to time be incorporated or installed in or attached to an Airframe, airframe, Engine, engine, Propeller, or propeller or located on the ground (and includes, without limitation, the terms "Spare Parts" and "Appliances" as defined in 49 U.S.C. Sec. 40102(a)).

"Proceeds" shall have the meaning assigned that term under the UCC or under other relevant law and, in any event, shall include, but not be limited to (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or the Debtor from time to time with respect to any of the Collateral; (ii) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority); (iii) any and all accounts, general intangibles, contract rights, inventory, equipment, money, drafts, instruments, deposit accounts, or other tangible and intangible property of Debtor resulting from the sale (authorized or unauthorized) or other disposition of the Collateral, including, without limitation, the net earnings of any lease or other agreement relative to the use of the Collateral, or any portion thereof, and any proceeds of such proceeds; and (iv) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

"Propeller" shall mean each aircraft propeller described in Schedule I hereto, and each of those propellers identified on Schedule I to any Supplement, (or, if any such propeller shall be replaced pursuant to this Agreement, then such replacement propeller) (each of which propellers is capable of absorbing 750 or more rated takeoff shaft horsepower), together with, in the case of each propeller referred to above, any and all Parts so long as the same shall be either incorporated or installed in or attached to such propeller or required to be subject to the Lien of this Agreement as provided in this Agreement, and all improvements and additions thereto, substitutions thereof and replacements thereto. Each such propeller shall constitute a "Propeller" for all purposes hereof whether or not from time to time installed on an Airframe or on any other airframe or located on the ground.

"Secured Creditors" shall have the meaning provided in the Preliminary Statements of this Agreement.

"Secured Debt Documents" shall mean and include each of the Loan Documents (including, without limitation, the Credit Agreement) and each of the Indenture Documents.

"Secured Obligations" shall mean each of the following:

(a) the Debtor's and the other Borrower's full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise), and the due performance, of all Facility Obligations; and

(b) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all principal of, and interest on, the Indenture Debt, and the due performance of all other obligations of the Parent, either of the Borrowers, or any other Subsidiary arising under or in connection with the Indenture Documents; and

(c) all obligations and liabilities of Debtor under this Agreement, the Credit Agreement, or any other Loan Document to which it is a party; and

(d) all obligations and liabilities of Debtor under the Indenture Documents to which it is a party; and

(e) all other obligations and liabilities owing by the Debtor, the other Borrower, the Parent, or any other Subsidiary to any of the Administrative Agent, the Collateral Agent, the Trustee, any Lender, or any Noteholder under this Agreement, the Credit Agreement or any other Loan Document, or the Indenture Documents (including, without limitation, indemnities, fees and other amounts payable thereunder); and

(f) the full and prompt payment when due of any and all Collateral Agent Expenses;

in all cases whether now existing, or hereafter incurred under, arising out of, or in connection with, this Agreement, the Credit Agreement, or any other Loan Document or the Indenture Documents, including any such interest or other amounts which, but for any automatic stay under Section 362(a) of the Bankruptcy Code, would become due. It is acknowledged and agreed that the term "Secured Obligations" shall include, without limitation, extensions of credit and issuances of securities of the types described above, whether outstanding on the date of this Agreement or extended or purchased from time to time after the date of this Agreement.

"Security Interest Termination Date" shall mean the date on which each of the following shall have occurred: (i) each and every Lender's Commitment under the Credit Agreement shall have been terminated; (ii) no Facility Note shall be outstanding; (iii) no Letter of Credit issued under or pursuant to the Credit Agreement shall be outstanding; (iv) no other amounts shall then be payable by the Debtor or the other Borrower to the Administrative Agent or any Lender under the Credit Agreement or any other Loan Document; and (v) all Facility Obligations shall have been fully, finally, and indefeasibly paid or performed to the Administrative Agent's satisfaction, unless at such time (x) an Event of Default relating to a default in the payment when due of principal of or interest on the Indenture Debt, shall have occurred and be continuing; (y) the maturity of any portion of the Indenture Debt shall have been accelerated; and (z) the Collateral Agent shall have received written notice from any Noteholder or the Trustee to such effect.

"Supplement" shall mean each Supplemental Aircraft Chattel Mortgage substantially in the form of Exhibit B, attached hereto and made a part hereof, executed and delivered to the Administrative Agent from time to time by the Debtor and pursuant to which additional Collateral becomes subject to the Lien granted herein.

"Trustee" shall mean the trustee under the Indenture and includes its successors and assigns.

"UCC" shall mean the Uniform Commercial Code as enacted by the State of Georgia, as amended from time to time, and any and all terms used in this Agreement which are defined in the UCC shall be construed and defined in accordance with the meaning and definition ascribed to such terms under the UCC.

"Wachovia" has the meaning given such term in the Preliminary Statements of this Agreement.

2. CREATION OF SECURITY INTEREST

2.1 Security Interest in Collateral. To secure prompt payment and performance of any and all Secured Obligations, Debtor hereby grants to the Collateral Agent, for the equal and ratable benefit of the Secured Creditors, a continuing, first priority security interest in and lien upon all of the following (collectively, the "Collateral"):

(a) the Airframes;

(b) the Engines;

(c) the Propellers;

(d) all Parts which are located on a Designated Location, including, without limitation, all Parts of the type described in Schedule II;

(e) all Parts located at any location other than a Designated Location;

(f) all right, title and interest of Debtor in and to any lease, rental agreement, charter agreement, chattel paper, or other agreement(s) respecting any of the foregoing, including, but not limited to, Debtor's right to receive, either directly or indirectly, from any Person, any accounts, rents, or other payments due under such agreement(s) and Debtor's rights under any warranties relating to any Airframe, Engines, Propellers, or Parts;

(g) any and all manuals, logbooks, flight records, maintenance records, and other books and records or information of Debtor relating to any Airframe, Engine, Propeller, or Part;

(h) all other of the Debtor's general intangibles relating to or arising in connection with any Airframe, Engine, Propellers, or Parts; and

(i) all Proceeds and products of any and all of the foregoing.

The Collateral Agent's security interest in and lien upon the Collateral shall attach to all of the Collateral upon the execution and delivery of this Agreement, without further act being required on the part of either the Collateral Agent or Debtor. The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kinds, items, types and descriptions which are the subject of this Agreement and to which Debtor now has, or hereafter acquires, rights.

2.2 Security Instruments: Further Assurances. Debtor will perform, or will cause to be performed, upon the request of the Collateral Agent, each and all of the following:

(a) Record, register and file this Agreement, as well as such notices, financing statements, Supplements, and/or other documents or instruments as may, from time to time, be requested by the Collateral Agent to fully carry out the intent of this Agreement, with the FAA in Oklahoma City, Oklahoma, United States of America (or at such other office as the FAA may designate), promptly after the execution and delivery of this Agreement or
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