EXHIBIT 4.13
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INTERCREDITOR AGREEMENT
(2001-1)
Dated as of
October , 2001
AMONG
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Trustee under the
Southwest Airlines Pass Through Trust ▇▇▇▇-▇▇-▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ Through Trust 2001-1A-2,
and
Southwest Airlines Pass Through Trust ▇▇▇▇-▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ BRANCH,
as Class A-1 Liquidity Provider and
as Class A-2 Liquidity Provider
AND
WILMINGTON TRUST COMPANY,
not in its individual capacity except
as expressly set forth herein but
solely as Subordination Agent and Trustee
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS............................................................................................2
SECTION 1.1. Definitions...................................................................................2
ARTICLE II TRUST ACCOUNTS; CONTROLLING PARTY....................................................................18
SECTION 2.1. Agreement to Terms of Subordination; Payments from Monies Received Only......................18
SECTION 2.2. Trust Accounts...............................................................................18
SECTION 2.3. Deposits to the Collection Account and Special Payments Account..............................20
SECTION 2.4. Distributions of Special Payments............................................................20
SECTION 2.5. Designated Representatives...................................................................22
SECTION 2.6. Controlling Party............................................................................23
ARTICLE III RECEIPT, DISTRIBUTION AND APPLICATION OF AMOUNTS RECEIVED...........................................24
SECTION 3.1. Written Notice of Distribution...............................................................24
SECTION 3.2. Distribution of Amounts on Deposit in the Collection Account.................................26
SECTION 3.3. Distribution of Amounts on Deposit Following a Triggering Event..............................27
SECTION 3.4. Other Payments...............................................................................29
SECTION 3.5. Payments to the Trustees and the Liquidity Providers.........................................30
SECTION 3.6. Liquidity Facilities.........................................................................30
ARTICLE IV EXERCISE OF REMEDIES.................................................................................37
SECTION 4.1. Directions from the Controlling Party........................................................37
SECTION 4.2. Remedies Cumulative..........................................................................38
SECTION 4.3. Discontinuance of Proceedings................................................................38
SECTION 4.4. Right of Certificateholders to Receive Payments Not to Be Impaired...........................38
SECTION 4.5. Undertaking for Costs........................................................................38
ARTICLE V DUTIES OF THE SUBORDINATION AGENT; AGREEMENTS OF TRUSTEES, ETC........................................38
SECTION 5.1. Notice of Indenture Default or Triggering Event..............................................39
SECTION 5.2. Indemnification..............................................................................39
SECTION 5.3. No Duties Except as Specified in Intercreditor Agreement.....................................39
SECTION 5.4. Notice from the Liquidity Providers and Trustees.............................................40
ARTICLE VI THE SUBORDINATION AGENT..............................................................................40
SECTION 6.1. Authorization; Acceptance of Trusts and Duties...............................................40
SECTION 6.2. Absence of Duties............................................................................40
SECTION 6.3. No Representations or Warranties as to Documents.............................................40
SECTION 6.4. No Segregation of Monies; No Interest........................................................40
SECTION 6.5. Reliance; Agents; Advice of Counsel..........................................................41
SECTION 6.6. Capacity in Which Acting.....................................................................41
SECTION 6.7. Compensation.................................................................................41
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SECTION 6.8. May Become Certificateholder.................................................................41
SECTION 6.9. Subordination Agent Required; Eligibility....................................................42
SECTION 6.10. Money to Be Held in Trust....................................................................42
ARTICLE VII INDEMNIFICATION OF SUBORDINATION AGENT..............................................................42
SECTION 7.1. Scope of Indemnification.....................................................................42
ARTICLE VIII SUCCESSOR SUBORDINATION AGENT......................................................................42
SECTION 8.1. Replacement of Subordination Agent; Appointment of Successor.................................42
ARTICLE IX SUPPLEMENTS AND AMENDMENTS...........................................................................43
SECTION 9.1. Amendments, Waivers, etc...........................................................................43
SECTION 9.2. Subordination Agent Protected................................................................45
SECTION 9.3. Effect of Supplemental Agreements............................................................45
SECTION 9.4. Notice to Rating Agencies....................................................................46
ARTICLE X MISCELLANEOUS.........................................................................................46
SECTION 10.1. Termination of Intercreditor Agreement.......................................................46
SECTION 10.2. Intercreditor Agreement for Benefit of Trustees, Liquidity Providers and
Subordination Agent..........................................................................46
SECTION 10.3. Notices......................................................................................46
SECTION 10.4. Severability.................................................................................47
SECTION 10.5. No Oral Modifications or Continuing Waivers..................................................47
SECTION 10.6. Successors and Assigns.......................................................................47
SECTION 10.7. Headings.....................................................................................48
SECTION 10.8. Counterpart Form.............................................................................48
SECTION 10.9. Subordination................................................................................48
SECTION 10.10. Governing Law................................................................................49
SECTION 10.11. Submission to Jurisdiction; Waiver of Jury Trial; Waiver of Immunity.........................49
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INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT dated as of October , 2001, among
WILMINGTON TRUST COMPANY, a Delaware corporation ("WTC"), not in its individual
capacity but solely as Trustee of each Trust (each as defined below);
WESTDEUTCHE LANDESBANK GIROZENTRALE, a German banking institution organized
under the laws of the State of North Rhine-Westphalia, Germany, acting through
its New York branch ("West LB")("Liquidity Provider"), as Class A-1 Liquidity
Provider and Class A-2 Liquidity Provider; and WILMINGTON TRUST COMPANY, not in
its individual capacity except as expressly set forth herein, but solely as
Subordination Agent and trustee hereunder (in such capacity, together with any
successor appointed pursuant to Article VIII hereof, the "Subordination Agent").
WHEREAS, all capitalized terms used herein shall have the
respective meanings referred to in Article I hereof;
WHEREAS, pursuant to the Indentures covering 29 Boeing 737-700
aircraft, owned by Southwest, Southwest will issue on a recourse basis up to
(and including) three series of Equipment Notes for general corporate purposes
(and pursuant to the related Indenture, may in the future issue on a recourse
basis a fourth series of Equipment Notes);
WHEREAS, pursuant to the Participation Agreements, each Trust
will acquire Equipment Notes having an interest rate equal to the interest rate
applicable to the Certificates to be issued by such Trust;
WHEREAS, pursuant to each Trust Agreement relating to a Trust,
the Trust created thereby proposes to issue a single class of Certificates
bearing the interest rate and having the final distribution date described in
such Trust Agreement on the terms and subject to the conditions set forth
therein;
WHEREAS, pursuant to the Underwriting Agreement, the
Underwriters propose to purchase the Certificates issued by each Trust in the
aggregate face amount set forth opposite the name of such Trust on Schedule I
thereto on the terms and subject to the conditions set forth therein;
WHEREAS, West LB proposes to enter into two separate revolving
credit agreements with the Subordination Agent, as agent for the Trustee of the
Class A-1 Trust and Class A-2 Trust, respectively, for the benefit of the
Certificateholders of such Trust;
WHEREAS, it is a condition precedent to the obligations of the
Underwriters under the Underwriting Agreement that the Subordination Agent, the
applicable Trustees and the Liquidity Providers agree to the terms of
subordination set forth in this Agreement in respect of each Class of
Certificates, and the Subordination Agent, the applicable Trustees and the
Liquidity Providers, by entering into this Agreement, hereby acknowledge and
agree to such terms of subordination and the other provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, and of other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms used herein that are defined in this Article
have the meanings assigned to them in this Article, and include the
plural as well as the singular;
(2) all references in this Agreement to designated "Articles",
"Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Agreement;
(3) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision; and
(4) the term "including" shall mean "including without
limitation".
"Acceleration" means, with respect to the amounts payable in
respect of the Equipment Notes issued under any Indenture, such amounts becoming
immediately due and payable by declaration or otherwise. "Accelerate",
"Accelerated" and "Accelerating" have meanings correlative to the foregoing.
"Adjusted Expected Distributions" means, with respect to the
Certificates of any Trust on any Current Distribution Date, the sum of (x)
accrued and unpaid interest on such Certificates and (y) the greater of:
(A) the difference between (x) the Pool Balance of such
Certificates as of the immediately preceding Distribution Date (or, if
the Current Distribution Date is the first Distribution Date, the
original aggregate face amount of the Certificates of such Trust) and
(y) the Pool Balance of such Certificates as of the Current
Distribution Date calculated on the basis that (i) the principal of the
Non-Performing Equipment Notes held in such Trust has been paid in full
and such payments have been distributed to the holders of such
Certificates, (ii) the principal of the Performing Equipment Notes held
in such Trust has been paid when due (but without giving effect to any
Acceleration of Performing Equipment Notes) and such payments have been
distributed to the holders of such Certificates and (iii) the principal
of any Equipment Notes formerly held in such Trust that have been sold
pursuant to the terms hereof has been paid in full and such payments
have been distributed to the holders of such Certificates, and
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(B) the amount of the excess, if any, of (i) the Pool Balance
of such Class of Certificates as of the immediately preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate face amount of the
Certificates of such Trust), over (ii) the Aggregate LTV Collateral
Amount for such Class of Certificates for the Current Distribution
Date;
provided that, until the date of the initial LTV Appraisals, clause (B) shall
not apply.
For purposes of calculating Adjusted Expected Distributions
with respect to the Certificates of any Trust, any premium paid on the Equipment
Notes held in such Trust that has not been distributed to the Certificateholders
of such Trust (other than such premium or a portion thereof applied to the
payment of interest on the Certificates of such Trust or the reduction of the
Pool Balance of such Trust) shall be added to the amount of Adjusted Expected
Distributions.
"Advance", with respect to any Liquidity Facility, means any
Advances as defined in such Liquidity Facility.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person. For the purposes of this definition, "control" means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether through the ownership of voting
securities or by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate LTV Collateral Amount" for any Class of
Certificates for any Distribution Date means the product of (A)(i) the sum of
the applicable LTV Collateral Amounts for each Aircraft, minus (ii) the Pool
Balance for each Class of Certificates, if any, senior to such Class, after
giving effect to any distribution of principal on such Distribution Date with
respect to such senior Class or Classes, multiplied by (B)(i) in the case of the
Class A-1 Certificates or Class A-2 Certificates, a fraction the numerator of
which equals the Current Pool Balance for the Class A-1 Certificates or Class
A-2 Certificates, as the case may be, and the denominator of which equals the
aggregate Current Pool Balance for the Class A-1 Certificates and Class A-2
Certificates and (ii) in the case of the Class B Certificates, 1.0.
"Aircraft" means, with respect to each Indenture, the
"Aircraft" referred to therein.
"Appraisal" means a fair market value appraisal (which may be
a "desktop" appraisal) performed by any Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell and both having knowledge of all
relevant facts.
"Appraised Current Market Value" of any Aircraft means the
lower of the average and the median of the three most recent Appraisals of such
Aircraft.
"Appraisers" means AvSolutions Inc., BK Associates, Inc. and
Simat, Helliesen & ▇▇▇▇▇▇▇, Inc.
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"Available Amount" means, with respect to any Liquidity
Facility on any drawing date, subject to the proviso contained in the first
sentence of Section 3.6(g) hereof, an amount equal to (a) the Stated Amount of
such Liquidity Facility at such time, less (b) the aggregate amount of each
Interest Drawing honored by the Liquidity Provider under such Liquidity Facility
on or prior to such date which has not been reimbursed or reinstated as of such
date; provided that, following a Downgrade Drawing, a Non-Extension Drawing or a
Final Drawing under such Liquidity Facility, the Available Amount of such
Liquidity Facility shall be zero.
"Basic Agreement" means the Pass Through Trust Agreement dated
as of October 10, 2001 between Southwest and WTC, not in its individual
capacity, except as otherwise expressly provided therein, but solely as trustee.
"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
Dallas, Texas, New York, New York, or, so long as any Certificate is
outstanding, the city and state in which any Trustee, the Subordination Agent or
any Loan Trustee maintains its Corporate Trust Office or receives and disburses
funds, and that, solely with respect to draws under any Liquidity Facility, also
is a "Business Day" as defined in such Liquidity Facility.
"Cash Collateral Account" means the Class A-1 Cash Collateral
Account or the Class A-2 Cash Collateral Account, as applicable.
"Certificate" means a Class A-1 Certificate, a Class A-2
Certificate or a Class B Certificate, as applicable.
"Certificateholder" means any holder of one or more
Certificates.
"Class" means any class of Certificates, as applicable.
"Class A-1 Cash Collateral Account" means an Eligible Deposit
Account in the name of the Subordination Agent maintained at an Eligible
Institution, which shall be the Subordination Agent if it shall so qualify, into
which all amounts drawn under the Class A-1 Liquidity Facility pursuant to
Section 3.6(c), 3.6(d) or 3.6(i) shall be deposited.
"Class A-1 Certificateholder" means, at any time, any holder
of one or more Class A-1 Certificates.
"Class A-1 Certificates" means the certificates issued by the
Class A-1 Trust, substantially in the form of Exhibit A to the Class A-1 Trust
Agreement, and authenticated by the Class A-1 Trustee, representing fractional
undivided interests in the Class A-1 Trust, and any certificates issued in
exchange therefor or replacement thereof pursuant to the terms of the Class A-1
Trust Agreement.
"Class A-1 Liquidity Facility" means, initially, the Revolving
Credit Agreement dated as of the date hereof, between the Subordination Agent,
as agent and trustee for the Class A-1 Trust, and the initial Class A-1
Liquidity Provider, and from and after the replacement of such Revolving Credit
Agreement pursuant hereto, the Replacement Liquidity Facility therefor,
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if any, in each case as amended, supplemented or otherwise modified from time to
time in accordance with its terms.
"Class A-1 Liquidity Provider" means Westdeutche Landesbank
Girozentrale, acting through its New York branch, together with any Replacement
Liquidity Provider which has issued a Replacement Liquidity Facility to replace
any Class A-1 Liquidity Facility pursuant to Section 3.6(e).
"Class A-1 Trust" means the Southwest Airlines Pass Through
Trust 2001-1A-1 created and administered pursuant to the Class A-1 Trust
Agreement.
"Class A-1 Trust Agreement" means the Basic Agreement, as
supplemented by the Supplement No. 2001-1A-1 thereto dated as of the date
hereof, governing the creation and administration of the Southwest Airlines Pass
Through Trust 2001-1A-1 and the issuance of the Class A-1 Certificates, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Class A-1 Trustee" means WTC, not in its individual capacity
except as expressly set forth in the Class A-1 Trust Agreement, but solely as
trustee under the Class A-1 Trust Agreement, together with any successor trustee
appointed pursuant thereto.
"Class A-2 Cash Collateral Account" means an Eligible Deposit
Account in the name of the Subordination Agent maintained at an Eligible
Institution, which shall be the Subordination Agent if it shall so qualify, into
which all amounts drawn under the Class A-2 Liquidity Facility pursuant to
Section 3.6(c), 3.6(d) or 3.6(i) shall be deposited.
"Class A-2 Certificateholder" means, at any time, any holder
of one or more Class A-2 Certificates.
"Class A-2 Certificates" means the certificates issued by the
Class A-2 Trust, substantially in the form of Exhibit A to the Class A-2 Trust
Agreement, and authenticated by the Class A-2 Trustee, representing fractional
undivided interests in the Class A-2 Trust, and any certificates issued in
exchange therefor or replacement thereof pursuant to the terms of the Class A-2
Trust Agreement.
"Class A-2 Liquidity Facility" means, initially, the Revolving
Credit Agreement dated as of the date hereof, between the Subordination Agent,
as agent and trustee for the Class A-2 Trust, and the initial Class A-2
Liquidity Provider, and from and after the replacement of such Revolving Credit
Agreement pursuant hereto, the Replacement Liquidity Facility therefor, if any,
in each case as amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Class A-2 Liquidity Provider" means Westdeutche Landesbank
Girozentrale, acting through its New York branch, together with any Replacement
Liquidity Provider which has issued a Replacement Liquidity Facility to replace
any Class A-2 Liquidity Facility pursuant to Section 3.6(e).
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"Class A-2 Trust" means the Southwest Airlines Pass Through
Trust 2001-1A-2 created and administered pursuant to the Class A-2 Trust
Agreement.
"Class A-2 Trust Agreement" means the Basic Agreement, as
supplemented by the Supplement No. 2001-1A-2 thereto dated as of the date
hereof, governing the creation and administration of the Southwest Airlines Pass
Through Trust 2001-1A-2 and the issuance of the Class A-2 Certificates, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Class A-2 Trustee" means WTC, not in its individual capacity
except as expressly set forth in the Class A-2 Trust Agreement, but solely as
trustee under the Class A-2 Trust Agreement, together with any successor trustee
appointed pursuant thereto.
"Class B Cash Collateral Account" means an Eligible Deposit
Account in the name of the Subordination Agent maintained at an Eligible
Institution, which shall be the Subordination Agent if it shall so qualify, into
which all amounts drawn under the Class B Liquidity Facility pursuant to Section
3.6(c), 3.6(d) or 3.6(i) shall be deposited.
"Class B Certificateholder" means, at any time, any holder of
one or more Class B Certificates.
"Class B Certificates" means the certificates issued by the
Class B Trust, substantially in the form of Exhibit A to the Class B Trust
Agreement, and authenticated by the Class B Trustee, representing fractional
undivided interests in the Class B Trust, and any certificates issued in
exchange therefor or replacement thereof pursuant to the terms of the Class B
Trust Agreement.
"Class B Trust" means the Southwest Airlines Pass Through
Trust 2001-1B created and administered pursuant to the Class B Trust Agreement.
"Class B Trust Agreement" means the Basic Agreement, as
supplemented by the Supplement No. 2001-1B thereto dated as of the date hereof,
governing the creation and administration of the Southwest Airlines Pass Through
Trust 2001-1B and the issuance of the Class B Certificates, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
its terms.
"Class B Trustee" means WTC, not in its individual capacity
except as expressly set forth in the Class B Trust Agreement, but solely as
trustee under the Class B Trust Agreement, together with any successor trustee
appointed pursuant thereto.
"Class C Certificates" means any pass through certificates
issued by the Class C Trust representing fractional undivided interests in the
Class C Trust.
"Class C Trust" means the Southwest Airlines Pass Through
Trust 2001-1C, if and when established.
"Closing Date" means October 30, 2001.
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"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the Treasury Regulations promulgated thereunder.
"Collection Account" means the Eligible Deposit Account
established by the Subordination Agent pursuant to Section 2.2 which the
Subordination Agent shall make deposits in and withdrawals from in accordance
with this Agreement.
"Consent Period" has the meaning specified in Section 3.6(d).
"Controlling Party" means the Person entitled to act as such
pursuant to the terms of Section 2.6.
"Corporate Trust Office" means, with respect to any Trustee,
the Subordination Agent or any Loan Trustee, the office of such Person in the
city at which, at any particular time, its corporate trust business shall be
principally administered.
"Current Distribution Date" means a Distribution Date
specified as a reference date for calculating the Expected Distributions or the
Adjusted Expected Distributions with respect to the Certificates of any Trust as
of such Distribution Date.
"Current Pool Balance" means the amount described in clause
(B)(i) of the definition of "Adjusted Expected Distributions".
"Designated Representatives" means the Subordination Agent
Representatives, the Trustee Representatives and the LP Representatives
identified under Section 2.5.
"Distribution Date" means a Regular Distribution Date or a
Special Distribution Date.
"Dollars" or "$" means United States dollars.
"Downgrade Advance" with respect to any Liquidity Facility,
has the meaning assigned to such term in such Liquidity Facility.
"Downgrade Drawing" has the meaning assigned to such term in
Section 3.6(c).
"Downgraded Facility" has the meaning assigned to such term in
Section 3.6(c).
"Drawing" means an Interest Drawing, a Final Drawing, a
Non-Extension Drawing or a Downgrade Drawing, as the case may be.
"Eligible Deposit Account" means either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the states thereof or the District
of Columbia (or any U.S. branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution has a long-term unsecured debt
rating from each Rating Agency of at least A-3 or its equivalent. An Eligible
Deposit Account may be maintained with a Liquidity
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Provider so long as such Liquidity Provider is an Eligible Institution; provided
that such Liquidity Provider shall have waived all rights of set-off and
counterclaim with respect to such account.
"Eligible Institution" means (a) the corporate trust
department of the Subordination Agent or any Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any U.S. branch
of a foreign bank), which has a long-term unsecured debt rating from each Rating
Agency of at least A-3 or its equivalent.
"Eligible Investments" means (a) investments in obligations
of, or guaranteed by, the United States Government having maturities no later
than 90 days following the date of such investment, (b) investments in open
market commercial paper of any corporation incorporated under the laws of the
United States of America or any state thereof with a short-term unsecured debt
rating issued by ▇▇▇▇▇'▇ and S&P of at least A-1 and P-1, respectively, having
maturities no later than 90 days following the date of such investment or (c)
investments in negotiable certificates of deposit, time deposits, banker's
acceptances, commercial paper or other direct obligations of, or obligations
guaranteed by, commercial banks organized under the laws of the United States or
of any political subdivision thereof (or any U.S. branch of a foreign bank) with
issuer ratings of at least B/C by Thomson Bankwatch, having maturities no later
than 90 days following the date of such investment; provided, however, that (x)
all Eligible Investments that are bank obligations shall be denominated in U.S.
dollars; and (y) the aggregate amount of Eligible Investments at any one time
that are bank obligations issued by any one bank shall not be in excess of 5% of
such bank's capital surplus; provided further that any investment of the types
described in clauses (a), (b) and (c) above may be made through a repurchase
agreement in commercially reasonable form with a bank or other financial
institution qualifying as an Eligible Institution so long as such investment is
held by a third party custodian also qualifying as an Eligible Institution;
provided further, however, that in the case of any Eligible Investment issued by
a domestic branch of a foreign bank, the income from such investment shall be
from sources within the United States for purposes of the Code. Notwithstanding
the foregoing, no investment of the types described in clause (b) above which is
issued or guaranteed by Southwest or any of its Affiliates, and no investment in
the obligations of any one bank in excess of $10,000,000, shall be an Eligible
Investment unless written confirmation shall have been received from each Rating
Agency that the making of such investment will not result in a withdrawal or
downgrading of the ratings of the Certificates.
"Equipment Notes" means, at any time, the Series A-1 Equipment
Notes, the Series A-2 Equipment Notes and the Series B Equipment Notes,
collectively, and in each case, any Equipment Notes issued in exchange therefor
or replacement thereof pursuant to the terms of the Indentures.
"Expected Distributions" means, with respect to the
Certificates of any Trust on any Current Distribution Date, the sum of (x)
accrued and unpaid interest on such Certificates and (y) the difference between
(A) the Pool Balance of such Certificates as of the immediately preceding
Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate face amount of the Certificates of
such Trust), and (B) the Pool Balance of such Certificates as of the Current
Distribution Date calculated on the basis that (i) the principal
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of the Equipment Notes held in such Trust has been paid when due (whether at
stated maturity, upon redemption, prepayment, purchase, Acceleration or
otherwise) and such payments have been distributed to the holders of such
Certificates and (ii) the principal of any Equipment Notes formerly held in such
Trust that have been sold pursuant to the terms hereof has been paid in full and
such payments have been distributed to the holders of such Certificates. For
purposes of calculating Expected Distributions with respect to the Certificates
of any Trust, any premium paid on the Equipment Notes held in such Trust which
has not been distributed to the Certificateholders of such Trust (other than
such premium or a portion thereof applied to the payment of interest on the
Certificates of such Trust or the reduction of the Pool Balance of such Trust)
shall be added to the amount of such Expected Distributions.
"Expiry Date" with respect to any Liquidity Facility, shall
have the meaning set forth in such Liquidity Facility.
"Facility Office" means, with respect to any Liquidity
Facility, the office of the Liquidity Provider thereunder, presently located at
New York, New York, or such other office as such Liquidity Provider from time to
time shall notify the applicable Trustee as its "Facility Office" under any such
Liquidity Facility.
"Fee Letters" means, collectively, (i) the Fee Letter dated as
of the date hereof between West LB and the Subordination Agent with respect to
the initial Class A-1 Liquidity Facility and Class A-2 Liquidity Facility and
(ii) any fee letter entered into between the Subordination Agent and any
Replacement Liquidity Provider in respect of such Liquidity Facilities.
"Final Distributions" means, with respect to the Certificates
of any Trust on any Distribution Date, the sum of (x) the aggregate amount of
all accrued and unpaid interest on such Certificates and (y) the Pool Balance of
such Certificates as of the immediately preceding Distribution Date. For
purposes of calculating Final Distributions with respect to the Certificates of
any Trust, any premium paid on the Equipment Notes held in such Trust which has
not been distributed to the Certificateholders of such Trust (other than such
premium or a portion thereof applied to the payment of interest on the
Certificates of such Trust or the reduction of the Pool Balance of such Trust)
shall be added to the amount of such Final Distributions.
"Final Drawing" has the meaning assigned to such term in
Section 3.6(i).
"Final Legal Distribution Date" means (i) with respect to the
Class ▇-▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇, (▇▇) with respect to the Class A-2
Certificates, May 1, 2008, and (iii) with respect to the Class B Certificates,
November 1, 2006.
"Indenture" means, with respect to the Equipment Notes, each
of the separate trust indenture and mortgages described on Schedule I to this
Agreement, in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms.
"Indenture Default" means, with respect to any Indenture, any
Event of Default (as such term is defined in such Indenture) thereunder.
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"Interest Drawing" has the meaning assigned to such term in
Section 3.6(a).
"Interest Payment Date" means, with respect to any Liquidity
Facility, each date on which interest is due and payable under such Liquidity
Facility on a Downgrade Drawing, Non-Extension Drawing or Final Drawing
thereunder, other than any such date on which interest is due and payable under
such Liquidity Facility only on an Applied Provider Advance (as such term is
defined in such Liquidity Facility).
"Investment Earnings" means investment earnings on funds on
deposit in the Trust Accounts net of losses and investment expenses of the
Subordination Agent in making such investments.
"Lien" means any mortgage, pledge, lien, charge, claim,
disposition of title, encumbrance, lease, sublease, sub-sublease or security
interest of any kind, including, without limitation, any thereof arising under
any conditional sales or other title retention agreement.
"Liquidity Event of Default" with respect to any Liquidity
Facility, has the meaning assigned to such term in such Liquidity Facility.
"Liquidity Expenses" means all Liquidity Obligations other
than (i) the principal amount of any Drawings under the Liquidity Facilities and
(ii) any interest accrued on any Liquidity Obligations.
"Liquidity Facilities" means, at any time, the Class A-1
Liquidity Facility or the Class A-2 Liquidity Facility.
"Liquidity Obligations" means all principal, interest, fees
and other amounts owing to the Liquidity Providers under the Liquidity
Facilities, Section 8.1 of the Participation Agreements or the Fee Letters.
"Liquidity Provider" means, at any time, any Class A-1
Liquidity Provider or any Class A-2 Liquidity Provider, as applicable.
"Loan Trustee" means, with respect to any Indenture, the
mortgagee thereunder.
"LP Incumbency Certificate" has the meaning assigned to such
term in Section 2.5(c).
"LP Representatives" has the meaning assigned to such term in
Section 2.5(c).
"LTV Appraisals" has the meaning assigned to such term in
Section 4.1(a).
"LTV Collateral Amount" of any Aircraft for any Class of
Certificates means, as of any Distribution Date, the lesser of (i) the LTV Ratio
for such Class of Certificates multiplied by the Appraised Current Market Value
of such Aircraft (or with respect to any such Aircraft which has suffered an
Event of Loss under and as defined in the relevant Indenture, the amount of the
insurance proceeds paid to the related Loan Trustee in respect thereof to the
extent then held by such Loan Trustee (and/or on deposit in the Special Payments
Account) or payable to
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such Loan Trustee in respect thereof) and (ii) the outstanding principal amount
of the Equipment Notes secured by such Aircraft after giving effect to any
principal payments of such Equipment Notes on or before such Distribution Date.
"LTV Ratio" means for each Class of Certificates as of any
Distribution Date, the percentages set forth in the following table:
Class A-1 Class A-2 Class B
Certificates Certificates Certificates
------------ ------------ ------------
53.1% 53.1% 62.1%
"Minimum Sale Price" means, with respect to any Aircraft or
the Equipment Notes issued in respect of such Aircraft, at any time, the lesser
of (a) 75% of the Appraised Current Market Value of such Aircraft and (b) the
aggregate outstanding principal amount of such Equipment Notes, plus accrued and
unpaid interest thereon.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc.
"Non-Controlling Party" means, at any time, any Trustee or
Liquidity Provider which is not the Controlling Party at such time.
"Non-Extended Facility" has the meaning assigned to such term
in Section 3.6(d).
"Non-Extension Drawing" has the meaning assigned to such term
in Section 3.6(d).
"Non-Performing Equipment Note" means an Equipment Note issued
pursuant to an Indenture that is not a Performing Equipment Note.
"Officer's Certificate" of any Person means a certification
signed by a Responsible Officer of such Person.
"Operative Agreements" means this Agreement, the Liquidity
Facilities, the Indentures, the Underwriting Agreement, the Participation
Agreements, the Fee Letters, the Equipment Notes and the Certificates, together
with all exhibits and schedules included with any of the foregoing.
"Outstanding" means, when used with respect to each Class of
Certificates, as of the date of determination, all Certificates of such Class
theretofore authenticated and delivered under the related Trust Agreement,
except:
(i) Certificates of such Class theretofore canceled by the
Registrar (as defined in such Trust Agreement) or delivered to the
Trustee thereunder or such Registrar for cancellation;
(ii) Certificates of such Class for which money in the full
amount required to make the final distribution with respect to such
Certificates pursuant to Section 11.01 of such Trust Agreement has been
theretofore deposited with the related Trustee in trust for
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the holders of such Certificates as provided in Section 4.01 of such
Trust Agreement pending distribution of such money to such
Certificateholders pursuant to such final distribution payment; and
(iii) Certificates of such Class in exchange for or in lieu of
which other Certificates have been authenticated and delivered pursuant
to such Trust Agreement;
provided, however, that in determining whether the holders of the requisite
Outstanding amount of such Certificates have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, any Certificates
owned by Southwest or any of its Affiliates shall be disregarded and deemed not
to be Outstanding, except that, in determining whether such Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Certificates that such Trustee knows to be so
owned shall be so disregarded. Certificates so owned that have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the applicable Trustee the pledgee's right so to act with
respect to such Certificates and that the pledgee is not Southwest or any of its
Affiliates.
"Overdue Scheduled Payment" means any Scheduled Payment which
is not in fact received by the Subordination Agent within five days after the
Scheduled Payment Date relating thereto.
"Participation Agreement" means, with respect to each
Indenture, the "Participation Agreement" referred to therein.
"Payee" has the meaning assigned to such term in Section
2.4(e).
"Performing Equipment Note" means an Equipment Note with
respect to which no payment default has occurred and is continuing (without
giving effect to any Acceleration); provided that in the event of a bankruptcy
proceeding under Title 11 of the United States Code (the "Bankruptcy Code") in
which Southwest is a debtor any payment default existing during the 60-day
period under Section 1110(a)(2)(A) of the Bankruptcy Code (or such longer period
as may apply under Section 1110(b) of the Bankruptcy Code or as may apply for
the cure of such payment default under Section 1110(a)(2)(B) of the Bankruptcy
Code) shall not be taken into consideration until the expiration of the
applicable period.
"Performing Note Deficiency" means any time that less than 65%
of the then aggregate outstanding principal amount of all Equipment Notes are
Performing Equipment Notes.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
trustee, unincorporated organization or government or any agency or political
subdivision thereof.
"Pool Balance" means, with respect to each Trust or the
Certificates issued by any Trust, as of any date, (i) the original aggregate
face amount of the Certificates of such Trust less (ii) the aggregate amount of
all payments made in respect of the Certificates of such Trust other than
payments made in respect of interest or premium thereon or reimbursement of any
costs and
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expenses in connection therewith. The Pool Balance for each Trust or for the
Certificates issued by any Trust as of any Distribution Date shall be computed
after giving effect to any special distribution with respect to payment of
principal of the Equipment Notes or payment with respect to other Trust Property
held in such Trust and the distribution thereof to be made on that date.
"Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.
"PTC Event of Default" means, with respect to each Trust
Agreement, the failure to pay within 10 Business Days of the due date thereof:
(i) the outstanding Pool Balance of the applicable Class of Certificates on the
Final Legal Distribution Date for such Class or (ii) interest due on such
Certificates on any Distribution Date (unless the Subordination Agent shall have
made an Interest Drawing, or a withdrawal from the Cash Collateral Account, with
respect thereto in an aggregate amount sufficient to pay such interest and shall
have distributed such amount to the Trustee entitled thereto).
"Rating Agencies" means, collectively, at any time, each
nationally recognized rating agency which shall have been requested to rate the
Certificates and which shall then be rating the Certificates. The initial Rating
Agencies will be Moody's and Standard & Poor's.
"Ratings Confirmation" means, with respect to any action
proposed to be taken, a written confirmation from each of the Rating Agencies
that such action would not result in (i) a reduction of the rating for any Class
of Certificates below the then current rating for such Class of Certificates or
(ii) a withdrawal or suspension of the rating of any Class of Certificates.
"Regular Distribution Dates" means, for the Class A-1
Certificates, Class A-2 Certificates and Class B Certificates, each May 1 and
November 1, commencing on May 1, 2002, provided, however, that, if any such day
shall not be a Business Day, the related distribution shall be made on the next
succeeding Business Day without additional interest.
"Replacement Liquidity Facility" means, for any Liquidity
Facility, an irrevocable revolving credit agreement (or agreements) in
substantially the form of the replaced Liquidity Facility, including
reinstatement provisions, or in such other form (which may include a letter of
credit) as shall permit the Rating Agencies to confirm in writing their
respective ratings then in effect for the related Certificates (before
downgrading of such ratings, if any, as a result of the downgrading of the
applicable Liquidity Provider), in a face amount (or in an aggregate face
amount) equal to the amount of interest payable on the Pool Balances of the
Certificates of such Trust (at the Stated Interest Rate for such Trust, and
without regard to expected future principal payments) on the three Regular
Distribution Dates following the date of replacement of such Liquidity Facility
and issued by a Person (or Persons) having unsecured short-term debt ratings
issued by both Rating Agencies which are equal to or higher than the Threshold
Rating. Without limitation of the form that a Replacement Liquidity Facility
otherwise may have pursuant to the preceding sentence, a Replacement Liquidity
Facility for any Class of Certificates may have a stated expiration date earlier
than 15 days after the Final Legal Distribution Date of such Class of
Certificates so long as such Replacement Liquidity Facility provides for a
Non-Extension Drawing as contemplated by Section 3.6(d) hereof.
13
"Replacement Liquidity Provider" means a Person (or Persons)
who issues a Replacement Liquidity Facility.
"Required Amount" means, with respect to each Liquidity
Facility, or the Cash Collateral Account, for any Class, for any day, the sum of
the aggregate amount of interest, calculated at the rate per annum equal to the
Stated Interest Rate for the related Class of Certificates, that would be
payable on such Class of Certificates on each of the three successive Regular
Distribution Dates immediately following such day or, if such day is a Regular
Distribution Date, on such day and the succeeding two Regular Distribution
Dates, in each case calculated on the basis of the Pool Balance of such Class of
Certificates on such date and without regard to expected future payments of
principal on such Class of Certificates.
"Responsible Officer" means (i) with respect to the
Subordination Agent and each of the Trustees, any officer in the corporate trust
administration department of the Subordination Agent or such Trustee or any
other officer customarily performing functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his knowledge of and familiarity
with a particular subject, and (ii) with respect to each Liquidity Provider, any
authorized officer of such Liquidity Provider.
"Scheduled Payment" means, with respect to any Equipment Note,
(i) any payment of principal or interest on such Equipment Note (other than an
Overdue Scheduled Payment) due from the obligor thereon, which payment
represents the installment of principal at the stated maturity of such
installment of principal on such Equipment Note, the payment of regularly
scheduled interest accrued on the unpaid principal amount of such Equipment
Note, or both, or (ii) any payment of interest on the corresponding Class of
Certificates with funds drawn under any Liquidity Facility; provided that any
payment of principal of, premium, if any, or interest resulting from the
redemption or purchase of any Equipment Note shall not constitute a Scheduled
Payment.
"Scheduled Payment Date" means, with respect to any Scheduled
Payment, the date on which such Scheduled Payment is scheduled to be made.
"Section 2.4(b) Fraction" has the meaning assigned to such
term in Section 2.4(b).
"Series A-1 Equipment Notes" means the 5.100% Series A-1
Equipment Notes issued pursuant to any Indenture by Southwest and authenticated
by the Loan Trustee thereunder, and any such Equipment Notes issued in exchange
therefor or replacement thereof pursuant to the terms of such Indenture.
"Series A-2 Equipment Notes" means the 5.496% Series A-2
Equipment Notes issued pursuant to any Indenture by Southwest and authenticated
by the Loan Trustee thereunder, and any such Equipment Notes issued in exchange
therefor or replacement thereof pursuant to the terms of such Indenture.
"Series B Equipment Notes" means the 6.126% Series B Equipment
Notes issued pursuant to any Indenture by Southwest and authenticated by the
Loan Trustee thereunder, and
14
any such Equipment Notes issued in exchange therefor or replacement thereof
pursuant to the terms of such Indenture.
"Series C Equipment Notes" means equipment notes, if any,
issued pursuant to any Indenture by Southwest and authenticated by the Loan
Trustee thereunder, and designated as "Series C" thereunder, and any such
equipment notes issued in exchange therefor or replacement thereof pursuant to
the terms of such Indenture.
"Southwest" means
Southwest Airlines Co., a Texas corporation,
and its successors and assigns.
"Southwest Bankruptcy Event" means the occurrence and
continuation of any of the following:
(a) Southwest shall consent to the appointment of or the
taking of possession by a receiver, trustee or liquidator of itself or
of a substantial part of its property, or Southwest shall admit in
writing its inability to pay its debts generally as they come due, or
does not pay its debts generally as they become due or shall make a
general assignment for the benefit of creditors, or Southwest shall
file a voluntary petition in bankruptcy or a voluntary petition or an
answer seeking reorganization, liquidation or other relief in a case
under any bankruptcy laws or other insolvency laws (as in effect at
such time) or an answer admitting the material allegations of a
petition filed against Southwest in any such case, or Southwest shall
seek relief by voluntary petition, answer or consent, under the
provisions of any other bankruptcy or other similar law providing for
the reorganization or winding-up of corporations (as in effect at such
time) or shall seek an agreement, composition, extension or adjustment
with its creditors under such laws, or Southwest's board of directors
shall adopt a resolution authorizing corporate action in furtherance of
any of the foregoing; or
(b) an order, judgment or decree shall be entered by any court
of competent jurisdiction appointing, without the consent of Southwest,
a receiver, trustee or liquidator of Southwest or of any substantial
part of its property, or any substantial part of the property of
Southwest shall be sequestered, or granting any other relief in respect
of Southwest as a debtor under any bankruptcy laws or other insolvency
laws (as in effect at such time), and any such order, judgment or
decree of appointment or sequestration shall remain in force
undismissed, unstayed and unvacated for a period of 60 days after the
date of entry thereof; or
(c) a petition against Southwest in a case under any
bankruptcy laws or other insolvency laws (as in effect at such time) is
filed and not withdrawn or dismissed within 60 days thereafter, or if,
under the provisions of any law providing for reorganization or
winding-up of corporations which may apply to Southwest, any court of
competent jurisdiction assumes jurisdiction, custody or control of
Southwest or of any substantial part of its property and such
jurisdiction, custody or control remains in force unrelinquished,
unstayed and unterminated for a period of 60 days.
"Southwest Provisions" has the meaning specified in Section
9.1(a).
15
"Special Distribution Date" means, with respect to any Special
Payment, the date chosen by the Subordination Agent pursuant to Section 2.4(a)
for the distribution of such Special Payment in accordance with this Agreement.
"Special Payment" means any payment (other than a Scheduled
Payment) in respect of, or any proceeds of, any Equipment Note or Collateral (as
defined in each Indenture).
"Special Payments Account" means the Eligible Deposit Account
created pursuant to Section 2.2 as a sub-account to the Collection Account.
"Standard & Poor's" means Standard & Poor's Ratings Services,
a division of The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc.
"Stated Amount" with respect to any Liquidity Facility, means
the Maximum Commitment (as defined in such Liquidity Facility) of the applicable
Liquidity Provider thereunder.
"Stated Expiration Date" has the meaning specified in Section
3.6(d).
"Stated Interest Rate" means (i) with respect to the Class A-1
Certificates, 5.100% per annum, (ii) with respect to the Class A-2 Certificates,
5.496% per annum and (iii) with respect to the Class B Certificates, 6.126% per
annum.
"Subordination Agent" has the meaning assigned to it in the
preliminary statements to this Agreement.
"Subordination Agent Incumbency Certificate" has the meaning
assigned to such term in Section 2.5(a).
"Subordination Agent Representatives" has the meaning assigned
to such term in Section 2.5(a).
"Tax" and "Taxes" mean any and all taxes, fees, levies,
duties, tariffs, imposts, and other charges of any kind (together with any and
all interest, penalties, loss, damage, liability, expense, additions to tax and
additional amounts or costs incurred or imposed with respect thereto) imposed or
otherwise assessed by the United States of America or by any state, local or
foreign government (or any subdivision or agency thereof) or other taxing
authority, including, without limitation: taxes or other charges on or with
respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation, or net worth and similar
charges; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, taxes on goods and services, gains taxes,
license, registration and documentation fees, customs duties, tariffs, and
similar charges.
"Termination Notice" with respect to any Liquidity Facility
has the meaning assigned to such term in such Liquidity Facility.
16
"Threshold Rating" means in the case of the Class A-1
Liquidity Provider, the Class A-2 Liquidity Provider and the Class B Liquidity
Provider, the short-term unsecured debt rating of P-1 by Moody's and A-1+ by
Standard & Poor's.
"Treasury Regulations" means regulations, including proposed
or temporary regulations, promulgated under the Code. References herein to
specific provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Triggering Event" means (x) the occurrence of an Indenture
Default under all of the Indentures resulting in a PTC Event of Default with
respect to the most senior Class of Certificates then Outstanding, (y) the
Acceleration of all of the outstanding Equipment Notes or (z) the occurrence of
a Southwest Bankruptcy Event.
"Trust" means any of the Class A-1 Trust, the Class A-2 Trust
or the Class B Trust.
"Trust Accounts" has the meaning assigned to such term in
Section 2.2(a).
"Trust Agreement" means any of the Class A-1 Trust Agreement,
the Class A-2 Trust Agreement or the Class B Trust Agreement.
"Trust Property" with respect to any Trust, has the meaning
set forth in the Trust Agreement for such Trust.
"Trustee" means any of the Class A-1 Trustee, the Class A-2
Trustee or the Class B Trustee.
"Trustee Incumbency Certificate" has the meaning assigned to
such term in Section 2.5(b).
"Trustee Representatives" has the meaning assigned to such
term in Section 2.5(b).
"Underwriters" means ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney Inc., ▇.▇. ▇▇▇▇▇▇
Securities Inc. and ▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇ Incorporated.
"Underwriting Agreement" means the Underwriting Agreement
dated October 18, 2001 among the Underwriters and Southwest, relating to the
purchase of the Certificates by the Underwriters, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"West LB" has the meaning assigned to such term in the recital
of the parties in this Agreement.
"Withdrawal Notice" has the meaning specified in Section
3.6(d).
17
"Written Notice" means, from the Subordination Agent, any
Trustee or Liquidity Provider, a written instrument executed by the Designated
Representative of such Person. An invoice delivered by a Liquidity Provider
pursuant to Section 3.1 in accordance with its normal invoicing procedures shall
constitute Written Notice under such Section.
"WTC" has the meaning assigned to such term in the recital of
parties to this Agreement.
ARTICLE II
TRUST ACCOUNTS; CONTROLLING PARTY
SECTION 2.1. Agreement to Terms of Subordination; Payments
from Monies Received Only. (a) Each Trustee hereby acknowledges and agrees to
the terms of subordination and distribution set forth in this Agreement in
respect of each Class of Certificates and agrees to enforce such provisions and
cause all payments in respect of the Equipment Notes and, in the case of the
Class A-1 Trustee and Class A-2 Trustee, the Liquidity Facilities, to be applied
in accordance with the terms of this Agreement. In addition, each Trustee hereby
agrees to cause the Equipment Notes purchased by the related Trust to be
registered in the name of the Subordination Agent or its nominee, as agent and
trustee for such Trustee, to be held in trust by the Subordination Agent solely
for the purpose of facilitating the enforcement of the subordination and other
provisions of this Agreement.
(b) Except as otherwise expressly provided in the next
succeeding sentence of this Section 2.1, all payments to be made by the
Subordination Agent hereunder shall be made only from amounts received by it
that constitute Scheduled Payments, Special Payments, payments under Section 8.1
of the Participation Agreements or Section 2.02 of the Indentures, and only to
the extent that the Subordination Agent shall have received sufficient income or
proceeds therefrom to enable it to make such payments in accordance with the
terms hereof. Each of the Trustees and the Subordination Agent hereby agrees
and, as provided in each Trust Agreement, each Certificateholder, by its
acceptance of a Certificate, and each Liquidity Provider, by entering into the
Liquidity Facility to which it is a party, has agreed to look solely to such
amounts to the extent available for distribution to it as provided in this
Agreement and that none of the Trustees, Loan Trustees nor the Subordination
Agent is personally liable to any of them for any amounts payable or any
liability under this Agreement, any Trust Agreement, any Liquidity Facility or
such Certificate, except (in the case of the Subordination Agent) as expressly
provided herein or (in the case of the Trustees) as expressly provided in each
Trust Agreement or (in the case of the Loan Trustees) as expressly provided in
any Operative Agreement.
SECTION 2.2. Trust Accounts. (a) Upon the execution of this
Agreement, the Subordination Agent shall establish and maintain in its name (i)
the Collection Account as an Eligible Deposit Account, bearing a designation
clearly indicating that the funds deposited therein are held in trust for the
benefit of the Trustees, the Certificateholders and the Liquidity Providers, and
(ii) as a sub-account in the Collection Account, the Special Payments Account as
an Eligible Deposit Account, bearing a designation clearly indicating that the
funds deposited therein are held in trust for the benefit of the Trustees, the
Certificateholders and the Liquidity
18
Providers. The Subordination Agent shall establish and maintain the Cash
Collateral Accounts pursuant to and under the circumstances set forth in Section
3.6(f) hereof. Upon such establishment and maintenance under Section 3.6(f)
hereof, the Cash Collateral Accounts shall, together with the Collection
Account, constitute the "Trust Accounts" hereunder.
(b) Funds on deposit in the Trust Accounts shall be invested
and reinvested by the Subordination Agent in Eligible Investments selected by
the Subordination Agent if such investments are reasonably available and have
maturities no later than the earlier of (i) 90 days following the date of such
investment and (ii) the Business Day immediately preceding the Regular
Distribution Date or the date of the related distribution pursuant to Section
2.4 hereof, as the case may be, next following the date of such investment;
provided, however, that following the making of a Downgrade Drawing or a
Non-Extension Drawing under any Liquidity Facility, the Subordination Agent
shall invest and reinvest such amounts in Eligible Investments at the direction
of the Liquidity Provider funding such Drawing; provided further, however, that
upon the occurrence and during the continuation of a Triggering Event, the
Subordination Agent shall invest and reinvest such amounts in accordance with
the written instructions of the Controlling Party. Unless otherwise expressly
provided in this Agreement (including, without limitation, with respect to
Investment Earnings on amounts on deposit in the Cash Collateral Accounts,
Section 3.6(f) hereof), any Investment Earnings shall be deposited in the
Collection Account when received by the Subordination Agent and shall be applied
by the Subordination Agent in the same manner as the other amounts on deposit in
the Collection Account are to be applied and any losses shall be charged against
the principal amount invested, in each case net of the Subordination Agent's
reasonable fees and expenses in making such investments. The Subordination Agent
shall not be liable for any loss resulting from any investment, reinvestment or
liquidation required to be made under this Agreement other than by reason of its
willful misconduct or gross negligence. Eligible Investments and any other
investment required to be made hereunder shall be held to their maturities
except that any such investment may be sold (without regard to its maturity) by
the Subordination Agent without instructions whenever such sale is necessary to
make a distribution required under this Agreement. Uninvested funds held
hereunder shall not earn or accrue interest.
(c) The Subordination Agent shall possess all right, title and
interest in all funds on deposit from time to time in the Trust Accounts and in
all proceeds thereof (including all income thereon, except as otherwise
expressly provided in Section 3.4(b) with respect to Investment Earnings). The
Trust Accounts shall be held in trust by the Subordination Agent under the sole
dominion and control of the Subordination Agent for the benefit of the Trustees,
the Certificateholders and the Liquidity Providers, as the case may be. If, at
any time, any of the Trust Accounts ceases to be an Eligible Deposit Account,
the Subordination Agent shall within 10 Business Days (or such longer period,
not to exceed 30 calendar days, for which a Ratings Confirmation for each Class
of Certificates shall have been obtained) establish a new Collection Account,
Special Payments Account or Cash Collateral Account, as the case may be, as an
Eligible Deposit Account and shall transfer any cash and/or any investments to
such new Collection Account, Special Payments Account or Cash Collateral
Account, as the case may be. So long as WTC is an Eligible Institution, the
Trust Accounts shall be maintained with it as Eligible Deposit Accounts.
19
SECTION 2.3. Deposits to the Collection Account and Special
Payments Account. (a) The Subordination Agent shall, upon receipt thereof,
deposit in the Collection Account all Scheduled Payments received by it.
(b) The Subordination Agent shall, on each date when one or
more Special Payments are made to the Subordination Agent as holder of the
Equipment Notes, deposit in the Special Payments Account the aggregate amount of
such Special Payments.
SECTION 2.4. Distributions of Special Payments. (a) Notice of
Special Payment. Except as provided in Section 2.4(e) below, upon receipt by the
Subordination Agent, as registered holder of the Equipment Notes, of any notice
of a Special Payment (or, in the absence of any such notice, upon receipt by the
Subordination Agent of a Special Payment), the Subordination Agent shall
promptly give notice thereof to each Trustee and the Liquidity Providers. The
Subordination Agent shall promptly calculate the amount of the redemption or
purchase of Equipment Notes or the amount of any Overdue Scheduled Payment, as
the case may be, comprising such Special Payment under the applicable Indenture
or Indentures and shall promptly send to each Trustee a Written Notice of such
amount and the amount allocable to each Trust. Such Written Notice shall also
set the distribution date for such Special Payment (a "Special Distribution
Date"), which shall be the Business Day which immediately follows the later to
occur of (x) the 15th day after the date of such Written Notice or (y) the date
the Subordination Agent has received or expects to receive such Special Payment.
Amounts on deposit in the Special Payments Account shall be distributed in
accordance with Sections 2.4(b) and 2.4(c) hereof, as applicable.
(b) Redemptions and Purchases of Equipment Notes. (i) So long
as no Triggering Event shall have occurred (whether or not continuing), the
Subordination Agent shall make distributions pursuant to this Section 2.4(b) of
amounts on deposit in the Special Payments Account on account of the redemption,
purchase (including, without limitation, a purchase resulting from a sale of the
Equipment Notes permitted by Article IV hereof) or prepayment of all of the
Equipment Notes issued pursuant to an Indenture on the Special Distribution Date
for such Special Payment in the following order of priority:
first, such amount as shall be required to pay (A) all accrued
and unpaid Liquidity Expenses then in arrears plus (B) the product of
(x) the aggregate amount of all accrued and unpaid Liquidity Expenses
not in arrears to such Special Distribution Date multiplied by (y) a
fraction, the numerator of which is the aggregate outstanding principal
amount of Equipment Notes being redeemed, purchased or prepaid on such
Special Distribution Date and the denominator of which is the aggregate
outstanding principal amount of all Equipment Notes (the "Section
2.4(b) Fraction"), shall be distributed to the Liquidity Providers pro
rata on the basis of the amount of Liquidity Expenses owed to each
Liquidity Provider;
second, such amount as shall be required to pay (A) all
accrued and unpaid interest then in arrears on all Liquidity
Obligations plus (B) the product of (x) the aggregate amount of all
accrued and unpaid interest on all Liquidity Obligations not in arrears
to such Special Distribution Date (at the rate provided in the
applicable Liquidity Facility) multiplied by (y) the Section 2.4(b)
Fraction, shall be distributed to the Liquidity
20
Providers pro rata on the basis of the amount of such Liquidity
Obligations owed to each Liquidity Provider;
third, such amount as shall be required (A) if any Cash
Collateral Account had been previously funded as provided in Section
3.6(f), to fund such Cash Collateral Account up to its Required Amount
shall be deposited in such Cash Collateral Account, (B) if any
Liquidity Facility shall become a Downgraded Facility or a Non-Extended
Facility at a time when unreimbursed Interest Drawings under such
Liquidity Facility have reduced the Available Amount thereunder to
zero, to deposit into the related Cash Collateral Account an amount
equal to such Cash Collateral Account's Required Amount shall be
deposited in such Cash Collateral Account, and (C) if, with respect to
any particular Liquidity Facility, neither subclause (A) nor subclause
(B) of this clause "third" are applicable, to pay or reimburse the
Liquidity Provider in respect of such Liquidity Facility in an amount
equal to the amount of any unreimbursed Interest Drawings under such
Liquidity Facility shall be distributed to such Liquidity Provider, pro
rata on the basis of the amounts of all such deficiencies and/or
unreimbursed Interest Drawings in respect of each Liquidity Provider;
fourth, if, with respect to any particular Liquidity Facility,
any amounts are to be distributed pursuant to either subclause (A) or
(B) of clause "third" above, then the Liquidity Provider with respect
to such Liquidity Facility shall be paid the excess of (x) the
aggregate outstanding amount of unreimbursed Advances (whether or not
then due) under such Liquidity Facility over (y) the Required Amount
for the relevant Class, pro rata on the basis of such amounts in
respect of each Liquidity Provider;
fifth, such amount as shall be required to pay in full
Expected Distributions to the holders of Class A-1 Certificates on such
Special Distribution Date shall be distributed to the Class A-1 Trustee
and such amount as shall be required to pay in full Expected
Distributions to the holders of Class A-2 Certificates on such Special
Distribution Date shall be distributed to the Class A-2 Trustee, pro
rata on the basis of such amounts in respect of each such Class of
Certificates;
sixth, such amount as shall be required to pay in full
Expected Distributions to the holders of Class B Certificates on such
Special Distribution Date shall be distributed to the Class B Trustee;
and
seventh, the balance, if any, of such Special Payment shall be
transferred to the Collection Account for distribution in accordance
with Section 3.2 hereof.
For the purposes of this Section 2.4(b), clause (x) of the definition of
"Expected Distributions" shall be deemed to read as follows: "(x) accrued, due
and unpaid interest on such Certificates together with (without duplication)
accrued and unpaid interest on a portion of such Certificates equal to the
outstanding principal amount of the Equipment Notes held in such Trust and being
redeemed, purchased or prepaid (immediately prior to such redemption, purchase
or prepayment".
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(ii) Upon the occurrence of a Triggering Event (whether or not
continuing), the Subordination Agent shall make distributions pursuant to this
Section 2.4(b) of amounts on deposit in the Special Payments Account on account
of the redemption or purchase of all of the Equipment Notes issued pursuant to
an Indenture on the Special Distribution Date for such Special Payment in
accordance with Section 3.3 hereof.
(c) Other Special Payments. Except as provided in clause (e)
below, any amounts on deposit in the Special Payments Account other than in
respect of amounts to be distributed pursuant to Section 2.4(b) shall be
distributed on the Special Distribution Date therefor in accordance with Article
III hereof.
(d) Investment of Amounts in Special Payments Account. Any
amounts on deposit in the Special Payments Account prior to the distribution
thereof pursuant to Section 2.4(b) or (c) shall be invested in accordance with
Section 2.2(b). Investment Earnings on such investments shall be distributed in
accordance with Section 2.4(b) or (c), as the case may be.
(e) Certain Payments. Except for amounts constituting
Liquidity Obligations which shall be distributed as provided in Section 2.4(b),
3.2 or 3.3 (as the case may be), the Subordination Agent will distribute
promptly upon receipt thereof (i) any indemnity payment received by it from
Southwest in respect of any Trustee, Indenture Trustee or any Liquidity
Provider, (collectively, the "Payees") and (ii) any compensation received by it
from Southwest under any Operative Agreement in respect of any Payee, directly
to the Payee entitled thereto.
SECTION 2.5. Designated Representatives. (a) With the delivery
of this Agreement, the Subordination Agent shall furnish to each Liquidity
Provider and each Trustee, and from time to time thereafter may furnish to each
Liquidity Provider and each Trustee, at the Subordination Agent's discretion, or
upon any Liquidity Provider's or Trustee's request (which request shall not be
made more than one time in any 12-month period), a certificate (a "Subordination
Agent Incumbency Certificate") of a Responsible Officer of the Subordination
Agent certifying as to the incumbency and specimen signatures of the officers of
the Subordination Agent and the attorney-in-fact and agents of the Subordination
Agent (the "Subordination Agent Representatives") authorized to give Written
Notices on behalf of the Subordination Agent hereunder. Until each Liquidity
Provider and Trustee receives a subsequent Subordination Agent Incumbency
Certificate, it shall be entitled to rely on the last Subordination Agent
Incumbency Certificate delivered to it hereunder.
(b) With the delivery of this Agreement, each Trustee shall
furnish to the Subordination Agent, and from time to time thereafter may furnish
to the Subordination Agent, at such Trustee's discretion, or upon the
Subordination Agent's request (which request shall not be made more than one
time in any 12-month period), a certificate (a "Trustee Incumbency Certificate")
of a Responsible Officer of such Trustee certifying as to the incumbency and
specimen signatures of the officers of such Trustee and the attorney-in-fact and
agents of such Trustee (the "Trustee Representatives") authorized to give
Written Notices on behalf of such Trustee hereunder. Until the Subordination
Agent receives a subsequent Trustee Incumbency Certificate, it shall be entitled
to rely on the last Trustee Incumbency Certificate delivered to it hereunder.
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(c) With the delivery of this Agreement, each Liquidity
Provider shall furnish to the Subordination Agent, and from time to time
thereafter may furnish to the Subordination Agent, at such Liquidity Provider's
discretion, or upon the Subordination Agent's request (which request shall not
be made more than one time in any 12-month period), a certificate (an "LP
Incumbency Certificate") of any Responsible Officer of such Liquidity Provider
certifying as to the incumbency and specimen signatures of any officer,
attorney-in-fact, agent or other designated representative of such Liquidity
Provider (the "LP Representatives" and, together with the Subordination Agent
Representatives and the Trustee Representatives, the "Designated
Representatives") authorized to give Written Notices on behalf of such Liquidity
Provider hereunder. Until the Subordination Agent receives a subsequent LP
Incumbency Certificate, it shall be entitled to rely on the last LP Incumbency
Certificate delivered to it hereunder.
SECTION 2.6. Controlling Party. (a) The Trustees and the
Liquidity Providers hereby agree that, with respect to any Indenture at any
given time, the Loan Trustee thereunder will be directed (i) in taking, or
refraining from taking, any action under such Indenture or with respect to the
Equipment Notes issued thereunder, so long as no Indenture Default has occurred
and is continuing thereunder, by the holders of at least a majority of the
outstanding principal amount of such Equipment Notes (provided that, for so long
as the Subordination Agent is the registered holder of the Equipment Notes, the
Subordination Agent shall act with respect to this clause (i) in accordance with
the directions of the Trustees (in the case of each such Trustee, with respect
to the Equipment Notes issued under such Indenture and held as Trust Property of
such Trust) constituting, in the aggregate, directions with respect to at least
a majority of outstanding principal amount of Equipment Notes), and (ii) after
the occurrence and during the continuance of an Indenture Default thereunder, in
taking, or refraining from taking, any action under such Indenture or with
respect to such Equipment Notes, including exercising remedies thereunder
(including Accelerating the Equipment Notes issued thereunder or foreclosing the
Lien on the Aircraft securing such Equipment Notes), by the Controlling Party.
(b) The Person who shall be the "Controlling Party" with
respect to any Indenture upon the occurrence of an Indenture Default thereunder
shall be: (w) the Class A-1 Trustee or Class A-2 Trustee, whichever represents
the Class with the larger principal amount of Certificates outstanding at the
time that such Indenture Default occurs (whether or not any other Indenture
Default shall thereafter occur so long as such initial Indenture Default shall
continue); (x) upon payment of Final Distributions to the holders of
Certificates of such larger Class, the other of the Class A-1 Trustee or Class
A-2 Trustee; (y) upon payment of Final Distributions to the holders of Class A-1
Certificates and Class A-2 Certificates, the Class B Trustee. For purposes of
giving effect to the foregoing, the Trustees (other than the Controlling Party)
irrevocably agree (and the Certificateholders (other than the Certificateholders
represented by the Controlling Party) shall be deemed to agree by virtue of
their purchase of Certificates) that the Subordination Agent, as record holder
of the Equipment Notes, shall exercise its voting rights in respect of the
Equipment Notes as directed by the Controlling Party and any vote so exercised
shall be binding upon the Trustees and all Certificateholders.
The Subordination Agent shall give Written Notice to all of
the other parties to this Agreement promptly upon a change in the identity of
the Controlling Party. Each of the parties hereto agrees that it shall not
exercise any of the rights of the Controlling Party at such time as it is not
the Controlling Party hereunder; provided, however, that nothing herein
23
contained shall prevent or prohibit any Non-Controlling Party from exercising
such rights as shall be specifically granted to such Non-Controlling Party
hereunder and under the other Operative Agreements.
(c) Notwithstanding the foregoing, at any time after 18 months
from the earlier to occur of (i) the date on which the entire Available Amount
under any Liquidity Facility shall have been drawn (for any reason other than a
Downgrade Drawing or a Non-Extension Drawing) and remain unreimbursed, (ii) the
date on which the entire amount of any Downgrade Drawing or Non-Extension
Drawing shall have become and remain "Applied Downgrade Advances" or "Applied
Non-Extension Advances", as the case may be, under and as defined in such
Liquidity Facility and (iii) the date on which all Equipment Notes shall have
been Accelerated, the Liquidity Provider with the highest outstanding aggregate
amount of Liquidity Obligations owed to it shall have the right to elect, by
Written Notice to the Subordination Agent and each of the Trustees, to become
the Controlling Party hereunder with respect to any Indenture at any time from
and including the last day of such 18-month period.
(d) The exercise of remedies by the Controlling Party under
this Agreement shall be expressly limited by Section 4.1(a)(ii) hereof.
(e) The Controlling Party shall not be entitled to require or
obligate any Non-Controlling Party to provide funds necessary to exercise any
right or remedy hereunder.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION
OF AMOUNTS RECEIVED
SECTION 3.1. Written Notice of Distribution. (a) No later than
3:00 P.M. (New York City time) on the Business Day immediately preceding each
Regular Distribution Date (or Special Distribution Date for purposes of Section
2.4(b) hereof, as the case may be), each of the following Persons shall deliver
to the Subordination Agent a Written Notice setting forth the following
information as at the close of business on such Business Day:
(i) With respect to the Class A-1 Certificates and the Class
A-2 Certificates, respectively, the Class A-1 Trustee and the Class A-2
Trustee, respectively, shall separately set forth the amounts to be
paid in accordance with clause "fifth" of Section 3.2 or 2.4(b), as the
case may be, hereof (without giving effect to the pro rata sharing
therein);
(ii) With respect to the Class B Certificates, the Class B
Trustee shall separately set forth the amounts to be paid in accordance
with clause "sixth" of Section 3.2 or 2.4(b), as the case may be,
hereof;
(iii) With respect to each Liquidity Facility, the Liquidity
Provider thereunder shall separately set forth the amounts to be paid
in accordance with clauses "first", "second", "third" and "fourth" of
Section 3.2 or 2.4(b), as the case may be, hereof; and
24
(iv) Each Trustee shall set forth the amounts to be paid in
accordance with clause "seventh" of Section 3.2 hereof.
The notices required under this Section 3.1(a) may be in the
form of a schedule or similar document provided to the Subordination Agent by
the parties referenced therein or by any one of them, which schedule or similar
document may state that, unless there has been a prepayment of the Certificates,
such schedule or similar document is to remain in effect until any substitute
notice or amendment shall be given to the Subordination Agent by the party
providing such notice.
(b) Following the occurrence of a Triggering Event, the
Subordination Agent shall request the following information from the following
Persons, and each of the following Persons shall, upon the request of the
Subordination Agent, deliver a Written Notice to the Subordination Agent setting
forth for such Person the following information:
(i) With respect to the Class A-1 Certificates and the Class
A-2 Certificates, respectively, the Class A-1 Trustee and Class A-2
Trustee, respectively, shall separately set forth the amounts to be
paid in accordance with clauses "first" (to reimburse payments made by
such Trustee or the Class A-1 Certificateholders and Class A-2
Certificateholders, as the case may be, pursuant to subclause (ii) or
(iii) of clause "first" of Section 3.3 hereof, respectively) and
"seventh" of Section 3.3 hereof (without giving effect to the pro rata
sharing therein);
(ii) With respect to the Class B Certificates, the Class B
Trustee shall separately set forth the amounts to be paid in accordance
with clauses "first" (to reimburse payments made by such Trustee or the
Class B Certificateholders, as the case may be, pursuant to subclause
(ii) or (iii) of clause "first" of Section 3.3 hereof, respectively)
and "eighth" of Section 3.3 hereof;
(iii) With respect to each Liquidity Facility, the Liquidity
Provider thereunder shall separately set forth the amounts to be paid
to it in accordance with subclause (iii) of clause "first" of Section
3.3 hereof and clauses "second", "third", "fourth" and "fifth" of
Section 3.3 hereof; and
(iv) Each Trustee shall set forth the amounts to be paid in
accordance with clause "sixth" of Section 3.3 hereof.
(c) At such time as a Trustee or a Liquidity Provider shall
have received all amounts owing to it (and, in the case of a Trustee, the
Certificateholders for which it is acting) pursuant to Section 2.4, 3.2 or 3.3
hereof, as applicable, and, in the case of a Liquidity Provider, its commitment
under the related Liquidity Facility shall have terminated or expired, such
Person shall, by a Written Notice, so inform the Subordination Agent and each
other party to this Agreement.
(d) As provided in Section 6.5 hereof, the Subordination Agent
shall be fully protected in relying on any of the information set forth in a
Written Notice provided by any Trustee or any Liquidity Provider pursuant to
paragraphs (a) through (c) above and shall have no
25
independent obligation to verify, calculate or recalculate any amount set forth
in any Written Notice delivered in accordance with such paragraphs.
(e) Any Written Notice delivered by a Trustee or a Liquidity
Provider, as applicable, pursuant to Section 3.1(a), 3.1(b) or 3.1(c) hereof, if
made prior to 10:00 A.M. (New York City time) on any Business Day, shall be
effective on the date delivered (or if delivered later on a Business Day or if
delivered on a day which is not a Business Day shall be effective as of the next
Business Day). Subject to the terms of this Agreement, the Subordination Agent
shall as promptly as practicable comply with any such instructions; provided,
however, that any transfer of funds pursuant to any instruction received after
10:00 A.M. (New York City time) on any Business Day may be made on the next
succeeding Business Day.
(f) In the event the Subordination Agent shall not receive
from any Person any information set forth in paragraph (a) or (b) above which is
required to enable the Subordination Agent to make a distribution to such Person
pursuant to Section 3.2 or 3.3 hereof, the Subordination Agent shall request
such information and, failing to receive any such information, the Subordination
Agent shall not make such distribution(s) to such Person. In such event, the
Subordination Agent shall make distributions pursuant to clauses "first" through
"eighth" of Section 3.2 and clauses "first" through " eighth" of Section 3.3 to
the extent it shall have sufficient information to enable it to make such
distributions, and shall continue to hold any funds remaining, after making such
distributions, until the Subordination Agent shall receive all necessary
information to enable it to distribute any funds so withheld.
(g) On such dates (but not more frequently than monthly) as
any Liquidity Provider or any Trustee shall request, but in any event
automatically at the end of each calendar quarter, the Subordination Agent shall
send to such party a written statement reflecting all amounts on deposit with
the Subordination Agent pursuant to Section 3.1(f) hereof.
SECTION 3.2. Distribution of Amounts on Deposit in the
Collection Account. Except as otherwise provided in Sections 2.4, 3.1(f), 3.3,
3.4 and 3.6(b), amounts on deposit in the Collection Account (or, in the case of
any amount described in Section 2.4(c), on deposit in the Special Payments
Account) shall be promptly distributed on each Regular Distribution Date (or, in
the case of any amount described in Section 2.4(c), on the Special Distribution
Date thereof) in the following order of priority and in accordance with the
information provided to the Subordination Agent pursuant to Section 3.1(a)
hereof:
first, such amount as shall be required to pay all accrued and
unpaid Liquidity Expenses owed to each Liquidity Provider shall be
distributed to the Liquidity Providers pro rata on the basis of the
amount of Liquidity Expenses owed to each Liquidity Provider;
second, such amount as shall be required to pay in full the
aggregate amount of interest accrued on all Liquidity Obligations (at
the rate, or in the amount, provided in the applicable Liquidity
Facility) and unpaid shall be distributed to the Liquidity Providers
pro rata on the basis of the amount of such Liquidity Obligations owed
to each Liquidity Provider;
26
third, such amount as shall be required (A) if any Cash
Collateral Account had been previously funded as provided in Section
3.6(f), to fund such Cash Collateral Account up to its Required Amount
shall be deposited in such Cash Collateral Account, (B) if any
Liquidity Facility shall become a Downgraded Facility or a Non-Extended
Facility at a time when unreimbursed Interest Drawings under such
Liquidity Facility have reduced the Available Amount thereunder to
zero, to deposit into the related Cash Collateral Account an amount
equal to such Cash Collateral Account's Required Amount shall be
deposited in such Cash Collateral Account, and (C) if, with respect to
any particular Liquidity Facility, neither subclause (A) nor subclause
(B) of this clause "third" is applicable, to pay or reimburse the
Liquidity Provider in respect of such Liquidity Facility in an amount
equal to the amount of all Liquidity Obligations then due under such
Liquidity Facility (other than amounts payable pursuant to clause
"first" or "second" of this Section 3.2) shall be distributed to such
Liquidity Provider, pro rata on the basis of the amounts of all such
deficiencies and/or unreimbursed Liquidity Obligations in respect of
each Liquidity Provider;
fourth, if, with respect to any particular Liquidity Facility,
any amounts are to be distributed pursuant to either subclause (A) or
(B) of clause "third" above, then the Liquidity Provider with respect
to such Liquidity Facility shall be paid the excess of (x) the
aggregate outstanding amount of unreimbursed Advances (whether or not
then due) under such Liquidity Facility over (y) the Required Amount
for the relevant Class, pro rata on the basis of such amounts in
respect of each Liquidity Provider;
fifth, such amount as shall be required to pay in full
Expected Distributions to the holders of the Class A-1 Certificates on
such Distribution Date shall be distributed to the Class A-1 Trustee
and such amount as shall be required to pay in full Expected
Distributions to the holders of the Class A-2 Certificates on such
Distribution Date shall be distributed to the Class A-2 Trustee, pro
rata on the basis of such amounts in respect of each such Class of
Certificates;
sixth, such amount as shall be required to pay in full
Expected Distributions to the holders of the Class B Certificates on
such Distribution Date shall be distributed to the Class B Trustee;
seventh, such amount as shall be required to pay in full the
aggregate unpaid amount of fees and expenses payable as of such
Distribution Date to the Subordination Agent and each Trustee pursuant
to the terms of this Agreement and the Trust Agreements, as the case
may be, shall be distributed to the Subordination Agent and such
Trustee; and
eighth, the balance, if any, of any such amount remaining
thereafter shall be held in the Collection Account for later
distribution in accordance with this Article III.
SECTION 3.3. Distribution of Amounts on Deposit Following a
Triggering Event. Except as otherwise provided in Sections 3.1(f) and 3.6(b)
hereof, upon the occurrence of a Triggering Event and at all times thereafter,
all funds in the Collection Account or the Special
27
Payments Account shall be promptly distributed by the Subordination Agent
in the following order of priority:
first, such amount as shall be required to reimburse (i) the
Subordination Agent for any out-of-pocket costs and expenses actually
incurred by it (to the extent not previously reimbursed) in the
protection of, or the realization of the value of, the Equipment Notes
or any "Collateral" (as such term is defined in each relevant
Indenture), shall be applied by the Subordination Agent in
reimbursement of such costs and expenses, (ii) each Trustee for any
amounts of the nature described in clause (i) above actually incurred
by it under the applicable Trust Agreement (to the extent not
previously reimbursed), shall be distributed to such Trustee, and (iii)
any Liquidity Provider or Certificateholder for payments, if any, made
by it to the Subordination Agent or any Trustee in respect of amounts
described in clause (i) above, shall be distributed to such Liquidity
Provider or to the applicable Trustee for the account of such
Certificateholder, in each such case, pro rata on the basis of all
amounts described in clauses (i) through (iii) above;
second, such amount remaining as shall be required to pay all
accrued and unpaid Liquidity Expenses shall be distributed to each
Liquidity Provider pro rata on the basis of the amount of Liquidity
Expenses owed to each Liquidity Provider;
third, such amount remaining as shall be required to pay
accrued and unpaid interest on the Liquidity Obligations as provided in
the Liquidity Facilities shall be distributed to each Liquidity
Provider pro rata on the basis of the amount of such accrued and unpaid
interest owed to each Liquidity Provider;
fourth, such amount remaining as shall be required (A) if any
Cash Collateral Account had been previously funded as provided in
Section 3.6(f), unless (i) a Performing Note Deficiency exists and a
Liquidity Event of Default shall have occurred and be continuing with
respect to the relevant Liquidity Facility or (ii) a Final Drawing
shall have occurred with respect to such Liquidity Facility, to fund
such Cash Collateral Account up to its Required Amount (less the amount
of any repayments of Interest Drawings under such Liquidity Facility
while subclause (A)(i) above is applicable) shall be deposited in such
Cash Collateral Account, (B) if any Liquidity Facility shall become a
Downgraded Facility or a Non-Extended Facility at a time when
unreimbursed Interest Drawings under such Liquidity Facility have
reduced the Available Amount thereunder to zero, unless (i) a
Performing Note Deficiency exists and a Liquidity Event of Default
shall have occurred and be continuing with respect to the relevant
Liquidity Facility or (ii) a Final Drawing shall have occurred with
respect to such Liquidity Facility, to deposit into the related Cash
Collateral Account an amount equal to such Cash Collateral Account's
Required Amount (less the amount of any repayments of Interest Drawings
under such Liquidity Facility while subclause (B)(i) above is
applicable) shall be deposited in such Cash Collateral Account, and (C)
if, with respect to any particular Liquidity Facility, neither
subclause (A) nor subclause (B) of this clause "fourth" are applicable,
to pay in full the outstanding amount of all Liquidity Obligations then
due under such Liquidity Facility (other than amounts payable pursuant
to clause "second" or "third" of this Section 3.3) shall be distributed
to such Liquidity Provider, pro rata on the
28
basis of the amounts of all such deficiencies and/or unreimbursed
Liquidity Obligations in respect of each Liquidity Provider;
fifth, if, with respect to any particular Liquidity Facility,
any amounts are to be distributed pursuant to either subclause (A) or
(B) of clause "fourth" above, then the Liquidity Provider with respect
to such Liquidity Facility shall be paid the excess of (x) the
aggregate outstanding amount of unreimbursed Advances (whether or not
then due) under such Liquidity Facility over (y) the Required Amount
for the relevant Class (less the amount of any repayments of Interest
Drawings under such Liquidity Facility while subclause (A)(i) or
(B)(i), as the case may be, of clause "fourth" above is applicable),
pro rata on the basis of such amounts in respect of each Liquidity
Provider;
sixth, such amount as shall be required to reimburse or pay
(i) the Subordination Agent for any Tax (other than Taxes imposed on
compensation paid hereunder), expense, fee, charge or other loss
incurred by or any other amount payable to the Subordination Agent in
connection with the transactions contemplated hereby (to the extent not
previously reimbursed), shall be applied by the Subordination Agent in
reimbursement of such amount, (ii) each Trustee for any Tax (other than
Taxes imposed on compensation paid under the applicable Trust
Agreement), expense, fee, charge, loss or any other amount payable to
such Trustee under the applicable Trust Agreements (to the extent not
previously reimbursed), shall be distributed to such Trustee, and (iii)
each Certificateholder for payments, if any, made by it pursuant to
Section 5.2 hereof in respect of amounts described in clause (i) above,
shall be distributed to the applicable Trustee for the account of such
Certificateholder, in each such case, pro rata on the basis of all
amounts described in clauses (i) through (iii) above;
seventh, such amount remaining as shall be required to pay in
full Adjusted Expected Distributions on the Class A-1 Certificates
shall be distributed to the Class A-1 Trustee and such amount remaining
as shall be required to pay in full Adjusted Expected Distributions on
the Class A-2 Certificates shall be distributed to the Class A-2
Trustee, pro rata on the basis of such amounts in respect of each such
Class of Certificates;and
eighth, such amount remaining as shall be required to pay in
full Adjusted Expected Distributions on the Class B Certificates shall
be distributed to the Class B Trustee.
SECTION 3.4. Other Payments. (a) Any payments received by the
Subordination Agent for which no provision as to the application thereof is made
in this Agreement shall be distributed by the Subordination Agent (i) in the
order of priority specified in Section 3.3 hereof and (ii) to the extent
received or realized at any time after the Final Distributions for each Class of
Certificates have been made, in the manner provided in clause "first" of Section
3.3 hereof.
(b) Notwithstanding the priority of payments specified in
Sections 2.4(b)(i), 3.2 and 3.3, in the event any Investment Earnings on amounts
on deposit in any Cash Collateral Account resulting from an Unapplied Provider
Advance are deposited in the Collection Account
29
or the Special Payments Account, such Investment Earnings shall be used to pay
interest payable in respect of such Unapplied Provider Advance to the extent of
such Investment Earnings.
(c) Except as otherwise provided in Section 3.3 hereof, if the
Subordination Agent receives any Scheduled Payment after the Scheduled Payment
Date relating thereto, but prior to such payment becoming an Overdue Scheduled
Payment, then the Subordination Agent shall deposit such Scheduled Payment in
the Collection Account and promptly distribute such Scheduled Payment in
accordance with the priority of distributions set forth in Section 3.2 hereof;
provided that, for the purposes of this Section 3.4(c) only, each reference in
clause "seventh" of Section 3.2 to "Distribution Date" shall be deemed to mean
the actual date of payment of such Scheduled Payment and each reference in
clause "fifth" or "sixth" of Section 3.2 to "Distribution Date" shall be deemed
to refer to such Scheduled Payment Date.
SECTION 3.5. Payments to the Trustees and the Liquidity
Providers. Any amounts distributed hereunder to any Liquidity Provider shall be
paid to such Liquidity Provider by wire transfer of funds to the address such
Liquidity Provider shall provide to the Subordination Agent. The Subordination
Agent shall provide a Written Notice of any such transfer to the applicable
Liquidity Provider, as the case may be, at the time of such transfer. Any
amounts distributed hereunder by the Subordination Agent to any Trustee which
shall not be the same institution as the Subordination Agent shall be paid to
such Trustee by wire transfer funds at the address such Trustee shall provide to
the Subordination Agent.
SECTION 3.6. Liquidity Facilities. (a) Interest Drawings. If
on any Distribution Date, after giving effect to the subordination provisions of
this Agreement, the Subordination Agent shall not have sufficient funds for the
payment of any amounts due and owing in respect of accrued interest on the Class
A-1 Certificates or the Class A-2 Certificates (at the Stated Interest Rate for
such Class of Certificates), then, prior to 1:00 p.m. (New York City time) on
such Distribution Date, the Subordination Agent shall request a drawing (each
such drawing, an "Interest Drawing") under the Liquidity Facility with respect
to such Class of Certificates in an amount equal to the lesser of (i) an amount
sufficient to pay the amount of such accrued interest (at the Stated Interest
Rate for such Class of Certificates) and (ii) the Available Amount under such
Liquidity Facility, and shall pay such amount to the Trustee with respect to
such Class of Certificates in payment of such accrued interest.
(b) Application of Interest Drawings. Notwithstanding anything
to the contrary contained in this Agreement, (i) all payments received by the
Subordination Agent in respect of an Interest Drawing under the Class A-1
Liquidity Facility and all amounts withdrawn by the Subordination Agent from the
Class A-1 Cash Collateral Account, and payable in each case to the Class A-1
Certificateholders or the Class A-1 Trustee, shall be promptly distributed to
the Class A-1 Trustee and (ii) all payments received by the Subordination Agent
in respect of an Interest Drawing under the Class A-2 Liquidity Facility and all
amounts withdrawn by the Subordination Agent from the Class A-2 Cash Collateral
Account, and payable in each case to the Class A-2 Certificateholders or the
Class A-2 Trustee, shall be promptly distributed to the Class A-2 Trustee.
(c) Downgrade Drawings. (i) If at any time any relevant debt
rating of any Liquidity Provider is lower than the applicable Threshold Rating
(the Liquidity Facility issued by
30
the downgraded Liquidity Provider, a "Downgraded Facility"), such Liquidity
Provider shall provide notice to Southwest, the Subordination Agent, the Class
A-1 Trustee and the Class A-2 Trustee.
(ii) If at any time any Liquidity Facility becomes a
Downgraded Facility, the Subordination Agent shall request a Downgrade Drawing
thereunder in accordance with Section 3.6(c)(iii), unless the Liquidity Provider
under such Downgraded Facility or Southwest arranges for a Replacement Liquidity
Provider to issue and deliver a Replacement Liquidity Facility to the
Subordination Agent within 10 days (or, in the case of a downgrade by Standard &
Poor's of the short-term unsecured debt rating of such Liquidity Provider from
A-1+ to A-1, 45 days) after such downgrading (but not later than the expiration
date of such Downgraded Facility).
(iii) If a Downgraded Facility has not been replaced in
accordance with the terms of Section 3.6(c)(ii), the Subordination Agent shall,
on the 10th day (or the 45th day) referred to in Section 3.6(c)(ii)(or if such
10th day (or such 45th day) is not a Business Day, on the next succeeding
Business Day) (or, if earlier, the expiration date of such Downgraded Facility),
request a drawing in accordance with and to the extent permitted by such
Downgraded Facility (such drawing, a "Downgrade Drawing") of the Available
Amount thereunder. Amounts drawn pursuant to a Downgrade Drawing shall be
maintained and invested as provided in Section 3.6(f) hereof. The applicable
Liquidity Provider may also arrange for a Replacement Liquidity Provider to
issue and deliver a Replacement Liquidity Facility at any time after such
Downgrade Drawing so long as such Downgrade Drawing has not been reimbursed in
full to such Liquidity Provider.
(d) Non-Extension Drawings. If any Liquidity Facility with
respect to any Class of Certificates is scheduled to expire on a date (the
"Stated Expiration Date") prior to the date that is 15 days after the Final
Legal Distribution Date for such Class of Certificates, then, no earlier than
the 60th day and no later than the 40th day prior to the then Stated Expiration
Date, the Subordination Agent shall request that such Liquidity Provider extend
the Stated Expiration Date until the earlier of (i) the date which is 15 days
after such Final Legal Distribution Date and (ii) the date that is the day
immediately preceding the 364th day occurring after the last day of the
applicable Consent Period (as hereinafter defined) (unless the obligations of
such Liquidity Provider under such Liquidity Facility are earlier terminated in
accordance with such Liquidity Facility). Whether or not the Liquidity Provider
has received a request from the Subordination Agent, such Liquidity Provider
shall advise the Subordination Agent, no earlier than the 40th day and no later
than the 25th day prior to the Stated Expiration Date then in effect for such
Liquidity Facility (such period, with respect to such Liquidity Facility, the
"Consent Period"), whether, in its sole discretion, it agrees to extend such
Stated Expiration Date. If (A) on or before the date on which such Consent
Period ends, such Liquidity Facility shall not have been replaced in accordance
with Section 3.6(e) and (B) the applicable Liquidity Provider fails irrevocably
and unconditionally to advise the Borrower on or before the date on which such
Consent Period ends that such Stated Expiration Date then in effect shall be so
extended for such Liquidity Facility, the Subordination Agent shall, on the date
on which such Consent Period ends (or as soon as possible thereafter), in
accordance with the terms of the expiring Liquidity Facility (a "Non-Extended
Facility"), request a drawing under such expiring Liquidity Facility (such
drawing, a "Non-Extension Drawing") of all available and undrawn amounts
thereunder. Amounts drawn
31
pursuant to a Non-Extension Drawing shall be maintained and invested in
accordance with Section 3.6(f) hereof.
(e) Issuance of Replacement Liquidity Facility. (i) At any
time, Southwest may, at its option, with cause or without cause, arrange for a
Replacement Liquidity Facility to replace any Liquidity Facility for any Class
of Certificates (including any Replacement Liquidity Facility provided pursuant
to Section 3.6(e)(ii) hereof); provided, however, that the initial Liquidity
Provider for any Liquidity Facility relating to a Trust shall not be replaced by
Southwest as a Liquidity Provider with respect to such Liquidity Facility prior
to the fifth anniversary of the Closing Date unless (A) there shall have become
due to such initial Liquidity Provider, or such initial Liquidity Provider shall
have demanded, amounts pursuant to Section 3.01, 3.02 or 3.03 of any applicable
Liquidity Facility and the replacement of such initial Liquidity Provider would
reduce or eliminate the obligation to pay such amounts or Southwest determines
in good faith that there is a substantial likelihood that such initial Liquidity
Provider will have the right to claim any such amounts (unless such initial
Liquidity Provider waives, in writing, any right it may have to claim such
amounts), which determination shall be set forth in a certificate delivered by
Southwest to such initial Liquidity Provider setting forth the basis for such
determination and accompanied by an opinion of outside counsel selected by
Southwest and reasonably acceptable to such initial Liquidity Provider verifying
the legal conclusions, if any, of such certificate relating to such basis,
provided that, in the case of any likely claim for such amounts based upon any
proposed, or proposed change in, law, rule, regulation, interpretation,
directive, requirement, request or administrative practice, such opinion may
assume the adoption or promulgation of such proposed matter, (B) it shall become
unlawful or impossible for such initial Liquidity Provider (or its Facility
Office) to maintain or fund its LIBOR Advances as described in Section 3.10 of
any Liquidity Facility, (C) the short-term unsecured debt rating of such initial
Liquidity Provider is downgraded by Standard & Poor's from A-1+ to A-1 and there
is a resulting downgrade in the rating by any Rating Agency of any Class of
Certificates, (D) any Liquidity Facility of such initial Liquidity Provider
shall become a Downgraded Facility or a Non-Extended Facility or a Downgrade
Drawing or a Non-Extension Drawing shall have occurred under any Liquidity
Facility of such initial Liquidity Provider or (E) such initial Liquidity
Provider shall have breached any of its payment (including, without limitation,
funding) obligations under any Liquidity Facility in respect of which it is the
Liquidity Provider. If such Replacement Liquidity Facility is provided at any
time after a Downgrade Drawing or Non-Extension Drawing has been made, all funds
on deposit in the relevant Cash Collateral Account will be returned to the
Liquidity Provider being replaced.
(ii) If any Liquidity Provider shall determine not to extend
any of its Liquidity Facilities in accordance with Section 3.6(d), then such
Liquidity Provider may, at its option, arrange for a Replacement Liquidity
Facility to replace such Liquidity Facility during the period no earlier than 40
days and no later than 25 days prior to the then effective Stated Expiration
Date of such Liquidity Facility. In addition, so long as West LB is the
Liquidity Provider for any Liquidity Facility relating to a Trust, at any time
after a Non-Extension Drawing has been made under any such Liquidity Facility or
at any time after West LB has extended the Stated Expiration Date under any such
Liquidity Facility to the date that is 15 days after the applicable Final Legal
Distribution Date in accordance with the provisions of such Liquidity Facility,
the Liquidity Provider thereunder may, at its option, arrange for a Replacement
Liquidity Facility to replace such Liquidity Facility.
32
(iii) No Replacement Liquidity Facility arranged by Southwest
or a Liquidity Provider in accordance with clause (i) or (ii) above or pursuant
to Section 3.6(c), respectively, shall become effective and no such Replacement
Liquidity Facility shall be deemed a "Liquidity Facility" under the Operative
Agreements, unless and until (A) each of the conditions referred to in
sub-clauses (iv)(x) and (z) below shall have been satisfied, (B) if such
Replacement Liquidity Facility shall materially adversely affect the rights,
remedies, interests or obligations of the Class A-1 Certificateholders, the
Class A-2 Certificateholders or the Class B Certificateholders under any of the
Operative Agreements, the applicable Trustee shall have consented, in writing,
to the execution and issuance of such Replacement Liquidity Facility and (C) in
the case of a Replacement Liquidity Facility arranged by a Liquidity Provider
under Section 3.6(e)(ii) or pursuant to Section 3.6(c), such Replacement
Liquidity Facility is acceptable to Southwest.
(iv) In connection with the issuance of each Replacement
Liquidity Facility, the Subordination Agent shall (x) prior to the issuance of
such Replacement Liquidity Facility, obtain written confirmation from each
Rating Agency that such Replacement Liquidity Facility will not cause a
reduction of any rating then in effect for any Class of Certificates by such
Rating Agency (without regard to any downgrading of any rating of any Liquidity
Provider being replaced pursuant to Section 3.6(c) hereof), (y) pay all
Liquidity Obligations then owing to the replaced Liquidity Provider (which
payment shall be made first from available funds in the applicable Cash
Collateral Account as described in clause (ix) of Section 3.6(f) hereof, and
thereafter from any other available source, including, without limitation, a
drawing under the Replacement Liquidity Facility) and (z) cause the issuer of
the Replacement Liquidity Facility to deliver the Replacement Liquidity Facility
to the Subordination Agent, together with a legal opinion opining that such
Replacement Liquidity Facility is an enforceable obligation of such Replacement
Liquidity Provider.
(v) Upon satisfaction of the conditions set forth in clauses
(iii) and (iv) of this Section 3.6(e) with respect to a Replacement Liquidity
Facility, (w) the replaced Liquidity Facility shall terminate, (x) the
Subordination Agent shall, if and to the extent so requested by Southwest or the
Liquidity Provider being replaced, execute and deliver any certificate or other
instrument required in order to terminate the replaced Liquidity Facility, shall
surrender the replaced Liquidity Facility to the Liquidity Provider being
replaced and shall execute and deliver the Replacement Liquidity Facility and
any associated Fee Letters, (y) each of the parties hereto shall enter into any
amendments to this Agreement necessary to give effect to (1) the replacement of
the applicable Liquidity Provider with the applicable Replacement Liquidity
Provider and (2) the replacement of the applicable Liquidity Facility with the
applicable Replacement Liquidity Facility and (z) the applicable Replacement
Liquidity Provider shall be deemed to be a Liquidity Provider with the rights
and obligations of a Liquidity Provider hereunder and under the other Operative
Agreements and such Replacement Liquidity Facility shall be deemed to be a
Liquidity Facility hereunder and under the other Operative Agreements.
(f) Cash Collateral Accounts; Withdrawals; Investments. In the
event the Subordination Agent shall draw all available amounts under the Class
A-1 Liquidity Facility or the Class A-2 Liquidity Facility, pursuant to Section
3.6(c), 3.6(d) or 3.6(i) hereof, or in the event amounts are to be deposited in
the Cash Collateral Account pursuant to subclause (B) of clause "third" of
Section 2.4(b), subclause (B) of clause "third" of Section 3.2 or subclause (B)
of clause "fourth" of Section 3.3, amounts so drawn or to be deposited, as the
case may be, shall be
33
deposited by the Subordination Agent in the Class A-1 Cash Collateral Account or
the Class A-2 Cash Collateral Account, respectively. All amounts on deposit in
each Cash Collateral Account shall be invested and reinvested in Eligible
Investments in accordance with Section 2.2(b) hereof.
On each Interest Payment Date (or, in the case of any Special
Distribution Date with respect to a distribution pursuant to Section 2.4(b)
hereof occurring prior to the occurrence of a Triggering Event, on such Special
Distribution Date), Investment Earnings on amounts on deposit in each Cash
Collateral Account (or, in the case of any Special Distribution Date with
respect to a distribution pursuant to Section 2.4(b) hereof occurring prior to
the occurrence of a Triggering Event, a fraction of such Investment Earnings
equal to the Section 2.4(b) Fraction) shall be deposited in the Collection
Account (or, in the case of any Special Distribution Date with respect to a
distribution pursuant to Section 2.4(b) hereof occurring prior to the occurrence
of a Triggering Event, the Special Payments Account) and applied on such
Interest Payment Date (or Special Distribution Date, as the case may be) in
accordance with Section 2.4, 3.2, 3.3 or 3.4 (as applicable). The Subordination
Agent shall deliver a written statement to Southwest and the Liquidity Provider
one day prior to each Interest Payment Date and Special Distribution Date
setting forth the aggregate amount of Investment Earnings held in the Cash
Collateral Accounts as of such date. In addition, from and after the date funds
are so deposited, the Subordination Agent shall make withdrawals from such
account as follows:
(i) on each Distribution Date, the Subordination Agent shall,
to the extent it shall not have received funds to pay accrued and
unpaid interest due and owing on the Class A-1 Certificates (at the
Stated Interest Rate for the Class A-1 Certificates) from any other
source, withdraw from the Class A-1 Cash Collateral Account, and pay to
the Class A-1 Trustee, an amount equal to the lesser of (x) an amount
necessary to pay accrued and unpaid interest (at the Stated Interest
Rate for the Class A-1 Certificates) on such Class A-1 Certificates and
(y) the amount on deposit in the Class A-1 Cash Collateral Account;
(ii) on each Distribution Date, the Subordination Agent shall,
to the extent it shall not have received funds to pay accrued and
unpaid interest due and owing on the Class A-2 Certificates (at the
Stated Interest Rate for the Class A-2 Certificates) from any other
source, withdraw from the Class A-2 Cash Collateral Account, and pay to
the Class A-2 Trustee, an amount equal to the lesser of (x) an amount
necessary to pay accrued and unpaid interest (at the Stated Interest
Rate for the Class A-2 Certificates) on such Class A-2 Certificates and
(y) the amount on deposit in the Class A-2 Cash Collateral Account;
(iii) on each date on which the Pool Balance of the Class A-1
Trust shall have been reduced by payments made to the Class A-1
Certificateholders pursuant to Section 2.4, 3.2 or 3.3 hereof, the
Subordination Agent shall withdraw from the Class A-1 Cash Collateral
Account such amount as is necessary so that, after giving effect to the
reduction of the Pool Balance on such date (and any reduction in the
amounts on deposit in the Class A-1 Cash Collateral Account resulting
from a prior withdrawal of amounts on deposit in the Class A-1 Cash
Collateral Account on such date) and any transfer of Investment
Earnings from such Cash Collateral Account to the Collection Account or
the Special Payments Account on such date, an amount equal to the sum
of the Required Amount (with respect to the Class A-1 Liquidity
Facility) plus Investment Earnings on
34
deposit in such Cash Collateral Account (after giving effect to any
such transfer of Investment Earnings) will be on deposit in the Class
A-1 Cash Collateral Account and shall first, pay such withdrawn amount
to the Class A-1 Liquidity Provider until the Liquidity Obligations
(with respect to the Class A-1 Certificates) owing to such Liquidity
Provider shall have been paid in full, and second, deposit any
remaining withdrawn amount in the Collection Account;
(iv) on each date on which the Pool Balance of the Class A-2
Trust shall have been reduced by payments made to the Class A-2
Certificateholders pursuant to Section 2.4, 3.2 or 3.3 hereof, the
Subordination Agent shall withdraw from the Class A-2 Cash Collateral
Account such amount as is necessary so that, after giving effect to the
reduction of the Pool Balance on such date (and any reduction in the
amounts on deposit in the Class A-2 Cash Collateral Account resulting
from a prior withdrawal of amounts on deposit in the Class A-2 Cash
Collateral Account on such date) and any transfer of Investment
Earnings from such Cash Collateral Account to the Collection Account or
the Special Payments Account on such date, an amount equal to the sum
of the Required Amount (with respect to the Class A-2 Liquidity
Facility) plus Investment Earnings on deposit in such Cash Collateral
Account (after giving effect to any such transfer of Investment
Earnings) will be on deposit in the Class A-2 Cash Collateral Account
and shall first, pay such withdrawn amount to the Class A-2 Liquidity
Provider until the Liquidity Obligations (with respect to the Class A-2
Certificates) owing to such Liquidity Provider shall have been paid in
full, and second, deposit any remaining withdrawn amount in the
Collection Account;
(v) if a Replacement Liquidity Facility for any Class of
Certificates shall be delivered to the Subordination Agent following
the date on which funds have been deposited into the Cash Collateral
Account for such Class of Certificates, the Subordination Agent shall
withdraw all amounts on deposit in such Cash Collateral Account and
shall pay such amounts to the replaced Liquidity Provider until all
Liquidity Obligations owed to such Person shall have been paid in full,
and shall deposit any remaining amount in the Collection Account; and
(vi) following the payment of Final Distributions with respect
to any Class of Certificates, on the date on which the Subordination
Agent shall have been notified by the Liquidity Provider for such Class
of Certificates that the Liquidity Obligations owed to such Liquidity
Provider have been paid in full, the Subordination Agent shall withdraw
all amounts on deposit in the Cash Collateral Account in respect of
such Class of Certificates and shall deposit such amount in the
Collection Account.
(g) Reinstatement. With respect to any Interest Drawing under
the Liquidity Facility for any Trust, upon the reimbursement of the applicable
Liquidity Provider for all or any part of the amount of such Interest Drawing,
together with any accrued interest thereon, the Available Amount of such
Liquidity Facility shall be reinstated by an amount equal to the amount of such
Interest Drawing so reimbursed to the applicable Liquidity Provider but not to
exceed the Stated Amount for such Liquidity Facility; provided, however, that
such Liquidity Facility shall not be so reinstated in part or in full at any
time if (x) both a Performing Note Deficiency exists and a Liquidity Event of
Default shall have occurred and be continuing with
35
respect to the relevant Liquidity Facility or (y) a Final Drawing shall
have occurred with respect to such Liquidity Facility. In the event
that, with respect to any particular Liquidity Facility, (i) funds are
withdrawn from any Cash Collateral Account pursuant to clause (i), (ii)
or (iii) of Section 3.6(f) hereof or (ii) such Liquidity Facility shall
become a Downgraded Facility or a Non-Extended Facility at a time when
unreimbursed Interest Drawings under such Liquidity Facility have
reduced the Available Amount thereunder to zero, then funds received by
the Subordination Agent at any time other than (x) any time when a
Liquidity Event of Default shall have occurred and be continuing with
respect to such Liquidity Facility and a Performing Note Deficiency
exists or (y) any time after a Final Drawing shall have occurred with
respect to such Liquidity Facility shall be deposited in such Cash
Collateral Account as and to the extent provided in clause "third" of
Section 2.4(b), clause "third" of Section 3.2 or clause "fourth" of
Section 3.3, as applicable, and applied in accordance with Section
3.6(f) hereof.
(h) Reimbursement. The amount of each drawing under the
Liquidity Facilities shall be due and payable, together with interest thereon,
on the dates and at the rates, respectively, provided in the Liquidity
Facilities.
(i) Final Drawing. Upon receipt from a Liquidity Provider of a
Termination Notice with respect to any Liquidity Facility, the Subordination
Agent shall, not later than the date specified in such Termination Notice, in
accordance with the terms of such Liquidity Facility, request a drawing under
such Liquidity Facility of all available and undrawn amounts thereunder (a
"Final Drawing"). Amounts drawn pursuant to a Final Drawing shall be maintained
and invested in accordance with Section 3.6(f) hereof.
(j) Reduction of Stated Amount. Promptly following each date
on which the Required Amount of the Liquidity Facility for a Class of
Certificates is reduced as a result of a reduction in the Pool Balance with
respect to such Certificates, the Stated Amount of such Liquidity Facility shall
automatically reduce to an amount equal to the Required Amount with respect to
such Liquidity Facility (as calculated by the Subordination Agent after giving
effect to such payment).
(k) Relation to Subordination Provisions. Interest Drawings
under the Liquidity Facilities and withdrawals from the Cash Collateral
Accounts, in each case, in respect of interest on the Certificates of any Class,
will be distributed to the Trustee for such Class of Certificates,
notwithstanding Sections 2.4, 3.2 and 3.3 hereof.
(l) Assignment of Liquidity Facility. The Subordination Agent
agrees not to consent to the assignment by any Liquidity Provider of any of its
rights or obligations under any Liquidity Facility or any interest therein,
unless (i) Southwest shall have consented to such assignment and (ii) each
Rating Agency shall have provided a Ratings Confirmation in respect of such
assignment; provided, that the Subordination Agent shall consent to such
assignment if the conditions in the foregoing clauses (i) and (ii) are
satisfied, and the foregoing is not intended to and shall not be construed to
limit the rights of the initial Liquidity Provider under Section 3.6(e)(ii).
36
ARTICLE IV
EXERCISE OF REMEDIES
SECTION 4.1. Directions from the Controlling Party. (a) (i)
Following the occurrence and during the continuation of an Indenture Default
under any Indenture, the Controlling Party shall direct the Subordination Agent,
which in turn shall direct the Loan Trustee under such Indenture, in the
exercise of remedies available to the holders of the Equipment Notes issued
pursuant to such Indenture, including, without limitation, the ability to vote
all such Equipment Notes in favor of Accelerating such Equipment Notes in
accordance with the provisions of such Indenture. If the Equipment Notes issued
pursuant to any Indenture have been Accelerated following an Indenture Default
with respect thereto, the Controlling Party may direct the Subordination Agent
to sell, assign, contract to sell or otherwise dispose of and deliver all (but
not less than all) of such Equipment Notes to any Person at public or private
sale, at any location at the option of the Controlling Party, all upon such
terms and conditions as it may reasonably deem advisable in accordance with
applicable law.
(ii) Notwithstanding the foregoing, so long as any
Certificates remain Outstanding, during the period ending on the date which is
nine months after the earlier of (x) the Acceleration of the Equipment Notes
issued pursuant to any Indenture or (y) the occurrence of a Southwest Bankruptcy
Event, without the consent of each Trustee, no Aircraft subject to the Lien of
such Indenture or such Equipment Notes may be sold if the net proceeds from such
sale would be less than the Minimum Sale Price for such Aircraft or such
Equipment Notes.
(iii) At the request of the Controlling Party, the
Subordination Agent may from time to time during the continuance of an Indenture
Default (and before the occurrence of a Triggering Event) commission LTV
Appraisals with respect to the Aircraft subject to such Indenture.
(iv) After a Triggering Event occurs and any Equipment Note
becomes a Non-Performing Equipment Note, the Subordination Agent shall obtain
Appraisals with respect to all of the Aircraft (the "LTV Appraisals") as soon as
practicable and additional LTV Appraisals on or prior to each anniversary of the
date of such initial LTV Appraisals; provided that if the Controlling Party
reasonably objects to the appraised value of the Aircraft shown in such LTV
Appraisals, the Controlling Party shall have the right to obtain or cause to be
obtained substitute LTV Appraisals (including any LTV Appraisals based upon
physical inspection of the Aircraft).
(b) Following the occurrence and during the continuance of an
Indenture Default under any Indenture, the Controlling Party shall take such
actions as it may reasonably deem most effectual to complete the sale or other
disposition of the relevant Aircraft or Equipment Notes. In addition, in lieu of
any sale, assignment, contract to sell or other disposition, the Controlling
Party may maintain possession of such Equipment Notes and continue to apply
monies received in respect of such Equipment Notes in accordance with Article
III hereof. In addition, in lieu of such sale, assignment, contract to sell or
other disposition, or in lieu of such maintenance of possession, the Controlling
Party may, subject to the terms and conditions of the related Indenture,
instruct the Loan Trustee under such Indenture to foreclose on the Lien on the
related Aircraft.
37
SECTION 4.2. Remedies Cumulative. Each and every right, power
and remedy given to the Trustees, the Liquidity Providers, the Controlling Party
or the Subordination Agent specifically or otherwise in this Agreement shall be
cumulative and shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may, subject always to the terms and conditions
hereof, be exercised from time to time and as often and in such order as may be
deemed expedient by any Trustee, any Liquidity Provider, the Controlling Party
or the Subordination Agent, as appropriate, and the exercise or the beginning of
the exercise of any power or remedy shall not be construed to be a waiver of the
right to exercise at the same time or thereafter any other right, power or
remedy. No delay or omission by any Trustee, any Liquidity Provider, the
Controlling Party or the Subordination Agent in the exercise of any right,
remedy or power or in the pursuit of any remedy shall impair any such right,
power or remedy or be construed to be a waiver of any default or to be an
acquiescence therein.
SECTION 4.3. Discontinuance of Proceedings. In case any party
to this Agreement (including the Controlling Party in such capacity) shall have
instituted any Proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, entry or otherwise, and such Proceeding shall have
been discontinued or abandoned for any reason or shall have been determined
adversely to the Person instituting such Proceeding, then and in every such case
each such party shall, subject to any determination in such Proceeding, be
restored to its former position and rights hereunder, and all rights, remedies
and powers of such party shall continue as if no such Proceeding had been
instituted.
SECTION 4.4. Right of Certificateholders to Receive Payments
Not to Be Impaired. Anything in this Agreement to the contrary notwithstanding
but subject to each Trust Agreement, the right of any Certificateholder or any
Liquidity Provider, respectively, to receive payments hereunder (including
without limitation pursuant to Section 2.4, 3.2 or 3.3 hereof) when due, or to
institute suit for the enforcement of any such payment on or after the
applicable Distribution Date, shall not be impaired or affected without the
consent of such Certificateholder or such Liquidity Provider, respectively.
SECTION 4.5. Undertaking for Costs. In any Proceeding for the
enforcement of any right or remedy under this Agreement or in any Proceeding
against any Controlling Party or the Subordination Agent for any action taken or
omitted by it as Controlling Party or Subordination Agent, as the case may be, a
court in its discretion may require the filing by any party litigant in the suit
of an undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. The provisions of
this Section do not apply to a suit instituted by the Subordination Agent, a
Liquidity Provider or a Trustee or a suit by Certificateholders holding more
than 10% of the original principal amount of any Class of Certificates.
38
ARTICLE V
DUTIES OF THE SUBORDINATION AGENT;
AGREEMENTS OF TRUSTEES, ETC.
SECTION 5.1. Notice of Indenture Default or Triggering Event.
(a) In the event the Subordination Agent shall have actual knowledge of the
occurrence of an Indenture Default or a Triggering Event, as promptly as
practicable, and in any event within 10 days after obtaining knowledge thereof,
the Subordination Agent shall transmit by mail or courier to the Rating
Agencies, the Liquidity Providers and the Trustees notice of such Indenture
Default or Triggering Event, unless such Indenture Default or Triggering Event
shall have been cured or waived. For all purposes of this Agreement, in the
absence of actual knowledge on the part of a Responsible Officer, the
Subordination Agent shall not be deemed to have knowledge of any Indenture
Default or Triggering Event unless notified in writing by one or more Trustees,
one or more Liquidity Providers or one or more Certificateholders.
(b) Other Notices. The Subordination Agent will furnish to
each Liquidity Provider and Trustee, promptly upon receipt thereof, duplicates
or copies of all reports, notices, requests, demands, certificates, financial
statements and other instruments furnished to the Subordination Agent as
registered holder of the Equipment Notes or otherwise in its capacity as
Subordination Agent to the extent the same shall not have been otherwise
directly distributed to such Liquidity Provider or Trustee, as applicable,
pursuant to the express provision of any other Operative Agreement.
SECTION 5.2. Indemnification. The Subordination Agent shall
not be required to take any action or refrain from taking any action under
Section 5.1 (other than the first sentence thereof) or Article IV hereof unless
the Subordination Agent shall have been indemnified (to the extent and in the
manner reasonably satisfactory to the Subordination Agent) against any
liability, cost or expense (including counsel fees and expenses) which may be
incurred in connection therewith. The Subordination Agent shall not be under any
obligation to take any action under this Agreement and nothing contained in this
Agreement shall require the Subordination Agent to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it. The
Subordination Agent shall not be required to take any action under Section 5.1
(other than the first sentence thereof) or Article IV hereof, nor shall any
other provision of this Agreement be deemed to impose a duty on the
Subordination Agent to take any action, if the Subordination Agent shall have
been advised by counsel that such action is contrary to the terms hereof or is
otherwise contrary to law.
SECTION 5.3. No Duties Except as Specified in
Intercreditor
Agreement. The Subordination Agent shall not have any duty or obligation to take
or refrain from taking any action under, or in connection with, this Agreement,
except as expressly provided by the terms of this Agreement; and no implied
duties or obligations shall be read into this Agreement against the
Subordination Agent. The Subordination Agent agrees that it will, in its
individual capacity and at its own cost and expense (but without any right of
indemnity in respect of any such cost or expense under Section 5.2 or 7.1
hereof) promptly take such action as may be necessary to duly discharge all
Liens on any of the Trust Accounts or any monies deposited therein which result
39
from claims against it in its individual capacity not related to its activities
hereunder or any other Operative Agreement.
SECTION 5.4. Notice from the Liquidity Providers and Trustees.
If any Liquidity Provider or Trustee has notice of an Indenture Default or a
Triggering Event, such Person shall promptly give notice thereof to all other
Liquidity Providers and Trustees and to the Subordination Agent, provided,
however, that no such Person shall have any liability hereunder as a result of
its failure to deliver any such notice.
ARTICLE VI
THE SUBORDINATION AGENT
SECTION 6.1. Authorization; Acceptance of Trusts and Duties.
Each of the Class A-1 Trustee and the Class A-2 Trustee hereby designates and
appoints the Subordination Agent as the agent and trustee of such Trustee under
the applicable Liquidity Facility and authorizes the Subordination Agent to
enter into the applicable Liquidity Facility as agent and trustee for such
Trustee. Each of the Liquidity Providers and all the Trustees hereby designates
and appoints the Subordination Agent as the Subordination Agent under this
Agreement. WTC hereby accepts the duties hereby created and applicable to it as
the Subordination Agent and agrees to perform the same but only upon the terms
of this Agreement and agrees to receive and disburse all monies received by it
in accordance with the terms hereof. The Subordination Agent shall not be
answerable or accountable under any circumstances, except (a) for its own
willful misconduct or gross negligence (or ordinary negligence in the handling
of funds), (b) as provided in Sections 2.2 or 5.3 hereof and (c) for liabilities
that may result from the material inaccuracy of any representation or warranty
of the Subordination Agent made in its individual capacity in any Operative
Agreement. The Subordination Agent shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Subordination Agent, unless
it is proved that the Subordination Agent was negligent in ascertaining the
pertinent facts.
SECTION 6.2. Absence of Duties. The Subordination Agent shall
have no duty to see to any recording or filing of this Agreement or any other
document, or to see to the maintenance of any such recording or filing.
SECTION 6.3. No Representations or Warranties as to Documents.
The Subordination Agent in its individual capacity does not make nor shall be
deemed to have made any representation or warranty as to the validity, legality
or enforceability of this Agreement or any other Operative Agreement or as to
the correctness of any statement contained in any thereof, except for the
representations and warranties of the Subordination Agent, made in its
individual capacity, under any Operative Agreement to which it is a party. The
Certificateholders, the Trustees and the Liquidity Providers make no
representation or warranty hereunder whatsoever.
SECTION 6.4. No Segregation of Monies; No Interest. Any monies
paid to or retained by the Subordination Agent pursuant to any provision hereof
and not then required to be distributed to any Trustee or any Liquidity Provider
as provided in Articles II and III hereof or deposited into one or more Trust
Accounts need not be segregated in any manner except to the
40
extent required by such Articles II and III and by law, and the Subordination
Agent shall not (except as otherwise provided in Section 2.2 hereof) be liable
for any interest thereon; provided, however, that any payments received or
applied hereunder by the Subordination Agent shall be accounted for by the
Subordination Agent so that any portion thereof paid or applied pursuant hereto
shall be identifiable as to the source thereof.
SECTION 6.5. Reliance; Agents; Advice of Counsel. The
Subordination Agent shall not incur liability to anyone in acting upon any
signature, instrument, notice, resolution, request, consent, order, certificate,
report, opinion, bond or other document or paper believed by it to be genuine
and believed by it to be signed by the proper party or parties. As to the Pool
Balance of any Trust as of any date, the Subordination Agent may for all
purposes hereof rely on a certificate signed by any Responsible Officer of the
applicable Trustee, and such certificate shall constitute full protection to the
Subordination Agent for any action taken or omitted to be taken by it in good
faith in reliance thereon. As to any fact or matter relating to the Liquidity
Providers or the Trustees the manner of ascertainment of which is not
specifically described herein, the Subordination Agent may for all purposes
hereof rely on a certificate, signed by any Responsible Officer of the
applicable Liquidity Provider or Trustee, as the case may be, as to such fact or
matter, and such certificate shall constitute full protection to the
Subordination Agent for any action taken or omitted to be taken by it in good
faith in reliance thereon. The Subordination Agent shall assume, and shall be
fully protected in assuming, that each of the Liquidity Providers and each of
the Trustees are authorized to enter into this Agreement and to take all action
to be taken by them pursuant to the provisions hereof, and shall not inquire
into the authorization of each of the Liquidity Providers and each of the
Trustees with respect thereto. In the administration of the trusts hereunder,
the Subordination Agent may execute any of the trusts or powers hereof and
perform its powers and duties hereunder directly or through agents or attorneys
and may consult with counsel, accountants and other skilled persons to be
selected and retained by it, and the Subordination Agent shall not be liable for
the acts or omissions of any agent appointed with due care or for anything done,
suffered or omitted in good faith by it in accordance with the advice or written
opinion of any such counsel, accountants or other skilled persons.
SECTION 6.6. Capacity in Which Acting. The Subordination Agent
acts hereunder solely as agent and trustee herein and not in its individual
capacity, except as otherwise expressly provided in the Operative Agreements.
SECTION 6.7. Compensation. The Subordination Agent shall be
entitled to reasonable compensation, including expenses and disbursements, for
all services rendered hereunder and shall have a priority claim to the extent
set forth in Article III hereof on all monies collected hereunder for the
payment of such compensation, to the extent that such compensation shall not be
paid by others. The Subordination Agent agrees that it shall have no right
against any Trustee or Liquidity Provider for any fee as compensation for its
services as agent under this Agreement. The provisions of this Section 6.7 shall
survive the termination of this Agreement.
SECTION 6.8. May Become Certificateholder. The institution
acting as Subordination Agent hereunder may become a Certificateholder and have
all rights and benefits of a Certificateholder to the same extent as if it were
not the institution acting as the Subordination Agent.
41
SECTION 6.9. Subordination Agent Required; Eligibility. There
shall at all times be a Subordination Agent hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any State or the District of Columbia having a combined capital
and surplus of at least $100,000,000 (or the obligations of which, whether now
in existence or hereafter incurred, are fully and unconditionally guaranteed by
a corporation organized and doing business under the laws of the United States
of America, any State thereof or of the District of Columbia and having a
combined capital and surplus of at least $100,000,000), if there is such an
institution willing and able to perform the duties of the Subordination Agent
hereunder upon reasonable or customary terms. Such corporation shall be a
citizen of the United States and shall be authorized under the laws of the
United States or any State thereof or of the District of Columbia to exercise
corporate trust powers and shall be subject to supervision or examination by
federal, state or District of Columbia authorities. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of any of the aforesaid supervising or examining authorities, then,
for the purposes of this Section 6.9, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.
In case at any time the Subordination Agent shall cease to be
eligible in accordance with the provisions of this Section, the Subordination
Agent shall resign immediately in the manner and with the effect specified in
Section 8.1.
SECTION 6.10. Money to Be Held in Trust. All Equipment Notes,
monies and other property deposited with or held by the Subordination Agent
pursuant to this Agreement shall be held in trust for the benefit of the parties
entitled to such Equipment Notes, monies and other property. All such Equipment
Notes, monies or other property shall be held in the Trust Department of the
institution acting as Subordination Agent hereunder.
ARTICLE VII
INDEMNIFICATION OF SUBORDINATION AGENT
SECTION 7.1. Scope of Indemnification. The Subordination Agent
shall be indemnified hereunder to the extent and in the manner described in
Section 8.1 of the Participation Agreements. The indemnities contained in such
Section of such agreements shall survive the termination of this Agreement.
ARTICLE VIII
SUCCESSOR SUBORDINATION AGENT
SECTION 8.1. Replacement of Subordination Agent; Appointment
of Successor. The Subordination Agent may resign at any time by so notifying the
Trustees and the Liquidity Providers. The Controlling Party may remove the
Subordination Agent for cause by so notifying the Subordination Agent and may
appoint a successor Subordination Agent. The Controlling Party shall remove the
Subordination Agent if:
(1) the Subordination Agent fails to comply with Section 6.9
hereof;
42
(2) the Subordination Agent is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Subordination Agent or its property; or
(4) the Subordination Agent otherwise becomes incapable of
acting.
If the Subordination Agent resigns or is removed or if a
vacancy exists in the office of Subordination Agent for any reason (the
Subordination Agent in such event being referred to herein as the retiring
Subordination Agent), the Controlling Party shall promptly appoint a successor
Subordination Agent.
A successor Subordination Agent shall deliver (x) a written
acceptance of its appointment as Subordination Agent hereunder to the retiring
Subordination Agent and (y) a written assumption of its obligations hereunder
and under each Liquidity Facility to each party hereto, upon which the
resignation or removal of the retiring Subordination Agent shall become
effective, and the successor Subordination Agent shall have all the rights,
powers and duties of the Subordination Agent under this Agreement. The successor
Subordination Agent shall mail a notice of its succession to the Liquidity
Providers and the Trustees. The retiring Subordination Agent shall promptly
transfer its rights under each of the Liquidity Facilities and all of the
property held by it as Subordination Agent to the successor Subordination Agent.
If a successor Subordination Agent does not take office within
60 days after the retiring Subordination Agent resigns or is removed, the
retiring Subordination Agent or one or more of the Trustees may petition any
court of competent jurisdiction for the appointment of a successor Subordination
Agent.
If the Subordination Agent fails to comply with Section 6.9
hereof (to the extent applicable), one or more of the Trustees or one or more of
the Liquidity Providers may petition any court of competent jurisdiction for the
removal of the Subordination Agent and the appointment of a successor
Subordination Agent.
Notwithstanding the foregoing, no resignation or removal of
the Subordination Agent shall be effective unless and until a successor has been
appointed. No appointment of a successor Subordination Agent shall be effective
unless and until the Rating Agencies shall have delivered a Ratings
Confirmation.
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS
SECTION 9.1. Amendments, Waivers, etc. (a) This Agreement may
not be supplemented, amended or modified without the consent of each Trustee
(acting, except in the case of any amendment pursuant to Section 3.6(e)(v)(y)
hereof with respect to any Replacement Liquidity Facility or any amendment
contemplated by the last sentence of this Section 9.1(a), with the consent of
holders of Certificates of the related Class evidencing interests in the related
Trust aggregating not less than a majority in interest in such Trust or as
otherwise authorized
43
pursuant to the relevant Trust Agreement), the Subordination Agent and, subject
to clause (ii) of the proviso in Section 9.1(c), each Liquidity Provider;
provided, however, that this Agreement may be supplemented, amended or modified
without the consent of (x) any Trustee if such supplement, amendment or
modification (i) is in accordance with Section 9.1(c) or 9.1(d) hereof or (ii)
cures an ambiguity or inconsistency or does not materially adversely affect such
Trustee or the holders of the related Class of Certificates and (y) any
Liquidity Provider if such supplement, amendment or modification is in
accordance with Section 9.1(d) hereof; provided further, however, that, if such
supplement, amendment or modification (A) would (x) directly or indirectly
modify or supersede, or otherwise conflict with, Section 2.2(b), Section 3.6(e),
Section 3.6(f) (other than the last sentence thereof), Section 3.6(l), the last
sentence of this Section 9.1(a) or Section 9.1(c), the second sentence of
Section 10.6 or this proviso (collectively, the "Southwest Provisions") or (y)
otherwise adversely affect the interests of a potential Replacement Liquidity
Provider or of Southwest with respect to its ability to replace any Liquidity
Facility or with respect to its payment obligations under any Operative
Agreement or (B) is made pursuant to the last sentence of this Section 9.1(a) or
pursuant to Section 9.1(c), then such supplement, amendment or modification
shall not be effective without the additional written consent of Southwest.
Notwithstanding the foregoing, without the consent of each Certificateholder and
each Liquidity Provider, no supplement, amendment or modification of this
Agreement may (i) reduce the percentage of the interest in any Trust evidenced
by the Certificates issued by such Trust necessary to consent to modify or amend
any provision of this Agreement or to waive compliance therewith or (ii) except
as provided in Section 9.1(c) or the last sentence of this Section 9.1(a),
modify Section 2.4, 3.2 or 3.3 hereof, relating to the distribution of monies
received by the Subordination Agent hereunder from the Equipment Notes or
pursuant to the Liquidity Facilities. Nothing contained in this Section shall
require the consent of a Trustee at any time following the payment of Final
Distributions with respect to the related Class of Certificates. If the
Replacement Liquidity Facility for any Liquidity Facility in accordance with
Section 3.6(e) hereof is to be comprised of more than one instrument as
contemplated by the definition of the term "Replacement Liquidity Facility",
then each of the parties hereto agrees to amend this Agreement to incorporate
appropriate mechanics for multiple Liquidity Facilities for an individual Trust.
(b) In the event that the Subordination Agent, as the
registered holder of any Equipment Notes, receives a request for its consent to
any amendment, modification, consent or waiver under such Equipment Notes, the
Indenture pursuant to which such Equipment Notes were issued, or the related
Participation Agreement or other related document, (i) if no Indenture Default
shall have occurred and be continuing with respect to such Indenture, the
Subordination Agent shall request directions with respect to each Series of such
Equipment Notes from the Trustee of the Trust which holds such Equipment Notes
and shall vote or consent in accordance with the directions of such Trustee and
(ii) if any Indenture Default shall have occurred and be continuing with respect
to such Indenture, the Subordination Agent will exercise its voting rights as
directed by the Controlling Party, subject to Sections 4.1 and 4.4 hereof;
provided that no such amendment, modification or waiver shall, without the
consent of each Liquidity Provider, reduce the amount of principal or interest
payable by Southwest under any Equipment Note issued under any Indenture in
respect of an Aircraft.
(c) If, with respect to any Aircraft, Class C Certificates are
issued, this Agreement shall be amended by written agreement of Southwest and
the Subordination Agent to
44
provide for the subordination of such Class C Certificates to the Class A-1
Certificates, the Class A-2 Certificates and the Class B Certificates
substantially in the same manner as the Class B Certificates are subordinated
hereunder to the Class A-1 Certificates and the Class A-2 Certificates. No such
amendment shall materially adversely affect any Trustee. The amendment to this
Agreement to give effect to the issuance of any Class C Certificates shall
include, without limitation:
(i) the trustee of the Class C Trust shall be added as a party
to this Agreement;
(ii) the definitions of "Cash Collateral Account",
"Certificate", "Class", "Equipment Notes", "Final Legal Distribution
Date", "Liquidity Facilities", "Liquidity Provider", "LTV Ratio",
"Stated Interest Rate", "Trust", "Trust Agreement" and "Controlling
Party" shall be revised, as appropriate, to reflect the issuance of the
Class C Certificates (and the subordination thereof); and
(iii) the provisions of this Agreement governing payments with
respect to Certificates and related notices, including, without
limitation, Sections 2.4, 3.1, 3.2, 3.3 and 3.6(e), shall be revised to
provide for distributions on the Class C Certificates after payment of
all relevant distributions on the Class C Certificates.
If, with respect to any Aircraft, Series C Equipment Notes are issued to any
Person other than the Class C Trust, this Agreement shall be amended by written
agreement of Southwest and the Subordination Agent to (i) provide for each
holder of a Series C Equipment Note to be bound by the provisions of Section
2.6(a) hereof so that the Controlling Party, among other things, shall be
entitled to direct the Loan Trustee as provided therein (and such Series C
Equipment Notes shall make effective provision therefor so as to bind each
holder thereof to such provisions of Section 2.6(a) hereof) and (ii) to revise
the definitions of "Controlling Party" and "Equipment Notes", as appropriate, to
reflect the issuance of the Series C Equipment Notes (and the prior rights, as
against the holders of such Series C Equipment Notes, of the Class A-1 Trustee,
the Class A-2 Trustee and the Class B Trustee to be such "Controlling Party").
No such amendment shall materially adversely affect any Trustee.
SECTION 9.2. Subordination Agent Protected. If, in the
reasonable opinion of the institution acting as the Subordination Agent
hereunder, any document required to be executed pursuant to the terms of Section
9.1 affects any right, duty, immunity or indemnity with respect to it under this
Agreement or any Liquidity Facility, the Subordination Agent may in its
discretion decline to execute such document.
SECTION 9.3. Effect of Supplemental Agreements. Upon the
execution of any amendment, consent or supplement hereto pursuant to the
provisions hereof, this Agreement shall be and be deemed to be and shall be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Agreement
of the parties hereto and beneficiaries hereof shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
agreement shall be and be deemed to be and shall be part of the terms and
conditions of this Agreement for any and all purposes. In executing or
45
accepting any supplemental agreement permitted by this Article IX, the
Subordination Agent shall be entitled to receive, and shall be fully protected
in relying upon, an opinion of counsel stating that the execution of such
supplemental agreement is authorized or permitted by this Agreement.
SECTION 9.4. Notice to Rating Agencies. Promptly following its
receipt of each amendment, consent, modification, supplement or waiver
contemplated by this Article IX, the Subordination Agent shall send a copy
thereof to each Rating Agency.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Termination of
Intercreditor Agreement.
Following payment of Final Distributions with respect to each Class of
Certificates and the payment in full of all Liquidity Obligations to the
Liquidity Providers and provided that there shall then be no other amounts due
to the Certificateholders, the Trustees, the Liquidity Providers and the
Subordination Agent hereunder or under the Trust Agreements, and that the
commitment of the Liquidity Providers under the Liquidity Facilities shall have
expired or been terminated, this Agreement and the trusts created hereby shall
terminate and this Agreement shall be of no further force or effect. Except as
aforesaid or otherwise provided, this Agreement and the trusts created hereby
shall continue in full force and effect in accordance with the terms hereof.
SECTION 10.2.
Intercreditor Agreement for Benefit of Trustees,
Liquidity Providers and Subordination Agent. Subject to the second sentence of
Section 10.6 and the provisions of Section 4.4, nothing in this Agreement,
whether express or implied, shall be construed to give to any Person other than
the Trustees, the Liquidity Providers and the Subordination Agent any legal or
equitable right, remedy or claim under or in respect of this Agreement.
SECTION 10.3. 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
Agreement to be made, given, furnished or filed shall be in writing, mailed by
certified mail, postage prepaid, or by confirmed telecopy and
(i) if to the Subordination Agent, addressed to at its
office at:
WILMINGTON TRUST COMPANY
One ▇▇▇▇▇▇ Square
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Corporate Trust Administration
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
46
(ii) if to any Trustee, addressed to it at its office at:
WILMINGTON TRUST COMPANY
One ▇▇▇▇▇▇ Square
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Corporate Trust Administration
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(iii) if to the initial Class A-1 Liquidity Provider and
initial Class A-2 Liquidity Provider, addressed to it
at its office at:
Westdeutsche Landesbank Girozentrale
New York Branch
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: Transportation Finance Global Structured
Finance / Americas
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
with a copy of any Notice of Borrowing to:
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Loan Administration
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Whenever any notice in writing is required to be given by any Trustee or
Liquidity Provider or the Subordination Agent to any of the other of them, such
notice shall be deemed given and such requirement satisfied when such notice is
received. 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
Agreement. A copy of any notice given hereunder shall be provided to Southwest
by the Subordination Agent at the address referred to in the Participation
Agreements.
SECTION 10.4. Severability. Any provision of this Agreement
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 10.5. No Oral Modifications or Continuing Waivers. No
terms or provisions of this Agreement 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 Agreement and any waiver of the terms hereof shall be
effective only in the specific instance and for the specific purpose given.
SECTION 10.6. 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
47
the successors and assigns of each, all as herein provided. In addition, the
Southwest Provisions shall inure to the benefit of Southwest and its successors
and assigns, and (without limitation of the foregoing) Southwest is hereby
constituted, and agreed to be, an express third party beneficiary of the
Southwest Provisions.
SECTION 10.7. Headings. The headings of the various Articles
and Sections herein and in the table of contents hereto are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 10.8. Counterpart Form. This Agreement 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 agreement.
SECTION 10.9. Subordination. (a) As between the Liquidity
Providers, on the one hand, and the Trustees and the Certificateholders, on the
other hand, and as among the Trustees and the related Certificateholders, this
Agreement shall be a subordination agreement for purposes of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ Bankruptcy Code, as amended from time to time.
(b) Notwithstanding the provisions of this Agreement, if prior
to the payment in full to the Liquidity Providers of all Liquidity Obligations
then due and payable, any party hereto shall have received any payment or
distribution in respect of Equipment Notes or any other amount under the
Indentures or other Operative Agreements which, had the subordination provisions
of this Agreement been properly applied to such payment, distribution or other
amount, would not have been distributed to such Person, then such payment,
distribution or other amount shall be received and held in trust by such Person
and paid over or delivered to the Subordination Agent for application as
provided herein.
(c) If any Trustee, any Liquidity Provider or the
Subordination Agent receives any payment in respect of any obligations owing
hereunder (or, in the case of the Liquidity Providers, in respect of the
Liquidity Obligations), which is subsequently invalidated, declared
preferential, set aside and/or required to be repaid to a trustee, receiver or
other party, then, to the extent of such payment, such obligations (or, in the
case of the Liquidity Providers, such Liquidity Obligations) intended to be
satisfied shall be revived and continue in full force and effect as if such
payment had not been received.
(d) The Trustees (on behalf of themselves and the holders of
Certificates), the Liquidity Providers and the Subordination Agent confirm that
the payment priorities specified in Sections 2.4, 3.2 and 3.3 shall apply in all
circumstances, notwithstanding the fact that the obligations owed to the
Trustees and the holders of Certificates are secured by certain assets and the
Liquidity Obligations may not be so secured. The Trustees expressly agree (on
behalf of themselves and the holders of Certificates) not to assert priority
over the holders of Liquidity Obligations due to their status as secured
creditors in any bankruptcy, insolvency or other legal proceeding.
48
(e) Each of the Trustees (on behalf of themselves and the
holders of Certificates), the Liquidity Providers and the Subordination Agent
may take any of the following actions without impairing its rights under this
Agreement:
(i) obtain a Lien on any property to secure any amounts owing
to it hereunder, including, in the case of the Liquidity Providers, the
Liquidity Obligations,
(ii) obtain the primary or secondary obligation of any other
obligor with respect to any amounts owing to it hereunder, including,
in the case of the Liquidity Providers, any of the Liquidity
Obligations,
(iii) renew, extend, increase, alter or exchange any amounts
owing to it hereunder, including, in the case of the Liquidity
Providers, any of the Liquidity Obligations, or release or compromise
any obligation of any obligor with respect thereto,
(iv) refrain from exercising any right or remedy, or delay in
exercising such right or remedy, which it may have, or
(v) take any other action which might discharge a subordinated
party or a surety under applicable law;
provided, however, that the taking of any such actions by any of the Trustees,
the Liquidity Providers or the Subordination Agent shall not prejudice the
rights or adversely affect the obligations of any other party under this
Agreement.
SECTION 10.10. Governing Law. THIS AGREEMENT 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.
SECTION 10.11. Submission to Jurisdiction; Waiver of Jury
Trial; Waiver of Immunity.
(a) Each of the parties hereto hereby irrevocably and
unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any other Operative Agreement,
or for recognition and enforcement of any judgment in respect hereof or
thereof, to the nonexclusive general jurisdiction of the courts of the
State of New York, the courts of the United States of America for the
Southern District of New York, and the appellate courts from any
thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially
49
similar form of mail), postage prepaid, to each party hereto at its
address set forth in Section 10.3 hereof, or at such other address of
which the other parties shall have been notified pursuant thereto; and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to ▇▇▇ in any other jurisdiction.
(b) EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS BEING ESTABLISHED,
including, without limitation, contract claims, tort claims, breach of duty
claims and all other common law and statutory claims. Each of the parties
warrants and represents that it has reviewed this waiver with its legal counsel,
and that it knowingly and voluntarily waives its jury trial rights following
consultation with such legal counsel. THIS WAIVER IS IRREVOCABLE, AND CANNOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
(c) Each Liquidity Provider hereby waives any immunity it may
have from the jurisdiction of the courts of the United States of America or of
any State and waives any immunity any of its properties located in the United
States of America may have from attachment or execution upon a judgment entered
by any such court under the United States Foreign Sovereign Immunities Act of
1976 or any similar successor legislation.
50
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized, as of the day and year first above written, and acknowledge that
this Agreement has been made and delivered in the City of New York, and this
Agreement has become effective only upon such execution and delivery.
WILMINGTON TRUST COMPANY,
not in its individual capacity but solely
as Trustee for each of the Trusts
By
---------------------------------------
Name:
Title:
WESTDEUTCHE LANDESBANK GIROZENTRALE, New
York Branch, as Class A-1 Liquidity
Provider and Class A-2 Liquidity Provider
By
---------------------------------------
Name:
Title:
By
---------------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY, not in its
individual capacity except as expressly
set forth herein but solely as
Subordination Agent and trustee
By
---------------------------------------
Name:
Title:
Schedule I
Indentures
1. Trust Indenture and Mortgage (N700GS) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
2. Trust Indenture and Mortgage (N701GS) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
3. Trust Indenture and Mortgage (N703SW) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
4. Trust Indenture and Mortgage (N706SW) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
5. Trust Indenture and Mortgage (N712SW) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
6. Trust Indenture and Mortgage (N798SW) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
7. Trust Indenture and Mortgage (N713SW) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
8. Trust Indenture and Mortgage (N714CB) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
9. Trust Indenture and Mortgage (N715SW) between
Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
10. Trust Indenture and Mortgage (N716SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
11. Trust Indenture and Mortgage (N719SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
12. Trust Indenture and Mortgage (N720WN) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
13. Trust Indenture and Mortgage (N707SA) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
14. Trust Indenture and Mortgage (N742SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
15. Trust Indenture and Mortgage (N726SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
16. Trust Indenture and Mortgage (N745SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
17. Trust Indenture and Mortgage (N727SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
18. Trust Indenture and Mortgage (N728SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
19. Trust Indenture and Mortgage (N729SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
20. Trust Indenture and Mortgage (N770SA) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
21. Trust Indenture and Mortgage (N772SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
22. Trust Indenture and Mortgage (N782SA) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
23. Trust Indenture and Mortgage (N789SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
24. Trust Indenture and Mortgage (N791SW) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
25. Trust Indenture and Mortgage (N400WN) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
26. Trust Indenture and Mortgage (N797MX) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
27. Trust Indenture and Mortgage (N403WN) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
28. Trust Indenture and Mortgage (N405WN) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.
29. Trust Indenture and Mortgage (N406WN) between Southwest Airlines Co.
and Wilmington Trust Company, in its individual capacity and as
Mortgagee.