exv4w7



 





Exhibit 4.7




Execution Copy





 

 








TRUST INDENTURE AND MORTGAGE N259WN




Dated as of October 3, 2007




Between




SOUTHWEST AIRLINES CO.,




Owner




and




WILMINGTON TRUST COMPANY,

not in its individual capacity,

except as expressly stated herein,

but solely as Mortgagee,




Mortgagee




 






EQUIPMENT NOTES COVERING

ONE BOEING 737-700 AIRCRAFT

BEARING U.S. REGISTRATION MARK N259WN

AND MANUFACTURER’S SERIAL NO. 35554




 

 






 









 












TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	GRANTING CLAUSE	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE II THE EQUIPMENT NOTES	 	 	4	 
	SECTION 2.01.
	 	Form of Equipment Notes	 	 	4	 
	SECTION 2.02.
	 	Issuance and Terms of Equipment Notes	 	 	10	 
	SECTION 2.03.
	 	[Intentionally Omitted]	 	 	12	 
	SECTION 2.04.
	 	Method of Payment	 	 	12	 
	SECTION 2.05.
	 	Application of Payments	 	 	14	 
	SECTION 2.06.
	 	Termination of Interest in Collateral	 	 	15	 
	SECTION 2.07.
	 	Registration Transfer and Exchange of Equipment Notes	 	 	15	 
	SECTION 2.08.
	 	Mutilated, Destroyed, Lost or Stolen Equipment Notes	 	 	16	 
	SECTION 2.09.
	 	Payment of Expenses on Transfer; Cancellation	 	 	17	 
	SECTION 2.10.
	 	Mandatory Redemptions of Equipment Notes	 	 	17	 
	SECTION 2.11.
	 	Voluntary Redemptions of Equipment Notes	 	 	17	 
	SECTION 2.12.
	 	Redemptions; Notice of Redemption	 	 	18	 
	SECTION 2.13.
	 	Subordination	 	 	19	 
	 
	 	 	 	 	 	 
	ARTICLE III RECEIPT, DISTRIBUTION AND APPLICATION OF PAYMENTS	 	 	20	 
	SECTION 3.01.
	 	Basic Distributions	 	 	20	 
	SECTION 3.02.
	 	Event of Loss; Replacement; Optional Redemption	 	 	20	 
	SECTION 3.03.
	 	Payments After Event of Default	 	 	21	 
	SECTION 3.04.
	 	Certain Payments	 	 	24	 
	SECTION 3.05.
	 	Other Payments	 	 	25	 
	SECTION 3.06.
	 	Cooperation	 	 	25	 
	SECTION 3.07.
	 	Securities Account	 	 	25	 
	SECTION 3.08.
	 	Payments to the Owner	 	 	26	 
	 
	 	 	 	 	 	 
	ARTICLE IV COVENANTS OF THE OWNER	 	 	26	 
	SECTION 4.01.
	 	Liens	 	 	26	 
	SECTION 4.02.
	 	Possession, Operation and Use,
Maintenance, Registration and Markings	 	 	26	 
	SECTION 4.03.
	 	Inspection	 	 	31	 
	SECTION 4.04.
	 	Replacement and Pooling of Parts,
Alterations, Modifications and Additions; Substitution of Engines	 	 	32	 
	SECTION 4.05.
	 	Loss, Destruction or Requisition	 	 	35	 
	SECTION 4.06.
	 	Insurance	 	 	39	 
	SECTION 4.07.
	 	Merger of Owner	 	 	40	 
	 
	 	 	 	 	 	 
	ARTICLE V EVENTS OF DEFAULT; REMEDIES OF MORTGAGEE	 	 	41	 
	SECTION 5.01.
	 	Event of Default	 	 	41	 






 









 






TABLE OF CONTENTS

(continued)




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	SECTION 5.02.
	 	Remedies	 	 	43	 
	SECTION 5.03.
	 	Return of Aircraft, Etc.	 	 	44	 
	SECTION 5.04.
	 	Remedies Cumulative	 	 	45	 
	SECTION 5.05.
	 	Discontinuance of Proceedings	 	 	45	 
	SECTION 5.06.
	 	Waiver of Past Defaults	 	 	46	 
	SECTION 5.07.
	 	Appointment of Receiver	 	 	46	 
	SECTION 5.08.
	 	Mortgagee Authorized to Execute Bills of Sale, Etc.	 	 	46	 
	SECTION 5.09.
	 	Rights of Note Holders to Receive Payment	 	 	46	 
	 
	 	 	 	 	 	 
	ARTICLE VI DUTIES OF THE MORTGAGEE	 	 	47	 
	SECTION 6.01.
	 	Notice of Event of Default	 	 	47	 
	SECTION 6.02.
	 	Action Upon Instructions; Certain Rights and Limitations	 	 	47	 
	SECTION 6.03.
	 	Indemnification	 	 	48	 
	SECTION 6.04.
	 	No Duties Except as Specified in Trust Indenture or Instructions	 	 	48	 
	SECTION 6.05.
	 	No Action Except Under Trust Indenture or Instructions	 	 	48	 
	SECTION 6.06.
	 	Investment of Amounts Held by Mortgagee	 	 	49	 
	 
	 	 	 	 	 	 
	ARTICLE VII THE MORTGAGEE	 	 	49	 
	SECTION 7.01.
	 	Acceptance of Trusts and Duties	 	 	49	 
	SECTION 7.02.
	 	Absence of Duties	 	 	49	 
	SECTION 7.03.
	 	No Representations or Warranties as to Aircraft or Documents	 	 	50	 
	SECTION 7.04.
	 	No Segregation of Monies; No Interest	 	 	50	 
	SECTION 7.05.
	 	Reliance; Agreements; Advice of Counsel	 	 	50	 
	SECTION 7.06.
	 	Compensation	 	 	51	 
	SECTION 7.07.
	 	Instructions from Note Holders	 	 	51	 
	 
	 	 	 	 	 	 
	ARTICLE VIII INDEMNIFICATION	 	 	51	 
	SECTION 8.01.
	 	Scope of Indemnification	 	 	51	 
	 
	 	 	 	 	 	 
	ARTICLE IX SUCCESSOR AND SEPARATE TRUSTEES	 	 	52	 
	SECTION 9.01.
	 	Resignation of Mortgagee; Appointment of Successor	 	 	52	 
	SECTION 9.02.
	 	Appointment of Additional and Separate Trustees	 	 	53	 
	 
	 	 	 	 	 	 
	ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS TRUST INDENTURE AND OTHER DOCUMENTS	 	 	54	 
	SECTION 10.01.
	 	Instructions of Majority; Limitations	 	 	54	 
	SECTION 10.02.
	 	Mortgagee Protected	 	 	56	 
	SECTION 10.03.
	 	Documents Mailed to Note Holders	 	 	56	 
	SECTION 10.04.
	 	No Request Necessary for Trust Indenture Supplement	 	 	56	 






ii









 






TABLE OF CONTENTS

(continued)




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE XI MISCELLANEOUS	 	 	56	 
	SECTION 11.01.
	 	Termination of Trust Indenture	 	 	56	 
	SECTION 11.02.
	 	No Legal Title to Collateral in Note Holders	 	 	57	 
	SECTION 11.03.
	 	Sale of Aircraft by Mortgagee Is Binding	 	 	57	 
	SECTION 11.04.
	 	Trust Indenture for Benefit of
Owner, Mortgagee, Note Holders and the other Indenture Indemnitees	 	 	57	 
	SECTION 11.05.
	 	Notices	 	 	57	 
	SECTION 11.06.
	 	Severability	 	 	58	 
	SECTION 11.07.
	 	No Oral Modification or Continuing Waivers	 	 	58	 
	SECTION 11.08.
	 	Successors and Assigns	 	 	58	 
	SECTION 11.09.
	 	Headings	 	 	58	 
	SECTION 11.10.
	 	Normal Commercial Relations	 	 	58	 
	SECTION 11.11.
	 	Governing Law; Counterpart Form	 	 	59	 
	SECTION 11.12.
	 	Voting By Note Holders	 	 	59	 
	SECTION 11.13.
	 	Bankruptcy	 	 	59	 






	 	 	 
	ANNEX A
	 	Definitions
	ANNEX B
	 	Insurance
	EXHIBIT A
	 	Form of Trust Indenture and Mortgage Supplement
	SCHEDULE I
	 	Equipment Notes Amortization and Interest Rates







iii









 








TRUST INDENTURE AND MORTGAGE N259WN




          TRUST INDENTURE AND MORTGAGE N259WN, dated as of October 3, 2007, (“Trust Indenture”), between
SOUTHWEST AIRLINES CO., a Texas corporation (“Owner”), and WILMINGTON TRUST COMPANY, a Delaware
banking corporation, not in its individual capacity, except as expressly stated herein, but solely
as Mortgagee hereunder (together with its successors hereunder, the “Mortgagee”).




WITNESSETH




          WHEREAS, all capitalized terms used herein shall have the respective meanings set forth or
referred to in Article I hereof;




          WHEREAS, the parties hereto desire by this Trust Indenture, among other things, (i) to provide
for the issuance by the Owner of the Series of Equipment Notes specified on Schedule I hereto, and
Additional Series, and (ii) to provide for the assignment, mortgage and pledge by the Owner to the
Mortgagee, as part of the Collateral hereunder, among other things, of all of the Owner’s right,
title and interest in and to the Aircraft and, except as hereinafter expressly provided, all
payments and other amounts received hereunder in accordance with the terms hereof, as security for,
among other things, the Owner’s obligations to the Note Holders, the Indenture Indemnitees and the
Related Secured Parties;




          WHEREAS, all things have been done to make the Equipment Notes of the Series listed on
Schedule I hereto, when executed by the Owner and authenticated and delivered by the Mortgagee
hereunder, the valid, binding and enforceable obligations of the Owner; and




          WHEREAS, all things necessary to make this Trust Indenture the valid, binding and legal
obligation of the Owner for the uses and purposes herein set forth, in accordance with its terms,
have been done and performed and have happened;




GRANTING CLAUSE




          NOW, THEREFORE, THIS TRUST INDENTURE AND MORTGAGE WITNESSETH, that, to secure (i) the prompt
payment of the Original Amount of, interest on, Make-Whole Amount, if any, and all other amounts
due with respect to, all Equipment Notes from time to time outstanding hereunder according to their
tenor and effect and to secure the performance and observance by the Owner of all the agreements,
covenants and provisions contained herein and in the Participation Agreement and in the Equipment
Notes (the “Secured Obligations”) for the benefit of the Note Holders and each of the Indenture
Indemnitees, and (ii) the Related Secured Obligations under any Related Indenture for the benefit
of the Related Secured Parties, and in consideration of the premises and of the covenants herein
contained, and of the acceptance of the Equipment Notes and the Related Equipment Notes by the
holders thereof, and for other good and valuable consideration the receipt and adequacy whereof are
hereby acknowledged, the Owner has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign, transfer, convey,
mortgage, pledge and confirm, unto the Mortgagee, its successors in trust and assigns, for the
security and benefit of, the Note Holders, the Related Secured Parties and each of the Indenture


 









 







Indemnitees, a first priority security interest and, in the case of the Airframe and Engines,
an International Interest in and mortgage lien on all right, title and interest of the Owner in, to
and under the following described property, rights and privileges, whether now or hereafter
acquired (which, collectively, together with all property hereafter specifically subject to the
Lien of this Trust Indenture by the terms hereof or any supplement hereto, are included within, and
are referred to as, the “Collateral”), to wit:




          (1) The Airframe which is one Boeing 737-700 aircraft with the FAA Registration number of
N259WN and the manufacturer’s serial number of 35554 and two Engines, each of which Engines is a
CFM International, Inc. CFM56-7B jet propulsion aircraft engine with at least 1750 lb. of thrust,
with the manufacturer’s serial numbers of 894271 and 894281 (such Airframe and Engines more
particularly described in the Trust Indenture Supplement executed and delivered as provided herein)
as the same are now and will hereafter be constituted, whether now owned by the Owner or hereafter
acquired, and in the case of such Engines, whether or not any such Engine shall be installed in or
attached to the Airframe or any other airframe, together with (a) all Parts of whatever nature,
which are from time to time included within the definitions of “Airframe” or “Engines”, whether now
owned or hereafter acquired, including all substitutions, renewals and replacements of and
additions, improvements, accessions and accumulations to the Airframe and Engines (other than
additions, improvements, accessions and accumulations which constitute appliances, parts,
instruments, appurtenances, accessories, furnishings or other equipment excluded from the
definition of Parts) and (b) all Aircraft Documents;




          (2) The Purchase Agreement and the Bills of Sale to the extent the same relate to continuing
rights of the Owner in respect of any warranty, indemnity or agreement, express or implied, as to
title, materials, workmanship, design or patent infringement or related matters with respect to the
Airframe or the Engines (reserving to the Owner, however, all of the Owner’s other rights and
interest in and to the Purchase Agreement) together with all rights, powers, privileges, options
and other benefits of the Owner in respect of such provisions (subject to such reservation) with
respect to the Airframe or the Engines, including, without limitation, the right to make all
waivers and agreements, to give and receive all notices and other instruments or communications, to
take such action upon the occurrence of a default in respect of such provisions, including the
commencement, conduct and consummation of legal, administrative or other proceedings, as shall be
permitted thereby or by law, and to do any and all other things which the Owner is or may be
entitled to do in respect of such provisions (subject to such reservation), subject, with respect
to the Purchase Agreement, to the terms and conditions of the Consent and Agreement and the Engine
Consent and Agreement;




          (3) All proceeds with respect to the requisition of title to or use of the Aircraft or any
Engine by any Government Entity or from the sale or other disposition of the Aircraft, the
Airframe, any Engine or other property described in any of these Granting Clauses by the Mortgagee
pursuant to the terms of this Trust Indenture, and all insurance proceeds with respect to the
Aircraft, the Airframe, any Engine or any part thereof, but excluding any insurance maintained by
the Owner and not required under Section 4.06;




          (4) All rents, revenues and other proceeds collected by the Mortgagee pursuant to clause
“Fifth” of Section 3.03 and Section 5.03(b) and all monies and securities from


2









 







time to time deposited or required to be deposited with the Mortgagee by or for the account of
the Owner pursuant to any terms of this Trust Indenture held or required to be held by the
Mortgagee hereunder, including the Securities Account and all monies and securities deposited into
the Securities Account; and




          (5) All proceeds of the foregoing.




          PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so long as no Event
of Default shall have occurred and be continuing, (a) the Mortgagee shall not take or cause to be
taken any action contrary to the Owner’s right hereunder to quiet enjoyment of the Airframe and
Engines, and to possess, use, retain and control the Airframe and Engines and all revenues, income
and profits derived therefrom, and (b) the Owner shall have the right, to the exclusion of the
Mortgagee, with respect to the Purchase Agreement, to exercise in the Owner’s name all rights and
powers assigned hereunder under the Purchase Agreement (other than to amend, modify or waive any of
the warranties or indemnities contained therein and assigned hereunder, except in the exercise of
the Owner’s reasonable business judgment) and to retain any recovery or benefit resulting from the
enforcement of any warranty or indemnity under the Purchase Agreement; and provided further
that, notwithstanding the occurrence or continuation of an Event of Default, the Mortgagee
shall not enter into any amendment of the Purchase Agreement which would increase the obligations
of the Owner thereunder.




          TO HAVE AND TO HOLD all and singular the aforesaid property unto the Mortgagee, and its
successors and assigns, in trust for the equal and proportionate benefit and security of the Note
Holders, the Related Secured Parties and the Indenture Indemnitees, except as provided in Section
2.13 and Article III hereof, without any preference, distinction or priority of any one Equipment
Note over any other, or any Related Equipment Note over any other, by reason of priority of time of
issue, sale, negotiation, date of maturity thereof or otherwise for any reason whatsoever, and for
the uses and purposes and in all cases and as to all property specified in paragraphs (1) through
(5) inclusive above, subject to the terms and provisions set forth in this Trust Indenture.




          It is expressly agreed that anything herein contained to the contrary notwithstanding, the
Owner shall remain liable under the Indenture Agreements to perform all of the obligations assumed
by it thereunder, except to the extent prohibited or excluded from doing so pursuant to the terms
and provisions thereof, and the Mortgagee, the Note Holders, the Related Secured Parties and the
Indenture Indemnitees shall have no obligation or liability under the Indenture Agreements by
reason of or arising out of the assignment hereunder, nor shall the Mortgagee, the Note Holders,
the Related Secured Parties or the Indenture Indemnitees be required or obligated in any manner to
perform or fulfill any obligations of the Owner under or pursuant to the Indenture Agreements, or,
except as herein expressly provided, to make any payment, or to make any inquiry as to the nature
or sufficiency of any payment received by it, or present or file any claim, or take any action to
collect or enforce the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.




          The Owner does hereby constitute the Mortgagee the true and lawful attorney of the Owner,
irrevocably, granted for good and valuable consideration and coupled with an interest and with full
power of substitution, and with full power (in the name of the Owner or otherwise)


3









 







to ask for, require, demand, receive, compound and give acquittance for any and all monies and claims for
monies (in each case including insurance and requisition proceeds) due and to become due under or arising out of the Indenture Agreements, and all other property which now or
hereafter constitutes part of the Collateral, to endorse any checks or other instruments or orders
in connection therewith and to file any claims or to take any action or to institute any
proceedings which the Mortgagee may deem to be necessary or advisable in the premises;
provided that the Mortgagee shall not exercise any such rights except upon the occurrence
and during the continuance of an Event of Default hereunder.




          The Owner agrees that at any time and from time to time, upon the written request of the
Mortgagee, the Owner will promptly and duly execute and deliver or cause to be duly executed and
delivered any and all such further instruments and documents (including without limitation UCC
continuation statements) as the Mortgagee may reasonably deem necessary to perfect, preserve or
protect the mortgage, security interests and assignments created or intended to be created hereby
or to obtain for the Mortgagee the full benefits of the assignment hereunder and of the rights and
powers herein granted.




          IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:




ARTICLE I




DEFINITIONS




          Capitalized terms used but not defined herein shall have the respective meanings set forth or
incorporated by reference, and shall be construed in the manner described, in Annex A hereto.




ARTICLE II




THE EQUIPMENT NOTES




          SECTION 2.01. Form of Equipment Notes




          The Equipment Notes shall be substantially in the form set forth below:




THIS EQUIPMENT NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE

SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR PURSUANT TO THE

SECURITIES LAWS OF ANY STATE. ACCORDINGLY, THIS EQUIPMENT NOTE MAY

NOT BE SOLD UNLESS EITHER REGISTERED UNDER THE ACT AND SUCH

APPLICABLE STATE LAWS OR AN EXEMPTION FROM SUCH REGISTRATIONS IS

AVAILABLE.




SOUTHWEST AIRLINES CO.




SERIES [                    ] EQUIPMENT NOTE DUE [                    ] ISSUED IN CONNECTION WITH THE

BOEING MODEL 737-700 AIRCRAFT BEARING UNITED STATES REGISTRATION

NUMBER N259WN




4









 





	 	 	 	 	 
	No.              

	 	Date: October 3, 2007
	 	 






                                        




	 	 	 	 	 
	INTEREST RATE

	 	 	 	MATURITY DATE 
	 
	[                    ]

	 	 	 	[                    ] 






          SOUTHWEST AIRLINES CO., a Texas corporation (“Owner”), hereby promises to pay to Wilmington
Trust Company, as Subordination Agent under the Intercreditor Agreement, or the registered assignee
thereof, the principal sum of $                     (the “Original Amount”), together with interest on the
amount of the Original Amount remaining unpaid from time to time (calculated on the basis of a year
of 360 days comprised of twelve 30-day months) from the date hereof until paid in full at a rate
per annum equal to the Debt Rate. The Original Amount of this Equipment Note shall be due and
payable in installments on the dates set forth in Schedule I hereto equal to the corresponding
percentage of the Original Amount of this Equipment Note set forth in Schedule I hereto. Accrued
but unpaid interest shall be due and payable in arrears in semi-annual installments commencing on
February 1, 2008, and thereafter on February 1 and August 1 of each year, to and including
[                                        ]. Notwithstanding the foregoing, the final payment made on this Equipment Note
shall be in an amount sufficient to discharge in full the unpaid Original Amount and all accrued
and unpaid interest on, and any other amounts due under, this Equipment Note. Notwithstanding
anything to the contrary contained herein, if any date on which a payment under this Equipment Note
becomes due and payable is not a Business Day, then such payment shall not be made on such
scheduled date but shall be made on the next succeeding Business Day and if such payment is made on
such next succeeding Business Day, no interest shall accrue on the amount of such payment during
such extension.




          For purposes hereof, the term “Trust Indenture” means the Trust Indenture and Mortgage N259WN
dated as of October 3, 2007, between the Owner and Wilmington Trust Company (the “Mortgagee”), as
the same may be amended or supplemented from time to time. All other capitalized terms used in
this Equipment Note and not defined herein shall have the respective meanings assigned in the Trust
Indenture.




          This Equipment Note shall bear interest, payable on demand, at the Payment Due Rate
(calculated on the basis of a year of 360 days comprised of twelve 30-day months) on any overdue
Original Amount, any overdue Make-Whole Amount, if any, and (to the extent permitted by applicable
Law) any overdue interest and any other amounts payable hereunder which are overdue, in each case
for the period the same is overdue. Amounts shall be overdue if not paid when due (whether at
stated maturity, by acceleration or otherwise).




          There shall be maintained an Equipment Note Register for the purpose of registering transfers
and exchanges of Equipment Notes at the Corporate Trust Office of the Mortgagee or at the office of
any successor in the manner provided in Section 2.07 of the Trust Indenture.




          The Original Amount and interest and other amounts due hereunder shall be payable in Dollars
in immediately available funds at the Corporate Trust Office of the


5









 







Mortgagee, or as otherwise provided in the Trust Indenture. Each such payment shall be made on the date such payment is due
and without any presentment or surrender of this Equipment Note, except that in the case of any final payment with respect to this Equipment Note, the
Equipment Note shall be surrendered promptly thereafter to the Mortgagee for cancellation.




          The holder hereof, by its acceptance of this Equipment Note, agrees that, except as provided
in the Trust Indenture, each payment of the Original Amount, Make-Whole Amount, if any, and
interest received by it hereunder shall be applied, first, to the payment of accrued
interest on this Equipment Note (as well as any interest on any overdue Original Amount, any
overdue Make-Whole Amount, if any, or, to the extent permitted by Law, any overdue interest and
other amounts hereunder) to the date of such payment, second, to the payment of the
Original Amount of this Equipment Note then due, third, to the payment of Make-Whole
Amount, if any, and any other amount due hereunder or under the Trust Indenture, and
fourth, the balance, if any, remaining thereafter, to the payment of installments of the
Original Amount of this Equipment Note remaining unpaid in the inverse order of their maturity.




          This Equipment Note is one of the Equipment Notes referred to in the Trust Indenture which
have been or are to be issued by the Owner pursuant to the terms of the Trust Indenture. The
Collateral is held by the Mortgagee as security, in part, for the Equipment Notes. The provisions
of this Equipment Note are subject to the Trust Indenture and each Related Indenture as set forth
therein. Reference is hereby made to the Trust Indenture and the Related Indentures for a complete
statement of the rights and obligations of the holder of, and the nature and extent of the security
for, this Equipment Note (including as a “Related Equipment Note” under each of the Related
Indentures) and the rights and obligations of the holders of, and the nature and extent of the
security for, any other Equipment Notes executed and delivered under the Trust Indenture, as well
as for a statement of the terms and conditions of the Trust created by the Trust Indenture and each
Related Indenture, to all of which terms and conditions in the Trust Indenture and each Related
Indenture each holder hereof agrees by its acceptance of this Equipment Note.




          As provided in the Trust Indenture and subject to certain limitations therein set forth, this
Equipment Note is exchangeable for a like aggregate Original Amount of Equipment Notes of different
authorized denominations, as requested by the holder surrendering the same.




          Prior to due presentment for registration of transfer of this Equipment Note, the Owner and
the Mortgagee shall treat the person in whose name this Equipment Note is registered as the owner
hereof for all purposes, whether or not this Equipment Note be overdue, and neither the Owner nor
the Mortgagee shall be affected by notice to the contrary.




          This Equipment Note is subject to redemption as provided in Sections 2.10, 2.11 and 2.12 of
the Trust Indenture but not otherwise. In addition, this Equipment Note may be accelerated as
provided in Section 5.02 of the Trust Indenture.




          This Equipment Note is subject to purchase as set forth in Section 2.7 of the Intercreditor
Agreement, and to certain restrictions set forth in Sections 4.1(a)(ii) and 4.1(a)(iii) of the
Intercreditor Agreement, as further specified in Section 2.07 of the Trust Indenture, to all of
which terms and conditions in the Intercreditor Agreement each holder hereof agrees by its
acceptance of this Equipment Note.




6









 








          [The indebtedness evidenced by this Equipment Note is, to the extent and in the manner
provided in the Trust Indenture, subordinate and subject in right of payment to the prior payment
in full of the Secured Obligations (as defined in the Trust Indenture) in respect of [Series A
Equipment Notes]1 [Series A Equipment and Series B Equipment Notes]2, and
certain other Secured Obligations, and this Equipment Note is issued subject to such provisions.
The Note Holder of this Equipment Note, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Mortgagee on his behalf to take such action as may
be necessary or appropriate to effectuate the subordination as provided in the Trust Indenture and
(c) appoints the Mortgagee his attorney-in-fact for such purpose.]3




          Unless the certificate of authentication hereon has been executed by or on behalf of the
Mortgagee by manual signature, this Equipment Note shall not be entitled to any benefit under the
Trust Indenture or be valid or obligatory for any purpose.




          THIS EQUIPMENT NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.




* * *






 




			
	1.	 	To be inserted in the case of a Series B Equipment Note.
	 
	2.	 	To be inserted in the case of an Additional Series Equipment Note.
	 
	3.	 	To be inserted for each Equipment Note other than any Series A
Equipment Note.




7









 










          IN WITNESS WHEREOF, the Owner has caused this Equipment Note to be executed in its corporate
name by its officer thereunto duly authorized on the date hereof.




	 	 	 	 	 
	 	SOUTHWEST AIRLINES CO.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



8









 






	 	 	 	 	 



MORTGAGEE’S CERTIFICATE OF AUTHENTICATION




          This is one of the Equipment Notes referred to in the within-mentioned Trust Indenture.




	 	 	 	 	 
	 	WILMINGTON TRUST COMPANY, as Mortgagee

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



SCHEDULE I




EQUIPMENT NOTE AMORTIZATION




	 	 	 
	Payment Date

	 	Percentage of Original Amount to Be Paid






[SEE SCHEDULE I TO TRUST INDENTURE

WHICH IS INSERTED UPON ISSUANCE]




* * *




9









 





          SECTION 2.02. Issuance and Terms of Equipment Notes




          The Equipment Notes (other than the Additional Series Equipment Notes) shall be dated the
Closing Date, shall be issued in two separate series consisting of Series A and Series B and in the
maturities and principal amounts and shall bear interest as specified in Schedule I hereto. On the
Closing Date, each Series of Equipment Note (other than the Additional Series Equipment Notes)
shall be issued to the Subordination Agent on behalf of the Applicable Pass Through Trustee under
the Applicable Pass Through Trust Agreement. In addition to the foregoing, Owner shall have the
option to issue Additional Series Equipment Notes at any time and from time to time after the
Closing Date; provided, that the Owner shall not issue any such Additional Series unless it shall
have obtained Ratings Confirmation from each Rating Agency. The Additional Series Equipment Notes
may be issued in an unlimited number of separate series (if more than one series of Additional
Series Equipment Notes are so issued, each such series shall have a different designation such as,
for example, “Series C” and “Series D”), shall be dated the date of original issuance thereof and
shall have such maturities, principal amounts and interest rates as specified in an amendment to
this Trust Indenture. The Equipment Notes shall be issued in registered form only. The Equipment
Notes shall be issued in denominations of $1,000 and integral multiples thereof, except that one
Equipment Note of each Series may be in an amount that is not an integral multiple of $1,000.
Without limitation of the foregoing, new Series B Equipment Notes or Additional Series Equipment
Notes may be issued in accordance with the terms of this Trust Indenture.




          Each Equipment Note shall bear interest at the Debt Rate (calculated on the basis of a year of
360 days comprised of twelve 30-day months) on the unpaid Original Amount thereof from time to time
outstanding. Accrued interest shall be payable in arrears on February 1, 2008, and on each
February 1 and August 1 thereafter until maturity. The Original Amount of each Equipment Note
shall be payable on the dates and in the installments equal to the corresponding percentage of the
Original Amount as set forth in Schedule I hereto (as amended, in the case of any Additional
Series, at the time of original issuance of such Additional Series) which shall be attached as
Schedule I to such Equipment Notes. Notwithstanding the foregoing, the final payment made under
each Equipment Note shall be in an amount sufficient to discharge in full the unpaid Original
Amount and all accrued and unpaid interest on, and any other amounts due under, such Equipment
Note. Each Equipment Note shall bear interest, payable on demand, at the Payment Due Rate
(calculated on the basis of a year of 360 days comprised of twelve 30-day months) on any part of
the Original Amount, Make-Whole Amount, if any, and, to the extent permitted by applicable Law,
interest and any other amounts payable thereunder not paid when due for any period during which the
same shall be overdue, in each case for the period the same is overdue. Amounts under any
Equipment Note shall be overdue if not paid when due (whether at stated maturity, by acceleration
or otherwise). Notwithstanding anything to the contrary contained herein, whenever the date
scheduled for any payment to be made hereunder or under any Equipment Note shall not be a Business
Day, then such payment shall not be due on such scheduled date but shall be due on the next
succeeding Business Day and if such payment is made on such next succeeding Business Day, no
interest shall accrue on the amount of such payment during such extension.




10









 








          The Owner agrees to pay to the Mortgagee for distribution in accordance with Section 3.04
hereof: (i) an amount equal to the fees payable to the Liquidity Provider under Section 2.03 of the Liquidity Facility and the related Fee Letter (as defined in the
Intercreditor Agreement) multiplied by a fraction the numerator of which shall be the then
outstanding aggregate principal amount of the Series A Equipment Notes and the denominator of which
shall be the then outstanding aggregate principal amount of all “Series A Equipment Notes” (each as
defined in the Intercreditor Agreement); (ii) (x) the amount equal to interest on any Downgrade
Advance (other than any Applied Downgrade Advance) payable under Section 3.07 of the Liquidity
Facility minus Investment Earnings from such Downgrade Advance multiplied by (y) the fraction
specified in the foregoing clause (i); (iii) (x) the amount equal to interest on any Non-Extension
Advance (other than any Applied Non-Extension Advance) payable under Section 3.07 of the Liquidity
Facility minus Investment Earnings from such Non-Extension Advance multiplied by (y) the fraction
specified in the foregoing clause (i); (iv) the amount equal to interest on any Special Termination
Advance (other than any Applied Special Termination Advance) payable under Section 3.07 of each
Liquidity Facility minus Investment Earnings from such Special Termination Advance multiplied by
the fraction specified in the foregoing clause (i); (v) if any payment default shall have occurred
and be continuing with respect to interest on any “Series A Equipment Notes” (as defined in the
Intercreditor Agreement), (x) the excess, if any, of (1) an amount equal to interest on any Unpaid
Advance, Applied Downgrade Advance or Applied Non-Extension Advance payable under Section 3.07 of
the Liquidity Facility over (2) the sum of Investment Earnings from any Final Advance plus any
amount of interest at the Payment Due Rate actually payable (whether or not in fact paid) by Owner
on the overdue scheduled interest on the “Equipment Notes” (as defined in the Intercreditor
Agreement) in respect of which such Unpaid Advance, Applied Downgrade Advance or Applied
Non-Extension Advance was made by the Liquidity Provider multiplied by (y) a fraction the numerator
of which shall be the then aggregate overdue amounts of interest on the Series A Equipment Notes
(other than interest becoming due and payable solely as a result of acceleration of any such
Equipment Notes) and the denominator of which shall be the then aggregate overdue amounts of
interest on all “Series A Equipment Notes” (other than interest becoming due and payable solely as
a result of acceleration of any such “Equipment Notes”); (vi) any other amounts owed to the
Liquidity Provider by the Subordination Agent as borrower under the Liquidity Facility multiplied
by the fraction specified in the foregoing clause (i) other than (A) amounts due as repayment of
advances thereunder or as interest on such advances, except to the extent payable pursuant to
clause (ii), (iii), (iv) or (v) above and (B) fees payable under Section 2.03 of the Liquidity
Facility; (vii) Owner’s pro rata share of all compensation and reimbursement of expenses,
disbursements and advances payable by Owner under the Pass Through Trust Agreements; and (viii)
Owner’s pro rata share of all compensation and reimbursement of expenses and disbursements payable
to the Subordination Agent under the Intercreditor Agreement except with respect to any
Unindemnified Taxes incurred by the Subordination Agent in connection with the transactions
contemplated by the Intercreditor Agreement. As used herein, “Owner’s pro rata share” means as of
any
 time a fraction, the numerator of which is the principal balance then outstanding of Equipment
Notes and the denominator of which is the aggregate principal balance then outstanding of all
“Equipment Notes” (as such term is defined in each of the Operative Indentures). For purposes of
this paragraph, the terms “Applied Downgrade Advance”, “Applied Non-Extension Advance”, “Applied
Special Termination Advance”, “Downgrade Advance”, “Final Advance”, “Investment Earnings”,
“Non-Extension Advance”, “Special Termination Advance” and “Unpaid Advance”


11









 







shall have the meanings specified in the Liquidity Facility or the Intercreditor Agreement, as applicable.




          The Equipment Notes shall be executed on behalf of the Owner by one of its authorized
officers. Equipment Notes bearing the signatures of individuals who were at any time the proper
officers of the Owner shall bind the Owner, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of such Equipment Notes
or did not hold such offices at the respective dates of such Equipment Notes. The Owner may from
time to time execute and deliver Equipment Notes with respect to the Aircraft to the Mortgagee for
authentication upon original issue and such Equipment Notes shall thereupon be authenticated and
delivered by the Mortgagee upon the written request of the Owner signed by an authorized officer of
the Owner. No Equipment Note shall be secured by or entitled to any benefit under this Trust
Indenture or be valid or obligatory for any purposes, unless there appears on such Equipment Note a
certificate of authentication in the form provided for herein executed by the Mortgagee by the
manual signature of one of its authorized officers and such certificate upon any Equipment Notes be
conclusive evidence, and the only evidence, that such Equipment Note has been duly authenticated
and delivered hereunder.




          SECTION 2.03. [Intentionally Omitted]




          SECTION 2.04. Method of Payment




               (a) The Original Amount of, interest on, Make-Whole Amount, if any, and other amounts due
under each Equipment Note or hereunder will be payable in Dollars by wire transfer of immediately
available funds not later than 12:30 PM, New York time, on the due date of payment to the Mortgagee
at the Corporate Trust Office for distribution among the Note Holders in the manner provided
herein, and payment of such amount to the Mortgagee shall be deemed to satisfy the Owner’s
obligation to make such payment. The Owner shall not have any responsibility for the distribution
of such payment to any Note Holder. Notwithstanding the foregoing or any provision in any
Equipment Note to the contrary, the Mortgagee will use reasonable efforts to pay or cause to be
paid, if so directed in writing by any Note Holder (with a copy to the Owner), all amounts paid by
the Owner hereunder and under such holder’s Equipment Note or Equipment Notes to such holder or a
nominee therefor (including all amounts distributed pursuant to Article III of this Trust
Indenture) by transferring, or causing to be transferred, by wire transfer of immediately available
funds in Dollars, prior to 2:00 p.m., New York City time, on the due date of payment, to an account
maintained by such holder with a bank located in the continental United States the amount to be
distributed to such holder, for credit to the account of such holder maintained at such bank. If
the Mortgagee shall fail to make any such payment as provided in the immediately foregoing sentence
after its receipt of funds at the place and prior to the time specified above, the Mortgagee, in
its individual capacity and not as trustee, agrees to compensate such holders for loss of use of
funds at Debt Rate until such payment is made and the Mortgagee shall be entitled to any interest
earned on such funds until such payment is made. Any payment made hereunder shall be made without
any presentment or surrender of any Equipment Note, except that, in the case of the final payment
in respect of any Equipment Note, such Equipment Note shall be surrendered to the Mortgagee for
cancellation promptly after such payment. Notwithstanding any other provision of this Trust
Indenture to the contrary, the Mortgagee shall not be required to make, or cause to be made, wire
transfers as aforesaid prior to



12









 







the first Business Day on which it is practicable for the Mortgagee to do so in view of the time of day when the funds to be so transferred were received by it if such
funds were received after 12:30 PM, New York time, at the place of payment. Prior to the due
presentment for registration of transfer of any Equipment Note, the Owner and the Mortgagee shall deem and treat the Person
in whose name any Equipment Note is registered on the Equipment Note Register as the absolute owner
and holder of such Equipment Note for the purpose of receiving payment of all amounts payable with
respect to such Equipment Note and for all other purposes, and none of the Owner or the Mortgagee
shall be affected by any notice to the contrary. So long as any signatory to the Participation
Agreement or nominee thereof shall be a registered Note Holder, all payments to it shall be made to
the account of such Note Holder specified in Schedule 1 thereto and otherwise in the manner
provided in or pursuant to the Participation Agreement unless it shall have specified some other
account or manner of payment by notice to the Mortgagee consistent with this Section 2.04.



               (b) The Mortgagee, as agent for the Owner, shall exclude and withhold at the appropriate rate
from each payment of Original Amount of, interest on, Make-Whole Amount, if any, and other amounts
due hereunder or under each Equipment Note (and such exclusion and withholding shall constitute
payment in respect of such Equipment Note) any and all United States withholding taxes applicable
thereto as required by Law. The Mortgagee agrees to act as such withholding agent and, in
connection therewith, whenever any present or future United States taxes or similar charges are
required to be withheld with respect to any amounts payable hereunder or in respect of the
Equipment Notes, to withhold such amounts and timely pay the same to the appropriate authority in
the name of and on behalf of the Note Holders, that it will file any necessary United States
withholding tax returns or statements when due, and that as promptly as possible after the payment
thereof it will deliver to each Note Holder (with a copy to the Owner) appropriate receipts showing
the payment thereof, together with such additional documentary evidence as any such Note Holder may
reasonably request from time to time.



          If a Note Holder which is a Non-U.S. Person has furnished to the Mortgagee a properly
completed and accurate U.S. Internal Revenue Service Form W-8BEN, W-8EXP, W-8IMY or W-8ECI (or such
successor form or forms as may be required by the United States Treasury Department) that is
effective at the time a payment hereunder or under the Equipment Note(s) held by such holder is
made and has not notified the Mortgagee of the withdrawal or inaccuracy of such form prior to the
date of such payment (and the Mortgagee has no reason to believe that any information set forth in
such form is inaccurate), the Mortgagee shall withhold only the amount, if any, required by Law
(after taking into account any applicable exemptions properly claimed by the Note Holder) to be
withheld from payments hereunder or under the Equipment Notes held by such holder in respect of
United States federal income tax. If a Note Holder (x) which is a Non-U.S. Person has furnished to
the Mortgagee a properly completed, accurate and currently effective U.S. Internal Revenue Service
Form W-8ECI in duplicate (or such successor certificate, form or forms as may be required by the
United States Treasury Department as necessary in order to properly avoid withholding of United
States federal income tax), for each calendar year in which a payment is made (but prior to the
making of any payment for such year), and has not notified the Mortgagee of the withdrawal or
inaccuracy of such certificate or form prior to the date of such payment (and the Mortgagee has no
reason to believe that any information set forth in such form is inaccurate) or (y) which is a U.S.
Person has


13









 







furnished to the Mortgagee a properly completed, accurate and currently effective U.S.
Internal Revenue Service Form W-9, if applicable, prior to a payment hereunder or under the
Equipment Notes held by such holder, no amount shall be withheld from payments in respect of United States federal income tax. If any Note Holder has notified the Mortgagee that any of the
foregoing forms or certificates is withdrawn or inaccurate, or if such holder has not filed a form
claiming an exemption from United States withholding tax or if the Code or the regulations
thereunder or the administrative interpretation thereof is at any time after the date hereof
amended to require such withholding of United States federal income taxes from payments under the
Equipment Notes held by such holder, the Mortgagee agrees to withhold from each payment due to the
relevant Note Holder United States federal withholding taxes at the appropriate rate under Law and
will, on a timely basis as more fully provided above, deposit such amounts with an authorized
depository and make such returns, statements, receipts and other documentary evidence in connection
therewith as required by Law.




          Owner shall not have any liability for the failure of the Mortgagee to withhold taxes in the
manner provided for herein or for any false, inaccurate or untrue evidence provided by any Note
Holder hereunder.




          SECTION 2.05. Application of Payments




          In the case of each Equipment Note, each payment of Original Amount, Make-Whole Amount, if
any, and interest due thereon shall be applied:





     First: to the payment of Make-Whole Amount, if any, with respect to such Equipment
Note and any other amount (other than as covered by any of the following clauses) due
hereunder with respect to such Equipment Note or under such Equipment Note;




     Second: to the payment of accrued interest on such Equipment Note (as well as any
interest on any overdue Original Amount, any overdue Make-Whole Amount, if any, and to the
extent permitted by Law, any overdue interest and any other overdue amounts thereunder) to
the date of such payment;




     Third: to the payment of the Original Amount of such Equipment Note (or a portion
thereof) then due thereunder; and




     Fourth: the balance, if any, remaining thereafter, to the payment of the Original
Amount of such Equipment Note remaining unpaid (provided that such Equipment Note shall not
be subject to redemption except as provided in Sections 2.10, 2.11 and 2.12 hereof).


The amounts paid pursuant to clause “Fourth” above shall be applied to the installments of Original
Amount of such Equipment Note in the inverse order of their scheduled maturity.




14









 








          SECTION 2.06. Termination of Interest in Collateral




          No Note Holder or any other Indenture Indemnitee shall, as such, have any further interest in,
or other right with respect to, the Collateral when and if all of the Secured Obligations shall
have been paid in full.




          No Related Secured Party shall have any further interest in, or other right with respect to,
the Collateral when and if all Related Secured Obligations shall have been paid in full.




          SECTION 2.07. Registration Transfer and Exchange of Equipment Notes




          The Mortgagee shall keep a register (the “Equipment Note Register”) in which the Mortgagee
shall provide for the registration of Equipment Notes and the registration of transfers of
Equipment Notes. No such transfer shall be given effect unless and until registration hereunder
shall have occurred. The Equipment Note Register shall be kept at the Corporate Trust Office of
the Mortgagee. The Mortgagee is hereby appointed “Equipment Note Registrar” for the purpose of
registering Equipment Notes and transfers of Equipment Notes as herein provided. A holder of any
Equipment Note intending to exchange such Equipment Note shall surrender such Equipment Note to the
Mortgagee at the Corporate Trust Office, together with a written request from the registered holder
thereof for the issuance of a new Equipment Note, specifying, in the case of a surrender for
transfer, the name and address of the new holder or holders. Upon surrender for registration of
transfer of any Equipment Note, the Owner shall execute, and the Mortgagee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more new Equipment Notes
of a like aggregate Original Amount and of the same Series. At the option of the Note Holder,
Equipment Notes may be exchanged for other Equipment Notes of any authorized denominations of a
like aggregate Original Amount and of the same Series, upon surrender of the Equipment Notes to be
exchanged to the Mortgagee at the Corporate Trust Office. Whenever any Equipment Notes are so
surrendered for exchange, the Owner shall execute, and the Mortgagee shall authenticate and
deliver, the Equipment Notes which the Note Holder making the exchange is entitled to receive. All
Equipment Notes issued upon any registration of transfer or exchange of Equipment Notes (whether
under this Section 2.07 or under Section 2.08 hereof or otherwise under this Trust Indenture) shall
be the valid obligations of the Owner evidencing the same respective obligations, and entitled to
the same security and benefits under this Trust Indenture, as the Equipment Notes surrendered upon
such registration of transfer or exchange. Every Equipment Note presented or surrendered for
registration of transfer, shall (if so required by the Mortgagee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the Mortgagee duly executed
by the Note Holder or such holder’s attorney duly authorized in writing, and the Mortgagee shall
require evidence satisfactory to it as to the compliance of any such transfer with the Securities
Act, and the securities Laws of any applicable state. The Mortgagee shall make a notation on each
new Equipment Note of the amount of all payments of Original Amount previously made on the old
Equipment Note or Equipment Notes with respect to which such new Equipment Note is issued and the
date to which interest on such old Equipment Note or Equipment Notes has been paid. Interest shall
be deemed to have been paid on such new Equipment Note to the date on which interest shall have
been paid on such old Equipment Note, and all payments of the Original Amount marked on such new
Equipment Note, as provided above, shall be deemed to have been made thereon. The Owner shall not
be


15









 







required to exchange any surrendered Equipment Notes as provided above during the ten-day period
preceding the due date of any scheduled payment on such Equipment Note. The Owner shall in all
cases deem the Person in whose name any Equipment Note shall have been issued and registered as the
absolute owner and holder of such Equipment Note for the purpose of receiving payment of all
amounts payable by the Owner with respect to such Equipment Note and for all purposes until a
notice stating otherwise is received from the Mortgagee and such change is reflected on the Equipment Note Register. The Mortgagee will promptly notify the
Owner of each registration of a transfer of an Equipment Note. Any such transferee of an Equipment
Note, by its acceptance of an Equipment Note, (i) agrees to the provisions of this Trust Indenture
and the Participation Agreement applicable to Note Holders, including Sections 6.3, 6.4 and 9.1
thereof, and shall be deemed to have covenanted to the parties to the Participation Agreement as to
the matters covenanted by the original Note Holder in the Participation Agreement, (ii) agrees to
the restrictions set forth in Sections 4.1(a)(ii) and 4.1(a)(iii) of the Intercreditor Agreement,
and shall be deemed to have covenanted to the parties to the Intercreditor Agreement not to give
any direction, or otherwise authorize, the Mortgagee to take any action that would violate Sections
4.1(a)(ii) or 4.1(a)(iii) of the Intercreditor Agreement, and (iii) agrees to the provisions of
Section 2.7 of the Intercreditor Agreement, and shall be deemed to have covenanted to the parties
to the Intercreditor Agreement to perform its obligations as a Note Holder under Section 2.7 of the
Intercreditor Agreement. Subject to compliance by the Note Holder and its transferee (if any) of
the requirements set forth in this Section 2.07, Mortgagee and Owner shall use all reasonable
efforts to issue new Equipment Notes upon transfer or exchange within 10 Business Days of the date
an Equipment Note is surrendered for transfer or exchange.




          SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Equipment Notes




          If any Equipment Note shall become mutilated, destroyed, lost or stolen, the Owner shall, upon
the written request of the holder of such Equipment Note, execute and the Mortgagee shall
authenticate and deliver in replacement thereof a new Equipment Note, payable in the same Original
Amount dated the same date and captioned as issued in connection with the Aircraft. If the
Equipment Note being replaced has become mutilated, such Equipment Note shall be surrendered to the
Mortgagee and a photocopy thereof shall be furnished to the Owner. If the Equipment Note being
replaced has been destroyed, lost or stolen, the holder of such Equipment Note shall furnish to the
Owner and the Mortgagee such security or indemnity as may be required by them to save and hold the
Owner and the Mortgagee harmless and evidence satisfactory to the Owner and the Mortgagee of the
destruction, loss or theft of such Equipment Note and of the ownership thereof. If a “qualified
institutional buyer” of the type referred to in paragraph (a)(1)(i)(A), (B), (D) or (E) of Rule
144A under the Securities Act (a “QIB”) is the holder of any such destroyed, lost or stolen
Equipment Note, then the written indemnity of such QIB, signed by an authorized officer thereof, in
favor of, delivered to and in form reasonably satisfactory Owner shall be accepted as satisfactory
indemnity and security and no further indemnity or security shall be required as a condition to the
execution and delivery of such new Equipment Note. Subject to compliance by the Note Holder with
the requirements set forth in this Section 2.08, Mortgagee and Owner shall use all reasonable
efforts to issue new Equipment Notes within 10 Business Days of the date of the written request
therefor from the Note Holder.




16









 








          SECTION 2.09. Payment of Expenses on Transfer; Cancellation




               (a) No service charge shall be made to a Note Holder for any registration of transfer or
exchange of Equipment Notes, but the Mortgagee, as Equipment Note Registrar, may require payment of
a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of
Equipment Notes.



               (b) The Mortgagee shall cancel all Equipment Notes surrendered for replacement, redemption,
transfer, exchange, payment or cancellation and shall destroy the canceled Equipment Notes.



          SECTION 2.10. Mandatory Redemptions of Equipment Notes




               On the date on which the Owner is required pursuant to Section 4.05 hereof to make payment for
an Event of Loss with respect to the Airframe, all of the Equipment Notes shall be redeemed in
whole at a redemption price equal to 100% of the unpaid Original Amount thereof, together with all
accrued interest thereon to the date of redemption and all other Secured Obligations owed or then
due and payable to the Note Holders but without Make-Whole Amount.



          SECTION 2.11. Voluntary Redemptions of Equipment Notes




               (a) All (but not less than all) of the Equipment Notes may be redeemed by the Owner upon at
least 20 days’ revocable prior written notice to the Note Holders given pursuant to Section
2.12(b), and such Equipment Notes shall be redeemed in whole at a redemption price equal to 100% of
the unpaid Original Amount thereof, together with accrued interest thereon to the date of
redemption and all other Secured Obligations owed or then due and payable to the Note Holders plus
Make-Whole Amount, if any.



               (b) All (but not less than all) of the Equipment Notes of any of the Series B or of any
particular Series of Additional Series Equipment Notes may be redeemed by the Owner upon at least
20 days’ revocable prior written notice to the Note Holders of each Series to be redeemed given
pursuant to Section 2.12(b), and such Equipment Notes shall be redeemed in whole at a redemption
price equal to 100% of the unpaid Original Amount thereof, together with accrued interest thereon
to the date of redemption and all other Secured Obligations owed or then due and payable to the
Note Holders of such Series plus Make-Whole Amount, if any; provided that no redemption
shall be permitted under this Section 2.11(b) unless the following conditions have been satisfied:
(1) simultaneously with such redemption, the Related Series B Equipment Notes (in the case of
redemption hereunder of the Series B Equipment Notes) or the Related Additional Series Equipment
Notes in respect of the Additional Series Equipment Notes being redeemed (in the case of redemption
of any series of Additional Series Equipment Notes), as the case may be, shall also be redeemed;
and (2) simultaneously with such redemption, new Series B Equipment Notes (in the case of
redemption hereunder of the Series B Equipment Notes) or Additional Series Equipment Notes of the
same Series being redeemed (in the case of redemption hereunder of a series of Additional Series
Equipment Notes) shall be reissued in accordance with the terms of this Trust Indenture and Section
9.1(c) of the Intercreditor Agreement.




17











 





               (c) Notwithstanding Section 2.11(b), all (but not less than all) of the Series B Equipment Notes may be redeemed
by the Owner upon at least 20 days’ revocable prior written notice to the Note Holders of Series B given pursuant
to Section 2.12(b) at a redemption price equal to 100% of the unpaid Original Amount thereof, together with accrued
interest thereon to the date of redemption and all other Secured Obligations owed or then due and payable to the Note
Holders of the Series B Equipment Notes, plus Make-Whole Amount, if any; provided that no such redemption shall
be permitted unless (x) simultaneously with such redemption, the Related Series B Equipment Notes shall also be
redeemed in accordance with the terms of the Related Indentures and (y) the Rating Agencies shall have provided
Ratings Confirmation with respect to any Certificates that will remain outstanding after such redemption, if such Certificates
are then rated by the Rating Agencies.



          SECTION 2.12. Redemptions; Notice of Redemption




               (a) No redemption of any Equipment Note may be made except to the extent and in the manner
expressly permitted by this Trust Indenture. No purchase of any Equipment Note may be made by the
Mortgagee.



               (b) Notice of redemption with respect to the Equipment Notes shall be given by the Mortgagee
by first-class mail, postage prepaid, mailed not less than 20 nor more than 60 days prior to the
applicable redemption date, to each Note Holder of such Equipment Notes to be redeemed, at such
Note Holder’s address appearing in the Equipment Note Register; provided that such notice shall be
revocable by written notice from the Owner to Mortgagee given not later than three days prior to
the redemption date. All notices of redemption shall state: (1) the redemption date, (2) the
applicable basis for determining the redemption price, (3) that on the redemption date, the
redemption price will become due and payable upon each such Equipment Note, and that, if any such
Equipment Notes are then outstanding, interest on such Equipment Notes shall cease to accrue on and
after such redemption date, and (4) the place or places where such Equipment Notes are to be
surrendered for payment of the redemption price. At least 10 days (unless a shorter time shall be
agreeable to Mortgagee) in advance of the date such notice of redemption is to be given by
Mortgagee, Owner shall request Mortgagee to give such notice, and such request shall set forth the
information required to be included by this Section 2.12(b) in such notice of redemption.



               (c) On or before the redemption date, the Owner (or any person on behalf of the Owner) shall,
to the extent an amount equal to the redemption price for the Equipment Notes to be redeemed on the
redemption date shall not then be held by the Mortgagee, deposit or cause to be deposited with the
Mortgagee by 12:30 PM New York time on the redemption date in immediately available funds the
redemption price of the Equipment Notes to be redeemed.



               (d) Notice of redemption having been given as aforesaid and not revoked, the Equipment Notes
to be redeemed shall, on the redemption date, become due and payable at the Corporate Trust Office
of the Mortgagee or at any office or agency maintained for such purposes pursuant to Section 2.07,
and from and after such redemption date (unless the notice shall be revoked or provided in Section
2.12(b) or there shall be a default in the payment of the redemption price) any such Equipment
Notes then outstanding shall cease to bear interest.



18









 




Upon surrender of any such Equipment Note for redemption in accordance with said notice, such
Equipment Note shall be redeemed at the redemption price. If any Equipment Note called for
redemption shall not be so paid upon surrender thereof for redemption, the principal amount thereof
shall, until paid, continue to bear interest from the applicable redemption date at the interest
rate in effect for such Equipment Note as of such redemption date.




          SECTION 2.13. Subordination




               (a) The Owner, each Note Holder (by acceptance of its Equipment Notes of any Series) and each
Related Note Holder (by acceptance of its Related Equipment Note), hereby agree that no payment or
distribution shall be made on or in respect of the Secured Obligations owed to such Note Holder of
such Series or owed to such Related Note Holder, including any payment or distribution of cash,
property or securities after the commencement of a proceeding of the type referred to in Section
5.01(v), (vi) or (vii) hereof, except as expressly provided in Article III hereof.



               (b) By the acceptance of its Equipment Notes, each Note Holder agrees that in the event that
such Note Holder, in its capacity as a Note Holder, shall receive any payment or distribution on
any Secured Obligations in respect of the Series of Equipment Note held by such Note Holder which
it is not entitled to receive under this Section 2.13 or Article III hereof, it will hold any
amount so received in trust for the Note Holders entitled to such amount and will forthwith turn
over such payment to the Mortgagee in the form received to be applied as provided in Article III
hereof.



               (c) By the acceptance of its Equipment Notes, each Note Holder agrees that in the event that
such Note Holder, in its capacity as a Note Holder, shall receive any payment or distribution
pursuant to this Trust Indenture on any Related Secured Obligations, it will hold any amount so
received in trust for the applicable Related Mortgagee and will forthwith turn over such payment to
the Mortgagee or the applicable Related Mortgagee in the form received to be applied as provided in
Article III of the applicable Related Indenture.



               (d) [Reserved.]



               (e) Payments on the Series B Equipment Notes will be subordinate and subject in right of
payment to the prior payment in full of the Secured Obligations in respect of the Series A
Equipment Notes. Payments on the Additional Series Equipment Notes will be subordinate and subject
in right of payment to the prior payment in full of the Secured Obligations in respect of the
Series A Equipment Notes and the Series B Equipment Notes.



               (f) By acceptance of its Equipment Notes of any Series, each Note Holder of such Series (i)
agrees to and shall be bound by the provisions of this Section 2.13, (ii) authorizes and directs
the Mortgagee on such Note Holder’s behalf to take any action necessary or appropriate to
effectuate the subordination as provided in this Trust Indenture and (iii) appoints the Mortgagee
as such Note Holder’s attorney-in-fact for such purpose.



19









 





ARTICLE III




RECEIPT, DISTRIBUTION AND APPLICATION OF PAYMENTS




          SECTION 3.01. Basic Distributions




          Except as otherwise provided in Sections 3.02 and 3.03 hereof, each periodic payment of
principal or interest on the Equipment Notes received by the Mortgagee shall be promptly
distributed in the following order of priority:





	 	(i)	 	so much of such payment as shall be required to pay in full the aggregate
amount of the payment or payments of Original Amount and interest (as well as any
interest on any overdue Original Amount and, to the extent permitted by Law, on any
overdue interest) then due under all Series A Equipment Notes shall be distributed
to the Note Holders of Series A Equipment Notes ratably, without priority of one
over the other, in the proportion that the amount of such payment or payments then
due under all Series A Equipment Notes held by such Note Holder bears to the
aggregate amount of such payments then due under all Series A Equipment Notes;
	 
	 	(ii)	 	after giving effect to paragraph (i) above, so much of such payment
remaining as shall be required to pay in full the aggregate amount of the payment or
payments of Original Amount and interest (as well as any interest on any overdue
Original Amount and, to the extent permitted by Law, on any overdue interest) then
due under all Series B Equipment Notes shall be distributed to the Note Holders of
Series B Equipment Notes ratably, without priority of one over the other, in the
proportion that the amount of such payment or payments then due under all Series B
Equipment Notes held by such Note Holder bears to the aggregate amount of such
payments then due under all Series B Equipment Notes; and
	 
	 	(iii)	 	after giving effect to paragraphs (i) and (ii) above (and except as
otherwise provided in an amendment to this Trust Indenture pursuant to Section
10.01(b) hereof), so much of such payment remaining as shall be required to pay in
full the aggregate amount of the payment or payments of Original Amount and interest
(as well as any interest on any overdue Original Amount and, to the extent permitted
by Law, on any overdue interest) then due under all Additional Series Equipment
Notes shall be distributed to the Note Holders of Additional Series ratably, without
priority of one over the other, in the proportion that the amount of such payment or
payments then due under all Additional Series Equipment Notes held by such Note
Holder bears to the aggregate amount of such payments then due under all Additional
Series Equipment Notes.





          SECTION 3.02. Event of Loss; Replacement; Optional Redemption




          Except as otherwise provided in Section 3.03 hereof, any payments received by the Mortgagee
(i) with respect to the Airframe or the Airframe and one or more Engines as the result of an Event
of Loss pursuant to Section 2.10 or (ii) pursuant to an optional redemption of the Equipment Notes
pursuant to Section 2.11 hereof shall be applied to redemption of the




20









 







Equipment Notes and to all other Secured Obligations then due by applying such funds in the
following order of priority:





	First, 	 	 	(a) to reimburse the Mortgagee and the Note Holders for any
reasonable costs or expenses incurred in connection with such
redemption for which they are entitled to reimbursement, or
indemnity by Owner, under the Operative Agreements and then (b) to
pay any other Secured Obligations then due (except as provided in
clause “Second” and “Third” below) to the Mortgagee, the Note
Holders and the other Indenture Indemnitees under this Trust
Indenture, the Participation Agreement or the Equipment Notes;
	 
	Second, 	 	 	to pay the amounts specified in clause “Third” of Section 3.03
hereof in the order of priority set forth therein (including in
the case of a redemption pursuant to Section 2.11 hereof, any
Make-Whole Amount, if applicable);
	 
	Third, 	 	 	to pay the amounts specified in clause “Fourth” of Section 3.03
hereof in the order of priority set forth therein; and
	 
	Fourth, 	 	 	as provided in clause “Sixth” of Section 3.03 hereof;




provided, however, that if a Replacement Airframe or Replacement Engine shall be
substituted for the Airframe or Engine subject to such Event of Loss as provided in Section 4.05
hereof, any insurance, condemnation or similar proceeds which result from such Event of Loss and
are paid over to the Mortgagee shall be held by the Mortgagee as permitted by Section 7.04 hereof
(provided that such moneys shall be invested as provided in Section 6.06 hereof) as additional
security for the obligations of Owner under the Operative Agreements and such proceeds (and such
investment earnings), to the extent not theretofore applied as provided herein, shall be released
to the Owner at the Owner’s written request upon the release of such Airframe or Engine and the
replacement thereof as provided herein; provided, further, however, in the
case of a redemption of Equipment Notes pursuant to Section 2.11(b), if a particular Series is not
being redeemed pursuant thereto, no application of funds shall be made pursuant to the paragraph in
clause “Second” above that refers to such Series in connection with such redemption. No Make-Whole
Amount shall be due and payable on the Equipment Notes as a consequence of the redemption of the
Equipment Notes as a result of an Event of Loss with respect to the Airframe or the Airframe and
one or more Engines.




          SECTION 3.03. Payments After Event of Default




          Except as otherwise provided in Section 3.04 hereof, all payments received and amounts held or
realized by the Mortgagee (including any amounts realized by the Mortgagee from the exercise of any
remedies pursuant to Article V hereof) after an Event of Default shall have occurred and be
continuing, as well as all payments or amounts then held by the Mortgagee as part of the
Collateral, shall be promptly distributed by the Mortgagee in the following order of priority:





	First, 	 	so much of such payments or amounts as shall be required to (i) reimburse the Mortgagee or
WTC for any tax (other than any Unindemnified Tax and except to the extent resulting from a
failure of the Mortgagee to withhold taxes pursuant to




21









 






	 	 	Section 2.04(b) hereof), expense or other loss (including, without limitation,
all amounts to be expended at the expense of, or charged upon the rents,
revenues, issues, products and profits of, the property included in the
Collateral (all such property being herein called the “Mortgaged Property”)
pursuant to Section 5.03(b) hereof) incurred by the Mortgagee or WTC (to the
extent not previously reimbursed), the expenses of any sale, or other
proceeding, reasonable attorneys’ fees and expenses, court costs, and any other
expenditures incurred or expenditures or advances made by the Mortgagee, WTC or
the Note Holders in the protection, exercise or enforcement of any right, power
or remedy or any damages sustained by the Mortgagee, WTC or any Note Holder,
liquidated or otherwise, upon such Event of Default shall be applied by the
Mortgagee as between itself, WTC and the Note Holders in reimbursement of such
expenses and any other expenses for which the Mortgagee, WTC or the Note
Holders are entitled to reimbursement under any Operative Agreement (including
by subrogation pursuant to Section 2.7 of the Intercreditor Agreement) and (ii)
pay all Secured Obligations payable to the other Indenture Indemnitees
hereunder and under the Participation Agreement (other than amounts specified
in clauses Second and Third below); and in the case the aggregate amount to be
so distributed is insufficient to pay as aforesaid in clauses (i) and (ii),
then ratably, without priority of one over the other, in proportion to the
amounts owed each hereunder;
	 
	Second, 	 	so much of such payments or amounts
remaining as shall be required to reimburse
the then existing or prior Note Holders for
payments made pursuant to Section 6.03
hereof (to the extent not previously
reimbursed) shall be distributed to such
then existing or prior Note Holders ratably,
without priority of one over the other, in
accordance with the amount of the payment or
payments made by each such then existing or
prior Note Holder pursuant to said Section
6.03 hereof;
	 
	Third, 	(i) 	so much of such payments or amounts
remaining as shall be required to pay in
full the aggregate unpaid Original Amount of
all Series A Equipment Notes, and the
accrued but unpaid interest and other
amounts due thereon and all other Secured
Obligations in respect of all Series A
Equipment Notes to the date of distribution,
shall be distributed to the Note Holders of
the Series A Equipment Notes, and in case
the aggregate amount to be so distributed
shall be insufficient to pay in full as
aforesaid, then ratably, without priority of
one over the other, in the proportion that
the aggregate unpaid amounts on all Series A
Equipment Notes held by each Note Holder to
the date of distribution, bears to the
aggregate unpaid amounts on all Series A
Equipment Notes held by all such Note
Holders to the date of distribution;
	 
		(ii) 	after giving effect to paragraph (i) above, so much of such payments or
amounts remaining as shall be required to pay in full the aggregate unpaid Original
Amount of all Series B Equipment Notes and the accrued but unpaid interest and other
amounts due thereon and all other Secured Obligations in respect of the Series B
Equipment Notes to the date of distribution, shall be distributed to the Note
Holders of Series B Equipment Notes, and in case the aggregate amount to




22









 






	 	 	be so distributed shall be insufficient to pay in full as aforesaid, then ratably,
without priority of one over the other, in the proportion that the aggregate unpaid
amounts on all Series B Equipment Notes held by each Note Holder to the date of
distribution, bears to the aggregate unpaid amounts on all Series B Equipment Notes
held by all such Note Holders to the date of distribution;
	 
		(iii) 	after giving effect to paragraphs (i) and (ii) above, except as otherwise
provided in an amendment to this Trust Indenture pursuant to Section 10.01(b) hereof,
so much of such payments or amounts remaining as shall be required to pay in full the
aggregate unpaid Original Amount of all Additional Series Equipment Notes, and the
accrued but unpaid interest and other amounts due thereon and all other Secured
Obligations in respect of the Additional Series Equipment Notes to the date of
distribution, shall be distributed to the Note Holders of the Additional Series, and
in case the aggregate amount so to be distributed shall be insufficient to pay in
full as aforesaid, then ratably, without priority of one over the other, in the
proportion that the aggregate unpaid amounts on all Additional Series Equipment Notes
held by each Note Holder to the date of distribution, bears to the aggregate unpaid
amounts on all Additional Series Equipment Notes held by all such Note Holders to the
date of distribution;
	 
	Fourth, 	 	(i) so much of such payments or amounts remaining as shall be required to pay in full all
Related Secured Obligations in respect of Related Series A Equipment Notes then due, shall be
distributed to Related Note Holders of the Related Series A Equipment Notes, and in case the
aggregate amount so to be distributed shall be insufficient to pay in full as aforesaid, then
ratably, without priority of one over the other, in the proportion that all Related Secured
Obligations then due in respect of the Related Series A Equipment Notes held by such holder
bears to all Related Secured Obligations in respect of the Related Series A Equipment Notes
then due;
	 
		 	(ii) after giving effect to paragraph (i) above, so much of such payments or amounts
remaining as shall be required to pay in full all Related Secured Obligations in
respect of Related Series B Equipment Notes then due, shall be distributed to the
Related Note Holders of the Related Series B Equipment Notes, and in case the
aggregate amount so to be distributed shall be insufficient to pay in full as
aforesaid, then ratably, without priority of one over the other, in the proportion
that all Related Secured Obligations then due in respect of Related Series B
Equipment Notes held by such holder bears to all Related Secured Obligations in
respect of Related Series B Equipment Notes then due;
	 
		 	(iii) after giving effect to paragraphs (i) and (ii) above (and except as otherwise
provided in an amendment to this Trust Indenture pursuant to Section 10.01(b)
hereof), so much of such payments or amounts remaining as shall be required to pay
in full all Related Secured Obligations in respect of the Related Additional Series
Equipment Notes then due, shall be distributed to the Related Note Holders of the
Related Additional Series Equipment Notes, and in case the aggregate amount so to be
distributed shall be insufficient to pay in full as aforesaid, then




23









 






	 	 	ratably, without
priority of one over the other, in the proportion that all Related
Secured Obligations then due in respect of Related Additional Series Equipment Notes
held by such holder bears to all Related Secured Obligations in respect of Related
Additional Series Equipment Notes then due;
	 
	Fifth, 	 	if any Related Equipment Note is outstanding, any of such payments
or amounts remaining and any invested Cash Equivalents shall be
held by the Mortgagee in an Eligible Account in accordance with the
provisions of Section 3.07 (and invested as provided in Section
6.06 hereof) as additional security for the Related Secured
Obligations, and such amounts (and any investment earnings thereon)
shall be distributed from time to time in accordance with the
foregoing provisions of clause “Fourth” as and to the extent any
Related Secured Obligation shall at any time and from time to time
become due and remain unpaid after the giving of any required
notice and the expiration of any applicable grace period; and, upon
the payment in full of all Related Secured Obligations the balance,
if any, of any such remaining amounts and investment earnings
thereon shall be applied as provided in clause Sixth of this
Section 3.03; and
	 
	Sixth, 	 	the balance, if any, of such payments or amounts remaining
thereafter shall be distributed to the Owner.





          No Make-Whole Amount shall be due and payable on the Equipment Notes as a consequence of the
acceleration of the Equipment Notes as a result of an Event of Default.




          SECTION 3.04. Certain Payments




               (a) Any payments received by the Mortgagee for which no provision as to the application
thereof is made in this Trust Indenture and for which such provision is made in any other Operative
Agreement shall be applied forthwith to the purpose for which such payment was made in accordance
with the terms of such other Operative Agreement, as the case may be.



               (b) Notwithstanding anything to the contrary contained in this Article III, the Mortgagee will
distribute promptly upon receipt any indemnity payment received by it from the Owner in respect of
the Mortgagee in its individual capacity, any Note Holder or any other Indenture Indemnitee, in
each case whether or not pursuant to Section 8 of the Participation Agreement, directly to the
Person entitled thereto. Any payment received by the Mortgagee under the third paragraph of
Section 2.02 shall be distributed to the Subordination Agent in its capacity as Note Holder to be
distributed in accordance with the terms of the Intercreditor Agreement, except that any portion of
any such payment to which a Note Holder has been subrogated pursuant to Section 2.7 of the
Intercreditor Agreement shall instead be distributed to such Note Holder.



               (c) For the avoidance of doubt, no amount will be distributed pursuant to this Article III to
any holder of a note issued under a Related Indenture that is not a Related Note Holder (as such).



24









 





          SECTION 3.05. Other Payments




          Any payments received by the Mortgagee for which no provision as to the application thereof is
made elsewhere in this Trust Indenture or in any other Operative Agreement shall be distributed by
the Mortgagee to the extent received or realized at any time, in the order of priority specified in
Section 3.01 hereof, and after payment in full of all amounts then due in accordance with Section
3.01 in the manner provided in clause “Sixth” of Section 3.03 hereof.




          SECTION 3.06. Cooperation




          Prior to making any distribution under this Article III, the Mortgagee shall consult with the
Related Mortgagees to determine amounts payable with respect to the Related Secured Obligations.
The Mortgagee shall cooperate with the Related Mortgagees and shall provide such information as
shall be reasonably requested by each Related Mortgagee to enable such Related Mortgagee to
determine amounts distributable under Article III of its Related Indenture. In addition, prior to
the 90th day before the Final Payment Date, the Mortgagee shall consult with the Related Mortgagees
to determine if there are any Related Secured Obligations that have not been paid when due under
any Related Indenture, and in the event that there any such past-due Related Secured Obligations,
the Mortgagee shall give Owner notice thereof on or prior to such 90th day. During the period from
such 90th day to the Final Payment Date, the Mortgagee shall continue to consult with the Related
Mortgagees, and in the event that any Related Secured Obligations become past-due during such
period, the Mortgagee shall give Owner prompt notice thereof.




          SECTION 3.07. Securities Account




          In furtherance of the provisions of Section 3.03 of this Trust Indenture, WTC agrees to act as
an Eligible Institution under this Trust Indenture in accordance with the provisions of this Trust
Indenture (in such capacity, the “Securities Intermediary”). Except in its capacity as Mortgagee,
WTC waives any claim or Lien against any Eligible Account it may have, by operation of law or
otherwise, for any amount owed to it by Owner. The Securities Intermediary hereby agrees that,
notwithstanding anything to the contrary in this Trust Indenture, (i) any amounts to be held by the
Mortgagee pursuant to clause “Fifth” of Section 3.03 and any investment earnings thereon or other
Cash Equivalents will be credited to an Eligible Account (the “Securities Account”) for which it is
a “securities intermediary” (as defined in Section 8-102(a)(14) of the NY UCC) and the Mortgagee is
the “entitlement holder” (as defined in Section 8-102(a)(7) of the NY UCC) of the “securities
entitlement” (as defined in Section 8-102(a)(17) of the NY UCC) with respect to each “financial
asset” (as defined in Section 8-102(a)(9) of the NY UCC) credited to such Eligible Account, (ii)
all such amounts, Cash Equivalents and all other property acquired with cash credited to the
Securities Account will be credited to the Securities Account, (iii) all items of property (whether
cash, investment property, Cash Equivalents, other investments, securities, instruments or other
property) credited to the Securities Account will be treated as a “financial asset” under Article 8
of the NY UCC, (iv) its “securities intermediary’s jurisdiction” (as defined in Section 8-110(e) of
the NY UCC) with respect to the Securities Account is the State of New York, and (v) all
securities, instruments and other property in order or registered from and credited to the
Securities Account shall be payable




25









 







to or to the order of, or registered in the name of, the
Securities Intermediary or shall be indorsed to the Securities Intermediary or in blank, and in no case whatsoever shall any financial
asset credited to the Securities Account be registered in the name of the Owner, payable to or to
the order of the Owner or specially indorsed to the Owner except to the extent the foregoing have
been specially endorsed by the Owner to the Securities Intermediary or in blank. The Mortgagee
agrees that it will hold (and will indicate clearly in its books and records that it holds) its
“securities entitlement” to the “financial assets” credited to the Securities Account in trust for
the benefit of the Note Holders and each of the Indenture Indemnitees and the Related Secured
Parties as set forth in this Trust Indenture. The Owner acknowledges that, by reason of the
Mortgagee being the “entitlement holder” in respect of the Securities Account as provided above,
the Mortgagee shall have the sole right and discretion, subject only to the terms of this Trust
Indenture, to give all “entitlement orders” (as defined in Section 8-102(a)(8) of the NY UCC) with
respect to the Securities Account and any and all financial assets and other property credited
thereto to the exclusion of the Owner.




          SECTION 3.08. Payments to the Owner




          Any amounts to be distributed hereunder by the Mortgagee to the Owner shall be paid to the
Owner (within the time limits contemplated by Section 2.03) by wire transfer of funds of the type
received by the Mortgagee at such office and to such account or accounts of such entity or entities
as shall be designated by notice from the Owner to the Mortgagee from time to time.




ARTICLE IV




COVENANTS OF THE OWNER




          SECTION 4.01. Liens




          The Owner will not directly or indirectly create, incur, assume or suffer to exist any Lien on
or with respect to the Airframe or any Engine, title to any of the foregoing or any interest of
Owner therein, except Permitted Liens. The Owner shall promptly, at its own expense, take (or
cause to be taken) such action as may be necessary to duly discharge (by bonding or otherwise) any
Lien other than a Permitted Lien arising at any time in respect of the Airframe or any Engine.




          SECTION 4.02. Possession, Operation and Use, Maintenance, Registration and Markings




               (a) General. Except as otherwise expressly provided herein, the Owner shall be
entitled to operate, use, locate, employ or otherwise utilize or not utilize the Airframe, any
Engine or any Parts in any lawful manner or place in accordance with the Owner’s business judgment.



               (b) Possession. The Owner, without the prior consent of Mortgagee, shall not lease or
otherwise in any manner deliver, transfer or relinquish possession of the Aircraft, the Airframe or
any Engine or install any Engine, or permit any Engine to be installed,



26









 




on any airframe other than the Airframe; except that the Owner may, without such prior written
consent of Mortgagee:




                    (i) Subject or permit any Permitted Lessee to subject (i) the Airframe to normal interchange
agreements or (ii) any Engine to normal interchange, pooling, borrowing or similar arrangements, in
each case customary in the commercial airline industry and entered into by Owner or such Permitted
Lessee, as the case may be, in the ordinary course of business; provided, however,
that if Owner’s title to any such Engine is divested under any such agreement or arrangement, then
such Engine shall be deemed to have suffered an Event of Loss as of the date of such divestiture,
and Owner shall comply with Section 4.04(e) in respect thereof;



                    (ii) Deliver or permit any Permitted Lessee to deliver possession of the Aircraft, Airframe,
any Engine or any Part (x) to the manufacturer thereof or to any third-party maintenance provider
for testing, service, repair, maintenance or overhaul work on the Aircraft, Airframe, any Engine or
any Part, or, to the extent required or permitted by Section 4.04, for alterations or modifications
in or additions to the Aircraft, Airframe or any Engine or (y) to any Person for the purpose of
transport to a Person referred to in the preceding clause (x);



                    (iii) Install or permit any Permitted Lessee to install an Engine on an airframe owned by
Owner or such Permitted Lessee, as the case may be, free and clear of all Liens, except (x)
Permitted Liens and those that do not apply to the Engines, and (y) the rights of third parties
under normal interchange or pooling agreements and arrangements of the type that would be permitted
under Section 4.02(b)(i);



                    (iv) Install or permit any Permitted Lessee to install an Engine on an airframe leased to
Owner or such Permitted Lessee, or purchased by Owner or such Permitted Lessee subject to a
mortgage, security agreement, conditional sale or other secured financing arrangement, but only if
(x) such airframe is free and clear of all Liens, except (A) the rights of the parties to such
lease, or any such secured financing arrangement, covering such airframe and (B) Liens of the type
permitted by clause (iii) above and (y) Owner or Permitted Lessee, as the case may be, shall have
received from the lessor, mortgagee, secured party or conditional seller, in respect of such
airframe, a written agreement (which may be a copy of the lease, mortgage, security agreement,
conditional sale or other agreement covering such airframe), whereby such Person agrees that it
will not acquire or claim any right, title or interest in, or Lien on, such Engine by reason of
such Engine being installed on such airframe at any time while such Engine is subject to the Lien
of this Trust Indenture;



                    (v) Install or permit any Permitted Lessee to install an Engine on an airframe owned by Owner
or such Permitted Lessee, leased to Owner or such Permitted Lessee, or purchased by Owner or such
Permitted Lessee subject to a conditional sale or other security agreement under circumstances
where neither clause (iii) or (iv) above is applicable; provided, however, that any
such installation shall be deemed an Event of Loss with respect to such Engine, and Owner shall
comply with Section 4.04(e) hereof in respect thereof;



                    (vi) Transfer or permit any Permitted Lessee to transfer possession of the Aircraft, Airframe
or any Engine to the U.S. Government, in which event



27









 




Owner shall promptly notify Mortgagee in writing of any such transfer of possession and, in
the case of any transfer pursuant to CRAF, in such notification shall identify by name, address and
telephone numbers the Contracting Office Representative or Representatives for the Military Airlift
Command of the United States Air Force to whom notices must be given and to whom requests or claims
must be made to the extent applicable under CRAF;




                    (vii) Enter into a charter or Wet Lease or other similar arrangement with respect to the
Aircraft or any other aircraft on which any Engine may be installed (which shall not be considered
a transfer of possession hereunder); provided that the Owner’s obligations
hereunder shall continue in full force and effect notwithstanding any such charter or Wet Lease or
other similar arrangement;



                    (viii) So long as no Event of Default shall have occurred and be continuing, and subject to
the provisions of the immediately following paragraph, enter into a lease with respect to the
Aircraft, Airframe or any Engine to any Permitted Air Carrier that is not then subject to any
bankruptcy, insolvency, liquidation, reorganization, dissolution or similar proceeding and shall
not have substantially all of its property in the possession of any liquidator, trustee, receiver
or similar person; provided that, in the case only of a lease to a Permitted
Foreign Air Carrier, (A) the United States maintains diplomatic relations with the country of
domicile of such Permitted Foreign Air Carrier (or, in the case of Taiwan, diplomatic relations at
least as good as those in effect on the Closing Date) and (B) Owner shall have furnished Mortgagee
a favorable opinion of counsel, reasonably satisfactory to Mortgagee, in the country of domicile of
such Permitted Foreign Air Carrier, that (v) the terms of such lease are the legal, valid and
binding obligations of the parties thereto enforceable under the laws of such jurisdiction (subject
to customary exceptions), (w) it is not necessary for Mortgagee to register or qualify to do
business in such jurisdiction, if not already so registered or qualified, as a result, in whole or
in part, of the proposed lease, (x) Mortgagee’s Lien in respect of, the Aircraft, Airframe and
Engines will be recognized in such jurisdiction, (y) the Laws of such jurisdiction of domicile
require fair compensation by the government of such jurisdiction, payable in a currency freely
convertible into Dollars, for the loss of title to the Aircraft, Airframe or Engines in the event
of the requisition by such government of such title (unless Owner shall provide insurance in the
amounts required with respect to hull insurance under this Trust Indenture covering the requisition
of title to the Aircraft, Airframe or Engines by the government of such jurisdiction so long as the
Aircraft, Airframe or Engines are subject to such lease) and (z) the agreement of such Permitted
Air Carrier that its rights under the lease are subject and subordinate to all the terms of this
Trust Indenture is enforceable against such Permitted Air Carrier under applicable law (subject to
customary exceptions);


provided that (1) the rights of any transferee who receives possession by reason of a
transfer permitted by any of clauses (i) through (viii) of this Section 4.02(b) (other than by a
transfer of an Engine which is deemed an Event of Loss) shall be subject and subordinate to all the
terms of this Trust Indenture, (2) the Owner shall remain primarily liable for the performance of
all of the terms of this Trust Indenture and all the terms and conditions of this Trust Indenture
and the other Operative Agreements shall remain in effect and (3) no lease or transfer of
possession otherwise in compliance with this Section 4.02(b) shall (x) result in any registration
or re-registration of an Aircraft, except to the extent permitted by Section 4.02(e) or the
maintenance,





28









 







operation or use thereof except in compliance with Sections 4.02(c) and 4.02(d) or (y) permit any
action not permitted to the Owner hereunder.




          In the case of any lease permitted under this Section 4.02(b), the Owner will include in such
lease appropriate provisions which (t) make such lease expressly subject and subordinate to all of
the terms of this Trust Indenture, including the rights of the Mortgagee to avoid such lease in the
exercise of its rights to repossession of the Airframe and Engines hereunder; (u) require the
Permitted Lessee to comply with the terms of Section 4.06; and (v) require that the Airframe or any
Engine subject thereto be used in accordance with the limitations applicable to the Owner’s
possession and use provided in this Trust Indenture. No lease permitted under this Section 4.02(b)
shall be entered into unless (w) Owner shall provide written notice to Mortgagee (such notice in
the event of a lease to a U.S. Air Carrier to be given promptly after entering into any such lease
or, in the case of a lease to any other Permitted Air Carrier, 10 days in advance of entering into
such lease); (x) Owner shall furnish to Mortgagee evidence reasonably satisfactory to Mortgagee
that the insurance required by Section 4.06 remains in effect; (y) all necessary documents shall
have been duly filed, registered or recorded in such public offices as may be required fully to
preserve the first priority security interest and International Interest (subject to Permitted
Liens) of Mortgagee in the Aircraft, Airframe and Engines; and (z) Owner shall reimburse Mortgagee
for all of its reasonable out-of-pocket fees and expenses, including, without limitation,
reasonable fees and disbursements of counsel, incurred by Mortgagee in connection with any such
lease. Except as otherwise provided herein and without in any way relieving the Owner from its
primary obligation for the performance of its obligations under this Trust Indenture, the Owner may
in its sole discretion permit a lessee to exercise any or all rights which the Owner would be
entitled to exercise under Sections 4.02 and 4.04, and may cause a lessee to perform any or all of
the Owner’s obligations under Article IV, and the Mortgagee agrees to accept actual and full
performance thereof by a lessee in lieu of performance by the Owner.




          Mortgagee hereby agrees, and each Note Holder and Related Note Holder by acceptance of an
Equipment Note and a Related Equipment Note, respectively, agrees, for the benefit of each lessor,
conditional seller, indenture trustee or secured party of any engine leased to, or purchased by,
Owner or any Permitted Lessee subject to a lease, conditional sale, trust indenture or other
security agreement that Mortgagee, each Note Holder and Related Note Holder and their respective
successors and assigns will not acquire or claim, as against such lessor, conditional seller,
indenture trustee or secured party, any right, title or interest in any engine as the result of
such engine being installed on the Airframe at any time while such engine is subject to such lease,
conditional sale, trust indenture or other security agreement and owned by such lessor or
conditional seller or subject to a trust indenture or security interest in favor of such indenture
trustee or secured party.




               (c) Operation and Use. So long as the Aircraft, Airframe or any Engine is subject to
the Lien of this Trust Indenture, the Owner shall not operate, use or locate the Aircraft, Airframe
or any Engine, or allow the Aircraft, Airframe or any Engine to be operated, used or located, (i)
in any area excluded from coverage by any insurance required by the terms of Section 4.06, except
in the case of a requisition by the U.S. Government where the Owner obtains indemnity in lieu of
such insurance from the U.S. Government, or insurance from the U.S. Government, against
substantially the same risks and for at least the amounts of the



29









 




insurance required by Section 4.06 covering such area, or (ii) in any recognized area of
hostilities unless covered in accordance with Section 4.06 by war risk insurance, or in either case
unless the Aircraft, the Airframe or any Engine is only temporarily operated, used or located in
such area as a result of an emergency, equipment malfunction, navigational error, hijacking,
weather condition or other similar unforeseen circumstance, so long as Owner diligently and in good
faith proceeds to remove the Aircraft from such area. So long as the Aircraft, the Airframe or any
Engine is subject to the Lien of this Trust Indenture, the Owner shall not permit such Aircraft,
Airframe or any Engine, as the case may be, to be used, operated, maintained, serviced, repaired or
overhauled (x) in violation of any Law binding on or applicable to such Aircraft, Airframe or
Engine or (y) in violation of any airworthiness certificate, license or registration of any
Government Entity relating to the Aircraft, the Airframe or any Engine, except (i) immaterial or
non-recurring violations with respect to which corrective measures are taken promptly by Owner or
Permitted Lessee, as the case may be, upon discovery thereof, or (ii) to the extent the validity or
application of any such Law or requirement relating to any such certificate, license or
registration is being contested in good faith by Owner or Permitted Lessee in any reasonable manner
which does not involve any material risk of the sale, forfeiture or loss of the Aircraft, Airframe
or any Engine, any material risk of criminal liability or material civil penalty against Mortgagee
or impair the Mortgagee’s security interest in the Aircraft, Airframe or any Engine.




               
(d) Maintenance and Repair. So long as the Aircraft, Airframe or any Engine is
subject to the Lien of this Trust Indenture, the Owner shall cause the Aircraft, Airframe and each
Engine to be maintained, serviced, repaired and overhauled in accordance with (i) maintenance
standards required by or substantially equivalent to those required by the FAA or the central
aviation authority of Canada, France, Germany, Japan, the Netherlands or the United Kingdom for the
Aircraft, Airframe and Engines, so as to (A) keep the Aircraft, the Airframe and each Engine in as
good operating condition as on the Closing Date, ordinary wear and tear excepted, (B) keep the
Aircraft in such operating condition as may be necessary to enable the applicable airworthiness
certification of such Aircraft to be maintained under the regulations of the FAA or other Aviation
Authority then having jurisdiction over the operation of the Aircraft, except during (x) temporary
periods of storage in accordance with applicable regulations, (y) maintenance and modification
permitted hereunder or (z) periods when the FAA or such other Aviation Authority has revoked or
suspended the airworthiness certificates for Similar Aircraft; and (ii) except during periods when
a Permitted Lease is in effect, the same standards as Owner uses with respect to similar aircraft
of similar size in its fleet operated by Owner in similar circumstances and, during any period in
which a Permitted Lease is in effect, the same standards used by the Permitted Lessee with respect
to similar aircraft of similar size in its fleet and operated by the Permitted Lessee in similar
circumstances (it being understood that this clause (ii) shall not limit Owner’s obligations under
the preceding clause (i)). Owner further agrees that the Aircraft, Airframe and Engines will be
maintained, used, serviced, repaired, overhauled or inspected in compliance with applicable Laws
with respect to the maintenance of the Aircraft and in compliance with each applicable
airworthiness certificate, license and registration relating to the Aircraft, Airframe or any
Engine issued by the Aviation Authority, other than minor or nonrecurring violations with respect
to which corrective measures are taken upon discovery thereof and except to the extent Owner or
Permitted Lessee is contesting in good faith the validity or application of any such Law or
requirement relating to any such certificate, license or registration in any reasonable manner
which does not create a material risk of sale, loss or forfeiture of the Aircraft, the Airframe or
any Engine or the interest of Mortgagee therein, or any



30









 




material risk of criminal liability or material civil penalty against Mortgagee. The Owner
shall maintain or cause to be maintained the Aircraft Documents in the English language.




               (e) Registration. The Owner on or prior to the date of the Closing shall cause the
Aircraft to be duly registered in its name under the Act and except as otherwise permitted by this
Section 4.02(e) at all times thereafter shall cause the Aircraft to remain so registered. So long
as no Special Default or Event of Default shall have occurred and be continuing, Owner may, by
written notice to Mortgagee, request to change the country of registration of the Aircraft. Any
such change in registration shall be effected only in compliance with, and subject to all of the
conditions set forth in, Section 6.4.5 of the Participation Agreement. Unless the Lien of this
Trust Indenture has been released, Owner shall also cause the Trust Indenture to be duly recorded
and at all times maintained of record as a first-priority perfected mortgage (subject to Permitted
Liens) on the Aircraft, the Airframe and each of the Engines (except to the extent such perfection
or priority cannot be maintained solely as a result of the failure by Mortgagee to execute and
deliver any necessary documents). Unless the Lien of this Trust Indenture has been released, Owner
shall cause the International Interest granted under this Indenture in favor of the Mortgagee in
each Airframe and Engine to be registered on the International Registry as an International
Interest on such Airframe and Engine, subject to the Mortgagee providing its consent to the
International Registry with respect thereto.



               (f) Markings. If permitted by applicable Law, on or reasonably promptly after the
Closing Date, Owner will cause to be affixed to, and maintained in, the cockpit of the Airframe and
on each Engine, in each case, in a clearly visible location, a placard of a reasonable size and
shape bearing the legend: “Subject to a security interest in favor of Wilmington Trust Company,
not in its individual capacity but solely as Mortgagee.” Such placards may be removed temporarily,
if necessary, in the course of maintenance of the Airframe or Engines. If any such placard is
damaged or becomes illegible, Owner shall promptly replace it with a placard complying with the
requirements of this Section.



          SECTION 4.03. Inspection




               (a) At all reasonable times, so long as the Aircraft is subject to the Lien of this Trust
Indenture, Mortgagee and its authorized representatives (the “Inspecting Parties”) may (not more
than once every 12 months unless an Event of Default has occurred and is continuing then such
inspection right shall not be so limited) inspect the Aircraft, Airframe and Engines (including
without limitation, the Aircraft Documents) and any such Inspecting Party may make copies of such
Aircraft Documents not reasonably deemed confidential by Owner or such Permitted Lessee.



               (b) Any inspection of the Aircraft hereunder shall be limited to a visual, walk-around
inspection and shall not include the opening of any panels, bays or other components of the
Aircraft, and no such inspection shall interfere with Owner’s or any Permitted Lessee’s maintenance
and operation of the Aircraft, Airframe and Engines.



               (c) With respect to such rights of inspection, Mortgagee shall not have any duty or liability
to make, or any duty or liability by reason of not making, any such visit, inspection or survey.



31









 





               (d) Each Inspecting Party shall bear its own expenses in connection with any such inspection
(including the cost of any copies made in accordance with Section 4.03(a)).



          SECTION 4.04. Replacement and Pooling of Parts, Alterations, Modifications and Additions;
Substitution of Engines




               (a) Replacement of Parts. Except as otherwise provided herein, so long as the
Airframe or Engine is subject to the Lien of this Trust Indenture, Owner, at its own cost and
expense, will, or will cause a Permitted Lessee to, at its own cost and expense, promptly replace
(or cause to be replaced) all Parts which may from time to time be incorporated or installed in or
attached to the Aircraft, Airframe or any Engine and which may from time to time become worn out,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit
for use for any reason whatsoever. In addition, Owner may, at its own cost and expense, or may
permit a Permitted Lessee at its own cost and expense to, remove (or cause to be removed) in the
ordinary course of maintenance, service, repair, overhaul or testing any Parts, whether or not worn
out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use; provided, however, that Owner, except as otherwise provided herein,
at its own cost and expense, will, or will cause a Permitted Lessee at its own cost and expense to,
replace such Parts as promptly as practicable. All replacement parts shall be free and clear of
all Liens, except for Permitted Liens and pooling arrangements to the extent permitted by Section
4.04(c) below (and except in the case of replacement property temporarily installed on an emergency
basis) and shall be in good operating condition and have a value and utility not less than the
value and utility of the Parts replaced (assuming such replaced Parts were in the condition
required hereunder).



               (b) Parts. Except as otherwise provided herein, any Part at any time removed from the
Airframe or any Engine shall remain subject to the Lien of this Trust Indenture, no matter where
located, until such time as such Part shall be replaced by a part that has been incorporated or
installed in or attached to such Airframe or any Engine and that meets the requirements for
replacement parts specified above. Immediately upon any replacement part becoming incorporated or
installed in or attached to such Airframe or any Engine as provided in Section 4.04(a), without
further act, (i) the replaced Part shall thereupon be free and clear of all rights of the Mortgagee
and shall no longer be deemed a Part hereunder, and (ii) such replacement part shall become a Part
subject to this Trust Indenture and be deemed part of such Airframe or any Engine, as the case may
be, for all purposes hereof to the same extent as the Parts originally incorporated or installed in
or attached to such Airframe or any Engine.



               (c) Pooling of Parts. Any Part removed from the Aircraft, Airframe or an Engine may
be subjected by the Owner or a Permitted Lessee to a normal pooling arrangement customary in the
airline industry and entered into in the ordinary course of business of Owner or Permitted Lessee,
provided that the part replacing such removed Part shall be incorporated or installed in or
attached to such Airframe or any Engine in accordance with Sections 4.04(a) and 4.04(b) as promptly
as practicable after the removal of such removed Part. In addition, any replacement part when
incorporated or installed in or attached to the Airframe or any Engine may be owned by any third
party, subject to a normal pooling arrangement, so long as the Owner or a Permitted Lessee, at its
own cost and expense, as promptly thereafter as



32









 




reasonably possible, either (i) causes such
replacement part to become subject to the Lien of this Trust Indenture, free and clear of all Liens except Permitted Liens, at which time such
replacement part shall become a Part or (ii) replaces (or causes to be replaced) such replacement
part by incorporating or installing in or attaching to the Aircraft, Airframe or any Engine a
further replacement part owned by the Owner free and clear of all Liens except Permitted Liens and
which shall become subject to the Lien of this Trust Indenture in accordance with Section 4.04(b).




               (d) Alterations, Modifications and Additions. The Owner shall, or shall cause a
Permitted Lessee to, make (or cause to be made) alterations and modifications in and additions to
the Aircraft, Airframe and each Engine as may be required to be made from time to time to meet the
applicable standards of the FAA or other Aviation Authority having jurisdiction over the operation
of the Aircraft, to the extent made mandatory in respect of the Aircraft (a “Mandatory
Modification”); provided however, that the Owner or a Permitted Lessee may, in good
faith and by appropriate procedure, contest the validity or application of any law, rule,
regulation or order in any reasonable manner which does not materially adversely affect Mortgagee’s
interest in the Aircraft, does not impair the Mortgagee’s security interest in the Aircraft and
does not involve any material risk of sale, forfeiture or loss of the Aircraft or the interest of
Mortgagee therein, or any material risk of material civil penalty or any material risk of criminal
liability being imposed on Mortgagee or the holder of any Equipment Note. In addition, the Owner,
at its own expense, may, or may permit a Permitted Lessee at its own cost and expense to, from time
to time make or cause to be made such alterations and modifications in and additions to the
Airframe or any Engine (each an “Optional Modification”) as the Owner or such Permitted Lessee may
deem desirable in the proper conduct of its business including, without limitation, removal of
Parts which Owner deems are obsolete or no longer suitable or appropriate for use in the Aircraft,
Airframe or such Engine; provided, however, that no such Optional Modification
shall (i) materially diminish the fair market value, utility, or useful life of the Aircraft or any
Engine below its fair market value, utility or useful life immediately prior to such Optional
Modification (assuming the Aircraft or such Engine was in the condition required by this Trust
Indenture immediately prior to such Optional Modification) or (ii) cause the Aircraft to cease to
have the applicable standard certificate of airworthiness except that such certificate of
airworthiness temporarily may be replaced by an experimental certificate during the process of
implementing and testing such Optional Modification and securing related FAA re-certification of
the Aircraft. All Parts incorporated or installed in or attached to any Airframe or any Engine as
the result of any alteration, modification or addition effected by the Owner shall be free and
clear of any Liens except Permitted Liens and become subject to the Lien of this Trust Indenture;
provided that the Owner or any Permitted Lessee may, at any time so long as the Airframe or
any Engine is subject to the Lien of this Trust Indenture, remove any such Part (such Part being
referred to herein as a “Removable Part”) from such Airframe or an Engine if (i) such Part
is in addition to, and not in replacement of or in substitution for, any Part originally
incorporated or installed in or attached to such Airframe or any Engine at the time of delivery
thereof hereunder or any Part in replacement of, or in substitution for, any such original Part,
(ii) such Part is not required to be incorporated or installed in or attached or added to such
Airframe or any Engine pursuant to the terms of Section 4.02(d) or the first sentence of this
Section 4.04(d) and (iii) such Part can be removed from such Airframe or any Engine without
materially diminishing the fair market value, utility or remaining useful life which such Airframe
or any Engine would have had at the time of removal had such removal not been effected by the
Owner,



33









 




assuming the Aircraft was otherwise maintained in the condition required by this Trust
Indenture and such Removable Part had not been incorporated or installed in or attached to the Aircraft,
Airframe or such Engine. Upon the removal by the Owner of any such Part as above provided, title
thereto shall, without further act, be free and clear of all rights of the Mortgagee and such Part
shall no longer be deemed a Part hereunder. Removable Parts may be leased from or financed by
third parties other than Mortgagee.




               (e) Substitution of Engines. Upon the occurrence of an Event of Loss with respect to
an Engine under circumstances in which an Event of Loss with respect to the Airframe has not
occurred, Owner shall promptly (and in any event within 15 days after such occurrence) give the
Mortgagee written notice of such Event of Loss. The Owner shall have the right at its option at
any time, on at least 5 Business Days’ prior notice to the Mortgagee, to substitute, and if an
Event of Loss shall have occurred with respect to an Engine under circumstances in which an Event
of Loss with respect to the Airframe has not occurred, shall within 60 days of the occurrence of
such Event of Loss substitute, a Replacement Engine for any Engine. In such event, immediately
upon the effectiveness of such substitution and without further act, (i) the replaced Engine shall
thereupon be free and clear of all rights of the Mortgagee and the Lien of this Trust Indenture and
shall no longer be deemed an Engine hereunder and (ii) such Replacement Engine shall become subject
to this Trust Indenture and be deemed part of the Aircraft for all purposes hereof to the same
extent as the replaced Engine. Such Replacement Engine shall be an engine manufactured by Engine
Manufacturer that is the same model as the Engine to be replaced thereby, or an improved model, and
that is suitable for installation and use on the Airframe, and that has a value, utility and
remaining useful life (without regard to hours and cycles remaining until overhaul) at least equal
to the Engine to be replaced thereby (assuming that such Engine had been maintained in accordance
with this Trust Indenture). The Owner’s right to make a replacement hereunder shall be subject to
the fulfillment (which may be simultaneous with such replacement) of the following conditions
precedent at the Owner’s sole cost and expense, and the Mortgagee agrees to cooperate with the
Owner to the extent necessary to enable it to timely satisfy such conditions:



                    (i) an executed counterpart (or, in the case of subclause (B) below, a photocopy) of each of
the following documents shall be delivered to the Mortgagee:




     (A) a Trust Indenture Supplement covering the Replacement Engine, which shall
have been duly filed for recordation pursuant to the Act or such other applicable
law of the jurisdiction other than the United States in which the Aircraft of which
such Engine is a part is registered in accordance with Section 4.02(e), as the case
may be;




     (B) a full warranty bill of sale (as to title), covering the Replacement
Engine, executed by the former owner thereof in favor of the Owner (or, at the
Owner’s option, other evidence of the Owner’s ownership of such Replacement Engine,
reasonably satisfactory to the Mortgagee); and




     (C) UCC financing statements covering the security interests created by this
Trust Indenture (or any similar statements or other documents required to be filed
or delivered pursuant to the laws of the jurisdiction in which such Aircraft



34









 






may be
registered) as are deemed necessary or desirable by counsel for the
Mortgagee to protect the security interests of the Mortgagee in the Replacement
Engine;



                    (ii) the Owner shall cause to be delivered to the Mortgagee an opinion of counsel to the
effect that the Lien of this Trust Indenture continues to be in full force and effect with respect
to the Replacement Engine and such evidence of compliance with the insurance provisions of Section
4.06 with respect to such Replacement Engine as Mortgagee shall reasonably request;



                    (iii) the Owner shall have furnished to Mortgagee an opinion of Owner’s aviation law counsel
reasonably satisfactory to Mortgagee and addressed to Mortgagee as to the due filing for
recordation of the Trust Indenture Supplement with respect to such Replacement Engine under the Act
or such other applicable law of the jurisdiction other than the United States in which the Aircraft
is registered in accordance with Section 4.02(e), as the case may be, and the registration with the
International Registry of (i) the International Interest granted under such Trust Indenture
Supplement with respect to such Replacement Engine and (ii) if the bill of sale referred to in
clause (i)(B) above constitutes a “contract of sale” under the Cape Town Treaty, such contract of
sale with respect to such Replacement Engine; and



                    (iv) the Owner shall have furnished to Mortgagee a certificate of a qualified aircraft
engineer (who may be an employee of Owner) certifying that such Replacement Engine has a value and
utility and remaining useful life (without regard to hours and cycles remaining until overhaul) at
least equal to the Engine so replaced (assuming that such Engine had been maintained in accordance
with this Trust Indenture).


Upon satisfaction of all conditions to such substitution, (x) the Mortgagee shall execute and
deliver to the Owner such documents and instruments, prepared at the Owner’s expense, as the Owner
shall reasonably request to evidence the release of such replaced Engine from the Lien of this
Trust Indenture, (y) the Mortgagee shall assign to the Owner all claims it may have against any
other Person relating to any Event of Loss giving rise to such substitution and (z) the Owner shall
receive all insurance proceeds (other than those reserved to others under Section 4.06(b)) and
proceeds in respect of any Event of Loss giving rise to such replacement to the extent not
previously applied to the purchase price of the Replacement Engine as provided in Section 4.05(d).




          SECTION 4.05. Loss, Destruction or Requisition




               (a) Event of Loss With Respect to the Airframe. Upon the occurrence of an Event of
Loss with respect to the Airframe, the Owner shall promptly (and in any event within 15 days after
such occurrence) give the Mortgagee written notice of such Event of Loss. The Owner shall, within
45 days after such occurrence, give the Mortgagee written notice of Owner’s election to either
replace the Airframe as provided under Section 4.05(a)(i) or to make payment in respect of such
Event of Loss as provided under Section 4.05(a)(ii) (it being agreed that if Owner shall not have
given the Mortgagee such notice of such election within the above specified time period, the Owner
shall be deemed to have elected to make payment in respect of such Event of Loss as provided under
Section 4.05(a)(ii)):



35









 





                    (i) if Owner elects to replace the Airframe, Owner shall, subject to the satisfaction of the
conditions contained in Section 4.05(c), as promptly as possible and in any event within 120 days
after the occurrence of such Event of Loss, cause to be subjected to the Lien of this Trust
Indenture, in replacement of the Airframe with respect to which the Event of Loss occurred, a
Replacement Airframe and, if any Engine shall have been installed on the Airframe when it suffered
the Event of Loss, a Replacement Engine therefor, such Replacement Airframe and Replacement Engines
to be free and clear of all Liens except Permitted Liens and to have a value, utility and remaining
useful life (without regard to hours or cycles remaining until the next regular maintenance check)
at least equal to the Airframe or Engine, as the case may be, to be replaced thereby (assuming that
such Airframe or Engine had been maintained in accordance with this Trust Indenture);
provided that if the Owner shall not perform its obligation to effect such
replacement under this clause (i) during the 120-day period of time provided herein, it shall pay
the amounts required to be paid pursuant to and within the time frame specified in clause (ii)
below; or



                    (ii) if Owner elects to make a payment in respect of such Event of Loss of the Airframe, Owner
shall make a payment to the Mortgagee for purposes of redeeming Equipment Notes in accordance with
Section 2.10 hereof on a date on or before the Business Day next following the earlier of (x) the
120th day following the date of the occurrence of such Event of Loss, and (y) the fourth Business
Day following the receipt of insurance proceeds with respect to such Event of Loss (but in any
event not earlier than the date of Owner’s election under Section 4.05(a) to make payment under
this Section 4.05 (a)(ii)); and upon such payment and payment of all other Secured Obligations then
due and payable, the Mortgagee shall, at the cost and expense of the Owner, release from the Lien
of this Trust Indenture the Airframe and the Engines, by executing and delivering to the Owner all
documents and instruments as the Owner may reasonably request to evidence such release.



               (b) Effect of Replacement. Should the Owner have provided a Replacement Airframe and
Replacement Engines, if any, as provided for in Section 4.05(a)(i), (i) the Lien of this Trust
Indenture shall continue with respect to such Replacement Airframe and Replacement Engines, if any,
as though no Event of Loss had occurred; (ii) the Mortgagee shall, at the cost and expense of the
Owner, release from the Lien of this Trust Indenture the replaced Airframe and Engines, if any, by
executing and delivering to the Owner such documents and instruments as the Owner may reasonably
request to evidence such release; and (iii) in the case of a replacement upon an Event of Loss, the
Mortgagee shall assign to the Owner all claims the Mortgagee may have against any other Person
arising from the Event of Loss and the Owner shall receive all insurance proceeds (other than those
reserved to others under Section 4.06(b)) and proceeds from any award in respect of condemnation,
confiscation, seizure or requisition, including any investment interest thereon, to the extent not
previously applied to the purchase price of the Replacement Airframe and Replacement Engines, if
any, as provided in Section 4.05(d).



               (c) Conditions to Airframe and Engine Replacement. The Owner’s right to substitute a
Replacement Airframe and Replacement Engines, if any, as provided in Section 4.05(a)(i) shall be
subject to the fulfillment, at the Owner’s sole cost and expense, in addition to the conditions
contained in such Section 4.05(a)(i), of the following conditions precedent:



36









 





                    (i) on the date when the Replacement Airframe and Replacement Engines, if any, is subjected to
the Lien of this Trust Indenture (such date being referred to in this Section 4.05 as the
“Replacement Closing Date”), an executed counterpart of each of the following documents (or, in the
case of the FAA Bill of Sale and full warranty bill of sale referred to below, a photocopy thereof)
shall have been delivered to the Mortgagee:




     (A) a Trust Indenture Supplement covering the Replacement Airframe and
Replacement Engines, if any, which shall have been duly filed for recordation
pursuant to the Act or such other applicable law of such jurisdiction other than the
United States in which the Replacement Airframe and Replacement Engines, if any, are
to be registered in accordance with Section 4.02(e), as the case may be;




     (B) an FAA Bill of Sale (or a comparable document, if any, of another Aviation
Authority, if applicable) covering the Replacement Airframe executed by the former
owner thereof in favor of the Owner;




     (C) a full warranty (as to title) bill of sale, covering the Replacement
Airframe and Replacement Engines, if any, executed by the former owner thereof in
favor of the Owner (or, at the Owner’s option, other evidence of the Owner’s
ownership of such Replacement Airframe and Replacement Engines, if any, reasonably
satisfactory to the Mortgagee); and




     (D) UCC financing statements (or any similar statements or other documents
required to be filed or delivered pursuant to the laws of the jurisdiction in which
the Replacement Airframe and Replacement Engines, if any, may be registered in
accordance with Section 4.02(e)) as are deemed necessary or desirable by counsel for
the Mortgagee to protect the security interests of the Mortgagee in the Replacement
Airframe and Replacement Engines, if any;



                    (ii) the Replacement Airframe and Replacement Engines, if any, shall be of the same model as
the Airframe or Engines, as the case may be, or an improved model of such aircraft or engines of
the manufacturer thereof, shall have a value, utility and remaining useful life(without regard to
hours or cycles remaining until the next regular maintenance check) at least equal to, and be in as
good operating condition and repair as, the Airframe and any Engines replaced (assuming such
Airframe and Engines had been maintained in accordance with this Trust Indenture);



                    (iii) the Mortgagee (acting directly or by authorization to its special counsel) shall have
received satisfactory evidence as to the compliance with Section 4.06 with respect to the
Replacement Airframe and Replacement Engines, if any;



                    (iv) on the Replacement Closing Date, (A) the Owner shall cause the Replacement Airframe and
Replacement Engines, if any, to be subject to the Lien of this Trust Indenture free and clear of
Liens (other than Permitted Liens), (B) the Replacement Airframe shall have been duly certified by
the FAA as to type and airworthiness in accordance with the terms of this Trust Indenture, (C)
application for registration of the Replacement Airframe in accordance with Section 4.02(e) shall
have been duly made with the FAA or other applicable Aviation Authority and the Owner shall have
authority to operate the Replacement



37









 




Airframe, and (D) the International Interest of this Trust Indenture with respect to the
Replacement Airframe and the Replacement Engines, if any, shall have been registered with the
International Registry and, if the bill of sale referred to in (i)(C) above constitutes a “contract
of sale” under the Cape Town Convention, such contract of sale with respect to the Replacement
Airframe and the Replacement Engine, if any, shall have been registered with the International
Registry;




                    (v) the Mortgagee at the expense of the Owner, shall have received (acting directly or by
authorization to its special counsel) (A) an opinion of counsel, addressed to the Mortgagee, to the
effect that the Replacement Airframe and Replacement Engine, if any, has or have duly been made
subject to the Lien of this Trust Indenture, and Mortgagee will be entitled to the benefits of
Section 1110 with respect to the Replacement Airframe, provided that such opinion with respect to
Section 1110 need not be delivered to the extent that immediately prior to such replacement the
benefits of Section 1110 were not, solely by reason of a change in law or court interpretation
thereof, available to Mortgagee, and (B) an opinion of Owner’s aviation law counsel reasonably
satisfactory to and addressed to Mortgagee as to the due registration of any such Replacement
Airframe and the due filing for recordation of each Trust Indenture Supplement with respect to such
Replacement Airframe or Replacement Engine under the Act or such other applicable law of the
jurisdiction other than the United States in which the Replacement Airframe is to be registered in
accordance with Section 4.02(e), as the case may be, and the registrations with the International
Registry of the interests specified in clause (iv)(D) above with respect to the Replacement
Airframe and Replacement Engine, if any; and



                    (vi) the Owner shall have furnished to the Mortgagee a certificate of a qualified aircraft
engineer (who may be an employee of Owner) certifying that the Replacement Airframe and Replacement
Engines, if any, have a value and utility and remaining useful life (without regard to hours and
cycles remaining until overhaul) at least equal to the Airframe and any Engines so replaced
(assuming that such Airframe and Engines had been maintained in accordance with this Trust
Indenture).



          (d) Non-Insurance Payments Received on Account of an Event of Loss. Any amounts,
other than insurance proceeds in respect of damage or loss not constituting an Event of Loss (the
application of which is provided for in Annex B), received at any time by Mortgagee or Owner from
any Government Entity or any other Person in respect of any Event of Loss will be applied as
follows:




     (i) If such amounts are received with respect to the Airframe, and any Engine
installed thereon at the time of such Event of Loss, upon compliance by Owner with
the applicable terms of Section 4.05(c) with respect to the Event of Loss for which
such amounts are received, such amounts shall be paid over to, or retained by,
Owner;




     (ii) If such amounts are received with respect to an Engine (other than an
Engine installed on the Airframe at the time such Airframe suffers an Event of
Loss), upon compliance by Owner with the applicable terms of Section 4.04(e)



38









 






with respect to the Event of Loss for which such amounts are received, such amounts shall
be paid over to, or retained by, Owner;




     (iii) If such amounts are received, in whole or in part, with respect to the
Airframe, and Owner makes, has made or is deemed to have made the election set forth
in Section 4.05(a)(ii), such amounts shall be applied as follows:




          first, if the sum described in Section 4.05(a)(ii) has not then been
paid in full by Owner, such amounts shall be paid to Mortgagee to the extent
necessary to pay in full such sum; and




          second, the remainder, if any, shall be paid to Owner.



               (e) Requisition for Use. In the event of a requisition for use by any Government
Entity of the Airframe and the Engines, if any, or engines installed on such Airframe while such
Airframe is subject to the Lien of this Trust Indenture, the Owner shall promptly notify the
Mortgagee of such requisition and all of the Owner’s obligations under this Trust Indenture shall
continue to the same extent as if such requisition had not occurred except to the extent that the
performance or observance of any obligation by the Owner shall have been prevented or delayed by
such requisition; provided that the Owner’s obligations under this Section 4.05
with respect to the occurrence of an Event of Loss for the payment of money and under Section 4.06
(except while an assumption of liability by the U.S. Government of the scope referred to in Section
4.02(c) is in effect) shall not be reduced or delayed by such requisition. Any payments received
by the Mortgagee or the Owner or Permitted Lessee from such Government Entity with respect to such
requisition of use shall be paid over to, or retained by, the Owner. In the event of an Event of
Loss of an Engine resulting from the requisition for use by a Government Entity of such Engine (but
not the Airframe), the Owner will replace such Engine hereunder by complying with the terms of
Section 4.04(e) and any payments received by the Mortgagee or the Owner from such Government Entity
with respect to such requisition shall be paid over to, or retained by, the Owner.



               (f) Certain Payments to be Held As Security. Any amount referred to in this Section
4.05 or Section 4.06 which is payable or creditable to, or retainable by, the Owner shall not be
paid or credited to, or retained by the Owner if at the time of such payment, credit or retention a
Special Default or an Event of Default shall have occurred and be continuing, but shall be paid to
and held by the Mortgagee as security for the obligations of the Owner under this Trust Indenture
and the Operative Agreements, and at such time as there shall not be continuing any such Special
Default or Event of Default such amount and any gain realized as a result of investments required
to be made pursuant to Section 6.06 shall to the extent not theretofore applied as provided herein,
be paid over to the Owner.



          SECTION 4.06. Insurance




               (a) Owner’s Obligation to Insure. Owner shall comply with, or cause to be complied
with, each of the provisions of Annex B, which provisions are hereby incorporated by this reference
as if set forth in full herein.




39











 





               (b) Insurance for Own Account. Nothing in Section 4.06 shall limit or prohibit (a)
Owner from maintaining the policies of insurance required under Annex B with higher limits than
those specified in Annex B, or (b) Mortgagee from obtaining insurance for its own account (and any
proceeds payable under such separate insurance shall be payable as provided in the policy relating
thereto); provided, however, that no insurance may be obtained or maintained that
would limit or otherwise adversely affect the coverage of any insurance required to be obtained or
maintained by Owner pursuant to this Section 4.06 and Annex B.



               (c) Indemnification by Government in Lieu of Insurance. Mortgagee agrees to accept,
in lieu of insurance against any risk with respect to the Aircraft described in Annex B,
indemnification from, or insurance provided by, the U.S. Government, or upon the written consent of
Mortgagee, other Government Entity, against such risk in an amount that, when added to the amount
of insurance (including permitted self-insurance), if any, against such risk that Owner (or any
Permitted Lessee) may continue to maintain, in accordance with this Section 4.06, shall be at least
equal to the amount of insurance against such risk otherwise required by this Section 4.06.



               (d) Application of Insurance Proceeds. As between Owner and Mortgagee, all insurance
proceeds received as a result of the occurrence of an Event of Loss with respect to the Aircraft or
any Engine under policies required to be maintained by Owner pursuant to this Section 4.06 will be
applied in accordance with Section 4.05(d). All proceeds of insurance required to be maintained by
Owner, in accordance with Section 4.06 and Section B of Annex B, in respect of any property damage
or loss not constituting an Event of Loss with respect to the Aircraft, Airframe or any Engine will
be applied in payment (or to reimburse Owner) for repairs or for replacement property, and any
balance remaining after such repairs or replacement with respect to such damage or loss shall be
paid over to, or retained by, Owner.



          SECTION 4.07. Merger of Owner




               (a) In General. Owner shall not consolidate with or merge into any other person under
circumstances in which Owner is not the surviving person, or convey, transfer or lease in one or
more transactions all or substantially all of its assets to any other person, unless:



                    (i) such person is organized, existing and in good standing under the Laws of the United
States, any State of the United States or the District of Columbia and, upon consummation of such
transaction, such person will be a U.S. Air Carrier if, and so long as, such status is a condition
of entitlement to the benefits of Section 1110 with respect to the Aircraft;



                    (ii) such person executes and delivers to Mortgagee a duly authorized, legal, valid, binding
and enforceable agreement, reasonably satisfactory in form and substance to Mortgagee, containing
an effective assumption by such person of the due and punctual performance and observance of each
covenant, agreement and condition in the Operative Agreements to be performed or observed by Owner;



                    (iii) if the Aircraft is, at the time, registered with the FAA, such person makes such filings
and recordings with the FAA pursuant to the Act or if the Aircraft is,



40









 







at the time, not registered
with FAA, such person makes such filings and recordings with the applicable Aviation Authority as
shall be necessary to evidence such consolidation or merger; and such person makes such filings and
recordings, if any, with the International Registry, to reflect such change as may be necessary.



                    (iv) immediately after giving effect to such consolidation or merger no Event of Default shall
have occurred and be continuing.



               (b) Effect of Merger. Upon any such consolidation or merger of Owner with or into, or
the conveyance, transfer or lease by Owner of all or substantially all of its assets to, any Person
in accordance with this Section 4.07, such Person will succeed to, and be substituted for, and may
exercise every right and power of, Owner under the Operative Agreements with the same effect as if
such person had been named as “Owner” therein. In the event of any such conveyance, transfer or
lease, the Company or any successor Person that shall have become such in the manner prescribed in
this Section 4.07 shall be released and discharged from its liability in respect of this Trust
Indenture and the Equipment Certificates and may be dissolved and liquidated.



ARTICLE V




EVENTS OF DEFAULT; REMEDIES OF MORTGAGEE




          SECTION 5.01. Event of Default




          “Event of Default” means any of the following events (whatever the reason for such Event of
Default and whether such event shall be voluntary or involuntary or come about or be effected by
operation of Law or pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):



                    (i) the failure of the Owner to pay (i) principal of, interest on or Make-Whole Amount, if
any, under any Equipment Note when due, and such failure shall continue unremedied for a period of
10 Business Days, or (ii) any other amount payable by it to the Note Holders under this Trust
Indenture or the Participation Agreement when due, and such failure shall continue for a period in
excess of 20 Business Days after Owner has received written notice from Mortgagee of the failure to
make such payment when due;



                    (ii) Owner shall fail to carry and maintain, or cause to be carried and maintained, insurance
on and in respect of the Aircraft, Airframe and Engines in accordance with the provisions of
Section 4.06; provided that the lapse or cancellation of such insurance shall not constitute an
Event of Default until the earlier of (i) 30 days after receipt by the Mortgagee of written notice
of such lapse or cancellation of (ii) the date that such lapse or cancellation is effective as to
the Mortgagee;



                    (iii) Owner shall fail to observe or perform (or caused to be observed and performed) in any
material respect any other covenant, agreement or obligation set forth herein or in any other
Operative Agreement to which Owner is a party and such failure shall continue unremedied for a
period of 60 days from and after the date of written notice thereof to Owner from Mortgagee, unless
such failure is capable of being corrected and Owner



41









 







shall be diligently proceeding to correct such
failure, in which case there shall be no Event of Default unless and until such failure shall
continue unremedied for a period of 360 days after receipt of such notice;



                    (iv) any representation or warranty made by Owner herein, in the Participation Agreement or in
any other Operative Agreement to which Owner is a party (a) shall prove to have been untrue or
inaccurate in any material respect as of the date made, (b) such untrue or inaccurate
representation or warranty is material at the time in question, (c) and the same shall remain
uncured (to the extent of the adverse impact of such incorrectness on the interest of the
Mortgagee) for a period in excess of 60 days from and after the date of written notice thereof from
Mortgagee to Owner;



                    (v) the Owner shall consent to the appointment of or taking possession by a receiver, trustee
or liquidator of itself or of a substantial part of its property, or the Owner shall admit in
writing its inability to pay its debts generally as they come due or shall make a general
assignment for the benefit of its creditors, or the Owner shall file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation or other relief
under any bankruptcy laws or insolvency laws (as in effect at such time), or an answer admitting
the material allegations of a petition filed against it in any such case, or the Owner shall seek
relief by voluntary petition, answer or consent, under the provisions of any other bankruptcy or
similar law providing for the reorganization or winding-up of corporations (as in effect at such
time), or the Owner shall seek an agreement, composition, extension or adjustment with its
creditors under such laws or the Owner’s board of directors shall adopt a resolution authorizing
corporate action in furtherance of any of the foregoing;



                    (vi) an order, judgment or decree shall be entered by any court of competent jurisdiction
appointing, without the consent of the Owner, a receiver, trustee or liquidator of the Owner or of
any substantial part of its property, or any substantial part of the property of the Owner shall be
sequestered, or granting any other relief in respect of the Owner 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 or unvacated for a
period of 90 days after the date of entry thereof;



                    (vii) a petition against the Owner in a proceeding under any bankruptcy laws or other
insolvency laws (as in effect at such time) is filed and not withdrawn or dismissed within 90 days
thereafter, or if, under the provisions of any law providing for reorganization or winding-up of
corporations which may apply to the Owner, any court of competent jurisdiction shall assume
jurisdiction, custody or control of the Owner of any substantial part of its property and such
jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for
a period of 90 days; or



                    (viii) (A) any amount in respect of (i) the Related Equipment Notes, including any payment of
principal amount of, interest on, or Make-Whole Amount, if any, with respect to any Related
Equipment Note has not been paid in full on the Final Payment Date or (ii) any other amounts
payable under the Related Operative Agreements (including any amounts due and payable pursuant to
the third paragraph of Section 2.02 of any Related Indenture and any indemnities payable by the
Owner pursuant to Section 8.1 of any Related



42









 







Participation Agreement) in each case that are due and
payable on or before the Final Payment Date are not paid in full on the Final Payment Date and (B)
any such failure shall continue unremedied for a period of twenty (20) Business Days thereafter.


provided, however, that, notwithstanding anything to the contrary contained in this Section 5.01,
any failure of Owner to perform or observe any covenant, condition, agreement or any error in a
representation or warranty shall not constitute an Event of Default if such failure or error is
caused solely by reason of any event that constitutes an Event of Loss so long as Owner is
continuing to comply with all of the terms of Section 4.04(e) and Section 4.05 hereof.




          SECTION 5.02. Remedies




               (a) If an Event of Default shall have occurred and be continuing and so long as the same shall
continue unremedied, then and in every such case the Mortgagee may exercise any or all of the
rights and powers and pursue any and all of the remedies pursuant to this Article V and shall have
and may exercise all of the rights and remedies of a secured party under the Uniform Commercial
Code or by any other applicable Law (including the Cape Town Treaty, to the extent applicable) and
may take possession of all or any part of the properties covered or intended to be covered by the
Lien created hereby or pursuant hereto and may exclude the Owner and all persons claiming under it
wholly or partly therefrom; provided, that the Mortgagee shall give the Owner twenty (20)
days’ prior written notice of its intention to sell the Aircraft. Without limiting any of the
foregoing, it is understood and agreed that the Mortgagee may exercise any right of sale of the
Aircraft available to it, even though it shall not have taken possession of the Aircraft and shall
not have possession thereof at the time of such sale.



               (b) If an Event of Default shall have occurred and be continuing, then and in every such case
the Mortgagee may (and shall, upon receipt of a written demand therefor from a Majority in Interest
of Note Holders), at any time, by delivery of written notice or notices to the Owner, declare all
the Equipment Notes to be due and payable, whereupon the unpaid Original Amount of all Equipment
Notes then outstanding, together with accrued but unpaid interest thereon (without Make-Whole
Amount) and other amounts due thereunder or otherwise payable hereunder, shall immediately become
due and payable without presentment, demand, protest or notice, all of which are hereby waived;
provided that if an Event of Default referred to in clause (v), (vi) or (vii) of Section 5.01
hereof shall have occurred, then and in every such case the unpaid Original Amount then
outstanding, together with accrued but unpaid interest (without Make-Whole Amount) and all other
amounts due hereunder and under the Equipment Notes shall immediately and without further act
become due and payable without presentment, demand, protest or notice, all of which are hereby
waived.



          This Section 5.02(b), however, is subject to the condition that, if at any time after the
Original Amount of the Equipment Notes shall have become so due and payable, and before any
judgment or decree for the payment of the money so due, or any thereof, shall be entered, all
overdue payments of interest upon the Equipment Notes and all other amounts payable hereunder or
under the Equipment Notes (except the Original Amount of the Equipment Notes which by such
declaration shall have become payable) shall have been duly paid, and every other Default and Event
of Default with respect to any covenant or provision of this Trust Indenture



43









 







shall have been cured,
then and in every such case a Majority in Interest of Note Holders may (but shall not be obligated
to), by written instrument filed with the Mortgagee, rescind and annul the Mortgagee’s declaration
(or such automatic acceleration) and its consequences; but no such rescission or annulment shall
extend to or affect any subsequent Default or Event of Default or impair any right consequent
thereon.



               (c) The Note Holders shall be entitled, at any sale pursuant to this Section 5.02, to credit
against any purchase price bid at such sale by such holder all or any part of the unpaid
obligations owing to such Note Holder and secured by the Lien of this Trust Indenture (only to the
extent that such purchase price would have been paid to such Note Holder pursuant to Article III
hereof if such purchase price were paid in cash and the foregoing provisions of this subsection (c)
were not given effect).



               (d) In the event of any sale of the Collateral, or any part thereof, pursuant to any judgment
or decree of any court or otherwise in connection with the enforcement of any of the terms of this
Trust Indenture, the unpaid Original Amount of all Equipment Notes then outstanding, together with
accrued interest thereon (without Make-Whole Amount), and other amounts due thereunder, shall
immediately become due and payable without presentment, demand, protest or notice, all of which are
hereby waived.



               (e) Notwithstanding anything contained herein, (i) so long as the Pass Through Trustee under
any Pass Through Trust Agreement (or its designee) is a Note Holder, the Mortgagee will not be
authorized or empowered to acquire title to any Collateral or take any action with respect to any
Collateral so acquired by it if such acquisition or action would cause any Trust to fail to qualify
as a “grantor trust” for federal income tax purposes, and (ii) the Mortgagee will not take any
action that would violate Section 4.1(a)(ii) or 4.1(a)(iii) of the Intercreditor Agreement.



          SECTION 5.03. Return of Aircraft, Etc.




               (a) If an Event of Default shall have occurred and be continuing and the Equipment Notes have
been accelerated, at the request of the Mortgagee, the Owner shall promptly execute and deliver to
the Mortgagee such instruments of title and other documents as the Mortgagee may deem necessary or
advisable to enable the Mortgagee or an agent or representative designated by the Mortgagee, at
such time or times and place or places as the Mortgagee may specify, to obtain possession of all or
any part of the Collateral to which the Mortgagee shall at the time be entitled hereunder. If the
Owner shall for any reason fail to execute and deliver such instruments and documents after such
request by the Mortgagee, the Mortgagee may (i) obtain a judgment conferring on the Mortgagee the
right to immediate possession and requiring the Owner to execute and deliver such instruments and documents to
the Mortgagee, to the entry of which judgment the Owner hereby specifically consents to the fullest
extent permitted by Law, and (ii) pursue all or part of such Collateral wherever it may be found
and may enter any of the premises of Owner wherever such Collateral may be or be supposed to be and
search for such Collateral and take possession of and remove such Collateral. All expenses of
obtaining such judgment or of pursuing, searching for and taking such property shall, until paid,
be secured by the Lien of this Trust Indenture.



44









 





               (b) Upon every such taking of possession, the Mortgagee may, from time to time, at the expense
of the Collateral, make all such expenditures for maintenance, use, operation, storage, insurance,
leasing, control, management, disposition, modifications or alterations to and of the Collateral,
as it may deem proper. In each such case, the Mortgagee shall have the right to maintain, use,
operate, store, insure, lease, control, manage, dispose of, modify or alter the Collateral and to
exercise all rights and powers of the Owner relating to the Collateral, as the Mortgagee shall deem
best, including the right to enter into any and all such agreements with respect to the
maintenance, use, operation, storage, insurance, leasing, control, management, disposition,
modification or alteration of the Collateral or any part thereof as the Mortgagee may determine,
and the Mortgagee shall be entitled to collect and receive directly all rents, revenues and other
proceeds of the Collateral and every part thereof, without prejudice, however, to the right of the
Mortgagee under any provision of this Trust Indenture to collect and receive all cash held by, or
required to be deposited with, the Mortgagee hereunder. Such rents, revenues and other proceeds
shall be applied to pay the expenses of the maintenance, use, operation, storage, insurance,
leasing, control, management, disposition, improvement, modification or alteration of the
Collateral and of conducting the business thereof, and to make all payments which the Mortgagee may
be required or may elect to make, if any, for taxes, assessments, insurance or other proper charges
upon the Collateral or any part thereof (including the employment of engineers and accountants to
examine, inspect and make reports upon the properties and books and records of the Owner), and all
other payments which the Mortgagee may be required or authorized to make under any provision of
this Trust Indenture, as well as just and reasonable compensation for the services of the
Mortgagee, and of all persons properly engaged and employed by the Mortgagee with respect hereto.



          SECTION 5.04. Remedies Cumulative




          Each and every right, power and remedy given to the Mortgagee specifically or otherwise in
this Trust Indenture 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
be exercised from time to time and as often and in such order as may be deemed expedient by the
Mortgagee, 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 the Mortgagee in the exercise of any right, remedy or
power or in the pursuance of any remedy shall impair any such right, power or remedy or be
construed to be a waiver of any default on the part of the Owner or to be an acquiescence therein.



          SECTION 5.05. Discontinuance of Proceedings




          In case the Mortgagee shall have instituted any proceeding to enforce any right, power or
remedy under this Trust Indenture by foreclosure, entry or otherwise, and such proceedings shall
have been discontinued or abandoned for any reason or shall have been determined adversely to the
Mortgagee, then and in every such case the Owner and the Mortgagee shall, subject to any
determination in such proceedings, be restored to their former positions and rights hereunder with
respect to the Collateral, and all rights, remedies and powers of the Owner or the Mortgagee shall
continue as if no such proceedings had been instituted.



45









 





          SECTION 5.06. Waiver of Past Defaults




          Upon written instruction from a Majority in Interest of Note Holders, the Mortgagee shall
waive any past Default hereunder and its consequences and upon any such waiver such Default shall
cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Trust Indenture, but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon; provided, that in the absence of written
instructions from all the Note Holders, the Mortgagee shall not waive any Default (i) in the
payment of the Original Amount, Make-Whole Amount, if any, and interest and other amounts due under
any Equipment Note then outstanding, or (ii) in respect of a covenant or provision hereof which,
under Article X hereof, cannot be modified or amended without the consent of each Note Holder.



          SECTION 5.07. Appointment of Receiver




          The Mortgagee shall, as a matter of right, be entitled to the appointment of a receiver (who
may be the Mortgagee or any successor or nominee thereof) for all or any part of the Collateral
after the occurrence and during the continuance of an Event of Default, whether such receivership
be incidental to a proposed sale of the Collateral or the taking of possession thereof or
otherwise, and the Owner hereby consents to the appointment of such a receiver and will not oppose
any such appointment. Any receiver appointed for all or any part of the Collateral shall be
entitled to exercise all the rights and powers of the Mortgagee with respect to the Collateral.



          SECTION 5.08. Mortgagee Authorized to Execute Bills of Sale, Etc.




          The Owner irrevocably appoints, while an Event of Default has occurred and is continuing, the
Mortgagee the true and lawful attorney-in-fact of the Owner (which appointment is coupled with an
interest) in its name and stead and on its behalf, for the purpose of effectuating any sale,
assignment, transfer or delivery for the enforcement of the Lien of this Trust Indenture, whether
pursuant to foreclosure or power of sale, assignments and other instruments as may be necessary or
appropriate, with full power of substitution, the Owner hereby ratifying and confirming all that
such attorney or any substitute shall do by virtue hereof in accordance with applicable law.
Nevertheless, if so requested by the Mortgagee or any purchaser, the Owner shall ratify and confirm any such sale, assignment, transfer or delivery,
by executing and delivering to the Mortgagee or such purchaser all bills of sale, assignments,
releases and other proper instruments to effect such ratification and confirmation as may be
designated in any such request.



          SECTION 5.09. Rights of Note Holders to Receive Payment




          Notwithstanding any other provision of this Trust Indenture, the right of any Note Holder to
receive payment of principal of, and premium, if any, and interest on an Equipment Note on or after
the respective due dates expressed in such Equipment Note, or to bring suit for the enforcement of
any such payment on or after such respective dates in accordance with the terms hereof, shall not
be impaired or affected without the consent of such Note Holder.



46









 





ARTICLE VI




DUTIES OF THE MORTGAGEE




          SECTION 6.01. Notice of Event of Default




          If the Mortgagee shall have Actual Knowledge of an Event of Default or of a Default arising
from a failure to pay any installment of principal and interest on any Equipment Note, the
Mortgagee shall give prompt written notice thereof to each Note Holder. Subject to the terms of
Sections 5.06, 6.02 and 6.03 hereof, the Mortgagee shall take such action, or refrain from taking
such action, with respect to such Event of Default or Default (including with respect to the
exercise of any rights or remedies hereunder) as the Mortgagee shall be instructed in writing by a
Majority in Interest of Note Holders. Subject to the provisions of Section 6.03, if the Mortgagee
shall not have received instructions as above provided within 20 days after mailing notice of such
Event of Default to the Note Holders, the Mortgagee may, subject to instructions thereafter
received pursuant to the preceding provisions of this Section 6.01, take such action, or refrain
from taking such action, but shall be under no duty to take or refrain from taking any action, with
respect to such Event of Default or Default as it shall determine advisable in the best interests
of the Note Holders; provided, however, that the Mortgagee may not sell the
Aircraft or any Engine without the consent of a Majority in Interest of Note Holders. For all
purposes of this Trust Indenture, in the absence of Actual Knowledge on the part of the Mortgagee,
the Mortgagee shall not be deemed to have knowledge of a Default or an Event of Default (except the
failure of Owner to pay any installment of principal or interest within one Business Day after the
same shall become due, which failure shall constitute knowledge of a Default) unless notified in
writing by the Owner or one or more Note Holders.



          SECTION 6.02. Action Upon Instructions; Certain Rights and Limitations




          Subject to the terms of Sections 5.02(a), 5.06, 6.01 and 6.03 hereof, upon the written
instructions at any time and from time to time of a Majority in Interest of Note Holders, the
Mortgagee shall, subject to the terms of this Section 6.02, take such of the following actions as
may be specified in such instructions: (i) give such notice or direction or exercise such right,
remedy or power hereunder as shall be specified in such instructions and (ii) give such notice or
direction or exercise such right, remedy or power hereunder with respect to any part of the
Collateral as shall be specified in such instructions; it being understood that without the written
instructions of a Majority in Interest of Note Holders, the Mortgagee shall not, except as provided
in Section 6.01, approve any such matter as satisfactory to the Mortgagee.



          The Mortgagee will execute and the Owner will file such continuation statements with respect
to financing statements relating to the security interest created hereunder in the Collateral as
may be specified from time to time in written instructions of a Majority in Interest of Note
Holders (which instructions shall be accompanied by the form of such continuation statement so to
be filed). The Mortgagee will furnish to each Note Holder, promptly upon receipt thereof,
duplicates or copies of all reports, notices, requests, demands, certificates and other instruments
furnished to the Mortgagee hereunder.



47









 





          SECTION 6.03. Indemnification




          The Mortgagee shall not be required to take any action or refrain from taking any action under
Section 6.01 (other than the first sentence thereof), 6.02 or Article V hereof unless the Mortgagee
shall have been indemnified to its reasonable satisfaction against any liability, cost or expense
(including counsel fees) which may be incurred in connection therewith pursuant to a written
agreement with one or more Note Holders. The Mortgagee agrees that it shall look solely to the
Note Holders for the satisfaction of any indemnity (except expenses for foreclosure of the type
referred to in clause “First” of Section 3.03 hereof) owed to it pursuant to this Section 6.03.
The Mortgagee shall not be under any obligation to take any action under this Trust Indenture or
any other Operative Agreement and nothing herein or therein shall require the Mortgagee to expend
or risk its own funds or otherwise incur the risk of any financial liability in the performance 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 written indemnity of any Note Holder who is a QIB, signed by an authorized officer thereof, in
favor of, delivered to and in form reasonably satisfactory to the Mortgagee shall be accepted as
reasonable assurance of adequate indemnity). The Mortgagee shall not be required to take any
action under Section 6.01 (other than the first sentence thereof) or 6.02 or Article V hereof, nor
shall any other provision of this Trust Indenture or any other Operative Agreement be deemed to
impose a duty on the Mortgagee to take any action, if the Mortgagee shall have been advised by
counsel that such action is contrary to the terms hereof or is otherwise contrary to Law.



          SECTION 6.04. No Duties Except as Specified in Trust Indenture or Instructions




          The Mortgagee shall not have any duty or obligation to use, operate, store, lease, control,
manage, sell, dispose of or otherwise deal with the Aircraft or any other part of the Collateral,
or to otherwise take or refrain from taking any action under, or in connection with, this Trust
Indenture or any part of the Collateral, except as expressly provided by the terms of this Trust
Indenture or as expressly provided in written instructions from Note Holders as provided in this
Trust Indenture; and no implied duties or obligations shall be read into this Trust Indenture
against the Mortgagee. The Mortgagee 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 8.01 hereof), promptly take such action as may be necessary duly to discharge all Liens on
any part of the Collateral which result from claims against it in its individual capacity not
related to the administration of the Collateral or any other transaction pursuant to this Trust
Indenture or any document included in the Collateral.



          SECTION 6.05. No Action Except Under Trust Indenture or Instructions




          The Mortgagee will not use, operate, store, lease, control, manage, sell, dispose of or
otherwise deal with the Aircraft or any other part of the Collateral except in accordance with the
powers granted to, or the authority conferred upon the Mortgagee pursuant to this Trust Indenture
and in accordance with the express terms hereof.



48









 





          SECTION 6.06. Investment of Amounts Held by Mortgagee




          Any amounts held by the Mortgagee pursuant to Section 3.02, 3.03 or 3.07 or pursuant to any
provision of any other Operative Agreement providing for amounts to be held by the Mortgagee which
are not distributed pursuant to the other provisions of Article III hereof shall be invested by the
Mortgagee from time to time in Cash Equivalents as directed by the Owner so long as the Mortgagee
may acquire the same using its best efforts. All Cash Equivalents held by the Mortgagee pursuant
to this Section 6.06 shall either be (a) registered in the name of, payable to the order of, or
specially endorsed to, the Mortgagee, or (b) held in an Eligible Account. Unless otherwise
expressly provided in this Trust Indenture, any income realized as a result of any such investment,
net of the Mortgagee’s reasonable fees and expenses in making such investment, shall be held and
applied by the Mortgagee in the same manner as the principal amount of such investment is to be
applied and any losses, net of earnings and such reasonable fees and expenses, shall be charged
against the principal amount invested. The Mortgagee shall not be liable for any loss resulting
from any investment required to be made by it under this Trust Indenture other than by reason of
its willful misconduct or negligence in the handling of funds, and any such investment may be sold
(without regard to its maturity) by the Mortgagee without instructions whenever such sale is
necessary to make a distribution required by this Trust Indenture.



ARTICLE VII




THE MORTGAGEE




          SECTION 7.01. Acceptance of Trusts and Duties




          The Mortgagee accepts the duties hereby created and applicable to it and agrees to perform the
same but only upon the terms of this Trust Indenture and agrees to receive and disburse all monies
constituting part of the Collateral in accordance with the terms hereof. The Mortgagee, in its
individual capacity, shall not be answerable or accountable under any circumstances, except (i) for
its own willful misconduct or gross negligence (other than for the handling of funds actually
received by it in accordance with the terms of the Operative Agreements or the Pass Through
Agreements, for which the standard of accountability shall be willful misconduct or negligence),
(ii) as provided in the fourth sentence of Section 2.04(a) hereof and the last sentence of Section
6.04 hereof, and (iii) from the inaccuracy of any representation or warranty of the Mortgagee (in
its individual capacity) in the Participation Agreement or expressly made hereunder.



          SECTION 7.02. Absence of Duties




          Except in accordance with written instructions furnished pursuant to Section 6.01 or 6.02
hereof, and except as provided in, and without limiting the generality of, Sections 6.03, 6.04 and
7.07 hereof the Mortgagee shall have no duty (i) to see to any registration of the Aircraft or any
recording or filing of this Trust Indenture or any other document, or to see to the maintenance of
any such registration, recording or filing, (ii) to see to any insurance on the Aircraft or to
effect or maintain any such insurance, whether or not Owner shall be in default with respect
thereto, (iii) to see to the payment or discharge of any Lien of any kind against any



49









 







part of the
Collateral, (iv) to confirm, verify or inquire into the failure to receive any financial statements
from Owner, or (v) to inspect the Aircraft at any time or ascertain or inquire as to the
performance or observance of any of Owner’s covenants herein or any Permitted Lessee’s covenants
under any assigned Permitted Lease with respect to the Aircraft.



          SECTION 7.03. No Representations or Warranties as to Aircraft or Documents




          THE MORTGAGEE IN ITS INDIVIDUAL OR TRUST CAPACITY DOES NOT MAKE AND SHALL NOT BE DEEMED TO
HAVE MADE AND HEREBY EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO
THE TITLE, AIRWORTHINESS, VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, QUALITY,
DURABILITY, OPERATION, MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR PURPOSE OF THE AIRCRAFT
OR ANY ENGINE, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE
ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS
BASED ON STRICT LIABILITY IN TORT OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER. The Mortgagee, in its individual or trust capacities,
does not make nor shall it be deemed to have made any representation or warranty as to the
validity, legality or enforceability of this Trust Indenture, the Participation Agreement, the
Equipment Notes, or the Purchase Agreement, or as to the correctness of any statement contained in
any thereof, except for the representations and warranties of the Mortgagee in its individual
capacity, in each case expressly made in this Trust Indenture or in the Participation Agreement.
The Note Holders make no representation or warranty hereunder whatsoever.



          SECTION 7.04. No Segregation of Monies; No Interest




          Except as otherwise provided in Section 3.07 hereof, any monies paid to or retained by the
Mortgagee pursuant to any provision hereof and not then required to be distributed to the Note
Holders, or the Owner as provided in Article III hereof need not be segregated in any manner except
to the extent required by Law or Section 6.06 hereof, and may be deposited under such general
conditions as may be prescribed by Law, and the Mortgagee shall not be liable for any interest
thereon (except that the Mortgagee shall invest all monies held as directed by Owner so long as no
Event of Default has occurred and is continuing (or in the absence of such direction, by the
Majority in Interest of Note Holders) in Cash Equivalents; provided, however, that
any payments received, or applied hereunder, by the Mortgagee shall be accounted for by the
Mortgagee so that any portion thereof paid or applied pursuant hereto shall be identifiable as to
the source thereof.



          SECTION 7.05. Reliance; Agreements; Advice of Counsel




          The Mortgagee shall not incur any 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. The Mortgagee may accept a copy of a resolution of the Board of Directors (or
Executive Committee thereof) of the Owner, certified by the Secretary or an



50









 







Assistant Secretary
thereof as duly adopted and in full force and effect, as conclusive evidence that such resolution
has been duly adopted and that the same is in full force and effect. As to the aggregate unpaid
Original Amount of Equipment Notes outstanding as of any date, the Owner may for all purposes
hereof rely on a certificate signed by any Vice President or other authorized corporate trust
officer of the Mortgagee. As to any fact or matter relating to the Owner the manner of the
ascertainment of which is not specifically described herein, the Mortgagee may for all purposes
hereof rely on an Officer’s Certificate of the Owner as to such fact or matter, and such
certificate shall constitute full protection to the Mortgagee for any action taken or omitted to be
taken by it in good faith in reliance thereon. In the administration of the trusts hereunder, the
Mortgagee may execute any of the trusts or powers hereof and perform its powers and duties
hereunder directly or through agents or attorneys and may, at the expense of the Collateral, advise
with counsel, accountants and other skilled persons to be selected and retained by it, and the
Mortgagee shall not be liable for anything done, suffered or omitted in good faith by it in
accordance with the written advice or written opinion of any such counsel, accountants or other
skilled persons.



          SECTION 7.06. Compensation




          The Mortgagee shall be entitled to reasonable compensation, including expenses and
disbursements (including the reasonable fees and expenses of counsel), for all services rendered
hereunder and shall, on and subsequent to an Event of Default hereunder, have a priority claim on
the Collateral for the payment of such compensation (other than any Unindemnified Tax), to the
extent that such compensation shall not be paid by Owner, and shall have the right, on and
subsequent to an Event of Default hereunder, to use or apply any monies held by it hereunder in the
Collateral toward such payments. The Mortgagee agrees that it shall have no right against the Note
Holders for any fee as compensation for its services as trustee under this Trust Indenture.



          SECTION 7.07. Instructions from Note Holders




          In the administration of the trusts created hereunder, the Mortgagee shall have the right to
seek instructions from a Majority in Interest of Note Holders should any provision of this Trust
Indenture appear to conflict with any other provision herein or should the Mortgagee’s duties or
obligations hereunder be unclear, and the Mortgagee shall incur no liability in refraining from
acting until it receives such instructions. The Mortgagee shall be fully protected for acting in
accordance with any instructions received under this Section 7.07.



ARTICLE VIII




INDEMNIFICATION




          SECTION 8.01. Scope of Indemnification




          The Mortgagee shall be indemnified by the Owner to the extent and in the manner provided in
Section 8 of the Participation Agreement.



51









 





ARTICLE IX




SUCCESSOR AND SEPARATE TRUSTEES




          SECTION 9.01. Resignation of Mortgagee; Appointment of Successor




               (a) The Mortgagee or any successor thereto may resign at any time without cause by giving at
least 30 days’ prior written notice to the Owner and each Note Holder, such resignation to be
effective upon the acceptance of the trusteeship by a successor Mortgagee. In addition, a Majority
in Interest of Note Holders may at any time (but only with the consent of Owner, which consent
shall not be unreasonably withheld, except that such consent shall not be necessary if an Event of
Default is continuing) remove the Mortgagee without cause by an instrument in writing delivered to the Owner and the Mortgagee, and the Mortgagee shall
promptly notify each Note Holder thereof in writing, such removal to be effective upon the
acceptance of the trusteeship by a successor Mortgagee. In the case of the resignation or removal
of the Mortgagee, a Majority in Interest of Note Holders may appoint a successor Mortgagee by an
instrument signed by such holders, which successor, so long as no Event of Default shall have
occurred and be continuing, shall be subject to Owner’s reasonable approval. If a successor
Mortgagee shall not have been appointed within 30 days after such notice of resignation or removal,
the Mortgagee, the Owner or any Note Holder may apply to any court of competent jurisdiction to
appoint a successor Mortgagee to act until such time, if any, as a successor shall have been
appointed as above provided. The successor Mortgagee so appointed by such court shall immediately
and without further act be superseded by any successor Mortgagee appointed as above provided.



               (b) Any successor Mortgagee, however appointed, shall execute and deliver to the Owner and the
predecessor Mortgagee an instrument accepting such appointment and assuming the obligations of the
Mortgagee arising from and after the time of such appointment, and thereupon such successor
Mortgagee, without further act, shall become vested with all the estates, properties, rights,
powers and duties of the predecessor Mortgagee hereunder in the trust hereunder applicable to it
with like effect as if originally named the Mortgagee herein; but nevertheless upon the written
request of such successor Mortgagee, such predecessor Mortgagee shall execute and deliver an
instrument transferring to such successor Mortgagee, upon the trusts herein expressed applicable to
it, all the estates, properties, rights and powers of such predecessor Mortgagee, and such
predecessor Mortgagee shall duly assign, transfer, deliver and pay over to such successor Mortgagee
all monies or other property then held by such predecessor Mortgagee hereunder.



               (c) Any successor Mortgagee, however appointed, shall be a bank or trust company having its
principal place of business in the continental United States and having (or whose obligations under
the Operative Agreements are guaranteed by an affiliated entity having) a combined capital and
surplus of at least $100,000,000, if there be such an institution willing, able and legally
qualified to perform the duties of the Mortgagee hereunder upon reasonable or customary terms.



               (d) Any corporation into which the Mortgagee may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or consolidation to which
the Mortgagee shall be a party, or any corporation to which



52









 







substantially all the corporate trust
business of the Mortgagee may be transferred, shall, subject to the terms of paragraph (c) of this
Section 9.01, be a successor Mortgagee and the Mortgagee under this Trust Indenture without further
act.



               (e) The Owner consents to any change in the identity of the Mortgagee on the International
Registry occasioned by provisions of this Section 9.01, and if required by the International
Registry to reflect such change, will provide its consent thereto.



          SECTION 9.02. Appointment of Additional and Separate Trustees




               (a) Whenever (i) the Mortgagee shall deem it necessary or desirable in order to conform to any
Law of any jurisdiction in which all or any part of the Collateral shall be situated or to make any
claim or bring any suit with respect to or in connection with the Collateral, this Trust Indenture,
any other Indenture Agreement, the Equipment Notes or any of the transactions contemplated by the
Participation Agreement, (ii) the Mortgagee shall be advised by counsel satisfactory to it that it
is so necessary or prudent in the interests of the Note Holders (and the Mortgagee shall so advise
the Owner), or (iii) the Mortgagee shall have been requested to do so by a Majority in Interest of
Note Holders, then in any such case, the Mortgagee and, upon the written request of the Mortgagee,
the Owner, shall execute and deliver an indenture supplemental hereto and such other instruments as
may from time to time be necessary or advisable either (1) to constitute one or more bank or trust
companies or one or more persons approved by the Mortgagee, either to act jointly with the
Mortgagee as additional trustee or trustees of all or any part of the Collateral, or to act as
separate trustee or trustees of all or any part of the Collateral, in each case with such rights,
powers, duties and obligations consistent with this Trust Indenture as may be provided in such
supplemental indenture or other instruments as the Mortgagee or a Majority in Interest of Note
Holders may deem necessary or advisable, or (2) to clarify, add to or subtract from the rights,
powers, duties and obligations theretofore granted any such additional or separate trustee, subject
in each case to the remaining provisions of this Section 9.02. If the Owner shall not have taken
any action requested of it under this Section 9.02(a) that is permitted or required by its terms
within 15 days after the receipt of a written request from the Mortgagee so to do, or if an Event
of Default shall have occurred and be continuing, the Mortgagee may act under the foregoing
provisions of this Section 9.02(a) without the concurrence of the Owner, and the Owner hereby
irrevocably appoints (which appointment is coupled with an interest) the Mortgagee, its agent and
attorney-in-fact to act for it under the foregoing provisions of this Section 9.02(a) in either of
such contingencies. The Mortgagee may, in such capacity, execute, deliver and perform any such
supplemental indenture, or any such instrument, as may be required for the appointment of any such
additional or separate trustee or for the clarification of, addition to or subtraction from the
rights, powers, duties or obligations theretofore granted to any such additional or separate
trustee. In case any additional or separate trustee appointed under this Section 9.02(a) shall
die, become incapable of acting, resign or be moved, all the assets, property, rights, powers,
trusts, duties and obligations of such additional or separate trustee shall revert to the Mortgagee
until a successor additional or separate trustee is appointed as provided in this Section 9.02(a).



               (b) No additional or separate trustee shall be entitled to exercise any of the rights, powers,
duties and obligations conferred upon the Mortgagee in respect of the custody, investment and
payment of monies and all monies received by any such additional or



53









 







separate trustee from or
constituting part of the Collateral or otherwise payable under any Operative Agreement to the
Mortgagee shall be promptly paid over by it to the Mortgagee. All other rights, powers, duties and
obligations conferred or imposed upon any additional or separate trustee shall be exercised or
performed by the Mortgagee and such additional or separate trustee jointly except to the extent
that applicable Law of any jurisdiction in which any particular act is to be performed renders the
Mortgagee incompetent or unqualified to perform such act, in which event such rights, powers,
duties and obligations (including the holding of title to all or part of the Collateral in any such jurisdiction) shall be exercised and performed by such additional
or separate trustee. No additional or separate trustee shall take any discretionary action except
on the instructions of the Mortgagee or a Majority in Interest of Note Holders. No trustee
hereunder shall be personally liable by reason of any act or omission of any other trustee
hereunder, except that the Mortgagee shall be liable for the consequences of its lack of reasonable
care in selecting, and the Mortgagee’s own actions in acting with, any additional or separate
trustee. Each additional or separate trustee appointed pursuant to this Section 9.02 shall be
subject to, and shall have the benefit of Articles V through IX and Article XI hereof insofar as
they apply to the Mortgagee. The powers of any additional or separate trustee appointed pursuant
to this Section 9.02 shall not in any case exceed those of the Mortgagee hereunder.



               (c) If at any time the Mortgagee shall deem it no longer necessary or in order to conform to
any such Law or take any such action or shall be advised by such counsel that it is no longer so
necessary or desirable in the interest of the Note Holders, or in the event that the Mortgagee
shall have been requested to do so in writing by a Majority in Interest of Note Holders, the
Mortgagee and, upon the written request of the Mortgagee, the Owner, shall execute and deliver an
indenture supplemental hereto and all other instruments and agreements necessary or proper to
remove any additional or separate trustee. The Mortgagee may act on behalf of the Owner under this
Section 9.02(c) when and to the extent it could so act under Section 9.02(a) hereof.



ARTICLE X




SUPPLEMENTS AND AMENDMENTS TO THIS TRUST INDENTURE

AND OTHER DOCUMENTS




          SECTION 10.01. Instructions of Majority; Limitations




               (a) The Mortgagee agrees with the Note Holders that it shall not enter into any amendment,
waiver or modification of, supplement or consent to this Trust Indenture, or any other Operative
Agreement to which it is a party, unless such supplement, amendment, waiver, modification or
consent is consented to in writing by a Majority in Interest of Note Holders, but upon the written
request of a Majority in Interest of Note Holders, the Mortgagee shall from time to time enter into
any such supplement or amendment, or execute and deliver any such waiver, modification or consent,
as may be specified in such request and as may be (in the case of any such amendment, supplement or
modification), to the extent such agreement is required, agreed to by the Owner and, as may be
appropriate, the Airframe Manufacturer or the Engine Manufacturer; provided,
however, that, without the consent of each holder of an affected Equipment Note then
outstanding and of the Liquidity Provider, no such amendment, waiver or modification of the terms
of, or consent under, any thereof, shall (i) modify any of the provisions



54









 







of this Section 10.01, or
of Article II or III or Section 5.01, 5.02(c), 5.02(d), or 6.02 hereof, the definitions of “Event
of Default,” “Default,” “Majority in Interest of Note Holders,” “Make-Whole Amount” or “Note
Holder,” or the percentage of Note Holders required to take or approve any action hereunder, (ii)
reduce the amount, or change the time of payment or method of calculation of any amount, of
Original Amount, Make-Whole Amount, if any, or interest with respect to any Equipment Note, (iii) reduce, modify or amend any indemnities in favor of the
Mortgagee or the Note Holders (except that the Mortgagee may consent to any waiver or reduction of
an indemnity payable to it), or the other Indenture Indemnitees or (iv) permit the creation of any
Lien on the Collateral or any part thereof other than Permitted Liens or deprive any Note Holder of
the benefit of the Lien of this Trust Indenture on the Collateral, except as provided in connection
with the exercise of remedies under Article V hereof; provided, further, that
without the consent of each holder of an affected Related Equipment Note then outstanding, no
amendment, waiver or modification of the terms hereof shall modify Section 3.03 or reduce the
amount payable with respect to such Related Equipment Note, or the date on which any amount is
payable with respect to such Related Equipment Note or deprive any Related Note Holder of the
benefit of the Lien of this Trust Indenture on the Collateral, except as provided in Section 2.06
or 11.01 hereof or in connection with the exercise of remedies under Article V hereof.
Notwithstanding the foregoing, without the consent of the Liquidity Provider neither the Owner nor
the Mortgagee shall enter into any amendment, waiver or modification of, supplement or consent to
this Trust Indenture or the other Operative Agreements which shall reduce, modify or amend any
indemnities in favor of the Liquidity Provider.



               (b) The Owner and the Mortgagee may enter into one or more agreements supplemental hereto
without the consent of any Note Holder for any of the following purposes: (i) (a) to cure any
defect or inconsistency herein or in the Equipment Notes, or to make any change not inconsistent
with the provisions hereof (provided that such change does not adversely affect the
interests of any Note Holder in its capacity solely as Note Holder) or (b) to cure any ambiguity or
correct any mistake; (ii) to evidence the succession of another party as the Owner in accordance
with the terms hereof or to evidence the succession of a new trustee hereunder pursuant hereto, the
removal of the trustee hereunder or the appointment of any co-trustee or co-trustees or any
separate or additional trustee or trustees; (iii) to convey, transfer, assign, mortgage or pledge
any property to or with the Mortgagee or to make any other provisions with respect to matters or
questions arising hereunder so long as such action shall not adversely affect the interests of any
Note Holder in its capacity solely as Note Holder; (iv) to correct or amplify the description of
any property at any time subject to the Lien of this Trust Indenture or better to assure, convey
and confirm unto the Mortgagee any property subject or required to be subject to the Lien of this
Trust Indenture, the Airframe or Engines or any Replacement Airframe or Replacement Engine; (v) to
add to the covenants of the Owner for the benefit of the Note Holders, or to surrender any rights
or power herein conferred upon the Owner; (vi) to add to the rights of the Note Holders; and (vii)
to provide for the reissuance of Series B Equipment Notes (and Related Series B Equipment Notes) or
the issuance or reissuance from time to time of one or more series of Additional Series Equipment
Notes (and any Related Additional Series Equipment Notes) and for pass through certificates issued
by any pass through trust that acquires any such Equipment Notes and to make changes relating to
any of the foregoing (including without limitation to further provide for the issuance of more than
one Series of Additional Series Equipment Notes (including without limitation to provide for the
relative priority of different Series of Additional Series Equipment Notes as between such series)



55









 







and to provide for any credit support for any such issued or reissued Equipment Notes or Related
Equipment Notes (including without limitation to secure claims for fees, interest, expenses,
reimbursement of advances and other obligations arising from such credit support (including without
limitation to specify such credit support as a “Liquidity Facility” and the provider of any such credit support as a “Liquidity Provider”)), provided that such Equipment Notes are issued
in accordance with the terms of this Trust Indenture and Section 9.1 of the Intercreditor
Agreement.



          SECTION 10.02. Mortgagee Protected




          If, in the opinion of the institution acting as Mortgagee hereunder, any document required to
be executed by it pursuant to the terms of Section 10.01 hereof affects any right, duty, immunity
or indemnity with respect to such institution under this Trust Indenture, such institution may in
its discretion decline to execute such document.



          SECTION 10.03. Documents Mailed to Note Holders




          Promptly after the execution by the Owner or the Mortgagee of any document entered into
pursuant to Section 10.01 hereof, the Mortgagee shall mail, by first class mail, postage prepaid, a
copy thereof to Owner (if not a party thereto) and to each Note Holder at its address last set
forth in the Equipment Note Register, but the failure of the Mortgagee to mail such copies shall
not impair or affect the validity of such document.



          SECTION 10.04. No Request Necessary for Trust Indenture Supplement




          No written request or consent of the Note Holders pursuant to Section 10.01 hereof shall be
required to enable the Mortgagee to execute and deliver a Trust Indenture Supplement specifically
required by the terms hereof.



ARTICLE XI




MISCELLANEOUS




          SECTION 11.01. Termination of Trust Indenture




          Upon (or at any time after) payment in full of the Original Amount of, Make-Whole Amount, if
any, and interest on and all other amounts due under all Equipment Notes and provided that there
shall then be no other Secured Obligations due to the Indenture Indemnitees, the Note Holders and
the Mortgagee hereunder or under the Participation Agreement or other Operative Agreement, and so
long as no Related Payment Default or Related Event of Default shall have occurred and be
continuing, the Owner shall direct the Mortgagee to execute and deliver to or as directed in
writing by the Owner an appropriate instrument releasing the Aircraft and the Engines and all other
Collateral (subject to clause “Fifth” of Section 3.03 hereof, if applicable) from the Lien of the
Trust Indenture and the Mortgagee shall execute and deliver such instrument as aforesaid;
provided, however, that this Trust Indenture and the trusts created hereby shall
earlier terminate and this Trust Indenture shall be of no further force or effect upon any sale or
other final disposition by the Mortgagee of all property constituting part of the Collateral and
the final distribution by the Mortgagee of all monies or other property or proceeds



56









 







constituting part of the Collateral in accordance with the terms hereof. Except as aforesaid
otherwise provided, this Trust Indenture and the trusts created hereby shall continue in full force
and effect in accordance with the terms hereof.



          SECTION 11.02. No Legal Title to Collateral in Note Holders




          No holder of an Equipment Note or a Related Equipment Note shall have legal title to any part
of the Collateral. No transfer, by operation of law or otherwise, of any Equipment Note or Related
Equipment Note or other right, title and interest of any Note Holder or holder of a Related
Equipment Note in and to the Collateral or hereunder shall operate to terminate this Trust
Indenture or entitle such holder or any successor or transferee of such holder to an accounting or
to the transfer to it of any legal title to any part of the Collateral.



          SECTION 11.03. Sale of Aircraft by Mortgagee Is Binding




          Any sale or other conveyance of the Collateral, or any part thereof (including any part
thereof or interest therein), by the Mortgagee made pursuant to the terms of this Trust Indenture
shall bind the Note Holders and shall be effective to transfer or convey all right, title and
interest of the Mortgagee, the Owner and such holders in and to such Collateral or part thereof.
No purchaser or other grantee shall be required to inquire as to the authorization, necessity,
expediency or regularity of such sale or conveyance or as to the application of any sale or other
proceeds with respect thereto by the Mortgagee.



          SECTION 11.04. Trust Indenture for Benefit of Owner, Mortgagee, Note Holders, Related Secured
Parties and the other Indenture Indemnitees




          Nothing in this Trust Indenture, whether express or implied, shall be construed to give any
person other than the Owner, the Mortgagee, the Note Holders, the Related Secured Parties and the
other Indenture Indemnitees, any legal or equitable right, remedy or claim under or in respect of
this Trust Indenture, except that the persons referred to in the last paragraph of Section 4.02(b)
shall be third party beneficiaries of such paragraph.



          SECTION 11.05. 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
Trust Indenture to be made, given, furnished or filed shall be in writing, personally delivered or
mailed by certified mail, postage prepaid, or by facsimile and (i) if to the Owner, addressed to it
at 2702 Love Field Drive, P.O. Box 36611, Dallas, Texas 75235-1611, Attention: Treasurer,
facsimile number (214) 792-4022, (ii) if to Mortgagee, addressed to it at its office at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration, facsimile number (302) 636-4144, and (iii) if to any Note Holder or any Indenture
Indemnitee, addressed to such Person at such address as such Person shall have furnished by notice
to the Owner and the Mortgagee, or, until an address is so furnished, addressed to the address any Person referred to in clauses (i)-(iii) set forth on
Schedule 1 to the Participation Agreement or in the Equipment Note Register. Whenever any notice
in writing is required to be given by the Owner or the Mortgagee or any Note Holder to any of the
other of them, such notice shall be deemed given and such requirement satisfied when



57









 







such notice is
received, or if such notice is mailed by certified mail, postage prepaid, three Business Days after
being mailed, addressed as provided above. Any such Person may change the address to which notices
to such Person will be sent by giving notice of such change to such other Persons.



          SECTION 11.06. Severability




          Any provision of this Trust Indenture 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. Any such prohibition or
unenforceability in any particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.



          SECTION 11.07. No Oral Modification or Continuing Waivers




          No term or provision of this Trust Indenture or the Equipment Notes may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by the Owner and the
Mortgagee, in compliance with Section 10.01 hereof. Any waiver of the terms hereof or of any
Equipment Note shall be effective only in the specific instance and for the specific purpose given.



          SECTION 11.08. Successors and Assigns




          All covenants and agreements contained herein shall be binding upon, and inure to the benefit
of, each of the parties hereto and the permitted successors and assigns of each, all as herein
provided. Any request, notice, direction, consent, waiver or other instrument or action by any
Note Holder shall bind the successors and assigns of such holder. Each Note Holder by its
acceptance of an Equipment Note agrees to be bound by this Trust Indenture and all provisions of
the Operative Agreements applicable to a Note Holder.



          SECTION 11.09. 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 11.10. Normal Commercial Relations




          Anything contained in this Trust Indenture to the contrary notwithstanding. Owner and
Mortgagee may conduct any banking or other financial transactions, and have banking or other commercial relationships, with each other, fully to the same extent as if
this Trust Indenture were not in effect, including without limitation the making of loans or other
extensions of credit to Owner for any purpose whatsoever, whether related to any of the
transactions contemplated hereby or otherwise.



58









 





          SECTION 11.11. Governing Law; Counterpart Form




          THIS TRUST INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK. THIS TRUST INDENTURE IS BEING DELIVERED IN THE STATE OF NEW YORK. This Trust
Indenture may be executed by the parties hereto in separate counterparts (or upon separate
signature pages bound together into one or more counterparts), each of which when so executed and
delivered shall be an original, but all such counterparts shall together constitute but one and the
same instrument.



          SECTION 11.12. Voting By Note Holders




          All votes of the Note Holders shall be governed by a vote of a Majority in Interest of Note
Holders, except as otherwise provided herein.



          SECTION 11.13. Bankruptcy




          It is the intention of the parties that the Mortgagee shall be entitled to the benefits of
Section 1110 with respect to the right to take possession of the Aircraft, Airframe, Engines and
Parts and to exercise any of its other rights or remedies as provided herein in the event of a case
under Chapter 11 of the Bankruptcy Code in which Owner is a debtor, and in any instance where more
than one construction is possible of the terms and conditions hereof or any other pertinent
Operative Agreement, each such party agrees that a construction which would preserve such benefits
shall control over any construction which would not preserve such benefits.



59









 





          IN WITNESS WHEREOF, the parties hereto have caused this Trust Indenture and Mortgage to be
duly executed by their respective officers thereof duly authorized as of the day and year first
above written.



	 	 	 	 	 
	 	SOUTHWEST AIRLINES CO.

 	 
	 	By:  	/s/ Scott Topping
 	 
	 	 	Name:  	Scott Topping 	 
	 	 	Title:  	Vice President Treasurer 	 
	 
	 	WILMINGTON TRUST COMPANY,

as Mortgagee

 	 
	 	By:  	/s/ James P. Lawler
 	 
	 	 	Name:  	James P. Lawler 	 
	 	 	Title:  	Vice President 	 



60









 






	 	 	 	 	 



ANNEX A




DEFINITIONS




GENERAL PROVISIONS





               (a) In each Operative Agreement, unless otherwise expressly provided, a reference to:




	 	(i)	 	each of “Owner,” “Mortgagee,” “Note Holder” or any other person includes,
without prejudice to the provisions of any Operative Agreement, any successor in
interest to it and any permitted transferee, permitted purchaser or permitted assignee
of it;
	 
	 	(ii)	 	words importing the plural include the singular and words importing the
singular include the plural;
	 
	 	(iii)	 	any agreement, instrument or document, or any annex, schedule or exhibit
thereto, or any other part thereof, includes, without prejudice to the provisions of
any Operative Agreement, that agreement, instrument or document, or annex, schedule or
exhibit, or part, respectively, as amended, modified or supplemented from time to time
in accordance with its terms and in accordance with the Operative Agreements, and any
agreement, instrument or document entered into in substitution or replacement therefor;
	 
	 	(iv)	 	any provision of any Law includes any such provision as amended, modified,
supplemented, substituted, reissued or reenacted prior to the Closing Date, and
thereafter from time to time;
	 
	 	(v)	 	the words “Agreement,” “this Agreement,” “hereby,” “herein,” “hereto,” “hereof”
and “hereunder” and words of similar import when used in any Operative Agreement refer
to such Operative Agreement as a whole and not to any particular provision of such
Operative Agreement;
	 
	 	(vi)	 	the words “including,” “including, without limitation,” “including, but not
limited to,” and terms or phrases of similar import when used in any Operative
Agreement, with respect to any matter or thing, mean including, without limitation,
such matter or thing; and
	 
	 	(vii)	 	a “Section,” an “Exhibit,” an “Annex” or a “Schedule” in any Operative
Agreement, or in any annex thereto, is a reference to a section of, or an exhibit, an
annex or a schedule to, such Operative Agreement or such annex, respectively.





               (b) Each exhibit, annex and schedule to each Operative Agreement is incorporated in, and shall
be deemed to be a part of, such Operative Agreement.



 









 





               (c) Unless otherwise defined or specified in any Operative Agreement, all accounting terms
therein shall be construed and all accounting determinations thereunder shall be made in accordance
with GAAP.



               (d) Headings used in any Operative Agreement are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, such Operative
Agreement.



               (e) For purposes of each Operative Agreement, the occurrence and continuance of a Default or
Event of Default referred to in Section 5.01(v), (vi) or (vii) shall not be deemed to prohibit the
Owner from taking any action or exercising any right that is conditioned on no Special Default,
Default or Event of Default having occurred and be continuing if such Special Default, Default or
Event of Default consists of the institution of reorganization proceedings with respect to Owner
under Chapter 11 of the Bankruptcy Code and the trustee or debtor-in-possession in such proceedings
shall have entered into one or more agreements under Section 1110 to perform all of its obligations
under the Trust Indenture and shall have cured any default under the Trust Indenture in accordance
with Section 1110 and thereafter continued to perform such obligations in accordance with Section
1110.



DEFINED TERMS




          “Act” means part A of subtitle VII of title 49, United States Code.



          “Actual Knowledge” means (a) as it applies to Mortgagee, actual knowledge of a
responsible officer in the Corporate Trust Office, and (b) as it applies to Owner, actual knowledge
of a Vice President or more senior officer of Owner or any other officer of Owner having
responsibility for the transactions contemplated by the Operative Agreements; provided that
each of Owner and Mortgagee shall be deemed to have “Actual Knowledge” of any matter as to which it
has received notice from Owner, any Note Holder or Mortgagee, such notice having been given
pursuant to Section 11.05 of the Trust Indenture.



          “Additional Series” or “Additional Series Equipment Notes” means Equipment
Notes issued under the Trust Indenture and designated as a series (other than “Series A” or “Series
B”) thereunder, in the Original Amount and maturities and bearing interest as specified in Schedule
I to the Trust Indenture (as amended at the time of original issuance of such Additional Series)
under the heading for such series.



          “Affiliate” means, with respect to any person, any other person directly or indirectly
controlling, controlled by or under common control with such person. For 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 “controlling,” “controlled by” and “under common control with” have
correlative meanings.



          “Aircraft” means, collectively, the Airframe and Engines.



2









 





          “Aircraft Bill of Sale” means the full warranty bill of sale covering the Aircraft
delivered by Airframe Manufacturer or its Affiliate to Owner.



          “Aircraft Documents” means all technical data, manuals and log books, and all
inspection, modification and overhaul records and other service, repair, maintenance and technical
records that are required by (i) the FAA per Federal Aviation Regulation FAR 121.380A (or successor
regulation) and any other relevant regulation promulgated by the FAA which is applicable to Owner
as an operator under Federal Aviation Regulation FAR 121 or (ii) the relevant Aviation Authority,
to be transferred with respect to the Aircraft, Airframe, Engines or Parts and such term shall
include all additions, renewals, revisions and replacements of any such materials from time to time
made prior to the release of the Lien of the Trust Indenture, or required to be made prior to the
release of the Lien of the Trust Indenture, by the regulations of the FAA or the relevant Aviation
Authority, and in each case in whatever form and by whatever means or medium (including, without
limitation, microfiche, microfilm, paper, CD-ROM or computer disk) such materials may be maintained
or retained by or on behalf of Owner (provided, that all such materials shall be maintained
in the English language).



          “Airframe” means (a) the aircraft (excluding Engines or engines from time to time
installed thereon) manufactured by Airframe Manufacturer and identified by Airframe Manufacturer’s
model number, United States registration number and Airframe Manufacturer’s serial number set forth
in the initial Trust Indenture Supplement and any Replacement Airframe and (b) any and all Parts.
Upon substitution of a Replacement Airframe under and in accordance with the Trust Indenture, such
Replacement Airframe shall become subject to the Trust Indenture and shall be the “Airframe” for
all purposes of the Trust Indenture and the other Operative Agreements and thereupon the Airframe
for which the substitution is made shall no longer be subject to the Trust Indenture, and such
replaced Airframe shall cease to be the “Airframe.”



          “Airframe Manufacturer” means The Boeing Company, a Delaware corporation.



          “Applicable Pass Through Trust” means each of the separate pass through trusts created
under the Applicable Pass Through Trust Agreements.



          “Applicable Pass Through Trust Agreement” means each of the separate Pass Through
Trust Agreements by and between the Owner and an Applicable Pass Through Trustee.



          “Applicable Pass Through Trustee” means each Pass Through Trustee that is a party to
the Participation Agreement.



          “Average Life Date” for any Equipment Note shall be the date which follows the time of
determination by a period equal to the Remaining Weighted Average Life of such Equipment Note.
“Remaining Weighted Average Life” on a given date with respect to any Equipment Note shall be the
number of days equal to the quotient obtained by dividing (a) the sum of each of the products
obtained by multiplying (i) the amount of each then remaining scheduled payment of principal of
such Equipment Note by (ii) the number of days from and including such determination date to but
excluding the date on which such payment of principal is scheduled to be made, by (b) the then
outstanding principal amount of such Equipment Note.



3









 





          “Aviation Authority” means the FAA or, if the Aircraft is permitted to be, and is,
registered with any other Government Entity under and in accordance with Section 4.02 (e) of the
Trust Indenture and Section 6.4.5 of the Participation Agreement, such other Government Entity.



          “Bankruptcy Code” means the United States Bankruptcy Code, 11 U.S.C. Sections 101 et
seq.



          “Basic Pass Through Trust Agreement” means the Pass Through Trust Agreement, dated
July 21, 2005, between Owner and Pass Through Trustee, but does not include any Trust Supplement.



          “Bills of Sale” means the FAA Bill of Sale and the Aircraft Bill of Sale.



          “Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized or required by law to close in New York, New York, Dallas, Texas,
or Wilmington, Delaware.



          “Cape Town Treaty” means the Cape Town Convention on International Interests in
Mobile Equipment and the related Aircraft Equipment Protocol, as in effect in the United States.



          “Cash Equivalents” means the following securities (which shall mature within 90 days
of the date of purchase thereof): (a) direct obligations of the U.S. Government; (b) obligations
fully guaranteed by the U.S. Government; (c) certificates of deposit issued by, or bankers’
acceptances of, or time deposits or a deposit account with, Mortgagee or any bank, trust company or
national banking association incorporated or doing business under the laws of the United States or
any state thereof having a combined capital and surplus and retained earnings of at least
$500,000,000 and having a Thomson BankWatch Rating of “C” or better; or (d) commercial paper of any
issuer doing business under the laws of the United States or one of the states thereof and in each
case having a rating assigned to such commercial paper by Standard & Poor’s or Moody’s equal to A1,
P1 or higher.



          “Certificate Owner” is defined in the Pass Through Trust Agreements.



          “Citizen of the United States” is defined in 49 U.S.C. § 40102(a)(15).



          “Closing” means the closing of the transactions contemplated by the Participation
Agreement.



          “Closing Date” means the date on which the Closing occurs.



          “Code” means the Internal Revenue Code of 1986, as amended; provided that, when used
in relation to a Plan, “Code” shall mean the Internal Revenue Code of 1986 and any regulations and
rulings issued thereunder, all as amended and in effect from time to time.



          “Collateral” is defined in the Granting Clause of the Trust Indenture.



4









 





          “Consent and Agreement” means the Manufacturer Consent and Agreement N259WN, dated as
of even date with the Participation Agreement, of Airframe Manufacturer.



          “Corporate Trust Office” means the principal office of Mortgagee located at
Mortgagee’s address for notices under the Participation Agreement or such other office at which
Mortgagee’s corporate trust business shall be administered which Mortgagee shall have specified by
notice in writing to Owner and each Note Holder.



          “CRAF” means the Civil Reserve Air Fleet Program established pursuant to 10 U.S.C.
Section 9511-13 or any similar substitute program.



          “Debt Rate” means, with respect to (i) any Series of Equipment Notes, the rate per
annum specified for such Series under the heading “Interest Rate” in Schedule I to the Trust
Indenture (as amended, in the case of any Additional Series, at the time of original issuance of
such Additional Series), and (ii) any other purpose, with respect to any period, the weighted
average interest rate per annum during such period borne by the outstanding Equipment Notes,
excluding any interest payable at the Payment Due Rate.



          “Default” means any event or condition that with the giving of notice or the lapse of
time or both would become an Event of Default.



          “Dollars,” “United States Dollars” or “$” means the lawful currency of
the United States.



          “DOT” means the Department of Transportation of the United States or any Government
Entity succeeding to the functions of such Department of Transportation.



          “Eligible Account” means an account established by and with an Eligible Institution at
the request of the Mortgagee, which institution agrees, for all purposes of the UCC including
Article 8 thereof, that (a) such account shall be a “securities account” (as defined in Section
8-501(a) of the UCC), (b) all property (other than cash) credited to such account shall be treated
as a “financial asset” (as defined in Section 8-102(a)(9) of the UCC), (c) the Mortgagee shall be
the “entitlement holder” (as defined in Section 8-102(a)(7) of the UCC) in respect of such account,
(d) it will comply with all entitlement orders issued by the Mortgagee to the exclusion of the
Owner, and (e) the “securities intermediary jurisdiction” (under Section 8-110(e) of the UCC) shall
be the State of New York.



          “Eligible Institution” means the corporate trust department of (a) Wilmington Trust
Company, acting solely in its capacity as a “securities intermediary” (as defined in Section
8-102(a)(14) of the UCC), 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 Moody’s and Standard & Poor’s
of at least A3/A- or its equivalent.



          “Engine” means (a) each of the engines manufactured by Engine Manufacturer and identified by Engine Manufacturer’s
model number and Engine Manufacturer’s serial number set forth in the initial Trust Indenture Supplement and originally installed
on the



5









 







Airframe, and any Replacement Engine, in any case whether or not from time to time installed on such Airframe or installed
on any other airframe or aircraft, and (b) any and all Parts.
Upon substitution of a Replacement Engine under and in accordance with the Trust Indenture, such
Replacement Engine shall become subject to the Trust Indenture and shall be an “Engine” for all
purposes of the Trust Indenture and the other Operative Agreements and thereupon the Engine for
which the substitution is made shall no longer be subject to the Trust Indenture, and such replaced
Engine shall cease to be an “Engine.”



          “Engine Consent and Agreement” means the Engine Manufacturer Consent and Agreement
N259WN dated as of even date with the Participation Agreement, of Engine Manufacturer.



          “Engine Manufacturer” means CFM International, Inc., a corporation organized under the
laws of the State of Delaware.



          “Equipment Note Register” is defined in Section 2.07 of the Trust Indenture.



          “Equipment Notes” means and includes any equipment notes issued under the Trust
Indenture in the form specified in Section 2.01 thereof (as such form may be varied pursuant to the
terms of the Trust Indenture) and any Equipment Note issued under the Trust Indenture in exchange
for or replacement of any Equipment Note.



          “ERISA” means the Employee Retirement Income Security Act of 1974, and any regulations
and rulings issued thereunder all as amended and in effect from time to time.



          “Event of Default” is defined in Section 5.01 of the Trust Indenture.



          “Event of Loss” means, with respect to the Aircraft, Airframe or any Engine, any of
the following circumstances, conditions or events with respect to such property, for any reason
whatsoever:



               (a) the destruction of such property, damage to such property beyond economic repair or
rendition of such property permanently unfit for normal use by Owner;



               (b) the actual or constructive total loss of such property or any damage to such property, or
requisition of title or use of such property, which results in an insurance settlement with respect
to such property on the basis of a total loss or constructive or compromised total loss;



               (c) any theft, hijacking or disappearance of such property for a period of 180 consecutive
days or more;



               (d) any seizure, condemnation, confiscation, taking or requisition (including loss of title)
of such property by any Government Entity or purported Government Entity (other than a requisition
of use by a Permitted Government Entity) for a period exceeding 12 consecutive months;



6









 





               (e) as a result of any law, rule, regulation, order or other action by the Aviation Authority
or by any Government Entity of the government of registry of the Aircraft or by any Government Entity otherwise having jurisdiction over the operation or use of the
Aircraft, the use of such property in the normal course of Owner’s business of passenger air
transportation is prohibited for a period of 18 consecutive months unless Owner, prior to the
expiration of such 18-month period, shall have undertaken and shall be diligently carrying forward
such steps as may be necessary or desirable to permit the normal use of such property by Owner, but
in any event if such use shall have been prohibited for a period of three consecutive years; and



               (f) any divestiture of title to an Engine treated as an Event of Loss pursuant to Section
4.02(b) of the Trust Indenture.




     “Expenses” means any and all liabilities, obligations, losses, damages,
settlements, penalties, claims, actions, suits, costs, expenses and disbursements
(including, without limitation, reasonable fees and disbursements of legal counsel,
accountants, appraisers, inspectors or other professionals, and costs of investigation).



          “FAA” means the Federal Aviation Administration of the United States or any Government
Entity succeeding to the functions of such Federal Aviation Administration.



          “FAA Bill of Sale” means a bill of sale for the Aircraft on AC Form 8050-2 (or such
other form as may be approved by the FAA) delivered to Owner by Airframe Manufacturer.



          “FAA Filed Documents” means the Trust Indenture, the initial Trust Indenture
Supplement, the FAA Bill of Sale, AC Form 8050-135 with respect to the International Interests and
an application for registration of the Aircraft with the FAA in the name of Owner.



          “FAA Regulations” means the Federal Aviation Regulations issued or promulgated
pursuant to the Act from time to time.



          “Final Payment Date” means August 1, 2022 (or, if not a Business Day, the next
Business Day).



          “Financing Statements” means, collectively, UCC-1 (and, where appropriate, UCC-3)
financing statements covering the Collateral, by Owner, as debtor, showing Mortgagee as secured
party, for filing in Texas and each other jurisdiction that, in the opinion of Mortgagee, is
necessary to perfect its Lien on the Collateral.



          “GAAP” means generally accepted accounting principles as set forth in the statements
of financial accounting standards issued by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants, as such principles may at any time or from time
to time be varied by any applicable financial accounting rules or regulations issued by the SEC
and, with respect to any person, shall mean such principles applied on a basis consistent with
prior periods except as may be disclosed in such person’s financial statements.



          “Government Entity” means (a) any federal, state, provincial or similar government,
and any body, board, department, commission, court, tribunal, authority, agency or other
instrumentality of any such government or otherwise exercising any executive, legislative,



7









 







judicial, administrative or regulatory functions of such government or (b) any other government
entity having jurisdiction over any matter contemplated by the Operative Agreements or relating to the observance or performance of the obligations of any of the parties to the Operative
Agreements.



          “Indemnitee” means (i) WTC and Mortgagee, (ii) each separate or additional trustee
appointed pursuant to the Trust Indenture, (iii) the Subordination Agent and, solely in respect of
Section 8.1 of the Participation Agreement, each Pass Through Trustee, (iv) the Liquidity Provider,
(v) each Note Holder and each Related Note Holder, (vi) each Affiliate of the persons described in
clauses (i) through (v), inclusive and (vii) the respective directors, officers and employees of
each of the persons described in clauses (i) through (vi) inclusive; provided that the persons
described in clauses (iii), (iv) and (v), and their respective Affiliates, directors, officers and
employees are Indemnitees only for purposes of Section 8.1 of the Participation Agreement.



          “Indenture Agreements” means the Purchase Agreement and the Bills of Sale, to the
extent included in Granting Clause (2) of the Trust Indenture, and any other contract, agreement or
instrument from time to time assigned or pledged under the Trust Indenture.



          “Indenture Default” means any condition, circumstance, act or event that, with the
giving of notice, the lapse of time or both, would constitute an Indenture Event of Default.



          “Indenture Event of Default” means any one or more of the conditions, circumstances,
acts or events set forth in Section 5.01 of the Trust Indenture.



          “Indenture Indemnitee” means (i) WTC and the Mortgagee, (ii) each separate or
additional trustee appointed pursuant to the Trust Indenture, (iii) the Subordination Agent, (iv)
the Liquidity Provider, (v) each Pass Through Trustee, and (vi) each of the respective directors,
officers, employees, agents and servants of each of the persons described in clauses (i) through
(v) inclusive above.



          “Intercreditor Agreement” means that certain Intercreditor Agreement among the Pass
Through Trustees, the Liquidity Provider and the Subordination Agent, dated as of October 3, 2007,
provided that (i) with respect to any matter specified in the second proviso to the first sentence
of Section 9.1(a) of the Intercreditor Agreement, no amendment, modification or supplement to, or
substitution or replacement of, such Intercreditor Agreement shall be effective unless consented to
by Owner and (ii) no amendment, modification or supplement to, or substitution or replacement of,
such Intercreditor Agreement occurring after the date on which an Equipment Note ceases to be held
of record by the Subordination Agent shall be effective as against any Note Holder of such
Equipment Note in relation to clauses (ii) and (iii) of the penultimate sentence of Section 2.07 of
the Trust Indenture unless such amendment, modification, supplement, substitution or replacement
has been consented to by such Note Holder (after which the same shall be effective against any
subsequent Note Holders of such Equipment Note).



          “International Interest” has the meaning attributed to “international interest” in
the Cape Town Treaty.




8












 





          “International Registry” is defined in the Cape Town Treaty.




          “IRS” means the Internal Revenue Service of the United States or any Government Entity
succeeding to the functions of such Internal Revenue Service.




          “Issuance Date” means October 3, 2007.




          “Law” means (a) any constitution, treaty, statute, law, decree, regulation, order,
rule or directive of any Government Entity, and (b) any judicial or administrative interpretation
or application of, or decision under, any of the foregoing.




          “Lien” means any mortgage, pledge, lien, charge, claim, encumbrance, lease or security
interest affecting the title to or any interest in property.




          “Liquidity Facility” means the Revolving Credit Agreement between the Subordination
Agent, as borrower, and the Liquidity Provider, dated as of the Issuance Date, provided
that, for purposes of any obligation of Owner, no amendment, modification or supplement to, or
substitution or replacement of, the Liquidity Facility shall be effective unless consented to by
Owner.




          “Liquidity Provider” means BNP Paribas, New York branch.




          “Majority in Interest of Note Holders” means as of a particular date of determination,
(i) the holders of a majority in aggregate unpaid Original Amount of all Equipment Notes
outstanding as of such date (excluding any Equipment Notes held by Owner or any of its Affiliates
(unless all Equipment Notes then outstanding shall be held by Owner or any Affiliate of Owner);
provided that for the purposes of directing any action or casting any vote or giving any
consent, waiver or instruction hereunder, any Note Holder of an Equipment Note or Equipment Notes
may allocate, in such Note Holder’s sole discretion, any fractional portion of the principal amount
of such Equipment Note or Equipment Notes in favor of or in opposition to any such action, vote,
consent, waiver or instruction, and (ii) if all the Secured Obligations have been paid in full, the
“Controlling Party” under and as defined in the Intercreditor Agreement.




          “Make-Whole Amount” means, with respect to any Equipment Note, an amount (as
determined by an independent investment bank of national standing) equal to the excess, if any, of
(a) the present value of the remaining scheduled payments of principal and interest to maturity of
such Equipment Note computed by discounting such payments on a semiannual basis on each Payment
Date (assuming a 360-day year of twelve 30-day months) using a discount rate equal to the Treasury
Yield plus the Make-Whole Spread, over (b) the outstanding principal amount of such
Equipment Note plus accrued interest to the date of determination. For purposes of determining the
Make-Whole Amount, “Treasury Yield” means, at the date of determination with respect to any
Equipment Note, the interest rate (expressed as a decimal and, in the case of United States
Treasury bills, converted to a bond equivalent yield) determined to be the per annum rate equal to
the semiannual yield to maturity for United States Treasury securities maturing on the Average Life
Date of such Equipment Note and trading in the public securities markets either as determined by
interpolation between the most recent weekly average yield to maturity for two series of United
States Treasury securities, trading in the public securities



9









 






markets, (A) one maturing as close as possible to, but earlier than, the Average Life Date of
such Equipment Note and (B) the other maturing as close as possible to, but later than, the Average
Life Date of such Equipment Note, in each case as published in the most recent H.15(519) or, if a
weekly average yield to maturity for United States Treasury securities maturing on the Average Life
Date of such Equipment Note is reported in the most recent H.15(519), such weekly average yield to
maturity as published in such H.15(519). “H.15(519)” means the weekly statistical release
designated as such, or any successor publication, published by the Board of Governors of the
Federal Reserve System. The date of determination of a Make-Whole Amount shall be the third
Business Day prior to the applicable payment or redemption date and the “most recent H.15(519)”
means the H.15(519) published prior to the close of business on the third Business Day prior to the
applicable payment or redemption date.




          “Make-Whole Spread” means (i) in the case of Series A Equipment Notes, 0.30%, (ii) in
the case of Series B Equipment Notes, 0.40%, and (iii) in the case of any Additional Series, the
percentage specified in Schedule I hereto (as amended at the time of original issuance of such
Additional Series) as the “Make-Whole Spread” for such Additional Series.




          “Material Adverse Change” means, with respect to any person, any event, condition or
circumstance that materially and adversely affects such person’s business or consolidated financial
condition, or its ability to observe or perform its obligations, liabilities and agreements under
the Operative Agreements.




          “Minimum Liability Insurance Amount” is defined in Schedule 3 to the Participation
Agreement.




          “Mortgaged Property” is defined in Section 3.03 of the Trust Indenture.




          “Mortgagee” means Wilmington Trust Company, a Delaware banking corporation, not in its
individual capacity but solely as mortgagee under the Trust Indenture.




          “Non-U.S. Person” means any Person other than a United States person, as defined in
Section 7701(a)(30) of the Code.




          “Note Holder” means at any time each registered holder of one or more Equipment Notes.




          “NY UCC” means the UCC as in effect on the date of determination in the State of New
York.




          “Officer’s Certificate” means, in respect of any party to the Participation Agreement,
a certificate signed by the Chairman, any Vice Chairman, the President, any Vice President
(including those with varying ranks such as Executive, Senior, Assistant or Staff Vice President),
the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary of
such party.




          “Operative Agreements” means, collectively, the Participation Agreement, the Trust
Indenture, the initial Trust Indenture Supplement, the Bills of Sale and the Equipment Notes.




10









 








          “Operative Indentures” means each of the indentures under which equipment notes have
been issued and purchased by the Pass Through Trustees pursuant to the Participation Agreement.




          “Original Amount,” with respect to an Equipment Note, means the stated original
principal amount of such Equipment Note and, with respect to all Equipment Notes, means the
aggregate stated original principal amounts of all Equipment Notes.




          “Owner Person” means Owner, any lessee, assignee, successor or other user or person in
possession of the Aircraft, Airframe or an Engine with or without color of right, or any Affiliate
of any of the foregoing (excluding any Tax Indemnitee or any related Tax Indemnitee with respect
thereto, or any person using or claiming any rights with respect to the Aircraft, Airframe or an
Engine directly by or through any of the persons in this parenthetical).




          “Participation Agreement” means the Participation Agreement N259WN, dated as of
October 3, 2007, among Owner, the Applicable Pass Through Trustees, the Subordination Agent and
Mortgagee.




          “Parts” means all appliances, parts, components, instruments, appurtenances,
accessories, furnishings, seats and other equipment of whatever nature (other than (a) Engines or
engines, and (b) any Removable Part leased by Owner from a third party or subject to a security
interest granted to a third party), that may from time to time be installed or incorporated in or
attached or appurtenant to the Airframe or any Engine or removed therefrom unless the Lien of the
Trust Indenture shall not be applicable thereto in accordance with Section 4.04 of the Trust
Indenture.




          “Pass Through Agreements” means the Pass Through Trust Agreements, the Intercreditor
Agreement, the Liquidity Facility and the Fee Letter referred to in Section 2.03 of the Liquidity
Facility, provided that no amendment, modification or supplement to, or substitution or replacement
of, such Fee Letter shall be effective for purposes of any obligation of Owner, unless consented to
by Owner.




          “Pass Through Certificates” means the pass through certificates issued by the Pass
Through Trusts (and any other pass through certificates issued in exchange for or replacement of
such pass through certificates).




          “Pass Through Trust” means each of the two separate pass through trusts created under
the Pass Through Trust Agreements.




          “Pass Through Trust Agreement” means each of the two separate Trust Supplements,
together in each case with the Basic Pass Through Trust Agreement, each dated as of the Issuance
Date by and between the Owner and a Pass Through Trustee, provided, that, for purposes of any
obligation of Owner, no amendment, modification or supplement to, or substitution or replacement
of, any such Agreement shall be effective unless consented to by Owner.




11









 








          “Pass Through Trustee” means Wilmington Trust Company, a Delaware banking corporation,
in its capacity as trustee under each Pass Through Trust Agreement.




          “Pass Through Trustee Agreements” means the Participation Agreement, the Pass Through
Trust Agreements and the Intercreditor Agreement.




          “Payment Date” means each February 1 and August 1, commencing on February 1, 2008.




          “Payment Due Rate” means (a) with respect to (i) any payment made to a Note Holder
under any Series of Equipment Notes, the Debt Rate applicable to such Series plus 1% and (ii) any
other payment made under any Operative Agreement to any other Person, the Debt Rate applicable to
such payment plus 1% or, if less, (b) the maximum rate permitted by applicable law.




          “Permitted Air Carrier” means (i) any manufacturer of airframes or aircraft engines,
or any Affiliate of a manufacturer of airframes or aircraft engines, (ii) any Permitted Foreign Air
Carrier, (iii) any person approved in writing by Mortgagee or (iv) any U.S. Air Carrier.




          “Permitted Country” means any country listed on Schedule 4 to the Participation
Agreement.




          “Permitted Foreign Air Carrier” means any air carrier with its principal executive
offices in any Permitted Country and which is authorized to conduct commercial airline operations
and to operate jet aircraft similar to the Aircraft under the applicable Laws of such Permitted
Country.




          “Permitted Government Entity” means (i) the U.S. Government or (ii) any other
Government Entity if the Aircraft is then registered under the laws of the country of such
Government Entity.




          “Permitted Lease” means a lease permitted under Section 4.02(b) of the Trust
Indenture.




          “Permitted Lessee” means the lessee under a Permitted Lease.




          “Permitted Lien” means (a) the rights of Mortgagee under the Operative Agreements, or
of any Permitted Lessee under any Permitted Lease; (b) Liens attributable to Mortgagee (both in its
capacity as trustee under the Trust Indenture and in its individual capacity); (c) the rights of
others under agreements or arrangements to the extent expressly permitted by the terms of Section
4.02(b) or 4.04 of the Trust Indenture; (d) Liens of Taxes of Owner (and its U.S. federal tax law
consolidated group), or Liens for Taxes of any Tax Indemnitee (and its U.S. federal tax law
consolidated group) for which Owner is obligated to indemnify such Tax Indemnitee under any of the
Operative Agreements, in any such case either not yet deliquent or being contested in good faith by
appropriate proceedings so long as such Liens and such proceedings do not involve any material risk
of the sale, forfeiture or loss of the Aircraft, the Airframe, or any Engine or the interest of
Mortgagee therein or impair the Lien of



12









 






the Trust Indenture; (e) materialmen’s, mechanics’, workers’, repairers’, employees’ or other
like Liens arising in the ordinary course of business for amounts the payment of which is either
not yet delinquent for more than 60 days or is being contested in good faith by appropriate
proceedings, so long as such Liens and such proceedings do not involve any material risk of the
sale, forfeiture or loss of the Aircraft, the Airframe, or any Engine or the interest of Mortgagee
therein or impair the Lien of the Trust Indenture; (f) Liens arising out of any judgment or award
against Owner (or any Permitted Lessee), so long as such judgment shall, within 60 days after the
entry thereof, have been discharged or vacated, or execution thereof stayed pending appeal or shall
have been discharged, vacated or reversed within 60 days after the expiration of such stay, and so
long as during any such 60 day period there is not, or any such judgment or award does not involve,
any material risk of the sale, forfeiture or loss of the Aircraft, the Airframe, or any Engine or
the interest of Mortgagee therein or impair the Lien of the Trust Indenture; (g) salvage or similar
rights of insurers under policies required to be maintained by Owner under Section 4.06 of the
Trust Indenture; and (h) any other Lien with respect to which Owner (or any Permitted Lessee) shall
have provided a bond, cash collateral or other security adequate in the reasonable opinion of
Mortgagee.




          “Persons” or “persons” means individuals, firms, partnerships, joint ventures,
trusts, trustees, Government Entities, organizations, associations, corporations, limited liability
companies, government agencies, committees, departments, authorities and other bodies, corporate or
incorporate, whether having distinct legal status or not, or any member of any of the same.




          “Plan” means any employee benefit plan within the meaning of Section 3(3) of ERISA, or
any plan within the meaning of Section 4975(e)(1) of the Code.




          “Purchase Agreement” means the Purchase Agreement No. 1810, dated as of January 19,
1994, between Airframe Manufacturer and Owner, as amended (including all exhibits thereto, together
with all letter agreements entered into that by their terms constitute part of such Purchase
Agreement), together with, with respect to the Engines, the GTA (as defined in the Engine Consent
and Agreement), in each case to the extent included in the Granting Clause (2) of the Trust
Indenture.




          “QIB” is defined in Section 2.08 of the Trust Indenture.




          “Ratings Confirmation” is defined in Section 1.1 of the Intercreditor Agreement.




          “Related Additional Series Equipment Note” means, with respect to any particular
series of Additional Series Equipment Notes and as of any date, an “Additional Series Equipment
Note”, as defined in each Related Indenture, having the same designation (i.e., “Series C”,
“Series D” or the like) as such series of Additional Series Equipment Notes, but only if as of such
date it is held by the “Subordination Agent” under the “Intercreditor Agreement”, as such terms are
defined in such Related Indenture.




          “Related Equipment Notes” means, collectively, the “Equipment Notes” as defined in
each Related Indenture, but only if as of such date they are held by the “Subordination



13









 






Agent” under the “Intercreditor Agreement”, as such terms are defined in such Related
Indenture.




          “Related Event of Default” means an “Indenture Event of Default” as defined in each
Related Indenture.




          “Related Indenture Indemnitee” means each Indenture Indemnitee under a Related
Indenture.




          “Related Indentures” means each Operative Indenture.




          “Related Mortgagee” has the meaning ascribed to the term “Mortgagee” in each Related
Indenture.




          “Related Note Holder” means a registered holder of a Related Equipment Note.




          “Related Operative Agreements” has the meaning ascribed to the term “Operative
Agreements” in each of the Related Indentures.




          “Related Participation Agreement” has the meaning ascribed to the term “Participation
Agreement” in each of the Related Indentures.




          “Related Payment Default” means the failure by Owner to pay (i) any amount of
principal of or interest on any Related Equipment Note when due or (ii) any Related Secured
Obligation (other than principal or interest on the Related Equipment Notes) in excess of $25,000
under any Related Indenture when due.




          “Related Secured Obligations” has the meaning ascribed to the term “Secured
Obligations” in each Related Indenture.




          “Related Secured Parties” means, collectively, the Related Note Holders and Related
Indenture Indemnities.




          “Related Series A Equipment Note” means, as of any date, a “Series A Equipment Note”,
as defined in each Related Indenture, but only if as of such date it is held by the “Subordination
Agent” under the “Intercreditor Agreement”, as such terms are defined in such Related Indenture.




          “Related Series B Equipment Note” means, as of any date, a “Series B Equipment Note”,
as defined in each Related Indenture, but only if as of such date it is held by the “Subordination
Agent” under the “Intercreditor Agreement”, as such terms are defined in such Related Indenture.




          “Related Special Default” means a “Special Default” as defined in each Related
Indenture.




          “Removable Part” is defined in Section 4.04(d) of the Trust Indenture.




14









 








          “Replacement Airframe” means any airframe substituted for the Airframe pursuant to
Article IV of the Trust Indenture.




          “Replacement Engine” means an engine substituted for an Engine pursuant to Article IV
of the Trust Indenture.




          “SEC” means the Securities and Exchange Commission of the United States, or any
Government Entity succeeding to the functions of such Securities and Exchange Commission.




          “Section 1110” means 11 U.S.C. Section 1110 of the Bankruptcy Code or any successor or
analogous section of the federal bankruptcy law in effect from time to time.




          “Secured Obligations” is defined in the initial paragraph of the Granting Clause of
the Trust Indenture.




          “Securities Account” is defined in Section 3.07 of the Trust Indenture.




          “Securities Act” means the Securities Act of 1933, as amended.




          “Security” means a “security” as defined in Section 2(l) of the Securities Act.




          “Series” means any of Series A, Series B or any Additional Series.




          “Series A” or “Series A Equipment Notes” means Equipment Notes issued under
the Trust Indenture and designated as “Series A” thereunder, in the Original Amount and maturities
and bearing interest as specified in Schedule I to the Trust Indenture under the heading “Series
A.”




          “Series B” or “Series B Equipment Notes” means Equipment Notes issued under
the Trust Indenture and designated as “Series B” thereunder, in the Original Amount and maturities
and bearing interest as specified in Schedule I to the Trust Indenture under the heading “Series
B.”




          “Similar Aircraft” means a Boeing Model 737-700 aircraft.




          “Special Default” means (i) the failure by Owner to pay any amount of principal of or
interest on any Equipment Note when due or (ii) the occurrence of any Default or Event of Default
referred to in Section 5.01(v), (vi) or (vii).




          “Subordination Agent” means Wilmington Trust Company, as subordination agent under the
Intercreditor Agreement, or any successor thereto.




          “Tax Indemnitee” means (a) WTC and Mortgagee, (b) each separate or additional trustee
appointed pursuant to the Trust Indenture, (c) each Note Holder and (d) the respective successors,
assigns, agents and servants of the foregoing.




15









 








          “Taxes” means all license, recording, documentary, registration and other similar fees
and all taxes, levies, imposts, duties, charges, assessments or withholdings of any nature
whatsoever imposed by any Taxing Authority, together with any penalties, additions to tax, fines or
interest thereon or additions thereto.




          “Taxing Authority” means any federal, state or local government or other taxing
authority in the United States, any foreign government or any political subdivision or taxing
authority thereof, any international taxing authority or any territory or possession of the United
States or any taxing authority thereof.




          “Threshold Amount” is defined in Schedule 3 to the Participation Agreement.




          “Transaction Expenses” means all costs and expenses incurred by Mortgagee in
connection with (a) the preparation, execution and delivery of the Operative Agreements and the
recording or filing of any documents, certificates or instruments in accordance with any Operative
Agreement, including, without limitation, the FAA Filed Documents and the Financing Statements, (b)
the initial fee of Mortgagee under the Trust Indenture and (c) the reasonable fees and
disbursements of counsel for each Mortgagee and special counsel in Oklahoma City, Oklahoma, in each
case, in connection with the Closing.




          “Transactions” means the transactions contemplated by the Participation Agreement.




          “Transfer” means the transfer, sale, assignment or other conveyance (whether directly
or indirectly through a transfer of stock, partnership interest or other ownership interest) of all
or any interest in any property, right or interest.




          “Transferee” means a person to which any Note Holder purports or intends to Transfer
any or all of its right, title or interest in the Equipment Note, as described in Section 9 of the
Participation Agreement.




          “Trust Indenture” means the Trust Indenture and Mortgage N259WN, dated as of the date
of the Participation Agreement between Owner and Mortgagee.




          “Trust Indenture Supplement” means a Trust Indenture and Mortgage Supplement,
substantially in the form of Exhibit A to the Trust Indenture, with appropriate modifications to
reflect the purpose for which it is being used.




          “Trust Supplement” means an agreement supplemental to the Basic Pass Through Trust
Agreement pursuant to which (i) a separate trust is created for the benefit of the holders of the
Pass Through Certificates of a class, (ii) the issuance of the Pass Through Certificates of such
class representing fractional undivided interests in such trust is authorized and (iii) the terms
of the Pass Through Certificates of such class are established.




          “UCC” means the Uniform Commercial Code as in effect in any applicable jurisdiction.




16









 








          “Unindemnified Tax” means (i) any Tax imposed on the net income, net worth or capital,
any franchise Tax or similar doing business Tax of the Mortgagee, the Subordination Agent or any
Pass Through Trustee and (ii) any withholding Tax imposed by the United States (including, without
limitation, any withholding Tax imposed by the United States which is imposed or increased as a
result of the Mortgagee’s, the Subordination Agent’s or any Pass Through Trustee’s failure to
deliver to the Owner any certificate or document necessary to establish that payments under the
Operative Agreements are exempt from withholding Tax).




          “United States” or “U.S.” means the United States of America; provided that
for geographic purposes, “United States” means, in aggregate, the 50 states and the District of
Columbia of the United States of America.




          “U.S. Air Carrier” means any United States air carrier that is a Citizen of the United
States holding an air carrier operating certificate issued pursuant to chapter 447 of title 49 of
the United States Code for aircraft capable of carrying 10 or more individuals or 6000 pounds or
more of cargo, and as to which there is in force an air carrier operating certificate issued
pursuant to Part 121 of the FAA Regulations, or which may operate as an air carrier by
certification or otherwise under any successor or substitute provisions therefor or in the absence
thereof.




          “U.S. Government” means the federal government of the United States, or any
instrumentality or agency thereof the obligations of which are guaranteed by the full faith and
credit of the federal government of the United States.




          “U.S. Person” means any Person described in Section 7701 (a)(30) of the Code.




          “Weighted Average Life to Maturity” means, with respect to any specified Debt, at the
time of the determination thereof the number of years obtained by dividing the then Remaining
Dollar-years of such Debt by the then outstanding principal amount of such Debt. The term
“Remaining Dollar-years” shall mean the amount obtained by (1) multiplying the amount of each
then-remaining principal payment on such Debt by the number of years (calculated at the nearest
one-twelfth) that will elapse between the date of determination of the Weighted Average Life to
Maturity of such Debt and the date of that required payment and (2) totaling all the products
obtained in clause (1) above.




          “Wet Lease” means any arrangement whereby Owner or a Permitted Lessee agrees to
furnish the Aircraft, Airframe or any Engine to a third party pursuant to which the Aircraft,
Airframe or Engine shall at all times be in the operational control of Owner or a Permitted Lessee,
provided that Owner’s obligations under the Trust Indenture shall continue in full force and effect
notwithstanding any such arrangement.




          “WTC” means Wilmington Trust Company, a Delaware banking corporation, not in its
capacity as Mortgagee under the Trust Indenture, but in its individual capacity.





17









 








	 	 	 
	 

	 	ANNEX B — INSURANCE
	 

	 	TRUST INDENTURE N259WN






ANNEX B




INSURANCE




     Capitalized terms used but not defined herein shall have the respective meanings set forth or
incorporated by reference in Annex A to the Trust Indenture.



A. Liability Insurance




     1. Except as provided in Section A.2 below, Owner will carry or cause to be carried at all
times, at no expense to Mortgagee, comprehensive airline legal liability (including, but not
limited to passenger liability, property damage, baggage liability, cargo and mail liability,
hangarkeeper’s liability and contractual liability insurance, but excluding manufacturer’s product
liability coverage) with respect to the Aircraft, the Airframe and the Engines, which is (i) in an
amount not less than the greater of (x) the amount of comprehensive airline legal liability
insurance from time to time applicable to aircraft owned or leased and operated by Owner of the
same type and operating on similar routes as the Aircraft and (y) the Minimum Liability Insurance
Amount per occurrence; (ii) of the type and covering the same risks as from time to time applicable
to aircraft operated by Owner of the same type as the Aircraft; and (iii) maintained in effect with
insurers of nationally or internationally recognized responsibility (such insurers being referred
to herein as “Approved Insurers”).



     2. During any period that the Aircraft is on the ground and not in operation, Owner may carry
or cause to be carried, in lieu of the insurance required by Section A.1 above, insurance otherwise
conforming with the provisions of said Section A.1 except that (i) the amounts of coverage shall
not be required to exceed the amounts of public liability and property damage insurance from time
to time applicable to aircraft owned or operated by Owner of the same type as the Aircraft which
are on the ground and not in operation and (ii) the scope of the risks covered and the type of
insurance shall be the same as from time to time shall be applicable to aircraft owned or operated
by Owner of the same type which are on the ground and not in operation.



B. Hull Insurance




     1. Except as provided in Section B.2 below, Owner will carry or cause to be carried at all
times, at no expense to Mortgagee, with Approved Insurers “all-risk” ground and flight aircraft
hull insurance covering each Aircraft (including the Engines when they are installed on the
Airframe or any other airframe) which is of the type as from time to time applicable to aircraft
owned by Owner of the same type as the Aircraft for an amount denominated in United States Dollars
not less than the unpaid Original Amount together with six months of interest accrued thereon (the
“Debt Balance”).



     Any policies of insurance carried in accordance with this Section B.1 or Section C covering
the Aircraft and any policies taken out in substitution or replacement for any such policies (i)
shall name Mortgagee as exclusive loss payee for any proceeds to be paid under such policies up to
an amount equal to the Debt Balance and (ii) shall provide that (A) in the event of a loss
involving proceeds in excess of the Threshold Amount, the proceeds in respect of such



 









 







loss up to an amount equal to the Debt Balance shall be payable to the Mortgagee, except in the case of a loss
with respect to an Engine installed on an airframe other than the Airframe, in which case Owner (or
any Permitted Lessee) shall endeavor to arrange for any payment of insurance proceeds in respect of
such loss to be held for the account of the Mortgagee whether such payment is made to Owner (or any
Permitted Lessee) or any third party, it being understood and agreed that in the case of any
payment to Mortgagee otherwise than in respect of an Event of Loss, the Mortgagee shall, upon
receipt of evidence satisfactory to it that the damage giving rise to such payment shall have been
repaired or that such payment shall then be required to pay for repairs then being made, pay the
amount of such payment to Owner or its order, and (B) the entire amount of any loss involving
proceeds of the Threshold Amount or less or the amount of any proceeds of any loss in excess of the
Debt Balance shall be paid to Owner or its order unless an Event of Default shall have occurred and
be continuing and the insurers have been notified thereof by the Mortgagee. In the case of a loss
with respect to an engine (other than an Engine) installed on the Airframe, Mortgagee shall hold
any payment to it of any insurance proceeds in respect of such loss for the account of Owner or any
other third party that is entitled to receive such proceeds.



     2. During any period that the Aircraft is on the ground and not in operation, Owner may carry
or cause to be carried, in lieu of the insurance required by Section B.1 above, insurance otherwise
conforming with the provisions of said Section B.1 except that the scope of the risks and the type
of insurance shall be the same as from time to time applicable to aircraft owned by Owner of the
same type similarly on the ground and not in operation, provided that Owner shall maintain
insurance against risk of loss or damage to the Aircraft in an amount equal to the Debt Balance
during such period that the Aircraft is on the ground and not in operation.



C. War-Risk, Hijacking and Allied Perils Insurance




     If Owner (or any Permitted Lessee) shall at any time operate or propose to operate the
Aircraft, Airframe or any Engine (i) in any area of recognized hostilities or (ii) on international
routes and war-risk, hijacking or allied perils insurance is maintained by Owner (or any Permitted
Lessee) with respect to other aircraft owned or operated by Owner (or any Permitted Lessee) on such
routes or in such areas, Owner shall maintain or cause to be maintained war-risk, hijacking and
related perils insurance of substantially the same type carried by major United States commercial
air carriers operating the same or comparable models of aircraft on similar routes or in such areas
and in no event in an amount less than the unpaid Original Amount.



D. General Provisions




     Any policies of insurance carried in accordance with Sections A, B and C, including any
policies taken out in substitution or replacement for such policies:




     (i) in the case of Section A, shall name Mortgagee, each Note Holder, each Related
Mortgagee, each Related Note Holder and the Liquidity Provider as an additional insured
(collectively, the “Additional Insureds”), as its interests may appear;




     (ii) shall apply worldwide and have no territorial restrictions or limitations (except
only in the case of war, hijacking and related perils insurance required under



2









 







Section C, which shall apply to the fullest extent available in the international insurance market);




     (iii) shall provide that, in respect of the interests of the Additional Insureds in
such policies, the insurance shall not be invalidated or impaired by any act or omission
(including misrepresentation and nondisclosure) by Owner (or any Permitted Lessee) or any
other Person (including, without limitation, use for illegal purposes of the Aircraft or any
Engine) and shall insure the Additional Insureds regardless of any breach or violation of
any representation, warranty, declaration, term or condition contained in such policies by
Owner (or any Permitted Lessee);




     (iv) shall provide that, if the insurers cancel such insurance for any reason
whatsoever, or if the same is allowed to lapse for nonpayment of premium, or if any material
change is made in the insurance which adversely affects the interest of any of the
Additional Insureds, such cancellation, lapse or change shall not be effective as to the
Additional Insureds for 30 (seven days in the case of war risk, hijacking and allied perils
insurance) days after receipt by the Additional Insureds of written notice by such insurers
of such cancellation, lapse or change, provided that if any notice period specified
above is not reasonably obtainable, such policies shall provide for as long a period of
prior notice as shall then be reasonably obtainable;




     (v) shall waive any rights of setoff (including for unpaid premiums), recoupment,
counterclaim or other deduction, whether by attachment or otherwise, against each Additional
Insured;




     (vi) shall be primary without right of contribution from any other insurance that may
be available to any Additional Insured;




     (vii) shall provide that all of the liability insurance provisions thereof, except the
limits of liability and agreed value, shall operate in all respects as if a separate policy
had been issued covering each party insured thereunder;




     (viii) shall provide that none of the Additional Insureds shall be liable for any
insurance premium; and




     (ix) shall contain a 50/50% Clause per Lloyd’s Aviation Underwriters’ Association
Standard Policy Form AVS 103.



E. Reports and Certificates; Other Information




     On or prior to the Closing Date and on or prior to each renewal date of the insurance policies
required hereunder, Owner will furnish or cause to be furnished to Mortgagee insurance certificates describing in reasonable detail the insurance maintained by Owner hereunder and a
report, signed by Owner’s regularly retained independent insurance broker (the “Insurance Broker”),
stating the opinion of such Insurance Broker that (a) all premiums in connection with the insurance
then due have been paid and (b) such insurance complies with the terms of this Annex B, except that
such opinion shall not be required with respect to war risk insurance



3









 







provided by the FAA. To the extent such agreement is reasonably obtainable Owner will also cause the Insurance Broker to agree
to advise Mortgagee in writing of any default in the payment of any premium and of any other act or
omission on the part of Owner of which it has knowledge and which might invalidate or render
unenforceable, in whole or in part, any insurance on the Aircraft or Engines or cause the
cancellation or termination of such insurance, and to advise Mortgagee in writing at least 30 days
(seven days in the case of war-risk and allied perils coverage or such shorter period as may be
available in the international insurance market, as the case may be) prior to the cancellation,
lapse or material adverse change of any insurance maintained pursuant to this Annex B.



F. Right to Pay Premiums




     The Additional Insureds shall have the rights but not the obligations of an additional named
insured. None of Mortgagee and the other Additional Insured shall have any obligation to pay any
premium, commission, assessment or call due on any such insurance (including reinsurance).
Notwithstanding the foregoing, in the event of cancellation of any insurance due to the nonpayment
of premiums, Mortgagee shall have the option, in its sole discretion, to pay any such premium in
respect of the Aircraft that is due in respect of the coverage pursuant to this Trust Indenture and
to maintain such coverage, as Mortgagee may require, until the scheduled expiry date of such
insurance and, in such event, Owner shall, upon demand, reimburse Mortgagee for amounts so paid by
them.



G. Deductibles; Self-insurance




     Owner may self-insure with respect to the Aircraft to the same extent as it does with respect
to, or maintain policies with deductibles or premium adjustment provisions consistent with similar
provisions applicable to, other comparable aircraft operated by Owner; provided,
however, that if at any time Owner’s unsecured senior long-term debt securities are not
rated “Investment Grade”, such self-insurance shall in no case be in amounts greater than that
amount of self-insurance carried by airlines similarly situated with Owner and operating aircraft
similar to the Aircraft on similar routes; and provided further that, in the case
of public liability insurance, such self-insurance shall in no event exceed $50,000,000. The term
“Investment Grade” means a rating of “Baa3” or higher from Moody’s or a rating from any other
nationally recognized bond rating service equivalent to or better than such a rating.




4









 








EXHIBIT A

TO

TRUST INDENTURE AND MORTGAGE




TRUST INDENTURE AND MORTGAGE SUPPLEMENT




          This TRUST INDENTURE AND MORTGAGE SUPPLEMENT NO.      , dated [                          ,           ] (herein
called this “Trust Indenture Supplement”) of SOUTHWEST AIRLINES CO., as Owner (the “Owner”).




WITNESSETH:




          WHEREAS, the Trust Indenture and Mortgage N259WN, dated as of October 3, 2007, (as amended and
supplemented, the “Trust Indenture”) between the Owner and Wilmington Trust Company, as Mortgagee
(the “Mortgagee”), provides for the execution and delivery of a supplement thereto substantially in
the form hereof, which shall particularly describe the Aircraft, and shall specifically mortgage
such Aircraft to the Mortgagee; and




          WHEREAS, the Trust Indenture relates to the Airframe and Engines described below, and a
counterpart of the Trust Indenture is attached hereto and made a part hereof and this Trust
Indenture Supplement, together with such counterpart of the Trust Indenture, is being filed for
recordation on the date hereof with the FAA as one document;




          NOW, THEREFORE, this Trust Indenture Supplement WITNESSETH that the Owner hereby confirms that
the Lien of the Trust Indenture on the Collateral covers all of Owner’s right, title and interest
in and to the following described property and that it hereby grants to the Security Trustee an
“International Interest” (as defined in the Cape Town Convention on International Interests in
Mobile Equipment and related Aircraft Equipment Protocol, as in effect in the United States) in the
following airframe and engines:




AIRFRAME




One airframe identified as follows:




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	FAA Registration	 	 	Manufacturer’s	 
	Manufacturer	 	Model	 	 	Number	 	 	Serial Number	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	The Boeing Company
	 	 	 	 	 	 	 	 	 	 	 	 






AIRCRAFT ENGINES




          Two aircraft engines, each such engine being a jet propulsion aircraft engine with at least
1750 lb of thrust or its equivalent, identified as follows:




	 	 	 	 	 	 	 	 	 
	Manufacturer	 	Manufacturer’s Model	 	 	Serial Number	 
	 
	 	 	 	 	 	 	 	 
	CFM International, Inc.
	 	 	 	 	 	 	 	 






 









 






          Together with all of Owner’s right, title and interest in and to (a) all Parts of whatever
nature, which from time to time are included within the definition of “Airframe” or “Engine”,
whether now owned or hereafter acquired, including all substitutions, renewals and replacements of
and additions, improvements, accessions and accumulations to the Airframe and Engines (other than
additions, improvements, accessions and accumulations which constitute appliances, parts,
instruments, appurtenances, accessories, furnishings or other equipment excluded from the
definition of Parts) and (b) all Aircraft Documents.




          TO HAVE AND TO HOLD all and singular the aforesaid property unto the Mortgagee, its successors
and assigns, in trust for the equal and proportionate benefit and security of the Note Holders, the
Related Secured Parties and the Indenture Indemnitees, except as provided in Section 2.13 and
Article III of the Trust Indenture without any preference, distinction or priority of any one
Equipment Note over any other, or any Related Equipment Note over any other, by reason of priority
of time of issue, sale, negotiation, date of maturity thereof or otherwise for any reason
whatsoever, and for the uses and purposes and subject to the terms and provisions set forth in the
Trust Indenture.




          This Trust Indenture Supplement shall be construed as supplemental to the Trust Indenture and
shall form a part thereof. The Trust Indenture is each hereby incorporated by reference herein and
is hereby ratified, approved and confirmed.




          AND, FURTHER, the Owner hereby acknowledges that the Aircraft referred to in this Trust
Indenture Supplement has been delivered to the Owner and is included in the property of the Owner
subject to the pledge and mortgage thereof under the Trust Indenture.




* * *




          IN WITNESS WHEREOF, the Owner has caused this Trust Indenture Supplement to be duly executed
by one of its officers, thereunto duly authorized, on the day and year first above written.




	 	 	 	 	 
	 	SOUTHWEST AIRLINES CO.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




2









 








SCHEDULE I




Trust Indenture and

Mortgage (N259WN)




	 	 	 	 	 	 	 	 	 	 	 	 	 
	N259WN	 	Original Amount	 	Maturity Date	 	Interest Rate
	 
	Series A
	 	$	25,077,000.00	 	 	August 1, 2022	 	 	6.15	%
	 
	Series B
	 	$	5,348,867.51	 	 	August 1, 2022	 	 	6.65	%






 









 






Trust Indenture and Mortgage

(N259WN)




EQUIPMENT NOTE AMORTIZATION




SERIES A




	 	 	 	 	 
	 	 	Percentage of Original
	Payment Date	 	Amount to be Paid
	 
	February 1, 2008
	 	 	0.0173227571081	 
	August 1, 2008
	 	 	0.0159353064561	 
	February 1, 2009
	 	 	0.0159353068549	 
	August 1, 2009
	 	 	0.0159353064561	 
	February 1, 2010
	 	 	0.0301485046058	 
	August 1, 2010
	 	 	0.0197830992543	 
	February 1, 2011
	 	 	0.0196198560434	 
	August 1, 2011
	 	 	0.0194566128325	 
	February 1, 2012
	 	 	0.0192933700203	 
	August 1, 2012
	 	 	0.0191301268094	 
	February 1, 2013
	 	 	0.0189668835985	 
	August 1, 2013
	 	 	0.0188036407864	 
	February 1, 2014
	 	 	0.0178838409698	 
	August 1, 2014
	 	 	0.0177493276708	 
	February 1, 2015
	 	 	0.0176148147705	 
	August 1, 2015
	 	 	0.0174803014715	 
	February 1, 2016
	 	 	0.0173457885712	 
	August 1, 2016
	 	 	0.0172112756709	 
	February 1, 2017
	 	 	0.0276173282291	 
	August 1, 2017
	 	 	0.0363044554771	 
	February 1, 2018
	 	 	0.0426147764884	 
	August 1, 2018
	 	 	0.0477502508275	 
	February 1, 2019
	 	 	0.0521577920006	 
	August 1, 2019
	 	 	0.0560602879132	 
	February 1, 2020
	 	 	0.0595873146708	 
	August 1, 2020
	 	 	0.0628218164055	 
	February 1, 2021
	 	 	0.0658205479124	 
	August 1, 2021
	 	 	0.0686242931770	 
	February 1, 2022
	 	 	0.0712634868605	 
	August 1, 2022
	 	 	0.0737615300873	 






 









 






SERIES B




	 	 	 	 	 
	 	 	Percentage of Original
	Payment Date	 	Amount to be Paid
	 
	February 1, 2008
	 	 	0.0173227566072	 
	August 1, 2008
	 	 	0.0159353077713	 
	February 1, 2009
	 	 	0.0159353059018	 
	August 1, 2009
	 	 	0.0159353077713	 
	February 1, 2010
	 	 	0.0159353059018	 
	August 1, 2010
	 	 	0.0159353059018	 
	February 1, 2011
	 	 	0.0159353077713	 
	August 1, 2011
	 	 	0.0159353059018	 
	February 1, 2012
	 	 	0.0159353077713	 
	August 1, 2012
	 	 	0.0159353059018	 
	February 1, 2013
	 	 	0.0159353059018	 
	August 1, 2013
	 	 	0.0785221262659	 
	February 1, 2014
	 	 	0.0147000406821	 
	August 1, 2014
	 	 	0.0147000406821	 
	February 1, 2015
	 	 	0.0147000406821	 
	August 1, 2015
	 	 	0.0147000406821	 
	February 1, 2016
	 	 	0.0147000406821	 
	August 1, 2016
	 	 	0.0147000406821	 
	February 1, 2017
	 	 	0.0251525859910	 
	August 1, 2017
	 	 	0.0340002158700	 
	February 1, 2018
	 	 	0.0405612981803	 
	August 1, 2018
	 	 	0.0460063405085	 
	February 1, 2019
	 	 	0.0530987109830	 
	August 1, 2019
	 	 	0.0568296390650	 
	February 1, 2020
	 	 	0.0601519666356	 
	August 1, 2020
	 	 	0.0631479989677	 
	February 1, 2021
	 	 	0.0678523611440	 
	August 1, 2021
	 	 	0.0691447786487	 
	February 1, 2022
	 	 	0.1084450454074	 
	August 1, 2022
	 	 	0.0322108651369