exv4w11w1



 





Exhibit 4.11.1




EXECUTION COPY



 

 







INTERCREDITOR AGREEMENT

(2007-1)




Dated as of

October 3, 2007




AMONG




WILMINGTON TRUST COMPANY,

not in its individual capacity

but solely as Trustee under the

Southwest Airlines Pass Through Trust 2007-1A

and

Southwest Airlines Pass Through Trust 2007-1B




BNP Paribas,

as Liquidity Provider




AND




WILMINGTON TRUST COMPANY,

not in its individual capacity except

as expressly set forth herein but

solely as Subordination Agent and Trustee




 

 







 









 












TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	ARTICLE I DEFINITIONS	 	 	2	 
	 
	 	SECTION 1.1.	 	Definitions	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II TRUST ACCOUNTS; CONTROLLING PARTY	 	 	17	 
	 
	 	SECTION 2.1.	 	Agreement to Terms of Subordination; Payments from Monies Received Only	 	 	17	 
	 
	 	SECTION 2.2.	 	Trust Accounts	 	 	18	 
	 
	 	SECTION 2.3.	 	Deposits to the Collection Account and Special Payments Account	 	 	19	 
	 
	 	SECTION 2.4.	 	Distributions of Special Payments	 	 	19	 
	 
	 	SECTION 2.5.	 	Designated Representatives	 	 	21	 
	 
	 	SECTION 2.6.	 	Controlling Party	 	 	22	 
	 
	 	SECTION 2.7.	 	Equipment Note Buy-Out Rights	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III RECEIPT, DISTRIBUTION AND APPLICATION OF AMOUNTS RECEIVED	 	 	26	 
	 
	 	SECTION 3.1.	 	Written Notice of Distribution	 	 	26	 
	 
	 	SECTION 3.2.	 	Distribution of Amounts on Deposit in the Collection Account	 	 	28	 
	 
	 	SECTION 3.3.	 	Other Payments	 	 	30	 
	 
	 	SECTION 3.4.	 	Payments to the Trustees and the Liquidity Provider	 	 	30	 
	 
	 	SECTION 3.5.	 	Liquidity Facility	 	 	31	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV EXERCISE OF REMEDIES	 	 	36	 
	 
	 	SECTION 4.1.	 	Directions from the Controlling Party	 	 	36	 
	 
	 	SECTION 4.2.	 	Remedies Cumulative	 	 	38	 
	 
	 	SECTION 4.3.	 	Discontinuance of Proceedings	 	 	39	 
	 
	 	SECTION 4.4.	 	Right of Certificateholders and the Liquidity Provider to Receive Payments Not to Be Impaired	 	 	39	 
	 
	 	SECTION 4.5.	 	Undertaking for Costs	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V DUTIES OF THE SUBORDINATION AGENT; AGREEMENTS OF TRUSTEES, ETC.	 	 	39	 
	 
	 	SECTION 5.1.	 	Notice of Indenture Default or Triggering Event	 	 	39	 
	 
	 	SECTION 5.2.	 	Indemnification	 	 	41	 
	 
	 	SECTION 5.3.	 	No Duties Except as Specified in Intercreditor Agreement	 	 	41	 
	 
	 	SECTION 5.4.	 	Notice from the Liquidity Provider and Trustees	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI THE SUBORDINATION AGENT	 	 	41	 
	 
	 	SECTION 6.1.	 	Authorization; Acceptance of Trusts and Duties	 	 	41	 
	 
	 	SECTION 6.2.	 	Absence of Duties	 	 	42	 
	 
	 	SECTION 6.3.	 	No Representations or Warranties as to Documents	 	 	42	 






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	 	 	 	 	 	 	Page	 
	 
	 
	 	SECTION 6.4.	 	No Segregation of Monies; No Interest	 	 	42	 
	 
	 	SECTION 6.5.	 	Reliance; Agents; Advice of Counsel	 	 	42	 
	 
	 	SECTION 6.6.	 	Capacity in Which Acting	 	 	43	 
	 
	 	SECTION 6.7.	 	Compensation	 	 	43	 
	 
	 	SECTION 6.8.	 	May Become Certificateholder	 	 	43	 
	 
	 	SECTION 6.9.	 	Subordination Agent Required; Eligibility	 	 	43	 
	 
	 	SECTION 6.10.	 	Money to Be Held in Trust	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII INDEMNIFICATION OF SUBORDINATION AGENT	 	 	44	 
	 
	 	SECTION 7.1.	 	Scope of Indemnification	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VIII SUCCESSOR SUBORDINATION AGENT	 	 	44	 
	 
	 	SECTION 8.1.	 	Replacement of Subordination Agent; Appointment of Successor	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IX SUPPLEMENTS AND AMENDMENTS	 	 	45	 
	 
	 	SECTION 9.1.	 	Amendments, Waivers, etc.	 	 	45	 
	 
	 	SECTION 9.2.	 	Subordination Agent Protected	 	 	49	 
	 
	 	SECTION 9.3.	 	Effect of Supplemental Agreements	 	 	49	 
	 
	 	SECTION 9.4.	 	Notice to Rating Agencies	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE X MISCELLANEOUS	 	 	49	 
	 
	 	SECTION 10.1.	 	Termination of Intercreditor Agreement	 	 	49	 
	 
	 	SECTION 10.2.	 	Intercreditor Agreement for Benefit of Trustees, Liquidity Provider and Subordination Agent	 	 	49	 
	 
	 	SECTION 10.3.	 	Notices	 	 	50	 
	 
	 	SECTION 10.4.	 	Severability	 	 	50	 
	 
	 	SECTION 10.5.	 	No Oral Modifications or Continuing Waivers	 	 	51	 
	 
	 	SECTION 10.6.	 	Successors and Assigns	 	 	51	 
	 
	 	SECTION 10.7.	 	Headings	 	 	51	 
	 
	 	SECTION 10.8.	 	Counterpart Form	 	 	51	 
	 
	 	SECTION 10.9.	 	Subordination	 	 	51	 
	 
	 	SECTION 10.10.	 	Governing Law	 	 	52	 
	 
	 	SECTION 10.11.	 	Submission to Jurisdiction; Waiver of Jury Trial; Waiver of Immunity	 	 	52	 






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INTERCREDITOR AGREEMENT




          INTERCREDITOR AGREEMENT dated as of October 3, 2007, among WILMINGTON TRUST COMPANY, a
Delaware corporation (“WTC”), not in its individual capacity but solely as Trustee of each
Trust (each as defined below); BNP PARIBAS, a societe anonym organized under the laws of France
acting through its New York branch, as Liquidity Provider (the “Liquidity Provider”); and
WILMINGTON TRUST COMPANY, not in its individual capacity except as expressly set forth herein, but
solely as Subordination Agent and trustee hereunder (in such capacity, together with any successor
appointed pursuant to Article VIII hereof, the “Subordination Agent”).




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




          WHEREAS, pursuant to the Indentures covering 16 Boeing 737-700 aircraft, owned by Southwest,
Southwest will issue on a recourse basis up to (and including) two series of Equipment Notes, the
proceeds of which are intended to be used for general corporate purposes;




          WHEREAS, pursuant to the Participation Agreements, each Trust will acquire Equipment Notes
having an interest rate equal to the interest rate applicable to the Certificates to be issued by
such Trust;




          WHEREAS, pursuant to each Trust Agreement, the Trust created thereby proposes to issue a
single class of Certificates (a “Class”) bearing the interest rate and having the final
distribution date described in such Trust Agreement on the terms and subject to the conditions set
forth therein;




          WHEREAS, pursuant to the Underwriting Agreement, the Underwriters propose to purchase the
Class A Certificates issued by the Class A Trust and the Class B Certificates issued by the Class B
Trust in the aggregate face amount set forth opposite the name of such Trust on Schedule I thereto
on the terms and subject to the conditions set forth therein;




          WHEREAS, the Liquidity Provider proposes to enter into a revolving credit agreement relating
to the Class A Certificates with the Subordination Agent, as agent for the Trustee of the Class A
Trust for the benefit of the Certificateholders of such Trust; and




          WHEREAS, it is a condition precedent to the obligations of the Underwriters under the
Underwriting Agreement that the Subordination Agent, the Trustees and the Liquidity Provider agree
to the terms of subordination set forth in this Agreement in respect of each Class of Certificates,
and the Subordination Agent, the Trustees and the Liquidity Provider, by entering into this
Agreement, hereby acknowledge and agree to such terms of subordination and the other provisions of
this Agreement.




          NOW, THEREFORE, in consideration of the mutual agreements herein contained, and for other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:




 









 








ARTICLE I




DEFINITIONS




          SECTION 1.1. Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:





     (1) the terms used herein that are defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;




     (2) all references in this Agreement to designated “Articles”, “Sections” and other
subdivisions are to the designated Articles, Sections and other subdivisions of this
Agreement;




     (3) the words “herein”, “hereof” and “hereunder” and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section or other
subdivision; and




     (4) the term “including” means “including without limitation”.



          “Acceleration” means, with respect to the amounts payable in respect of the Equipment
Notes issued under any Indenture, such amounts becoming immediately due and payable by declaration
or otherwise. “Accelerate”, “Accelerated” and “Accelerating” have meanings
correlative to the foregoing.




          “Actual Disposition Event” means, in respect of any Equipment Note: (i) the
disposition of the Collateral (as defined in the Indenture pursuant to which such Equipment Note
was issued) securing such Equipment Note, (ii) the occurrence of the mandatory redemption date for
such Equipment Note following an Event of Loss (as defined in such Indenture) with respect to the
Aircraft which secured such Equipment Note or (iii) the sale of such Equipment Note.




          “Additional Certificateholders” has the meaning specified in Section 9.1(d).




          “Additional Certificates” has the meaning specified in Section 9.1(d).




          “Additional Equipment Notes” has the meaning specified in Section 9.1(d).




          “Additional Trust” has the meaning specified in Section 9.1(d).




          “Additional Trust Agreement” has the meaning specified in Section 9.1(d).




          “Additional Trustee” has the meaning specified in Section 9.1(d).




          “Administration Expenses” has the meaning specified in clause “first” of Section 3.2.




          “Advance”, with respect to the Liquidity Facility, means any Advance as defined
thereunder.




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          “Affiliate” means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with such Person. For the purposes of this
definition, “control” means the power, directly or indirectly, to direct or cause the direction of
the management and policies of such Person whether through the ownership of voting securities or by
contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to
the foregoing.




          “Aircraft” means, with respect to each Indenture, the “Aircraft” referred to therein.




          “Appraisal” has the meaning specified in Section 4.1(a)(iv).




          “Appraised Current Market Value” of any Aircraft means the lower of the average and
the median of the three most recent Post-Default Appraisals of such Aircraft.




          “Appraisers” means Aircraft Information Services, Inc., BK Associates, Inc. and BACK
Aviation Solutions or, so long as the Person entitled or required hereunder to select such
Appraiser acts reasonably, any other nationally recognized appraiser reasonably satisfactory to the
Subordination Agent and the Controlling Party.




          “Available Amount” means, with respect to the Liquidity Facility on any date, the
Maximum Available Commitment (as defined therein) on such date.




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




          “Basic Agreement” means the Pass Through Trust Agreement dated as of July 1, 2005
between Southwest and WTC, not in its individual capacity, except as otherwise expressly provided
therein, but solely as trustee.




          “Business Day” means any day other than a Saturday or Sunday or a day on which
commercial banks are required or authorized to close in Dallas, Texas, New York, New York, or, so
long as any Certificate is outstanding, the city and state in which any Trustee, the Subordination
Agent or any Loan Trustee maintains its Corporate Trust Office and that, solely with respect to the
making and repayment of Advances under the Liquidity Facility, also is a “Business Day” as defined
therein.




          “Cash Collateral Account” means an Eligible Deposit Account in the name of the
Subordination Agent maintained at an Eligible Institution, which shall be the Subordination Agent
if it shall so qualify, into which all amounts drawn under the Liquidity Facility pursuant to
Section 3.5(c), 3.5(d), 3.5(i) or 3.5(k) shall be deposited.




          “Certificate” means a Class A Certificate or a Class B Certificate, as applicable.




          “Certificate Buy-Out Event” means that a Southwest Bankruptcy Event has occurred and
is continuing and the following events have occurred: (A) (i) the 60-Day Period has expired, and
(ii) Southwest has not entered into one or more agreements under Section 1110(a)(2)(A) of the
Bankruptcy Code to perform all of its obligations under all of the




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Indentures or, if it has entered
into such agreements, has at any time failed to cure any default under any of the Indentures in
accordance with Section 1110(a)(2)(B) of the Bankruptcy Code; or (B) if prior to the expiry of the
60-Day Period, Southwest shall have abandoned any Aircraft.




          “Certificateholder” means any holder of one or more Certificates.




          “Class” has the meaning assigned to such term in the preliminary statements to this
Agreement.




          “Class A Certificateholder” means, at any time, any holder of one or more Class A
Certificates.




          “Class A Certificates” means the certificates issued by the Class A Trust,
substantially in the form of Exhibit A to the Class A Trust Agreement, and authenticated by the
Class A Trustee, representing fractional undivided interests in the Class A Trust, and any
certificates issued in exchange therefor or replacement thereof pursuant to the terms of the Class
A Trust Agreement.




          “Class A Trust” means the Southwest Airlines Pass Through Trust 2007-1A created and
administered pursuant to the Class A Trust Agreement.




          “Class A Trust Agreement” means the Basic Agreement, as supplemented by the Supplement
No. 2007-1A thereto dated as of the date hereof, governing the creation and administration of the
Southwest Airlines Pass Through Trust 2007-1A and the issuance of the Class A Certificates, as the
same may be amended, supplemented or otherwise modified from time to time in accordance with its
terms.




          “Class A Trustee” means WTC, not in its individual capacity except as expressly set
forth in the Class A Trust Agreement, but solely as trustee under the Class A Trust Agreement,
together with any successor trustee appointed pursuant thereto.




          “Class B Adjusted Interest” means, as of any Current Distribution Date: (I) any
interest of the type described in clause (II) of this definition accruing prior to the immediately
preceding Distribution Date which remains unpaid and (II) interest at the Stated Interest Rate for
the Class B Certificates (A) for the number of days during the period commencing on, and including,
the immediately preceding Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the Closing Date) and ending on, but excluding the Current Distribution Date, on
the Preferred B Pool Balance on such Current Distribution Date and (B) on the principal amount
calculated pursuant to clauses (B)(i), (ii), (iii) and (iv) of the definition of Preferred B Pool
Balance for each Series B Equipment Note with respect to which a disposition, distribution, sale or
Deemed Disposition Event has occurred since the immediately preceding Distribution Date (but only
if no such event has previously occurred with respect to such Series B Equipment Note), for each
day during the period, for each such Series B Equipment Note, commencing on, and including, the
immediately preceding Distribution Date (or, if the Current
Distribution Date is the first Distribution Date, the Closing Date) and ending on, but
excluding the date of disposition, distribution, sale or Deemed Disposition Event with respect to
such Series B Equipment Note, Aircraft or Collateral, as the case may be.




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          ““Class B Certificateholder” means, at any time, any holder of one or more Class B
Certificates.




          “Class B Certificates” means the certificates issued by the Class B Trust,
substantially in the form of Exhibit A to the Class B Trust Agreement, and authenticated by the
Class B Trustee, representing fractional undivided interests in the Class B Trust, and any
certificates issued in exchange therefor or replacement thereof pursuant to the terms of the Class
B Trust Agreement.




          “Class B Trust” means the Southwest Airlines Pass Through Trust 2007-1B created and
administered pursuant to the Class B Trust Agreement.




          “Class B Trust Agreement” means the Basic Agreement, as supplemented by the Supplement
No. 2007-1B thereto dated as of the date hereof, governing the creation and administration of the
Southwest Airlines Pass Through Trust 2007-1B and the issuance of the Class B Certificates, as the
same may be amended, supplemented or otherwise modified from time to time in accordance with its
terms.




          “Class B Trustee” means WTC, not in its individual capacity except as expressly set
forth in the Class B Trust Agreement, but solely as trustee under the Class B Trust Agreement,
together with any successor trustee appointed pursuant thereto.




          “Closing Date” means October 3, 2007.




          “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the
Treasury Regulations promulgated thereunder.




          “Collateral” has the meaning specified in the Indentures.




          “Collection Account” means the Eligible Deposit Account established by the
Subordination Agent pursuant to Section 2.2(a)(i) which the Subordination Agent shall make deposits
in and withdrawals from in accordance with this Agreement.




          “Consent Period” has the meaning specified in Section 3.5(d).




          “Controlling Party” means the Person entitled to act as such pursuant to the terms of
Section 2.6.




          “Corporate Trust Office” means, with respect to any Trustee, the Subordination Agent
or any Loan Trustee, the office of such Person in the city at which, at any particular time, its
corporate trust business shall be principally administered.




          “Cross-Collateralization Period” has the meaning specified in Section 2.7(e).




          “Current Distribution Date” means a Distribution Date specified as a reference date
for calculating the Expected Distributions with respect to the Certificates of any Trust as of such
Distribution Date.




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          “Deemed Disposition Event” means, in respect of any Equipment Note, the continuation
of an Indenture Default in respect of such Equipment Note without an Actual Disposition Event
occurring in respect of such Equipment Note for a period of five years from the date of the
occurrence of such Indenture Default.




          “Designated Representatives” means the Subordination Agent Representatives, the
Trustee Representatives and the Provider Representatives identified under Section 2.5.




          “Distribution Date” means a Regular Distribution Date or a Special Distribution Date.




          “Dollars” or “$” means United States dollars.




          “Downgrade Drawing” has the meaning specified in Section 3.5(c).




          “Downgrade Event” with respect to the Liquidity Facility, has the meaning assigned to
such term therein.




          “Downgraded Facility” has the meaning specified in Section 3.5(c).




          “Drawing” means an Interest Drawing, a Final Drawing, a Non-Extension Drawing, a
Special Termination Drawing, or a Downgrade Drawing, as the case may be.




          “Eligible Deposit Account” means either (a) a segregated account with an Eligible
Institution or (b) a segregated trust account with the corporate trust department of a depository
institution organized under the laws of the United States of America or any one of the states
thereof or the District of Columbia (or any U.S. branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any of the securities
of such depository institution has a long-term unsecured debt rating of at least A3 from Moody’s
and a long-term issuer credit rating of at least A- from Standard & Poor’s. An Eligible Deposit
Account may be maintained with the Liquidity Provider so long as the Liquidity Provider is an
Eligible Institution; provided that such Liquidity Provider shall have waived all rights of
set-off and counterclaim with respect to such account.




          “Eligible Institution” means (a) the corporate trust department of the Subordination
Agent or any Trustee, as applicable, or (b) a depository institution organized under the laws of
the United States of America or any one of the states thereof or the District of Columbia (or any
U.S. branch of a foreign bank), which has a long-term unsecured debt rating or issuer credit
rating, as the case may be, from each Rating Agency of at least A-/A-3 or its equivalent.




          “Eligible Investments” means (a) investments in obligations of, or guaranteed by, the
United States government having maturities no later than 90 days following the date of such
investment, (b) investments in open market commercial paper of any corporation incorporated
under the laws of the United States of America or any state thereof with a short-term
unsecured debt rating issued by Moody’s of at least P-1 and a short-term issuer credit rating
issued by Standard & Poor’s of at least A-1 having maturities no later than 90 days following the
date of such investment or (c) investments in negotiable certificates of deposit, time deposits,
banker’s





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acceptances, commercial paper or other direct obligations of, or obligations guaranteed
by, commercial banks organized under the laws of the United States or of any political subdivision
thereof (or any U.S. branch of a foreign bank) with a short-term unsecured debt rating by Moody’s
of at least P-1 and a short-term issuer credit rating by Standard
& Poor’s of at least A-1,
having maturities no later than 90 days following the date of such investment; provided,
however, that (x) all Eligible Investments that are bank obligations shall be denominated
in U.S. dollars; and (y) the aggregate amount of Eligible Investments at any one time that are bank
obligations issued by any one bank shall not be in excess of 5% of such bank’s capital surplus;
provided further that any investment of the types described in clauses (a), (b) and
(c) above may be made through a repurchase agreement in commercially reasonable form with a bank or
other financial institution qualifying as an Eligible Institution so long as such investment is
held by a third party custodian also qualifying as an Eligible Institution; provided
further, however, that in the case of any Eligible Investment issued by a domestic
branch of a foreign bank, the income from such investment shall be from sources within the United
States for purposes of the Code. Notwithstanding the foregoing, no investment of the types
described in clause (b) above which is issued or guaranteed by Southwest or any of its Affiliates,
and no investment in the obligations of any one bank in excess of $10,000,000, shall be an Eligible
Investment unless a Ratings Confirmation shall have been received with respect to the making of
such investment.




          “Equipment Note Buy-Out Event” means the occurrence and continuation of (i) a
Certificate Buy-Out Event or (ii) an Indenture Default under any Indenture that has continued for a
period of five years without an Actual Disposition Event occurring with respect to the Equipment
Notes issued under such Indenture.




          “Equipment Note Special Payment” means a Special Payment on account of the redemption,
purchase or prepayment of all of the Equipment Notes.




          “Equipment Notes” means, at any time, the Series A Equipment Notes and the Series B
Equipment Notes, collectively, and in each case, any Equipment Notes issued in exchange therefor or
replacement thereof pursuant to the terms of the Indentures.




          “Excess Liquidity Obligations” means, with respect to an Indenture, the amounts
payable under clauses (i) through (vi) of the third paragraph of Section 2.02 of such Indenture.




          “Expected Distributions” means, with respect to the Certificates of any Trust on any
Current Distribution Date, the difference between (A) the Pool Balance of such Certificates as of
the immediately preceding Distribution Date (or, if the Current Distribution Date is the first
Distribution Date, the original aggregate face amount of Certificates of such Trust) and (B) the
Pool Balance of such Certificates as of the Current Distribution Date calculated on the basis that
(i) the principal of the Non-Performing Equipment Notes held in such Trust has been paid in full
and such payments have been distributed to the holders of such Certificates, (ii) the principal of
the Performing Equipment Notes held in such Trust has been paid when due (without giving effect to
any Acceleration of Performing Equipment Notes) and such payments have been
distributed to the holders of such Certificates and (iii) the principal of any Equipment Notes
formerly held in such Trust that have been sold pursuant to the terms hereof has been paid in full
and such payments have been distributed to the holders of such Certificates. For purposes of
calculating Expected Distributions with respect to the Certificates of any Trust, any Premium





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paid
on the Equipment Notes held in such Trust which has not been distributed to the Certificateholders
of such Trust (other than such Premium or a portion thereof applied to the payment of interest on
the Certificates of such Trust or the reduction of the Pool Balance of such Trust) shall be added
to the amount of such Expected Distributions.




          “Expiry Date” has the meaning set forth in the Liquidity Facility.




          “Facility Office” means the office of the Liquidity Provider, presently located at 787
Seventh Avenue, New York, NY 10019, or such other office as the Liquidity Provider from time to
time shall notify the Class A Trustee as its “Facility Office” under the Liquidity Facility;
provided that the Liquidity Provider shall not change its Facility Office to another
Facility Office outside the United States of America except in accordance with Section 3.01, 3.02
or 3.03 of the Liquidity Facility.




          “Fee Letters” means, collectively, (i) the Fee Letter dated as of the date hereof
between the Liquidity Provider, the Subordination Agent and Southwest with respect to the initial
Liquidity Facility and (ii) any fee letter entered into between the Subordination Agent and any
Replacement Liquidity Provider in respect of such Liquidity Facility.




          “Final Distributions” means, with respect to the Certificates of any Trust on any
Distribution Date, the sum of (x) the aggregate amount of all accrued and unpaid interest on such
Certificates and (y) the Pool Balance of such Certificates as of the immediately preceding
Distribution Date. For purposes of calculating Final Distributions with respect to the
Certificates of any Trust, any Premium paid on the Equipment Notes held in such Trust which has not
been distributed to the Certificateholders of such Trust (other than such Premium or a portion
thereof applied to the payment of interest on the Certificates of such Trust or the reduction of
the Pool Balance of such Trust) shall be added to the amount of such Final Distributions.




          “Final Drawing” has the meaning assigned to such term in Section 3.5(i).




          “Final Legal Distribution Date” means (i) with respect to the Class A Certificates
February 1, 2024, and (ii) with respect to the Class B Certificates, August 1, 2022.




          “Indenture” means, with respect to the Equipment Notes, each of the separate trust
indenture and mortgages described on Schedule I to this Agreement, in each case as the same may be
amended, supplemented or otherwise modified from time to time in accordance with its terms.




          “Indenture Default” means, with respect to any Indenture, any Event of Default (as
such term is defined in such Indenture) thereunder.




          “Interest Drawing” has the meaning specified in Section 3.5(a).




          “Interest Payment Date” means, with respect to the Liquidity Facility, each date on
which interest is due and payable thereunder on a Downgrade Drawing, Non-Extension Drawing, a
Special Termination Drawing or Final Drawing thereunder, other than any such date on which interest
is due and payable under such Liquidity Facility only on an Applied Provider





8









 







Advance or Applied
Special Termination Advance (as such terms are defined in such Liquidity Facility).




          “Investment Earnings” means investment earnings on funds on deposit in the Trust
Accounts net of losses and investment expenses of the Subordination Agent in making such
investments.




          “Junior Additional Certificateholder” has the meaning specified in Section 2.7(b).




          “Lien” means any mortgage, pledge, lien, charge, claim, disposition of title,
encumbrance, lease, sublease, sub-sublease or security interest of any kind, including, without
limitation, any thereof arising under any conditional sales or other title retention agreement.




          “Liquidity Event of Default” has the meaning assigned to such term in the Liquidity
Facility.




          “Liquidity Expenses” means all Liquidity Obligations other than (i) the principal
amount of any Drawings under the Liquidity Facility and (ii) any interest accrued on any Liquidity
Obligations.




          “Liquidity Facility” means, initially, the Revolving Credit Agreement dated as of the
date hereof, between the Subordination Agent, as agent and trustee for the Class A Trust, and the
initial Liquidity Provider, and from and after the replacement of such Revolving Credit Agreement
pursuant hereto, the Replacement Liquidity Facility therefor, if any, in each case as amended,
supplemented or otherwise modified from time to time in accordance with its terms.




          “Liquidity Obligations” means all principal, interest, fees and other amounts owing to
the Liquidity Provider under the Liquidity Facility, Section 8.1 of the Participation Agreements or
the Fee Letters.




          “Liquidity Provider” means BNP Paribas or, if applicable, any Replacement Liquidity
Provider which has issued a Replacement Liquidity Facility to replace the Liquidity Facility
pursuant to Section 3.5(e).




          “Loan Trustee” means, with respect to any Indenture, the mortgagee thereunder.




          “Minimum Sale Price” means, with respect to any Aircraft or the Equipment Notes issued
in respect of such Aircraft, at any time, the lesser of (1) in the case of the sale of an Aircraft,
75%, or in the case of the sale of related Equipment Notes, 85%, of the Appraised Current Market
Value of such Aircraft and (2) the sum of the aggregate Note Target Price of such Equipment Notes
and an amount equal to the Excess Liquidity Obligations in respect of the Indenture under which
such Equipment Notes were issued.




          “Moody’s” means Moody’s Investors Service, Inc.




          “Non-Controlling Party” means, at any time, any Trustee or Liquidity Provider which is
not the Controlling Party at such time.




9









 








          “Non-Extended Facility” has the meaning specified in Section 3.5(d).




          “Non-Extension Drawing” has the meaning specified in Section 3.5(d).




          “Non-Performing Equipment Note” means an Equipment Note that is not a Performing
Equipment Note.




          “Note Target Price” means, for any Equipment Note issued under any Indenture, (i) the
aggregate outstanding principal amount of such Equipment Note, plus (ii) the accrued and unpaid
interest thereon, together with all other sums owing on or in respect of such Equipment Note under
such Indenture (including, without limitation, enforcement costs incurred by the Subordination
Agent in respect of such Equipment Note).




          “Officer’s Certificate” of any Person means a certification signed by a Responsible
Officer of such Person.




          “Operative Agreements” means this Agreement, the Liquidity Facility, the Indentures,
the Trust Agreements, the Underwriting Agreement, the Participation Agreements, the Fee Letters,
the Equipment Notes and the Certificates, together with all exhibits and schedules included with
any of the foregoing.




          “Outstanding” means, when used with respect to each Class of Certificates, as of the
date of determination, all Certificates of such Class theretofore authenticated and delivered under
the related Trust Agreement, except:





     (i) Certificates of such Class theretofore canceled by the Registrar (as defined in
such Trust Agreement) or delivered to the Trustee thereunder or such Registrar for
cancellation;




     (ii) Certificates of such Class for which money in the full amount required to make the
final distribution with respect to such Certificates pursuant to Section 11.01 of such Trust
Agreement has been theretofore deposited with the related Trustee in trust for the holders
of such Certificates as provided in Section 4.01 of such Trust Agreement pending
distribution of such money to such Certificateholders pursuant to such final distribution
payment; and




     (iii) Certificates of such Class in exchange for or in lieu of which other Certificates
have been authenticated and delivered pursuant to such Trust Agreement;


provided, however, that in determining whether the holders of the requisite
Outstanding amount of such Certificates have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, any Certificates owned by Southwest or any of its Affiliates
shall be disregarded and deemed not to be Outstanding, except that, in determining whether such
Trustee shall be protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Certificates that such Trustee knows to be so owned shall be so
disregarded. Certificates so owned that have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the applicable Trustee the pledgee’s




10









 







right so to act with respect to such Certificates and that the pledgee is not Southwest or any of
its Affiliates.




          “Overdue Scheduled Payment” means any Scheduled Payment which is not in fact received
by the Subordination Agent within ten Business Days after the Scheduled Payment Date relating
thereto.




          “Participation Agreement” means, with respect to each Indenture, the “Participation
Agreement” referred to therein.




          “Payees” has the meaning specified in Section 2.4(c).




          “Performing Equipment Note” means an Equipment Note with respect to which no payment
default has occurred and is continuing (without giving effect to any Acceleration);
provided that in the event of a bankruptcy proceeding under the Bankruptcy Code in which
Southwest is a debtor any payment default existing during the 60-Day Period (or such longer period
as may apply under Section 1110(b) of the Bankruptcy Code or as may apply for the cure of such
payment default under Section 1110(a)(2)(B) of the Bankruptcy Code) shall not be taken into
consideration until the expiration of the applicable period.




          “Performing Note Deficiency” means any time that less than 65% of the then aggregate
outstanding principal amount of all Equipment Notes (other than any Additional Equipment Notes
issued under any Indenture) are Performing Equipment Notes.




          “Person” means any individual, corporation, partnership, joint venture, association,
limited liability company, joint-stock company, trust, trustee, unincorporated organization or
government or any agency or political subdivision thereof.




          “Pool Balance” means, with respect to each Trust or the Certificates issued by any
Trust, as of any date, (i) the original aggregate face amount of the Certificates of such Trust
less (ii) the aggregate amount of all payments made as of such date in respect of the
Certificates of such Trust other than payments made in respect of interest or Premium thereon or
reimbursement of any costs and expenses in connection therewith. The Pool Balance for each Trust
or for the Certificates issued by any Trust as of any Distribution Date shall be computed after
giving effect to any payment of principal of the Equipment Notes or payment with respect to other
Trust Property held in such Trust and the distribution thereof to be made on that date.




          “Post-Default Appraisal” has the meaning specified in Section 4.1(a)(iv).




          “Preferred B Pool Balance” means, as of any date, the excess of (A) the Pool Balance
of the Class B Certificates as of the immediately preceding Distribution Date (or, if such date is
on or before the first Distribution Date, the original aggregate face amount of the Class B
Certificates) (after giving effect to distributions made on such date) over (B) the sum of (i) the
outstanding principal amount of each Series B Equipment Note that remains unpaid as of such date
subsequent to the disposition of the Collateral under the Indenture pursuant to which such Series B
Equipment Note was issued and after giving effect to any distributions of the proceeds
of such disposition applied under such Indenture to the payment of each such Series B
Equipment Note, (ii) the outstanding principal amount of each Series B Equipment Note that




11









 







remains
unpaid as of such date subsequent to the scheduled date of mandatory redemption of such Series B
Equipment Note following an Event of Loss (as defined in such Indenture) with respect to the
Aircraft which secured such Series B Equipment Note and after giving effect to the distributions of
any proceeds in respect of such Event of Loss applied under such Indenture to the payment of each
such Series B Equipment Note, (iii) the excess, if any, of (x) the outstanding amount of principal
and interest as of the date of sale of each Series B Equipment Note previously sold over (y) the
purchase price received with respect to the sale of such Series B Equipment Note (net of any
applicable costs and expenses of sale) and (iv) the outstanding principal amount of any Series B
Equipment Note with respect to which a Deemed Disposition Event has occurred; provided,
however, that if more than one of the clauses (i), (ii), (iii) and (iv) is applicable to
any one Series B Equipment Note, only the amount determined pursuant to the clause that first
became applicable shall be counted with respect to such Series B Equipment Note.




          “Premium” means any “Make-Whole Amount” as such term is defined in any Indenture.




          “Proceeding” means any suit in equity, action at law or other judicial or
administrative proceeding.




          “Provider Incumbency Certificate” has the meaning specified in Section 2.5(c).




          “Provider Representatives” has the meaning specified in Section 2.5(c).




          “PTC Event of Default” means, with respect to each Trust Agreement, the failure to pay
within 10 Business Days of the due date thereof: (i) the outstanding Pool Balance of the applicable
Class of Certificates on the Final Legal Distribution Date for such Class or (ii) interest due on
such Certificates on any Distribution Date (unless, in the case of the Class A Trust Agreement, the
Subordination Agent shall have made an Interest Drawing or a withdrawal from the Cash Collateral
Account with respect thereto in an aggregate amount sufficient to pay such interest and shall have
distributed such amount to the Trustee entitled thereto).




          “Rating Agencies” means, collectively, at any time, each nationally recognized rating
agency which shall have been requested to rate the Certificates and which shall then be rating the
Certificates. The initial Rating Agencies will be Moody’s and Standard & Poor’s.




          “Ratings Confirmation” means, with respect to any action proposed to be taken, a
written confirmation from each of the Rating Agencies that such action would not result in (i) a
reduction of the rating for any Class of Certificates below the then current rating for such Class
of Certificates or (ii) a withdrawal or suspension of the rating of any Class of Certificates.




          “Refinancing Certificateholders” has the meaning specified in Section 9.1(c).




          “Refinancing Certificates” has the meaning specified in Section 9.1(c).




          “Refinancing Equipment Notes” has the meaning specified in Section 9.1(c).




          “Refinancing Trust Agreement” has the meaning specified in Section 9.1(c).





12









 








          “Refinancing Trust” has the meaning specified in Section 9.1(c).




          “Refinancing Trustee” has the meaning specified in Section 9.1(c).




          “Regular Distribution Dates” means each February 1 and August 1, commencing on
February 1, 2008; provided, however, that, if any such day shall not be a Business
Day, the related distribution shall be made on the next succeeding Business Day without additional
interest.




          “Replacement Liquidity Facility” means, for the Liquidity Facility, an irrevocable
revolving credit agreement (or agreements) in substantially the form of the replaced Liquidity
Facility, including reinstatement provisions, or in such other form (which may include a letter of
credit) as shall permit the Rating Agencies to confirm in writing their respective ratings then in
effect for the Class A Certificates (before downgrading of such ratings, if any, as a result of the
downgrading of the Liquidity Provider), in a face amount (or in an aggregate face amount) equal to
the then Required Amount and issued by a Person (or Persons) having a short-term rating or
short-term issuer credit rating, as the case may be, issued by both Rating Agencies which is equal
to or higher than the Threshold Rating. Without limitation of the form that a Replacement
Liquidity Facility otherwise may have pursuant to the preceding sentence, a Replacement Liquidity
Facility may have a stated expiration date earlier than 15 days after the Final Legal Distribution
Date of the Class A Certificates so long as such Replacement Liquidity Facility provides for a
Non-Extension Drawing as contemplated by Section 3.5(d) hereof.




          “Replacement Liquidity Provider” means a Person (or Persons) who issues a Replacement
Liquidity Facility.




          “Required Amount” means with respect to the Liquidity Facility or Cash Collateral
Account, for any day, the sum of the aggregate amount of interest, calculated at the rate per annum
equal to the Stated Interest Rate for the Class A Certificates, that would be payable on the Class
A Certificates on each of the three successive Regular Distribution Dates immediately following
such day or, if such day is a Regular Distribution Date, on such day and the succeeding two Regular
Distribution Dates, in each case calculated on the basis of the Pool Balance of the Class A
Certificates on such date and without regard to expected future payments of principal on such Class
of Certificates.




          “Responsible Officer” means (i) with respect to the Subordination Agent and each of
the Trustees, any officer in the corporate trust administration department of the Subordination
Agent or such Trustee or any other officer customarily performing functions similar to those
performed by the Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his knowledge of and familiarity with a particular
subject and (ii) with respect to the Liquidity Provider, any authorized officer of the Liquidity
Provider.




          “Scheduled Payment” means, with respect to any Equipment Note, (i) any payment of
principal or interest on such Equipment Note (other than an Overdue Scheduled Payment) due from the
obligor thereon, which payment represents the installment of principal at
the stated maturity of such installment of principal on such Equipment Note, the payment of





13









 







regularly scheduled interest accrued on the unpaid principal amount of such Equipment Note, or both
or (ii) any payment of interest on the corresponding Class of Certificates with funds drawn under
the Liquidity Facility or withdrawn from any Cash Collateral Account, which payment represents the
payment of regularly scheduled interest accrued on the unpaid principal amount of the related
Equipment Note; provided that any payment of principal of, Premium, if any, or interest
resulting from the redemption or purchase of any Equipment Note shall not constitute a Scheduled
Payment.




          “Scheduled Payment Date” means, with respect to any Scheduled Payment, the date on
which such Scheduled Payment is scheduled to be made.




          “Section 2.4 Fraction” means, with respect to any Special Distribution Date, a
fraction, the numerator of which shall be the amount of principal of the applicable Series A
Equipment Notes being redeemed, purchased or prepaid on such Special Distribution Date, and the
denominator of which shall be the aggregate unpaid principal amount of all Series A Equipment Notes
outstanding as of such Special Distribution Date.




          “Senior Additional Certificateholder” has the meaning specified in Section 2.7(b).




          “Senior Additional Equipment Notes” has the meaning specified in Section 2.7(b).




          “Series A Equipment Notes” means the Series A Equipment Notes issued pursuant to any
Indenture by Southwest and authenticated by the Loan Trustee thereunder, and any such Equipment
Notes issued in exchange therefor or replacement thereof pursuant to the terms of such Indenture.




          “Series B Equipment Notes” means the Series B Equipment Notes issued pursuant to any
Indenture by Southwest and authenticated by the Loan Trustee thereunder, and any such Equipment
Notes issued in exchange therefor or replacement thereof pursuant to the terms of such Indenture.




          “60-Day Period” means 60-day period specified in Section 1110(a)(2)(A) of the
Bankruptcy Code.




          “Southwest” means Southwest Airlines Co., a Texas corporation, and its successors and
assigns.




          “Southwest Bankruptcy Event” means the occurrence and continuation of any of the
following:





     (a) Southwest shall consent to the appointment of or the taking of possession by a
receiver, trustee or liquidator of itself or of a substantial part of its property, or
Southwest shall admit in writing its inability to pay its debts generally as they come due,
or shall make a general assignment for the benefit of its creditors, or Southwest shall file
a voluntary petition in bankruptcy or a voluntary petition or an answer seeking
reorganization, liquidation or other relief in a case under any bankruptcy laws or other
insolvency laws (as in effect at such time) or an answer admitting the material allegations
of a petition filed against Southwest in any such case, or Southwest shall seek relief by



14









 






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 Southwest shall seek an agreement, composition, extension or adjustment with
its creditors under such laws, or Southwest’s board of directors shall adopt a resolution
authorizing corporate action in furtherance of any of the foregoing; or




     (b) an order, judgment or decree shall be entered by any court of competent
jurisdiction appointing, without the consent of Southwest, a receiver, trustee or liquidator
of Southwest or of any substantial part of its property, or any substantial part of the
property of Southwest shall be sequestered, or granting any other relief in respect of
Southwest as a debtor under any bankruptcy laws or other insolvency laws (as in effect at
such time), and any such order, judgment or decree of appointment or sequestration shall
remain in force undismissed, unstayed and unvacated for a period of 90 days after the date
of entry thereof; or




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



          “Southwest Provisions” has the meaning specified in Section 9.1(a).




          “Special Distribution Date” means, with respect to any Special Payment, the date
chosen by the Subordination Agent pursuant to Section 2.4(a) for the distribution of such Special
Payment in accordance with this Agreement, whether distributed pursuant to Section 2.4 or Section
3.2 hereof.




          “Special Payment” means any payment (other than a Scheduled Payment) in respect of, or
any proceeds of, any Equipment Note or Collateral.




          “Special Payments Account” means the Eligible Deposit Account created pursuant to
Section 2.2(a)(ii) as a sub-account to the Collection Account.




          “Special Termination Drawing” has the meaning assigned to such term in Section 3.5(k).




          “Special Termination Notice” has the meaning assigned to such term in the Liquidity
Facility.




          “Standard & Poor’s” means Standard & Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc.




          “Stated Amount” means the Maximum Commitment (as defined in the Liquidity Facility) of
the Liquidity Provider thereunder.




15









 








          “Stated Expiration Date” has the meaning specified in Section 3.5(d).




          “Stated Interest Rate” means (i) with respect to the Class A Certificates, 6.15% per
annum and (ii) with respect to the Class B Certificates, 6.65% per annum.




          “Subordination Agent” has the meaning assigned to it in the preliminary statements to
this Agreement.




          “Subordination Agent Incumbency Certificate” has the meaning specified in Section
2.5(a).




          “Subordination Agent Representatives” has the meaning specified in Section 2.5(a).




          “Tax” and “Taxes” mean any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any similar kind (together with any and all interest, penalties,
loss, damage, liability, expense, additions to tax and additional amounts or costs incurred or
imposed with respect thereto) imposed or otherwise assessed by the United States of America or by
any state, local or foreign government (or any subdivision or agency thereof) or other taxing
authority, including, without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers’ compensation, unemployment compensation, or net
worth and similar charges; taxes or other charges in the nature of excise, withholding, ad valorem,
stamp, transfer, value added, taxes on goods and services, gains taxes, license, registration and
documentation fees, customs duties, tariffs, and similar charges.




          “Termination Notice” has the meaning assigned to such term in the Liquidity Facility.




          “Threshold Rating” means the short-term rating of P-1 by Moody’s and the short-term
issuer credit rating of A-1+ by Standard & Poor’s.




          “Treasury Regulations” means regulations, including proposed or temporary regulations,
promulgated under the Code. References herein to specific provisions of proposed or temporary
regulations shall include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.




          “Triggering Event” means (x) the occurrence of an Indenture Default under all of the
Indentures resulting in a PTC Event of Default with respect to the most senior Class of
Certificates then Outstanding, (y) the Acceleration of all of the outstanding Equipment Notes or
(z) the occurrence of a Southwest Bankruptcy Event.




          “Trust” means either the Class A Trust or the Class B Trust.




          “Trust Accounts” has the meaning specified in Section 2.2(a).




          “Trust Agreement” means either the Class A Trust Agreement or the Class B Trust
Agreement.




16









 








          “Trust Property” with respect to any Trust, has the meaning set forth in the Trust
Agreement for such Trust.




          “Trustee” means either the Class A Trustee or the Class B Trustee.




          “Trustee Incumbency Certificate” has the meaning specified in Section 2.5(b).




          “Trustee Representatives” has the meaning specified in Section 2.5(b).




          “Unapplied Provider Advance” has the meaning assigned to such term in the Liquidity
Facility.




          “Underwriters” means Morgan Stanley & Co. Incorporated, Citigroup Global Markets Inc.,
Comerica Securities, Inc., SG Americas Securities, LLC and UBS Securities LLC.




          “Underwriting Agreement” means the Underwriting Agreement dated September 19, 2007
among the Underwriters and Southwest, relating to the purchase of the Certificates by the
Underwriters, as the same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.




          “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 Subordination Agent or the 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 Subordination
Agent’s or the Trustee’s failing to deliver to the Company any certificate or document necessary to
establish that payments under this Agreement are exempt from withholding Tax).




          “Written Notice” means, from the Subordination Agent, any Trustee or the Liquidity
Provider, a written instrument executed by the Designated Representative of such Person. An
invoice delivered by the Liquidity Provider pursuant to Section 3.1 in accordance with its normal
invoicing procedures shall constitute Written Notice under such Section.




          “WTC” has the meaning assigned to such term in the recital of parties to this
Agreement.




ARTICLE II




TRUST ACCOUNTS; CONTROLLING PARTY




          SECTION 2.1. Agreement to Terms of Subordination; Payments from Monies Received Only.
(a) Each Trustee hereby acknowledges and agrees to the terms of subordination and distribution
set forth in this Agreement in respect of each Class of Certificates and agrees to enforce such
provisions and cause all payments in respect of the Equipment Notes held by the Subordination Agent
and the Liquidity Provider to be applied in accordance with the terms of this Agreement. In
addition, each Trustee hereby agrees to cause the Equipment Notes
purchased by the related Trust to be registered in the name of the Subordination Agent or its




17









 







nominee, as agent and trustee for such Trustee, to be held in trust by the Subordination Agent
solely for the purpose of facilitating the enforcement of the subordination and other provisions of
this Agreement.




          (b) Except as otherwise expressly provided in the next succeeding sentence of this Section
2.1, all payments to be made by the Subordination Agent hereunder shall be made only from amounts
received by it that constitute Scheduled Payments, Special Payments or payments under Section 8.1
of the Participation Agreements, and only to the extent that the Subordination Agent shall have
received sufficient income or proceeds therefrom to enable it to make such payments in accordance
with the terms hereof. Each of the Trustees and the Subordination Agent hereby agrees and, as
provided in each Trust Agreement, each Certificateholder, by its acceptance of a Certificate and
the Liquidity Provider, by entering into the Liquidity Facility, has agreed to look solely to such
amounts to the extent available for distribution to it as provided in this Agreement and that none
of the Trustees, Loan Trustees nor the Subordination Agent is personally liable to any of them for
any amounts payable or any liability under this Agreement, any Trust Agreement, the Liquidity
Facility or such Certificate, except (in the case of the Subordination Agent) as expressly provided
herein or (in the case of the Trustees) as expressly provided in each Trust Agreement or (in the
case of the Loan Trustees) as expressly provided in any Operative Agreement.




          SECTION 2.2. Trust Accounts. (a) Upon the execution of this Agreement, the
Subordination Agent shall establish and maintain in its name (i) the Collection Account as an
Eligible Deposit Account, bearing a designation clearly indicating that the funds deposited therein
are held in trust for the benefit of the Trustees, the Certificateholders and the Liquidity
Provider and (ii) as a sub-account in the Collection Account, the Special Payments Account as an
Eligible Deposit Account, bearing a designation clearly indicating that the funds deposited therein
are held in trust for the benefit of the Trustees, the Certificateholders and the Liquidity
Provider. The Subordination Agent shall establish and maintain the Cash Collateral Accounts
pursuant to and under the circumstances set forth in Section 3.5(f) hereof. Upon such
establishment and maintenance under Section 3.5(f) hereof, the Cash Collateral Accounts shall,
together with the Collection Account, constitute the “Trust Accounts” hereunder. Without
limiting the foregoing, all monies credited to the Trust Accounts shall be, and shall remain, the
property of the relevant Trust(s).




          (b) Funds on deposit in the Trust Accounts shall be invested and reinvested by the
Subordination Agent in Eligible Investments selected by the Subordination Agent if such investments
are reasonably available and have maturities no later than the earlier of (i) 90 days following the
date of such investment and (ii) the Business Day immediately preceding the Regular Distribution
Date or the date of the related distribution pursuant to Section 2.4 hereof, as the case may be,
next following the date of such investment; provided, however, that following the
making of a Downgrade Drawing, a Non-Extension Drawing or a Special Termination Drawing under the
Liquidity Facility, the Subordination Agent shall invest and reinvest such amounts in Eligible
Investments at the direction of Southwest (or, if and to the extent so specified to the
Subordination Agent by Southwest, the Liquidity Provider); provided further,
however, that, notwithstanding the foregoing proviso, following the making of a Downgrade
Drawing, a Non-Extension Drawing or a Special Termination Drawing under the initial Liquidity
Facility, the Subordination Agent shall invest and reinvest the amounts in the Cash Collateral





18









 







Account in Eligible Investments pursuant to the written instructions of the Liquidity Provider
funding such Drawing; provided further, however, that upon the occurrence
and during the continuation of a Triggering Event, the Subordination Agent shall invest and
reinvest such amounts in accordance with the written instructions of the Controlling Party. Unless
otherwise expressly provided in this Agreement (including, without limitation, with respect to
Investment Earnings on amounts on deposit in the Cash Collateral Account pursuant to Section 3.5(f)
hereof), any Investment Earnings shall be deposited in the Collection Account when received by the
Subordination Agent and shall be applied by the Subordination Agent in the same manner as the other
amounts on deposit in the Collection Account are to be applied and any losses shall be charged
against the principal amount invested, in each case net of the Subordination Agent’s reasonable
fees and expenses in making such investments. The Subordination Agent shall not be liable for any
loss resulting from any investment, reinvestment or liquidation required to be made under this
Agreement other than by reason of its willful misconduct or gross negligence (or, with respect to
the handling or transfer of funds, its own negligence). Eligible Investments and any other
investment required to be made hereunder shall be held to their maturities except that any such
investment may be sold (without regard to its maturity) by the Subordination Agent without
instructions whenever such sale is necessary to make a distribution required under this Agreement.
Uninvested funds held hereunder shall not earn or accrue interest.




          (c) The Subordination Agent shall possess all right, title and interest in all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof (including all income
thereon, except as otherwise expressly provided in Section 3.3(b) with respect to Investment
Earnings). The Trust Accounts shall be held in trust by the Subordination Agent under the sole
dominion and control of the Subordination Agent for the benefit of the Trustees, the
Certificateholders and the Liquidity Provider, as the case may be. If, at any time, any of the
Trust Accounts ceases to be an Eligible Deposit Account, the Subordination Agent shall within 10
Business Days (or such longer period, not to exceed 30 calendar days, for which a Ratings
Confirmation for each Class of Certificates shall have been obtained) establish a new Collection
Account, Special Payments Account or Cash Collateral Account, as the case may be, as an Eligible
Deposit Account and shall transfer any cash and/or any investments to such new Collection Account,
Special Payments Account or Cash Collateral Account, as the case may be. So long as WTC is an
Eligible Institution, the Trust Accounts shall be maintained with it as Eligible Deposit Accounts.




          SECTION 2.3. Deposits to the Collection Account and Special Payments Account. (a)
The Subordination Agent shall, upon receipt thereof, deposit in the Collection Account all
Scheduled Payments received by it (other than any Scheduled Payment which by the express terms
hereof is to be deposited to a Cash Collateral Account).




          (b) The Subordination Agent shall, on each date when one or more Special Payments are made to
the Subordination Agent as holder of the Equipment Notes, deposit in the Special Payments Account
the aggregate amount of such Special Payments.




          SECTION 2.4. Distributions of Special Payments. (a) Notice of Special Payment. Except as provided in Section 2.4(c) below, upon
receipt by the Subordination Agent, as registered holder of the Equipment Notes, of any notice of a
Special Payment (or, in the absence of any such notice, upon receipt by the Subordination Agent of
a Special Payment), the





19









 







Subordination Agent shall promptly give notice thereof to each Trustee and
the Liquidity Provider. The Subordination Agent shall promptly calculate the amount of the
redemption or purchase of Equipment Notes, the amount of any Overdue Scheduled Payment or the
proceeds of Equipment Notes or Collateral, as the case may be, comprising such Special Payment
under the applicable Indenture or Indentures and shall promptly send to each Trustee and the
Liqudiity Provider a Written Notice of such amount and the amount allocable to each Trust. Such
Written Notice shall also set the distribution date for such Special Payment (a “Special
Distribution Date”), which shall be the Business Day which immediately follows the later to
occur of (x) the 15th day after the date of such Written Notice and (y) the date the Subordination
Agent has received or expects to receive such Special Payment. Amounts on deposit in the Special
Payments Account shall be distributed in accordance with Sections 2.4(b) and 2.4(c) and Article III
hereof, as applicable.




          For the purposes of the application of any Equipment Note Special Payment distributed on a
Special Distribution Date in accordance with Section 3.2 hereof, so long as no Indenture Default
shall have occurred and be continuing under any Indenture:




          (i) the amount of accrued and unpaid Liquidity Expenses that are not yet due that are payable
pursuant to clause “second” thereof shall be multiplied by the Section 2.4 Fraction;




          (ii) clause “third” thereof shall be deemed to read as follows: “third, (i) the sum
of such amount as shall be required to pay accrued and unpaid interest then in arrears on all
Liquidity Obligations (at the rate, or in the amount, provided in the Liquidity Facility) plus an
amount equal to the amount of accrued and unpaid interest on the Liquidity Obligations not in
arrears multiplied by the Section 2.4 Fraction, and (ii) if a Special Termination Drawing has been
made under any Liquidity Facility and has not been converted into a Final Drawing, the outstanding
amount of such Special Termination Drawing, shall be distributed to the Liquidity Provider”;




          (iii) clause “seventh” thereof shall be deemed to read as follows: “seventh, such
amount as shall be required to pay accrued, due and unpaid interest at the Stated Interest Rate on
the outstanding Pool Balance of the Class A Certificates together with (without duplication)
accrued and unpaid interest at the Stated Interest Rate on the outstanding principal amount of the
Series A Equipment Notes held in the Class A Trust being redeemed, purchased or prepaid”;




          (iv) clause “eighth” thereof shall be deemed to read as follows: “eighth, such amount
as shall be required to pay any accrued, due and unpaid Class B Adjusted Interest to the holders of
the Class B Certificates”; and




          (v) clause “eleventh” thereof shall be deemed to read as follows: “eleventh, such
amount as shall be required to pay in full accrued, due and unpaid interest at the Stated Interest
Rate on the outstanding Pool Balance of the Class B Certificates which was not
previously paid pursuant to clause “eighth” above to the holders of the Class B Certificates
together with (without duplication) accrued and unpaid interest at the Stated Interest Rate on the




20









 







outstanding principal amount of the Series B Equipment Notes held in the Class B Trust and being
redeemed, purchased or prepaid”.




          (b) Investment of Amounts in Special Payments Account. Any amounts on deposit in the
Special Payments Account prior to the distribution thereof pursuant to Section 2.4 or 3.2 shall be
invested in accordance with Section 2.2(b). Investment Earnings on such investments shall be
distributed in accordance with Article III hereof.




          (c) Certain Payments. Except for amounts constituting Liquidity Obligations which
shall be distributed as provided in Section 3.2, the Subordination Agent will distribute promptly
upon receipt thereof (i) any indemnity payment or expense reimbursement received by it from
Southwest in respect of any Trustee or the Liquidity Provider (collectively, the “Payees”),
and (ii) any compensation received by it from Southwest under any Operative Agreement in respect of
any Payee, directly to the Payee entitled thereto.




          SECTION 2.5. Designated Representatives. (a) With the delivery of this Agreement,
the Subordination Agent shall furnish to the Liquidity Provider and each Trustee, and from time to
time thereafter may furnish to each Liquidity Provider and each Trustee, at the Subordination
Agent’s discretion, or upon the Liquidity Provider’s or any Trustee’s request (which request shall
not be made more than one time in any 12-month period), a certificate (a “Subordination Agent
Incumbency Certificate”) of a Responsible Officer of the Subordination Agent certifying as to
the incumbency and specimen signatures of the officers of the Subordination Agent and the
attorney-in-fact and agents of the Subordination Agent (the “Subordination Agent
Representatives”) authorized to give Written Notices on behalf of the Subordination Agent
hereunder. Until the Liquidity Provider and each Trustee receives a subsequent Subordination Agent
Incumbency Certificate, it shall be entitled to rely on the last Subordination Agent Incumbency
Certificate delivered to it hereunder.




          (b) With the delivery of this Agreement, each Trustee shall furnish to the Subordination
Agent, and from time to time thereafter may furnish to the Subordination Agent, at such Trustee’s
discretion, or upon the Subordination Agent’s request (which request shall not be made more than
one time in any 12-month period), a certificate (a “Trustee Incumbency Certificate”) of a
Responsible Officer of such Trustee certifying as to the incumbency and specimen signatures of the
officers of such Trustee and the attorney-in-fact and agents of such Trustee (the “Trustee
Representatives”) authorized to give Written Notices on behalf of such Trustee hereunder.
Until the Subordination Agent receives a subsequent Trustee Incumbency Certificate, it shall be
entitled to rely on the last Trustee Incumbency Certificate delivered to it hereunder.




          (c) With the delivery of this Agreement, the Liquidity Provider shall furnish to the
Subordination Agent, and from time to time thereafter may furnish to the Subordination Agent, at
the Liquidity Provider’s discretion, or upon the Subordination Agent’s request (which request shall
not be made more than one time in any 12-month period), a certificate (each, a “Provider
Incumbency Certificate”) of any Responsible Officer of the Liquidity Provider certifying as to
the incumbency and specimen signatures of any officer, attorney-in-fact, agent or
other designated representative of the Liquidity Provider (in each case, the “Provider
Representatives” and, together with the Subordination Agent Representatives and the Trustee




21









 







Representatives, the “Designated Representatives”) authorized to give Written Notices on
behalf of the Liquidity Provider hereunder. Until the Subordination Agent receives a subsequent
Provider Incumbency Certificate, it shall be entitled to rely on the last Provider Incumbency
Certificate delivered to it hereunder.




          SECTION 2.6. Controlling Party. (a) The Trustees and the Liquidity Provider hereby
agree that, with respect to any Indenture at any given time, the Loan Trustee thereunder will be
directed in taking, or refraining from taking, any action under such Indenture or with respect to
the Equipment Notes issued thereunder (i) so long as no Indenture Default has occurred and is
continuing thereunder, by the holders of at least a majority of the outstanding principal amount of
such Equipment Notes (provided that, for so long as the Subordination Agent is the registered
holder of the Equipment Notes, the Subordination Agent shall act with respect to this clause (i) in
accordance with the directions of the Trustees (in the case of each such Trustee, with respect to
the Equipment Notes issued under such Indenture and held as Trust Property of such Trust)
constituting, in the aggregate, directions with respect to at least a majority of outstanding
principal amount of Equipment Notes except as provided in Section 9.1(b)), and (ii) after the
occurrence and during the continuance of an Indenture Default thereunder, in taking, or refraining
from taking, any action under such Indenture or with respect to such Equipment Notes, including
exercising remedies thereunder (including Accelerating the Equipment Notes issued thereunder or
foreclosing the Lien on the Aircraft securing such Equipment Notes), by the Controlling Party
(except as otherwise provided in Section 2.6(d)).




          (b) The “Controlling Party” shall be (x) the Class A Trustee and (y) upon payment of Final
Distributions to the holders of Class A Certificates, the Class B Trustee. For purposes of giving
effect to the provisions of Section 2.6(a) and this Section 2.6(b), the Trustees (other than the
Controlling Party) irrevocably agree (and the Certificateholders (other than the Certificateholders
represented by the Controlling Party) shall be deemed to agree by virtue of their purchase of
Certificates) that the Subordination Agent, as record holder of the Equipment Notes, shall exercise
its voting rights in respect of the Equipment Notes so held by the Subordination Agent as directed
by the Controlling Party and any vote so exercised shall be binding upon the Trustees and all
Certificateholders.




          The Subordination Agent shall give Written Notice to all of the other parties to this
Agreement promptly upon a change in the identity of the Controlling Party. Each of the parties
hereto agrees that it shall not exercise any of the rights of the Controlling Party at such time as
it is not the Controlling Party hereunder; provided, however, that nothing herein
contained shall prevent or prohibit any Non-Controlling Party from exercising such rights as shall
be specifically granted to such Non-Controlling Party hereunder and under the other Operative
Agreements.




          (c) Notwithstanding the foregoing provisions of clauses (a) and (b) above, at any time after
18 months from the earliest to occur of (i) the date on which the entire Available Amount as of
such date under the Liquidity Facility shall have been drawn (excluding a Downgrade Drawing, a
Non-Extension Drawing or a Special Termination Drawing but including
a Final Drawing or a Downgrade Drawing, a Non-Extension Drawing or a Special Termination
Drawing that has been converted to a Final Drawing under the Liquidity Facility) and remain
unreimbursed, (ii) the date on which the portion of any Downgrade Drawing, Non-Extension





22









 







Drawing or
a Special Termination Drawing equal to the amount on deposit in the Cash Collateral Account up to
the Required Amount as of such date under the Liquidity Facility shall have become and remain
“Applied Downgrade Advances” or “Applied Non-Extension Advances” or “Applied Special Termination
Advances”, as the case may be, under and as defined in the Liquidity Facility and (iii) the date on
which all Equipment Notes under all Indentures shall have been Accelerated (provided that
in the event of a bankruptcy proceeding under the Bankruptcy Code in which Southwest is a debtor,
any amounts payable in respect of Equipment Notes which have become immediately due and payable by
declaration or otherwise shall not be considered Accelerated for purposes of this sub-clause (iii)
until the expiration of the 60-day period under Section 1110(a)(2)(A) of the Bankruptcy Code or
such longer period as may apply under Section 1110(a)(2)(B) or Section 1110(b) of the Bankruptcy
Code), the Liquidity Provider (so long as the Liquidity Provider has not defaulted in its
obligation to make any Drawing under the Liquidity Facility) shall have the right to elect, by
Written Notice to the Subordination Agent and each of the Trustees, to become the Controlling Party
hereunder at any time from and including the last day of such 18-month period.




          (d) Notwithstanding the foregoing provisions of clauses (a) through (c) above, if any holders
of the Class B Certificates or Additional Certificates exercise their right under Section 2.7
hereof to purchase Equipment Notes issued under any Indenture, the holders of the majority in
aggregate unpaid principal amount of all the Equipment Notes issued under such Indenture, instead
of the Controlling Party, shall be entitled to direct the relevant Loan Trustee in taking, or
refraining from taking, any action under such Indenture or with respect to such Equipment Notes,
including exercising remedies thereunder (including Accelerating the Equipment Notes issued
thereunder or foreclosing the Lien on the Aircraft securing such Equipment Notes) (it being
understood and agreed that any Equipment Notes that continue to be held by the Subordination Agent
shall be voted in accordance with clause (a) above).




          (e) The exercise of remedies by the Controlling Party under this Agreement shall be expressly
limited by Sections 4.1(a)(ii) and 4.1(a)(iii) hereof.




          (f) The Controlling Party shall not be entitled to require or obligate any Non-Controlling
Party to provide funds necessary to exercise any right or remedy hereunder.




          SECTION 2.7. Equipment Note Buy-Out Rights. (a) If an Equipment Note Buy-Out Event
has occurred and is continuing, then, with respect to the Indentures referred to below in this
clause (a), any Class B Certificateholder may, upon 15 days’ prior written notice to the
Subordination Agent, each Trustee (and each such Trustee shall promptly provide such notice to all
Certificateholders of its Trust) and each applicable Loan Trustee given on or before the date which
is six months after the occurrence of the applicable Equipment Note Buy-Out Event, purchase on the
third Business Day next following the expiry of such 15-day notice period all, but not less than
all, of the Series A Equipment Notes issued under any one or more of the Indentures for a purchase
price equal to the sum of the aggregate Note Target Price for such Series A Equipment Notes plus an
amount equal to the Excess Liquidity Obligations in respect of such Indentures. If prior to the
end of such 15-day period, any other holder of the Class B Certificates notifies the Subordination
Agent, each Trustee (and each such Trustee shall promptly notify all Certificateholders of its
Trust, including the purchasing Class B Certificateholder) and each applicable Loan Trustee that it
wishes to participate in such purchase,





23









 







then such other Certificateholder may join with the
purchasing Certificateholder to purchase such Series A Equipment Notes pro rata based on the
interest in the Class B Trust held by each such Certificateholder compared to such interests held
by all such participating Certificateholders.




               (b) If an Equipment Note Buy-Out Event has occurred and is continuing, then regardless of
whether any Class B Certificateholder (or, if applicable, any Senior Additional Certificateholder
(as defined below)) has elected to exercise its right to purchase Equipment Notes under this
Section 2.7 (and so long as, with respect to the Indentures referred to in this clause (b), no
Junior Additional Certificateholder (as defined below) has elected to exercise its right to
purchase Equipment Notes issued under such Indentures pursuant to this Section 2.7), any Additional
Certificateholder may, upon 15 days’ prior written notice to the Subordination Agent, each Trustee
(and each such Trustee shall promptly provide such notice to all Certificateholders of the
applicable Trust) and each applicable Loan Trustee given on or before the date which is six months
after the occurrence of the applicable Equipment Note Buy-Out Event, purchase on the third Business
Day next following the expiry of such 15-day notice period all, but not less than all, of the
Series A Equipment Notes and the Series B Equipment Notes (and, if applicable, any Senior
Additional Equipment Notes (as defined below)) issued under any one or more Indentures for a
purchase price equal to the sum of the aggregate Note Target Price for such Series A Equipment
Notes, and Series B Equipment Notes (and, if applicable, any Senior Additional Equipment Notes)
plus an amount equal to the Excess Liquidity Obligations in respect of such Indentures. If prior
to the end of such 15-day period, any other holder of such class of Additional Certificates
notifies the Subordination Agent, each Trustee (and each such Trustee shall promptly notify all
Certificateholders of the applicable Trust, including the purchasing Additional Certificateholder)
and each applicable Loan Trustee that it wishes to participate in such purchase, then such other
Certificateholder may join with the purchasing Certificateholder to purchase such Series A
Equipment Notes and Series B Equipment Notes (and, if applicable, any Senior Additional Equipment
Notes) pro rata based on the interest in the applicable Trust held by each such Certificateholder
compared to such interests held by all such participating Certificateholders.



          “Junior Additional Certificateholder” means, with respect to any Additional
Certificateholder exercising its right to purchase Equipment Notes under this Section 2.7(b), any
holder of any class (or classes) of Additional Certificates that rank junior, in priority of
payment under this Agreement, to the class of Additional Certificates held by such Additional
Certificateholder.




          “Senior Additional Certificateholder” means, with respect to any Additional
Certificateholder exercising its right to purchase Equipment Notes under this Section 2.7(b), any
holder of any class (or classes) of Additional Certificates that rank senior, in priority of
payment under this Agreement, to the class of Additional Certificates held by such Additional
Certificateholder.




          “Senior Additional Equipment Notes” means, with respect to any Additional
Certificateholder exercising its right, under this Section 2.7(b), to purchase Equipment Notes
issued under any Indenture, any series of Additional Equipment Notes that rank senior, in priority
of payment under such Indenture, to the series of Additional Equipment Notes corresponding to the
class of Additional Certificates held by such Additional Certificateholder.




24









 








          (c) On the date of any purchase by the Class B Certificateholders or any Additional
Certificateholders, as applicable, of Equipment Notes issued under any Indenture, the purchasing
Certificateholders shall pay to the Subordination Agent in immediately available funds the
aggregate purchase price of all of the Equipment Notes being purchased as specified in this Section
2.7. The proceeds received by the Subordination Agent pursuant to this clause (d) shall be
promptly applied by the Subordination Agent in accordance with the first paragraph of Section
2.4(a) and Section 3.2 hereof.




          (d) From and after the purchase of any Equipment Notes pursuant to this Section 2.7, any
proceeds received or payments made with respect to such purchased Equipment Notes shall be paid
directly to the holders of such Equipment Notes in accordance with the related Indentures pro rata
and shall not be subject to application under Article III hereof. Any proceeds received or
payments made with respect to any Equipment Notes under the related Indenture not purchased
pursuant to this Section 2.7 shall continue to be paid to the Subordination Agent and shall be
applied in accordance with Article III hereof.




          (e) Notwithstanding the purchase of any Equipment Notes under any Indenture pursuant to this
Section 2.7, the provisions of the Granting Clause, Section 2.06, Article III and Section 11.01 and
the definitions of “Related Additional Series Equipment Note”, “Related Equipment Note”, “Related
Event of Default”, “Related Indenture Indemnitee”, “Related Indentures”, “Related Mortgagee”,
“Related Note Holder”, “Related Operative Agreements”, “Related Participation Agreement”, “Related
Payment Default”, “Related Secured Obligations”, “Related Secured Parties”, “Related Series A
Equipment Note”, “Related Series B Equipment Note”, and “Related Special Default” (the
“Cross-Collateralization Provisions”) of such Indenture shall remain unchanged and in full
force and effect, and may not be amended, modified or otherwise waived in any manner without the
prior written consent of the Subordination Agent acting on the instructions of each Trustee. As a
condition precedent to any purchase of Equipment Notes under this Section 2.7, each purchasing
Certificateholder shall confirm in writing to the Subordination Agent that such purchasing
Certificateholder acknowledges, consents and agrees to the provisions of this Section 2.7(e) and
shall not take any action in contravention thereof or otherwise amend, modify or waive the
Cross-Collateralization Provisions of such Indenture, and further acknowledges, consents and agrees
to the restrictions set forth in Sections 4.1(a)(ii) and 4.1(a)(iii) hereof.




          (f) In the event that Southwest or any of its Affiliates is an owner of a Class B Certificate
(or an Additional Certificate), it shall not have any right, as a Class B Certificateholder (or an
Additional Certificateholder), as applicable, to purchase any Equipment Notes under this Section
2.7.




          (g) In connection with the purchase of Equipment Notes pursuant to this Section 2.7, upon the
payment by any Certificateholder of the applicable Excess Liquidity
Obligations and that portion of Note Target Price constituting enforcement costs incurred by
the Subordination Agent, such Certificateholder, as the holder of such Equipment Notes, shall be
subrogated to the right of the Subordination Agent to receive payment of such amounts in respect of
such Equipment Notes under the applicable Indenture.




25









 








          (h) The right of any Certificateholder to purchase Equipment Notes pursuant to this Section
2.7 shall be subject to such purchase being exempt from, or not subject to, the registration
requirements of the Securities Act of 1933, as amended, and in compliance with other applicable
state or foreign securities laws. Each purchaser shall be required to provide to the Subordination
Agent reasonably satisfactory evidence of compliance with such laws.




          (i) Any Taxes incurred by the applicable Loan Trustee, the Subordination Agent or the
applicable Trustee in connection with the sale of any Equipment Note pursuant to the exercise by
one or more Certificateholders of the right to purchase Equipment Notes pursuant to this Section
2.7 shall be paid by such purchasing Certificateholders, on a pro rata basis.




ARTICLE III




RECEIPT, DISTRIBUTION AND APPLICATION

OF AMOUNTS RECEIVED




          SECTION 3.1. Written Notice of Distribution. (a) No later than 3:00 P.M. (New York
City time) on the Business Day immediately preceding each Distribution Date, each of the following
Persons shall deliver to the Subordination Agent a Written Notice setting forth the following
information as at the close of business on such Business Day:





     (i) With respect to the Class A Certificates, the Class A Trustee shall separately set
forth the amounts to be paid in accordance with clause “first” (to reimburse payments made
by such Trustee or the Class A Certificateholders, as the case may be, pursuant to subclause
(ii) or (iv) of clause “first”), subclauses (ii) and (iii) of clause “sixth” of Section 3.2
hereof and clauses “seventh” and “tenth” of Section 3.2 hereof;




     (ii) With respect to the Class B Certificates, the Class B Trustee shall separately set
forth the amounts to be paid in accordance with clause “first” (to reimburse payments made
by such Trustee or the Class B Certificateholders, as the case may be, pursuant to subclause
(ii) or (iv) of clause “first”), subclauses (ii) and (iii) of clause “sixth” of Section 3.2
hereof and clauses “eighth”, “eleventh” and “twelfth” of Section 3.2 hereof;




     (iii) With respect to the Liquidity Facility, the Liquidity Provider shall separately
set forth the amounts to be paid to it in accordance with subclauses (iii) and (iv) of
clause “first” of Section 3.2 hereof, clause “second” of Section 3.2 hereof, clause “third”
of Section 3.2 hereof, clause “fourth” of Section 3.2 hereof and clause “fifth” of Section
3.2 hereof; and




     (iv) Each Trustee shall set forth the amounts to be paid in accordance with clause
“sixth” of Section 3.2 hereof.



          (b) At such time as a Trustee or the Liquidity Provider shall have received all amounts owing
to it (and, in the case of a Trustee, the Certificateholders for which it is acting) pursuant to
Section 3.2 hereof and, in the case of the Liquidity Provider, its commitment or





26









 







obligations under
the Liquidity Facility shall have terminated or expired, such Person shall, by a Written Notice, so
inform the Subordination Agent and each other party to this Agreement.




          (c) As provided in Section 6.5 hereof, the Subordination Agent shall be fully protected in
relying on any of the information set forth in a Written Notice provided by any Trustee, the
Liquidity Provider pursuant to paragraphs (a) and (b) above and shall have no independent
obligation to verify, calculate or recalculate any amount set forth in any Written Notice delivered
in accordance with such paragraphs.




          (d) Any Written Notice delivered by the Trustee, the Liquidity Provider or the Subordination
Agent, as applicable, pursuant to Section 3.1(b) hereof, if made prior to 10:00 A.M. (New York City
time) on any Business Day, shall be effective on the date delivered (or if delivered later on a
Business Day or if delivered on a day which is not a Business Day shall be effective as of the next
Business Day). Subject to the terms of this Agreement, the Subordination Agent shall as promptly
as practicable comply with any such instructions; provided, however, that any
transfer of funds pursuant to any instruction received after 10:00 A.M. (New York City time) on any
Business Day may be made on the next succeeding Business Day.




          (e) In the event the Subordination Agent shall not receive from any Person any information set
forth in paragraph (a) above which is required to enable the Subordination Agent to make a
distribution to such Person pursuant to Section 3.2 hereof, the Subordination Agent shall request
such information and, failing to receive any such information, the Subordination Agent shall not
make such distribution(s) to such Person. In such event, the Subordination Agent shall make
distributions pursuant to clauses “first” through “fourteenth” of Section 3.2 to the extent it
shall have sufficient information to enable it to make such distributions, and shall continue to
hold any funds remaining, after making such distributions, until the Subordination Agent shall
receive all necessary information to enable it to distribute any funds so withheld.




          (f) On such dates (but not more frequently than monthly) as the Liquidity Provider or any
Trustee shall request, but in any event automatically at the end of each calendar quarter, the
Subordination Agent shall send to such party a written statement reflecting all amounts on deposit
with the Subordination Agent pursuant to Section 3.1(e) hereof.




          The notices required under this Section 3.1 may be in the form of a schedule or similar
document provided to the Subordination Agent by the parties referenced therein or by any one of
them, which schedule or similar document may state that, unless there has been a prepayment of the
Certificates, such schedule or similar document is to remain in effect until any substitute notice
or amendment shall be given to the Subordination Agent by the party providing such notice.




27









 








          SECTION 3.2. Distribution of Amounts on Deposit in the Collection Account. Except as
otherwise provided in Sections 2.4, 3.1(e), 3.3, 3.5(b) and 3.5(k), amounts on deposit in the
Collection Account (including amounts on deposit in the Special Payments Account) shall be promptly
distributed on each Regular Distribution Date (or, in the case of any amount described in Section
2.4(a), on the Special Distribution Date thereof) in the following order of priority and in
accordance with the information provided to the Subordination Agent pursuant to Section 3.1(a)
hereof:





     first, such amount as shall be required to reimburse (i) the Subordination
Agent for any reasonable out-of-pocket costs and expenses actually incurred by it (to the
extent not previously reimbursed) or reasonably expected to be incurred by it for the period
ending on the next succeeding Regular Distribution Date (which shall not exceed $150,000
unless approved in writing by the Controlling Party) in the protection of, or the
realization of the value of, the Equipment Notes or any Collateral, shall be applied by the
Subordination Agent in reimbursement of such costs and expenses, (ii) any Trustee for any
amounts of the nature described in clause (i) above actually incurred by it under the
applicable Trust Agreement (to the extent not previously reimbursed), shall be distributed
to such Trustee, (iii) the Liquidity Provider for any amounts of the nature described in
clause (i) above actually incurred by it (to the extent not previously reimbursed), shall be
distributed to the Liquidity Provider, and (iv) the Liquidity Provider or any
Certificateholder for payments, if any, made by it to the Subordination Agent or any Trustee
in respect of amounts described in clause (i) above actually incurred by it (to the extent
not previously reimbursed) (collectively, the “Administration Expenses”), shall be
distributed to the Liquidity Provider, Certificateholder or the applicable Trustee for the
account of such Certificateholder, in each such case, pro rata on the basis of all amounts
described in clauses (i) through (iv) above;




     second, such amount as shall be required to pay all accrued and unpaid
Liquidity Expenses owed to the Liquidity Provider shall be distributed to the Liquidity
Provider;




     third, (i) such amount as shall be required to pay the aggregate amount of
accrued and unpaid interest on all Liquidity Obligations (at the rate, or in the amount,
provided in the Liquidity Facility) and (ii) if a Special Termination Drawing has been made
under the Liquidity Facility and has not been converted into a Final Drawing, the
outstanding amount of such Special Termination Drawing shall be distributed to the Liquidity
Provider;




     fourth, such amount as shall be required (A) if any Cash Collateral Account had
been previously funded as provided in Section 3.5(f), unless (i) a Performing Note
Deficiency exists and a Liquidity Event of Default shall have occurred and be continuing
with respect to the Liquidity Facility or (ii) a Final Drawing shall have occurred with
respect to the Liquidity Facility, to fund such Cash Collateral Account up to its Required
Amount shall be deposited in such Cash Collateral Account, (B) if the Liquidity Facility
shall become a Downgraded Facility or a Non-Extended Facility at a time when unreimbursed
Interest Drawings under the Liquidity Facility have reduced the Available Amount thereunder
to zero, unless (i) a Performing Note Deficiency exists and a Liquidity Event of Default
shall have occurred and be continuing with respect to the



28









 






Liquidity Facility or (ii) a Final Drawing shall have occurred with respect to the
Liquidity Facility, to deposit into the related Cash Collateral Account an amount equal to
such Cash Collateral Account’s Required Amount shall be deposited in such Cash Collateral
Account, and (C) if, with respect to the Liquidity Facility, neither subclause (A) nor
subclause (B) of this clause “fourth” is applicable, to pay or reimburse the Liquidity
Provider in an amount equal to the amount of all Liquidity Obligations then due under such
Liquidity Facility (other than amounts payable pursuant to clause “second” or “third” of
this Section 3.2), pro rata on the basis of the amounts of all such deficiencies and/or
unreimbursed Liquidity Obligations of the Liquidity Provider;




     fifth, if, with respect to the Liquidity Facility, any amounts are to be
distributed pursuant to either subclause (A) or (B) of clause “fourth” above, then the
Liquidity Provider shall be paid the excess of (x) the aggregate outstanding amount of
unreimbursed Advances (whether or not then due) under the Liquidity Facility over (y) the
Required Amount;




     sixth, such amount as shall be required to reimburse or pay (i) the
Subordination Agent for any Tax (other than Unindemnified Taxes), expense, fee, charge or
other loss incurred by or any other amount payable to the Subordination Agent in connection
with the transactions contemplated hereby (to the extent not previously reimbursed), shall
be applied by the Subordination Agent in reimbursement of such amount, (ii) each Trustee for
any Tax (other than Unindemnified Taxes), expense, fee, charge, loss or any other amount
payable to such Trustee under the applicable Trust Agreements (to the extent not previously
reimbursed), shall be distributed to such Trustee, and (iii) each Certificateholder for
payments, if any, made by it pursuant to Section 5.2 hereof in respect of amounts described
in clause (i) above, shall be distributed to the applicable Trustee for the account of such
Certificateholder, in each such case, pro rata on the basis of all amounts described in
clauses (i) through (iii) above;




     seventh, such amount as shall be required to pay in full accrued and unpaid
interest at the Stated Interest Rate on the Pool Balance of the Class A Certificates shall
be distributed to the Class A Trustee;




     eighth, such amount as shall be required to pay unpaid Class B Adjusted
Interest to the holders of the Class B Certificates;




     ninth, [Reserved];




     tenth, such amount as shall be required to pay in full Expected Distributions
to the holders of the Class A Certificates on such Distribution Date shall be distributed to
the Class A Trustee;




     eleventh, such amount as shall be required to pay in full accrued and unpaid
interest at the Stated Interest Rate on the Pool Balance of the Class B Certificates which
was not previously paid pursuant to clause “eighth” above to the holders of the Class B
Certificates;



29









 






     twelfth, such amount as shall be required to pay in full Expected Distributions
to the holders of the Class B Certificates on such Distribution Date shall be distributed to
the Class B Trustee; and




     thirteenth, the balance, if any, of any such amount remaining thereafter shall
be held in the Collection Account for later distribution in accordance with this Article
III.



          With respect to clauses “first” and “sixth” above, no amounts shall be reimbursable to the
Subordination Agent, any Trustee, the Liquidity Provider or any Certificateholder for any payments
made by any such Person in connection with any Equipment Note that is no longer held by the
Subordination Agent (to the extent that such payments relate to periods after such Equipment Note
ceases to be held by the Subordination Agent).




          SECTION 3.3. Other Payments. (a) Any payments received by the Subordination Agent
for which no provision as to the application thereof is made in this Agreement shall be distributed
by the Subordination Agent (i) in the order of priority specified in Section 3.2 hereof and (ii) to
the extent received or realized at any time after the Final Distributions for each Class of
Certificates have been made, in the manner provided in clause “first” of Section 3.2 hereof.




          (b) Notwithstanding the priority of payments specified in Section 3.2, in the event any
Investment Earnings on amounts on deposit in any Cash Collateral Account resulting from an
Unapplied Provider Advance are deposited in the Collection Account or the Special Payments Account,
such Investment Earnings shall be used to pay interest payable in respect of such Unapplied
Provider Advance to the extent of such Investment Earnings.




          (c) If the Subordination Agent receives any Scheduled Payment after the Scheduled Payment Date
relating thereto, but prior to such payment becoming an Overdue Scheduled Payment, then the
Subordination Agent shall deposit such Scheduled Payment in the Collection Account and promptly
distribute such Scheduled Payment in accordance with the priority of distributions set forth in
Section 3.2 hereof; provided that, for the purposes of this Section 3.3(c) only, each
reference in clause “tenth” or “twelfth” of Section 3.2 to “Distribution Date” shall be deemed to
refer to such Scheduled Payment Date.




          (d) Payments in respect of Liquidity Obligations under Section 3.2 shall be without
duplication of any indemnity payment, expense reimbursement or compensation previously paid to the
applicable Liquidity Provider under Section 2.4(c).




          SECTION 3.4. Payments to the Trustees and the Liquidity Provider. Any amounts
distributed hereunder to the Liquidity Provider shall be paid to the Liquidity Provider by wire
transfer of funds to the address the Liquidity Provider shall provide to the Subordination Agent.
The Subordination Agent shall provide a Written Notice of any such transfer to the Liquidity
Provider at the time of such transfer. Any amounts distributed hereunder by the Subordination
Agent to any Trustee which shall not be the same institution as the Subordination Agent shall be
paid to such Trustee by wire transfer funds at the address such Trustee shall provide to the
Subordination Agent.





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          SECTION 3.5. Liquidity Facility. (a) Interest Drawings. If on any Distribution Date, after giving effect to the
subordination provisions of this Agreement, the Subordination Agent shall not have sufficient funds
for the payment of any amounts due and owing in respect of accrued interest on the Class A
Certificates (at the Stated Interest Rate for such Class of Certificates) then, prior to 12:30 p.m.
(New York City time) on such Distribution Date, (i) the Subordination Agent shall request a drawing
(each such drawing, an “Interest Drawing”) under the Liquidity Facility in an amount equal
to the lesser of (x) an amount sufficient to pay the amount of such accrued interest (at the
applicable Stated Interest Rate for such Class of Certificates) and (y) the Available Amount, and
shall pay such amount to the Trustee with respect to such Class of Certificates in payment of such
accrued interest.




          (b) Application of Interest Drawings. Notwithstanding anything to the contrary
contained in this Agreement, all payments received by the Subordination Agent in respect of an
Interest Drawing under the Liquidity Facility and all amounts withdrawn by the Subordination Agent
from the Cash Collateral Account, and payable in each case to the Class A Certificateholders or the
Class A Trustee, shall be promptly distributed to the Class A Trustee.




          (c) Downgrade Drawings. (i) With respect to the Liquidity Facility, a Downgrade
Drawing shall be requested by the Subordination Agent thereunder as provided in Section
3.5(c)(iii), if at any time a Downgrade Event shall have occurred (a “Downgraded
Facility”), unless the Liquidity Provider or Southwest arranges for a Replacement Liquidity
Provider as provided in Section 3.5(c)(ii) with respect to the Liquidity Facility.




               (ii) If at any time the Liquidity Facility becomes a Downgraded Facility, the Subordination
Agent shall request a Downgrade Drawing thereunder in accordance with Section 3.5(c)(iii), unless
the Liquidity Provider or Southwest arranges for a Replacement Liquidity Provider to issue and
deliver a Replacement Liquidity Facility to the Subordination Agent within 10 days (or 45 days if
Standard & Poor’s downgrades the Liquidity Provider’s ratings from A-1+ to A-1) after receiving
notice of a Downgrade Event (but not later than the expiration date of such Downgraded Facility).



               (iii) Upon the occurrence of any Downgrade Event, unless a Replacement Liquidity Facility is
arranged as provided in Section 3.5(c)(ii), the Subordination Agent shall, on the 10th (or the
45th, as the case may be) day referred to in Section 3.5(c)(ii) (or if such 10th day or
45th day, as the case may be, is not a Business Day, on the next succeeding Business
Day) (or, if earlier, the expiration date of such Downgraded Facility), request a drawing in
accordance with and to the extent permitted by such Downgraded Facility (such drawing, a
“Downgrade Drawing”) of the Available Amount thereunder. Amounts drawn pursuant to a
Downgrade Drawing shall be maintained and invested as provided in Section 3.5(f) hereof. The
Liquidity Provider may also arrange for a Replacement Liquidity Provider to issue and deliver a
Replacement Liquidity Facility at any time after such Downgrade Drawing so long as such Downgrade
Drawing has not been reimbursed in full to the Liquidity Provider.



          (d) Non-Extension Drawings. If the Liquidity Facility is scheduled to expire on a
date (the “Stated Expiration Date”) prior to the date that is 15 days after the Final Legal
Distribution Date for the Class A Certificates, then, no earlier than the 60th day and no later
than the 40th day prior to the then Stated Expiration Date, the Subordination Agent shall request
that




31









 







the Liquidity Provider extend the Stated Expiration Date until the earlier of (i) the date
which is 15 days after such Final Legal Distribution Date and (ii) the date that is the day
immediately preceding the 364th day occurring after the last day of the applicable
Consent Period (as hereinafter defined) (unless the obligations of the Liquidity Provider are
earlier terminated in accordance with the Liquidity Facility). Whether or not the Liquidity
Provider has received a request from the Subordination Agent, the Liquidity Provider shall advise
the Subordination Agent, no earlier than the 40th day (or, if earlier, the date of the
Liquidity Provider’s receipt of such request, if any, from the Subordination Agent) and no later
than the 25th day prior to the Stated Expiration Date then in effect for the Liquidity
Facility (such period, the “Consent Period”), whether, in its sole discretion, it agrees to
extend such Stated Expiration Date. If (A) on or before the date on which such Consent Period
ends, the Liquidity Facility shall not have been replaced in accordance with Section 3.5(e) and (B)
the Liquidity Provider fails irrevocably and unconditionally to advise the Subordination Agent on
or before the date on which such Consent Period ends that such Stated Expiration Date then in
effect shall be so extended for the Liquidity Facility, the Subordination Agent shall, on the date
on which such Consent Period ends (or as soon as possible thereafter), in accordance with the terms
of the Liquidity Facility (a “Non-Extended Facility”), request a drawing under the
Liquidity Facility (such drawing, a “Non-Extension Drawing”) of all available and undrawn
amounts thereunder. Amounts drawn pursuant to a Non-Extension Drawing shall be maintained and
invested in accordance with Section 3.5(f) hereof.




          (e) Issuance of Replacement Liquidity Facility. (i) At any time, Southwest may, at
its option, with cause or without cause, arrange for a Replacement Liquidity Facility to replace
the Liquidity Facility (including any Replacement Liquidity Facility provided pursuant to Section
3.5(e)(ii) hereof); provided, however, that the initial Liquidity Provider for the
Liquidity Facility shall not be replaced by Southwest as a Liquidity Provider with respect to such
Liquidity Facility prior to the third anniversary of the Closing Date unless (A) there shall have
become due to such initial Liquidity Provider, or such initial Liquidity Provider shall have
demanded, amounts pursuant to Section 3.01, 3.02 or 3.03 of the Liquidity Facility and the
replacement of such initial Liquidity Provider would reduce or eliminate the obligation to pay such
amounts or Southwest determines in good faith that there is a substantial likelihood that such
initial Liquidity Provider will have the right to claim any such amounts (unless such initial
Liquidity Provider waives, in writing, any right it may have to claim such amounts), which
determination shall be set forth in a certificate delivered by Southwest to such initial Liquidity
Provider setting forth the basis for such determination and accompanied by an opinion of outside
counsel selected by Southwest and reasonably acceptable to such initial Liquidity Provider
verifying the legal conclusions, if any, of such certificate relating to such basis,
provided that, in the case of any likely claim for such amounts based upon any proposed, or
proposed change in, law, rule, regulation, interpretation, directive, requirement, request or
administrative practice, such opinion may assume the adoption or promulgation of such proposed
matter, (B) it shall become unlawful or impossible for such initial Liquidity Provider (or its
Facility Office) to maintain or fund its LIBOR Advances as described in Section 3.10 of the
Liquidity Facility, (C) the Liquidity Facility of such initial Liquidity Provider shall become a
Downgraded Facility or a Non-Extended Facility or a Downgrade Drawing or a Non-Extension Drawing
shall have occurred under the Liquidity Facility of such initial Liquidity Provider or (D) such
initial Liquidity Provider shall have breached any of its payment (including, without limitation,
funding) obligations under the Liquidity Facility in respect of which it is the Liquidity Provider.
If such




32









 







Replacement Liquidity Facility is provided at any time after a Downgrade Drawing, a
Non-Extension Drawing or a Special Termination Drawing has been made, all funds on deposit in the
relevant Cash Collateral Account will be returned to the Liquidity Provider being replaced.




               (ii) If the Liquidity Provider shall determine not to extend the Liquidity Facility in
accordance with Section 3.5(d), then the Liquidity Provider may, at its option, arrange for a
Replacement Liquidity Facility to replace the Liquidity Facility during the period no earlier than
40 days and no later than 25 days prior to the then effective Stated Expiration Date of such
Liquidity Facility. At any time after a Non-Extension Drawing has been made under the Liquidity
Facility, the Liquidity Provider may, at its option, arrange for a Replacement Liquidity Facility
to replace the Liquidity Facility under which such Non-Extension Drawing has been made.



               (iii) No Replacement Liquidity Facility arranged by Southwest or a Liquidity Provider in
accordance with clause (i) or (ii) above or pursuant to Section 3.5(c), respectively, shall become
effective and no such Replacement Liquidity Facility shall be deemed a “Liquidity Facility” under
the Operative Agreements, unless and until (A) each of the conditions referred to in sub-clauses
(iv)(x) and (z) below shall have been satisfied, (B) if such Replacement Liquidity Facility shall
materially adversely affect the rights, remedies, interests or obligations of the Class A
Certificateholders under any of the Operative Agreements, the applicable Trustee shall have
consented, in writing, to the execution and issuance of such Replacement Liquidity Facility and (C)
in the case of a Replacement Liquidity Facility arranged by the Liquidity Provider under Section
3.5(e)(ii) or pursuant to Section 3.5(c), such Replacement Liquidity Facility is acceptable to
Southwest.



               (iv) In connection with the issuance of any Replacement Liquidity Facility, the Subordination
Agent shall (x) prior to the issuance of such Replacement Liquidity Facility, obtain written
confirmation from each Rating Agency that such Replacement Liquidity Facility will not cause a
reduction of any rating then in effect for the Class A Certificates by such Rating Agency (without
regard to any downgrading of any rating of any Liquidity Provider being replaced pursuant to
Section 3.5(c) hereof), (y) pay all Liquidity Obligations then owing to the replaced Liquidity
Provider (which payment shall be made first from available funds in the applicable Cash Collateral
Account as described in clause (v) of Section 3.5(f) hereof, and thereafter from any other
available source, including, without limitation, a drawing under the Replacement Liquidity
Facility) and (z) cause the issuer of the Replacement Liquidity Facility to deliver the Replacement
Liquidity Facility to the Subordination Agent, together with a legal opinion opining that such
Replacement Liquidity Facility is an enforceable obligation of such Replacement Liquidity Provider.



               (v) Upon satisfaction of the conditions set forth in clauses (iii) and (iv) of this Section
3.5(e) with respect to a Replacement Liquidity Facility, (w) the replaced Liquidity Facility shall
terminate, (x) the Subordination Agent shall, if and to the extent so requested by Southwest or the
Liquidity Provider being replaced, execute and deliver any certificate or other instrument required
in order to terminate the replaced Liquidity Facility, shall surrender the replaced Liquidity
Facility to the Liquidity Provider being replaced and shall execute and deliver the Replacement
Liquidity Facility and any associated Fee Letters, (y) each of the parties hereto shall enter into
any amendments to this Agreement necessary to give effect to (1) the



33









 




replacement of the applicable Liquidity Provider with the applicable Replacement Liquidity
Provider and (2) the replacement of the applicable Liquidity Facility with the applicable
Replacement Liquidity Facility and (z) the applicable Replacement Liquidity Provider shall be
deemed to be a Liquidity Provider with the rights and obligations of a Liquidity Provider hereunder
and under the other Operative Agreements and such Replacement Liquidity Facility shall be deemed to
be a Liquidity Facility hereunder and under the other Operative Agreements.




          (f) Cash Collateral Account; Withdrawals; Investments. In the event the Subordination
Agent shall draw all available amounts under the Liquidity Facility, pursuant to Section 3.5(c),
3.5(d), 3.5(i) or 3.5(k) hereof, or in the event amounts are to be deposited in the Cash Collateral
Account pursuant to subclause (A) or (B) of clause “fourth” of Section 3.2, amounts so drawn or to
be deposited, as the case may be, shall be deposited by the Subordination Agent in the Cash
Collateral Account. All amounts on deposit in the Cash Collateral Account shall be invested and
reinvested in Eligible Investments in accordance with Section 2.2(b) hereof.




          On each Interest Payment Date (or, in the case of any Special Distribution Date with respect
to the distribution of a Special Payment, on such Special Distribution Date), Investment Earnings
on amounts on deposit in the Cash Collateral Account (or, in the case of any Special Distribution
Date with respect to the distribution of a Special Payment, so long as no Indenture Default shall
have occurred and be continuing under any Indenture, such Investment Earnings multiplied by the
Section 2.4 Fraction) shall be deposited in the Collection Account (or, in the case of any Special
Distribution Date with respect to the distribution of a Special Payment, the Special Payments
Account) and applied on such Interest Payment Date (or Special Distribution Date, as the case may
be) in accordance with Section 3.2 or 3.3 (as applicable). The Subordination Agent shall deliver a
written statement to Southwest and the Liquidity Provider one day prior to each Interest Payment
Date and Special Distribution Date setting forth the aggregate amount of Investment Earnings held
in the Cash Collateral Account as of such date. In addition, from and after the date funds are so
deposited, the Subordination Agent shall make withdrawals from such account as follows:





     (i) on each Distribution Date, the Subordination Agent shall, to the extent it shall
not have received funds to pay accrued and unpaid interest due and owing on the Class A
Certificates (at the applicable Stated Interest Rate for the Class A Certificates) after
giving effect to the subordination provisions of this Agreement, withdraw from the Cash
Collateral Account, and pay to the Class A Trustee, an amount equal to the lesser of (x) an
amount necessary to pay accrued and unpaid interest (at the applicable Stated Interest Rate
for the Class A Certificates) on such Class A Certificates and (y) the amount on deposit in
the Cash Collateral Account;




     (ii) [Reserved];




     (iii) on each date on which the Pool Balance of the Class A Trust shall have been
reduced by payments made to the Class A Certificateholders pursuant to Section 3.2 hereof,
the Subordination Agent shall withdraw from the Cash Collateral Account such amount as is
necessary so that, after giving effect to the reduction of the Pool Balance on such date
(and any reduction in the amounts on deposit in the Cash Collateral Account



34









 






resulting from a prior withdrawal of amounts on deposit in the Cash Collateral Account
on such date) and any transfer of Investment Earnings from the Cash Collateral Account to
the Collection Account or the Special Payments Account on such date, an amount equal to the
sum of the Required Amount plus (if on a Distribution Date not coinciding with an Interest
Payment Date) Investment Earnings on deposit in the Cash Collateral Account (after giving
effect to any such transfer of Investment Earnings) will be on deposit in the Cash
Collateral Account and shall first, pay such withdrawn amount to the Liquidity Provider
until the Liquidity Obligations owing to the Liquidity Provider shall have been paid in
full, and second, deposit any remaining withdrawn amount in the Collection Account;




     (iv) [Reserved];




     (v) if a Replacement Liquidity Facility shall be delivered to the Subordination Agent
following the date on which funds have been deposited into the Cash Collateral Account, the
Subordination Agent shall withdraw all amounts on deposit in such Cash Collateral Account
and shall pay such amounts to the replaced Liquidity Provider until all Liquidity
Obligations owed to such Person shall have been paid in full, and shall deposit any
remaining amount in the Collection Account; and




     (vi) following the payment of Final Distributions with respect to the Class A
Certificates, on the date on which the Subordination Agent shall have been notified by the
Liquidity Provider that the Liquidity Obligations owed to the Liquidity Provider have been
paid in full, the Subordination Agent shall withdraw all amounts on deposit in the Cash
Collateral Account and shall deposit such amount in the Collection Account.



          (g) Reinstatement. With respect to any Interest Drawing under the Liquidity Facility,
upon the reimbursement of the Liquidity Provider for all or any part of the amount of such Interest
Drawing, together with any accrued interest thereon, the Available Amount of the Liquidity Facility
shall be reinstated by an amount equal to the amount of such Interest Drawing so reimbursed but not
to exceed the Stated Amount for the Liquidity Facility; provided, however, that the
Liquidity Facility shall not be so reinstated in part or in full at any time if (x) both a
Performing Note Deficiency exists and a Liquidity Event of Default shall have occurred and be
continuing with respect to the Liquidity Facility or (y) a Final Drawing, a Non-Extension Drawing,
a Downgrade Drawing or a Special Termination Drawing shall have occurred with respect to the
Liquidity Facility or an Interest Drawing shall have been converted into a Final Drawing. In the
event that, with respect to the Liquidity Facility, (i) funds are withdrawn from the Cash
Collateral Account pursuant to clause (i) or (ii) of Section 3.5(f) hereof or (ii) the Liquidity
Facility shall become a Downgraded Facility or a Non-Extended Facility at a time when unreimbursed
Interest Drawings under the Liquidity Facility have reduced the Available Amount thereunder to
zero, then funds received by the Subordination Agent at any time other than (x) any time when a
Liquidity Event of Default shall have occurred and be continuing and a Performing Note Deficiency
exists or (y) any time after a Final Drawing shall have occurred with respect to the Liquidity
Facility or an Interest Drawing shall have been converted into a Final Drawing, shall be deposited
in the Cash Collateral Account as and to the extent provided in clause “fourth” of Section 3.2 and
applied in accordance with Section 3.5(f) hereof.




35









 








          (h) Reimbursement. The amount of each drawing under the Liquidity Facility shall be
due and payable, together with interest thereon, on the dates and at the rates, respectively,
provided in the Liquidity Facility.




          (i) Final Drawing. Upon receipt from the Liquidity Provider of the Termination Notice
with respect to the Liquidity Facility, the Subordination Agent shall, not later than the date
specified in such Termination Notice, in accordance with the terms of the Liquidity Facility,
request a drawing under the Liquidity Facility of all available and undrawn amounts thereunder (a
“Final Drawing”). Amounts drawn pursuant to a Final Drawing shall be maintained and
invested in accordance with Section 3.5(f) hereof.




          (j) Adjustments of Stated Amount. Promptly following each date on which the Required
Amount of the Liquidity Facility is reduced as a result of a reduction in the Pool Balance with
respect to the Class A Certificates or otherwise, the Stated Amount of the Liquidity Facility shall
automatically be adjusted to an amount equal to the Required Amount with respect to the Liquidity
Facility (as calculated by the Subordination Agent after giving effect to such payment).




          (k) Special Termination Drawing. Upon receipt from any Liquidity Provider of the
Special Termination Notice with respect to the Liquidity Facility, the Subordination Agent shall,
not later than the date specified in the Special Termination Notice, in accordance with the terms
of the Liquidity Facility, request a drawing under such Liquidity Facility of all available and
undrawn amounts thereunder (a “Special Termination Drawing”). Amounts drawn pursuant to a
Special Termination Drawing shall be maintained and invested in accordance with Section 3.5(f)
hereof.




          (l) Relation to Subordination Provisions. Interest Drawings under the Liquidity
Facility and withdrawals from the Cash Collateral Account will be distributed to the Trustee for
the Class A Certificates, notwithstanding Section 3.2 hereof.




          (m) Assignment of Liquidity Facility. The Subordination Agent agrees not to consent
to the assignment by the Liquidity Provider of any of its rights or obligations under the Liquidity
Facility or any interest therein, unless (i) Southwest shall have consented to such assignment and
(ii) each Rating Agency shall have provided a Ratings Confirmation in respect of such assignment;
provided, that the Subordination Agent shall consent to such assignment if the conditions
in the foregoing clauses (i) and (ii) are satisfied, and the foregoing is not intended to and shall
not be construed to limit the rights of the initial Liquidity Provider under Section 3.5(c) or
3.5(e)(ii).




ARTICLE IV




EXERCISE OF REMEDIES




          SECTION 4.1. Directions from the Controlling Party. (a) (i) Following the
occurrence and during the continuation of an Indenture Default under any Indenture, the Controlling
Party (except as otherwise provided in Section 2.6(d)) shall direct the Subordination Agent, as the
holder of Equipment Notes issued under such Indenture, which in turn shall direct




36









 







the Loan Trustee under such Indenture, in the exercise
of remedies available to the holder of such Equipment Notes, including, without limitation, the
ability to vote all such Equipment Notes held by the Subordination Agent in favor of Accelerating
such Equipment Notes in accordance with the provisions of such Indenture. If the Equipment Notes
issued pursuant to any Indenture and held by the Subordination Agent have been Accelerated
following an Indenture Default with respect thereto, the Controlling Party may direct the
Subordination Agent to sell, assign, contract to sell or otherwise dispose of and deliver all (but
not less than all) of such Equipment Notes to any Person at public or private sale, at any location
at the option of the Controlling Party, all upon such terms and conditions as it may reasonably
deem advisable in accordance with applicable law.




          (ii) Following the occurrence and during the continuation of an Indenture Default under any
Indenture, in the exercise of remedies pursuant to such Indenture, the Loan Trustee under such
Indenture may be directed to lease the related Aircraft to any Person (including Southwest) so long
as the Loan Trustee in doing so acts in a “commercially reasonable” manner within the meaning of
Article 9 of the Uniform Commercial Code as in effect in any applicable jurisdiction (including
Sections 9-610 and 9-627 thereof).




          (iii) Notwithstanding the foregoing, so long as any Certificates remain Outstanding, during
the period ending on the date which is nine months after the earlier of (x) the Acceleration of the
Equipment Notes issued pursuant to any Indenture and (y) the occurrence of a Southwest Bankruptcy
Event, without the consent of each Trustee, no Aircraft subject to the Lien of such Indenture or
such Equipment Notes may be sold if the net proceeds from such sale would be less than the Minimum
Sale Price for such Aircraft or such Equipment Notes.




          (iv) Upon the occurrence and continuation of an Indenture Default under any Indenture, the
Subordination Agent will obtain three desktop appraisals from the Appraisers selected by the
Controlling Party setting forth the current market value, current lease rate and distressed value
(in each case, as defined by the International Society of Transport Aircraft Trading or any
successor organization) of the Aircraft subject to such Indenture (each such appraisal, an
“Appraisal” and the current market value appraisals being referred to herein as the
“Post-Default Appraisals”). For so long as any Indenture Default shall be continuing under
any Indenture, and without limiting the right of the Controlling Party to request more frequent
Appraisals, the Subordination Agent will obtain updated Appraisals on the date that is 364 days
from the date of the most recent Appraisal (or if a Southwest Bankruptcy Event shall have occurred
and is continuing, on the date that is 180 days from the date of the most recent Appraisal).




          (b) Following the occurrence and during the continuance of an Indenture Default under any
Indenture, the Controlling Party shall take such actions as it may reasonably deem most effectual
to complete the sale or other disposition of the relevant Aircraft or Equipment Notes. In
addition, in lieu of any sale, assignment, contract to sell or other disposition, the Controlling
Party may maintain or cause the Subordination Agent to maintain possession of such Equipment Notes
and continue to apply monies received in respect of such Equipment Notes in accordance with Article
III hereof. In addition, in lieu of such sale, assignment, contract to sell or other disposition,
or in lieu of such maintenance of possession, the Controlling Party may, subject to the terms and
conditions of the related Indenture, instruct the




37









 







Loan Trustee under such Indenture to foreclose on the Lien on the related Aircraft or to take
any other remedial action permitted under such Indenture or under any applicable law.




          (c) If following a Southwest Bankruptcy Event and during the pendency thereof, the Controlling
Party receives a proposal from or on behalf of Southwest to restructure the financing of any one or
more of the Aircraft, the Controlling Party shall promptly thereafter give the Subordination Agent
and each Trustee notice of the material economic terms and conditions of such restructuring
proposal whereupon the Subordination Agent acting on behalf of each Trustee shall endeavor using
reasonable commercial efforts to make such terms and conditions of such restructuring proposal
available to all Certificateholders (whether by posting on DTC’s Internet board or otherwise) and
the Liquidity Provider. Thereafter, neither the Subordination Agent nor any Trustee, whether
acting on instructions of the Controlling Party or otherwise, may, without the consent of each
other Trustee and the Liquidity Provider, enter into any term sheet, stipulation or other agreement
(whether in the form of an adequate protection stipulation, an extension under Section 1110(b) of
the Bankruptcy Code or otherwise) to effect any such restructuring proposal with or on behalf of
Southwest unless and until the material economic terms and conditions of such restructuring shall
have been made available to all Certificateholders and the Liquidity Provider for a period of not
less than 15 calendar days (except that such requirement shall not apply to any such term sheet,
stipulation or other agreement that is entered into on or prior to the expiry of the 60-Day Period
and that is effective for a period not longer than three months from the expiry of the 60-Day
Period). In the event that any Certificateholder gives irrevocable notice of the exercise of (i)
its right to purchase any Equipment Notes pursuant to Section 2.7 hereof or (ii) its right to
purchase all (but not less than all) of the Class of Certificates represented by the then
Controlling Party pursuant to the applicable Trust Agreement, in either case, prior to the expiry
of the 15-day notice period specified above, such Controlling Party may not direct the
Subordination Agent or any Trustee to enter into (i) in the case of such purchase of Equipment
Notes, any such restructuring proposal with respect to the Aircraft related to such Equipment
Notes, or (ii) in the case of such purchase of Certificates, any such restructuring proposal with
respect to any of the Aircraft, in either case, unless and until such Certificateholder shall fail
to purchase such Equipment Notes or Class of Certificates, as applicable, on the date that it is
required to make such purchase.




          SECTION 4.2. Remedies Cumulative. Each and every right, power and remedy given to
the Trustees, the Liquidity Provider, the Controlling Party or the Subordination Agent specifically
or otherwise in this Agreement shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein given or otherwise
existing may, subject always to the terms and conditions hereof, be exercised from time to time and
as often and in such order as may be deemed expedient by any Trustee, any Liquidity Provider, the
Controlling Party or the Subordination Agent, as appropriate, and the exercise or the beginning of
the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise
at the same time or thereafter any other right, power or remedy. No delay or omission by any
Trustee, any Liquidity Provider, the Controlling Party or the Subordination Agent in the exercise
of any right, remedy or power or in the pursuit of any remedy shall impair any such right, power or
remedy or be construed to be a waiver of any default or to be an acquiescence therein.




38









 








          SECTION 4.3. Discontinuance of Proceedings. In case any party to this Agreement
(including the Controlling Party in such capacity) shall have instituted any Proceeding to enforce
any right, power or remedy under this Agreement by foreclosure, entry or otherwise, and such
Proceeding shall have been discontinued or abandoned for any reason or shall have been determined
adversely to the Person instituting such Proceeding, then and in every such case each such party
shall, subject to any determination in such Proceeding, be restored to its former position and
rights hereunder, and all rights, remedies and powers of such party shall continue as if no such
Proceeding had been instituted.




          SECTION 4.4. Right of Certificateholders and the Liquidity Provider to Receive Payments
Not to Be Impaired. Anything in this Agreement to the contrary notwithstanding, the right of
any Certificateholder (subject to the applicable Trust Agreement) or the Liquidity Provider,
respectively, to receive payments hereunder (including without limitation pursuant to Section 3.2
hereof) when due, or to institute suit for the enforcement of any such payment on or after the
applicable Distribution Date, shall not be impaired or affected without the consent of such
Certificateholder or the Liquidity Provider, respectively.




          SECTION 4.5. Undertaking for Costs. In any Proceeding for the enforcement of any
right or remedy under this Agreement or in any Proceeding against any Controlling Party or the
Subordination Agent for any action taken or omitted by it as Controlling Party or Subordination
Agent, as the case may be, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the claims or defenses made
by the party litigant. The provisions of this Section do not apply to a suit instituted by the
Subordination Agent, the Liquidity Provider or a Trustee or a suit by Certificateholders holding
more than 10% of the original principal amount of any Class of Certificates.




ARTICLE V




DUTIES OF THE SUBORDINATION AGENT;

AGREEMENTS OF TRUSTEES, ETC.




          SECTION 5.1. Notice of Indenture Default or Triggering Event. (a) In the event the
Subordination Agent shall have actual knowledge of the occurrence of an Indenture Default or a
Triggering Event, as promptly as practicable, and in any event within 10 days after obtaining
knowledge thereof, the Subordination Agent shall transmit by mail or courier to the Rating
Agencies, the Liquidity Provider and the Trustees notice of such Indenture Default or Triggering
Event, unless such Indenture Default or Triggering Event shall have been cured or waived. For all
purposes of this Agreement, in the absence of actual knowledge on the part of a Responsible
Officer, the Subordination Agent shall not be deemed to have knowledge of any Indenture Default or
Triggering Event unless notified in writing by one or more Trustees, one or more of the Liquidity
Provider or one or more Certificateholders.




39









 








          (b) Other Notices. The Subordination Agent will furnish to the Liquidity Provider and
each Trustee, promptly upon receipt thereof, duplicates or copies of all reports, notices,
requests, demands, certificates, financial statements and other instruments furnished to the
Subordination Agent as registered holder of the Equipment Notes or otherwise in its capacity as
Subordination Agent to the extent the same shall not have been otherwise directly distributed to
such Liquidity Provider or Trustee, as applicable, pursuant to the express provision of any other
Operative Agreement.




          (c) Securities Position. Upon the occurrence of an Indenture Default, the
Subordination Agent shall instruct the Trustees to, and the Trustees shall, request that DTC post
on its Internet bulletin board a securities position listing setting forth the names of all the
parties reflected on DTC’s books as holding interests in the Certificates.




          (d) Reports. Promptly after the occurrence of a Triggering Event or an Indenture
Default resulting from the failure of Southwest to make payments on any Equipment Note and on every
Regular Distribution Date while the Triggering Event or such Indenture Default shall be continuing,
the Subordination Agent will provide to the Trustee, the Liquidity Provider, the Rating Agencies
and Southwest a statement setting forth the following information:




               (i) after a Southwest Bankruptcy Event, with respect to each Aircraft, whether such Aircraft
is (A) subject to the 60-Day Period, (B) subject to an election by Southwest under Section 1110(a)
of the Bankruptcy Code, (C) covered by an agreement contemplated by Section 1110(b) of the
Bankruptcy Code or (D) not subject to any of (A), (B) or (C);



               (ii) to the best of the Subordination Agent’s knowledge, after requesting such information
from Southwest, (A) whether the Aircraft are currently in service or parked in storage, (B) the
maintenance status of the Aircraft and (C) the location of the Engines (as defined in the
Indentures);



               (iii) the current Pool Balances of the Certificates, the Preferred B Pool Balance and
outstanding principal amount of all Equipment Notes;



               (iv) the expected amount of interest which will have accrued on the Equipment Notes and on the
Certificates as of the next Regular Distribution Date;



               (v) the amounts paid to each Person on such Distribution Date pursuant to this Agreement;



               (vi) details of the amounts paid on such Distribution Date identified by reference to the
relevant provision of this Agreement and the source of payment (by Aircraft and party);



               (vii) if the Subordination Agent has made a Final Drawing under the Liquidity Facility;



               (viii) the amounts currently owed to the Liquidity Provider;



40









 





               (ix) the amounts drawn under the Liquidity Facility; and



               (x) after a Southwest Bankruptcy Event, any operational reports filed by Southwest with the
bankruptcy court which are available to the Subordination Agent on a non-confidential basis.



          SECTION 5.2. Indemnification. The Subordination Agent shall not be required to take
any action or refrain from taking any action under Section 5.1 (other than the first sentence
thereof) or Article IV hereof unless the Subordination Agent shall have been indemnified (to the
extent and in the manner reasonably satisfactory to the Subordination Agent) against any liability,
cost or expense (including counsel fees and expenses) which may be incurred in connection
therewith. The Subordination Agent shall not be under any obligation to take any action under this
Agreement and nothing contained in this Agreement shall require the Subordination Agent to expend
or risk its own funds or otherwise incur any financial liability in the performance of any of its
duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it. The Subordination Agent shall not be required to take
any action under Section 5.1 (other than the first sentence thereof) or Article IV hereof, nor
shall any other provision of this Agreement be deemed to impose a duty on the Subordination Agent
to take any action, if the Subordination Agent shall have been advised by counsel that such action
is contrary to the terms hereof or is otherwise contrary to law.




          SECTION 5.3. No Duties Except as Specified in Intercreditor Agreement. The
Subordination Agent shall not have any duty or obligation to take or refrain from taking any action
under, or in connection with, this Agreement, except as expressly provided by the terms of this
Agreement; and no implied duties or obligations shall be read into this Agreement against the
Subordination Agent. The Subordination Agent agrees that it will, in its individual capacity and
at its own cost and expense (but without any right of indemnity in respect of any such cost or
expense under Section 5.2 or 7.1 hereof) promptly take such action as may be necessary to duly
discharge all Liens on any of the Trust Accounts or any monies deposited therein which result from
claims against it in its individual capacity not related to its activities hereunder or any other
Operative Agreement.




          SECTION 5.4. Notice from the Liquidity Provider and Trustees. If the Liquidity
Provider or Trustee has notice of an Indenture Default or a Triggering Event, such Person shall
promptly give notice thereof to all other Trustees, to the Liquidity Provider (if a Trustee has
notice) and to the Subordination Agent, provided, however, that no such Person
shall have any liability hereunder as a result of its failure to deliver any such notice.




ARTICLE VI




THE SUBORDINATION AGENT




          SECTION 6.1. Authorization; Acceptance of Trusts and Duties . The Class A Trustee hereby designates and
appoints the Subordination Agent as the agent and
trustee under




41









 







the Liquidity Facility and authorizes the Subordination Agent to enter into the
Liquidity Facility as its agent and trustee. The Liquidity Provider and all the Trustees hereby
designates and appoints the Subordination Agent as the Subordination Agent under this Agreement.
WTC hereby accepts the duties hereby created and applicable to it as the Subordination Agent and
agrees to perform the same but only upon the terms of this Agreement and agrees to receive and
disburse all monies received by it in accordance with the terms hereof. The Subordination Agent
shall not be answerable or accountable under any circumstances, except (a) for its own willful
misconduct or gross negligence (or ordinary negligence in the handling of funds), (b) as provided
in Sections 2.2 or 5.3 hereof and (c) for liabilities that may result from the material inaccuracy
of any representation or warranty of the Subordination Agent made in its individual capacity in any
Operative Agreement. The Subordination Agent shall not be liable for any error of judgment made in
good faith by a Responsible Officer of the Subordination Agent, unless it is proved that the
Subordination Agent was negligent in ascertaining the pertinent facts.




          SECTION 6.2. Absence of Duties. The Subordination Agent shall have no duty to see to
any recording or filing of this Agreement or any other document, or to see to the maintenance of
any such recording or filing.




          SECTION 6.3. No Representations or Warranties as to Documents. The Subordination
Agent in its individual capacity does not make nor shall be deemed to have made any representation
or warranty as to the validity, legality or enforceability of this Agreement or any other Operative
Agreement or as to the correctness of any statement contained in any thereof, except for the
representations and warranties of the Subordination Agent, made in its individual capacity, under
any Operative Agreement to which it is a party. The Certificateholders, the Trustees and the
Liquidity Provider make no representation or warranty hereunder whatsoever.




          SECTION 6.4. No Segregation of Monies; No Interest. Any monies paid to or retained
by the Subordination Agent pursuant to any provision hereof and not then required to be distributed
to any Trustee or the Liquidity Provider as provided in Articles II and III hereof or deposited
into one or more Trust Accounts need not be segregated in any manner except to the extent required
by such Articles II and III and by law, and the Subordination Agent shall not (except as otherwise
provided in Section 2.2 hereof) be liable for any interest thereon; provided,
however, that any payments received or applied hereunder by the Subordination Agent shall
be accounted for by the Subordination Agent so that any portion thereof paid or applied pursuant
hereto shall be identifiable as to the source thereof.




          SECTION 6.5. Reliance; Agents; Advice of Counsel. The Subordination Agent shall not
incur liability to anyone in acting upon any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond or other document or paper believed by it to be
genuine and believed by it to be signed by the proper party or parties. As to the Pool Balance of
any Trust as of any date, the Subordination Agent may for all purposes hereof rely on a certificate
signed by any Responsible Officer of the applicable Trustee, and such certificate shall constitute
full protection to the Subordination Agent
for any action taken or omitted to be taken by it in good faith in reliance thereon. As to
any fact or matter relating to the Liquidity Provider or the Trustees the manner of ascertainment
of which is not specifically described herein, the Subordination Agent may for all purposes hereof
rely on a certificate, signed by any





42









 







Responsible Officer of the Liquidity Provider or Trustee, as
the case may be, as to such fact or matter, and such certificate shall constitute full protection
to the Subordination Agent for any action taken or omitted to be taken by it in good faith in
reliance thereon. The Subordination Agent shall assume, and shall be fully protected in assuming,
that the Liquidity Provider and each of the Trustees are authorized to enter into this Agreement
and to take all action to be taken by them pursuant to the provisions hereof, and shall not inquire
into the authorization of the Liquidity Provider and the Trustees with respect thereto. In the
administration of the trusts hereunder, the Subordination Agent may execute any of the trusts or
powers hereof and perform its powers and duties hereunder directly or through agents or attorneys
and may consult with counsel, accountants and other skilled persons to be selected and retained by
it, and the Subordination Agent shall not be liable for the acts or omissions of any agent
appointed with due care or for anything done, suffered or omitted in good faith by it in accordance
with the advice or written opinion of any such counsel, accountants or other skilled persons.




          SECTION 6.6. Capacity in Which Acting. The Subordination Agent acts hereunder solely
as agent and trustee herein and not in its individual capacity, except as otherwise expressly
provided in the Operative Agreements.




          SECTION 6.7. Compensation. The Subordination Agent shall be entitled to reasonable
compensation, including expenses and disbursements, except with respect to any Unindemnified Taxes,
for all services rendered hereunder and shall have a priority claim to the extent set forth in
Article III hereof on all monies collected hereunder for the payment of such compensation (other
than Unindemnified Taxes), to the extent that such compensation shall not be paid by others. The
Subordination Agent agrees that it shall have no right against any Trustee or the Liquidity
Provider for any fee as compensation for its services as agent under this Agreement. The
provisions of this Section 6.7 shall survive the termination of this Agreement.




          SECTION 6.8. May Become Certificateholder. The institution acting as Subordination
Agent hereunder may become a Certificateholder and have all rights and benefits of a
Certificateholder to the same extent as if it were not the institution acting as the Subordination
Agent.




          SECTION 6.9. Subordination Agent Required; Eligibility. There shall at all times be
a Subordination Agent hereunder which shall be a bank, trust company, corporation or other
financial institution organized and doing business under the laws of the United States of America
or of any State or the District of Columbia having a combined capital and surplus of at least
$100,000,000 (or the obligations of which, whether now in existence or hereafter incurred, are
fully and unconditionally guaranteed by a corporation organized and doing business under the laws
of the United States of America, any State thereof or of the District of Columbia and having a
combined capital and surplus of at least $100,000,000), if there is such an institution willing and
able to perform the duties of the
Subordination Agent hereunder upon reasonable or customary terms. Such financial institution
shall be a citizen of the United States and shall be authorized under the laws of the United States
or any State thereof or of the District of Columbia to exercise corporate trust powers and shall be
subject to supervision or examination by federal, state or District of Columbia authorities. If
such financial institution publishes reports of condition at least annually, pursuant to law or to
the requirements of any of the aforesaid supervising or examining authorities, then, for the
purposes of this Section 6.9, the combined




43









 







capital and surplus of such financial institution shall
be deemed to be its combined capital and surplus as set forth in its most recent report of
condition so published.




          In case at any time the Subordination Agent shall cease to be eligible in accordance with the
provisions of this Section, the Subordination Agent shall resign immediately in the manner and with
the effect specified in Section 8.1.




          SECTION 6.10. Money to Be Held in Trust. All Equipment Notes, monies and other
property deposited with or held by the Subordination Agent pursuant to this Agreement shall be held
in trust for the benefit of the parties entitled to such Equipment Notes, monies and other
property. All such Equipment Notes, monies or other property shall be held in the Trust Department
of the institution acting as Subordination Agent hereunder.




ARTICLE VII




INDEMNIFICATION OF SUBORDINATION AGENT




          SECTION 7.1. Scope of Indemnification. The Subordination Agent shall be indemnified
hereunder to the extent and in the manner described in Section 8.1 of the Participation Agreements.
The indemnities contained in such Section shall survive the termination of this Agreement.




ARTICLE VIII




SUCCESSOR SUBORDINATION AGENT




          SECTION 8.1. Replacement of Subordination Agent; Appointment of Successor. The
Subordination Agent may resign at any time by so notifying the Trustees and the Liquidity Provider.
The Controlling Party may remove the Subordination Agent for cause by so notifying the
Subordination Agent and may appoint a successor Subordination Agent. The Controlling Party shall
remove the Subordination Agent if:





     (1) the Subordination Agent fails to comply with Section 6.9 hereof;




     (2) the Subordination Agent is adjudged bankrupt or insolvent;




     (3) a receiver or other public officer takes charge of the Subordination Agent or its
property; or




     (4) the Subordination Agent otherwise becomes incapable of acting.



          If the Subordination Agent resigns or is removed or if a vacancy exists in the office of
Subordination Agent for any reason (the Subordination Agent in such event being referred to herein
as the retiring Subordination Agent), the Controlling Party shall promptly appoint a successor
Subordination Agent.





44









 








          A successor Subordination Agent shall deliver (x) a written acceptance of its appointment as
Subordination Agent hereunder to the retiring Subordination Agent and (y) a written assumption of
its obligations hereunder and under the Liquidity Facility to each party hereto, upon which the
resignation or removal of the retiring Subordination Agent shall become effective, and the
successor Subordination Agent shall have all the rights, powers and duties of the Subordination
Agent under this Agreement. The successor Subordination Agent shall mail a notice of its
succession to the Liquidity Provider and the Trustees. The retiring Subordination Agent shall
promptly transfer its rights under the Liquidity Facility and all of the property held by it as
Subordination Agent to the successor Subordination Agent.




          If a successor Subordination Agent does not take office within 60 days after the retiring
Subordination Agent resigns or is removed, the retiring Subordination Agent or one or more of the
Trustees may petition any court of competent jurisdiction for the appointment of a successor
Subordination Agent.




          If the Subordination Agent fails to comply with Section 6.9 hereof (to the extent applicable),
one or more of the Trustees or the Liquidity Provider may petition any court of competent
jurisdiction for the removal of the Subordination Agent and the appointment of a successor
Subordination Agent.




          Notwithstanding the foregoing, no resignation or removal of the Subordination Agent shall be
effective unless and until a successor has been appointed. No appointment of a successor
Subordination Agent shall be effective unless and until the Rating Agencies shall have delivered a
Ratings Confirmation.




ARTICLE IX




SUPPLEMENTS AND AMENDMENTS




          SECTION 9.1. Amendments, Waivers, etc. (a) This Agreement may not be supplemented,
amended or modified without the consent of each Trustee (acting, except in the case of any
amendment pursuant to Section 3.5(e)(v)(y) hereof with respect to any Replacement Liquidity
Facility or any amendment contemplated by the last sentence of this Section 9.1(a), with the
consent of holders of the Class A Certificates evidencing interests in the Class A Trust
aggregating not less than a majority in interest in such Trust or as otherwise authorized pursuant
to the relevant Trust Agreement), the Subordination Agent and the Liquidity Provider;
provided, however, that this Agreement may be supplemented, amended or modified
without the consent of any Trustee, the Subordination Agent and the Liquidity Provider if such
supplement, amendment or modification (i) is in accordance with Section 9.1(c) or Section 9.1(d)
hereof or (ii) cures an ambiguity or
inconsistency or does not materially adversely affect such Trustee or the holders of the
related Class of Certificates or the Liquidity Provider; provided further,
however, that, if such supplement, amendment or modification (A) would (x) directly or
indirectly modify or supersede, or otherwise conflict with, Section 2.2(b), Section 2.4, Section
3.2, Section 3.5(e), Section 3.5(f)(other than the last sentence thereof), Section 3.5(l), the last
sentence of this Section 9.1(a), Section 9.1(c), Section 9.1(d), the second sentence of Section
10.6 or this proviso (collectively, the “Southwest Provisions”) or (y) otherwise adversely
affect





45









 







the interests of a potential Replacement Liquidity Provider or of Southwest with respect to
its ability to replace the Liquidity Facility or with respect to its payment obligations under any
Operative Agreement or (B) is made pursuant to the last sentence of this Section 9.1(a) or pursuant
to Section 9.1(c) or Section 9.1(d), then such supplement, amendment or modification shall not be
effective without the additional written consent of Southwest. Notwithstanding the foregoing,
without the consent of each Certificateholder and the Liquidity Provider, no supplement, amendment
or modification of this Agreement may (i) reduce the percentage of the interest in any Trust
evidenced by the Certificates issued by such Trust necessary to consent to modify or amend any
provision of this Agreement or to waive compliance therewith or (ii) except as provided in this
Section 9.1(a), Section 9.1(c) or Section 9.1(d), modify Section 2.4 or 3.2 hereof, relating to the
distribution of monies received by the Subordination Agent hereunder from the Equipment Notes or
pursuant to the Liquidity Facility. Nothing contained in this Section shall require the consent of
a Trustee at any time following the payment of Final Distributions with respect to the related
Class of Certificates. If the Replacement Liquidity Facility for the Liquidity Facility in
accordance with Section 3.5(c) or (e) hereof is to be comprised of more than one instrument as
contemplated by the definition of the term “Replacement Liquidity Facility”, then each of the
parties hereto agrees to amend this Agreement to incorporate appropriate mechanics for multiple
Liquidity Facilities for an individual Trust.




          (b) In the event that the Subordination Agent, as the registered holder of any Equipment
Notes, receives a request for the giving of any notice or for its consent to any amendment,
supplement, modification, consent or waiver under such Equipment Notes, the Indenture pursuant to
which such Equipment Notes were issued, or the related Participation Agreement or other related
document, (i) if no Indenture Default shall have occurred and be continuing with respect to such
Indenture, the Subordination Agent shall request directions with respect to each Series of such
Equipment Notes from the Trustee of the Trust which holds such Equipment Notes and shall vote or
consent in accordance with the directions of such Trustee, and (ii) if any Indenture Default shall
have occurred and be continuing with respect to such Indenture, the Subordination Agent will
exercise its voting rights with respect to such Equipment Notes as directed by the Controlling
Party (subject to Sections 4.1 and 4.4 hereof); provided that no such amendment, modification or
waiver shall, without the consent of each affected Certificateholder and the Liquidity Provider,
reduce the amount of principal or interest payable by Southwest under any Equipment Note or change
the time of payments or method of calculation of any amount under any Equipment Note.




          (c) If Series B Equipment Notes (or any series of Additional Equipment Notes) issued with
respect to all of the Aircraft are redeemed and re-issued in accordance with the terms of Section
2.11(b) of each Indenture, such series of re-issued Equipment Notes (the “Refinancing Equipment
Notes”) shall be issued to a new pass through trust (a “Refinancing Trust”) that issues
a class of pass through certificates (the “Refinancing Certificates”) to
certificateholders (the “Refinancing Certificateholders”) pursuant to a pass through
trust agreement (a “Refinancing Trust Agreement”) with a trustee (a “Refinancing
Trustee”). A Refinancing Trust, a Refinancing Trustee and the Refinancing Certificates shall
be subject to all of the provisions of this Agreement in the same manner as the Trust, the Trustee
and the Certificates of the Class corresponding to the series of the refinanced Equipment Notes,
including, the subordination of the Refinancing Certificates to the Administration Expenses, the
Liquidity Obligations, the Class A Certificates and, if applicable, the Class B Certificates. Such




46









 







issuance of Refinancing Equipment Notes and Refinancing Certificates and the amendment of this
Agreement as provided below shall require Ratings Confirmation and shall not materially adversely
affect any of the Trustees. This Agreement shall be amended by written agreement of Southwest and
the Subordination Agent to give effect to the issuance of the Refinancing Certificates subject to
the following terms and conditions:





     (i) the Refinancing Trustee shall be added as a party to this Agreement;




     (ii) the definitions of “Certificate”, “Class”, “Class B Certificates” (if applicable),
“Final Legal Distribution Date”, “Trust”, “Trust Agreement” and “Controlling Party” (and
such other applicable definitions) shall be revised, as appropriate, to reflect such
issuance (and the subordination of the Refinancing Certificates and the Refinancing
Equipment Notes);




     (iii) the Refinancing Certificates may have the benefit of credit support similar to
the Liquidity Facility and claims for fees, interest, expenses, reimbursement of advances
and other obligations arising from such credit support may rank pari passu with similar
claims in respect of the Liquidity Facility so long as Ratings Confirmation and the prior
written consent of the Liquidity Provider shall have been obtained;




     (iv) the Refinancing Certificates cannot be issued to Southwest but may be issued to
any of Southwest’s Affiliates so long as such Affiliate shall have bankruptcy remote and
special purpose provisions in its certificate of incorporation or other organizational
documents and any subsequent transfer of the Refinancing Certificates to any Affiliate of
Southwest shall be similarly restricted; and




     (v) the scheduled payment dates on the Refinancing Equipment Notes shall be on the
Regular Distribution Dates.



          The issuance of the Refinancing Certificates in compliance with all of the foregoing terms of
this Section 9.1(c) shall not require the consent of any of the Trustees or the holders of any
Class of Certificates. The Liquidity Provider hereby agrees and confirms that it shall be deemed
to consent to any issuance and amendment in accordance with this Section 9.1(c) (subject to the
Liquidity Provider’s consent right in Section 9.1(c)(iii)) and any such issuance and amendment
shall not affect any of its respective obligations under the Liquidity Facility.




          (d) Pursuant to the terms of Section 2.02 of each Indenture, one or more additional series of
Equipment Notes (the “Additional Equipment Notes”), which shall be subordinated in right of
payment to the Series A Equipment Notes and the Series B Equipment
Notes under such Indenture, may be issued at any time and from time to time. If any series of
Additional Equipment Notes is issued under any Indenture, such series of Additional Equipment Notes
shall be issued to a new pass through trust (an “Additional Trust”) that issues a class of
pass through certificates (the “Additional Certificates”) to certificateholders (the
“Additional Certificateholders”) pursuant to a pass through trust agreement (an
“Additional Trust Agreement”) with a trustee (an “Additional Trustee”). In such
case, this Agreement shall be amended by written agreement of Southwest and the Subordination Agent
to provide for the





47









 







subordination of the Additional Certificates to the Administration Expenses, the
Liquidity Obligations, the Class A Certificates and the Class B Certificates and, if applicable,
any previously issued class (or classes) of Additional Certificates (in order of their issuance)
(subject to clause (iii) below). Such issuance and the amendment of this Agreement as provided
below shall require Ratings Confirmation and shall not materially adversely affect any of the
Trustees. This Agreement shall be amended by written agreement of Southwest and the Subordination
Agent to give effect to the issuance of any Additional Certificates subject to the following terms
and conditions:




          (i) the Additional Trustee shall be added as a party to this Agreement;




          (ii) the definitions of “Certificate”, “Class”, “Equipment Notes”, “Final Legal Distribution
Date”, “Trust”, “Trust Agreement” and “Controlling Party” (and such other applicable definitions)
shall be revised, as appropriate, to reflect the issuance of the Additional Certificates (and the
subordination thereof);




          (iii) Section 3.2 may be revised, with respect to each Class of Additional Certificates, to
provide for the distribution of “Adjusted Interest” for such Class of Additional Certificates
(calculated in a manner substantially similar to the calculation of Class B Adjusted Interest)
after the Class B Adjusted Interest but before Expected Distributions on the Class A Certificates
(it being understood that the Rating Agencies, in connection with providing a Ratings Confirmation,
may require that such class of Additional Certificates be rated);




          (iv) the Additional Certificates may have the benefit of credit support similar to the
Liquidity Facility and claims for fees, interest, expenses, reimbursement of advances and other
obligations arising from such credit support may rank pari passu with similar claims in respect of
the Liquidity Facility so long as Ratings Confirmation and the prior written consent of the
Liquidity Provider shall have been obtained;




          (v) the Additional Certificates cannot be issued to Southwest but may be issued to any of
Southwest’s Affiliates so long as such Affiliate shall have bankruptcy remote and special purpose
provisions in its certificate of incorporation or other organizational documents and any subsequent
transfer of the Additional Certificates to any Affiliate of Southwest shall be similarly
restricted;




          (vi) the provisions of this Agreement governing payments with respect to Certificates and
related notices, including Sections 2.4, 3.1 and 3.2, shall be revised to provide for distributions
on such class of the Additional Certificates after payment of Administration Expenses, the
Liquidity Obligations, the Class A Certificates and the Class B Certificates (and, if
applicable, any previously issued class (or classes) of Additional Certificates (in order of
their issuance)), subject to clause (iii) above; and




          (vii) the scheduled payment dates on such series of Additional Equipment Notes shall be on the
Regular Distribution Dates.




          The issuance of the Additional Certificates in compliance with all of the foregoing terms of
this Section 9.1(d) shall not require the consent of any of the Trustees or the holders of any
Class of Certificates. The Liquidity Provider hereby agrees and confirms that it shall be




48









 







deemed
to consent to any issuance and amendment in accordance with this Section 9.1(d) (subject to the
Liquidity Provider’s consent right in Section 9.1(d)(iv)) and any such issuance and amendment shall
not affect any of its respective obligations under the Liquidity Facility.




          SECTION 9.2. Subordination Agent Protected. If, in the reasonable opinion of the
institution acting as the Subordination Agent hereunder, any document required to be executed
pursuant to the terms of Section 9.1 affects any right, duty, immunity or indemnity with respect to
it under this Agreement or the Liquidity Facility, the Subordination Agent may in its discretion
decline to execute such document.




          SECTION 9.3. Effect of Supplemental Agreements. Upon the execution of any amendment,
consent or supplement hereto pursuant to the provisions hereof, this Agreement shall be and be
deemed to be and shall be modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Agreement of the parties
hereto and beneficiaries hereof shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms and conditions of
any such supplemental agreement shall be and be deemed to be and shall be part of the terms and
conditions of this Agreement for any and all purposes. In executing or accepting any supplemental
agreement permitted by this Article IX, the Subordination Agent shall be entitled to receive, and
shall be fully protected in relying upon, an opinion of counsel stating that the execution of such
supplemental agreement is authorized or permitted by this Agreement.




          SECTION 9.4. Notice to Rating Agencies. Promptly upon receipt of any amendment, consent,
modification, supplement or waiver contemplated by this Article IX and prior to taking any action
required to be taken thereunder, the Subordination Agent shall send a copy thereof to each Rating
Agency.




ARTICLE X




MISCELLANEOUS




          SECTION 10.1. Termination of Intercreditor Agreement. Following payment of Final
Distributions with respect to each Class of Certificates and the payment in full of all Liquidity
Obligations to the Liquidity Provider and provided that there shall then be no other
amounts due to the Certificateholders, the Trustees, the Liquidity Provider and the Subordination
Agent hereunder or under the Trust Agreements, and that the commitment of the Liquidity Provider
under the Liquidity Facility shall have expired or
been terminated, this Agreement and the trusts created hereby shall terminate and this
Agreement shall be of no further force or effect. Except as aforesaid or otherwise provided, this
Agreement and the trusts created hereby shall continue in full force and effect in accordance with
the terms hereof.




          SECTION 10.2. Intercreditor Agreement for Benefit of Trustees, Liquidity Provider and
Subordination Agent. Subject to the second sentence of Section 10.6 and the provisions of
Sections 4.4 and 9.1, nothing in this Agreement, whether express or implied, shall be construed to
give to any Person other than the Trustees, the Liquidity Provider and the





49









 







Subordination Agent any
legal or equitable right, remedy or claim under or in respect of this Agreement.




          SECTION 10.3. Notices. Unless otherwise expressly specified or permitted by the
terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers or
documents provided or permitted by this Agreement to be made, given, furnished or filed shall be in
writing, mailed by certified mail, postage prepaid, or by confirmed telecopy and





	 	(i)	 	if to the Subordination Agent, addressed to at its office at:
	 
	 	 	 	WILMINGTON TRUST COMPANY

One Rodney Square

1100 N. Market Street

Wilmington, DE 19890-1605

Attention: Corporate Capital Market Services

Telecopy: (302) 636-4140
	 
	 	(ii)	 	if to any Trustee, addressed to it at its office at:
	 
	 	 	 	WILMINGTON TRUST COMPANY

One Rodney Square

1100 N. Market Street

Wilmington, DE 19890-1605

Attention: Corporate Capital Market Services

Telecopy: (302) 636-4140
	 
	 	(iii)	 	if to the Liquidity Provider, addressed to it at its office at:
	 
	 	 	 	BNP Paribas

787 Seventh Avenue

New York, NY 10019

Attention: Aviation Finance Group

Telephone: (212) 841-2000

Telecopy: (212) 841-2146




Whenever any notice in writing is required to be given by any Trustee, Liquidity Provider or the
Subordination Agent to any of the other of them, such notice shall be deemed given and such
requirement satisfied when such notice is received. Any party hereto may change the address to
which notices to such party will be sent by giving notice of such change to the other parties to
this Agreement.




          SECTION 10.4. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.




50









 








          SECTION 10.5. No Oral Modifications or Continuing Waivers. No terms or provisions of
this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party or other Person against whom enforcement of the change, waiver,
discharge or termination is sought and any other party or other Person whose consent is required
pursuant to this Agreement and any waiver of the terms hereof shall be effective only in the
specific instance and for the specific purpose given.




          SECTION 10.6. Successors and Assigns. All covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, each of the parties hereto and the successors
and assigns of each, all as herein provided. In addition, the Southwest Provisions shall inure to
the benefit of Southwest and its successors and assigns, and (without limitation of the foregoing)
Southwest is hereby constituted, and agreed to be, an express third party beneficiary of the
Southwest Provisions.




          SECTION 10.7. Headings. The headings of the various Articles and Sections herein and
in the table of contents hereto are for convenience of reference only and shall not define or limit
any of the terms or provisions hereof.




          SECTION 10.8. Counterpart Form. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be an original, but
all such counterparts shall together constitute but one and the same agreement.




          SECTION 10.9. Subordination. (a) As between the Liquidity Provider (and any
additional liquidity providers in respect of any class of Refinancing Certificates or Additional
Certificates), on the one hand, and the Trustees (and any Refinancing Trustees or Additional
Trustees) and the Certificateholders (and any Refinancing Certificateholders or Additional
Certificateholders), on the other hand, and as among the Trustees (and any Refinancing Trustees or
Additional Trustees) and the related Certificateholders (and any Refinancing Certificateholders or
Additional Certificateholders), this Agreement shall be a subordination agreement for purposes of
Section 510 of the United States Bankruptcy Code, as amended from time to time.




          (b) Notwithstanding the provisions of this Agreement, if prior to the payment in full to the
Liquidity Provider of all Liquidity Obligations then due and payable, any party hereto shall have
received any payment or distribution in respect of Equipment Notes or any other amount under the
Indentures or other Operative Agreements which, had the subordination provisions of this Agreement
been properly applied to such payment, distribution or other amount, would not have been
distributed to such Person, then such payment, distribution or other amount shall be received and
held in trust by such Person and paid over or delivered to the Subordination Agent for application
as provided herein.




          (c) If any Trustee, the Liquidity Provider or the Subordination Agent receives any payment in
respect of any obligations owing hereunder (or, in the case of the Liquidity Provider, in respect
of the Liquidity Obligations), which is subsequently invalidated, declared preferential, set aside
and/or required to be repaid to a trustee, receiver or other party, then, to the extent of such
payment, such obligations (or, in the case of the Liquidity Provider, such Liquidity





51









 







Obligations)
intended to be satisfied shall be revived and continue in full force and effect as if such payment
had not been received.




          (d) The Trustees (on behalf of themselves and the holders of Certificates), the Liquidity
Provider and the Subordination Agent confirm that the payment priorities specified in Section 3.2
shall apply in all circumstances, notwithstanding the fact that the obligations owed to the
Trustees and the holders of Certificates are secured by certain assets and the Liquidity
Obligations may not be so secured. The Trustees expressly agree (on behalf of themselves and the
holders of Certificates) not to assert priority over the holders of Liquidity Obligations (except
as specifically set forth in Section 3.2) due to their status as secured creditors in any
bankruptcy, insolvency or other legal proceeding.




          (e) Each of the Trustees (on behalf of themselves and the holders of Certificates), the
Liquidity Provider and the Subordination Agent may take any of the following actions without
impairing its rights under this Agreement:





     (i) obtain a Lien on any property to secure any amounts owing to it hereunder,
including, in the case of the Liquidity Provider, the Liquidity Obligations,




     (ii) obtain the primary or secondary obligation of any other obligor with respect to
any amounts owing to it hereunder, including, in the case of the Liquidity Provider, any of
the Liquidity Obligations,




     (iii) renew, extend, increase, alter or exchange any amounts owing to it hereunder,
including, in the case of the Liquidity Provider, any of the Liquidity Obligations, or
release or compromise any obligation of any obligor with respect thereto,




     (iv) refrain from exercising any right or remedy, or delay in exercising such right or
remedy, which it may have, or




     (v) take any other action which might discharge a subordinated party or a surety under
applicable law;


provided, however, that the taking of any such actions by any of the Trustees, the
Liquidity Provider or the Subordination Agent shall not prejudice the rights or adversely affect
the obligations of any other party under this Agreement.




          SECTION 10.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.




          SECTION 10.11. Submission to Jurisdiction; Waiver of Jury Trial; Waiver of Immunity.




          (a) Each of the parties hereto hereby irrevocably and unconditionally:





     (i) submits for itself and its property in any legal action or proceeding relating to
this Agreement or any other Operative Agreement, or for recognition and enforcement



52









 






of any
judgment in respect hereof or thereof, to the nonexclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of America for the Southern
District of New York, and the appellate courts from any thereof;




     (ii) consents that any such action or proceeding may be brought in such courts, and
waives any objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;




     (iii) agrees that service of process in any such action or proceeding may be effected
by mailing a copy thereof by registered or certified mail (or any substantially similar form
of mail), postage prepaid, to each party hereto at its address set forth in Section 10.3
hereof, or at such other address of which the other parties shall have been notified
pursuant thereto; and




     (iv) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction.



          (b) EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RIGHT TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN IT AND ANY
OTHER PARTY HERETO RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE RELATIONSHIP THAT IS
BEING ESTABLISHED, including, without limitation, contract claims, tort claims, breach of duty
claims and all other common law and statutory claims. Each of the parties warrants and represents
that it has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily
waives its jury trial rights following consultation with such legal counsel. THIS WAIVER IS
IRREVOCABLE, AND CANNOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.




          (c) The Liquidity Provider hereby waives any immunity it may have from the jurisdiction of the
courts of the United States of America or of any State and waives any immunity any of its
properties located in the United States of America may have from attachment or execution upon a
judgment entered by any such court under the United States Foreign Sovereign Immunities Act of 1976
or any similar successor legislation.




53









 








          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective officers thereunto duly authorized, as of the day and year first above written, and
acknowledge that this Agreement has been made and delivered in the City of New York, and this
Agreement has become effective only upon such execution and delivery.




	 	 	 	 	 
	 	WILMINGTON TRUST COMPANY,

not in its individual capacity but solely as

Trustee for each of the Trusts

 	 
	 	By  	/s/ James P. Lawler
 	 
	 	 	Name:  	James P. Lawler 	 
	 	 	Title:  	Vice President 	 
	 
	 	BNP PARIBAS, as Liquidity Provider

 	 
	 	By  	/s/ Sean Reddington
 	 
	 	 	Name:  	Sean Reddington 	 
	 	 	Title:  	Managing Director and
Authorized Signatory 	 
	 
	 	 	 
	 	By 	/s/  Mary Dierdorff
 	 
	 	 	Name:  	Mary Dierdorff 	 
	 	 	Title:  	Director and Authorized Singnatory 	 
	 
	 	WILMINGTON TRUST COMPANY,

not in its individual capacity except as

expressly set forth herein but solely as

Subordination Agent and trustee

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