<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ____________
Commission file number 0-20031
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American Income Fund I-C , a Massachusetts Limited Partnership
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3077437
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 N. Washington St., Fifth Floor, Boston, MA 02114
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 854-5800
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Securities registered pursuant to Section 12(b) of the Act NONE
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Title of each class Name of each exchange on which registered
- ------------------------------ --------------------------------------------
- ------------------------------ --------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
796,161 Units Representing Limited Partnership Interest
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(Title of class)
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No
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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. Not applicable. Securities are nonvoting for this purpose.
Refer to Item 12 for further information.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to security holders for
the year ended December 31, 1996 (Part I and II)
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for the Partnership's Securities and Related
Security Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Partnership 8
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management 10
Item 13. Certain Relationships and Related Transactions 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 14-16
</TABLE>
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<PAGE>
PART I
Item 1. Business.
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(a) General Development of Business
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership, (the
"Partnership") was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on March 1, 1991 for the
purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On May 31, 1991, the
Partnership issued 803,454.56 units of limited partnership interest (the
"Units") to 909 investors. Included in the 803,454.56 units are 7,293.56 bonus
units. The Partnership has one General Partner, AFG Leasing VI Incorporated, a
Massachusetts corporation formed in 1990 and an affiliate of Equis Financial
Group Limited Partnership (formerly American Finance Group), a Massachusetts
limited partnership ("EFG" or the "Manager"). The General Partner is not
required to make any other capital contributions except as may be required under
the Uniform Act and Section 6.1(b) of the Amended and Restated Agreement and
Certificate of Limited Partnership (the "Restated Agreement, as amended").
(b) Financial Information About Industry Segments
The Partnership is engaged in only one industry segment: the business of
acquiring capital equipment and leasing the equipment to creditworthy lessees on
a full payout or operating lease basis. Full payout leases are those in which
aggregate noncancellable rents equal or exceed the Purchase Price of the leased
equipment. Operating leases are those in which the aggregate noncancellable
rental payments are less than the Purchase Price of the leased equipment.
Industry segment data is not applicable.
(c) Narrative Description of Business
The Partnership was organized to acquire a diversified portfolio of capital
equipment subject to various full payout and operating leases and to lease the
equipment to third parties as income-producing investments. More specifically,
the Partnership's primary investment objectives are to acquire and lease
equipment which will:
1. Generate quarterly cash distributions;
2. Preserve and protect Partnership capital; and
3. Maintain substantial residual value for ultimate sale.
The Partnership has the additional objective of providing certain federal
income tax benefits.
The Closing Date of the Offering of Units of the Partnership was May 31,
1991. Significant operations commenced coincident with the Partnership's
initial purchase of equipment and the associated lease commitments on May 31,
1991. The acquisition of the equipment and its associated leases is described
in detail in Note 3 to the financial statements included in Item 14, herein.
The Partnership is expected to terminate no later than December 31, 2002;
however, the General Partner is evaluating winding-up the business of the
Partnership in 1997 or 1998.
The Partnership has no employees; however, it entered into a Management
Agreement with the Manager coincident with the commencement of operations. The
Manager's role, among other things, is to (i) evaluate, select, negotiate, and
consummate the acquisition of equipment, (ii) manage the leasing, re-leasing,
financing, and refinancing of equipment, and (iii) arrange the resale of
equipment. The Manager is compensated for such services as described in the
Restated Agreement, as amended, Item 13 herein, and in Note 4 to the financial
statements included in Item 14, herein.
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The Partnership's investment in equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence and defaults by lessees. A principal business risk of owning and
leasing equipment is the possibility that aggregate lease revenues and equipment
sale proceeds will be insufficient to provide an acceptable rate of return on
invested capital after payment of all debt service costs and operating expenses.
Consequently, the success of the Partnership is largely dependent upon the
ability of the General Partner and its Affiliates to forecast technological
advances, the ability of the lessees to fulfill their lease obligations and the
quality and marketability of the equipment at the time of sale.
In addition, the leasing industry is very competitive. Although all funds
available for acquisitions have been invested in equipment, subject to
noncancellable lease agreements, the Partnership will encounter considerable
competition when equipment is re-leased or sold at the expiration of primary
lease terms. The Partnership will compete with lease programs offered directly
by manufacturers and other equipment leasing companies, including limited
partnerships and trusts organized and managed similarly to the Partnership, and
including other EFG-sponsored partnerships and trusts, which may seek to re-
lease or sell equipment within their own portfolios to the same customers as the
Partnership. Many competitors have greater financial resources and more
experience than the Partnership, the General Partner and the Manager.
Generally, the Partnership is prohibited from reinvesting the proceeds
generated by refinancing or selling equipment. Accordingly, it is anticipated
that the Partnership will begin to liquidate its portfolio of equipment at the
expiration of the initial lease terms and to distribute the net liquidation
proceeds. As an alternative to sale, the Partnership may enter re-lease
agreements when considered advantageous by the General Partner and the Manager.
In accordance with the Partnership's stated investment objective and policies,
the General Partner is evaluating winding-up the Partnership's operations,
including the liquidation of its entire portfolio.
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 is
incorporated herein by reference to Note 2 to the financial statements in the
1996 Annual Report. Refer to Item 14(a)(3) for lease agreements filed with the
Securities and Exchange Commission.
Default by a lessee under a lease may cause equipment to be returned to the
Partnership at a time when the General Partner or the Manager is unable to
arrange for the re-lease or sale of such equipment. This could result in the
loss of a material portion of anticipated revenues and significantly weaken the
Partnership's ability to repay related debt.
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or co-
sponsored by EFG (the "Other Investment Programs"). The Company arranges to
broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting, and
asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also
owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym to a third party (the "Buyer"). AFG changed its name to
Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale
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agreements specifically reserved to EFG the rights to continue using the name
American Finance Group and its acronym in connection with the Partnership and
the Other Investment Programs and to continue managing all assets owned by the
Partnership and the Other Investment Programs, including the right to satisfy
all required equipment acquisitions utilizing either brokers or the Buyer.
Geoffrey A. MacDonald, Chairman of Equis Corporation and Gary D. Engle agreed
not to compete with the sold business on terms and conditions similar to those
for the Company.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Not applicable.
Item 2. Properties.
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Incorporated herein by reference to Note 3 to the financial statements in
the 1996 Annual Report.
Item 3. Legal Proceedings.
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Incorporated herein by reference to Note 7 to the financial statements in
the 1996 Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
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<PAGE>
PART II
Item 5. Market for the Partnership's Securities and Related Security Holder
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Matters.
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(a) Market Information
There is no public market for the resale of the Units and it is not
anticipated that a public market for resale of the Units will develop.
(b) Approximate Number of Security Holders
At December 31, 1996, there were 863 Limited Partners in the Partnership.
(c) Dividend History and Restrictions
Pursuant to Article VI of the Restated Agreement, as amended, the
Partnership's Distributable Cash From Operations and Distributable Cash From
Sales or Refinancings are determined and distributed to the Partners quarterly.
Each quarter's distribution may vary in amount. Distributions may be made to
the General Partner prior to the end of the fiscal quarter; however, the amount
of such distribution reflects only amounts to which the General Partner is
entitled at the time such distribution is made. Currently, there are no
restrictions that materially limit the Partnership's ability to distribute
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings or that the Partnership believes are likely to materially limit the
future distribution of Distributable Cash From Operations and Distributable Cash
From Sales or Refinancings. The Partnership expects to continue to distribute
all Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings on a quarterly basis.
Distributions in 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
---------- -------- ------------
<S> <C> <C> <C>
Total 1996 distributions $1,162,895 $ 58,145 $1,104,750
Total 1995 distributions 1,691,484 84,574 1,606,910
---------- -------- ----------
Total $2,854,379 $142,719 $2,711,660
========== ======== ==========
</TABLE>
Distributions payable were $211,436 and $317,154 at December 31, 1996 and
1995, respectively.
"Distributable Cash From Operations" means the net cash provided by the
Partnership's normal operations after general expenses and current liabilities
of the Partnership are paid, reduced by any reserves for working capital and
contingent liabilities to be funded from such cash, to the extent deemed
reasonable by the General Partner, and increased by any portion of such reserves
deemed by the General Partner not to be required for Partnership operations and
reduced by all accrued and unpaid Equipment Management Fees and, after Payout,
further reduced by all accrued and unpaid Subordinated Remarketing Fees.
Distributable Cash From Operations does not include any Distributable Cash From
Sales or Refinancings.
"Distributable Cash From Sales or Refinancings" means Cash From Sales or
Refinancings as reduced by (i)(a) amounts realized from any loss or destruction
of equipment which the General Partner determines shall be reinvested in similar
equipment for the remainder of the original lease term of the lost or destroyed
equipment, or in isolated instances, in other equipment, if the General Partner
determines that investment of such proceeds will significantly improve the
diversity of the Partnership's equipment portfolio, and subject in either case
to satisfaction of all existing indebtedness secured by such equipment to the
extent deemed necessary or appropriate by the General Partner, or (b) the
proceeds from the sale of an interest in equipment pursuant to any agreement
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<PAGE>
governing a joint venture which the General Partner determines will be invested
in additional equipment or interests in equipment and which ultimately are so
reinvested and (ii) any accrued and unpaid Equipment Management Fees and, after
Payout, any accrued and unpaid Subordinated Remarketing Fees.
"Cash From Sales or Refinancings" means cash received by the Partnership
from sale or refinancing transactions, as reduced by (i)(a) all debts and
liabilities of the Partnership required to be paid as a result of sale or
refinancing transactions, whether or not then due and payable (including any
liabilities on an item of equipment sold which are not assumed by the buyer and
any remarketing fees required to be paid to persons not affiliated with the
General Partner, but not including any Subordinated Remarketing Fees whether or
not then due and payable) and (b) general expenses and current liabilities of
the Partnership (other than any portion of the Equipment Management Fee which is
required to be accrued and the Subordinated Remarketing Fee) and (c) any
reserves for working capital and contingent liabilities funded from such cash to
the extent deemed reasonable by the General Partner and (ii) increased by any
portion of such reserves deemed by the General Partner not to be required for
Partnership operations. In the event the Partnership accepts a note in
connection with any sale or refinancing transaction, all payments subsequently
received in cash by the Partnership with respect to such note shall be included
in Cash From Sales or Refinancings, regardless of the treatment of such payments
by the Partnership for tax or accounting purposes. If the Partnership receives
purchase money obligations in payment for equipment sold, which are secured by
liens on such equipment, the amount of such obligations shall not be included in
Cash From Sales or Refinancings until the obligations are fully satisfied.
Each distribution of Distributable Cash From Operations and Distributable
Cash From Sales or Refinancings of the Partnership shall be made 95% to the
Limited Partners and 5% to the General Partner.
"Payout" is defined as the first time when the aggregate amount of all
distributions to the Limited Partners of Distributable Cash From Operations and
Distributable Cash From Sales or Refinancings equals the aggregate amount of the
Limited Partners' original capital contributions plus a cumulative annual
distribution of 11% (compounded quarterly and calculated beginning with the last
day of the month of the Partnership's Closing Date) on their aggregate
unreturned capital contributions. For purposes of this definition, capital
contributions shall be deemed to have been returned only to the extent that
distributions of cash to the Limited Partners exceed the amount required to
satisfy the cumulative annual distribution of 11% (compounded quarterly) on the
Limited Partners' aggregate unreturned capital contributions, such calculation
to be based on the aggregate unreturned capital contributions outstanding on the
first day of each fiscal quarter.
Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings ("Distributions") are distributed within 30 days after the
completion of each quarter, beginning with the first full fiscal quarter
following the Partnership's Closing. Each Distribution is described in a
statement sent to the Limited Partners.
Item 6. Selected Financial Data.
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Incorporated herein by reference to the section entitled "Selected Financial
Data" in the 1996 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
--------------
Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1996 Annual Report.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Incorporated herein by reference to the financial statements and
supplementary data included in the 1996 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure.
---------------------
None.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership.
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(a-b) Identification of Directors and Executive Officers
The Partnership has no Directors or Officers. As indicated in Item 1 of
this report, AFG Leasing VI Incorporated is the sole General Partner of the
Partnership. Under the Restated Agreement, as amended, the General Partner is
solely responsible for the operation of the Partnership's properties and the
Limited Partners have no right to participate in the control of such operations.
The names, titles and ages of the Directors and Executive Officers of the
General Partner as of March 15, 1997 are as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF
THE GENERAL PARTNER (See Item 13)
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<TABLE>
<CAPTION>
Name Title Age Term
- --------------------------- ------------------------------------ ------- --------
<S> <C> <C> <C>
Geoffrey A. MacDonald Chairman and a member of the Until a
Executive Committee of EFG successor
and President and a Director is duly
of the General Partner 48 elected
and
qualified
Gary D. Engle President and Chief Executive
Officer and member of the
Executive Committee of EFG 48
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and
Clerk of the General Partner 37
James A. Coyne Senior Vice President of EFG 36
Michael J. Butterfield Vice President, Finance and Treasurer
of EFG and Treasurer of the
General Partner 37
James F. Livesey Vice President, Aircraft and Vessels 47
of EFG
Sandra L. Simonsen Senior Vice President, Information Systems 46
Systems of EFG
Gail D. Ofgant Vice President, Lease Operations of EFG 31
</TABLE>
(c) Identification of Certain Significant Persons
None.
(d) Family Relationship
No family relationship exists among any of the foregoing Partners, Directors
or Executive Officers.
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<PAGE>
(e) Business Experience
Mr. MacDonald, age 48, is a co-founder, Chairman and a member of the
Executive Committee of EFG and President and a Director of the General Partner.
Mr. MacDonald served as a co-founder, Director and Senior Vice President of
EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald is Vice
President of American Finance Group Securities Corp. and a limited partner in
Atlantic Acquisition Limited Partnership ("AALP"). Prior to co-founding EFG's
predecessor, Mr. MacDonald held various executive and management positions in
the leasing and pharmaceutical industries. Mr. MacDonald holds an M.B.A. from
Boston College and a B.A. degree from the University of Massachusetts (Amherst).
Mr. Engle, age 48, is President and Chief Executive Officer and a member of
the Executive Committee of EFG and President of AFG Realty Corporation. Mr.
Engle is Vice President and a Director of certain of EFG's affiliates. On
December 16, 1994, Mr. Engle acquired control of EFG, the General Partner and
each of EFG's subsidiaries. Mr. Engle controls the general partner of AALP and
is also a limited partner in AALP. From 1987 to 1990, Mr. Engle was a principal
and co-founder of Cobb Partners Development, Inc., a real estate and mortgage
banking company. From 1980 to 1987, Mr. Engle was Senior Vice President and
Chief Financial Officer of Arvida Disney Company, a large scale community
development company owned by Walt Disney Company. Prior to 1980, Mr. Engle
served in various management consulting and institutional brokerage capacities.
Mr. Engle has an M.B.A. from Harvard University and a B.S. degree from the
University of Massachusetts (Amherst).
Mr. Romano, age 37, is Executive Vice President and Chief Operating Officer
of EFG and certain of its affiliates and Clerk of the General Partner. Mr.
Romano joined EFG in November 1989 and was appointed Executive Vice President
and Chief Operating Officer in April 1996. Prior to joining EFG, Mr. Romano was
Assistant Controller for a privately-held real estate company which he joined in
1987. Mr. Romano held audit staff and manager positions at Ernst & Whinney (now
Ernst & Young LLP) from 1982 to 1986. Mr. Romano is a C.P.A. and holds a B.S.
degree from Boston College.
Mr. Coyne, age 36, is Senior Vice President of EFG. Mr. Coyne joined
EFG in 1989, remained until May 1993, and rejoined EFG in November 1994. From
May 1993 through November 1994, he was with the Raymond Company, a private
investment firm, where he was responsible for financing corporate and real
estate acquisitions. From 1985 through 1989, Mr. Coyne was affiliated with a
real estate investment company and an equipment leasing company. Prior to 1985
he was with the accounting firm of Ernst & Whinney (now Ernst & Young LLP). He
has a BS in Business Administration from John Carroll University, a Masters
Degree in Accounting from Case Western Reserve University and is a Certified
Public Accountant.
Mr. Butterfield, age 37, joined EFG in June 1992 and became Vice President,
Finance and Treasurer of EFG and certain of its affiliates in April 1996 and is
Treasurer of the General Partner. Prior to joining EFG, Mr. Butterfield was an
Audit Manager with Ernst & Young LLP, which he joined in 1987. Mr. Butterfield
was employed in public accounting and industry positions in New Zealand and
London (U.K.) prior to coming to the United States in 1987. Mr. Butterfield
attained his Associate Chartered Accountant (A.C.A.) professional qualification
in New Zealand and has completed his C.P.A. requirements in the United States.
He holds a Bachelor of Commerce degree from the University of Otago, Dunedin,
New Zealand.
Mr. Livesey, age 47, is Vice President, Aircraft and Vessels, of EFG. Mr.
Livesey joined EFG in October, 1989, and was promoted to Vice President in
January 1992. Prior to joining EFG, Mr. Livesey held sales and marketing
positions with two privately-held equipment leasing firms. Mr. Livesey holds an
M.B.A. from Boston College and B.A. degree from Stonehill College.
Ms. Simonsen, age 46, joined EFG in February 1990 and was promoted to Senior
Vice President, Information Systems of EFG in April 1996. Prior to joining EFG,
Ms. Simonsen was Vice President, Information Systems with Investors Mortgage
Insurance Company which she joined in 1973. Ms. Simonsen provided systems
consulting for a subsidiary of American International Group and authored a
software program published by IBM. Ms. Simonsen holds a B.A. degree from Wilson
College.
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<PAGE>
Ms. Ofgant, age 31, is Vice President, Lease Operations of EFG and certain
of its affiliates. Ms. Ofgant joined EFG in June 1989, and was promoted to
Manager, Lease Operations in April 1994. In April 1996, Ms. Ofgant was
appointed Vice President, Lease Operations. Prior to joining EFG, Ms. Ofgant
was employed by Security Pacific National Trust Company. Ms. Ofgant holds a
B.S. degree in Finance from Providence College.
(f) Involvement in Certain Legal Proceedings
None.
(g) Promoters and Control Persons
See Item 10 (a-b) above.
Item 11. Executive Compensation.
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(a) Cash Compensation
Currently, the Partnership has no employees. However, under the terms of
the Restated Agreement, as amended, the Partnership is obligated to pay all
costs of personnel employed full or part-time by the Partnership, including
officers or employees of the General Partner or its Affiliates. There is no
plan at the present time to make any officers or employees of the General
Partner or its Affiliates employees of the Partnership. The Partnership has not
paid and does not propose to pay any options, warrants or rights to the officers
or employees of the General Partner or its Affiliates.
(b) Compensation Pursuant to Plans
None.
(c) Other Compensation
Although the Partnership has no employees, as discussed in Item 11(a),
pursuant to Section 9.4(c) of the Restated Agreement, as amended, the
Partnership incurs a monthly charge for personnel costs of the Manager for
persons engaged in providing administrative services to the Partnership. A
description of the remuneration paid by the Partnership to the Manager for such
services is included in Item 13, herein and in Note 4 to the financial
statements included in Item 14, herein.
(d) Compensation of Directors
None.
(e) Termination of Employment and Change of Control Arrangement
There exists no remuneration plan or arrangement with the General Partner or
its Affiliates which results or may result from their resignation, retirement or
any other termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
By virtue of its organization as a limited partnership, the Partnership has
outstanding no securities possessing traditional voting rights. However, as
provided in Section 10.2(a) of the Restated Agreement, as amended (subject to
Sections 10.2(b) and 10.3), a majority interest of the Limited Partners have
voting rights with respect to:
1. Amendment of the Restated Agreement;
2. Termination of the Partnership;
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3. Removal of the General Partner; and
4. Approval or disapproval of the sale of all or substantially all the
assets of the Partnership (except in the orderly liquidation of the
Partnership upon its termination and dissolution).
No person or group is known by the General Partner to own beneficially more
than 5% of the Partnership's 803,454.56 outstanding Units as of March 1, 1997.
The ownership and organization of EFG is described in Item 1 of this report.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The General Partner of the Partnership is AFG Leasing VI Incorporated, an
affiliate of EFG.
(a) Transactions with Management and Others
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended December 31,
1996, 1995 and 1994, which were paid or accrued by the Partnership to EFG or its
Affiliates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $140,227 $140,863 $215,086
Administrative charges 40,295 21,000 12,000
Reimbursable operating expenses
due to third parties 151,051 117,568 77,121
-------- -------- --------
Total $331,573 $279,431 $304,207
======== ======== ========
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross
full payout lease rental revenue received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
In 1991, the Partnership acquired 900 intermodal cargo containers, at a cost
of $1,840,140, and leased such containers to ICCU Containers, S.p.A. ("ICCU"),
an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which formerly owned a
minority interest in AFG Holdings Illinois Limited Partnership, formerly a
partner in AFG. The ability of ICCU to fulfill all of its obligations under the
lease contract deteriorated, in EFG's view, in 1994. As a result, EFG, on the
Partnership's behalf, began negotiations with other parties to either assume the
lease obligations of ICCU or acquire the containers. As a result of these
negotiations, the Partnership transferred 740 containers, having a net book
value of $756,502, to a third-party on November 30, 1994. The Partnership
received, as settlement from ICCU and the third party, consideration as follows:
(i) a contractual right to receive comparable containers with an estimated fair
market value of $852,207 and (ii) beneficial assignment of an
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existing EFG note payable to CLOU which had a principal balance of $370,264 at
the date of the transaction. The note had an effective interest rate of 8% and a
quarterly amortization schedule which matured on December 31, 1996. All amounts
due from EFG pursuant to this note had been received by the Partnership at
December 31, 1996 in accordance with the original amortization schedule. A
portion of the consideration received was used to satisfy the Partnership's
accounts receivable balance of $183,128 outstanding from ICCU at November 30,
1994.
An additional 158 containers, having a net book value of $161,523, were
pending settlement at December 31, 1994. On March 31, 1995, 82 of these
containers, having a net book value of $77,841 were transferred to the third
party and the Partnership received $92,551 as consideration for these
containers. The remaining 76 containers, having a net book value of $33,298,
represent less than 1% of the Partnership's portfolio at December 31, 1996. The
remaining two containers of the original equipment group were disposed of in
1992 for stipulated payments as a result of casualty events.
In April 1995, the Partnership replaced 822 of the original containers with
comparable containers and leased such containers to a new lessee pursuant to the
rules for completing a like-kind exchange for income tax reporting purposes. The
carrying value of the new containers, $1,958,040, was reduced by $282,842,
representing the amount of gain deferred on the original containers and $14,710,
the amount of gain deferred on the 82 containers settled during 1995. The
Partnership obtained approximately $925,000 of long-term financing in connection
with the replacement containers.
All equipment was purchased from EFG, one of its affiliates or from third-
party sellers. The Partnership's Purchase Price is determined by the method
described in Note 2 to the financial statements included in Item 14, herein.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1996, the Partnership was owed $89,539 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1997.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"), a
newly formed Massachusetts limited partnership owned and controlled by certain
principals of EFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by EFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action brought
in the United States District Court for the District of Massachusetts (the
"Court") on behalf of the unitholders (limited partners), sought to enjoin the
Offer and obtain unspecified monetary damages. A settlement of this litigation
was approved by the Court on November 15, 1995. The Plaintiffs filed an appeal
in this matter. On November 26, 1996, the United States Court of Appeals for the
First Circuit handed down a decision affirming the Court's approval of the
settlement. A second class action, brought in the Superior Court of the
Commonwealth of Massachusetts (the "Superior Court") seeking to enjoin the
Offer, obtain unspecified monetary damages, and intervene in the first class
action, was dismissed by the Superior Court. The limited partners of the
Partnership tendered approximately 16,536 units or 2.06% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
were not adversely affected by these proceedings or settlements. On December 1,
1996, EFG purchased a Class D interest, representing a 49% economic interest in
AALP.
(b) Certain Business Relationships
None.
-12-
<PAGE>
(c) Indebtedness of Management to the Partnership
None.
(d) Transactions with Promoters
See Item 13(a) above.
-13-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) Documents filed as part of this report:
(1) Financial Statements:
Report of Independent Auditors................................. *
Statement of Financial Position
at December 31, 1996 and 1995.................................. *
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994........... *
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994........... *
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994........... *
Notes to the Financial Statements.............................. *
(2) Financial Statement Schedules:
None required.
(3) Exhibits:
Except as set forth below, all Exhibits to Form 10-K, as set forth
in Item 601 of Regulation S-K, are not applicable.
Exhibit
Number
------
4 Amended and Restated Agreement and Certificate of Limited
Partnership included as Exhibit A to the Prospectus which is
included in Registration Statement on Form S-1 (No. 33-35148).
13 The 1996 Annual Report to security holders, a copy of which is
furnished for the information of the Securities and Exchange
Commission. Such Report, except for those portions thereof which
are incorporated herein by reference, is not deemed "filed" with
the Commission.
23 Consent of Independent Auditors.
99 (a) Lease agreement with National Steel Corporation was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 as Exhibit 28 (a) and is incorporated herein by
reference.
* Incorporated herein by reference to the appropriate portion of the 1996 Annual
Report to security holders for the year ended December 31, 1996. (See Part II)
-14-
<PAGE>
Exhibit
Number
------
99 (b) Lease agreement with United Air Lines, Inc. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 as Exhibit 28 (b) and is incorporated herein by
reference.
99 (c) Lease agreement with Gearbulk Shipowning Ltd. was filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 99 (c) and is incorporated herein by
reference.
99 (d) Lease agreement with General Motors Corporation is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and is included herein.
99 (e) Lease agreement with Southwest Airlines, Inc. is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and is included herein.
99 (f) Lease agreement with Southwest Airlines, Inc. is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and is included herein.
99 (g) Lease agreement with Southwest Airlines, Inc. is filed in the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and is included herein.
(b) Reports on Form 8-K
None.
-15-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-
K) of American Income Fund I-C, a Massachusetts Limited Partnership of our
report dated March 14, 1997, included in the 1996 Annual Report to Partners of
American Income Fund I-C.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AMERICAN INCOME FUND I-C, a Massachusetts Limited Partnership
By: AFG Leasing VI Incorporated,
a Massachusetts corporation and the
General Partner of the Registrant.
By: /s/ Geoffrey A. MacDonald By: /s/ Gary D. Engle
-------------------------------- ---------------------------
Geoffrey A. MacDonald Gary D. Engle
Chairman and a member of the President and Chief Executive
Executive Committee of EFG and Officer and a member of the
President and a Director of the Executive Committee of EFG
General Partner (Principal Executive Officer)
Date: March 31, 1997 Date: March 31, 1997
-------------------------------- ---------------------------
By: /s/ Gary M. Romano By: /s/ Michael J. Butterfield
---------------------------------- -----------------------------
Gary M. Romano Michael J. Butterfield
Executive Vice President and Chief Vice President, Finance and
Operating Officer of EFG and Clerk Treasurer of EFG and Treasurer
of the General Partner of the General Partner
(Principal Financial Officer) (Principal Accounting Officer)
Date: March 31, 1997 Date: March 31, 1997
-------------------------------- -------------------------
-17-
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report has been sent to the Limited Partners. A report will be
furnished to the Limited Partners subsequent to the date hereof.
No proxy statement has been or will be sent to the Limited Partners.
-18-
<PAGE>
AMERICAN INCOME FUND I
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Annual Report to the Partners, December 31, 1996
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
INDEX TO ANNUAL REPORT TO THE PARTNERS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 3-7
FINANCIAL STATEMENTS:
Report of Independent Auditors 8
Statement of Financial Position
at December 31, 1996 and 1995 9
Statement of Operations
for the years ended December 31, 1996, 1995 and 1994 10
Statement of Changes in Partners' Capital
for the years ended December 31, 1996, 1995 and 1994 11
Statement of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 12
Notes to the Financial Statements 13-22
ADDITIONAL FINANCIAL INFORMATION:
Schedule of Excess (Deficiency) of Total Cash
Generated to Cost of Equipment Disposed 23
Statement of Cash and Distributable Cash
From Operations, Sales and Refinancings 24
Schedule of Costs Reimbursed to the General
Partner and its Affiliates as Required by
Section 9.4 of the Amended and Restated
Agreement and Certificate of Limited Partnership 25
</TABLE>
-1-
<PAGE>
SELECTED FINANCIAL DATA
The following data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements.
For each of the five years in the period ended December 31, 1996:
<TABLE>
<CAPTION>
Summary of
Operations 1996 1995 1994 1993 1992
- ----------------------------- ------------ ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Lease revenue $ 4,130,156 $ 4,648,578 $ 7,199,896 $ 6,525,598 $ 6,574,464
Net income (loss) $ 552,157 $ (779,251) $ (22,729) $ (186,064) $ 902,192
Per Unit:
Net income (loss) $ 0.65 $ (0.92) $ (0.03) $ (0.22) $ 1.07
Cash distributions $ 1.38 $ 2.00 $ 2.88 $ 3.00 $ 3.00
Financial Position
- -----------------------------
Total assets $13,848,889 $12,687,300 $16,390,469 $22,927,882 $29,030,172
Total long-term obligations $6,547,519 $4,574,713 $ 5,323,875 $ 9,589,147 $12,923,280
Partners' capital $ 6,821,321 $ 7,432,059 $ 9,902,794 $12,357,031 $15,080,320
</TABLE>
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to the year
ended December 31, 1995 and the year ended December 31, 1995
compared to the year ended December 31, 1994
Overview
- --------
American Income Fund I-C, a Massachusetts Limited Partnership (the
"Partnership") was organized in 1991 as a direct-participation equipment leasing
program to acquire a diversified portfolio of capital equipment subject to lease
agreements with third parties. The Partnership's stated investment objectives
and policies contemplated that the Partnership would wind-up its operations
within approximately seven years of its inception. The value of the
Partnership's equipment portfolio decreases over time due to depreciation
resulting from age and usage of the equipment, as well as technological changes
and other market factors. In addition, the Partnership does not replace
equipment as it is sold; therefore, its aggregate investment value in equipment
declines from asset disposals occurring in the normal course. As a result of
the Partnership's age and a declining equipment portfolio, the General Partner
is evaluating a variety of transactions that will reduce the Partnership's
prospective costs to operate as a publicly registered limited partnership and,
therefore, enhance overall cash distributions to the limited partners. Such a
transaction may involve the sale of the Partnership's remaining equipment or a
transaction that would allow for the consolidation of the Partnership's expenses
with other similarly-organized equipment leasing programs. In order to increase
the marketability of the Partnership's remaining equipment, the General Partner
expects to use the Partnership's available cash and future cash flow to retire
indebtedness. This will negatively effect short-term cash distributions.
Results of Operations
- ---------------------
For the year ended December 31, 1996, the Partnership recognized lease revenue
of $4,130,156 compared to $4,648,578 and $7,199,896 for the years ended December
31, 1995 and 1994, respectively. The decrease in lease revenue from 1994 to 1996
reflects the effects of primary lease term expirations and the sale of
equipment. The Partnership concluded an aircraft exchange in March 1996 (see
discussion below). As a result of this exchange, the Partnership replaced its
ownership interest in a Boeing 747-SP, having aggregate quarterly lease revenues
of $213,302, with interests in six other aircraft (three Boeing 737 aircraft
leased by Southwest Airlines, Inc., two McDonnell Douglas MD-82 aircraft leased
by Finnair OY and one McDonnell Douglas MD-87 aircraft leased by Reno Air,
Inc.), having aggregate quarterly lease revenues of $326,254. The Finnair
Aircraft and the Reno Aircraft were exchanged into the Partnership on March 25
and March 26, 1996, respectively. Accordingly, revenue for the year ended
December 31, 1996 does not fully reflect the rents ultimately anticipated from
the like-kind exchange. For the year ended December 31, 1994, the Partnership
recognized lease revenue from related parties of $275,937. No lease revenue
from related parties was recognized during 1995 and 1996. Lease revenue from
related parties reflects revenue earned on containers formerly leased to ICCU
Containers, S.p.A. (See Note 4 to the financial statements herein).
The Partnership's equipment portfolio includes certain assets in which the
Partnership holds a proportionate ownership interest. In such cases, the
remaining interests are owned by an affiliated equipment leasing program
sponsored by Equis Financial Group Limited Partnership (formerly American
Finance Group), a Massachusetts limited partnership ("EFG"). Proportionate
equipment ownership enables the Partnership to further diversify its equipment
portfolio by participating in the ownership of selected assets, thereby reducing
the general levels of risk which could result from a concentration in any single
equipment type, industry or lessee. The Partnership and each affiliate
individually report, in proportion to their respective ownership interests,
their respective shares of assets, liabilities, revenues, and expenses
associated with the equipment.
Interest income for the year ended December 31, 1996 was $98,806 compared to
$51,136 and $37,331 for the years ended December 31, 1995 and 1994,
respectively. Interest income is typically generated from temporary investment
of rental receipts and equipment sale proceeds in short-term instruments. The
increase in
-3-
<PAGE>
interest income in 1996 compared to 1995 is a result of interest of
$44,994 earned on cash held in a special-purpose escrow account in connection
with the like-kind exchange transactions, discussed below. During the years
ended December 31, 1996 and 1995, the Partnership earned interest income of
$18,531 and $25,817, respectively, on a note receivable from EFG resulting from
the settlement with ICCU Containers, S.p.A. (See Note 4 to the financial
statements herein). All amounts due from EFG pursuant to this note had been
received at December 31, 1996. The amount of future interest income is expected
to fluctuate in relation to prevailing interest rates, the collection of lease
revenue, and the proceeds from equipment sales.
In 1996, the Partnership sold equipment having a net book value of $336,314 to
existing lessees and third parties. These sales resulted in a net gain, for
financial statement purposes, of $356,452 compared to a net gain in 1995 of
$48,107 on equipment having a net book value of $517,800, and a net loss in 1994
of $246,330 on equipment having a net book value of $780,613.
In 1994, the Partnership recorded a write-down of the carrying value of its
33.07% ownership interest in a Boeing 747-SP aircraft ("the Aircraft") leased to
United Air Lines, Inc. ("United"). The resulting charge, representing an
impairment, of $1,202,000 ($1.42 per limited partnership unit) was based on a
comparison of the estimated net realizable value and corresponding carrying
value for the Partnership's interest in the Aircraft. Net realizable value was
estimated based on (i) third-party appraisals of the Partnership's aircraft and
(ii) EFG's assessment of prevailing market conditions for similar aircraft. In
recent years, market values for used commercial jet aircraft have deteriorated.
Consistent price competition and other pressures within the airline industry
have inhibited sustained profitability for many carriers. Most major airlines
have had to re-evaluate their aircraft fleets and operating strategies. Such
issues complicate the determination of net realizable value for specific
aircraft, and particularly used aircraft, because cost-benefit and market
considerations may differ significantly between the major airlines. Aircraft
condition, age, passenger capacity, distance capability, fuel efficiency, and
other factors also influence market demand and market values for passenger jet
aircraft.
The Aircraft suffered a market decline due to its nature as a Special Purpose
(SP) aircraft which was designed to travel long distances on a non-stop basis.
Distance capability was achieved, in part, by reducing the number of passenger
seats contained on a traditional 747 aircraft. In recent years, new aircraft
have become available which compete with the 747-SP in both passenger capacity
and fuel efficiency. This development has depressed market values of used 747-
SP aircraft and was the basis for the write-down recognized by the Partnership
in 1994.
In September 1995, the Partnership transferred its 33.07% ownership interest
in the United Aircraft, pursuant to the rules of a like-kind exchange for income
tax reporting purposes. The Partnership received aggregate cash consideration
of $2,723,865 including $213,301 for rent accrued through the transfer date. A
portion of the consideration was used to satisfy the balance of outstanding debt
and interest of $414,925. The net cash consideration of $2,095,639 was
deposited into a special-purpose escrow account through a third-party exchange
agent pending the completion of the aircraft exchange. The Partnership's
interest in the Aircraft had a net book value of $3,475,960 at the date of
transfer and resulted in a net loss for financial reporting purposes of
$965,396.
In November 1995, the Partnership partially replaced the United Aircraft with
a 14.35% interest in the Southwest Aircraft, at an aggregate cost of $2,101,054.
To acquire the interests in the Southwest Aircraft, the Partnership obtained
financing of $1,567,878 from a third-party lender and utilized $533,176 of the
cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 85.65% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of the
United Aircraft with the acquisitions of an 11.87% ownership interest in the
Finnair Aircraft and a 21.31% ownership interest in the Reno Aircraft at a total
cost to the Partnership of $3,322,913 and $2,894,892, respectively. To acquire
the ownership interest in the Finnair Aircraft, the Partnership paid $1,110,980
in cash and obtained financing of $2,211,933 from a third-party lender. To
acquire the ownership interest in the Reno Aircraft, the Partnership paid
$494,780 in cash and obtained financing of $2,400,112 from a third-party lender.
The remaining ownership interests of 88.13% and 78.69% of the Finnair Aircraft
and Reno Aircraft, respectively, are held by affiliated equipment leasing
programs sponsored by EFG.
-4-
<PAGE>
During 1995, the Partnership transferred its ownership interest in certain
trailers, previously leased to The Atchison Topeka and Santa Fe Railroad to a
third party for cash consideration of $89,000. The trailers had an aggregate
net book value of $49,693 at the date of transfer resulting in a net gain, for
financial statement purposes, of $39,307. A portion of the consideration was
used to satisfy outstanding debt of $3,596. The transaction was structured as a
like-kind exchange for income tax reporting purposes. In 1995, the Partnership
replaced these trailers with comparable trailers and leased such equipment to a
new lessee. The net carrying value of the new trailers, $329,323, was net of
$39,307, representing the amount of gain deferred on the original trailers. The
Partnership funded this transaction with $85,404 of the net cash consideration
received and a third-party installment note payable of $283,226.
It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Partnership, as such transactions will be dependent
upon the condition and type of equipment being sold and its marketability at the
time of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation associated with the equipment being sold.
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenue generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership
classifies such residual rental payments as lease revenue. Consequently, the
amount of gain or loss reported in the financial statements is not necessarily
indicative of the total residual value the Partnership achieved from leasing the
equipment.
Depreciation and amortization expense was $3,163,960, $3,930,328 and
$4,838,506 for the years ended December 31, 1996, 1995 and 1994, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset at the date of
primary lease expiration on a straight-line basis over such term. For the
purposes of this policy, estimated residual values represent estimates of
equipment values at the date of primary lease expiration. To the extent that
equipment is held beyond its primary lease term, the Partnership continues to
depreciate the remaining net book value of the asset on a straight-line basis
over the asset's remaining economic life.
Interest expense was $556,255 or 13.5% of lease revenue in 1996, $377,734 or
8.1% of lease revenue in 1995 and $668,913 or 9.3% of lease revenue in 1994.
The increase in interest expense in 1996 compared to 1995 was due primarily to
interest incurred in connection with the leveraging obtained to finance the
like-kind exchange transactions, discussed above. Interest expense in future
periods is expected to decline in amount and as a percentage of lease revenue as
the principal balance of notes payable is reduced through the application of
rent receipts to outstanding debt. In addition, the General Partner expects to
use a portion of the Partnership's available cash and future cash flow to
retire indebtedness (see Overview).
Management fees were approximately 3.4% of lease revenue for the year ended
December 31, 1996, compared to 3% of lease revenue during the years ended
December 31, 1995 and 1994, respectively. Management fees are based on 5% of
gross lease revenue generated by operating leases and 2% of gross lease revenue
generated by full payout leases.
Operating expenses consist principally of administrative charges, professional
service costs, such as audit and legal fees, as well as printing, distribution
and remarketing expenses. In certain cases, equipment storage or repairs and
maintenance costs may be incurred in connection with equipment being remarketed.
Operating expenses represented 4.6%, 3% and 1.2% of lease revenue during the
years ended December 31, 1996, 1995 and 1994, respectively. The increase in
operating expenses from 1995 to 1996 was due principally to costs
-5-
<PAGE>
incurred in connection with the like-kind exchange transactions, discussed
above. The increase in operating expenses from 1994 to 1995 is attributable
principally to an increase in professional service costs and to legal costs
incurred in connection with the like-kind exchange of certain cargo containers
(See Note 4 to the financial statements herein.) The amount of future operating
expenses cannot be predicted with certainty; however, such expenses are usually
higher during the acquisition and liquidation phases of a partnership. Other
fluctuations typically occur in relation to the volume and timing of remarketing
activities.
Liquidity and Capital Resources and Discussion of Cash Flows
- ------------------------------------------------------------
The Partnership by its nature is a limited life entity which was established
for specific purposes described in the preceding "Overview". As an equipment
leasing program, the Partnership's principal operating activities derive from
asset rental transactions. Accordingly, the Partnership's principal source of
cash from operations is provided by the collection of periodic rents. These
cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. Operating
activities generated net cash inflows of $3,646,728, $4,129,166, and $6,300,158
for the years ended 1996, 1995, and 1994 respectively. Future renewal, re-lease
and equipment sale activities will cause a decline in the Partnership's lease
revenue and corresponding sources of operating cash. Overall, expenses
associated with rental activities, such as management fees, and net cash flow
from operating activities will also continue to decline as the Partnership
experiences a higher frequency of remarketing events.
Ultimately, the Partnership will dispose of all assets under lease. This will
occur principally through sale transactions whereby each asset will be sold to
the existing lessee or to a third party. Generally, this will occur upon
expiration of each asset's primary or renewal/re-lease term. In certain
instances, casualty or early termination events may result in the disposal of an
asset. Such circumstances are infrequent and usually result in the collection
of stipulated cash settlements pursuant to terms and conditions contained in the
underlying lease agreements.
Cash expended for equipment acquisitions and cash realized from asset disposal
transactions are reported under investing activities on the accompanying
Statement of Cash Flows. During the year ended December 31, 1996, the
Partnership expended $43,297 in cash in connection with the like-kind exchange
transactions referred to above. During 1996, the Partnership realized $692,766
in equipment sale proceeds compared to $565,907 and $534,283 in 1995 and 1994,
respectively. Future inflows of cash from asset disposals will vary in timing
and amount and will be influenced by many factors including, but not limited to,
the frequency and timing of lease expirations, the type of equipment being sold,
its condition and age, and future market conditions.
The Partnership obtained long-term financing in connection with certain
equipment leases. The repayments of principal related to such indebtedness are
reported as a component of financing activities. Each note payable is recourse
only to the specific equipment financed and to the minimum rental payments
contracted to be received during the debt amortization period (which period
generally coincides with the lease rental term). As rental payments are
collected, a portion or all of the rental payment is used to repay the
associated indebtedness. In future years, the amount of cash used to repay debt
obligations is scheduled to decline as the principal balance of notes payable is
reduced through the collection and application of rents. However, the amount of
cash used to repay debt obligations may fluctuate due to the use of the
Partnership's available cash and future cash flow to retire indebtedness (see
Overview). In addition, the Partnership has balloon payment obligations at the
expiration of the respective primary lease terms related to the Finnair Aircraft
and the Reno Aircraft of $1,127,840 and $679,276, respectively.
Cash distributions to the General and Limited Partners are declared and
generally paid within fifteen days following the end of each calendar quarter.
The payment of such distributions is presented as a component of financing
activities. For the year ended December 31, 1996, the Partnership declared
total cash distributions of Distributable Cash From Operations and Distributable
Cash From Sales and Refinancings of $1,162,895. In accordance with the Amended
and Restated Agreement and Certificate of Limited Partnership, the Limited
-6-
<PAGE>
Partners were allocated 95% of these distributions, or $1,104,750, and the
General Partner was allocated 5%, or $58,145. The fourth quarter 1996 cash
distribution was paid on January 13, 1997.
Cash distributions paid to the Limited Partners consist of both a return of
and a return on capital. Cash distributions do not represent and are not
indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each asset at
its disposal date. Future market conditions, technological changes, the ability
of EFG to manage and remarket the assets, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's equipment portfolio.
The future liquidity of the Partnership will be influenced by the foregoing
and will be greatly dependent upon the collection of contractual rents and the
outcome of residual activities. The General Partner anticipates that cash
proceeds resulting from these sources will satisfy the Partnership's future
expense obligations. However, the amount of cash available for distribution in
future periods will fluctuate. Equipment lease expirations and asset disposals
will cause the Partnership's net cash from operating activities to diminish over
time; and equipment sale proceeds will vary in amount and period of realization.
In addition, the Partnership may be required to incur asset refurbishment or
upgrade costs in connection with future remarketing activities. Accordingly,
fluctuations in the level of quarterly cash distributions will occur during the
life of the Partnership.
-7-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Partners of American Income Fund I-C,
a Massachusetts Limited Partnership:
We have audited the accompanying statements of financial position of
American Income Fund I-C, a Massachusetts Limited Partnership as of December 31,
1996 and 1995, and the related statements of operations, changes in partners'
capital, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Income Fund I-C, a
Massachusetts Limited Partnership at December 31, 1996 and 1995, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Additional Financial Information
identified in the Index to Annual Report to the Partners is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ERNST & YOUNG LLP
Boston, Massachusetts
March 14, 1997
-8-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF FINANCIAL POSITION
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 1,187,478 $ 799,133
Contractual right for equipment -- 1,562,463
Rents receivable 469,090 716,657
Accounts receivable - affiliate 89,539 13,652
Note receivable - affiliate -- 210,144
Equipment at cost, net of accumulated
depreciation of $13,677,519 and
$13,427,155 at December 31, 1996
and 1995, respectively 12,102,782 9,384,501
Organization costs, net of accumulated
amortization of $5,000 and $4,250 at
December 31, 1996 and 1995, respectively -- 750
----------- -----------
Total assets $13,848,889 $12,687,300
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Notes payable $ 6,547,519 $ 4,574,713
Accrued interest 79,752 42,509
Accrued liabilities 22,750 157,002
Accrued liabilities - affiliate 33,067 23,344
Deferred rental income 133,044 140,519
Cash distributions payable to partners 211,436 317,154
----------- -----------
Total liabilities 7,027,568 5,255,241
----------- -----------
Partners' capital (deficit):
General Partner (541,473) (510,936)
Limited Partnership Interests
(803,454.56 Units; initial purchase
price of $25 each) 7,362,794 7,942,995
----------- -----------
Total partners' capital 6,821,321 7,432,059
----------- -----------
Total liabilities and partners' $13,848,889 $12,687,300
capital =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-9-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ ------------
Income:
<S> <C> <C> <C>
Lease revenue $4,130,156 $4,648,578 $6,923,959
Lease revenue - related party -- -- 275,937
Interest income 98,806 51,136 37,331
Interest income - affiliate 18,531 25,817 --
Gain (loss) on sale of equipment 356,452 48,107 (246,330)
Loss on exchange of equipment -- (965,396) --
---------- ---------- ----------
Total income 4,603,945 3,808,242 6,990,897
---------- ---------- ----------
Expenses:
Depreciation and amortization 3,163,960 3,930,328 4,838,506
Write-down of equipment -- -- 1,202,000
Interest expense 556,255 377,734 668,913
Equipment management fees
- affiliate 140,227 140,863 215,086
Operating expenses - affiliate 191,346 138,568 89,121
---------- ---------- ----------
Total expenses 4,051,788 4,587,493 7,013,626
---------- ---------- ----------
Net income (loss) $ 552,157 $ (779,251) $ (22,729)
========== ========== ==========
Net income (loss)
per limited partnership unit $ 0.65 $ (0.92) $ (0.03)
========== ========== ==========
Cash distributions declared
per limited partnership unit $ 1.38 $ 2.00 $ 2.88
========== ========== ==========
</TABLE>
The accompanying notes are an intergral part of
these financial statements.
-10-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited Partners
Partner -------------------------
Amount Units Amount Total
----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $(264,688) 803,454.56 $12,621,719 $12,357,031
Net loss - 1994 (1,136) -- (21,593) (22,729)
Cash distributions declared (121,575) -- (2,309,933) (2,431,508)
--------- ---------- ----------- -----------
Balance at December 31, 1994 (387,399) 803,454.56 10,290,193 9,902,794
Net loss - 1995 (38,963) -- (740,288) (779,251)
Cash distributions declared (84,574) -- (1,606,910) (1,691,484)
--------- ---------- ----------- -----------
Balance at December 31, 1995 (510,936) 803,454.56 7,942,995 7,432,059
Net income - 1996 27,608 -- 524,549 552,157
Cash distributions declared (58,145) -- (1,104,750) (1,162,895)
--------- ---------- ----------- -----------
Balance at December 31, 1996 $(541,473) 803,454.56 $ 7,362,794 $ 6,821,321
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
-11-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from (used in) operating
activities:
Net income (loss) $ 552,157 $ (779,251) $ (22,729)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 3,163,960 3,930,328 4,838,506
Write-down of equipment -- -- 1,202,000
(Gain) loss on sale of equipment (356,452) (48,107) 246,330
Loss on exchange of equipment -- 965,396 --
Changes in assets and liabilities:
Decrease (increase) in:
Rents receivable 247,567 (83,479) (102,786)
Accounts receivable - affiliate (75,887) (26,934) 133,866
Note receivable - affiliate 210,144 160,120 --
Increase (decrease) in:
Accrued interest 37,243 (30,951) (10,367)
Accrued liabilities (134,252) 44,560 31,420
Accrued liabilities - affiliate 9,723 16,307 7,037
Deferred rental income (7,475) (18,823) (23,119)
----------- ----------- -----------
Net cash from operating
activities 3,646,728 4,129,166 6,300,158
----------- ----------- -----------
Cash flows from (used in) investing
activities:
Purchase of equipment (43,297) -- --
Proceeds from equipment sales 692,766 565,907 534,283
----------- ----------- -----------
Net cash from investing
activities 649,469 565,907 534,283
----------- ----------- -----------
Cash flows used in financing activities:
Principal payments - notes payable (2,639,239) (3,106,835) (4,265,272)
Distributions paid (1,268,613) (1,902,919) (2,537,225)
----------- ----------- -----------
Net cash used in financing
activities (3,907,852) (5,009,754) (6,802,497)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 388,345 (314,681) 31,944
Cash and cash equivalents at beginning
of year 799,133 1,113,814 1,081,870
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,187,478 $ 799,133 $ 1,113,814
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest $ 519,012 $ 408,685 $ 679,280
=========== =========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
See Notes 3 and 4 to the financial statements.
The accompanying notes are an integral part of
these financial statements.
-12-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
December 31, 1996
NOTE 1 - ORGANIZATION AND PARTNERSHIP MATTERS
- ---------------------------------------------
The Partnership was organized as a limited partnership under the Massachusetts
Uniform Limited Partnership Act (the "Uniform Act") on March 1, 1991, for the
purpose of acquiring and leasing to third parties a diversified portfolio of
capital equipment. Partners' capital initially consisted of contributions of
$1,000 from the General Partner (AFG Leasing VI Incorporated) and $100 from the
Initial Limited Partner (AFG Assignor Corporation). On May 31, 1991 the
Partnership issued 803,454.56 units of limited partnership interests (the
"Units") to 909 investors. Included in the 803,454.56 units were 7,293.56 bonus
units. The Partnership's General Partner, AFG Leasing VI Incorporated, is a
Massachusetts corporation formed in 1990 and an affiliate of Equis Financial
Group Limited Partnership (formerly American Finance Group), a Massachusetts
limited partnership ("EFG"). The General Partner is not required to make any
other capital contributions except as may be required under the Uniform Act and
Section 6.1(b) of the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Restated Agreement, as amended").
Significant operations commenced on May 31, 1991 when the Partnership made
its initial equipment acquisition. Pursuant to the Restated Agreement, as
amended, Distributable Cash From Operations and Distributable Cash From Sales or
Refinancings will be allocated 95% to the Limited Partners and 5% to the General
Partner.
Under the terms of a Management Agreement between the Partnership and EFG,
management services are provided by EFG to the Partnership at fees which the
General Partner believes to be competitive for similar services. (Also see Note
4.)
EFG is a Massachusetts limited partnership formerly known as American
Finance Group ("AFG"). AFG was established in 1988 as a Massachusetts general
partnership and succeeded American Finance Group, Inc., a Massachusetts
corporation organized in 1980. EFG and its subsidiaries (collectively, the
"Company") are engaged in various aspects of the equipment leasing business,
including EFG's role as Equipment Manager or Advisor to the Partnership and
several other Direct-Participation equipment leasing programs sponsored or co-
sponsored by EFG (the "Other Investment Programs"). The Company arranges to
broker or originate equipment leases, acts as remarketing agent and asset
manager, and provides leasing support services, such as billing, collecting, and
asset tracking.
The general partner of EFG, with a 1% controlling interest, is Equis
Corporation, a Massachusetts corporation owned and controlled entirely by Gary
D. Engle, its President and Chief Executive Officer. Equis Corporation also
owns a controlling 1% general partner interest in EFG's 99% limited partner, GDE
Acquisition Limited Partnership ("GDE LP"). Equis Corporation and GDE LP were
established in December 1994 by Mr. Engle for the sole purpose of acquiring the
business of AFG.
In January 1996, the Company sold certain assets of AFG relating primarily
to the business of originating new leases, and the name "American Finance
Group," and its acronym, to a third party (the "Buyer"). AFG changed its name
to Equis Financial Group Limited Partnership after the sale was concluded.
Pursuant to terms of the sale agreements, EFG agreed not to compete with the
Buyer's lease origination business for a period of five years; however, EFG is
permitted to originate certain equipment leases, principally those involving
non-investment grade lessees and ocean-going vessels, which are not in
competition with the Buyer. In addition, the sale agreements specifically
reserved to EFG the rights to continue using the name American Finance Group and
its acronym in connection with the Partnership and the Other Investment Programs
and to continue managing all assets owned by the Partnership and the Other
Investment Programs, including the right to satisfy all required equipment
acquisitions utilizing either brokers or the Buyer. Geoffrey A. MacDonald,
Chairman of Equis Corporation and Gary D. Engle agreed not to compete with the
sold business on terms and conditions similar to those for the Company.
-13-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Statement of Cash Flows
- -----------------------
The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. From time to time, the
Partnership invests excess cash with large institutional banks in reverse
repurchase agreements with overnight maturities. Under the terms of the
agreements, title to the underlying securities passes to the Partnership. The
securities underlying the agreements are book entry securities.
Revenue Recognition
- -------------------
Rents are payable to the Partnership monthly, quarterly or semi-annually and
no significant amounts are calculated on factors other than the passage of time.
The leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$8,703,278 are due as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1997 $2,900,359
1998 1,931,581
1999 1,309,273
2000 794,761
2001 760,321
Thereafter 1,006,983
-----------
Total $8,703,278
===========
</TABLE>
Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
United Air Lines, Inc. -- $632,629 $833,364
National Steel Corporation -- $488,580 --
Gearbulk Shipowning Ltd. $543,909 $542,655 --
General Motors Corporation $516,616 -- --
Southwest Airlines, Inc. $413,280 -- --
</TABLE>
In September 1995, the Partnership transferred its ownership interest in a
Boeing 747-SP-21 commercial jet aircraft to the existing lessee, United Air
Lines Inc. ("United"), pursuant to the rules for a like-kind exchange
transaction for income tax reporting purposes (See Note 3 herein). In November
1995, the Partnership partially replaced the United aircraft with a 14.35%
interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines Inc.
("Southwest"). The Partnership will receive approximately $413,000 of rental
revenue in each of the years in
-14-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(continued)
the period ending December 31, 1999, and $34,000 in the year ending December 31,
2000, pursuant to the Southwest lease agreement.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% interest in two
McDonnell-Douglas MD-82 Aircraft leased by Finnair OY (the "Finnair Aircraft")
and a 21.31% ownership interest in a McDonnell-Douglas MD-87 aircraft leased by
Reno Air, Inc. (the "Reno Aircraft"). The Partnership will receive
approximately $511,000 of rental revenue in each of the years in the period
ending December 31, 1998, and approximately $128,000 in the year ending December
31, 1999, pursuant to the Finnair Aircraft lease agreement. With respect to the
Reno Aircraft lease agreement, the Partnership will receive approximately
$380,000 of rental revenue in each of the years in the period ending December
31, 2002. Pursuant to the Reno Aircraft lease agreement, rents are adjusted
monthly for changes of the London Inter-Bank Offered Rate ("LIBOR"). Future
rents reported above reflect the most recent LIBOR effected rental payment.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Equipment on Lease
- ------------------
All equipment was acquired from EFG, one of its Affiliates or from third-
party sellers. Equipment cost represents asset base price plus acquisition fees
and was determined in accordance with the Restated Agreement, as amended, and
certain regulatory guidelines. Asset base price is affected by the relationship
of the seller to the Partnership as summarized herein. Where the seller of the
equipment was EFG or an affiliate, asset base price was the lower of (i) the
actual price paid for the equipment by EFG or the affiliate plus all actual
costs accrued by EFG or the affiliate while carrying the equipment less the
amount of all rents earned by EFG or the Affiliate prior to selling the
equipment or (ii) fair market value as determined by the General Partner in its
best judgment, including all liens and encumbrances on the equipment and other
actual expenses. Where the seller of the equipment was a third party who did
not manufacture the equipment, asset base price was the lower of (i) the price
invoiced by the third party or (ii) fair market value as determined by the
General Partner. Where the seller of the equipment was a third party who also
manufactured the equipment, asset base price was the manufacturer's invoice
price, which price was considered to be representative of fair market value.
Depreciation and Amortization
- -----------------------------
The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the asset's remaining economic life.
Periodically, the General Partner evaluates the net carrying value of equipment
to determine whether it exceeds estimated net realizable value. Adjustments to
reduce the net carrying value of equipment are recorded in those instances where
estimated net realizable value is considered to be less than net carrying value.
Such adjustments are reflected separately on the accompanying Statement of
Operations as Write-Down of Equipment.
-15-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.
Organization costs were amortized using the straight-line method over a
period of five years.
Accrued Liabilities - Affiliate
- -------------------------------
Unpaid operating expenses paid by EFG on behalf of the Partnership and
accrued but unpaid administrative charges are reported as Accrued Liabilities -
Affiliate. (See Note 4.)
Allocation of Profits and Losses
- --------------------------------
For financial statement purposes, net income or loss is allocated to each
Partner according to their respective ownership percentages (95% to the Limited
Partners and 5% to the General Partner). See Note 6 for allocation of income or
loss for income tax purposes.
Net Income (Loss) and Cash Distributions Per Unit
- -------------------------------------------------
Net income (loss) and cash distributions per Unit are based on 803,454.56
Units outstanding during each of the three years in the period ended December
31, 1996 and computed after allocation of the General Partner's 5% share of net
income (loss) and cash distributions.
Provision for Income Taxes
- --------------------------
No provision or benefit from income taxes is included in the accompanying
financial statements. The Partners are responsible for reporting their
proportionate shares of the Partnership's taxable income or loss and other tax
attributes on their tax returns.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted Statement 121 in the first quarter of 1996. The adoption of
Statement 121 did not have a material effect on the financial statements of the
Partnership.
NOTE 3 - EQUIPMENT
- ------------------
The following is a summary of equipment owned by the Partnership at December
31, 1996. In the opinion of EFG, the acquisition cost of the equipment did not
exceed its fair market value.
-16-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
Lease Term Equipment
Equipment Type (Months) at Cost Location
- -------------------------------- ----------- ------------- -----------------------------
<S> <C> <C> <C>
Aircraft 39-81 $ 8,318,862 NV/TX/Foreign
Materials handling 4-60 6,342,059 CA/CO/FL/GA/IA/IL/KY/MI/MN/MO
NC/NY/OH/OR/TX/Foreign
Vessels 72 2,605,381 Foreign
Trailers/intermodel containers 66-99 2,187,937 CA/IL/OK
Tractors and heavy duty trucks 3-78 1,945,458 CA/IL/IN/MI/OR
Furniture and fixtures 90 1,914,145 MI/TN
Construction and mining 36-60 762,152 IL/WI
Retail store fixtures 48 517,488 FL
Motor vehicles 48-60 394,669 MI/OH/WI
Computers and peripherals 6-37 345,281 CA/MI/NY
Communications 12-60 295,245 MA/OH/TX/WV
Research and test 24 116,406 CO
Manufacturing 72 35,218 MI
------------
Total equipment cost 25,780,301
Accumulated depreciation (13,677,519)
------------
Equipment, net of accumulated depreciation $ 12,102,782
============
</TABLE>
The Partnership recorded a write-down of an aircraft carrying value,
representing an impairment, during the year ended December 31, 1994. The
resulting charge, of $1,202,000 ($1.42 per limited partnership unit) was based
on a comparison of the estimated net realizable value and corresponding carrying
value for the Partnership's interest in the aircraft.
In September 1995, the Partnership transferred its 33.07% ownership interest
in the United Aircraft, pursuant to the rules of a like-kind exchange for income
tax reporting purposes (See Note 2 herein). In November 1995, the Partnership
partially replaced the United Aircraft with a 14.35% interest in the Southwest
Aircraft, at an aggregate cost of $2,101,054. To acquire the interests in the
Southwest Aircraft, the Partnership obtained financing of $1,567,878 from a
third-party lender and utilized $533,176 of the cash consideration received from
the transfer of the United Aircraft. The remaining ownership interest of 85.65%
in the Southwest Aircraft is held by affiliated equipment leasing programs
sponsored by EFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with the acquisitions of an 11.87% ownership interest in the
Finnair Aircraft and a 21.31% ownership interest in the Reno Aircraft at a total
cost of $3,322,913 and $2,894,892, respectively. To acquire the ownership
interest in the Finnair Aircraft, the Partnership paid $1,110,980 in cash and
obtained financing of $2,211,933 from a third-party lender. To acquire the
ownership interest in the Reno Aircraft, the Partnership paid $494,780 in cash
and obtained financing of $2,400,112 from a third-party lender. The remaining
ownership interests of 88.13% and 78.69% in the Finnair Aircraft and Reno
Aircraft, respectively, are held by affiliated equipment leasing programs
sponsored by EFG.
-17-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
During 1995, the Partnership transferred its ownership interest in certain
trailers, previously leased to The Atchison Topeka and Santa Fe Railroad to a
third party for cash consideration of $89,000. The trailers had an aggregate
net book value of $49,693 at the date of transfer resulting in a net gain, for
financial statement purposes, of $39,307. A portion of the consideration was
used to satisfy outstanding debt of $3,596. The transaction was structured as a
like-kind exchange for income tax reporting purposes. In 1995, the Partnership
replaced these trailers with comparable trailers and leased such equipment to a
new lessee. The net carrying value of the new trailers, $329,323, was net of
$39,307, representing the amount of gain deferred on the original trailers. The
Partnership funded this transaction with $85,404 of the net cash consideration
received and a third-party installment note payable of $283,226.
In certain cases, the cost of the Partnership's equipment represents a
proportionate ownership interest. The remaining interests are owned by EFG or
an affiliated equipment leasing program sponsored by EFG. The Partnership and
each affiliate individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the equipment. Proportionate equipment ownership
enables the Partnership to further diversify its equipment portfolio by
participating in the ownership of selected assets, thereby reducing the general
levels of risk which could result from a concentration in any single equipment
type, industry or lessee. At December 31, 1996, the Partnership's equipment
portfolio included equipment having a proportionate original cost of
$13,431,527, representing approximately 52% of total equipment cost.
Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary of equipment
includes leveraged equipment having an original cost of approximately
$15,525,000 and a net book value of approximately $10,798,000 at December 31,
1996. (See Note 5.)
Generally, the costs associated with maintaining, insuring and operating the
Partnership's equipment are incurred by the respective lessees pursuant to terms
specified in their individual lease agreements with the Partnership.
As equipment is sold to third parties, or otherwise disposed of, the
Partnership recognizes a gain or loss equal to the difference between the net
book value of the equipment at the time of sale or disposition and the proceeds
realized upon sale or disposition. The ultimate realization of estimated
residual value in the equipment is dependent upon, among other things, EFG's
ability to maximize proceeds from selling or re-leasing the equipment upon the
expiration of the primary lease terms. The summary above includes equipment
held for sale or re-lease with a cost and net book value of approximately
$839,000 and $67,000, respectively, at December 31, 1996. The General Partner
is actively seeking the sale or re-lease of all such equipment.
NOTE 4 - RELATED PARTY TRANSACTIONS
- -----------------------------------
All operating expenses incurred by the Partnership are paid by EFG on behalf
of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during the years ended
December 31, 1996, 1995 and 1994, which were paid or accrued by the Partnership
to EFG or its Affiliates, are as follows:
-18-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Equipment management fees $140,227 $140,863 $215,086
Administrative charges 40,295 21,000 12,000
Reimbursable operating
expenses due to third parties 151,051 117,568 77,121
-------- -------- --------
Total $331,573 $279,431 $304,207
======== ======== ========
</TABLE>
As provided under the terms of the Management Agreement, EFG is compensated
for its services to the Partnership. Such services include all aspects of
acquisition, management and sale of equipment. For acquisition services, EFG is
compensated by an amount equal to 2.23% of Equipment Base Price paid by the
Partnership. For management services, EFG is compensated by an amount equal to
the lesser of (i) 5% of gross operating lease rental revenue and 2% of gross
full payout lease rental revenue received by the Partnership or (ii) fees which
the General Partner reasonably believes to be competitive for similar services
for similar equipment. Both of these fees are subject to certain limitations
defined in the Management Agreement. Compensation to EFG for services connected
to the sale of equipment is calculated as the lesser of (i) 3% of gross sale
proceeds or (ii) one-half of reasonable brokerage fees otherwise payable under
arm's length circumstances. Payment of the remarketing fee is subordinated to
Payout and is subject to certain limitations defined in the Management
Agreement.
Administrative charges represent amounts owed to EFG, pursuant to Section
9.4(c) of the Restated Agreement, as amended, for persons employed by EFG who
are engaged in providing administrative services to the Partnership.
Reimbursable operating expenses due to third parties represent costs paid by EFG
on behalf of the Partnership which are reimbursed to EFG.
In 1991, the Partnership acquired 900 intermodal cargo containers, at a cost
of $1,840,140, and leased such containers to ICCU Containers, S.p.A. ("ICCU"),
an affiliate of Clou Investments (U.S.A.), Inc. ("CLOU"), which formerly owned a
minority interest in AFG Holdings Illinois Limited Partnership, formerly a
partner in AFG. The ability of ICCU to fulfill all of its obligations under the
lease contract deteriorated, in EFG's view, in 1994. As a result, EFG, on the
Partnership's behalf, negotiated with other parties to either assume the lease
obligations of ICCU or acquire the containers. As a result of these
negotiations, the Partnership transferred 740 containers, having a net book
value of $756,502, to a third party on November 30, 1994. The Partnership
received, as settlement from ICCU and the third party, consideration as follows:
(i) a contractual right to receive comparable containers with an estimated fair
market value of $852,207 and (ii) beneficial assignment of an existing EFG note
payable to CLOU which had a principal balance of $370,264 at the date of the
transaction. The note had an effective interest rate of 8% and a quarterly
amortization schedule which matured on December 31, 1996. All amounts due from
EFG pursuant to this note had been received at December 31, 1996 in accordance
with the original amortization schedule. A portion of the consideration
received was used to satisfy the Partnership's accounts receivable balance of
$183,128 outstanding from ICCU at November 30, 1994.
An additional 158 containers, having a net book value of $161,523, were
pending settlement at December 31, 1994. On March 31, 1995, 82 of these
containers, having a net book value of $77,841 were transferred to the third
party and the Partnership received $92,551 as consideration for these
containers. The remaining 76 containers, having a net book value of $33,298,
represent less than 1% of the Partnership's equipment portfolio at December 31,
1996. The remaining two containers of the original equipment group were disposed
of in 1992 for stipulated payments as a result of casualty events.
-19-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
By April 1995, the Partnership replaced 822 of the original containers
with comparable containers and leased such containers to a new lessee pursuant
to the rules for completing a like-kind exchange for income tax reporting
purposes. The carrying value of the new containers, $1,958,040, was reduced by
$282,842, representing the amount of gain deferred on the original containers,
and $14,710, the amount of gain deferred on the 82 containers settled during
1995. The Partnership obtained approximately $925,000 of long-term financing in
connection with the replacement containers.
All equipment was purchased from EFG, one of its Affiliates or from third-
party sellers. The Partnership's Purchase Price is determined by the method
described in Note 2.
All rents and proceeds from the sale of equipment are paid directly to
either EFG or to a lender. EFG temporarily deposits collected funds in a
separate interest-bearing escrow account prior to remittance to the Partnership.
At December 31, 1996, the Partnership was owed $89,539 by EFG for such funds and
the interest thereon. These funds were remitted to the Partnership in January
1997.
On August 18, 1995, Atlantic Acquisition Limited Partnership ("AALP"),
a newly formed Massachusetts limited partnership owned and controlled by certain
principals of EFG, commenced a voluntary cash Tender Offer (the "Offer") for up
to approximately 45% of the outstanding units of limited partner interest in
this Partnership and 20 affiliated partnerships sponsored and managed by EFG.
The Offer was subsequently amended and supplemented in order to provide
additional disclosure to unitholders; increase the offer price; reduce the
number of units sought to approximately 35% of the outstanding units; and extend
the expiration date of the Offer to October 20, 1995. Following commencement of
the Offer, certain legal actions were initiated by interested persons against
AALP, each of the general partners (4 in total) of the 21 affected programs, and
various other affiliates and related parties. One action, a class action
brought in the United States District Court for the District of Massachusetts
(the "Court") on behalf of the unitholders (limited partners), sought to enjoin
the Offer and obtain unspecified monetary damages. A settlement of this
litigation was approved by the Court on November 15, 1995. The Plaintiffs filed
an appeal in this matter. On November 26, 1996, the United States Court of
Appeals for the First Circuit handed down a decision affirming the Court's
approval of the settlement. A second class action, brought in the Superior
Court of the Commonwealth of Massachusetts (the "Superior Court") seeking to
enjoin the Offer, obtain unspecified monetary damages, and intervene in the
first class action, was dismissed by the Superior Court. The limited partners of
the Partnership tendered approximately 16,536 units or 2.06% of the total
outstanding units of the Partnership to AALP. The operations of the Partnership
were not adversely affected by these proceedings or settlements. On December 1,
1996, EFG purchased a Class D interest, representing a 49% economic interest in
AALP.
NOTE 5 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1996 consisted of installment notes of
$6,547,519 payable to banks and institutional lenders. The installment notes
bear interest rates ranging between 7.04% and 10.65%, except one note which
bears a fluctuating interest rate based on LIBOR plus a margin (5.5% at December
31, 1996). All of the installment notes are non-recourse and are collateralized
by the equipment and assignment of the related lease payments. Generally, the
installment notes will be fully amortized by noncancellable rents. However, the
Partnership has balloon payment obligations at the expiration of the respective
primary lease terms related to the Finnair Aircraft and the Reno Aircraft of
$1,127,840 and $679,276, respectively. The carrying value of notes payable
approximates fair value at December 31, 1996.
-20-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
The annual maturities of the installment notes payable are as follows:
<TABLE>
<S> <C> <C>
For the year ending December 31, 1997 $1,242,741
1998 1,122,971
1999 2,009,012
2000 480,701
2001 483,565
Thereafter 1,208,529
-----------
Total $6,547,519
===========
</TABLE>
NOTE 6 - INCOME TAXES
- ---------------------
The Partnership is not a taxable entity for federal income tax purposes.
Accordingly, no provision for income taxes has been recorded in the accounts of
the Partnership.
For financial statement purposes, the Partnership allocates net income or
loss to each class of partner according to their respective ownership
percentages (95% to the Limited Partners and 5% to the General Partner). This
convention differs from the income or loss allocation requirements for income
tax and Dissolution Event purposes as delineated in the Restated Agreement, as
amended. For income tax purposes, the Partnership allocates net income or net
loss in accordance with the provisions of such agreement. The Restated
Agreement, as amended, requires that upon dissolution of the Partnership, the
General Partner will be required to contribute to the Partnership an amount
equal to any negative balance which may exist in the General Partner's tax
capital account. At December 31, 1996, the General Partner had a positive tax
capital account balance.
The following is a reconciliation between net income (loss) reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) $552,157 $ (779,251) $ (22,729)
Financial statement depreciation
in excess of (less than) tax
depreciation (67,047) 850,430 1,197,869
Write-down of equipment -- -- 1,202,000
Prepaid rental income (7,475) (18,823) (23,119)
Other 404,699 1,367,074 316,627
-------- ---------- ----------
Net income for federal income tax
reporting purposes $882,334 $1,419,430 $2,670,648
======== ========== ==========
</TABLE>
The principal component of "Other" consists of the difference between the
tax gain on equipment disposals and the financial statement gain (loss) on
disposals.
-21-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
Notes to the Financial Statements
(Continued)
The following is a reconciliation between partners' capital reported for
financial statement and federal income tax reporting purposes for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Partners' capital $6,821,321 $7,432,059
Add back selling commissions and
organization and offering costs 2,234,203 2,234,203
Financial statement distributions in
excess of tax distributions 10,572 15,857
Cumulative difference between
federal income tax and financial
statement income (loss) (557,342) (887,519)
---------- ----------
Partners' capital for federal income
tax reporting purposes $8,508,754 $8,794,600
========== ==========
</TABLE>
Financial statement distributions in excess of tax distributions and
cumulative difference between federal income tax and financial statement income
(loss) represent timing differences.
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
On July 27, 1995, EFG, on behalf of the Partnership and other EFG-sponsored
investment programs, filed an action in the Commonwealth of Massachusetts
Superior Court Department of the Trial Court in and for the County of Suffolk,
for damages and declaratory relief against a lessee of the Partnership, National
Steel Corporation ("National Steel"), under a certain Master Lease Agreement
("MLA") for the lease of certain equipment. EFG is seeking the reimbursement by
National Steel of certain sales and/or use taxes paid to the State of Illinois
and other remedies provided by the MLA. On August 30, 1995, National Steel
filed a Notice of Removal which removed the case to the United States District
Court, District of Massachusetts. On September 7, 1995, National Steel filed
its Answer to EFG's Complaint along with Affirmative Defenses and Counterclaims,
seeking declaratory relief and alleging breach of contract, implied covenant of
good faith and fair dealing and specific performance. EFG filed its Answer to
these counterclaims on September 29, 1995. Though the parties have been
discussing settlement with respect to this matter for some time, to date, the
negotiations have been unsuccessful. Notwithstanding these discussions, EFG
recently filed an Amended and Supplemental Complaint alleging further default
under the MLA and the matter remains pending before the Court. The Partnership
has not experienced any material losses as a result of this action.
-22-
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
-23-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
SCHEDULE OF EXCESS (DEFICIENCY) OF TOTAL CASH GENERATED TO COST
OF EQUIPMENT DISPOSED
for the years ended December 31, 1996, 1995 and 1994
The Partnership classifies all rents from leasing equipment as lease revenue.
Upon expiration of the primary lease terms, equipment may be sold, rented on a
month-to-month basis or re-leased for a defined period under a new or extended
lease agreement. The proceeds generated from selling or re-leasing the
equipment, in addition to any month-to-month revenue, represent the total
residual value realized for each item of equipment. Therefore, the financial
statement gain or loss, which reflects the difference between the net book value
of the equipment at the time of sale or disposition and the proceeds realized
upon sale or disposition may not reflect the aggregate residual proceeds
realized by the Partnership for such equipment.
The following is a summary of cash excess associated with equipment
dispositions occurring in the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Rents earned prior to disposal of
equipment, net of interest charges $2,585,344 $1,926,993 $1,949,544
Sale proceeds realized upon disposition
of equipment 692,766 565,907 534,283
---------- ---------- ----------
Total cash generated from rents
and equipment sale proceeds 3,278,110 2,492,900 2,483,827
Original acquisition cost of equipment
disposed 3,249,160 2,199,677 1,858,821
---------- ---------- ----------
Excess of total cash generated to cost
of equipment disposed $ 28,950 $ 293,223 $ 625,006
========== ========== ==========
</TABLE>
-23-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
STATEMENT OF CASH AND DISTRIBUTABLE CASH FROM OPERATIONS,
SALES AND REFINANCINGS
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Sales and
Operations Refinancings Total
-------------- ------------- --------------
<S> <C> <C> <C>
Net income $ 195,705 $ 356,452 $ 552,157
Add:
Depreciation and amortization 3,163,960 -- 3,163,960
Management fees 140,227 -- 140,227
Book value of disposed
equipment -- 336,314 336,314
Less:
Principal reduction of notes
payable (2,639,239) -- (2,639,239)
----------- ------------ -----------
Cash from operations, sales
and refinancings 860,653 692,766 1,553,419
Less:
Management fees (140,227) -- (140,227)
----------- ------------ -----------
Distributable cash from
operations, sales and
refinancings 720,426 692,766 1,413,192
Other sources and uses of cash:
Cash at beginning of year 799,133 -- 799,133
Purchase of equipment (43,297) -- (43,297)
Net change in receivables and
accruals 287,063 -- 287,063
Less:
Cash distributions paid (575,847) (692,766) (1,268,613)
----------- ------------ -----------
Cash at end of year $ 1,187,478 -- $ 1,187,478
=========== ============ ===========
</TABLE>
-24-
<PAGE>
AMERICAN INCOME FUND I-C,
a Massachusetts Limited Partnership
SCHEDULE OF COSTS REIMBURSED TO THE
GENERAL PARTNER AND ITS AFFILIATES AS REQUIRED
BY SECTION 9.4 OF THE AMENDED AND RESTATED
AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
December 31, 1996
For the year ended December 31, 1996, the Partnership reimbursed the General
Partner and its Affiliates for the following costs:
<TABLE>
<S> <C>
Operating expenses $189,920
</TABLE>
-25-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,187,478
<SECURITIES> 0
<RECEIVABLES> 558,629
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,746,107
<PP&E> 25,780,301
<DEPRECIATION> 13,677,519
<TOTAL-ASSETS> 13,848,889
<CURRENT-LIABILITIES> 480,049
<BONDS> 6,547,519
0
0
<COMMON> 0
<OTHER-SE> 6,821,321
<TOTAL-LIABILITY-AND-EQUITY> 13,648,889
<SALES> 4,130,156
<TOTAL-REVENUES> 4,603,945
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,495,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556,255
<INCOME-PRETAX> 552,157
<INCOME-TAX> 0
<INCOME-CONTINUING> 552,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 552,157
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT NO. 9002M1G399, dated as of April 17, 1990 between
American Finance Group, a Massachusetts general partnership having a principal
place of business and address for purposes of notice hereunder at Exchange
Place, Boston, Massachusetts 02109, Attention: Manager, Lease Financing Group,
as Lessor, and General Motors Corporation, a Delaware corporation having a
principal place of business and address for purposes of notice hereunder at 3044
West Grand Boulevard, Detroit, Michigan 48202, Attention: Treasurer, as Lessee.
1. MASTER LEASE.
-------------
This Master Lease Agreement sets forth the terms and conditions that govern
the lease by Lessor to Lessee of items of Equipment specified on Rental
Schedules executed and delivered by the parties from time to time. Each Rental
Schedule incorporates by reference this Master Lease Agreement and specifies the
Lease Term, the amount of Basic Rent, the Payment Dates on which Basic Rent is
due, and such other information and provisions as Lessor and Lessee may agree.
Each Rental Schedule constitutes a separate and Independent lease.
2. LEASE TERM. LESSEE'S RIGHT TO QUIET ENJOYMENT.
----------------------------------------------
Each Rental Schedule is for a Lease Term commencing on the date of
acceptance of the Equipment for lease and ending on the Expiration Date
specified on such Rental Schedule. Lessee cannot, for any reason except as set
forth in Sections 5 and 15 of this Master Lease Agreement, terminate the Rental
Schedule or suspend payment or performance of any of its obligations thereunder.
Subject to there being no Event of Default under the Rental Schedule, Lessee
will have quiet possession and use of the Equipment throughout the Lease Term,
and Lessor shall defend and protect such quiet possession and use against all
persons claiming by, through or under Lessor.
3. BASIC RENT. NET LEASE. LESSEE'S INDEMNITY. NO WARRANTIES BY LESSOR.
-------------------------------------------------------------------
Basic Rent is payable in the amount specified on the Rental Schedule. All
payments of Basic Rent shall be made to Lessor in good funds on the Payment
Dates specified in the Rental Schedule. Lessor will deliver invoices to Lessee
at least thirty days prior to each Payment Date; invoices received by Lessee in
any month shall be paid no later than the 25th of the following month. Basic
Rent is net of, and Lessee agrees to pay, and will indemnify and hold Lessor and
any assignee of Lessor harmless from and against, all costs (including, without
limitation, maintenance, repair and insurance costs), claims (including claims
of product liability or strict liability in tort), losses or liabilities
relating to the Equipment or its use that are incurred by or asserted against
Lessee, any permitted sublessee of Lessee, Lessor or any assignee of Lessor and
arise out of matters occurring prior to the return of the Equipment except
Lessee shall not indemnify Lessor against any costs, claims, losses or
liabilities resulting from Lessor's negligence or misconduct. Lessee's
obligations are not subject to defense, counterclaim, set-off, abatement or
recoupment, and Lessee waives all rights to terminate or surrender the Rental
Schedule, for any reason, including, without limitation,
<PAGE>
operating condition and appearance, reasonable wear and tear excepted. All
maintenance and repairs will be made in accordance with Lessee's current
maintenance procedures, and Lessee shall maintain records thereof in accordance
with its current practices. Lessee will keep the Equipment and its interest
therein free and clear of all liens and encumbrances other than those created by
Lessor or arising out of claims against Lessor and not related to the lease of
the Equipment to Lessee. The Rental Schedule may not be assigned by Lessee.
Lessee may sublease the Equipment only upon prior written notice to Lessor, in
which notice Lessee represents and warrants to Lessor that such sublease is for
a term not longer than the related Lease Term, is not made to a tax-exempt
entity or governmental agency, is specifically made subject to the prior rights
of Lessor and its assignees under the Rental Schedule, does not create any
obligation on the part of Lessor in favor of such sublessee and does not relieve
Lessee of any of its obligations under the Rental Schedule including, without
limitation, Lessee's obligations with respect to (a) the payment of Basic Rent
and other sums due or to become due, (b) use and maintenance of the Equipment
and (c) provisions for the return of the Equipment at the expiration of the
Lease Term.
5. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT
----------------------------------------
Lessee will bear all risk of loss with respect to the Equipment during the
Lease Term and until the Equipment is returned to Lessor. Lessee will notify
Lessor promptly in writing if any item of Equipment is lost, stolen,
requisitioned by a governmental authority or damaged beyond repair (each a
"Casualty"), describing the Casualty in reasonable detail, and will promptly
file a claim under appropriate policies of insurance. Lessee may, with the
prior written consent of Lessor, replace the Equipment suffering a Casualty with
similar items of at least equal value and utility. If Lessee does not replace
the Equipment, Lessee will pay to Lessor on the next Payment Date following the
Casualty, in addition to Basic Rent and other sums due on that date, an amount
equal to the greater of the Casualty Value specified on the Rental Schedule or
the fair market value of such Equipment. The Rental Schedule, solely as it
relates to the Equipment suffering the Casualty, will terminate and ownership of
the Equipment suffering the Casualty, including all claims for insurance
proceeds or condemnation awards, will pass to Lessee upon receipt of such
payment by Lessor. The fair market value of the Equipment will be determined by
agreement of Lessee and Lessor, or, if the parties cannot agree, by an
independent equipment appraiser of nationally recognized standing, selected by
Lessor and reasonably acceptable to Lessee. The cost of appraisal will be
shared equally by Lessee and Lessor.
6. TAXES AND FEES.
---------------
Lessee agrees to prepare and file all required returns or reports and to pay all
sales, use, gross receipts and other taxes, fees, interest, fines or penalties
imposed by any governmental authority but only to the extent specifically
related to the ownership, leasing, rental, sales, purchase, possession or use of
the Equipment, excluding, however, all taxes on or measured in part or entirety
by Lessor's net income, gross receipts, or net worth. Lessee shall not be
liable for payment of Lessor's Michigan single business tax. Further, Lessee
shall not be liable for the payment of any business license fees and occupation
taxes, nor any intangible personal
<PAGE>
property taxes. Notwithstanding the foregoing, Lessor will report and pay
personal property taxes directly to the taxing authority, and Lessee will
reimburse Lessor promptly upon written demand by Lessor. Such written demand by
the Lessor shall be made within reasonable proximity to the date of actual
payment to the governmental body or agency; shall be accompanied by a copy of
the invoice, if available, indicating the amount due; and shall state the tax
base upon which the tax rate is imposed, the appropriate tax rate, the period
covered, the taxing authority and the Equipment type and serial number, if
applicable, and proof of payment. Notwithstanding any other provisions of this
Section 6, Lessee shall not be liable for any additional taxes, interest,
penalties, fines, or other expenses caused by an act or omission of Lessor, its
agents, employees or representatives.
In defending sales, use and personal property tax issues, Lessor or
Lessor's tax administration agent, if any, will not discriminate between
instances on the basis of who bears the final expense.
Notwithstanding any of the foregoing, Lessee may in writing request that
Lessor contest at the expense of Lessee the validity, applicability, or amount
of any Tax upon delivery of an opinion of independent counsel reasonably
satisfactory to Lessor that the basis in fact and in law in favor of such
contest is greater than the basis in fact and in law to the contrary. Such
contest shall proceed in the name of the Lessor and at the expense of Lessee, or
in the name of Lessee, if, (i) Lessor consents or, (ii) if the contest may
proceed independently of any other tax matter of Lessor or its affiliates (and
if permitted by law). The nonpayment of any such contested taxes to the extent
of the taxes contested shall not be deemed a default hereunder until final
determination of such contest and expiration of any due date established
therein; provided, however, Lessee shall pay any tax, or reimburse Lessor for
any tax paid, prior to any such contest if such payment either is required as a
condition to such contest or is necessary to avoid, in Lessor's reasonable
judgement, imposition of a tax lien or a material risk of forfeiture, seizure or
other loss of the Equipment, or any interest therein, or the loss of any other
property of Lessor or its affiliates.
7. INSURANCE.
----------
Lessee agrees to maintain policies of insurance on the Equipment in
amounts, against risks and on terms and conditions applicable to other equipment
owned or leased by Lessee and similar to the Equipment. Such insurance will at a
minimum include (i) physical damage and theft insurance in an amount at least
equal to the greater of the Casualty Value set forth on the Rental Schedule or
the fair market value of the Equipment and (ii) comprehensive liability
insurance in the amount of at least $5,000,000 per occurrence, in each case with
deductibles not in excess of $100,000. All policies (A) are to be maintained
with insurers reasonably acceptable to Lessor; (B) are to name Lessor and its
assignees as loss payees with respect to physical damage and theft and as
additional insureds with respect to liability, as their interests may appear;
and (C) are to provide that they may not be materially altered or cancelled
except upon thirty days prior written notice to Lessor. Lessee agrees to
deliver to Lessor such certificates of insurance as Lessor may, from time to
time, request. Lessor may hold any insurance proceeds as security for Lessee's
performance of its obligations with respect to the Equipment on behalf of which
the proceeds were paid and
<PAGE>
the payment of all Basic Rent and other sums then due and unpaid under the
Rental Schedule and will pay such proceeds over to Lessee only upon receipt of
satisfactory evidence thereof. Notwithstanding the foregoing, Lessee shall have
the right to self-insure against any or all of the foregoing risks.
8. FINANCIAL STATEMENTS. INSPECTION. REPORTS.
------------------------------------------
Upon request of Lessor, Lessee will provide to Lessor copies of Lessee's
annual report. If Lessee's obligations are guaranteed by any other party, then
Lessee will also provide similar financial information with respect to the
Guarantor. Lessor may from time to time, upon reasonable notice and during
Lessee's normal business hours, inspect the Equipment and Lessee's records with
respect thereto and discuss Lessee's financial condition with knowledgeable
representatives of Lessee. Lessee will, if requested but only if Lessee
maintains the same in the course of its business, provide a report on the
condition of the Equipment, a record of its maintenance and repair, a summary of
all items suffering a Casualty, a certificate of no default or such other
information or evidence of compliance with Lessee's obligations under the Rental
Schedule as Lessor may reasonably request.
9. AGREEMENT FOR LEASE ONLY. IDENTIFICATION MARKS. FINANCING STATEMENTS.
---------------------------------------------------------------------
FURTHER ASSURANCES.
-------------------
Each Rental Schedule is intended to be a true lease and not a lease in the
nature of a security agreement. Lessee will affix to the Equipment all notices
of Lessor's ownership of the Equipment furnished by Lessor. Lessee will execute
and deliver and Lessor may file Uniform Commercial Code financing statements or
other similar documents notifying the public of Lessor's ownership of the
Equipment and Lessee hereby appoints Lessor as its agent and attorney-in-fact to
execute and file the same on its behalf. Lessee agrees to promptly execute and
deliver to Lessor such further documents or other assurances, and to take such
further action, including obtaining landlord and mortgagee waivers, as Lessor
may from time to time reasonably request in order to establish and protect the
rights and remedies created by the Rental Schedule.
10. LATE PAYMENT CHARGES. LESSOR'S RIGHT TO PERFORM FOR LESSEE.
-----------------------------------------------------------
A Late Payment Charge equal to (A) the greater of 2% per annum above the
debt rate charged to Lessor in connection with the financing of its purchase of
the Equipment or 2% per annum above the prime or base lending rate of The First
National Bank of Boston, as announced from time to time, or (B) if less, the
highest rate not prohibited by law, will accrue on any sum not paid when due for
each day not paid; provided that Lessor has first given Lessee ten (10) days'
written notice of such non-payment. If Lessee fails to duly and promptly pay or
perform any of its obligations hereunder, Lessor may itself pay or perform such
obligations for the account of Lessee without thereby waiving any default and
Lessee will pay to Lessor, on demand and in addition to Basic Rent, an amount
equal to all sums so paid or expenses so incurred, plus a Late Payment Charge
accruing from the date such sums were paid or expenses incurred by Lessor.
<PAGE>
11. LESSEE'S OPTIONS UPON LEASE EXPIRATION.
---------------------------------------
Lessee has the option at the expiration of the Lease Term, exerciseable
with respect to any or all units of Equipment leased pursuant to a Rental
Schedule, (i) to return the Equipment to Lessor, (ii) to renew the Rental
Schedule at fair rental value for a Renewal Term the length of which shall be
determined by agreement of Lessee and Lessor or (iii) to purchase the Equipment
for cash at an amount equal to its then fair market value less the aggregate
Redelivery Charge paid by Lessee for such Equipment, provided, however, that if
the aggregate Redelivery Charge for an item of Equipment exceeds its then fair
market value, Lessor shall convey such Equipment to Lessee at no cost but shall
not be accountable for such excess Redelivery Charge. For purposes of the
foregoing sentence, a "unit" of Equipment shall mean a compatible operating
system of Equipment components, e.g., a forklift truck, two batteries and one
battery charger. Lessee agrees to provide Lessor written notice of its decision
to return the Equipment or renew the Rental Schedule not less than 120 days
prior to the Expiration Date. If Lessee fails to give Lessor 120 days written
notice, the Lease Term may, at Lessor's option, be extended and continue until
120 days from the date Lessor receives written notice of Lessee's decision to
return the Equipment or renew the Rental Schedule. Fair market value, fair
rental value and useful life will be determined by agreement of Lessor and
Lessee, or if the parties cannot agree, by an independent equipment appraiser
selected by Lessor and reasonably acceptable to Lessee. The cost of an
appraisal will be shared equally by Lessor and Lessee. At the expiration of the
Lease Term or any extension or renewal thereof, Lessee will promptly assemble
the Equipment (including operating manuals, maintenance logs and related
materials, if any, in Lessee's possession) and make it available to Lessor at a
single accessible site at each Equipment location identified on the Rental
Schedule. In consideration of the payment by Lessee of the Redelivery Charge
identified on the Rental Schedule, Lessor will, if required, disassemble, pack,
and crate the Equipment and accept redelivery of the Equipment and remove the
same from Lessee's premises within fourteen (14) business days after the
Equipment is made available to Lessor. The Equipment will be returned in good
and efficient operating condition and appearance, reasonable wear and tear
excepted, and eligible for manufacturer's maintenance, if available, free of all
Lessee's markings and free of all liens and encumbrances other than those
created by Lessor or arising out of claims against Lessor and not related to the
lease of the Equipment to Lessee. Lessor may, but is not required to, inspect
the Equipment prior to its return. If, upon inspection, Lessor determines that
the condition of any item of Equipment does not conform to the minimum
requirements, Lessor will promptly notify Lessee of such determination,
specifying the repairs or refurbishments needed to place the Equipment in the
minimum acceptable condition. Lessor may, at its option, either require Lessee
to effect such repairs or itself effect such repairs. Lessor may re-inspect the
Equipment and require further repairs as often as necessary until the Equipment
is placed in acceptable condition. In either case, all costs will be paid by
Lessee. The Rental Schedule shall continue in full force and effect and Lessee
shall continue to pay Basic Rent through and including the date on which the
Equipment is accepted for return by Lessor.
12. LESSEE'S REPRESENTATIONS AND WARRANTIES.
----------------------------------------
Lessee represents, warrants and certifies as of the date of execution and
delivery of each Rental Schedule as follows:
<PAGE>
(a) Lessee is duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with full power to enter into and
to pay and perform its obligations under the Rental Schedule and this
Master Lease Agreement as incorporated therein by reference, and is duly
qualified and in good standing in all other jurisdictions where its
failure to so qualify would adversely affect the conduct of its business
or the performance of its obligations under or the enforceablility of the
Rental Schedule;
(b) the Rental Schedule, this Master Lease Agreement and all related documents
have been duly authorized, executed and delivered by Lessee, are
enforceable against Lessee in accordance with their terms and do not and
will not contravene any provisions of or constitute a default under
Lessee's organizational documents or its By Laws, any agreement to which
it is a party or by which it or its property is bound, or any law,
regulation or order of any governmental authority;
(c) Lessor's right, title and interest in and to the Rental Schedule, this
Master Lease Agreement and the Equipment and the rentals therefrom will
not be affected or impaired by the terms of any agreement or instrument by
which Lessee or its property is bound;
(d) no approval of, or filing with, any governmental authority or other person
is required in connection with Lessee's entering into or the payment or
performance of its obligations under the Rental Schedule or this Master
Lease Agreement as incorporated therein by reference;
(e) there are no suits or proceedings pending or threatened before any court
or governmental agency against or affecting Lessee which, if decided
adversely to Lessee, would materially adversely affect Lessee's business
or financial condition or its ability to perform any of its obligations
under the Rental Schedule or this Master Lease Agreement as incorporated
therein by reference; and
(f) there has been no material adverse change to Lessee's financial condition
since the date of its most recent audited financial statement.
13. EVENTS OF DEFAULT. LESSOR'S REMEDIES ON DEFAULT.
------------------------------------------------
Each of the following events constitutes an Event of Default:
(a) default in the payment of any amount when due under the Rental Schedule
continuing for a period of ten days;
(b) default in the observance or performance of any other covenant,
condition or agreement to be observed or performed by Lessee under the
Rental Schedule and this Master Lease Agreement as incorporated therein by
reference, continuing for more than 30 days after written notice thereof,
unless Lessee shall be diligently proceeding to cure such default and such
default does not subject the Equipment to forfeiture, in which event,
Lessee shall have 60 days from the date of notice in which to cure such
default;
<PAGE>
(c) any representation or warranty made by Lessee herein or in the Rental
Schedule or this Master Lease Agreement as incorporated therein by
reference or in any document or certificate furnished in connection
herewith shall at any time prove to have been incorrect when made;
(d) any attempt by Lessee, without Lessor's prior written consent, to
assign the Rental Schedule, to make any unauthorized sublease of the
Equipment or to transfer possession of the Equipment;
(e) Lessee or, if Lessee's obligations are guaranteed by any other party,
any Guarantor (A) ceases doing business as a going concern; (B) makes an
assignment for the benefit of creditors, admits in writing its inability to
pay its debts as they mature or generally fails to pay its debts as they
become due; (C) initiates any voluntary bankruptcy or insolvency
proceeding; (D) fails to obtain the discharge of any bankruptcy or
insolvency proceeding initiated against it by others within 60 days of the
date such proceedings were initiated; (E) requests or consents to the
appointment of a trustee or receiver; or (F) a trustee or receiver is
appointed for Lessee or any Guarantor or for a substantial part of Lessee's
or any Guarantor's property; or
(f) Lessee shall not return the Equipment or shall not return the Equipment
in the required condition at the expiration of the Rental Schedule or any
extension or renewal thereof.
Upon the occurrence of an Event of Default, Lessor may, without notice to
Lessee, declare the applicable Rental Schedule in default and may exercise any
of the following remedies:
I. at Lessor's option, and in its sole discretion either:
(a) declare all Basic Rent and other sums due or to become due under the
Rental Schedule immediately due and payable, and sue to enforce the payment
thereof; or
(b) receive from Lessee (and sue to enforce the payment thereof), as
liquidated damages for loss of the bargain and not as a penalty, and in
addition to all accrued and unpaid Basic Rent and other sums due under the
Rental Schedule, an amount equal to the greater of (A) the Casualty Value
set forth on the Rental Schedule calculated after the last payment of Basic
Rent actually received by Lessor or (B) the fair market value of the
Equipment as of the date of default determined by an appraiser selected by
Lessor;
plus, in either case, interest thereon at the Late Payment Charge rate from the
date of default until the date of payment, and, after receipt in good funds of
the sums described above, Lessor will, if it has not already done so, terminate
the Rental Schedule and, at its option, either pay over to Lessee as, when and
if received, any net proceeds (after all costs and expenses) from any
disposition of the Equipment, or convey to Lessee all of its right, title and
interest in and to the Equipment, as is, where is and with all faults, without
recourse and without warranty; and
II. without regard to whether Lessor has elected either option in subsection
I. above, Lessor may
<PAGE>
(a) proceed by appropriate court action either at law or in equity to
enforce performance by Lessee of the covenants and terms of the Rental
Schedule and to recover damages for the breach thereof; and
(b) terminate the Rental Schedule by written notice to Lessee, whereupon
all right of Lessee to use the Equipment will immediately cease and Lessee
will forthwith return the Equipment to Lessor in accordance with the
provisions hereof; and
(c) repossess the Equipment and without notice to Lessee, dispose of it by
private or public, cash or credit sale or by lease to a different lessee,
in all events free and clear of any rights of Lessee, and for this purpose
Lessee hereby grants to Lessor and its agents the right to enter upon the
premises where the Equipment is located and to remove the Equipment
therefrom and Lessee agrees not to interfere with the peaceful
repossession of the Equipment; and
(d) recover from Lessee all costs and expenses arising out of Lessee's
default, including, without limitation, expenses of repossession, storage,
appraisal, repair, reconditioning and disposition of the Equipment and
reasonable attorneys' fees and expenses.
Lessor's remedies are, except as indicated herein, cumulative and not exclusive,
and are in addition to all remedies at law or in equity. No failure by Lessor
to declare a default shall constitute a waiver of such default or restrict
Lessor's ability to declare a default at a later date.
14. ASSIGNMENT BY LESSOR.
---------------------
Lessor may at any time and from time to time sell, transfer or grant liens
on the Equipment, and assign, as collateral security or otherwise, its rights in
the Rental Schedule and this Master Lease Agreement as incorporated therein by
reference, in each case subject and subordinate to Lessee's rights thereunder,
without notice to or consent by Lessee except as set forth below. Lessor may
sell and transfer its rights in the Rental Schedule and this Master Lease
Agreement as incorporated therein by reference to any affiliate, subsidiary or
parent company of Lessor or to any limited partnership or other entity sponsored
and managed by Lessor without the consent of Lessee, provided that Lessor shall
remain primarily liable for the performance of Lessor's duties and obligations
hereunder and thereunder. Any other sale and transfer by Lessor hereunder
(except in connection with financing of its purchase of the Equipment described
below) shall be subject to lessee's prior written consent, which shall not be
unreasonably withheld or delayed. Lessee acknowledges that Lessor may assign
the Rental Schedule to a Lender in connection with the financing of its purchase
of the Equipment and agrees, in the event of such assignment, to execute and
deliver a Rent Assignment Letter acknowledging that the Lender has (and may
exercise either in its own name or in the name of Lessor) all of the rights,
privileges and remedies, but none of the obligations, of Lessor under the Rental
Schedule; waiving for the benefit of the Lender (but not Lessor) any defense,
counterclaim, set-off, abatement, reduction or recoupment that Lessee may have
against Lessor; and agreeing to make all payments of Basic Rent and other sums
due under the Rental Schedule to the Lender or as the Lender may direct. Lessee
also agrees to deliver opinions of counsel, insurance certificates and such
other documents as Lessor may reasonably request for the benefit of the Lender
in connection with the collateral assignment of the Rental Schedule.
<PAGE>
15. EARLY TERMINATION AND PURCHASE OPTION.
--------------------------------------
Notwithstanding anything contained herein to the contrary, Lessee shall
have the option, exercisable upon sixty (60) days' prior written notice to
Lessor, to terminate a Rental Schedule with respect to any or all items of
Equipment leased thereunder and purchase all of the Equipment so terminated on
any Rent Payment Date during the Primary Term of the Rental Schedule, provided
that Lessor shall have received, in good funds on such Rent Payment Date, an
amount equal to the applicable Termination Value indicated on the Termination by
Sale Table appended to the Rental Schedule plus all other sums then due and
payable by Lessee under the Rental Schedule with respect to the Equipment so
terminated. Upon receipt of such amounts, Lessor shall promptly convey (or
arrange such conveyance by any assignee of Lessor) of all of Lessor's or such
assignee's right, title and interest in and to the terminated Equipment, free
and clear of all liens and encumbrances created by, through or under Lessor and
such assignee, if any, but otherwise on an as-is, where-is basis, with all
faults. The Rental Schedule shall continue in full force and effect, on a pro
rata basis according to original Equipment cost, with respect to Equipment not
purchased by Lessee under a partially terminated Rental Schedule.
16. NOTICE. GOVERNING LAW. EXECUTION IN COUNTERPARTS.
-------------------------------------------------
All notices required hereunder shall be effective upon receipt in writing
delivered by hand or by other receipt-acknowledged method of delivery at the
address first above written. This Master Lease Agreement and the Rental Schedule
shall be governed by and construed in accordance with the laws of the State of
Michigan. This Master Lease Agreement and the Rental Schedule may be executed in
multiple counterparts all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Master Lease
Agreement to be executed and delivered by their duly authorized representatives
as of the date first above written.
AMERICAN FINANCE GROUP GENERAL MOTORS CORPORATION
By:[SIGNATURE APPEARS HERE] By:[SIGNATURE APPEARS HERE]
--------------------------------- ---------------------------------
Title: Manager, Lease Financing Title: Director - Purchasing
------------------------------ ------------------------------
Date: May 15, 1990 Date: May 14, 1990
------------------------------- -------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SALE AND LEASE AGREEMENT SECOND AMENDMENT
(Southwest Airlines 1990 Trust II)
Dates as of August 25, 1995
BETWEEN
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
as Owner Trustee
LESSOR
AND
SOUTHWEST AIRLINES CO.,
LESSEE
________________
One Boeing Model 737-2H4 Aircraft
N55SW
- --------------------------------------------------------------------------------
I HEREBY CERTIFY THAT I
HAVE COMPARED THIS DOCUMENT
WITH THE ORIGINAL AND THAT IT
IS A TRUE AND EXACT COPY OF
SUCH ORIGINAL.
WILLIAM C. BOSTON
848-0600
/s/ Kimberlee K. Osby
<PAGE>
SALE AND LEASE AGREEMENT SECOND AMENDMENT
(SOUTHWEST AIRLINES 1990 TRUST II)
This SALE AND LEASE AGREEMENT SECOND AMENDMENT (hereinafter referred to as
this "Lease Amendment") dated as of August 25, 1995, between FIRST SECURITY BANK
---------------
OF UTAH, NATIONAL ASSOCIATION, a national banking association, not in its
individual capacity but solely as Owner Trustee under a certain Trust Agreement
dated as of December 30, 1991 ("Lessor"), and SOUTHWEST AIRLINES CO., a Texas
------
Lease corporation ("Lessee"),
------
WITNESSETH:
-----------
WHEREAS, First Security Bank of Utah, National Association, as owner
trustee (the "Previous Lessor") under the Trust Agreement dated September 1,
1990, and Lessee are parties to a Sale and Lease Agreement relating to one
Boeing Model 737-2H4 aircraft, bearing manufacturer's serial no.21593 and U.S.
registration number N55SW, and two Pratt & Whitney JT8D-9A engines bearing
manufacturer's serial nos. P707374B and P707334B (such aircraft and engines
being hereinafter called the "Aircraft"), dated as of September 1, 1990 (the
--------
"Original Lease"), whereby, subject to the terms and conditions set forth
--------------
therein, the Previous Lessor has leased to Lessee, and Lessee has leased from
the Previous Lessor, the Aircraft, such lease being evidenced by the execution
and delivery of Sale and Lease Supplement No.1, dated September 27, 1990 ("Lease
-----
Supplement No. 1"), covering the Aircraft.
- ----------------
WHEREAS, a counterpart of the Original Lease, attached to and made a
part of Lease Supplement No.1, was recorded by the Federal Aviation
Administration on September 28, 1990, and assigned Conveyance No. KK13034;
WHEREAS, the Owner Trustee assigned the Original Lease and Lease
Supplement No.1 to the Lessor, under the Assignment and Assumption Agreement
dated December 30, 1991, recorded by the Federal Aviation Administration on
January 3, 1992 as Conveyance No. H77982;
WHEREAS, Lessor and Lessee amended the Original Lease by the Sale and
Lease Agreement Amendment (Southwest Airlines 1990 Trust II) dated as of
December 30, 1991 (the "First Amendment"), which instrument was recorded by the
---------------
Federal Aviation Administration on January 3, 1992, and assigned Conveyance No.
H77984;
WHEREAS, the Original Lease as supplement and amended by Lease
Supplement No.1 and the First Amendment is hereinafter called the "Lease";
-----
WHEREAS, the Lessor, with the written consent of the Owner Participant
and on the written request of a Majority in Interest of Certificate Holders (as
defined in the Indenture), and Lessee wish to amend the Lease by entering into
this Lease Amendment;
-2-
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto agree as follows:
Section 1. Definitions: Amendments to Section 1 of the Lease.
-------------------------------------------------
Capitalized terms used herein without definition shall have the respective
meanings attributed thereto in the Lease. Each definition of any term specified
below in Section 1 of the Lease is amended to read in its respective entirety as
follows:
"Base Lease Term" means the period commencing on the Base Lease
Term Commencement Date and expiring on December 31, 1999.
"Rent Payment Date" means each December 31, March 31, June 30,
and September 30 during the Term, commencing September 30, 1990
through and including December 31, 1995, and thereafter the last day
of each calendar month during the Term, commencing January 31, 1996.
"Stipulated Loss Value" means (i) during the Base Lease Term to
and including December 31, 1995, $12,100,000, (ii) thereafter during
the Base Lease Term, $7,000,000, and (iii) during any Renewal Lease
Term, such amount shall be calculated in accordance with Section 18.1.
Section 2. Amendment to Section 3.3. Section 3.3 of the Lease is
------------------------
amended to read as follows:
"Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent with
----------
respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000 through the December 31, 1995 Rent Payment Date and
$80,000 on each Rent Payment Date thereafter; provided that on the
first Rent Payment Date (September 30, 1990), only Basic Rent in the
amount of $4,800 per each day elapsed during the Interim Lease Term
shall be due."
Section 3. Amendments to Section 5.
-----------------------
(a) Section 5.1.7 of the Lease is hereby amended to read as follows:
"Notwithstanding Section 5.1.1 hereof or any other provision of any
Operative Agreement, Lessee shall have no obligation to install on the
Aircraft a hush kit in order to comply with the Stage III noise level
restrictions promulgated by the FAA or otherwise, it being understood
that the Aircraft may be returned to Lessor in Stage II condition."
-3-
<PAGE>
(b) The first two sentences of Section 5.3.2 of the Lease are amended
to read as follows:
"Every ESV-l Engine shall have no more than 5,000 hours or cycles
since its last ESV-1. Each ESV-2 Engine shall have no more than 7,000
hours or cycles since its last ESV-2."
Section 4: Effective Date of Amendments. The amendments to the Lease
----------------------------
set forth in Sections 1 through 3 hereof shall be effective as of the date first
set forth above.
Section 5. Ratification. Except as amended hereby, the Lease shall
------------
remain in full force and effect in all respects.
Section 6. Miscellaneous. This Lease Amendment is being delivered in
-------------
the State of Texas and shall in all respects be governed by, and construed in
accordance with, the laws of the State of Texas, including all matters of
construction, performance and validity. This Lease Amendment 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 instrument. All references herein to numbered
sections, unless otherwise indicated, are to sections of this Lease Amendment.
To the extent, if any, that the Lease or this Lease Amendment constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Lease
Amendment may be created through the transfer or possession of any counterpart
other than the original counterpart, which shall be identified as the
counterpart containing on the signature page thereof the receipt therefor
executed by the Indenture Trustee.
-4-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Sale and
Lease Agreement Second Amendment to be duly executed as of the day and year
first above written.
LESSOR
FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee
By /s/ Nancy M. Dahl
---------------------------------
Name: NANCY M. DAHL
Title: ASSISTANT VICE PRESIDENT
LESSEE
SOUTHWEST AIRLINES CO.
By___________________________________
Laura H. Wright
Assistant Treasurer
-5-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Sale and
Lease Agreement Second Amendment to be duly executed as of the day and year
first above written.
LESSOR
FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee
By__________________________________
Name:
Title:
LESSEE
SOUTHWEST AIRLINES CO.
By /s/ Laura Wright
----------------------------------
Laura H. Wright
Assistant Treasurer
-6-
<PAGE>
________
The undersigned, Jet Aircraft Holdings, Inc., formerly Cauff, Lippman &
Co., Inc., a Florida corporation, hereby confirms for the benefit of Lessee that
its Guaranty dated as of September 1, 1990 made to Lessee applies with respect
to the Lease as amended hereby.
JET AIRCRAFT HOLDINGS, INC.
By /s/ Wayne D. Lippman
-----------------------
Name: Wayne D. Lippman
Title: E.V.P
-7-
<PAGE>
EXECUTION COPY
================================================================================
AMENDMENT AND RESTATEMENT
Dated as of
August 25, 1995
OF
TRUST INDENTURE AND SECURITY AGREEMENT
(Southwest Airlines 1990 Trust II, III & IV)
Dated as of
December 30, 1991
BETWEEN
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
Owner Trustee
AND
MERIDIAN TRUST COMPANY,
Indenture Trustee
___________________________________
Three Boeing Model 737-2H4 Aircraft
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................. 2
GRANTING CLAUSE........................................................... 3
ARTICLE I
DEFINITIONS
SECTION 1.01. Special Definitions................................... 7
SECTION 1.02. Other Definitions..................................... 21
ARTICLE II
THE CERTIFICATES
SECTION 2.01. Form of Certificates.................................. 21
SECTION 2.02. Terms of Certificates................................. 30
SECTION 2.03. Taxes................................................. 31
SECTION 2.04. Payments from Indenture Estate and
Collateral Only....................................... 33
SECTION 2.05. Method of Payment..................................... 34
SECTION 2.06. Application of Payments............................... 35
SECTION 2.07. Termination of Interest in Indenture
Estate................................................ 35
SECTION 2.08. Registration, Transfer and Exchange of
Certificates.......................................... 35
SECTION 2.09. Mutilated, Destroyed, Lost or Stolen
Certificates.......................................... 37
SECTION 2.10. Payment of Expenses on Transfer....................... 37
SECTION 2.11. Prepayment............................................ 38
SECTION 2.12. Provisions Relating to Prepayment..................... 38
SECTION 2.13. Purchase Option....................................... 39
SECTION 2.14. Yield Protection...................................... 42
SECTION 2.15. (Intentionally omitted.).............................. 44
SECTION 2.16. Certificates in Respect of Replacement
Engines............................................... 44
SECTION 2.17. Terms of Subordination................................ 44
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution and Application
of Amounts upon Rent Default.......................... 48
SECTION 3.02. Lease Termination, Event of Loss and
Replacement........................................... 50
SECTION 3.03. Payment After Indenture Event of
Default, etc.......................................... 51
SECTION 3.04. Certain Payments...................................... 54
SECTION 3.05. Other Payments........................................ 55
SECTION 3.06. Payments to Owner Trustee............................. 55
SECTION 3.07. Investment of Amounts Held by Indenture
Trustee............................................... 56
SECTION 3.08. Series A Holders...................................... 56
ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of The Bank and the Owner
Trustee............................................... 57
SECTION 4.02. Indenture Event of Default............................ 58
SECTION 4.03. Certain Cure Rights................................... 61
SECTION 4.04. Remedies.............................................. 63
SECTION 4.05. Return of Aircraft, etc............................... 65
SECTION 4.06. Remedies Cumulative................................... 67
SECTION 4.07. Discontinuance of Proceedings......................... 67
SECTION 4.08. Waiver of Past Defaults............................... 68
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices............................................... 68
SECTION 5.02. Action Upon Instructions.............................. 70
SECTION 5.03. Indemnification....................................... 71
SECTION 5.04. No Duties Except as Specified in
Indenture or Instructions............................. 71
SECTION 5.05. No Action Except Under Leases,
Participation Agreements, Trust
Indenture or Instructions............................. 72
SECTION 5.06. Replacement Engines................................... 72
SECTION 5.07. Indenture Supplements for Replacements................ 74
SECTION 5.08. Effect of Replacement................................. 74
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.09. Certain Rights of Owner Trustee and
Owner Participant..................................... 74
ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01. Acceptance of Trusts and Duties....................... 76
SECTION 6.02. Absence of Duties..................................... 76
SECTION 6.03. No Representations or Warranties as to
Aircraft or Documents................................. 77
SECTION 6.04. No Segregation of Monies; No Interest................. 77
SECTION 6.05. Reliance; Agents; Advice of Counsel................... 78
SECTION 6.06. Capacity in Which Acting.............................. 79
SECTION 6.07. Compensation.......................................... 79
SECTION 6.08. May Become Certificate Holder......................... 79
SECTION 6.09. Further Assurances; Financing
Statements............................................ 79
ARTICLE VII
INDEMNIFICATION OF INDENTURE
TRUSTEE BY OWNER TRUSTEE
SECTION 7.01. Scope of Indemnification.............................. 80
ARTICLE VIII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 8.01. Notice of Successor Owner Trustee..................... 81
SECTION 8.02. Resignation of Indenture Trustee;
Appointment of Successor.............................. 81
SECTION 8.03. Appointment of Separate Trustees...................... 83
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO THIS
INDENTURE AND OTHER DOCUMENTS
SECTION 9.01. Instructions of Majority; Limitations................. 85
SECTION 9.02. Trustees Protected.................................... 87
SECTION 9.03. Documents Mailed to Holders........................... 87
SECTION 9.04. No Request Necessary for Lease
Supplement or Indenture Supplement.................... 87
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Termination of Indenture........................ 87
SECTION 10.02. No Legal Title to Indenture Estate in
Holders......................................... 88
SECTION 10.03. Sale of Aircraft by Indenture Trustee
is Binding...................................... 88
SECTION 10.04. Indenture for Benefit of Owner Trustee,
Indenture Trustee, Owner Participant
and Certificate Holders......................... 88
SECTION 10.05. No Action Contrary to Lessee's Rights
Under any Lease................................. 89
SECTION 10.06. Notices......................................... 89
SECTION 10.07. Severability.................................... 89
SECTION 10.08. No Oral Modifications or Continuing
Waivers......................................... 90
SECTION 10.09. Successors and Assigns.......................... 90
SECTION 10.10. Headings........................................ 90
SECTION 10.11. Governing Law; Counterpart Form................. 90
SECTION 10.12. Collateral...................................... 90
</TABLE>
EXHIBIT A - Form of Indenture Supplement
EXHIBIT B - Form of Tax Certificate
EXHIBIT C - (Intentionally omitted.)
EXHIBIT D - (Intentionally omitted.)
EXHIBIT E - Swap Upside
ANNEX I - Series A Certificates Amortization Schedule
ANNEX II - Series B Certificates Amortization Schedule
(iv)
<PAGE>
AMENDMENT AND RESTATEMENT
OF
TRUST INDENTURE AND SECURITY AGREEMENT
AMENDMENT AND RESTATEMENT dated as of August 25, 1995 of TRUST
INDENTURE AND SECURITY AGREEMENT (Southwest Airlines 1990 Trust II, III & IV)
dated as of December 30, 1991 between FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, a national banking association, in its individual capacity only as
expressly stated herein (when acting in such individual capacity called "The
---
Bank", and otherwise solely as owner trustee under the Trust Agreement referred
- ----
to below (in such capacity, the "Owner Trustee")), and MERIDIAN TRUST COMPANY, a
-------------
Pennsylvania trust company (the "Indenture Trustee").
-----------------
WHEREAS, all capitalized terms used herein shall have the respective
meanings set forth or referred to in Article I hereof;
WHEREAS, the Owner Trustee and the Indenture Trustee have entered into
(a) a Trust Indenture and Security Agreement (Southwest Airlines 1990 Trust II,
III and IV) dated as of December 30, 1991, as supplemented by the Trust
Indenture Supplement No. 1 thereto dated as of December 31, 1991 (as so
supplemented, the "1991 Indenture") relating to three Boeing model 737-2H4
--------------
aircraft bearing U.S. registration numbers N55SW, N565W and N57SW and
manufacturer's serial numbers 21593, 21721 and 21722, respectively and six (6)
Pratt and Whitney JT8D-9A Engines bearing respective serial numbers P707374B,
P707334B, P674648B, P707371B, P687758B and P707364B, (b) a Special Participation
Agreement (Southwest Airlines 1990 Trust II, III & IV) dated as of December 30,
1991, among CL Aircraft XXXI, Inc., as Owner Participant and a Guarantor of the
Series B Certificates (the "Owner Participant"), CL Aircraft XXXI, Inc., CL
-----------------
Aircraft XXXII, Inc. and CL Aircraft XXXIII, Inc., as Initial Owner Participants
(collectively, the "Initial Owner Participants"), Cauff, Lippman & Company,
--------------------------
Inc., as a Guarantor of the Series B Certificates (together with the Owner
Participant, the "Guarantors of the Series B Certificates"), First Security Bank
---------------------------------------
of Utah, National Association, as Owner Trustee (in such capacity under the
Trust Agreements dated as of September 1, 1990 relating to the Southwest
Airlines 1990 Trusts II, III and IV, the "Existing Owner Trustee" and in such
----------------------
capacity under the Trust Agreement dated as of December 30, 1991 relating to the
Southwest Airlines 1990 Trust II, III & IV, the "Owner Trustee"), Meridian Trust
-------------
Company, as Indenture Trustee (the "Indenture Trustee"),
-----------------
TRUST INDENTURE
<PAGE>
2
The Chase Manhattan Bank, N.A., as Senior Lender (the "Senior Lender") and
-------------
Progress Credit Corporation, as Subordinated Lender and Initial Lender (the
"Initial Lender") (the Senior Lender and the Initial Lender collectively
--------------
referred to herein as the "Loan Participants") and (c) various other documents;
-----------------
WHEREAS, the 1991 Indenture provides, among other things (i) for the
issuance by the Owner Trustee to the Loan Participants of Certificates as
provided in the Special Participation Agreement and (ii) for the assignment,
mortgage and pledge by the Owner Trustee to the Indenture Trustee, as part of
the Indenture Estate thereunder, among other things, of certain of the Owner
Trustee's right, title and interest in and to the Aircraft and the Indenture
Documents and the payments and other amounts received thereunder or in respect
thereof in accordance with the terms hereof, as security for, among other
things, the Owner Trustee's and Lessee's obligations to the Loan Participants
and the Certificate Holders, and for the benefit and security of the Loan
Participants and the Certificate Holders;
WHEREAS, the Owner Trustee and Southwest Airlines Co. (the "Lessee")
------
have entered into three Leases, each relating to one of the three Aircraft, each
of which Leases has been supplemented by a Lease Supplement thereto assigned by
an Assumption Agreement and amended by a First Lease Amendment thereto;
WHEREAS, the Owner Trustee and Lessee have executed three Second Lease
Amendments providing, among other things, for the extension of the Base Lease
Term (as defined therein) and the recalculation of Basic Rent and Stipulated
Loss Value (each as defined therein);
WHEREAS, the Owner Trustee and the Indenture Trustee have agreed to
execute this Amendment and Restatement of Trust Indenture and Security Agreement
to provide, among other things, for the extension of the maturity of the Series
A Certificates and the Series B Certificates and to provide replacement Series A
Certificates to the Loan Participants designated as receiving same pursuant to
Section 1.1(a) (ii) of the Special Participation Agreement (or their nominees)
and replacement Series B Certificates to the Loan Participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees), each Certificate in the form set forth in Section
2.01 hereof;
TRUST INDENTURE
<PAGE>
3
WHEREAS, all things have been done to make the Certificates, when
executed by the Owner Trustee and authenticated, issued and delivered hereunder,
the valid obligations of the Owner Trustee; and
WHEREAS, all things necessary to make this Indenture the legal, valid
and binding obligation of the Owner Trustee, for the uses and purposes herein
set forth and in accordance with its terms, have been done and performed and
have happened;
The parties hereto agree as follows and that, effective as of the date
hereof, the 1991 Indenture shall be amended and restated to read in its entirety
as follows:
-- GRANTING CLAUSE --
NOW, THEREFORE, THIS AMENDMENT AND RESTATEMENT OF TRUST INDENTURE AND
SECURITY AGREEMENT WITNESSETH, that, to secure (i) the prompt payment of the
principal of and Premium Amount (if any) and interest on, and all other amounts
due with respect to (a) the Series A Certificates and (b) the Series B
Certificates in each case from time to time outstanding hereunder, (ii) the
performance and observance by the Owner Trustee and the Owner Participant of all
the agreements, covenants and provisions for the benefit of the Loan
Participants and the Certificate Holders herein and in each Participation
Agreement, the Special Participation Agreement and the Certificates contained,
(iii) the prompt payment of any and all amounts from time to time owing
hereunder and under each Participation Agreement and the other Operative
Agreements by the Owner Trustee, the Owner Participant or the Lessee to the Loan
Participants and the Certificate Holders and (iv) the performance and observance
by the Guarantors of the Series B Certificates of all the agreements, covenants
and provisions for the benefit of the Loan Participants and the Certificate
Holders in each Participation Agreement, the Special Participation Agreement and
the Guarantee, and for the uses and purposes and subject to the terms and
provisions hereof, and in consideration of the premises and of the covenants
herein contained, and of the acceptance of the Certificates by the holders
thereof, and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee
at or before the delivery hereof, the receipt whereof is hereby acknowledged,
the Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain,
TRUST INDENTURE
<PAGE>
4
sell, assign, transfer, convey, mortgage, pledge and confirm, unto the Indenture
Trustee and its successors and assigns, for the security and benefit of the Loan
Participants and the Certificate Holders, as aforesaid, a fir st priority
security interest in and first mortgage lien upon, all estate, right, title and
interest of the Owner Trustee in, to and under the following described property,
rights and privileges, other than Excluded Payments (which collectively,
excluding Excluded Payments but including all property hereafter specifically
subjected to the Lien of this Indenture by an Indenture Supplement or any other
mortgage supplemental hereto, shall constitute the "Indenture Estate"), to wit:
----------------
1. each Aircraft (including each Airframe and the Engines) and (in
the case of the Engines) all replacements thereof and substitutions
therefor to which the Owner Trustee shall from time to time acquire title
as provided herein and in any related Lease, all as more particularly
described in the Indenture Supplement executed and delivered with respect
to such Aircraft or any such replacements or substitutions therefor, as
provided in this Indenture, and all records, logs and other documents at
any time maintained with respect to the foregoing property;
2. each Lease and all Rent under each thereof, including, without
limitation in respect of each Lease, all Basic Rent, Supplemental Rent,
insurance proceeds and requisition and other payments of any kind under
each thereof and including all rights of the Owner Trustee to execute any
election or option or to give any notice, consent, waiver, or approval
under or in respect of any Lease or to accept any surrender of any Aircraft
or any part thereof, as well as any rights, powers or remedies on the part
of the Owner Trustee, whether arising under any Lease or by statute or at
law or in equity, or otherwise, arising out of any Lease Event of Default;
3. the Participation Agreements, the Special Participation
Agreement, the Bills of Sale, the New Bills of Sale and all other Indenture
Documents (including, without limitation, all rights to amounts paid or
payable to the Owner Trustee thereunder and all rights to enforce such
payments);
TRUST INDENTURE
<PAGE>
5
4. all tolls, rents, issues, profits, revenues and other income of
the property subjected or required to be subjected to the Lien of this
Indenture, including all payments or proceeds in respect thereof after
termination of any Lease with respect to any Aircraft, any Airframe, any
Engine or any Part subject to such Lease, or otherwise, as the result of
the sale, lease or other disposition thereof, and all estate, right, title
and interest of every nature whatsoever of the Owner Trustee in and to the
same and every part thereof;
5. all insurance and requisition proceeds and all other payments of
any kind with respect to any Aircraft, including but not limited to the
insurance required under Section 11 of the Lease to which such Aircraft is
subject;
6. all monies and securities deposited or required to be deposited
with the Owner Trustee or the Indenture Trustee pursuant to any term of
this Indenture or any Lease or required to be held by the Indenture Trustee
hereunder; and
7. all proceeds of the foregoing.
The Owner Trustee is concurrently with the delivery hereof delivering to the
Indenture Trustee an executed chattel paper original counterpart of each Lease,
the Lease Supplement, the First Lease Amendment, Assumption Agreement and the
Second Lease Amendment in respect of each Aircraft, together with executed
copies of the Trust Agreement and each of the other Indenture Documents (other
than the FAA bills of sale). All property referred to in this Granting Clause,
whenever acquired by the Owner Trustee, shall secure all obligations under and
with respect to the Certificates at any time outstanding. Any and all
properties referred to in this Granting Clause which are hereafter acquired by
the Owner Trustee, shall, without further conveyance, assignment or act by the
Owner Trustee or the Indenture Trustee thereby become and be subject to the
security interest hereby granted as fully and completely as though specifically
described herein.
-- HABENDUM CLAUSE --
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns,
TRUST INDENTURE
<PAGE>
6
in trust for the benefit and security of the Loan Participants and the
Certificate Holders, and for the uses and purposes and subject to the terms and
provisions set forth in this Indenture.
It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Owner Trustee shall remain liable under the Indenture
Documents to perform all of the obligations assumed by it thereunder, all in
accordance with and pursuant to the terms and provisions thereof, and the
Indenture Trustee and the Loan Participants and the Certificate Holders shall
have no obligation or liability under any thereof by reason of or arising out of
the assignment hereunder, nor shall the Loan Participants or the Certificate
Holders be required or obligated in any manner to perform or fulfill any
obligations of the Owner Trustee under or pursuant to any of the Indenture
Documents, except as therein or herein expressly provided, to make any payment,
or to make any inquiry as to the nature or sufficiency of any payment received
by it, or present or file any claim, or take any action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
The Owner Trustee does hereby constitute the Indenture Trustee the
true and lawful attorney of the Owner Trustee, irrevocably, with full power (in
the name of the Owner Trustee or otherwise) to ask, require, demand, receive,
compound and give acquaintance for any and all monies and claims for monies (in
each case including insurance and requisition proceeds) due and to become due
under or arising out of the Indenture Documents and all other property which now
or hereafter constitutes part of the Indenture Estate, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or to
take any action or to institute any proceedings which the Indenture Trustee may
deem to be necessary or advisable in the premises. Under each Lease the Lessee
is directed to make all payments of Rent (other than Excluded Payments) and all
other amounts which are required to be paid to or deposited with the Owner
Trustee pursuant to such Lease (other than Excluded Payments), directly to the
Indenture Trustee at such address or addresses as the Indenture Trustee shall
specify, for application as provided in this Indenture. The Owner Trustee
agrees that promptly on receipt thereof, it will transfer to the Indenture
Trustee any and all monies from time to time received by it constituting part of
the Indenture Estate, for distribution by the Indenture Trustee pursuant to this
Indenture.
TRUST INDENTURE
<PAGE>
7
The Owner Trustee does hereby warrant and represent that (except as
permitted herein) it has not assigned or pledged any of its right, title and
interest hereby assigned to anyone other than the Indenture Trustee other than
pursuant to the Prior Mortgages, which Mortgages have been released, discharged
and satisfied of record.
The Owner Trustee does hereby ratify and confirm the Indenture
Documents and does hereby agree that (except as permitted herein) it will not
take or omit to take any action, the taking or omission of which would result in
an alteration or impairment of any of the Indenture Documents or of any of the
rights created by any thereof or the assignment hereunder.
Notwithstanding the Granting Clause or any of the preceding
paragraphs, there are hereby expressly excluded from the foregoing grant,
bargain, sale, assignment, transfer, conveyance, mortgage, pledge and security
interest all Excluded Payments. Further, nothing in the Granting Clause or any
of the preceding paragraphs shall impair in any respect the rights of the Owner
Trustee or the Owner Participant under Section 5.09.
IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Special Definitions. For all purposes of this
-------------------
Indenture the following terms shall have the following meanings (such
definitions to be equally applicable to both the singular and plural forms of
the terms defined). Any agreement referred to below shall mean such agreement
as amended, supplemented and modified from time to time in accordance with the
applicable provisions thereof and of the other Operative Agreements. Unless
otherwise specified, Section, Article, Exhibit and Annex references are to
Sections, Articles, Exhibits and Annexes of this Indenture.
"Affiliate" of any Person shall mean any other Person directly or
---------
indirectly controlling, directly or indirectly controlled by, or under
direct or indirect common control with, such Person.
TRUST INDENTURE
<PAGE>
8
"Aircraft" means the Airframes together with the Engines as further defined
--------
in each Lease.
"Airframes" means each of the Boeing 737-2H4 Aircraft, serial numbers
---------
21593, 21721, and 21722 bearing respective U.S. Registration Numbers N5SSW,
NS6SW, and NS7SW as further defined in each Lease.
"Assumption Agreement" means each Assignment and Assumption Agreement
--------------------
delivered by the Owner Trustee and an Existing Owner Trustee, in substantially
the form of Exhibit I to the Special Participation Agreement.
"Base Rate" means, for any day, the higher of (a) the Federal Funds Rate
---------
for such day plus 1/2 of 1% per annum or (b) the Prime Rate for such day. Each
change in any interest rate provided for herein based upon the Base Rate
resulting from a change in the Base Rate shall take effect at the time of such
change in the Base Rate.
"Basic Rate" means, collectively, the "Basic Rent" as defined in each
----------
Lease.
"Bills of Sale" means, collectively, the "Manufacturer's FAA Bill of Sale"
-------------
and the "Manufacturer's Warranty Bill of Sale" as defined in each Lease.
"Break Funding Cost" means, for any Series A Certificate, the amount equal
------------------
to the sum of LIBOR Break Amount and Swap Break Amount for such Series A
Certificate.
"Calculation Agent" means The Chase Manhattan Bank (National Association),
-----------------
or its designee.
"Certificates" means, collectively, the Series A Certificates and the
------------
Series B Certificates.
"Certificate Holder" or "holder" means, at any time, any holder of one or
------------------ ------
more Certificates. For all purposes of this Indenture, including, without
limitation, Section 2.17 and Article III, reference to a holder of a given
Series of Certificates shall mean such Person in such capacity and not in its
capacity as the holder of any other Series of Certificates
TRUST INDENTURE
<PAGE>
9
"Certificate Register" has the meaning specified in Section 2.08.
--------------------
"Closing Date" means December 31, 1991.
------------
"Collateral" means, in the case of the Series B Certificates, amounts paid
-----------
or payable, and all rights and benefits under, and the collateral under, the
Guarantee.
"Corporate Trust Office" means the principal office of the Indenture
-----------------------
Trustee located at 35 North Sixth Street, Reading, Pennsylvania, 19601, or such
other office at which the Indenture Trustee's corporate trust business shall be
administered and which the Indenture Trustee shall have specified by notice in
writing to the Lessee, the Owner Trustee, the Owner Participant and each
Certificate Holder.
"Designated Maturity" means, as at any date of determination, the then
-------------------
remaining weighted average life of the Series A Certificates subject to
prepayment on
"Dollars" and "$" means lawful currency of the United States of America.
------- -
"Engines" means each of the six (6) Pratt & Whitney JT8D-9A Engines, serial
-------
numbers P707374B, P707334B, P674648B, P707371B, P687758B and P707364B, as
further defined in each Lease.
"Excluded Payments" means (i) subject to the provisions of Section 4.03,
-----------------
indemnity payments and interest in respect thereof paid or payable by the Lessee
in respect of The Bank in its individual capacity or the Owner Participant
pursuant to Section 8.1 or 8.2 of any Participation Agreement, (ii) proceeds of
public liability insurance (or any similar payment from a governmental
authority) in respect of any Aircraft payable to, or as a result of losses
suffered by, The Bank in its individual capacity or the Owner Participant, (iii)
proceeds of insurance maintained with respect to any Aircraft by or for the
benefit of the Owner Participant (whether directly or through the Owner Trustee)
in excess of that required to be maintained by the Lessee under Section 11 of
any Lease, provided that no such insurance impairs or reduces coverage under any
insurance required to be maintained by the Lessee under any said Section 11,
TRUST INDENTURE
<PAGE>
10
(iv) payments of Supplemental Rent by the Lessee in respect of any amounts
payable under the Tax Indemnification Agreement, (V) Transaction Costs paid or
payable to The Bank in its individual capacity or the Owner Participant pursuant
to Section 12.2 of any Participation Agreement and (vi) any right to enforce the
payment of any amount described in clauses (i) through (v) above and the
proceeds thereof.
"Existing Owner Trustees" means the "Existing Owner Trustees" party to the
-----------------------
Special Participation Agreement.
"Federal Funds Rate" means for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (i) if the day for which such rate is to be determined is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if such rate is not so published for any day,
the Federal Funds Rate for such day shall be the average rate charged to the
Calculation Agent on such day on such transactions as determined by the
Calculation Agent.
"First Lease Amendment" means each of the Sale and Lease Agreement
---------------------
Amendments as further defined in the definition of Lease and as defined in the
Special Participation Agreement.
"Guarantee" means the Guarantee 555W, 56SW and 57SW dated as of December
---------
30, 1991 by the Guarantors of the Series B Certificates in favor of the holders
of the Series B Certificates, as the same may be modified, supplemented, amended
and in effect from time to time.
"Guarantors of the Series B Certificates" means Cauff, Lippman & Company,
---------------------------------------
Inc., a Florida corporation and the Owner Participant.
"Guarantee Beneficiary" has the meaning specified in the Guarantee.
---------------------
TRUST INDENTURE
<PAGE>
11
"Indenture", "this Indenture", and "the Trust Indenture" mean this
---------- -------------- --------- ---------
Amendment and Restatement of Trust Indenture and Security Agreement, including
any Indenture Supplement and each other supplement from time to time entered
into pursuant hereto.
"Indenture Default" means an Indenture Event of Default or an event which
------------------
with notice or lapse of time or both would became an Indenture Event of Default.
"Indenture Documents" means each Participation Agreement, the Special
-------------------
Participation Agreement, each Lease (including Lease Supplements) each
Assumption Agreement, the Bills of Sale aid the New Bills of Sale.
"Indenture Estate" means the "Indenture Estate" as defined in the Granting
----------------
Clause hereof.
"Indenture Event of Default" has the meaning specified in Section 4.02.
--------------------------
"Indenture Supplement" means a supplement to this Indenture substantially
--------------------
in the form of Exhibit A, which shall particularly describe each Airframe and
Engines, or any Replacement Engine, included in the property of the Owner
Trustee covered by this Indenture.
"Initial Lender" means Progress Credit Corporation, a Florida corporation.
--------------
"Initial Owner Participants" means the "Initial Owner Participants" party
---------------------------
to the Special Participation Agreement.
"Interest Payment Date" means, during the period from and including the
---------------------
Closing Date to and including December 31, 1995, March 31, June 30, September 30
and December 31 of each year, the first of which shall be December 31, 1991; and
thereafter, the thirtieth day of each calendar month, or if there is no
thirtieth day, the last day of the month.
"Interest Rate" means, during the period from and including the Closing
-------------
Date to and including December 31, 1995, 7.57% and thereafter, 7.94% per annum.
TRUST INDENTURE
<PAGE>
12
"Lease" means any of (i) the Sale and Lease Agreement (Southwest Airlines
-----
1990 Trust II) dated as of September 1, 1990 between the Lessee and the Existing
Owner Trustee, including Lease Supplement No. 1 thereto recorded with the FAA on
September 28, 1990, as conveyance number KK13034, the Assumption Agreement,
dated December 30, 1991 between the Existing Owner Trustee and the Owner
Trustee, recorded by the FAA on January 3, 1992 as conveyance number H77982, the
First Lease Amendment in respect thereof recorded with the FAA on January 3,
1992 as conveyance number H77984, the Second Lease Amendment in respect thereof
and each other supplement or amendment heretofore or hereafter entered into
pursuant to the terms of such Lease, (ii) the Sale and Lease Agreement
(Southwest Airlines 1990 Trust III) dated as of September 1, 1990 between the
Lessee and the Owner Trustee, including Lease Supplement No. 1 thereto recorded
with the FAA on September 28, 1990, as conveyance number K91061, the Assumption
Agreement , dated December 30, 1991, between the Existing Owner Trustee and the
Owner Trustee, recorded by the FAA on January 2, 1992, as conveyance number
H77978, the First Lease Amendment in respect thereof recorded with the FAA on
January 2, 1992 as conveyance number H77980, the Second Lease Amendment in
respect thereof and each other supplement or amendment heretofore or hereafter
entered into pursuant to the terms of such Lease, and (iii) the Sale and Lease
Agreement (Southwest Airlines 1990 Trust IV) dated as of September 1, 1990
between the Lessee and the Owner Trustee, including Lease Supplement No. 1
thereto recorded with the FAA on September 28, 1990, as conveyance number
H72737, the Assumption Agreement, dated December 30, 1991, between the Existing
Owner Trustee and the Owner Trustee, recorded by the FAA on January 3, 1992, as
conveyance number H77986, the First Lease Amendment in respect thereof recorded
with the FAA on January 3, 1992 as conveyance number H77988, the Second Lease
Amendment in respect thereof and each other supplement or amendment heretofore
or hereafter entered into pursuant to the terms of such Lease.
TRUST INDENTURE
<PAGE>
13
"Lease Default" means a Lease Event of Default or an event which with
-------------
notice or lapse of time or both would become a Lease Event of Default.
"Lease Event of Default" means any of the events specified in Section 14 of
----------------------
any Lease.
"Lease Supplements" means, collectively the "Lease Supplement" as defined
-----------------
in each Lease.
"Lending Office" means, for any holder of a Series A Certificate, the
--------------
office from which it maintains the loan evidenced by its Series A Certificates.
"Lessee" means Southwest Airlines Co., a Texas corporation, or any
------
successor or assignee thereof as permitted by Section 7.4 of any Participation
Agreement.
"LIBOR" means the London Interbank Offered Rate.
-----
"LIBOR Break Amount" means, for any Series A Certificate as at any date of
------------------
prepayment, purchase or acceleration of such Series A Certificate, an amount
equal to the excess, if any, of (i) the amount of interest which otherwise would
have accrued on the principal amount prepaid, purchased or accelerated for the
period from the date of such prepayment, purchase or acceleration to the next
subsequent Interest Payment Date at the applicable "Floating Rate" (i.e., LIBOR-
based rate) of interest in effect on such date (exclusive of any spread) under
the Swap Transaction over (ii) the interest component of the amount the holder
of such Series A Certificate would have bid in the London interbank market for
Dollar deposits of leading banks in amounts comparable to such principal amount
and with maturities comparable to such period.
"Loan Participants" means the Loan Participants party to the Special
-----------------
Participation Agreement, and their respective successors and assigns.
"Majority A Holders" means, as of any date of determination thereof, the
------------------
holders of not less than a majority in aggregate outstanding principal amount of
all Series A Certificates.
TRUST INDENTURE
<PAGE>
14
"Majority B Holders" means, as of any date of determination thereof, the
------------------
holders of not less than a majority in aggregate outstanding principal amount of
all Series B Certificates.
"Majority in Interest of Certificate Holders" means, as of any date of the
-------------------------------------------
determination thereof, the Majority A Holders and the Majority B Holders;
provided, however, that (i) such term shall mean the Majority A Holders if an
Indenture Event of Default shall have occurred and be continuing (unless all
principal, interest, Premium Amount and all other amounts due on the Series A
Certificates and to the holders thereof under the Operative Agreements shall
have been theretofore paid in full) and (ii) such term shall mean the Majority B
Holders in the case of any direction, demand, notice or other action in respect
of the Collateral for the benefit of the holders of the Series B Certificates.
For all purposes of the foregoing definition and the definition of "Majority A
Holders" and "Majority B Holders", in determining as of any date the then
aggregate outstanding principal amount of Certificates of any Series, there
shall be excluded any Certificates, if any, held by the Owner Trustee, the Owner
Participant, the Guarantors of the Series B Certificates or the Lessee or any
Affiliate of any thereof (unless the Owner Trustee, the Owner Participant, the
Guarantors of the Series B Certificates, the Lessee or their respective
Affiliates, as the case may be, own all Certificates then outstanding), or any
interest of the Owner Trustee or the Owner Participant in any Certificate or any
interest of the holder of a Series B Certificate in a Series A Certificate, in
either case, by reason of subrogation pursuant to Section 4.03 or otherwise.
"Make-Whole Amount" means, with respect to any Series A Certificate, an
-----------------
amount equal to the excess, if any, of (i) the present value, as of the date of
the relevant prepayment, purchase or acceleration of Series A Certificates, of
the respective installments of principal of and interest on such Series A
Certificate that, but for such prepayment, purchase or acceleration, would have
been payable on Payment Dates or Interest Payment Dates, as the case may be,
after such prepayment, purchase or acceleration (assuming for this purpose no
changes in the Interest Rate for the Series A Certificates from that in effect
with respect to the relevant prepayment, purchase or acceleration), over (ii)
the
TRUST INDENTURE
<PAGE>
15
principal amount of such Series A Certificate then being prepaid. Such present
value shall be determined by discounting the amounts of such installments from
their respective Payment Dates or Interest Payment Dates, as the case may be, to
the date of such prepayment at a rate equal to the Treasury Rate plus 1/2 of 1%
(such discounting to be calculated on the basis of a 360-day year of twelve 30-
day months).
"New Bills of Sale" has the meaning assigned to such term in section 1.1(a)
-----------------
(i) of the Special Participation Agreement.
"1991 Indenture" means the Trust Indenture and Security Agreement
--------------
(Southwest Airlines 1990 Trust II, III and IV) dated as of December 30, 1991
between the Owner Trustee and the Indenture Trustee, as supplemented by the
Indenture Supplement No. 1 thereto dated December 31, 1991, recorded by the FAA
as one instrument on January 3, 1992, as conveyance number H77989.
"Non-U.S. Person" means any Person other than (i) a citizen or resident of
---------------
the United States of America, its territories and possessions (including the
Commonwealth of Puerto Rico and all other areas subject to its jurisdiction)
(for purposes of this definition, the "United States"), (ii) a corporation,
partnership or other entity created or organized under the laws of the United
States or any political subdivision thereof or therein or (iii) an estate or
trust that is subject to United States federal income taxation regardless of the
source of its income.
"Operative Agreements" means the Indenture Documents, the Trust Agreement,
--------------------
this Indenture, the Loan Certificates and the Guarantee.
"Owner Participant" means CL Aircraft XXXI, Inc., a Florida corporation,
-----------------
and transferees thereof as and to the extent permitted by Section 10.1 of each
Participation Agreement and Section 8.01 of the Trust Agreement.
"Participation Agreement" means any of (i) the Participation Agreement
-----------------------
(Southwest Airlines 1990 Trust II) dated as of September 1, 1990 among the
Lessee, Cauff, Lippman & Company, Inc., the Owner Participant (as assignee of
the
TRUST INDENTURE
<PAGE>
16
original Owner Participant party thereto), the Initial Lender and the Owner
Trustee (as assignee of the original Owner Trustee party thereto), (ii) the
Participation Agreement (Southwest Airlines 1990 Trust III) dated as of
September 1, 1990 among the Lessee, Cauff, Lippman & Company, Inc., the Owner
Participant (as assignee of the original Owner Participant party thereto), the
Initial Lender and the Owner Trustee (as assignee of the original Owner Trustee
party thereto), and (iii) the Participation Agreement (Southwest Airlines 1990
Trust IV) dated as of September 1, 1990 among the Lessee, Cauff, Lippman &
Company, Inc., the Owner Participant (as assignee of the original Owner
Participant party thereto), the Initial Lender and the Owner Trustee (as
assignee of the original Owner Trustee party thereto), as any of the same may be
modified, supplemented, amended and in effect from time to time.
"Parts" means, in respect of any Aircraft, Airframe or Engine, the "Parts"
-----
as defined in the Lease to which such Aircraft, Airframe or Engine is subject.
"Past Due Rate" means, with respect to the principal of or interest or
-------------
Premium Amount, if any, on any Certificate not paid in full when due (whether at
stated maturity, by acceleration or otherwise), or with respect to any other
amount payable to the holder thereof thereon or under this Indenture not so paid
in full when due, a rate of interest per annum equal to 2% above the higher of
(x) the Interest Rate or (y) the Base Rate (in either case computed on the basis
of a year of 360 days and actual days elapsed).
"Payment Date" means, (i) with respect to Series A Certificates, each
------------
Interest Payment Date listed under the Schedule of Principal Payments for such
Series of Certificates set forth in Section 2.02(b) (1) and (ii) with respect to
Series B Certificates, each Interest Payment Date on which principal thereon is
scheduled for payment pursuant to Section 2.02(b) (2).
"Permitted Investments" means those investments described in Section 22.1
---------------------
of any Lease.
"Premium Amount" means, with respect to each Series A Certificate, to the
--------------
fullest extent permitted by law, an amount equal to the sum of (i) (a) if the
holder thereof is
TRUST INDENTURE
<PAGE>
17
a bank, a bank operating subsidiary or otherwise a floating rate lender, the
Break Funding Cost in respect of such Certificate or (b) if the holder thereof
is not a bank, a bank operating subsidiary or otherwise a floating rate lender,
the Make-Whole Amount in respect of such Certificate plus (ii) so long as such
----
amount is not payable in connection with an Indenture Event of Default that is a
Lease Event of Default, as of any date of the determination thereof, the Special
Premium.
"Prime Rate" means the rate of interest from time to time announced by the
----------
Calculation Agent at its principal office as its prime commercial lending rate.
"Prior Mortgages" means any of (i) the Security Agreement and Assignment of
---------------
Leases N555W dated as of September 1, 1990 between the Existing Owner Trustee
party thereto and the Initial Lender, which was previously released by the
General Release of Mortgage, dated December 31, 1991, executed by the Initial
Lender recorded by the FAA on January 3, 1992, as conveyance number H77983, (ii)
the Security Agreement and Assignment of Leases N565W dated as of September 1,
1990 between the Existing Owner Trustee party thereto and the Initial Lender,
which was previously released by the General Release of Mortgage, dated December
31, 1991, executed by the Initial Lender recorded by the FAA on January 2, 1992,
as conveyance number H77979 and (iii) the Security Agreement and Assignment of
Leases NS7SW dated as of September 1, 1990 between the Existing Owner Trustee
party thereto which was previously released by the General Release of Mortgage,
dated December 31, 1991, executed by the Initial Lender, recorded by the FAA on
January 3, 1992, as conveyance number H77988.
"Regulatory Change" shall mean, with respect to any holder of a Series A
-----------------
Certificate, any change after the date of this Indenture in United States
Federal, state or foreign law or regulations, or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Certificate Holder of or under any United States Federal,
state or foreign law or regulations (whether or not having the force of law) by
any court or governmental or monetary authority charged with the interpretation
or administration thereof.
TRUST INDENTURE
<PAGE>
18
"Rent" means, collectively, the "Rent" as defined in each Lease.
----
"Replacement Engine" means any engine substituted for an Engine pursuant to
------------------
Section 5.06.
"Second Lease Amendment" means any of (i) the Sale and Lease Agreement
----------------------
Second Amendment (Southwest Airlines 1990 Trust II) dated as of August 25, 1995
between the Lessee and the Owner Trustee, (ii) the Sale and Lease Agreement
Second Amendment (Southwest Airlines 1990 Trust III) dated as of August 25, 1995
between the Lessee and the Owner Trustee and (iii) the Sale and Lease Agreement
Second Amendment (Southwest Airlines 1990 Trust IV) dated as of August 25, 1995
between the Lessee and the Owner Trustee each of which are being filed
simultaneously herewith.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Series" means one or more of the series of Certificates issued pursuant to
------
Article II of this Indenture.
"Series A Certificates" means the "Series A Loan Certificates" issued
---------------------
pursuant to Section 2.02(a) and any such certificates issued in exchange or
replacement therefor pursuant to Section 2.08 or 2.09.
"Series B Certificates" means the "Series B Loan Certificates" issued
---------------------
pursuant to Section 2.02(a) and any such certificates issued in exchange or
replacement therefor pursuant to Section 2.08 or 2.09.
"Special Participation Agreement" means the Special Participation Agreement
-------------------------------
(Southwest Airlines 1990 Trust II, III & IV) dated as of December 30, 1991
between the Owner Trustee, the Existing Owner Trustees, the Indenture Trustee,
the Loan Participants, the Initial Lender, the Owner Participant, the Initial
Owner Participants and the Guarantors of the Series B Certificates.
"Special Premium" means a premium equal to (x) on or prior to December 31,
---------------
1992, 2%, (y) thereafter through (and including) December 31, 1994, 1% and (z)
thereafter, 0%, of
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<PAGE>
19
the principal amount of such Certificate subject to prepayment.
"Supplemental Rent" means, collectively "Supplemental Rent" as defined in
-----------------
each Lease.
"Swap Break Amount" means, as of any date of determination thereof, and for
-----------------
any Series A Certificate, the lesser of:
(a) the amount the Swap Counterparty will require in accordance with
market practice to have paid to it on such date by the holder of such Series A
Certificate to terminate the Swap Transaction of such holder on such date; or
(b) the amount a Reference Market-maker (as defined in the Swap Form with
the "party" referred to in such definition being the Swap Counterparty)
designated by the Owner Trustee and reasonably acceptable to the Swap
Counterparty will quote to such holder and the Owner Trustee as the amount it
will require to be paid to it on such date by such holder to assume the
obligations of such holder under the Swap Transaction;
provided that if the Swap Counterparty and the Reference Market-maker quote the
- --------
identical amount, or if the Reference Market-maker fails to quote or, having
quoted, fails or refuses to assume the aforesaid obligations of such holder in
accordance with its "quote" or the Swap Counterparty refuses (acting in
accordance with the Swap Form) to accept performance by such Reference Market-
maker, the amount computed in accordance with clause (a) above shall be the
"Swap Break Amount".
"Swap Counterparty" means Chase Securities, Inc., in the case of the swap
-----------------referenced in clause (i) of "Swap Transaction" below and
(ii) The Chase Manhattan Bank (National Association) in the case of the swap
referenced in clause (ii) of that definition.
"Swap Transaction" means (i) the interest rate exchange transaction entered
----------------
into by the Senior Lender and the Swap Counterparty, which transaction is
governed by the Interest Rate and Currency Exchange Agreement published in 1987
by, and incorporating by reference therein the definitions and
TRUST INDENTURE
<PAGE>
20
provisions contained in, the 1991 ISDA Definitions of the International Swap
Dealers Association, Inc. (the "Swap Form") and the terms of the confirmation of
which provide for the exchange of three month LIBOR plus a Spread for the
Interest Rate in respect of a notional amount equal to the scheduled aggregate
principal amount of the Series A Certificates outstanding from time to time, as
said swap transaction may be assigned in whole or in part; and (ii) in addition,
at all times after December 29, 1995, a swap that may exist or, if it does not
Exist shall be deemed to exist between the Senior Lender and Swap Counterparty,
which transaction is governed by the Interest Rate and Currency Exchange
Agreement published in 1992 by, and incorporating by reference therein the
definitions and provisions contained in, the 1991 ISDA Definitions of the
International Swap Dealers Association, Inc. (the "New Swap Form") and the terms
-------------
of the confirmation of which provide for the exchange of one month LIBOR plus a
Spread for the Interest Rate in respect of a notional amount of the Series A
Certificates outstanding from time to time, as said swap transaction may be
assigned in whole or in part.
"The Bank" means First Security Bank of Utah, National Association, a
--------
national banking association, in its individual capacity and any successor
financial institution (in its individual capacity) acting as Owner Trustee
hereunder and under the Trust Agreement.
"Treasury Rate" means for any Designated Maturity, the yield to maturity
-------------
of, and resulting from the bidding for, the most recently auctioned United
States Treasury Notes with maturities equal to such Designated Maturity, and if
United States Treasury Notes with such a maturity are not then auctioned and
publicly traded, the weighted average yield to maturity of United States
Treasury Notes with maturities next above and below such Designated Maturity
(calculated as provided below); such yields in each case to be determined by the
Calculation Agent by averaging (and rounding upward to the nearest whole
multiple of 1/100 of 1% per annum, if the average is not such a multiple), the
yields of the relevant United States Treasury Notes (rounded, if necessary, to
the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward)
as quoted by two reputable dealers in United States Treasury Notes selected by
the Calculation Agent at approximately 11:00 A.M., New York time, on the date
any Premium Amount shall be
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<PAGE>
21
payable and notified to the Indenture Trustee, the Owner Trustee and the
holders of the affected Series of Certificates; any weighted average yield
of Treasury Notes with two maturities is to be calculated by the
Calculation Agent in accordance with the following formula:
WAY - Y1 + (Y2 - Y1) (DM - X1)
---------------------
(X2 - X1)
Where:
WAY - Weighted Average Yield
DM - relevant Designated Maturity
Xl - whole integer in years closest to and less than DM which equals the
maturity of a United States Treasury Note then publicly traded.
X2 - whole integer in years closest to and greater than DM which equals
the maturity of a United States Treasury Note then publicly traded.
Y1 - yield, determined as provided above, of United States
Treasury Notes then most recently auctioned with maturities equal to
X1.
Y2 - yield, determined as provided above, of United States Treasury Notes
then moat recently auctioned with maturities equal to X2.
SECTION 1.02. Other Definitions. For all purposes of this
-----------------
Indenture, terms defined in the heading and recitals of this Indenture are used
as so defined and capitalized terms used but not defined in this Indenture are
used as defined in the Leases.
ARTICLE II
THE CERTIFICATES
SECTION 2.01. Form of Certificates. The Certificates and the
--------------------
Indenture Trustee's form of certificate of authentication to appear on the
Certificates shall each be substantially in the form set forth below, as
follows:
TRUST INDENTURE
<PAGE>
22
__________
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
not in its individual capacity, except as otherwise expressly
provided in the Operative Agreements, but solely as Owner Trustee
under Trust Agreement .
(Southwest Airlines 1990 Trust II, III & IV)
dated as of December 30, 1991
SERIES * LOAN
CERTIFICATE DUE 1992-1999
ISSUED IN CONNECTION WITH THREE BOEING MODEL 737-2H4
AIRCRAFT WITH MANUFACTURER'S SERIAL NUMBERS 21593, 21721 AND
21722 AND INITIALLY BEARING UNITED STATES FEDERAL AVIATION
ADMINISTRATION REGISTRATION NOS. N55SW, N56SW AND N57SW AND
SIX PRATT & WHITNEY JT8D-9A ENGINES
No. R-*- New York, New York
$ December 31, 1991
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not
in its individual capacity, except as otherwise expressly provided in the
Operative Agreements, but solely as Owner Trustee (herein in such capacity
called the "Owner Trustee") under that certain Trust Agreement (Southwest
-------------
Airlines 1990 Trust II, III & IV) dated as of December 30, 1991, between the
Owner Participant named therein and First Security Bank of Utah, National
Association (herein as such Trust Agreement may be amended or supplemented from
time to time called the "Trust Agreement"), hereby promises to pay to
---------------
___________________________________, or registered transferees, the principal
sum of_____________________________________________ Dollars, in sixty-four (64)
installments, one such installment to be due and payable on each Payment Date
specified, and each such installment to be in an amount equal to the amount set
forth, in Annex A hereto, together with interest on the unpaid principal amount
hereof from time to time outstanding from and including the date hereof until
such principal amount is paid in full. Interest shall accrue at the Interest
Rate and shall be payable
__________________
* Insert Series Letter
TRUST INDENTURE
<PAGE>
23
in arrears on each Interest Payment Date and on the date this Certificate is
paid in full. The Certificate shall bear interest at the applicable Past Due
Rate on any principal hereof, interest and other amounts due hereunder not paid
when due (whether at stated maturity, by acceleration or otherwise) for any
period during which the same shall be overdue, payable on demand by the holder
hereof given through the Indenture Trustee.
Interest shall be calculated on the basis of a year of 360 days and
actual days elapsed. If any sum payable hereunder falls due on a day which is
not a Business Day, then such sum shall be payable on the next succeeding
Business Day. without (so long as payment is made on such succeeding Business
Day) additional interest as a result of such extension.
All payments of principal [, Premium Amount]' and interest and other
amounts to be made to the holder hereof or under the Amendment and Restatement
dated as of August 25, 1995 of Trust Indenture and Security Agreement (Southwest
Airlines 1990 Trust II, III & IV) dated as of December 30, 1991 (as amended or
supplemented from time to time, herein called the "Indenture" the terms defined
---------
therein and not otherwise defined herein being used herein with the same
meanings) between the Owner Trustee and Meridian Trust company, as Indenture
Trustee thereunder, shall be made only from the income and proceeds from the
Indenture Estate and the Collateral and (except in the case of the Collateral)
only to the extent that the Owner Trustee shall have sufficient income or
proceeds from the Indenture Estate to enable the Indenture Trustee to make such
payments in accordance with the terms of the Indenture. Each holder hereof, by
its acceptance of this Certificate, agrees that it will look solely to the
income and proceeds from the Indenture Estate and the collateral to the extent
available for distribution to the holder hereof as above provided and that none
of the Owner Participant, The Bank or the Indenture Trustee is personally liable
to the holder hereof for any amounts payable or any liability under this
Certificate or under the Indenture, except as expressly provided in the
Indenture (in the case of The Bank and the Indenture Trustee) or as expressly
provided in any Participation Agreement and the Special Participation Agreement
(in the case of The Bank, the Indenture Trustee and the Owner Participant)*
____________________
* Insert only in Series A Certificates
TRUST INDENTURE
<PAGE>
24
[If the Owner Trustee elects or is required to prepay this Certificate
under any provision of the Indenture or any Person entitled thereto elects to
purchase this Certificate under Section 2.13 of the Indenture and such
prepayment or purchase or payment, as the case may be, is not consummated on the
date originally scheduled therefor, or if any payment of principal of or
interest on this Certificate is made on a date other than the date scheduled
therefor, the Owner Trustee or other such Person, as the case may be, shall, no
later than three Business Days after its receipt of demand by the holder hereof
(accompanied by a certificate of the type specified in the next succeeding
sentence) , given through the Indenture Trustee with a copy to the Lessee, pay
to the Indenture Trustee for the account of the holder hereof any amounts
required to compensate the holder hereof for any losses, costs or expenses which
it may incur as a result of the failure of such prepayment or purchase or
payment, as the case may be, to occur as scheduled. In connection therewith, the
holder hereof shall furnish to the Owner Trustee or other such Person, as the
case may be, a certificate setting forth, in reasonable detail, the calculation
of the amount of such losses, costs and expenses, which certificate shall be
conclusive absent manifest error.]*
Principal and interest and other amounts due hereon shall be payable
in Dollars in immediately available funds prior to Noon, New York time, on the
due date thereof, to the Indenture Trustee at the Corporate Trust Office and the
Indenture Trustee shall, subject to the terms and conditions of the Indenture,
remit all such amounts so received by it to the holder hereof at such account or
accounts at such financial institution or institutions as the holder hereof
shall have designated to the Indenture Trustee in writing, in immediately
available funds, such payment to be made prior to 2:00 P.M., New York time, on
the due date thereof. If such amounts are received after Noon, New York time on
the due date thereof, such amounts shall be deemed received on the next
following Business Day, and the Indenture Trustee shall make payment thereof
promptly, but not later than 11:00 A.M., New York time the next following
Business Day. In the event the Indenture Trustee shall fail to make any such
payment as provided in the two preceding sentences after its receipt of funds at
the place and prior to the time specified
________________
* Include only in Series A Certificates.
TRUST INDENTURE
<PAGE>
25
above, the Indenture Trustee, in its individual capacity and not as trustee,
agrees to compensate the holder hereof for loss of use of funds in a
commercially reasonable manner if it shall have failed to use ordinary care in
the disbursing of such funds. All such payments by the Owner Trustee and the
Indenture Trustee shall be made free and clear of and without reduction for or
on account of any wire or other like charge.
Each holder hereof, by its acceptance of this Certificate, agrees
that, except as otherwise expressly provided in the Indenture, each payment
received by it in respect hereof shall be applied, first, to the payment of any
-----
amount (other than the principal of (or Premium Amount] or interest on this
Certificate) due in respect of this Certificate, second, to the payment of
------
(Premium Amount, if any, and]" interest hereon (as well as any interest on
overdue principal and, to the extent permitted by law, interest and other
amounts payable hereunder) due and payable hereunder, third, to the payment of
-----
the principal of this Certificate then due and fourth, the balance, if any,
------
remaining thereafter, to the payment of the principal of this Certificate
remaining unpaid, in the manner set forth in the last sentence of Section 2.06
of the Indenture.
This Certificate is one of the Certificates referred to in the
Indenture which have been or are to be issued by the Owner Trustee pursuant to
the terms of the Indenture. The Indenture Estate is held by the Indenture
Trustee as security, in part, for the Certificates. The beneficial interest of
the Owner Participant in and to the properties of the Owner Trustee pledged or
mortgaged as part of the Indenture Estate is subject and subordinate to the lien
and security interest granted to the Indenture Trustee to the extent provided in
the Indenture. Reference is hereby made to the Indenture and the Special
Participation Agreement referred to therein for a statement of the rights and
obligations of the holder hereof, and the nature and extent of the security for
this Certificate and of the rights and obligations of the other Certificate
Holders, and the nature and extent of the security for the other Certificates,
as well as for a statement of the terms and conditions of the trusts created by
the Indenture, to all of which terms and conditions in the Indenture and the
Special Participation Agreement each holder hereof agrees by its acceptance of
this Certificate.
____________________
* Include only in Series A Certificate.
TRUST INDENTURE
<PAGE>
26
[WITHOUT LIMITING THE GENERALITY OF THE FOREGOING. THE HOLDER HEREOF
EXPRESSLY UNDERSTANDS AND AGREES THAT THIS CERTIFICATE IS SUBORDINATE AND JUNIOR
IN RIGHT OF PAYMENT TO THE SERIES A CERTIFICATES AND CERTAIN OTHER SUMS OWING TO
THE HOLDERS THEREOF TO THE EXTENT AND IN THE MANNER SET FORTH IN THE INDENTURE
.]*
There shall be maintained a Certificate Register for the purpose of
registering transfers and exchanges of Certificates at the Corporate Trust
Office of the Indenture Trustee or at the office of any successor indenture
trustee in the manner provided in Section 2.08 of the Indenture. As provided in
the Indenture, this Certificate or any interest herein may, subject to the next
following paragraph, be assigned or transferred, and the Certificates are
exchangeable for a like aggregate original principal amount of Certificates of
the same Series of any authorized denomination, as requested by the Certificate
Holder surrendering the same.
Prior to the due presentment for registration of transfer of this
Certificate, the Owner Trustee and the Indenture Trustee may deem and treat the
person in whose name this Certificate is registered on the Certificate Register
as the absolute owner of this Certificate and the Certificate Holder for the
purpose of receiving payment of all amounts payable with respect to this
Certificate and for all other purposes whether or not this Certificate is
overdue, and neither the Owner Trustee nor the Indenture Trustee shall be
affected by notice to the contrary.
This Certificate is subject to prepayment only as permitted by
Sections 2.11 and 2.12 of the Indenture and to purchase without consent of the
holder hereof only as provided in Section 2.13 of the Indenture, and the holder
hereof, by its acceptance of this Certificate, agrees to be bound by said
provisions.
This Certificate shall not be secured by or be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose, unless
authenticated by the Indenture Trustee as evidenced by the manual signature of
one of its authorized signatories on the certificate below.
_________________________
* Include only in Series B Certificates.
TRUST INDENTURE
<PAGE>
27
This Certificate shall be governed by and construed in accordance with
the law of the State of New York.
TRUST INDENTURE
<PAGE>
28
IN WITNESS WHEREOF, the Owner Trustee has caused this Certificate to
be executed in its corporate name by its officer thereunto duly authorized, as
of the date hereof.
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as
Owner Trustee
By _____________________________________
Title:
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Certificates referred to in the within-mentioned
Indenture .
MERIDIAN TRUST COMPANY,
not in its individual capacity, but solely as
Indenture Trustee
By _____________________________________
Authorized Signatory
TRUST INDENTURE
<PAGE>
29
Annex A to Series __ Certificate*
SCHEDULE OF PRINCIPAL PAYMENTS
Payment Date Principal
(Interest Payment Amount to
Date closest to) be Paid**
---------------- ---------
____________________
* Insert Series Letter.
** The amounts in this column for a Certificate of any Series shall be equal,
for any Payment Date, to the product of (a) the "Principal Amount to be
Paid" for such Payment Date as set forth in Annex I or Annex II, as the
case may be, and (b) a fraction, the numerator of which is the original
principal amount of such Certificate and the denominator of which is
aggregate original principal amount of such Series of Certificates.
TRUST INDENTURE
<PAGE>
30
SECTION 2.02. Terms of Certificates. (a) On the Closing Date the
---------------------
Owner Trustee shall issue loan certificates in two series in an aggregate
original principal amount of $31,692,164.38: one series shall be designated
"Series A Loan Certificates", shall be in an aggregate original principal amount
of $19,683,472.13 and shall be issued to the Loan Participants designated as
receiving same pursuant to Section 1.1 (a) (ii) of the special participation
agreement (or their nominees) in such amounts as shall be set forth in said
Section 1.1 (a) (ii); and a second series shall be designated "Series B Loan
Certificates", shall be in an aggregate original principal amount of
$12,008,692.25 and shall be issued to the loan participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees) in such amounts as shall be set forth in said
Section 1.1(a) (ii).
(b) The principal of the Certificates shall be due and payable on each
Payment Date as follows:
(1) with respect to the Series A Certificates in sixty-four (64)
consecutive installments as provided in Annex I; and
(2) With respect to the Series B Certificates in sixty-four (64)
consecutive installments as provided in Annex ii.
(c) Each Certificate shall bear interest on the unpaid principal
amount thereof from time to time outstanding from and including the date thereof
until such principal amount is paid in full. Such interest on each Certificate
shall accrue at the Interest Rate and shall be payable in arrears on each
Interest Payment Date and on the date such Certificate is paid in full. Interest
hereunder and under the Certificates shall be calculated on the basis of a year
of 360 days and actual days elapsed. If any sum payable under the Certificates
or under this Indenture falls due on a day which is not a Business Day, then
such sum shall be payable on the next succeeding Business Day, without (so long
as payment is made on such succeeding Business Day) additional interest as a
result of such extension. Each Certificate shall bear interest at the
applicable past due rate on any principal thereof and interest and other amounts
due
TRUST INDENTURE
<PAGE>
31
thereunder and hereunder not paid when due (whether at stated maturity, by
acceleration or otherwise) for any period during which the same shall be
overdue, payable on demand by the respective Certificate Holder given through
the Indenture Trustee.
(d) The Certificates shall be executed on behalf of the Owner Trustee
by one of its authorized officers. Certificates bearing the signatures of
individuals who were at any time the proper officers of the Owner Trustee shall
bind the Owner Trustee, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Certificates or did not hold such offices at the respective dates of such
Certificates. No Certificates shall be issued hereunder except those provided
for in Section 2.02(a) and any Certificates issued in exchange or replacement
therefor pursuant to the terms of this Indenture. Each Certificate issued under
this Section 2.02 shall be dated the Closing Date. No Certificate shall be
secured by or entitled to any benefit under this Indenture or be valid or
obligatory for any purpose, unless there appears on such Certificate a
certificate of authentication in the form provided for herein executed by the
Indenture Trustee by the manual signature of one of its authorized officers and
such certificate upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
SECTION 2.03. Taxes. (a) The Owner Trustee agrees to pay, and to
-----
indemnify and hold each Loan Participant and its respective successors, assigns,
employees, agents and servants (each being hereinafter referred to as an
"Indemnitee") harmless from and against, all Taxes (including Taxes payable by
----------
reason of any payment under this Section 2.03), imposed upon any Indemnitee upon
or with respect to or measured by or resulting from this Indenture, any other
Operative Agreement or any Certificate, or any principal, interest or other
payment made or payable by the Owner Trustee hereunder or thereunder. The
Indenture Trustee agrees, to the extent required by applicable law, to withhold
from each payment due hereunder or under any Certificate to a Non-U.S. Person
United States federal withholding taxes at the appropriate rate, and, on a
timely basis, to deposit such amounts with an authorized depository and make
such reports, filings and other reports in connection therewith, and in the
manner, required under applicable law. The Indenture Trustee shall promptly (but
in no event later than the date 30 days after the
TRUST INDENTURE
<PAGE>
32
due date of the relevant payment) furnish to each Certificate Holder with
respect to whom taxes have been withheld a U.S. Treasury Form 1042S and Form
8109-B (or similar forms as at any relevant time in effect), if applicable,
indicating payment in full of any Taxes withheld from any payments by the
Indenture Trustee to such Certificate Holder together with all such other
information and documents reasonably requested by such Certificate Holder and
necessary or appropriate to enable such Person to substantiate a claim for
credit or deduction with respect thereto for income tax purposes of any
jurisdiction with respect to which such Person is required to file a tax return;
provided that each Certificate Holder which is a Non-U.S. Person has furnished
- --------
to the Indenture Trustee a properly completed and currently effective U.S.
Treasury Form 1001 (or such successor form as may be required by the United
States Treasury department) during the calendar year in which the payment is
made, or in either of the two preceding calendar years, and has not notified the
Indenture Trustee of the withdrawal of such Form prior to the date of each
interest payment, only the reduced amount required by applicable law shall be
withheld from payments under the Certificates held by such Certificate Holder in
respect of United States federal income tax; provided, further, that each
-------- -------
Certificate Holder which is a Non-U.S. Person has furnished to the Indenture
Trustee a properly completed and currently effective (1) certificate in
substantially the form of Exhibit B hereto and a U.S. Treasury Form W-8 or (2) a
U.S. Treasury Form 4224, as the case may be (or such successor certificate or
Forms as may be required by the United States Treasury department as necessary
to avoid withholding of United States federal income tax) during the calendar
year in which the payment is made, or in the case of a Form W-8 in either of the
two preceding calendar years, and has not notified the Indenture Trustee of the
withdrawal of such certificate and/or Form prior to the date of each interest
payment, no amount shall be withheld from payments under the Certificates held
by such Certificate Holder in respect of United States federal income tax. Each
Certificate Holder shall indemnify and hold harmless the Indenture Trustee
against any claim for United States withholding taxes which the Indenture
Trustee improperly fails to withhold on payments to such Certificate Holder as a
direct result of the invalidity of any certificate or Form provided by such
Certificate Holder pursuant to this Section 2.03 or the failure of the
Certificate Holder to notify the Indenture Trustee that a previously furnished
form has become incorrect.
TRUST INDENTURE
<PAGE>
33
(b) If at any time while the Certificates shall be outstanding any
applicable law or tax treaty of the United States or in any interpretation or
administration thereof by any judicial or governmental authority of the United
States subjects any Certificate Holder to any tax collected by withholding
imposed by the United States government on interest due under the Certificates
(other than interest attributable to a United States permanent establishment of
Certificate Holder), then, within 30 days after written demand by such
Certificate Holder, the Owner Trustee shall indemnify and hold harmless such
Certificate Holder from and against all withholding taxes referred to above,
including the payment of any amount necessary to hold such Certificate Holder
harmless on an after-tax basis from all taxes required to be paid with respect
to such payment or indemnity under the laws of any taxing authority in any
applicable jurisdiction; provided that the Owner Trustee shall not be under such
--------
obligation to indemnify and hold harmless such Certificate Holder to the extent
that the obligations of the Owner Trustee under this paragraph 2.03(b) were
increased upon, and at the time of, the transfer of the relevant Certificate to
such Certificate Holder (and would not have increased but for such transfer).
Each holder of a Certificate agrees that it will promptly, and in any event
within 30 Business Days, after having actual knowledge thereof use reasonable
efforts to notify the Owner Trustee of any event or events which will subject
such Certificate Holder to any tax collected by withholding described herein and
each such Certificate Holder agrees that it will promptly deliver or cause to be
delivered a certificate of a responsible officer of such Certificate Holder
setting forth the applicable law or the administration or interpretation thereof
that is the basis for the withholding tax (including the computation thereof).
All determinations, estimates, assumptions, allocations and the like required
for the determination of the amount required to be paid to a Certificate Holder
pursuant to this paragraph in order to hold such Certificate Holder harmless on
an after-tax basis from the withholding taxes referred to above shall be made in
good faith by the Certificate Holder.
SECTION 2.04. Payments from Indenture Estate and Collateral Only.
----------------------------------------------------
Except as otherwise expressly provided in the next succeeding sentence of this
Section 2.04, all payments to be made by the Owner Trustee under this Indenture
shall be made only from the income and the proceeds from the Indenture Estate
and only to the extent that the Owner Trustee shall have sufficient income or
proceeds from the Indenture Estate to enable the
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Indenture Trustee to make payments in accordance with the terms hereof. Each
Certificate Holder, by its acceptance of a Certificate, and the Indenture
Trustee, each agrees that it will look solely to the income and proceeds from
the Indenture Estate and Collateral to the extent available for distribution to
it as above provided and that none of the Owner Participant, The Bank or the
Indenture Trustee is personally liable to it for any amounts payable or any
liability under any Certificate or this Indenture, except (in the case of the
Indenture Trustee and The Bank) as expressly provided herein (in the case of The
Bank, the Indenture Trustee or the Owner Participant), as expressly provided in
any Participation Agreement and the Special Participation Agreement or (in the
case of the Guarantors of the Series B Certificates) as expressly provided in
the Guarantee.
SECTION 2.05. Method of Payment. Principal and interest and other
-----------------
amounts due hereunder or under the Certificates or in respect hereof or thereof
shall be payable in Dollars in immediately available funds prior to Noon, New
York time, on the due date thereof, to the Indenture Trustee at the Corporate
Trust Office and the Indenture Trustee shall, subject to the terms and
conditions hereof, remit all such amounts so received by it to the Certificate
Holders at such account or accounts at such financial institution or
institutions as the Certificate Holders shall have designated to the Indenture
Trustee in writing, in immediately available funds for distribution to the
relevant Certificate Holders, such payment to be made prior to 2:00 P.M., New
York time on the due date thereof. If such amounts are received after Noon, New
York time on the due date thereof, such amounts shall be deemed received on the
next following Business Day, and the Indenture Trustee shall make payment
thereof promptly, but not later than 11:00 A.M., New York time the next
following Business Day. In the event the Indenture Trustee shall fail to make
any such payment as provided in the two preceding sentences after its receipt of
funds at the place and prior to the time specified above, the Indenture Trustee,
in its individual capacity and not as trustee, agrees to compensate the
Certificate Holders for loss of use of funds in a commercially reasonable manner
if it shall have failed to use ordinary care in the disbursing of such funds.
The Owner Trustee and the Indenture Trustee acknowledge that the payment
instructions given in Schedule II to the Special Participation Agreement
constitute the initial written notice required by the first sentence of this
Section 2.05 to make all payments as provided in such Schedule. All such
payments by the Owner
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Trustee and the Indenture Trustee shall be made free and clear of and without
reduction for or on account of any wire and other like charge. Prior to the due
presentment for registration of transfer of any Certificate, the Owner Trustee
and the Indenture Trustee may deem and treat the Person in whose name any
Certificate is registered on the Certificate Register as the absolute owner of
such Certificate for the purpose of receiving payment of all amounts payable
with respect to such Certificate and for all other purposes whether or not such
Certificate shall be overdue, and neither the Owner Trustee nor the Indenture
Trustee shall be affected by any notice to the contrary.
SECTION 2.06. Application of Payments. Each payment of principal and
-----------------------
interest or other amounts due in respect of each Certificate shall, except as
otherwise expressly provided herein, be applied, first, to the payment of any
-----
amount (other than the principal of or Premium Amount (if any) or interest on
such Certificate) due in respect of such Certificate, second, to the payment of
------
Premium Amount (if any), if any, and interest on such Certificate (as well as
any interest on overdue principal and interest and other amounts payable
thereunder) due thereunder, third, to the payment of the principal of such
-----
Certificate then due and fourth, the balance, if any, remaining thereafter, to
------
the payment of the principal of such Certificate remaining unpaid (provided that
such Certificate shall not be subject to prepayment or purchase without the
consent of the affected Certificate Holder except as permitted by Section 2.11).
The amounts paid pursuant to clause fourth above shall be applied to the
------
installments of principal of such Certificate in inverse order of maturity.
SECTION 2.07. Termination of Interest in Indenture Estate. A
-------------------------------------------
Certificate Holder shall not, as such, have any further interest in, or other
right with respect to, the Indenture Estate when and if the principal amount of
and Premium Amount, if any, and interest on and other amounts due under all
Certificates held by such holder and all other sums due to such Certificate
Holder hereunder and under the other Operative Agreements shall have been paid
in full.
SECTION 2.08. Registration. Transfer and Exchange of Certificates.
-----------------------------------------------------
The Indenture Trustee agrees with the Owner Trustee that the Indenture Trustee
shall keep a register (herein sometimes referred to as the "Certificate
-----------
Register") in which provisions shall be made for the registration of
- --------
Certificates and
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the registration of transfers of Certificates. The Certificate Register shall be
kept at the Corporate Trust Office of the Indenture Trustee or at the office of
any successor indenture trustee, and the Indenture Trustee is hereby appointed
"Certificate Registrar" for the purpose of registering Certificates and
transfers of Certificates as herein provided. Upon surrender for registration of
transfer of any Certificate at the Corporate Trust Office, the Owner Trustee
shall execute, and the Indenture Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of the same Series dated the Closing Date and of a like aggregate principal
amount. At the option of the Certificate Holder, its Certificates may be
exchanged for other Certificates of the same Series and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the
Certificates to be exchanged at the Corporate Trust Office. Each new Certificate
issued upon transfer or exchange shall be in a principal amount of at least
$500,000 (except as may be necessary to evidence the entire outstanding
principal amount of a Certificate). Whenever any Certificates are so surrendered
for exchange, the Owner Trustee shall execute, and the Indenture Trustee shall
authenticate and deliver, the Certificates of the relevant Series which the
Certificate Holder making the exchange is entitled to receive. All Certificates
issued upon any registration of transfer or exchange of Certificates shall be
the valid obligations of the Owner Trustee evidencing the same respective
obligations, and entitled to the same security and benefits under this
Indenture, as the Certificates surrendered upon such registration of transfer or
exchange. Every Certificate presented or surrendered for registration of
transfer or exchange, shall (if so required by the Indenture Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Indenture Trustee duly executed by the Certificate Holder
thereof or his attorney duly authorized in writing, and the Indenture Trustee
may require evidence satisfactory to it as to the compliance of any such
transfer with the Securities Act. The Indenture Trustee shall make a notation on
each new Certificate or Certificates of the amount of all payments of principal
previously made on the old Certificate or Certificates with respect to which
such new Certificate is issued and the date to which interest accrued on such
old Certificate or Certificates has been paid. The Indenture Trustee shall not
be required to register the transfer of or exchange any surrendered Certificates
as above provided during the five calendar day period preceding
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the due date of any payment on such Certificates. Any Certificate Holder may
transfer any or all of its Certificates to any Person other than the Lessee or
its Affiliates. The Owner Trustee and the Indenture Trustee shall treat the
Person in whose name each Certificate is registered on the Certificate Register
as the Certificate Holder with respect thereto for all purposes hereof until due
presentment for registration of transfer as provided in this Section 2.08. The
Indenture Trustee shall give the Lessee and each Certificate Holder notice of
such transfer of a Certificate under this Section 2.08.
SECTION 2.09. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
any Certificate shall become mutilated, destroyed, lost or stolen, the Owner
Trustee shall, upon the written request of the affected Certificate Holder,
execute, and the Indenture Trustee shall authenticate and deliver in replacement
thereof, a new Certificate, of the same series as such Certificate, in the same
principal amount, dated the date of such Certificate and designated as issued
under this Indenture. If the Certificate being replaced has become mutilated,
such Certificate shall be surrendered to the Indenture Trustee and a photocopy
thereof shall be furnished to the Owner Trustee by the Indenture Trustee. If the
Certificate being replaced has been destroyed, lost or stolen, the affected
Certificate Holder shall furnish to the Owner Trustee and the Indenture Trustee
such security or indemnity as may be reasonably required by them to hold the
Owner Trustee and the Indenture Trustee harmless and evidence satisfactory to
the Owner Trustee and the Indenture Trustee of the destruction, loss or theft of
such Certificate and of the ownership thereof; provided, however, that if the
-------- -------
affected Certificate Holder is an original party to the Special Participation
Agreement or an Affiliate thereof, the written notice of such destruction, loss
or theft and such ownership and the written undertaking of such Certificate
Holder delivered to the Owner Trustee and the Indenture Trustee to hold harmless
the Owner Trustee and the Indenture Trustee in respect of the execution,
authentication and delivery of such new Certificate shall be sufficient
evidence, security and indemnity.
SECTION 2.10. Payment of Expenses on Transfer. Upon the issuance of
-------------------------------
a new Certificate or new Certificates pursuant to Section 2.08 or 2.09, the
Owner Trustee and/or the Indenture Trustee may require from the party requesting
such new Certificate or Certificates payment of a sum sufficient to reimburse
the Owner Trustee and/or the Indenture Trustee for, or
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to provide funds for, the payment of any tax or other governmental charge in
connection therewith or any charges and expenses connected with such tax or
other governmental charge paid or payable by the Owner Trustee or the Indenture
Trustee.
SECTION 2.11. Prepayment. (a) The Owner Trustee may prepay in whole
----------
or in part, the Certificates of any Series then outstanding at the principal
amount thereof, together with accrued interest thereon to the date of prepayment
plus all Premium Amount and all other amounts due to the holders of the
Certificates hereunder, thereunder and under the other Operative Agreements,
but, in the case of any prepayment of a Series A Certificate, the Swap Upside in
respect of such Certificate. No Series B Certificate may be prepaid pursuant to
this Section 2.11(a) prior to the date all of the Series A Certificates shall
have been duly prepaid in full as provided in the preceding sentence.
(b) The Certificates shall be prepaid in full or (to the extent of
available proceeds pursuant to Section 3.02(a)) in part, together with accrued
interest thereon to the date of prepayment and all other amounts due thereunder
and hereunder and under the other Operative Agreements to the Certificate
Holders (i) upon the occurrence of an Event of Loss with respect to any Airframe
or any Aircraft, on the earlier of the date of the Lessee's payment with respect
to such Event of Loss in Section 10.1 of the Lease to which such Airframe or
Aircraft is/was subject or the last day permitted for such payment under said
Section 10.1 or (ii) upon or prior to the sale or other disposition of any of
the Aircraft by the Indenture Trustee at the direction of the Owner Participant.
The Owner Trustee will give notice of prepayment under this Section 2.11(b)
promptly after receipt of the Lessee's notice of payment under Section 10.1 of
any Lease or in connection with the sale or other disposition of any of the
Aircraft pursuant to clause (ii) above. Any such notice shall be irrevocable.
Any prepayment of the Series A Certificates pursuant to this Section 2.11(b)
shall be accompanied by the Premium Amount for each holder of a series A
Certificate.
SECTION 2.12. Provisions Relating to Prepayment. (a) The Owner
----------------------------------
Trustee shall have no right to prepay the principal amount of the Certificates,
in whole or in part, except as permitted by Section 2.11. Any such prepayment
effected pursuant to Section 2.11(a) shall be made by the Owner Trustee only on
a date coincident with an Interest Payment Date and upon at least 60 calendar
days' prior irrevocable written notice to the Indenture Trustee and the
Certificate Holders. Notice of prepayment having been given as aforesaid, the
principal amount
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39
of the Certificates so to be prepaid, plus accrued interest thereon to the date
of prepayment, together with the Premium Amount, if any, herein provided, shall
become due and payable on the prepayment date.
(b) On the date fixed for prepayment under Section 2.11, immediately
available funds in Dollars shall be deposited by the Owner Trustee in the
account of the Indenture Trustee at the place and by the time and otherwise in
the manner provided in Section 2.05, in an amount equal to the principal amount
of Certificates to be prepaid together with accrued and unpaid interest thereon
to the date fixed for such prepayment, all Premium Amount, if any, thereon and
all other amounts due to the holders of the Certificates subject to prepayment
hereunder, thereunder and under the other Operative Agreements, but, in the case
of a prepayment pursuant to Section 2.11(a) of any Series A Certificate, net of
the Swap Upside in respect of such Certificate.
SECTION 2.13. Purchase Option. (a) By Owner Participant. At any
---------------- --------------------
time while either (x) a Lease Event of Default has occurred and has been
continuing for a period of 180 days during which the Certificate Holders or the
Indenture Trustee shall not have been stayed or otherwise precluded by operation
of law from taking action to accelerate the Certificates or to exercise remedies
hereunder or under any Lease, or (y) the Certificates shall have become due and
payable as provided in Section 4.04(b) or 4.04(c), and, provided in either case
that no Indenture Default which is not a Lease Default shall have occurred and
be continuing, the Owner Participant may at any time within 60 days thereafter
elect to purchase all, but not less than all, Certificates then outstanding.
Upon receipt of written notice of such election from the Owner Participant,
which notice in order to be effective shall state that it is irrevocable and
shall designate a date not more than fourteen calendar days thereafter as the
purchase date, each Certificate Holder agrees that it will, upon payment to it
in the manner provided for in Section 2.05 from the Owner Participant of an
amount equal to the aggregate unpaid principal amount of all Certificates then
held by such Certificate Holder, together with accrued and unpaid interest
thereon to the date of payment, the Premium Amount, if any, for such Certificate
Holder and all other sums then due and payable to such Certificate Holder
hereunder, under such Certificates and the other Operative Agreements, forthwith
sell, assign, transfer and convey to the purchaser (without recourse,
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40
representation or warranty of any kind except for its own acts), all of the
right, title and interest of such Certificate Holder in and to the Indenture
Estate, the Collateral, this Indenture, all Certificates held by such
Certificate Holder and the other Operative Agreements (excluding all right,
title and interest under any of the foregoing to the extent such right, title or
interest is with respect to an obligation not then due and payable or past due
(other than any claims in respect of past due interest to the extent included in
the purchase price of the Certificates), with respect to any action or inaction
or state of affairs occurring prior to such sale) and the purchaser shall assume
all of such Certificate Holder's obligations under the other Operative
Agreements and this Indenture. If the purchaser shall so request, such
Certificate Holder will comply with all the provisions of Section 2.08 (other
than those relating to Securities Act compliance) to enable new Certificates of
like Series to be issued to the purchaser in such denominations as the purchaser
shall request. In the case of any such purchase, the purchaser shall furnish to
the Certificate Holders an opinion of counsel of the purchaser satisfactory to
the Certificate Holders that such transfer and conveyance are exempt from
registration under the Securities Act and do not violate any registration
provision of any applicable state securities laws. All charges and expenses
required pursuant to Section 2.10 in connection with the issuance of any such
new Certificate pursuant to this Section shall be borne by the purchaser.
(b) Holders of Series B Certificates. At any time while the Owner
--------------------------------
Participant would be entitled to purchase all Certificates under Section
2.13(a), any holder of a Series B Certificate may, whether or not the Owner
Participant shall have elected pursuant to Section 2.13 (a) to purchase all
Certificates then outstanding, by written notice to the Indenture Trustee, the
Owner Participant and the holders of the Series A Certificates, elect to
purchase all, but not less than all, Series A Certificates then outstanding on
the date specified in such written notice (which shall (x) not be earlier than
the Business Day next following the date of purchase which shall have been
specified in any notice theretofore given by the Owner Participant pursuant to
Section 2.13(a) and (y) not be more than seven days after the date of such
notice from such holder of a Series B Certificate, which notice, in order to be
effective, shall state that it is irrevocable unless all Certificates are
purchased pursuant to Section 2.13 (a) in which event such notice shall be
deemed to have been automatically revoked upon the consummation
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41
of any such purchase pursuant to Section 2.13(a). Each holder of a Series A
Certificate agrees by its acceptance thereof that it will (unless the Owner
Participant shall have elected pursuant to Section 2.13(a) to purchase the
Certificates then outstanding and shall not, following such election, have
failed to consummate such purchase), upon payment to it in the manner provided
for in Section 2.05 from such holder of a Series B Certificate of an amount
equal to the aggregate unpaid principal amount of all Series A Certificates then
held by such Certificate Holder, together with accrued and unpaid interest
thereon to the date of payment and the Premium Amount (other than the Special
Premium) for such Certificate Holder and all other sums then due and payable to
such holder hereunder, under its Certificates and under the other Operative
Agreements, but net of the Swap Upside (as defined in Exhibit E) for such
holder, forthwith sell, assign, transfer and convey to the purchaser thereof
(without recourse, representation or warranty of any kind except for its own
acts), all of the right, title and interest of such Certificate Holder in and to
the Indenture Estate, the Collateral, this Indenture, all Certificates held by
such Certificate Holder and the other Operative Agreements (excluding all right,
title and interest under any of the foregoing to the extent such right, title or
interest is with respect to an obligation not then due and payable or past due
(other than any claims in respect of past due interest to the extent included in
the purchase price of the Series A Certificates), with respect to any action or
inaction or state of affairs occurring prior to such sale) and the purchaser
shall assume all of such Certificate Holder's obligations under the other
Operative Agreements and this Indenture. If the purchaser shall so request, such
Certificate Holder will comply with all the provisions of Section 2.08 (other
than those relating to Securities Act compliance) to enable new Certificates of
a like Series to be issued to the purchaser in such denominations as it shall
request. All charges and expenses in connection with the issuance of any such
new Series A Certificates shall be borne by the purchaser thereof. In the case
of such purchase, the purchaser shall, upon request, furnish to the holders of
the Series A Certificates an opinion of counsel of the purchaser satisfactory to
such Series A Certificate holders (or other evidence reasonably satisfactory to
the Series A Certificate holders) that such transfer and conveyance are exempt
from registration under the Securities Act and do not violate any registration
provision of any applicable state securities laws. If more than one Series B
Certificate holder shall elect to purchase the Series A Certificates pursuant to
this Section
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2.13(b), then each Series B Certificate holder shall be entitled to purchase
from each Series A Certificate holder its pro-rata share of such Certificates so
held, which pro rata share shall be in the same proportion (as nearly as
practicable) as the original principal amount of the Series B Certificates held
by such Series B Certificate holder bears to the aggregate principal amount of
Series B Certificates held by all Series B Certificate holders which shall have
made such election; provided that no purchase of Series A Certificates pursuant
--------
to this Section 2.13(b) shall occur unless all Series A Certificates are so
purchased as provided in this Section 2.13(b).
SECTION 2.14. Yield Protection. (a) The Owner Trustee shall pay
----------------
directly to each holder of a Series A Certificate from time to time promptly
after demand therefor such amounts as such holder determines to be necessary to
compensate it for any costs which are attributable to its making of the loan
evidenced by, or its maintaining of, any Series A Certificate or the funding
arrangements in respect thereof (including, without limitation, any interest
rate swap transaction), or any reduction in any amount receivable by such holder
hereunder in respect of any thereof resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
holder under this Indenture, its Certificates or any of the other Operative
Agreements in respect of any of such Certificates or such funding
arrangements (other than taxes imposed on or measured by the overall net
income of such holder or of its Lending Office by the jurisdiction in which
such holder has its principal office or its Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, such holder; or
(iii) imposes any other condition affecting this Indenture, its
Certificates (or any funding arrangements in respect thereof) or the other
Operative Agreements.
(b) Without limiting the effect of the foregoing provisions of this
Section 2.14 (but without duplication), the Owner Trustee shall pay directly to
each holder of a Series A Certificate from time to time promptly after demand
therefor such
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amounts as such holder determines to be necessary to compensate such holder (or,
without duplication, the bank holding company of which such holder is a
subsidiary) for any costs which are attributable to the maintenance by such
holder (or its Lending Office or such bank holding company), pursuant to any
applicable law or regulation or any interpretation, directive or request
(whether or not having the force of law) of any court or governmental or
monetary authority following any Regulatory Change, of capital in respect of its
Certificates, or the funding arrangements in respect thereof (including, without
limitation, any interest rate swap transaction) (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
assets or equity of such holder (or its Lending Office or such bank holding
company) to a level below that which such holder (or its Lending Office or such
bank holding company) could have achieved but for such Regulatory Change).
(c) Each holder of a Series A Certificate will notify the Owner
Trustee of any event occurring after the date of this Indenture that will
entitle such holder to compensation under paragraph (a) or (b) of this Section
2.14 as promptly as practicable, but in any event within 45 days, after such
holder obtains actual knowledge thereof; provided, however, that if any such
--------- --------
holder fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such holder shall, with respect to compensation
payable pursuant to this Section 2.14 in respect of any costs resulting from
such event, only be entitled to payment under this Section 2.14 for costs
incurred from and after the date 45 days prior to the date that such holder does
give such notice; and provided, further, that each holder will designate a
-------- -------
different Lending Office for the Loan Certificates of such holder affected by
such event if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such holder, be
disadvantageous to such holder. Each holder will furnish to the Owner Trustee a
certificate setting forth the basis and amount of each request by such holder
for compensation under paragraph (a) or (b) for purposes of this Section 2.14.
Determinations and allocations by any holder for purposes of this Section 2.14
of the effect of any Regulatory Change pursuant to Section 2.14(a) hereof, or of
the effect of capital maintained pursuant to Section 2.14(b) hereof, and of the
amounts required to compensate such holder under this Section 2.14, shall be
conclusive, provided that such determinations and allocations are made on a
reasonable basis.
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SECTION 2.15. (Intentionally omitted.)
SECTION 2.16. Certificates in Respect of Replacement Engines. Upon
----------------------------------------------
the execution and delivery of an Indenture Supplement covering a Replacement
Engine, as provided in Section 5.06, each Certificate shall be deemed to have
been issued in connection with such Replacement Engine and each Certificate
issued thereafter upon a transfer or exchange of, or as a replacement for, a
Certificate, shall be designated as having been issued in connection with such
Replacement Engine, but without any other change therein except as provided for
in this Article II.
SECTION 2.17. Terms of Subordination. Subject to Section 3.04(c),
----------------------
the Series B Certificates and all other sums payable to the holders thereof
under the Operative Agreements shall be subordinate and junior in right of
payment to the Series A Certificates and all other sums payable to the holders
thereof under the Operative Agreements to the extent and in the manner
hereinafter set forth:
(a) No payment or distribution shall be made on or in respect of the
principal of, interest (including, without limitation interest accruing
after the commencement of any proceeding of the type referred to in Section
4.02(g) or (h) or Section 14.5 of any Lease (for purposes of this Section
2.17, a "Case")) on, or any other amount payable in respect of, the Series
----
B Certificates, nor shall any payment or distribution be made on or in
respect of any indemnity or other claim or obligation owing to any holder
of a Series B Certificate under any Operative Agreements, in either case,
except directly to the Indenture Trustee for application as expressly
provided in Article III of this Indenture.
(b) In any Case, any payment or distribution of any kind or
character, whether in cash, property, stock or obligations which may be
payable or deliverable on or in respect of any Series B Certificate or
other sum owing to any holder of a Series B Certificate under the Operative
Agreements shall be paid or delivered directly to the Indenture Trustee for
distribution to the holders of the Series A Certificates as provided in
Article III. In the event that, notwithstanding the foregoing, any such
payment or distribution shall be received by the holder (other than from
the Indenture Trustee as provided in Article III) of
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any Series B Certificate before the amount of all principal of and interest on
all Series A Certificates (including, without limitation, interest accruing
after the commencement of a Case) and all other sums owing to the holders of the
Series A Certificates under the Operative Agreements is paid in full in cash, or
provision made for such payment, in accordance with its terms, such payment or
distribution shall be held in trust for and paid over or delivered to the
Indenture Trustee for distribution to the holders of the Series A Certificates
as provided in Article III.
(c) By acceptance of its Series B Certificate, each holder of a Series B
Certificate hereby irrevocably authorizes and empowers the holders of the Series
A Certificates, or the Indenture Trustee acting on their behalf, to demand, sue
for, collect and receive every payment or distribution made on or in respect of
the Series B Certificates or other sums owing to the holders thereof under the
Operative Agreements in any Case, and to file claims and take such other
proceedings, in the holders' of the Series A Certificates own name or in the
name of the holders of the Series B Certificates or otherwise, as the holders of
the Series A Certificates or the Indenture Trustee acting on their behalf may
deem necessary or advisable for the enforcement of the provisions hereof. By the
acceptance of its Series B Certificate, each holder of a Series B Certificate
agrees duly and promptly to take such action as may be requested by the holders
of the Series A Certificates or the Indenture Trustee acting on their behalf to
collect the indebtedness evidenced by its Series B Certificate owing to it or
otherwise owing to it under the Operative Agreements for the account of the
holders of the Series A Certificates and/or to file appropriate proofs of claim
in respect to such indebtedness, and to execute and deliver to the holders of
the Series A Certificates or the Indenture Trustee acting on their behalf on
demand such powers of attorney, proofs of claim, assignments of claim or proofs
of claim, or other instruments as may be requested by the holders of the Series
A Certificates or the Indenture Trustee acting on their behalf to enforce any
and all claims upon or with respect to its Series B Certificate owing to it or
otherwise owing to it under the Operative Agreements.
(d) Except as otherwise expressly provided in this Indenture, the holders
of the Series A Certificates or the
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Indenture Trustee acting on their behalf may, at any time and from time to time,
without the consent of or notice to the holders of the Series B Certificates,
without incurring responsibility to such holders and without impairing or
releasing any of the rights of the holders of the Series A Certificates, or any
of the obligations of the holders of the Series B Certificates hereunder:
(i) to the extent it is entitled to do so hereunder, sell, exchange,
release or otherwise deal with all or any part of any property by
whomsoever mortgaged or pledged to secure, or howsoever securing, the
Series A Certificates;
(ii) to the extent it is entitled to do so hereunder, exercise or
refrain from exercising any rights against the Owner Trustee or the Lessee
or any other Person; and
(iii) to the extent it is entitled to do so hereunder and the same are
applied in accordance with Article III, apply any sums, by whomsoever paid
or however realized, to the series a certificates.
(e) By the acceptance of its series B certificate, each holder of a series
B certificate agrees that in the event that such holder shall receive any
payment on its series B certificate or otherwise owing to it under the operative
agreements which it is not entitled to receive under this section 2.17 or
Article III, it will hold any amount so received in trust for the holders of the
Series A Certificates and will forthwith turn over such payment to the Indenture
Trustee on behalf of the holders of series A Certificates in the form received
to be applied as provided in Article III.
(f) By the acceptance of its Series B Certificate, each holder of a Series
B Certificate agrees that it may not commence any action or proceeding against
the Owner Trustee the Owner Participant, the Lessee or any other Person
obligated in respect of any Operative Agreements to recover all or any part of
the principal or interest on its Series B Certificate or any other sum owing to
it under any Operative Agreements or join with any creditor, unless the holders
of
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47
the Series A Certificates shall also join, in bringing any such action or
proceeding.
(g) By the acceptance of its Series B Certificate, each holder of a Series
B Certificate hereby irrevocably authorizes and empowers the Indenture Trustee
on behalf of the holders of the Series A Certificates to vote the full amount of
the indebtedness evidenced by its Series B Certificate owing to it or otherwise
owing to it under the Operative Agreements in any Case.
(h) No payment or distribution of assets to which the holders of the
Series B Certificates would have been entitled except for the provisions of this
Section 2.17 or Article III and which shall have been received by the holders of
the Series A Certificates shall, as between the obligor thereon, its creditors,
and the holder of the Series B Certificates, be deemed to be a payment by the
obligor to the holders of the Series A Certificates for or on account of the
Series A Certificates, and from and after the payment in full in cash of all
Series A Certificates and all other amounts owing to the holders thereof under
the Operative Agreements, the holders of the Series B Certificates shall be
subrogated to the then or thereafter existing rights of the holders of Series A
Certificates to receive payments or distributions of assets of the relevant
obligor made on or in respect of the Series A Certificates or such other amounts
until the principal of, and interest on, the Series B Certificates and all other
amounts owing to the holders thereof under the Operative Agreements shall be
paid in full, and no such payments or such other amounts or distributions to the
holders of the Series B Certificates of cash, property or securities, which
otherwise would be payable or distributable to the holders of the Series A
Certificates, shall, as between the obligor thereon, its creditors other than
the holders of the Series A Certificates, and the holder of the Series B
Certificates, be deemed to be a payment by the relevant obligor to the holder of
the Series B Certificates on account thereof.
(i) The provisions of this Section 2.17 and Article III are solely for the
purpose of defining the relative rights of the holders of Series A Certificates
on the one hand, and the holders of the Series B Certificates on the other hand,
and nothing herein shall, except as
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55
be applied forthwith to the purpose for which such payment was made in
accordance with the terms thereof.
(b) Except as otherwise provided in Section 3.01(b), Section 3.02(a),
3.02(b) or Section 3.03, the Indenture Trustee will distribute, promptly upon
receipt, any indemnity payment received by it from the Owner Trustee, The Bank,
the Lessee or the Owner Participant in respect of the Indenture Trustee in its
individual capacity or any Loan Participant or Certificate Holder either
pursuant to Section 8 of any Participation Agreement or as Supplemental Rent or
otherwise, directly to the Person entitled thereto.
(c) Notwithstanding anything to the contrary contained in this
Indenture, any sums received by the Indenture Trustee which constitute (i)
Excluded Payments shall be distributed promptly upon receipt by the Indenture
Trustee directly to the Person or Persons entitled thereto or (ii) Collateral
solely in respect of the Series B Certificates shall be applied, first, as
-----
provided in clause "fifth" of Section 3.03 (but only to the holders of the
-----
Series B Certificates), second, as provided in clause "sixth" of Section 3.03,
------ -----
third, as provided in clause "seventh" of Section 3.03 and fourth, as provided
- ----- -------
in clause "eighth" of Section 3.03.
------
SECTION 3.05. Other Payments. Any payments received by the Indenture
--------------
Trustee for which no provision as to the application thereof is made in this
Indenture shall be distributed by the Indenture Trustee (i) to the extent
received or realized at any time prior to the payment in full of all obligations
to the Certificate Holders secured by the Lien of this Indenture, in the order
of priority specified in Section 3.01, and (ii) to the extent received or
realized at any time after payment in full of all obligations to the Certificate
Holders secured by the Lien of this Indenture, in the following order of
priority: first, in the manner provided in the clause "first" of Section 3.03
----- -----
and second, in the manner provided in clause "tenth" of Section 3.03.
------ -----
SECTION 3.06. Payments to Owner Trustee. Any amounts distributed
-------------------------
hereunder by the Indenture Trustee to the Owner Trustee shall be paid to the
Owner Trustee by wire transfer of funds of the type received by the Indenture
Trustee at such office and to such account or accounts of such entity or
entities as shall be designated by notice from the Owner Trustee to the
Indenture Trustee from time to time. The Owner Trustee hereby
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notifies the Indenture Trustee that unless and until the Indenture Trustee
receives notice to the contrary from the Owner Trustee, all amounts to be
distributed to the Owner Trustee pursuant to clause "third" of Section 3.01(a)
-----
shall be distributed by wire transfer of funds of the type received by the
Indenture Trustee to such account of the Owner Participant as the Owner
Participant may specify by notice to the Indenture Trustee.
SECTION 3.07. Investment of Amounts Held by Indenture Trustee. Any
------------------------------------------------
amounts held by the Indenture Trustee pursuant to the provisos set forth in
clauses "second" or "third" of Section 3.01(a), pursuant to Section 3.02,
------ -----
pursuant to the second proviso to the fourth sentence of Section 4.03 or
pursuant to any provision of any other Operative Agreement providing for amounts
to be held by the Indenture Trustee shall be invested by the Indenture Trustee
from time to time in Permitted Investments selected by the Owner Trustee or, in
the event the Owner Trustee shall so specify, as selected by the Lessee;
provided that if a Lease Event of Default shall have occurred and be continuing,
- --------
as selected by the Indenture Trustee. Unless otherwise expressly provided in
this Indenture, any income realized as a result of any such investment, net of
the Indenture Trustee's reasonable fees and expenses in making such investment,
shall be held and applied by the Indenture Trustee in the same manner as the
principal amount of such investment is to be applied and any losses, net of
earnings and such reasonable fees and expenses, shall be charged against the
principal amount invested. The Indenture Trustee shall not be liable for any
loss resulting from any investment required to be made by it under this
Indenture other than by reason of its willful misconduct or gross negligence,
and any such investment may be sold (without regard to its maturity) by the
Indenture Trustee without instructions whenever the Indenture Trustee reasonably
believes such sale is necessary to make a distribution required by this
Indenture.
SECTION 3.08. Series A Holders. By the acceptance of its Series A
----------------
Certificate, each holder of a Series A Certificate agrees that in the event that
such holder shall receive any payment on its Series A Certificate or otherwise
owing to it under the Operative Agreements which it is not entitled to receive
under Article III, it will hold any amount so received in trust for the person
entitled to such payment and will forthwith turn over such payment to the
Indenture Trustee in the form received to be applied as provided in Article III.
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ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of The Bank and the Owner Trustee. (a) The
-------------------------------------------
Bank hereby covenants and agrees that it will not directly or indirectly create,
incur, assume or suffer to exist any Lessor Liens attributable to it with
respect to any of the properties or assets of the Indenture Estate and it shall,
at its own cost and expense, promptly take such action as may be necessary to
discharge duly any such Lessor Lien. The Bank will cause restitution to be made
to the Indenture Estate in the amount of any diminution of the value thereof as
the result of any Lessor Liens thereon attributable to it.
(b) The Owner Trustee hereby covenants and agrees as follows:
(i) the Owner Trustee will duly and punctually perform its
obligations under each Lease and will duly and punctually pay the principal
of, Premium Amount, if any, and interest on, and all other amounts due
under the Certificates and hereunder in accordance with the terms of the
Certificates and this Indenture and all amounts payable by it to the
Certificate Holders under each Participation Agreement, the Special
Participation Agreement and the other Operative Agreements;
(ii) the Owner Trustee will not directly or indirectly create,
incur, assume or suffer to exist any Lessor Liens with respect to any of
the properties or assets of the Indenture Estate, and shall, at its own
cost and expense, promptly take such action as may be necessary to
discharge duly any such Lessor Lien, and the Owner Trustee will cause
restitution to be made to the Indenture Estate in the amount of any
diminution of the value thereof as the result of any Lessor Liens
attributable to it;
(iii) in the event a responsible officer in the Corporate Trust
Administration of The Bank shall have actual knowledge of an Indenture
Event of Default or an Event of Loss, the Owner Trustee will give prompt
written notice of such Indenture Event of Default or Event of Loss to the
Indenture Trustee, the Lessee and each Certificate Holder;
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(iv) the Owner Trustee will furnish to the Indenture Trustee, and the
Indenture Trustee will furnish to each Certificate Holder at the time
outstanding, promptly upon receipt thereof , duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
other instruments furnished to the Owner Trustee under each Lease,
including, without limitation, a copy of each report or notice received
pursuant to Section 11 of each Lease, to the extent that the same shall not
have been furnished directly to such Certificate Holder or the Indenture
Trustee pursuant to such Lease;
(v) the Owner Trustee will not (except as permitted herein) assign
or pledge or otherwise dispose of, so long as this Indenture shall remain
in effect and shall not have been terminated pursuant to Section 10.01, any
of its right, title or interest hereby assigned to anyone other than the
Indenture Trustee, and, with respect to such right, title and interest
hereby assigned, will not, except as provided in this Indenture, (1) accept
any payment from the Lessee or any sublessee, enter into any agreement
amending or supplementing any of the Indenture Documents, execute any
waiver or modification of, or consent under, the terms of any of the
Indenture Documents, (2) exercise any rights with respect to the Indenture
Estate or the Collateral, (3) settle or compromise any claim arising under
any of the Indenture Documents, or (4) submit or consent to the submission
of any dispute, difference or other matter arising under or in respect of
any of the Indenture Documents to arbitration thereunder; and
(vi) the Owner Trustee will not enter into any business or other
activity other than the business of owning the Aircraft, the leasing
thereof to the Lessee and the carrying out of the transactions contemplated
hereby and by each Lease, each Participation Agreement, the Trust Agreement
and the other Operative Agreements.
SECTION 4.02. Indenture Event of Default. "Indenture Event of
-------------------------- ------------------
Default" means any of the following events (whatever the reason for such
- -------
Indenture Event of Default and whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administration or governmental body):
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(a) any Lease Event of Default; or
(b) the failure (other than by reason of a Lease Event of Default) of
the Owner Trustee to pay when due any payment of principal of or Premium
Amount, if any, or interest on any Certificate and such failure shall have
continued unremedied for five Business Days, or the failure (other than by
reason of a Lease Event of Default) of the Owner Trustee to pay when due
any other amount due and payable hereunder, or under any Certificate, and
such failure shall have continued unremedied for ten Business Days after
notice thereof to the Owner Trustee; or
(c) any Lessor Lien required to be discharged by The Bank pursuant to
Section 4.01(a) or required to be discharged by the Owner Trustee pursuant
to Section 4.01(b) (ii) or required to be discharged by the Owner
Participant pursuant to Section 6.2.6 of any Participation Agreement shall
remain undischarged for a period of 30 calendar days after a responsible
officer of The Bank, the Owner Trustee or the Owner Participant, as the
case may be, shall have actual knowledge of such Lessor Lien; or
(d) any representation or warranty made by the Owner Trustee, any
Existing Owner Trustee, any Initial Owner Participant, the Owner
Participant or the Trust Company herein or in any other Operative
Agreement, or made by any Person (other than either of the Guarantor of the
Series B Certificates as to the Guarantee) guaranteeing or supporting the
obligations of the Owner Participant under the Operative Agreements in its
guarantee or support agreement, shall prove to have been false or incorrect
when made in any material respect to the Certificate Holders; or
(e) any failure by the Owner Trustee to observe any of its other
covenants in Section 4.01(b) or any failure by the Owner Participant to
observe any of its covenants in Section 6.2.5, 6.2.9 or 6.2.10 of any
Participation Agreement, or disaffirmance or repudiation by any Person
(other than either of the Guarantors of the Series B Certificates as to the
Guarantee) guaranteeing or supporting the obligations of the Owner
Participant under the Operative Agreements of its obligations under its
guarantee or support agreement; or
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60
(f) except as provided in the following paragraph (i) or (j), any
failure by the Owner Trustee or The Bank to observe or perform any other
covenant or obligation of the Owner Trustee or The Bank, as the case may
be, contained in this Indenture or in any Participation Agreement or any
failure by the Owner Participant to observe or perform any other covenant
or obligation of the Owner Participant contained in any Participation
Agreement or any failure by any Person (other than either of the Guarantors
of the Series B Certificates as to the Guarantee) guaranteeing or
supporting the obligations of the Owner Participant under the Operative
Agreements to perform any covenant or obligation of such Person under its
guarantee or support agreement which, in any case, is not remedied within a
period of 30 calendar days after notice thereof has been given to the Owner
Trustee, The Bank, the Owner Participant or such Person, as the case may
be; or
(g) either the Trust Estate or the Owner Trustee with respect thereto
(and not in its individual capacity) or the Owner Participant or any Person
(other than either of the Guarantors of the Series B Certificates as to the
Guarantee) guaranteeing or supporting the obligations of the Owner
Participant under the Operative Agreements shall (i) be generally not
paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, (iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a custodian, receiver, trustee or other
officer with similar powers of itself or of any substantial part of its
property, or (v) take corporate or comparable action for the purpose of any
of the foregoing; or
(h) a court or governmental authority of competent jurisdiction shall
enter an order appointing, without consent by the Trust Estate or the Owner
Trustee with respect thereto (and not in its individual capacity) or the
Owner Participant or any Person (other than either of the Guarantors of the
Series B Certificates as to the Guarantee) guaranteeing or supporting the
obligations of the Owner Participant under the Operative Agreements, a
custodian, receiver, trustee or other officer with similar powers with
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61
respect to the Trust Estate or the Owner Trustee with respect thereto (and
not in its individual capacity) or the Owner Participant or any such
Person, or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Trust Estate or
the Owner Trustee with respect thereto (and not in its individual capacity)
or the Owner Participant or any such Person, or if any petition for any
such relief shall be filed against the Trust Estate or the Owner Trustee
with respect thereto (and not in its individual capacity) or the Owner
Participant or any such Person, and such petition shall not be dismissed
within, or the order shall be unstayed and remain in effect for a period
of, 60 days; or
(i) any failure by The Bank to give notice, or to resign, if
required by Section 6.3.1.5 of any Participation Agreement, or (if The Bank
shall have given such notice and resigned as required by said Section
6.3.1.5) a successor Owner Trustee shall not have been appointed and
qualified within 30 days after The Bank's ceasing to be a "citizen of the
United States" within the meaning of Section 101(16) of the Act; or
(j) the Owner Trustee, The Bank, the Owner Participant or the Owners
shall do or fail to do any act, or shall meet or fail to meet any
condition, and as a result thereof the lien of this Indenture shall cease
to be a valid first priority lien on the Indenture Estate or shall
otherwise be adversely affected or the security interest granted in the
Pledge Agreement shall cease to be a duly perfected first priority security
interest in the Collateral covered thereby.
SECTION 4.03. Certain Cure Rights. In the event of any default by
-------------------
the Lessee in the payment when due (after giving effect to any applicable grace
period) of any installment of Basic Rent due under any Lease, the Owner
Participant (which term shall, except as otherwise expressly provided below, be
deemed to include, solely for purposes of this Section 4.03, any holder of a
Series B Certificate) may, within two Business Days after such default, without
the consent or concurrence of any Certificate
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62
Holder, pay, as provided in Section 2.05, for application in accordance with
Section 3.01 a sum equal to the amount of all (but not less than all) such
overdue Basic Rent. In the event of any default by the Lessee in any obligation
under any Lease other than the payment of Basic Rent, if such default can be
remedied by the payment of money and the Owner Participant shall furnish the
Owner Trustee with all funds necessary for remedying such default, the Owner
Participant may, within five Business Days after the occurrence of such default,
without the consent or concurrence of any Certificate Holder, instruct the Owner
Trustee to exercise the Owner Trustee's rights under Section 20 of such Lease to
perform such obligation on behalf of the Lessee (and the Owner Trustee hereby
agrees to accept such instruction and, upon failure to do so, the holders of the
Series B Certificates may exercise such right on the Owner Trustee's behalf).
Solely for the purpose of determining whether there exists an Indenture Event of
Default (a) any timely payment by the Owner Participant pursuant to, and in
compliance with, the first sentence of this Section 4.03 shall be deemed to
remedy (but solely for purposes of this Indenture) any default by the Lessee in
the payment of installments of Basic Rent theretofore due and payable and to
remedy (but solely for purposes of this Indenture) any default by the Owner
Trustee in the payment of any amount of principal and interest due and payable
under the Certificates and (b) any timely performance by the Owner Trustee (or
the holders of the Series B Certificates) of any obligation of the Lessee under
the relevant Lease pursuant to, and in compliance with, the second sentence of
this Section 4.03 shall be deemed to remedy (but solely for purposes of this
Indenture) any Lease Event of Default to the same extent that like performance
by the Lessee itself would have remedied such Lease Event of Default (but no
such remedy shall relieve the Lessee of its duty to pay all Rent and perform all
of its obligations pursuant to the relevant Lease). If, on the basis specified
in the preceding sentence, any Lease Events of Default shall have been remedied,
then any declaration pursuant to this Indenture that the Certificates are due
and payable or that an Indenture Event of Default exists hereunder, based solely
upon such Lease Events of Default, shall be deemed to be rescinded, and the
Owner Participant or the holders of the Series B Certificates shall (to the
extent of any such payments made by it or them) be subrogated to the rights of
the holders of the Certificates under Section 3.01(a), to receive from the
Indenture Trustee such payment of overdue Rent (and the payment of interest on
account of such Rent being overdue) and shall be entitled, so long as no other
Indenture Event of Default or
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63
Indenture Default shall have occurred and be continuing or would result
therefrom, to receive, subject to the provisions of this Indenture, such payment
upon receipt thereof by the Indenture Trustee; provided that the Owner
--------
Participant shall not otherwise attempt to recover any such amount paid by it on
behalf of the Lessee pursuant to this Section 4.03 except by demanding of the
Lessee payment of such amount or by commencing an action at law against the
Lessee for the payment of such amount; provided, further, that at no time while
-------- -------
an Indenture Event of Default shall have occurred and be continuing shall any
such demand be made or shall any such action be commenced (or continued) , and
any amounts nevertheless received by the Owner Participant in respect thereof
shall be held in trust for the benefit of, and promptly paid to, the Indenture
Trustee for distribution as provided in Section 3.03; and further provided that:
------- --------
(x) this Section 4.03 shall not apply with respect to any default in
the payment of Basic Rent due under any Lease if the Lessee itself shall
have theretofore failed to pay Basic Rent in the manner required under such
Lease (after giving effect to any applicable grace period) on (i) each of
the two Rent Payment Dates immediately preceding the date of such default,
or (ii) a total of six Rent Payment Dates;
(y) the second sentence of this Section 4.03 shall cease to apply,
and no payment by the Owner Participant in respect of Supplemental Rent or
performance of any obligation of the Lessee under any Lease by the Owner
Trustee shall be deemed to remedy or to have remedied any Lease Event of
Default for the purposes of this Indenture, if during the twelve-month
period immediately preceding the relevant default by the Lessee there shall
have been expended by the Owner Participant pursuant to the second sentence
of this Section 4.03 (and which shall have not been reimbursed by the
Lessee itself to the Owner Trustee for distribution to the Owner
Participant) an amount in excess of $2,000,000; and
(z) neither the Owner Trustee nor the Owner Participant shall have
the right to cure any Lease Event of Default except as specified in this
Section 4.03.
SECTION 4.04. Remedies. (a) If an Indenture Event of Default shall
--------
have occurred and be continuing and so long as the same shall be continuing
unremedied, then and in every such case,
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64
the Indenture Trustee may exercise any or all of the rights and powers and
pursue any and all of the remedies pursuant to this Article IV and shall have
and may exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code and, in the event such Indenture Event of Default is an
Indenture Event of Default referred to in paragraph (a) of Section 4.02 and
Section 4.03 hereof shall either not apply or shall have ceased to apply with
respect to the relevant Lease Event of Default, any and all of the remedies
pursuant to Section 15 of any Lease and all of the rights and remedies of a
lessor under applicable law and may take possession of all or any part of the
properties covered or intended to be covered by the Lien and security interest
created hereby or pursuant hereto and may exclude the Owner Participant, the
Owner Trustee and the Lessee and all persons claiming under any of them wholly
or partly therefrom. Without limiting any of the foregoing, it is understood and
agreed that the Indenture Trustee may exercise any right of sale of any Aircraft
available to it, even though it shall not have taken possession of such Aircraft
and shall not have possession thereof at the time of such sale. It is further
understood and agreed that if the Indenture Trustee shall proceed to foreclose
the Lien of this Indenture, it shall, to the extent that it is then entitled to
do so hereunder and under any Lease, and is not then stayed or prevented from
doing so by operation of law or otherwise, proceed (to the extent it has not
already done so) to exercise one or more of the remedies referred to in Section
15 of such Lease (as it shall determine in its sole good faith discretion);
provided, however, that the Indenture Trustee may not foreclose the Lien of this
- -------- -------
Indenture when stayed or otherwise prevented from exercising remedies under the
Lease during the period ending on the earlier of (i) the expiration of 60 days
from the date the Indenture Trustee was first stayed or otherwise prevented from
exercising one or more of the remedies referred to in Section 15 of the Lease
and (ii) the date the Owner Trustee or the Indenture Trustee is entitled to take
possession of such Aircraft after the occurrence of such Indenture Event of
Default.
(b) If an Indenture Event of Default referred to in clause (g) or (h)
of Section 4.02 shall have occurred, or a Lease Event of Default of the type
referred to in clause (g) or (h) of said Section 4.02 shall have occurred with
respect to the Lessee, then and in every such case the unpaid principal of all
Certificates then outstanding, together with interest accrued but unpaid
thereon, Premium Amount, and all other amounts due to the holders of the
Certificates thereunder and hereunder and under
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65
the other Operative Agreements, shall, unless the Indenture Trustee acting upon
the instructions of the Majority in Interest of Certificate Holders shall
otherwise direct, immediately and without further act become due and payable,
without presentment, demand, protest or notice, all of which are hereby waived.
(c) If any other Indenture Event of Default shall have occurred and
be continuing, then and in every such case, the Indenture Trustee may at any
time, by written notice or notices to the Owner Trustee, declare all the
Certificates to be due and payable, whereupon the unpaid principal of all
Certificates then outstanding, together with accrued but unpaid interest
thereon, Premium Amount, and all other amounts due to the holders of the
Certificates thereunder, hereunder and under the other Operative Agreements,
shall immediately and without further act become due and payable without
presentment, demand, protest or other notice, all of which are hereby waived.
(d) Each Certificate Holder shall be entitled, at any sale pursuant
to Section 15 of any Lease or this Article IV, to credit against any purchase
price bid at such sale by such Certificate Holder all or any part of the unpaid
obligations owing to such Certificate Holder and secured by the Lien of this
Indenture; provided, however, that if a holder of a Series B Certificate shall
-------- -------
be the purchaser at any such sale as contemplated hereby, such holder may apply
the amount then due under its Series B Certificate against the purchase price of
the Indenture Estate, but only if and to the extent that such purchase price
exceeds the aggregate unpaid principal amount of all Series A Certificates
together with accrued and unpaid interest thereon to the date of payment on
unpaid Premium Amount plus all other sums then due and payable to the holders of
the Series A Certificates thereunder, hereunder or under the other Operative
Agreements. The Indenture Trustee and the Certificate Holders shall, upon any
such purchase, acquire good title to the property so purchased, to the extent
permitted by applicable law, free of all rights of redemption.
SECTION 4.05. Return of Aircraft, etc. (a) If an Indenture Event of
-----------------------
Default shall have occurred and be continuing, subject to Section 4.03, at the
request of the Indenture Trustee the Owner Trustee shall promptly execute and
deliver to the Indenture Trustee such instruments of title and other documents
as the Indenture Trustee may deem necessary or advisable to enable the Indenture
Trustee or an agent or representative
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66
designated by the Indenture Trustee, at such time or times and place or places
as the Indenture Trustee may specify, to obtain possession of all or any part of
the Indenture Estate to which the Indenture Trustee shall at the time be
entitled hereunder. If the Owner Trustee shall for any reason fail to execute
and deliver such instruments and documents after such request by the indenture
trustee, the indenture trustee may (i) obtain a judgment conferring on the
indenture trustee the right to immediate possession and requiring the owner
trustee to execute and deliver such instruments and documents to the Indenture
Trustee, to the entry of which judgment the Owner Trustee hereby specifically
consents, and (ii) pursue all or part of the Indenture Estate wherever such
estate may be found and may enter any of the premises of the lessee wherever it
may be or be supposed to be and search for and take possession of and remove the
same. All expenses of obtaining such judgment or of pursuing, searching for and
taking such property shall, until paid, be secured by the Lien of this
Indenture.
(b) Upon every such taking of possession, the Indenture Trustee may,
from time to time, at the expense of the Indenture Estate, make all such
expenditures for maintenance, insurance, repairs, replacements, alterations,
additions and improvements to and of the Indenture Estate, as it may be
instructed by a Majority in Interest of Certificate Holders. In each such case,
the Indenture Trustee shall have the right to maintain, use, operate, store,
lease, control or manage the Indenture Estate and to carry on the business and,
without limiting the express provisions of Section 5.09, to exercise all rights
and powers of the Owner Participant and the Owner Trustee relating to the
Indenture Estate, as the Indenture Trustee shall be instructed by a Majority in
Interest of Certificate Holders, including the right to enter into any and all
such agreements with respect to the maintenance, insurance, use, operation,
storage, leasing, control, management or disposition of the Indenture Estate or
any part thereof as the Indenture Trustee may determine; and except for Excluded
Payments, the Indenture Trustee shall be entitled to collect and receive
directly all tolls, rents (including Rent), revenues, issues, income, products
and profits of the Indenture Estate and every part thereof. Such tolls, rents
(including Rent) , revenues, issues, income products and profits shall be
applied to pay the expenses of the use, operation, storage, leasing, control,
management or disposition of the Indenture Estate and of conducting the business
thereof, and of all maintenance, repairs, replacements, alterations,
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additions and improvements, and to make all payments which the Indenture Trustee
may be required or may elect to make, if any, for taxes, assessments, insurance
or other proper charges upon the Indenture Estate or any part thereof (including
the employment of engineers and accountants to examine, inspect and make reports
upon the properties and books and records of the owner Trustee), and all other
payments which the Indenture trustee may be required or authorized to make under
any provision of this indenture, as well as just and reasonable compensation for
the services of the Indenture Trustee, and of all persons properly engaged and
employed by the Indenture Trustee.
(c) If an Indenture Event of Default shall have occurred and be
continuing, subject to Section 4.03, the Indenture Trustee may take any and all
actions as may be directed by the holders of the Series A Certificates or the
Series B Certificates, as the case may be, in respect of the Collateral.
SECTION 4.06. Remedies Cumulative. Each and every right, power and
-------------------
remedy given to the Indenture Trustee specifically or otherwise in this
Indenture shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law,
in equity or by statute, and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by the Indenture
Trustee, and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to exercise at the
same time or thereafter any other right, power or remedy. No delay or omission
by the Indenture Trustee 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 on the part of the Owner Trustee or the
Lessee or to be an acquiescence therein.
SECTION 4.07. Discontinuance of Proceedings. In case the Indenture
-----------------------------
Trustee shall have instituted any proceeding to enforce any right, power or
remedy under this Indenture by foreclosure, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Indenture Trustee, then and in every such
case the Owner Trustee, the Indenture Trustee and the Lessee shall, subject to
any determination in such proceedings, be restored to their former positions and
rights hereunder with
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respect to the Indenture Estate, and all rights, remedies and powers of the
Indenture Trustee shall continue as if no such proceedings had been instituted.
SECTION 4.08. Waiver of Past Defaults. Upon written instructions
-----------------------
from a Majority in Interest of Certificate Holders, the Indenture Trustee shall
waive any past Indenture Default or Indenture Event of Default hereunder and its
consequences and upon any such waiver such Default shall cease to exist and any
Indenture Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture, but no such waiver shall extend to any
subsequent or other Indenture Default or Indenture Event of Default or impair
any right consequent thereon; provided, however, that in the absence of written
-------- -------
instructions from all Certificate Holders, the Indenture Trustee shall not waive
any Indenture Default (i) in the payment of the principal of, or Premium Amount
or interest on, or other amounts due under, any Certificate then outstanding, or
(ii) in respect of a covenant or provision hereof which, under the proviso to
the first sentence of Section 9.01 or under the second sentence of Section 9.01,
cannot be waived without the consent of each Certificate Holder.
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices.
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(a) Notice of Indenture Event of Default. In the event the Indenture
------------------------------------
Trustee shall have knowledge of an Indenture Event of Default or of an Indenture
Default arising from a failure to pay Basic Rent, the Indenture Trustee shall
forthwith give telephone notice thereof to the Owner Trustee, the Owner
Participant, the Lessee and the Certificate Holders (promptly confirmed by telex
or facsimile to such Persons not later than one Business Day thereafter).
Subject to the terms of Sections 4.08 and 5.03, the Indenture Trustee shall take
such action, or refrain from taking such action, with respect to any such
Indenture Event of Default (including with respect to the exercise of any rights
or remedies hereunder) as the Indenture Trustee shall be instructed in writing
by the Majority in Interest of Certificate Holders. Subject to the provisions
of Section 5.03, if the Indenture Trustee shall not have received
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instructions as above provided within 20 calendar days after mailing notice of
such Indenture Event of Default to the Certificate Holders, the Indenture
Trustee may, subject to instructions thereafter received pursuant to the
preceding provisions of this Section 5.01, take such action, or refrain from
taking such action, but shall be under no duty to take or refrain from taking
any action, with respect to any such Indenture Event of Default as it shall
determine advisable in the best interests of the Certificate Holders and shall
use the same degree of care and skill in connection therewith as a prudent man
would use under the circumstances in the conduct of his own affairs; provided
that the Indenture Trustee may not sell any Airframe or any Engine without the
consent of the Majority in Interest of Certificate Holders. In the event the
Indenture Trustee shall at any time foreclose or otherwise enforce this
Indenture, the Indenture Trustee shall forthwith notify the Certificate Holders,
the Owner Trustee, the Owner Participant and the Lessee. For all purposes of
this Indenture, in the absence of actual knowledge on the part of an officer in
its Corporate Trust Department, in the case of the Indenture Trustee, or its
Corporate Trust Department, in the case of the Owner Trustee, the Indenture
Trustee or the Owner Trustee, as the case may be, shall not be deemed to have
knowledge of any Indenture Default, any Lease Default or any Lease Event of
Default (except, in the case of the Indenture Trustee, the failure of the Lessee
to pay any installment of Basic Rent when due, which failure shall constitute
knowledge of an Indenture Default) unless notified in writing by the Lessee, the
Owner Trustee or one or more Certificate Holders. This Section 5.01, however,
is subject to the condition that, if at any time after the principal of the
Certificates shall have become due and payable pursuant to Section 4.04(b) or
(c) and before any judgment or decree for the payment of the money so due, or
any thereof, shall be entered, all overdue payments of interest upon the
Certificates and all other amounts payable under the Certificates (except the
principal of the Certificates which by such declaration shall have become
payable) shall have been duly paid, and every other Indenture Default and
Indenture Event of Default with respect to any covenant or provision of this
Indenture shall have been cured, then and in every such case a Majority in
Interest of Certificate Holders may (but shall not be obligated to) , by written
instrument filed with the Indenture Trustee, rescind and annul such acceleration
and its consequences; but no such rescission or annulment shall extend to or
affect any subsequent
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Indenture Default or Indenture Event of Default or impair any right consequent
thereon.
(b) Other Notices. The Indenture Trustee will furnish to each
-------------
Certificate Holder promptly upon receipt thereof, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
other instruments furnished to the Indenture Trustee under any Operative
Agreements or the Collateral or received from the Owner Trustee pursuant to
Section 4.01(b) (iv) to the extent the same shall not have been otherwise
directly distributed to the Certificate Holders pursuant to the express
provision of any other Operative Agreement or the Collateral.
SECTION 5.02. Action Upon Instructions. (a) Subject to the terms of
------------------------
Sections 4.08, 5.01, 5.03 and 5.09, upon the written instructions at any time
and from time to time of a Majority in Interest of Certificate Holders, the
Indenture Trustee shall take such of the following actions as may be specified
in such instructions: (i) exercise such election or option, or make such
decision or determination, or give such notice, consent, waiver or approval or
exercise such right, remedy or power or take such other action hereunder, under
any other Operative Agreement or under the Collateral or in respect of any part
or all of the Indenture Estate as shall be specified in such instructions; (ii)
take such action with respect to, or to preserve or protect, the Indenture
Estate (including the discharge of Liens and the Collateral as shall be
specified in such instructions and as are consistent with this Indenture) or the
Collateral; and (iii) take such other action in respect of the subject matter of
this Indenture as is consistent with the terms hereof and the other Operative
Agreements. The Indenture Trustee will execute and the Owner Trustee will file
or cause to be filed such continuation statements with respect to financing
statements relating to the security interest created hereunder in the Indenture
Estate as may be specified from time to time in written instructions of a
Majority in Interest of Certificate Holders (which instructions may, by their
terms, be operative only at a future date and which shall be accompanied by the
execution form of such continuation statement so to be filed).
(b) If any Lease Event of Default shall have occurred and be
continuing, on request of a Majority in Interest of Certificate Holders, the
Indenture Trustee shall exercise such remedies under Section 15 of any Lease as
shall be specified in
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such request. The Indenture Trustee agrees to provide to the Certificate
Holders, the Owner Trustee and the Owner Participant concurrently with such
action by the Indenture Trustee, notice of such action by the Indenture Trustee,
provided that the failure to give any such notice to such Certificate Holders,
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the Owner Trustee or the Owner Participant shall not affect the validity of such
action.
SECTION 5.03. Indemnification. The Indenture Trustee shall not be
----------------------------------------------------
required to take any action or refrain from taking any action under Sections
5.01 (other than the first sentence thereof) or 5.02 or Article IV or in respect
of the Collateral unless the Indenture Trustee shall have been indemnified by
all of the Certificate Holders (or, if in respect of the Collateral, the holders
of the Series entitled to instruct the Indenture Trustee with respect thereto)
against any liability, cost or expense (including counsel fees) which may be
incurred in connection therewith. The Indenture Trustee shall not be under any
obligation to take any action under this Indenture or in respect of the
Collateral and nothing in this Indenture contained shall require the Indenture
Trustee 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 Indenture Trustee shall not be
required to take any action under Section 5.01 (other than the first sentence
thereof) or 5.02 or Article IV, nor shall any other provision of this Indenture
be deemed to impose a duty on the Indenture Trustee to take any action, if the
Indenture Trustee shall have been advised by counsel that such action is
contrary to the terms hereof or is otherwise contrary to law. Notwithstanding
anything that may be to the contrary in the Operative Agreements, the holders of
the Series B Certificates shall have no obligation to indemnify the Indenture
Trustee if the holders of the Series A Certificates were grossly negligent or
were engaging in willful misconduct in giving their instructions to the
Indenture Trustee to take or refrain from taking any action.
SECTION 5.04. No Duties Except as Specified in Indenture or
---------------------------------------------
Instructions. The Indenture Trustee shall not have any duty or obligation to
- ------------
use, operate, store, lease, control, manage, sell, dispose of or otherwise deal
with any Aircraft or any other part of the Indenture Estate or the Collateral,
or to
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otherwise take or refrain from taking any action under, or in connection with,
this Indenture or any part of the Indenture Estate, except as expressly provided
by the terms of this Indenture or as expressly provided in written instructions
from Certificate Holders as provided in this Indenture; and no implied duties or
obligations shall be read into this Indenture against the Indenture Trustee.
The Indenture Trustee 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 7.01) promptly take such action as may be
necessary to duly discharge all Liens on any part of the Indenture Estate or the
Collateral which result from claims against it in its individual capacity not
related to the mortgaging to it of any Aircraft or the administration of the
Indenture Estate or the Collateral or any other transaction contemplated by or
pursuant to the Special Participation Agreement or any document included in the
Indenture Estate.
SECTION 5.05. No Action Except Under Leases Participation Agreements,
-------------------------------------------------------
Trust Indenture or Instructions. The Owner Trustee and the Indenture Trustee
- -------------------------------
agree that they will not use, operate, store, lease, control, manage, sell,
dispose of or otherwise deal with any Aircraft or any other part of the
Indenture Estate or the Collateral except (i) in accordance with the terms of
the relevant Lease or the relevant Participation Agreement, or (ii) in
accordance with the powers granted or reserved to, or the authority conferred
upon, the Owner Trustee and the Indenture Trustee pursuant to this Indenture and
in accordance with the express terms hereof.
SECTION 5.06. Replacement Engines. At any time and from time to
-------------------
time, any Engine which has been (or is to be treated as if the same had been)
subject to an Event of Loss and may be replaced under Section 10.2 of the Lease
to which such Engine is/was subject by a Replacement Engine shall be replaced in
accordance with the provisions of this Section 5.06 and the provisions of
Section 10.2 of such Lease, and the Owner Trustee shall, from time to time,
direct the Indenture Trustee to execute and deliver to or as directed in writing
by the Owner Trustee an appropriate instrument releasing such Engine as
appropriate from the Lien of this Indenture and the Indenture Trustee shall
execute and deliver such instrument as aforesaid, but only upon receipt by or
deposit with the Indenture Trustee of the following:
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(a) A written request from the Owner Trustee, requesting such release and
specifically describing the Engine(s) so to be released.
(b) A certificate signed by a duly authorized officer of the Lessee
stating the following:
(i) a description of the Engine which shall be identified by
manufacturer's name and serial number;
(ii) a description of the Replacement Engine (including the
manufacturer's name and serial number) to be received as consideration for
the Engine to be released;
(iii) that on the date of the Indenture Supplement relating to the
Replacement Engine the Owner Trustee will be the legal owner of such
Replacement Engine free and clear of all Liens except Permitted Liens, that
such Replacement Engine will on such date be in good working order and
condition, and that such Replacement Engine is the same or an improved
model as the engine to be released;
(iv) the fair market value of the Replacement Engine as of the date
of such certificate (which value shall not be less than the then fair
market value of the Engine requested to be released, assuming such Engine
was in the condition and repair required to be maintained under such Lease
(but without regard to hours and cycles until overhaul));
(v) the fair market value of the Engine to be released (immediately
prior to the date such Engine suffered an Event of Loss);
(vi) that no Lease Default has occurred and is continuing or would
result from the making and granting of the request for release and the
addition of such Replacement Engine;
(vii) that the release of the Engine so to be released will not impair
the security of the Indenture or be in contravention of any of the
provisions of this Indenture; and
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(viii) that each of the conditions specified in Section 10.2.2 of
such Lease with respect to such Replacement Engine have been
satisfied.
(c) The appropriate instruments (i) transferring to the Owner Trustee
title to the Replacement Engine to be received as consideration for the
Engine to be released and (ii) assigning to the Owner Trustee the benefit
of all manufacturer's and vendor's warranties generally available with
respect to such Replacement Engine, and an Indenture Supplement subjecting
such Replacement Engine to the Lien of this Indenture.
SECTION 5.07. Indenture Supplements for Replacements. In the event of
--------------------------------------
a Replacement Engine being substituted as contemplated by Section 10.2 of any
Lease, the Owner Trustee and the Indenture Trustee agree for the benefit of the
Certificate Holders and the Lessee, subject to fulfillment of the conditions
precedent and compliance by the Lessee with its obligations set forth in Section
10.2 of such Lease, to execute and deliver an Indenture Supplement with respect
thereto as contemplated by Section 5.06(c), and, provided no Indenture Default
or Indenture Event of Default shall have occurred and be continuing, to execute
and deliver to the Lessee an appropriate instrument releasing the Engine being
replaced from the Lien of the Indenture.
SECTION 5.08. Effect of Replacement. In the event of the
---------------------
substitution of a Replacement Engine pursuant to Section 10.2 of any Lease and
Section 5.06, all provisions of this Indenture relating to the Engine or Engines
being replaced shall be applicable to such Replacement Engine or Engines with
the same force and effect as if such Replacement Engine or Engines were the same
engine or engines as the Engine or Engines being replaced but for the Event of
Loss with respect to the Engine or Engines being replaced.
SECTION 5.09. Certain Rights of Owner Trustee and Owner Participant.
-----------------------------------------------------
Notwithstanding any other provisions of this Indenture, including the Granting
Clause, the following rights shall be reserved to the Owner Trustee or the Owner
Participant, as the case may be (as separate and independent rights) to the
extent described herein:
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(a) at all times the Owner Trustee shall have the right, together
with the Indenture Trustee, to receive from the Lessee all notices,
certificates, reports, filings, opinions of counsel and other documents and
all information which any thereof is permitted or required to give or
furnish to the Owner Trustee or the Lessor pursuant to any Indenture
Document;
(b) so long as no Indenture Default shall have occurred and be
continuing, the Owner Trustee shall have the right together with the
Indenture Trustee (consent of both being required except in the case of
clause (iii) below) (i) to approve as satisfactory any other accountants,
inspectors, engineers or counsel to render services for or issue opinions
to the Owner Trustee pursuant to express provisions of the Indenture
Documents, (ii) to grant such consents, approvals and waivers as may be
requested under the Indenture Documents and (iii) to exercise inspection
rights pursuant to Section 12 of any Lease;
(c) the Owner Trustee shall have the non-exclusive right, as Lessor,
to seek specific performance of the covenants of the Lessee under any Lease
relating to the protection, insurance, maintenance, possession and use of
the Aircraft, and to maintain separate insurance with respect to any
Aircraft pursuant to Section 11.6 of the Lease to which such Aircraft is
subject (provided that no such insurance impairs or reduces coverage under
any insurance required to be maintained by the Lessee under Section 11 of
any Lease); and
(d) at all times each of the Owner Trustee (as Owner Trustee, as The
Bank and as Lessor) and the Owner Participant shall have the right, to the
exclusion of the Indenture Trustee, to demand, collect, sue for or receive
the payment of Excluded Payments due and payable to it.
Notwithstanding the foregoing, and subject to the provisions of Sections 4.03
and 4.04(a), the Indenture Trustee shall at all times have the right, to the
exclusion of the Owner Trustee and the Owner Participant to exercise the
remedies set forth in Section 15 of any Lease and in Article IV hereof.
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ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01. Acceptance of Trusts and Duties. The Indenture Trustee
-------------------------------
accepts the duties hereby created and applicable to it and agrees to perform the
same but only upon the terms of this Indenture and agrees to receive and
disburse all monies constituting part of the Indenture Estate or collateral in
accordance with the terms hereof. The Bank and the indenture trustee, in their
individual capacities, shall not be answerable or accountable under any
circumstances, except (a) for their own willful misconduct or gross negligence,
(b) in the case of the Indenture Trustee, as provided in Section 2.05 or the
last sentence of Section 5.04, and (c) for liabilities that may result, in the
case of The Bank, from the inaccuracy or nonperformance of any representation or
warranty or covenant of The Bank expressly made in its individual capacity in
the Special Participation Agreement or any other Operative Agreement or in
Section 4.01(a) or 6.03 or, in the case of the Indenture Trustee, from the
inaccuracy of any representation or warranty of the Indenture Trustee made in
its individual capacity in the Special Participation Agreement or any other
Operative Agreement. None of the Owner Participant, The Bank or the Indenture
Trustee shall be liable for any action or inaction of any other.
SECTION 6.02. Absence of Duties. In the case of the Indenture
-----------------
Trustee, except in accordance with written instructions furnished pursuant to
Section 5.01 or 5.02, and except as provided in, and without limiting the
generality of, Sections 5.03 and 5.04 and, in the case of the Owner Trustee,
except as provided in Section 4.01(b), the Indenture Trustee and the Owner
Trustee shall have no duty (i) to see to any registration of any Aircraft or any
recording or filing of any Lease or of this Indenture or any other document, or
to see to the maintenance of any such registration, recording or filing, (ii) to
see to any insurance, whether or not the Lessee shall be in default with respect
thereto, (iii) to see to the payment or discharge of any Lien of any kind
against any part of the Trust Estate or the Indenture Estate, (iv) to confirm,
verify or inquire into the failure to receive any financial statements of the
Lessee or (v) to inspect any Aircraft at any time or ascertain or inquire as to
the performance or observance of any of the Lessee's covenants under the Lease
with respect to such Aircraft. Except as expressly otherwise herein, in the
Special Participation
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Agreement and in any Participation Agreement provided, the Loan Participants,
the Certificate Holders and the Owner Participant shall not have any duty or
responsibility hereunder, including, without limitation, any of the duties
mentioned in clauses (i) through (v) above.
SECTION 6.03. No Representations or Warranties as to Aircraft or
--------------------------------------------------
Documents. NEITHER THE INDENTURE TRUSTEE (INDIVIDUALLY OR AS TRUSTEE) NOR THE
- ---------
OWNER TRUSTEE NOR THE BANK MAKES OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS,
VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, QUALITY, DURABILITY,
OPERATION, MERCHANTABILITY, CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR
PURPOSE OF ANY AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF ANY AIRCRAFT OR ANY PART THEREOF OR ANY OTHER
REPRESENTATION OR WARRANTY WITH RESPECT TO ANY AIRCRAFT OR ANY PART THEREOF
WHATSOEVER, except that The Bank in its individual capacity warrants that (i) on
the Delivery Date the Owner Trustee shall have received whatever title was
conveyed to it on the Delivery Date, and (ii) on the Closing Date each Aircraft
shall be free and clear of Lessor Liens attributable to The Bank. Neither The
Bank nor the Indenture Trustee makes or shall be deemed to have made any
representation or warranty as to the validity, legality or enforceability of
this Indenture, the Trust Agreement, the Certificates or any Indenture Document
or as to the correctness of any statement contained in any thereof, except for
the representations and warranties of The Bank and the Indenture Trustee made in
their respective individual capacities under this Indenture or in the Special
Participation Agreement. The Loan Participants, the Certificate Holders and the
Owner Participant make no representation or warranty hereunder whatsoever.
SECTION 6.04. No Segregation of Monies; No Interest. Any monies paid
-------------------------------------
to or retained by the Indenture Trustee pursuant to any provision hereof and not
then required to be distributed to any Certificate Holder, the Lessee or the
Owner Trustee as provided in Article III need not be segregated in any manner
except to the extent required by law, and may be deposited under such general
conditions as may be prescribed by law, and the Indenture Trustee shall not
(except as otherwise provided in
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Section 3.07) be liable for any interest thereon; provided that any payments
--------
received or applied hereunder by the Indenture Trustee shall be accounted for by
the Indenture Trustee so that any portion thereof paid or applied pursuant
hereto shall be identifiable as to the source thereof.
SECTION 6.05. Reliance; Agents; Advice of Counsel. Neither the Owner
-----------------------------------
Trustee nor the Indenture Trustee shall 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. The
Owner Trustee and the Indenture Trustee may accept a copy of a resolution of the
Board of Directors of any party to any Participation Agreement or the Special
Participation Agreement, certified by the Secretary or an Assistant Secretary
thereof as duly adopted and in full force and effect, as conclusive evidence
that such resolution has been duly adopted and that the same is in full force
and effect; provided that the Owner Trustee shall accept the same as conclusive
evidence of adoption and that the same are in full and force and effect in
respect of the resolutions delivered pursuant to Section 2.1(c) (vii) of the
Participation Agreement. As to the aggregate unpaid principal amount of
Certificates outstanding as of any date, the Owner Trustee may for all purposes
hereof rely on a certificate signed by any Vice President or other authorized
corporate trust officer of the Indenture Trustee. As to any fact or matter
relating to the Lessee the manner of ascertainment of which is not specifically
described herein, the Owner Trustee and the Indenture Trustee may for all
purposes hereof rely on a certificate, signed by a duly authorized officer of
the Lessee, as to such fact or matter, and such certificate shall constitute
full protection to the Owner Trustee and the Indenture Trustee for any action
taken or omitted to be taken by them in good faith in reliance thereon. The
Indenture Trustee shall assume, and shall be fully protected in assuming, that
the Owner Trustee is authorized by the Trust Agreement to enter into this
Indenture and to take all action to be taken by it pursuant to the provisions
hereof, and shall not inquire into the authorization of the Owner Trustee with
respect thereto. In the administration of the trusts hereunder, the Owner
Trustee and the Indenture Trustee each may execute any of the trusts or powers
hereof and perform its powers and duties hereunder directly or through agents or
attorneys and may, at the expense of the Indenture Estate, advise with counsel,
accountants and other skilled
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persons to be selected and retained by it, and the Owner Trustee and the
Indenture Trustee shall riot be liable for anything done, suffered or omitted in
good faith by them in accordance with the written advice or written opinion of
any such counsel, accountants or other skilled persons.
SECTION 6.06. Capacity in Which Acting. Each of the Owner Trustee
------------------------
and the Indenture Trustee acts hereunder solely as trustee herein, and, in the
case of the Owner Trustee, as provided in the Trust Agreement, and not in its
individual capacity, except as otherwise expressly provided in the Operative
Agreements.
SECTION 6.07. Compensation. The Indenture Trustee shall be entitled
------------
to reasonable compensation, including expenses and disbursements, for all
services rendered hereunder and shall have a priority claim on the Indenture
Estate for the payment of such compensation, to the extent that such
compensation shall not be paid by the Lessee or others, as required under the
Operative Agreements, and shall have the right to use or apply any monies held
by it hereunder in the Indenture Estate toward such payments; it being
acknowledged that, provided that so long as (i) no Indenture Default or
Indenture Event of Default exists or (ii) this Indenture is not amended (x) in a
manner that increases the duties of the Indenture Trustee or (y) in a manner
that requires the Indenture Trustee to devote an amount of time in connection
with such amendment that it deems material, the only fee the Indenture Trustee
will be entitled to will be the fees paid to it on the Closing Date. The
Indenture Trustee agrees that it shall have no right against the Certificate
Holders or (except as provided in any Participation Agreement) the Owner
Participant for any fee as compensation for its services as trustee under this
Indenture.
SECTION 6.08. May Become Certificate Holder. Each of the institutions
-----------------------------
acting as Owner Trustee and Indenture Trustee hereunder may become a Certificate
Holder and have all rights and benefits of a Certificate Holder to the same
extent as if it were not the institution acting as Owner Trustee or Indenture
Trustee, as the case may be.
SECTION 6.09. Further Assurances; Financing Statements. At any time
----------------------------------------
and from time to time, upon the request of the Indenture Trustee or Lessee
(provided that any such request of Lessee is accompanied by an opinion of
counsel satisfactory to a Majority in Interest of Certificate Holders, to the
effect that the action so requested is necessary to enable Lessee to comply with
an Operative Agreement and does not
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conflict with any Operative Agreement), the Owner Trustee shall promptly and
duly execute and deliver any and all such further instruments and documents as
may be specified in such request and as are necessary or desirable to perfect,
preserve or protect the mortgage, security interests and assignments created or
intended to be created hereby, or to obtain for the Indenture Trustee the full
benefit of the specific rights and powers herein granted, including, without
limitation, the execution and delivery of Uniform Commercial Code financing
statements and continuation statements with respect thereto, or similar
instruments relating to the perfection of the mortgage, security interests or
assignments created or intended to be created hereby.
ARTICLE VII
INDEMNIFICATION OF INDENTURE
TRUSTEE BY OWNER TRUSTEE
SECTION 7.01. Scope of Indemnification. The Owner Trustee, not in
------------------------
its individual capacity, but solely in its capacity as owner trustee under the
Trust Agreement, hereby agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for, and does
hereby indemnify, protect, save and keep harmless the Indenture Trustee, in its
individual capacity, and its successors, assigns, agents and servants, from and
against any and all liabilities, obligations, losses, damages, penalties, taxes
(excluding any taxes payable by the Indenture Trustee on or measured by any
compensation received by the Indenture Trustee for its services under this
Indenture), claims, actions, suits, costs, expenses or disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever which may
be imposed on, incurred by or asserted against the Indenture Trustee in its
individual capacity (whether or not also agreed to be indemnified against by any
other person under any other document) in any way relating to or arising out of
this Indenture, the Certificates, the other Operative Agreements or the
enforcement of any of the terms of any thereof, or in any way relating to or
arising out of the manufacture, purchase, acceptance, non-acceptance, rejection,
ownership, delivery, lease, possession, use, operation, condition, sale, return
or other disposition of any Aircraft or any or any part thereof (including,
without limitation, latent and other defects, whether or not discoverable, and
any claim for patent, trademark or copyright infringement), or in any way
relating to or arising out of the administration of the Indenture Estate or the
action or inaction of the Indenture Trustee hereunder, except only (i) in the
case of willful misconduct or
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gross negligence of the Indenture Trustee in the performance of its duties
hereunder, (ii) as may result from the inaccuracy of any representation or
warranty of the Indenture Trustee in its individual capacity in the Special
Participation Agreement, (iii) as otherwise provided in Section 2.05 or the last
sentence of Section 5.04 or (iv) to the extent otherwise excluded by the terms
of Section 8.1 of any Participation Agreement from the Lessee's general
indemnity under said Section. The Indenture Trustee in its individual capacity
shall be entitled to indemnification from the Indenture Estate for any
liability, obligation, loss, damage, penalty, claim, action, suit, cost, expense
or disbursement indemnified against pursuant to this Section 7.01 to the extent
not reimbursed by the Lessee or others, but without releasing any of them from
their respective agreements of reimbursement; and to secure the same the
Indenture Trustee shall have a prior lien on the Indenture Estate. The
indemnities contained in this Section 7.01 shall survive the termination of this
Indenture.
ARTICLE VIII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 8.01. Notice of Successor Owner Trustee. In the case of any
---------------------------------
appointment of a successor to the Owner Trustee pursuant to the Trust Agreement
or any merger, conversion, consolidation or sale of substantially all of the
corporate trust business of the Owner Trustee pursuant to the Trust Agreement,
the successor Owner Trustee shall give prompt written notice thereof to the
Indenture Trustee and to each Certificate Holder.
SECTION 8.02. Resignation of Indenture Trustee; Appointment of
------------------------------------------------
Successor. (a) The Indenture Trustee or any successor thereto may resign at
- ---------
any time without cause by giving at least 30 calendar days' prior written notice
to the Owner Participant, the Lessee, the Owner Trustee and each Certificate
Holder, such resignation to be effective upon the acceptance of the trusteeship
by a successor Indenture Trustee. In addition, a Majority in Interest of
Certificate Holders may at any time remove the Indenture Trustee without cause
by an instrument in writing delivered to the Owner Participant, the Owner
Trustee, the Lessee and the Indenture Trustee, and the Owner Trustee shall
promptly notify each Certificate Holder thereof in writing, such removal to be
effective upon the acceptance of the trusteeship by a successor Indenture
Trustee. In the case of the resignation or removal of the Indenture Trustee, a
Majority in Interest of Certificate Holders may appoint a successor Indenture
Trustee by
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an instrument signed by such Holders. If a successor Indenture Trustee shall
not have been appointed within 30 calendar days after such notice of resignation
or removal, the Indenture Trustee, the Owner Trustee or any Certificate Holder
may apply to any court of competent jurisdiction to appoint a successor
Indenture Trustee to act until such time, if any, as a successor shall have been
appointed as above provided. The successor Indenture Trustee so appointed by
such court shall immediately and without further act be superseded by any
successor Indenture Trustee appointed as above provided within one year from the
date of the appointment by such court.
(b) Any successor Indenture Trustee, however appointed, shall execute
and deliver to the Owner Trustee and to the predecessor Indenture Trustee an
instrument accepting such appointment, and thereupon such successor Indenture
Trustee, without further act, shall become vested with all the estates,
properties, rights, powers and duties of the predecessor Indenture Trustee
hereunder in the trusts hereunder applicable to it with like effect as if
originally named the Indenture Trustee herein; but nevertheless upon the written
request of such successor Indenture Trustee, such predecessor Indenture Trustee
shall execute and deliver an instrument transferring to such successor Indenture
Trustee, upon the trusts herein expressed applicable to it, all the estates,
properties, rights and powers of such predecessor Indenture Trustee, and such
predecessor Indenture Trustee shall duly assign, transfer, deliver and pay over
to such successor Indenture Trustee all monies or other property then held by
such predecessor Indenture Trustee hereunder.
(c) Any successor Indenture Trustee, however appointed, shall be a
"citizen of the United States" within the meaning of Section 101(16) of the Act
and shall also be a bank or trust company having a combined capital and surplus
of at least $100,000,000, if there be such an institution willing, able and
legally qualified to perform the duties of the Indenture Trustee hereunder upon
reasonable or customary terms.
(d) Any corporation into which the Indenture Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Indenture Trustee
shall be a party, or any corporation to which substantially all the corporate
trust business of the Indenture Trustee may be transferred, shall, subject to
the terms of paragraph (c) of this Section, be the Indenture Trustee under this
Indenture without further act.
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83
SECTION 8.03. Appointment of Separate Trustees. (a) At any time or
--------------------------------
times, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Indenture Estate may at the time be located or in which
any action of the Indenture Trustee may be required to be performed or taken or
if the Indenture Trustee shall be advised by counsel satisfactory to it that it
is so necessary or prudent in the interests of the Certificate Holders, or in
the event the Indenture Trustee shall have been requested to do so by a Majority
in Interest of Certificate Holders, the Indenture Trustee, by an instrument in
writing signed by it, and without the concurrence of the Owner Trustee, may
appoint one or more individuals or corporations to act as separate trustee or
separate trustees or co-trustee, acting jointly with the Indenture Trustee, or
to act as separate trustee or trustees of all or any part of the Indenture
Estate with such powers as may be provided in an agreement supplemental hereto.
(b) The Indenture Trustee and, at the request of the Indenture
Trustee, the Owner Trustee, shall execute, acknowledge and deliver all such
instruments as may be required by the legal requirements of any jurisdiction or
by any such separate trustee or separate trustees or co-trustee for the purpose
of more fully confirming such title, rights or duties to such separate trustee
or separate trustees or co-trustee and the Owner Trustee hereby makes,
constitutes and appoints the Indenture Trustee its agent and attorney-in-fact
for it and in its name, place and stead to execute, acknowledge and deliver the
same in the event that the Owner Trustee shall not itself execute and deliver
the same within 20 days after receipt by it of such request so to do. Upon the
acceptance in writing of such appointment by any such separate trustee or
separate trustees or co-trustee, it, he or they shall be vested with such title
to the Indenture Estate or any part thereof, and with such rights and duties, as
shall be specified in the instrument of appointment, jointly with the Indenture
Trustee (except insofar as local law makes it necessary for any such separate
trustee or separate trustees or co-trustee to act alone) subject to all the
terms of this Trust Indenture. Any separate trustee or separate trustees or co-
trustee may, at any time by an instrument in writing, constitute the Indenture
Trustee its or his attorney-in-fact and agent with full power and authority to
do all acts and things and to exercise all discretion on its or his behalf and
in its or his name. In case any such separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, the title to the Indenture
Estate and all assets, property, rights, powers, trusts, obligations and duties
of such separate trustee or co-trustee shall, so far as permitted by law, vest
in and be exercised by
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84
the Indenture Trustee, without the appointment of a successor to such separate
trustee or co-trustee unless and until a successor is appointed.
(c) All provisions of this Indenture which are for the benefit of the
Indenture Trustee shall extend to and apply to each separate trustee or co-
trustee appointed pursuant to the foregoing provisions of this Section 8.03,
including without limitation Article VII.
(d) Every separate trustee and co-trustee hereunder shall, to the
extent permitted by law, be appointed and act and the Indenture Trustee shall
act, subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon
the Indenture Trustee in respect of the receipt, custody, investment
and payment of monies shall be exercised solely by the Indenture
Trustee;
(ii) all other rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or separate trustees or co-trustee jointly except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Indenture Trustee
shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the
holding of title to the Indenture Estate in any such jurisdiction)
shall be exercised and performed by such separate trustee or separate
trustees or co-trustee;
(iii) No power hereby given to, or with respect to which it is
hereby provided may be exercised by, any such separate trustee or
separate trustees or co-trustee shall be exercised hereunder by such
Person except jointly with, or with the consent of, the Indenture
Trustee; and
(iv) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder.
If at any time the Indenture Trustee shall deem it no longer necessary or
prudent in order to conform to any such law, or take
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85
any such action or shall be advised by such counsel that it is no longer legally
required or necessary or prudent in the interest of the Certificate Holders or
in the event the Indenture Trustee shall have been requested to do so by a
Majority in Interest of Certificate Holders, the Indenture Trustee shall execute
and deliver an indenture supplemental hereto and all other instruments and
agreements necessary or proper to remove any separate trustee or separate
trustees or co-trustee.
(e) Any request, approval or consent in writing by the Indenture
Trustee to any separate trustee or separate trustees or co-trustee shall be
sufficient warrant to such separate trustee or separate trustees or co-trustee,
as the case may be, to take such action as may be so requested, approved or
consented to.
(f) Notwithstanding any other provision of this Section 8.03, the
powers of any separate trustee or separate trustees or co-trustee appointed
pursuant to this Section 8.03 shall not in any case exceed those of the
Indenture Trustee hereunder.
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO THIS
INDENTURE AND OTHER DOCUMENTS
SECTION 9.01. Instructions of Majority; Limitations. (a) At any time
-------------------------------------
and from time to time, (i) the Owner Trustee (but only on the written request of
the Owner Participant) and the Indenture Trustee (but only on the written
request of a Majority in Interest of Certificate Holders) shall execute a
supplement hereto for the purpose of adding provisions to, or changing or
eliminating provisions of, this Indenture as specified in such request, and (ii)
the Owner Trustee may (but only with the written consent of the Owner
Participant and on the written request of a Majority in Interest of Certificate
Holders) enter into such written amendment of or supplement to any Lease or any
other Indenture Document to which it is party as may be specified in such
request; provided, however, that, without the consent of each Certificate
-------- -------
Holder, no such amendment of or supplement to any such document, or waiver or
modification of the terms of any thereof, shall (i) modify any of the provisions
of this Section 9.01 or the definitions of the terms "Excluded Payments",
-----------------
"Indenture Default", "Indenture Event of Default", "Lease Default", "Lease Event
----------------- -------------------------- ------------- -----------
of Default", "Lessor's Cost", "Majority in Interest of Certificate Holders" or
- ---------- ------------- -------------------------------------------
"Indenture Documents" contained herein or in any other Operative Agreement
-------------------
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86
(except to change default definitions by providing for additional events of
default), (ii) increase the principal amount of any Certificate or reduce the
amount or extend the time of payment of any amount owing or payable under any
Certificate or (except as provided in this Indenture) increase or reduce the
Premium Amount or interest payable on any Certificate (except that only the
consent of the Certificate Holder shall be required for any decrease in any
amounts of or the rate of Premium Amount or interest payable on such Certificate
or any extension for the time of payment of any amount payable under such
Certificate), or alter or modify the provisions of Article III with respect to
the order of priorities in which distributions thereunder shall be made or with
respect to the amount or time of payment of any such distribution, (iii) reduce,
modify or amend any indemnities in favor of the Loan Participants or any
Certificate Holder or in favor of or to be paid by the Owner Participant or
alter the definition of "Indemnified Party" to exclude any Loan Participant or
-----------------
any Certificate Holder (except as consented to by each Person adversely affected
thereby), (iv) or reduce the amount or extend the time of payment of Basic Rent,
Stipulated Loss Value or Termination Value (or other amounts payable therewith)
for any Aircraft as set forth in the Lease to which it is subject (except to the
extent required to match any action consented to by any Certificate Holder
referred to in the parenthetical phrase in clause (ii) above), or (v) modify,
amend or supplement any Lease or consent to any assignment of any Lease, in
either case releasing the Lessee from its obligations in respect of the payment
of Basic Rent (except as above provided), Stipulated Loss Value or Termination
Value (or other amounts payable therewith) for the Aircraft subject to such
Lease or altering the absolute and unconditional character of such obligations
as set forth in Section 17 of such Lease or change any of the circumstances
under which Stipulated Loss Value or Termination Value (or other amounts payable
therewith) are payable. This Section 9.01 shall not apply to any indenture or
indentures supplemental hereto permitted by, and complying with the terms of,
Section 5.07, Section 8.03 or Section 9.04. Notwithstanding the foregoing,
without the consent of each Certificate Holder, no such supplement to this
Indenture, or waiver or modification of the terms hereof or of any other
agreement or document shall expressly permit the creation of any Lien on the
Indenture Estate or any part thereof, except as herein expressly permitted, or
deprive any Certificate Holder of the benefit of the Lien of this Indenture on
the Indenture Estate, except as provided in Sections 5.01 and 5.02 or in
connection with the exercise of remedies under Article IV.
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87
SECTION 9.02. Trustees Protected. If, in the opinion of the
------------------
institution acting as Owner Trustee under the Trust Agreement or the institution
acting as the Indenture Trustee hereunder any document required to be executed
pursuant to the terms of Section 9.01 affects any right, duty, immunity or
indemnity with respect to it under this Indenture, the Indenture Trustee and the
Owner Trustee may in their discretion decline to execute such document.
SECTION 9.03. Documents Mailed to Holders. Promptly after the
---------------------------
execution by the Owner Trustee or the Indenture Trustee of any document entered
into pursuant to Section 9.01, the Owner Trustee shall mail, by certified mail,
postage prepaid, a conformed copy thereof to Indenture Trustee and the Indenture
Trustee shall mail, by certified mail, postage prepaid, a conformed copy thereof
to each Certificate Holder at its address shown on the Certificate Register, but
the failure of the Owner Trustee or Indenture Trustee, as the case may be, to
mail such conformed copies shall not impair or affect the validity of such
document.
SECTION 9.04. No Request Necessary for Lease Supplement or Indenture
------------------------------------------------------
Supplement. Notwithstanding anything contained in Section 9.01, no written
- ----------
request or consent of the Indenture Trustee, any Certificate Holder or the Owner
Participant pursuant to Section 9.01 shall be required to enable the Owner
Trustee to enter into any Lease Supplement with the Lessee pursuant to the terms
of any Lease to subject an Aircraft or other property thereto or to execute and
deliver an Indenture Supplement to subject an Aircraft or other property hereto
pursuant to the terms hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Termination of Indenture. Upon (or at any time after)
------------------------
payment in full of the principal of and interest on and Premium Amount, if any,
and all other amounts due under, or otherwise due to the holders of, all
Certificates and provided that there shall then be no other amounts due to the
Loan Participants, the Certificate Holders and the Indenture Trustee hereunder
or under any Participation Agreement or the other Operative Agreements or
otherwise secured hereby, the Owner Trustee shall direct the Indenture Trustee
to execute and deliver to or as directed in writing by the Owner Trustee an
appropriate instrument releasing each Aircraft from the Lien of this
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88
Indenture and releasing the Operative Agreements from the assignment and pledge
thereof hereunder, and the Indenture Trustee shall execute and deliver such
instrument as aforesaid and, at the Owner Trustee's expense, will execute and
deliver such other instruments or documents as may be reasonably requested by
the Owner Participant to give effect to such release; provided, however, that
-------- -------
this Indenture and the trusts created hereby shall earlier terminate and this
Indenture shall be of no further force or effect upon any sale or other final
disposition by the Indenture Trustee of all property part of the Indenture
Estate and, in the case of any sale or other disposition pursuant to Section
4.04, the final distribution by the Indenture Trustee of all monies or other
property or proceeds constituting part of the Indenture Estate in accordance
with the terms hereof. Except as aforesaid otherwise provided, this Indenture
and the trusts created hereby shall continue in full force and effect in
accordance with the terms hereof.
SECTION 10.02. No Legal Title to Indenture Estate in Holders. No
---------------------------------------------
Certificate Holder shall have legal title to any part of the Indenture Estate.
No transfer, by operation of law or otherwise, of any Certificate or other
right, title and interest of any Certificate Holder in and to the Indenture
Estate or hereunder shall operate to terminate this Indenture or entitle such
Certificate Holder or any successor or transferee of such holder to an
accounting or to the transfer to it of legal title to any part of the Indenture
Estate.
SECTION 10.03. Sale of Aircraft by Indenture Trustee is Binding. Any
------------------------------------------------
sale or other conveyance of any Aircraft or any part of the Indenture Estate by
the Indenture Trustee made pursuant to the terms of this Indenture or of any
Lease shall bind the Certificate Holders and shall be effective to transfer or
convey all right, title and interest of the Indenture Trustee, the Owner
Trustee, the Owner Participant and the Certificate Holders in and to such
Aircraft or such part of the Indenture Estate (and, without limiting the
generality of foregoing, shall be free and clear of the Lien of this Indenture).
No purchaser or other grantee shall be required to inquire as to the
authorization, necessity, expediency or regularity of such sale or conveyance or
as to the application of any sale or other proceeds with respect thereto by the
Indenture Trustee.
SECTION 10.04. Indenture for Benefit of Owner Trustee Indenture
------------------------------------------------
Trustee. Owner Participant and Certificate Holders. Nothing in this Indenture,
- -------
whether express or implied, shall be construed to give to any Person other than
The Bank, the Owner Trustee, the Indenture Trustee, the Owner Participant, the
Lessee
TRUST INDENTURE
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89
and the Certificate Holders any legal or equitable right, remedy or claim under
or in respect of this Indenture.
SECTION 10.05. No Action Contrary to Lessee's Rights Under any Lease.
-----------------------------------------------------
Notwithstanding any of the provisions of this Indenture or the Trust Agreement
to the contrary, so long as no Lease Event of Default shall have occurred and be
continuing, neither the Indenture Trustee nor the Owner Trustee will take any
action in violation of the Lessee's rights under any Lease, including the right
to possession and use of the Aircraft subject to such Lease in accordance with
the terms of such Lease.
SECTION 10.06. 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
Indenture to be made, given, furnished or filed shall be in writing, mailed by
certified mail, postage prepaid, or by confirmed telex, or by confirmed telecopy
and (i) if to the Indenture Trustee, addressed to it at its office at 35 North
Sixth Street, Reading, Pennsylvania 19601, Attention: Corporate Trust
Administration (telecopier: (215) 655-1349), (ii) if to the Owner Trustee,
addressed to it at its office at 79 South Main Street, P.O. Box 30007, Salt Lake
City, Utah 84130, Attention: Corporate Trust Department (telecopy: (801) 350-
5053), or (iii) if to any Participant or any Certificate Holder, addressed to
such party at such address as such party shall have furnished by notice to the
Owner Trustee and the Indenture Trustee, or, until an address is so furnished,
addressed to the address of such party (if any) set forth on the signature pages
of the Special Participation Agreement. Whenever any notice in writing is
required to be given by the Owner Trustee or the Indenture Trustee or any
Certificate Holder to any of the other of them, such notice shall be deemed
given and such requirement satisfied when such notice is received, if such
notice is received, if such notice is mailed by certified mail, postage prepaid,
or is sent by confirmed telex, or by confirmed telecopy addressed as provided
above. 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
Indenture.
SECTION 10.07. Severability. Any provision of this Indenture which
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE>
90
SECTION 10.08. No Oral Modifications or Continuing Waivers. No terms
-------------------------------------------
or provisions of this Indenture or the Certificates 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 Indenture; and any waiver of the terms
hereof or of any Certificate shall be effective only in the specific instance
and for the specific purpose given.
SECTION 10.09. 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.
Any request, notice, direction, consent, waiver or other instrument or action by
any Certificate Holder shall bind the successors and assigns of such Certificate
Holder. This Indenture and the Indenture Estate shall not be affected by any
amendment or supplement to the Trust Agreement or by any other action taken
under or in respect of the Trust Agreement, except that each reference in this
Indenture to the Trust Agreement shall mean the Trust Agreement as amended and
supplemented from time to time to the extent permitted hereby and thereby.
SECTION 10.10. Headings. The headings of the various Articles and
--------
Sections herein and in the table of contents hereto are for the convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 10.11. Governing Law; Counterpart Form. This Indenture shall
-------------------------------
in all respects be governed by, and construed in accordance with, the law of the
State of New York, including all matters of construction, validity and
performance. This Indenture 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
instrument.
SECTION 10.12. Collateral. The Indenture Trustee shall (i) take such
----------
action with respect to the Collateral under the Guarantee or Pledge Agreement,
as the case may be, (ii) act on instructions in respect thereof, (iii) be
entitled to indemnification in respect of any action taken with respect to any
Collateral, (iv) have duties and take action in respect of the Collateral and
(v) otherwise be entitled to protections of this Indenture in respect of the
Collateral, as though, in each case, the Collateral were a part of the Indenture
Estate.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers there-unto duly authorized, as of
the day and year first above written, and acknowledge that this Indenture has
been made and delivered in the City of New York, and this Indenture having
become effective only upon such execution and delivery.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as otherwise expressly
provided in the Operative Agreements,
but solely as Owner Trustee
By [SIGNATURE ILLEGIBLE]
---------------------------------
Title: Asst. Vice President
MERIDIAN TRUST COMPANY,
as Indenture Trustee
By _________________________________
Title:
TRUST INDENTURE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers there-unto duly authorized, as of
the day and year first above written, and acknowledge that this Indenture has
been made and delivered in the City of New York, and this Indenture having
become effective only upon such execution and delivery.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as otherwise expressly provided
in the Operative Agreements, but solely
as Owner Trustee
By _________________________________
Title:
MERIDIAN TRUST COMPANY,
as Indenture Trustee
By [SIGNATURE ILLEGIBLE]
---------------------------------
Title: VICE PRESIDENT
TRUST INDENTURE
<PAGE>
EXHIBIT A
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
TRUST INDENTURE SUPPLEMENT No.________
TRUST INDENTURE SUPPLEMENT NO. ___ (Southwest Airlines 1990 Trust II,
III & IV) dated ___________, ____ (this "Indenture Supplement") of FIRST
--------- -----------
SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual capacity,
except as otherwise expressly provided in the Operative agreements, but solely
as owner trustee under the Trust Agreement (in such capacity, herein called the
"Owner Trustee").
- ---------------
W I T N E S S E T H :
WHEREAS, the Amendment and Restatement dated as of August 25, 1995 of
Trust Indenture and Security Agreement dated as of December 30, 1991 (Southwest
Airlines 1990 Trust II, III & IV) (the "Indenture") between the Owner Trustee
---------
and Meridian Trust Company as Indenture Trustee (the "Indenture Trustee"),
-----------------
provides for the execution and delivery of a supplement thereto substantially in
the form hereof which shall particularly describe the Aircraft (such term and
other defined terms in the Indenture being herein used with the same meanings)
and Replacement Engine included in the Trust Indenture Estate, and shall
specifically mortgage such Aircraft or Replacement Engine, as the case may be,
to the Indenture Trustee.
WHEREAS*, the Indenture relates to each Airframe and Engines described
below and a counterpart of the Indenture is attached hereto and made a part
hereof and this Indenture Supplement, together with such counterpart of the
Indenture, is being filed for recordation on the date hereof with the Federal
Aviation Administration as one document.
WHEREAS**, the Indenture and Trust Indenture Supplement No. ___
(Southwest Airlines 1990 Trust II, III & IV) dated ______________ (the Indenture
being attached to and made a part of such Indenture Supplement and filed
therewith) have been duly recorded pursuant to the Federal Aviation Act of 1958,
* This recital is to be included only in the first Indenture Supplement.
** This recital not to be included in the first Indenture Supplement.
<PAGE>
2
as amended, on __________ , 1991, as one document and have been assigned
Conveyance No.
NOW, THEREFORE, THIS INDENTURE SUPPLEMENT WITNESSETH, that, to secure
(i) the prompt payment of the principal of and Premium Amount (if any) and
interest on, and all other amounts due with respect to, (a) the Series A
Certificate and (b) the Series B, Certificates from time to time outstanding
under the Indenture, (ii) the performance and observance by the Owner Trustee
and the Owner Participant of all the agreements, covenants and provisions for
the benefit of the Loan Participants and the Certificate Holders in the
Indenture and in each Participation Agreement, the Special Participation
Agreement and the Certificates contained, (iii) the prompt payment of any and
all amounts from time to time owing under the Indenture or each Participation
Agreement or the other Operative Agreements by the Owner Trustee, the Owner
Participant or the Lessee to the Loan Participants and the Certificate Holders
and (iv) the performance and observance by the Guarantors of the Series B
Certificates of all the agreements, covenants and provisions for the benefit of
the Loan Participants and the Certificate Holders in each Participation
Agreement, the Special Participation Agreement and the Guarantee, and for the
uses and purposes and subject to the terms and provisions of the Indenture, and
in consideration of the premises and of the covenants contained in the
Indenture, and of the acceptance of the Certificates by the Certificate Holders,
and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee at or
before the delivery hereof, the receipt whereof is hereby acknowledged, the
Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign,
transfer, convey, mortgage, pledge and confirm, unto the Indenture Trustee and
its successors and assigns, for the security and benefit of the Loan
Participants and the Certificate Holders, in the trust created by the Indenture,
a first priority security interest in and first mortgage lien upon, all right,
title and interest of the Owner Trustee in, to and under the following described
property:
<PAGE>
3
AIRFRAMES
Three airframes identified as follows:
FAA Manufacturer' s
Registration Serial
Manufacturer Model Number Number
- ------------ ----- ------ ------
together with all Parts, appliances, equipment, instruments and accessories
(including, without limitation, radio and radar) from time to time thereto
belonging, owned by the Owner Trustee and installed in or appurtenant to said
aircraft.
AIRCRAFT ENGINES
( ) aircraft engines, each such engine
having 750 or more rated takeoff horsepower
or the equivalent thereof, identified as follows:
Manufacturer' s
Manufacturer Model Serial Number
- ------------ ----- -------------
together with all Parts, equipment and accessories thereto belonging, by
whomsoever manufactured, owned by the Owner Trustee and installed in or
appurtenant to said aircraft engines.
Together with all substitutions, replacements and renewals of the
property above described, and all property which shall hereafter become
physically attached to or incorporated in the property above described, whether
the same are now owned by the Owner Trustee or shall hereafter be acquired by
it.
As further security for the obligations referred to above and secured
by the Indenture and hereby, the Owner Trustee has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does
hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and
confirm, unto the Indenture Trustee, its successors and assigns, for the
<PAGE>
4
security and benefit of the Loan Participants and the Certificate Holders, in
the trust created by the Indenture, all of the right, title and interest of the
Owner Trustee in, to and under [the Lease Supplement (Southwest Airlines 1990
Trust II) No. 1 dated September 27, 1990, the Lease Supplement (Southwest
Airlines 1990 Trust III) No. 1 dated September 27, 1990 and the Lease Supplement
(Southwest Airlines 1990 Trust IV) No. 1 dated September 27, 1990] [the Lease
Supplement (Southwest Airlines 1990 Trust __) No. __ of even date] (other than
Excluded Payments, if any) covering the property described above.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns, for the benefit and security of
the Loan Participants and the Certificate Holders for the uses and purposes and
subject to the terms and provisions set forth in the Indenture.
This Indenture Supplement shall be construed as supplemental to the
Indenture and shall form a part thereof, and the Indenture is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
This Indenture Supplement is being delivered in the State of New York.
AND, FURTHER, the Owner Trustee hereby acknowledges that each
Airframe/Engines referred to in this Indenture Supplement and the aforesaid
Lease Supplements have been delivered to the Owner Trustee and are included in
the property of the Owner Trustee and are covered by all the terms and
conditions of the Trust Agreement and are subject to the Lien of the Indenture.
<PAGE>
5
IN WITNESS WHEREOF, the Owner Trustee has caused this Indenture
Supplement to be duly executed by one of its officers thereunto authorized, this
_______ day of ________, _____.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION ,
not in its individual capacity
except as otherwise expressly
provided in the Operative Agreements,
but solely as Owner Trustee
By_____________________________
Title:
<PAGE>
EXHIBIT B
to
Amendment and Restatement
of Trust Indenture
and Security Agreement
FORM OF TAX CERTIFICATE
Reference is made to the Certificate[s] held by the undersigned
pursuant to the Trust Indenture and Security Agreement (Southwest Airlines 1990
Trust II, III & IV) dated as of December 30, 1991 between First Security Bank of
Utah, National Association, as Owner Trustee, and Meridian Trust Company, as
Indenture Trustee (capitalized terms not otherwise defined herein being used
herein as therein defined). The undersigned hereby declares under the penalties
of perjury that:
(1) The undersigned is the beneficial owner of the Certificates
issued in its name;
(2) the income from the Certificates held by the undersigned is not
effectively connected with a trade or business within the United
States conducted through a permanent establishment of the
undersigned within the United States;
(3) the undersigned is not a bank;
(4) the undersigned is not a controlled foreign corporation related
(within the meaning of Internal Revenue Code ("I.R.C.") Section
864(d)(4)) to the Owner Trustee or the Owner Participant;
(5) The undersigned is not a 10% shareholder (within the meaning of
I.R.C. section 871(h) (3) (B)) of the Owner Trustee or the Owner
Participant;
(6) the undersigned is a person other than (i) a citizen or resident
of the United States of America, its territories and possessions
(including the Commonwealth of Puerto Rico and all other areas
subject to its jurisdiction) (the "United States") , (ii) a
corporation, partnership or other entity created or organized
under the laws of the United States or any political subdivision
thereof or therein or (iii) an estate or trust that is subject to
United States federal income taxation regardless of the source of
its income; and
(7) the undersigned, if an individual, will not (i) be a lawful
permanent resident of the United States at
<PAGE>
2
any time during the calendar year, (ii) meet the substantial
presence test of I.R.C. section 7701(b)(3), or (iii) make an
election under I.R.C. section 7701(b) (4) to be treated as a
united states resident.
By executing this certificate, the undersigned agrees that (1) if the
information provided on this certificate changes, the undersigned shall so
inform the Indenture Trustee in writing within thirty days of such change and
(2) the undersigned shall furnish the Indenture Trustee a properly completed and
currently effective certificate in either the calendar year in which payment is
to be made by the Indenture Trustee to the undersigned, or in either or the two
calendar years preceding such payment.
Date:
[Name of Certificate Holder]
By_______________________________
Title:
<PAGE>
EXHIBIT C
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
(Intentionally omitted.)
<PAGE>
EXHIBIT D
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
(Intentionally omitted.)
<PAGE>
EXHIBIT E
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Swap Upside
-----------
"Swap Upside" means, as at any date of (i) prepayment of any Series A
-----------
Certificate pursuant to Section 2.11(a) or (ii) purchase by a holder or holders
of Series B Certificates pursuant to Section 2.13(b) and for any holder of
Series A Certificate that is a bank, a bank operating subsidiary or otherwise a
floating rate lender, an amount, if any, equal to the amount the Swap Counter-
party pays to such holder on such date to terminate the Swap Transaction of such
holder on such date.
<PAGE>
ANNEX I
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Schedule of Series A Certificates Principal Payments
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
------------------ ---------
<S> <C>
31-Mar-92 $577,950.46
30-Jun-92 $589,009.71
30-Sep-92 $536.386.96
31-Dec-92 $607,924.40
31-Mar-93 $626,965.77
30-Jun-93 $635,322.57
30-Sep-93 $644,104.70
31-Dec-93 $656,565.26
31-Mar-94 $675,469.76
30-Jun-94 $685,293.62
30-Sep-94 $695,591.61
31-Dec-94 $709,048.21
31-Mar-95 $727,805.02
30-Jun-95 $739,211.83
30-Sep-95 $751,145.40
31-Dec-95 $765,676.73
</TABLE>
- CONTINUED -
<PAGE>
Schedule of Series A Certificates Principal Payments (Continued)
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
--------------- -------
<S> <C>
30-Jan-96 159,716.30
29-Feb-96 160,781.08
30-Mar-96 161,852.95
30-Apr-96 162,931.97
30-May-96 164,018.18
30-Jun-96 165,111.64
30-Jul-96 166,212.38
30-Aug-96 167,320.46
30-Sep-96 168,435.94
30-Oct-96 169,558.84
30-Nov-96 170,689.23
30-Dec-96 171,827.16
30-Jan-97 172,972.68
28-Feb-97 174,125.82
30-Mar-97 175,286.67
30-Apr-97 176,455.24
30-May-97 177,631.61
30-Jun-97 178,815.83
30-Jul-97 180,007.92
30-Aug-97 181,207.98
30-Sep-97 182,416.04
30-Oct-97 183,632.14
30-Nov-97 184,856.35
30-Dec-97 186,088.73
30-Jan-98 187,329.33
28-Feb-98 188,578.18
30-Mar-98 189,835.37
30-Apr-98 191,100.94
30-May-98 192,374.95
30-Jun-98 193,657.45
30-Jul-98 194,948.49
30-Aug-98 196,248.16
30-Sep-98 197,556.47
30-Oct-98 198,873.52
30-Nov-98 200,199.34
30-Dec-98 201,534.00
30-Jan-99 202,877.57
28-Feb-99 204,230.08
30-Mar-99 205,591.61
30-Apr-99 206,962.23
30-May-99 208,341.97
30-Jun-99 209,730.92
30-Jul-99 211,129.13
30-Aug-99 212,536.65
30-Sep-99 213,953.56
</TABLE>
<PAGE>
48
otherwise provided herein, impair, as between the Owner Trustee, the Owner
Participant, the Lessee and the holders of the Series B Certificates, the
obligation of the Owner Trustee, which, subject only to Section 2.04, is
unconditional and absolute, to pay to the holders of the Series B
Certificates the principal thereof, interest thereon and all other amounts
payable hereunder and under the other Operative Agreements in accordance
with the terms and the provisions hereof and thereof nor the obligation of
the Lessee which is unconditional and absolute, to pay Supplemental Rent in
accordance with the terms and provisions of each Lease.
(j) Notwithstanding anything that may be to the contrary in any of the
Operative Agreements, the holders of the Series B Certificates shall at all
times be entitled to all the rights, title, benefits and interest of the
Guarantee Beneficiary and, in respect thereof, shall not be accountable to
the Indenture Trustee or to the holders of the Series A Certificates for
any action taken or not taken or for any sums received in respect of the
Guarantee or any Collateral thereunder.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution and Application of Amounts upon
-------------------------------------------------------
Rent Default.
- -------------
(a) Basic Rent Distribution. Except as otherwise provided in Section
-----------------------
3.03, each installment of Basic Rent, any payment of interest payable on any
Interest Payment Date or on overdue installments of Basic Rent, and any payment
received by the Indenture Trustee as contemplated by Section 4.03 shall be
promptly distributed in the following order of priority:
first, so much of such installment or payment as shall be required to
-----
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal and interest and other amounts) then due on or in respect of the
Series A Certificates shall be distributed to the holders
TRUST INDENTURE
<PAGE>
49
thereof ratably, without priority of any one Series A Certificate over any
other Series A Certificate, in the proportion that the amount of such
payment or payments then due under each Series A Certificate bears to the
aggregate amount of the payments then due under all Series A Certificates;
second, so much of such installment or payment as shall be required to
------
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal, interest and other amounts) then due under, on or in respect of
the Series B Certificates shall be distributed to the holders thereof
ratably, without priority of any one Series B Certificate over any other
Series B Certificate, in the proportion that the amount of such payment or
payments then due under each such Series B Certificate bears to the
aggregate amount of the payments then due under all such Series B
Certificates; provided, however, that if an Indenture Default shall have
-------- -------
occurred and be continuing, then any such installment or payment shall not
be distributed as provided in this clause "second" but shall be held by the
------
Indenture Trustee as part of the Indenture Estate until whichever of the
following shall first occur: (i) all Indenture defaults shall have been
cured, in which event such installment or payment shall, to the extent not
theretofore applied as provided herein, be distributed as provided in this
clause "second", or (ii) Section 3.02 or Section 3.03 shall be applicable,
------
in which event such balance shall be distributed in accordance with the
provisions of said section 3.02 or section 3.03, as the case may be, in
which event such installment or payment shall, to the extent not
theretofore applied as provided herein, be distributed as provided in this
clause "second"; and
------
third, the balance, if any, of such installment or payment remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement; provided, however, that if an Indenture
-------- -------
Default shall have occurred and be continuing, then such balance shall not
be distributed as provided in this clause "third" but shall be held by the
-----
Indenture Trustee as part of the Indenture Estate until whichever of the
following shall first occur: (i) all indenture defaults shall have been
cured, in which event such balance shall, to the extent not
TRUST INDENTURE
<PAGE>
50
theretofore distributed as provided herein, be distributed as provided in
this clause "third", or (ii) Section 3.02 or Section 3.03 shall be
-----
applicable, in which event such balance shall be distributed in accordance
with the provisions of said Section 3.02 or Section 3.03, as the case may
be.
(b) Application of Other Amounts Held by Indenture Trustee Upon Rent
----------------------------------------------------------------
Default. Except as otherwise provided in Section 3.03, if (i) as a result of
- --------
any failure by the Lessee to pay Basic Rent in full on any date when an
installment of Basic Rent is due, or (ii) for any other reason there shall not
have been distributed on any Rent Payment Date the full amount then
distributable pursuant to clauses "first" and "second" of Section 3.01(a), the
----- ------
Indenture Trustee shall, if so requested by a Majority in interest of
Certificate Holders, distribute other payments of the character referred to in
section 3.04(b) then held by it or thereafter received by it, to the holders of
all certificates to the extent necessary to enable the Indenture Trustee to make
all the distributions then due pursuant to such clauses "first" and "Second" in
----- ------
the priority specified in section 3.01 (a).
SECTION 3.02. Lease Termination, Event of Loss and Replacement. (a)
------------------------------------------------
Except as otherwise provided in Section 3.03, any payment received by the
Indenture Trustee as the result of an Event of Loss with respect to any Airframe
or any Aircraft, or in connection with a voluntary prepayment hereunder pursuant
to Section 2.11(a), shall be applied to prepayment of the Certificates and to
all other amounts payable thereunder or hereunder or under the other Operative
Agreements as provided in Section 2.11(a) or 2.11(b) by applying such funds in
the following order of priority: first, so much of such payment as shall be
-----
necessary to reimburse the Indenture Trustee for any costs or expenses incurred
in connection with such prepayment shall be paid to the Indenture Trustee;
second, so much of such payment as shall be necessary to pay all amounts then
- ------
due to the holders of the Series A Certificates pursuant to Section 2.11(a) or
2.11(b), as the case may be, shall be distributed to such holders, ratably,
without priority of any one Series A Certificate holder over any other such
holder; third, so much of such payment as shall be necessary to pay all amounts
-----
without priority of any one Series B Certificate holder over any
TRUST INDENTURE
<PAGE>
51
other such holder; and fourth, the balance, if any of such payment remaining
------
thereafter shall be distributed in the manner set forth in clause "tenth" OF
-----
Section 3.03.
(b) Except as otherwise provided in Section 3.03, any amounts received
directly or indirectly from any governmental authority, insurer or other party
pursuant to any provision of Section 10.4, 10.5 or 11 of any Lease or otherwise
as the result of loss or damage not constituting such an Event of Loss with
respect to the Airframe or any Engine subject to such Lease, or as a result of
such loss or damage constituting such an Event of Loss if and to the extent that
such amounts would at the time be required to be paid to the Lessee pursuant to
said Section 10.4, 10.5 or 11 but for the fact that a Lease Event of Default
shall have occurred and be continuing, shall be held by the Operative
Agreements, as security for the obligations of the Lessee under the Operative
Agreements and shall be invested in accordance with the terms of Section 3.07
and at such time as the conditions for payment to the Lessee specified in said
Section 10.4, 10.5 or 11, as the case may be, shall be fulfilled and there shall
not be continuing any Lease Event of Default, such amount, and the proceeds of
any investment thereof, shall, to the extent not applied to such obligations of
the Lessee, be paid to the Lessee to the extent provided in such Lease.
SECTION 3.03. Payment After Indenture Event of Default, etc. Except as
---------------------------------------------
otherwise provided in Sections 3.04(c) and 3.05(ii), all payments received and
amounts held or realized by the Indenture Trustee after an Indenture Event of
Default shall have occurred and so long as such an Indenture Event of Default
shall be continuing, and after the Indenture Trustee has received a request in
accordance with the first sentence of Section 5.02(b) or after the Indenture
Trustee shall foreclose or enforce this Indenture or after the Certificates
shall have become due and payable as provided in Section 4.04(b) or (c), as well
as all payments or amounts then held by the Indenture Trustee as part of the
Indenture Estate or Collateral, shall be promptly distributed by the Indenture
Trustee in the following order of priority:
first, so much of such payments or amounts as shall be required to
-----
reimburse the Indenture Trustee for any tax, expense, charge or other loss
(including, without limitation, all amounts to be expended at the expense
of, or charged upon the tolls, rents, revenues, issues, income,
TRUST INDENTURE
<PAGE>
52
products and profits of, the property included in the Indenture Estate
pursuant to Section 4.05(b)) incurred by the Indenture Trustee (to the
extent not previously reimbursed) (including, without limitation, the
expenses of any sale, taking or other proceeding, reasonable attorneys'
fees and expenses, court costs, and any other expenditures incurred or
expenditures or advances made by the Indenture Trustee in the protection,
exercise or enforcement of any right, power or remedy or any damages
sustained by the Indenture Trustee, liquidated or otherwise, upon such
Indenture Event of Default) shall be applied by the Indenture Trustee in
reimbursement of such expenses;
second, so much of such payments or amounts remaining as shall be
------
required to pay in full to the holders of Series A Certificates all other
amounts payable pursuant to the indemnification provisions of Sections 8.1
and 8.2 of any Participation Agreement or pursuant to any other provision
of any Operative Agreement and secured hereunder (other than amounts
payable pursuant to clause "third", "fourth", "fifth" or "ninth" of this
----- ------ ----- -----
section 3.03) to the holders of series a Certificates and remaining unpaid
shall be distributed to such holders, and if the aggregate amount remaining
shall be insufficient to pay all such amounts in full, it shall be
distributed ratably, without priority of any Series A Certificate over any
other, in the proportion that the aggregate amount due each holder of
Series A Certificates under this clause "second" bears to the aggregate
------
amount due all holders of Series A Certificates under this clause "second";
------
third, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate amount of all due but unpaid Premium
Amount (other than Special Premium), if any, and all accrued but unpaid
interest to the date of distribution on the Series A Certificates shall be
distributed to the holders of the Series A Certificates, and if the
aggregate amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any one Series A
Certificate over any other, in the proportion that the aggregate amount of
all due but unpaid Premium Amount (other than Special Premium), if any, and
all accrued but unpaid interest to the date of distribution on each Series
A Certificate bears to the aggregate amount of all due but unpaid Premium
Amount
TRUST INDENTURE
<PAGE>
53
(other than Special Premium), if any, and all accrued but unpaid interest
to the date of distribution on all Series A Certificates;
fourth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate unpaid principal amount of all Series
A Certificates shall be distributed to the holders of the Series A
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series A Certificate over any other, in the proportion
that the aggregate unpaid principal amount of each Series A Certificate
bears to the aggregate unpaid principal amount of all Series A
Certificates;
fifth, so much of such payments or amounts remaining as shall be
-----
required to reimburse all holders of the Certificates in full for payments
made pursuant to Section 5.03 (to the extent not previously reimbursed)
shall be distributed to such holders, and if the aggregate amount remaining
shall be insufficient to reimburse all such payments in full, it shall be
distributed ratably, without priority of any Certificate over any other, in
the proportion that the aggregate amount of the unreimbursed payments made
by each such holder pursuant to Section 5.03 bears to the aggregate amount
of the unreimbursed payments made by all holders of Certificates pursuant
to Section 5.03;
sixth, so much of such payments or amounts remaining as shall be
-----
required to pay to the holders of Series B Certificates all other amounts
payable pursuant to the indemnification provisions of Sections 8.1 and 8.2
of any Participation Agreement or pursuant to any other provision of any
Operative Agreement and secured hereunder (other than amounts payable
pursuant to clause "fifth", "seventh" or "eighth" of this Section 3.03) to
----- ------- ------
the holders of Series B Certificates and remaining unpaid shall be
distributed to such holders to, and if the aggregate amount remaining shall
be insufficient to pay all such amounts in full, it shall be distributed
ratably, without priority of any Series B Certificate over any other, in
the proportion that the aggregate amount due each holder of Series B
Certificates under this clause "sixth" bears to the aggregate amount due
-----
all holders of Series B Certificates under this clause "sixth";
-----
TRUST INDENTURE
<PAGE>
54
seventh, so much of such payments or amounts remaining as shall be
-------
required to pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Series B Certificates, shall
be distributed to the holders of the Series B Certificates, and if the
aggregate amount remaining shall be insufficient to pay all such amounts
in full, it shall be distributed ratably, without priority of any one
Series B Certificate over any other, in the proportion that the aggregate
amount of all accrued but unpaid interest to the date of distribution on
each Series B Certificate bears to the aggregate amount of all accrued but
unpaid interest to the date of distribution on all Series B Certificates;
eighth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate unpaid principal amount of all
Series B Certificates shall be distributed to the holders of the Series B
Certificates, and if the aggregate amount remaining shall be insufficient
priority of any one Series B Certificate over any other, in the proportion
that the aggregate unpaid principal amount of each Series B Certificate
bears to the aggregate principal amount of all Series B Certificates;
ninth, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate amount of all due but unpaid Special
Premium, if any, shall be distributed to the holders of the Series A
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series A Certificate over any other, in the proportion
that the aggregate amount of all due but unpaid Special Premium, if any,
bears to the aggregate amount of all due but unpaid Special Premium, if
any, on all Series A Certificates; and
tenth, the balance, if any, of such payments or amounts remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement.
SECTION 3.04. Certain Payments. (a) Except as otherwise provided in
----------------
this Indenture, any payments received by the Indenture Trustee for which
provision as to the application thereof is made in any Lease or any
Participation Agreement shall
TRUST INDENTURE
<PAGE>
ANNEX II
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Schedule of Series B Certificates Principal Payments
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
---------------- -------
<S> <C>
31-Mar-92 $111,611.17
30-Jun-92 $113,746.88
30-Sep-92 $113,445.68
31-Dec-92 $115,640.35
31-Mar-93 $122,736.68
30-Jun-93 $122,655.68
30-Sep-93 $122,624.73
31-Dec-93 $124,996.98
31-Mar-94 $132,066.97
30-Jun-94 $132,268.18
30-Sep-94 $132,528.82
31-Dec-94 $135,092.67
31-Mar-95 $142,134.25
30-Jun-95 $142,639.96
30-Sep-95 $143,215.22
31-Dec-95 $145,985.80
31-Dec-99 $9,955,302.21
</TABLE>
<PAGE>
________________________________________________________________________________
SALE AND LEASE AGREEMENT SECOND AMENDMENT
(Southwest Airlines 1990 Trust IV)
Dates as of August 25, 1995
BETWEEN
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
as Owner Trustee
LESSOR
AND
SOUTHWEST AIRLINES CO.,
LESSEE
____________
One Boeing Model 737-2H4 Aircraft
N575W
________________________________________________________________________________
I HEREBY CERTIFY THAT I
HAVE COMPARED THIS DOCUMENT
WITH THE ORIGINAL AND THAT IT
IS A TRUE AND EXACT COPY OF
SUCH ORIGINAL
WILLIAM C. BOSTON
848-0600
/s/ Kimberlee K. Osby
<PAGE>
SALE AND LEASE AGREEMENT SECOND AMENDMENT
(SOUTHWEST AIRLINES 1990 TRUST IV)
This SALE AND LEASE AGREEMENT SECOND AMENDMENT (hereinafter referred to as
this "Lease Amendment") dated as of August 25, 1995, between FIRST SECURITY BANK
OF UTAH, NATIONAL ASSOCIATION, a national banking association, not in its
individual capacity but solely as Owner Trustee under a certain Trust Agreement
dated as of December 30, 1991 ("Lessor"), and SOUTHWEST AIRLINES CO., a Lease
corporation ("Lessee"),
W I T N E S S E T H:
-------------------
WHEREAS, First Security Bank of Utah, National Association, as owner
trustee (the "Previous Lessor) under the Trust Agreement dated September 1,
1990, and Lessee are parties to a Sale and Lease Agreement relating to one
Boeing Model 737-2H4 aircraft, bearing manufacturer's serial no.21722 and U.S.
registration number N57SW, and two Pratt & Whitney JT8D-9A engines bearing
manufacturer's serial nos. P687758B and P707364B (such aircraft and engines
being hereinafter called the "Aircraft"), dated as of September 1, 1990 (the
"Original Lease"), whereby, subject to the terms and conditions set forth
therein, Previous Lessor has leased to Lessee, and Lessee has leased from the
Previous Lessor, the Aircraft, such lease being evidenced by the execution and
delivery of Sale and Lease Supplement No.1, dated September 27, 1990 ("Lease
Supplement No. 1"), covering the Aircraft.
WHEREAS, a counterpart of the Original Lease, attached to and made a
part of Lease Supplement No.1, was recorded by the Federal Aviation
Administration on September 28, 1990, and assigned Conveyance No. H72737;
WHEREAS, the Owner Trustee assigned the Original Lease and Lease
Supplement No.1 to the lessor under the Assignment and Assumption Agreement
dated December 30, 1991, recorded by the Federal Aviation Administration on
January 3, 1992 as Conveyance No. H77986;
WHEREAS, Lessor and Lessee amended the Original Lease by the Sale and
Lease Agreement Amendment (Southwest Air 1990 Trust IV) dated as of December
30,1991 (the "First Amendment"), which instrument was recorded by the Federal
Aviation Administration on January 3, 1992, and assigned Conveyance No. H77988;
WHEREAS, the Original Lease as supplement and amended by Lease
Supplement No.1 and the First Amendment is hereinafter called the "Lease";
-----
WHEREAS, the Lessor, with the written consent of the Owner Participant
and on the written request of a Majority in Interest of Certificate Holders (as
declared in the Indenture), and Lessee wish to amend the Lease by entering into
this Lease Amendment;
-2-
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto agree as follows:
Section 1. Definitions: Amendments to Section 1 of the Lease.
-------------------------------------------------
Capitalized terms used herein without definition shall have the respective
meanings attributed thereto in the Lease. Each definition of any term specified
below in Section 1 of the Lease is amended to read in its respective entirety as
follows:
"Base Lease Term" means the period commencing on the Base Lease
Term Commencement Date and expiring on December 31, 1999.
"Rent Payment Date" means each December 31, March 31, June 30,
and September 30 during the Term, commencing September 30, 1990
through and including December 31, 1995, and thereafter the last day
of each calendar month during the Term, commencing January 31, 1996.
"Stipulated Loss Value" means (i) during the Base Lease Term to
and including December 31, 1995, $12,100,000, (ii) thereafter during
the Base Lease Term, $7,000,000, and (iii) during any Renewal Lease
Term, such amount shall be calculated in accordance with Section 18.1.
Section 2. Amendment to Section 3.3. Section 3.3 of the Lease is
------------------------
amended to
read as follows:
"Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent with
----------
respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000 through the December 31, 1995 Rent Payment Date and
$80,000 on each Rent Payment Date thereafter; provided that on the
first Rent Payment Date (September 30, 1990), only Basic Rent in the
amount of $4,800 per each day elapsed during the Interim Lease Term
shall be due."
Section 3. Amendments to Section 5.
------------------------
(a) Section 5.1.7 of the Lease is hereby amended to read as follows:
"Notwithstanding Section 5.1.1 hereof or any other provision of any
Operative Agreement, Lessee shall have no obligation to install on the
Aircraft a hush kit in order to comply with the Stage Ill noise level
restrictions promulgated by the FAA or otherwise, it being understood
that the Aircraft may be returned to Lessor in Stage II condition."
-3-
<PAGE>
(b) The first two sentences of Section 5.3.2 of the Lease are amended
to read as follows:
"Every ESV-l Engine shall have no more than 5,000 hours or cycles
since its last ESV-1. Each ESV-2 Engine shall have no more than 7,000
hours or cycles since its last ESV-2."
Section 4: Effective Date of Amendments. The amendments to the Lease
----------------------------
set forth in Sections 1 through 3 hereof shall be effective as of the date first
set forth above.
Section 5. Ratification. Except as amended hereby, the Lease shall
------------
remain in full force and effect in all respects.
Section 6. Miscellaneous. This Lease Amendment is being delivered in
-------------
the State of Texas and shall in all respects be governed by, and construed in
accordance with, the laws of the State of Texas, including all matters of
construction, performance and validity. This Lease Amendment 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 instrument. All references herein to numbered
sections, unless otherwise indicated, are to sections of this Lease Amendment.
To the extent, if any, that the Lease or this Lease Amendment constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Lease
Amendment may be created through the transfer or possession of any counterpart
other than the original counterpart, which shall be identified as the
counterpart containing on the signature page thereof the receipt therefor
executed by the Indenture Trustee.
-4-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Sale and
Lease Agreement Second Amendment to be duly executed as of the day and year
first above written.
LESSOR
FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee
By /s/ Nancy M. Dahl
----------------------------------------
Name: NANCY M. DAHL
Title: ASSISTANT VICE PRESIDENT
LESSEE
SOUTHWEST AIRLINES CO.
By_______________________________________
Laura H. Wright
Assistant Treasurer
-5-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each Caused this Sale and
Lease Agreement Second Amendment to be duly executed as of the day and year
first above written.
LESSOR
FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee
By_______________________________________
Name:
Title:
LESSEE
SOUTHWEST AIRLINES CO.
By /s/ Laura Wright
--------------------------------------
Laura H. Wright
Assistant Treasurer
-6-
<PAGE>
__________
The undersigned Jet Aircraft Holdings, Inc., formerly Cauff, Lippman &
Co., Inc., a Florida corporation, hereby confirms for the benefit of Lessee that
its Guaranty dated as of September 1, 1990 made to Lessee applies with respect
to the Lease as amended hereby.
JET AIRCRAFT HOLDINGS, INC.
By /s/ Wayne D. Lippman
-----------------------
Name: Wayne D. Lippman
Title: E.V.P
-7-
<PAGE>
================================================================================
AMENDMENT AND RESTATEMENT
Dated as of
August 25, 1995
OF
TRUST INDENTURE AND SECURITY AGREEMENT
(Southwest Airlines 1990 Trust II, III & IV)
Dated as of
December 30, 1991
BETWEEN
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
Owner Trustee
AND
MERIDIAN TRUST COMPANY,
Indenture Trustee
___________________________________
Three Boeing Model 737-2H4 Aircraft
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
RECITALS.................................................................. 2
GRANTING CLAUSE........................................................... 3
ARTICLE I
DEFINITIONS
SECTION 1.01. Special Definitions................................... 7
SECTION 1.02. Other Definitions..................................... 21
ARTICLE II
THE CERTIFICATES
SECTION 2.01. Form of Certificates.................................. 21
SECTION 2.02. Terms of Certificates................................. 30
SECTION 2.03. Taxes................................................. 31
SECTION 2.04. Payments from Indenture Estate and Collateral Only.... 33
SECTION 2.05. Method of Payment..................................... 34
SECTION 2.06. Application of Payments............................... 35
SECTION 2.07. Termination of Interest in Indenture Estate........... 35
SECTION 2.08. Registration, Transfer and Exchange of Certificates... 35
SECTION 2.09. Mutilated, Destroyed, Lost or Stolen Certificates..... 37
SECTION 2.10. Payment of Expenses on Transfer....................... 37
SECTION 2.11. Prepayment............................................ 38
SECTION 2.12. Provisions Relating to Prepayment..................... 38
SECTION 2.13. Purchase Option....................................... 39
SECTION 2.14. Yield Protection...................................... 42
SECTION 2.15. (Intentionally omitted.).............................. 44
SECTION 2.16. Certificates in Respect of Replacement Engines........ 44
SECTION 2.17. Terms of Subordination................................ 44
</TABLE>
(i)
<PAGE>
<TABLE>
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<S> <C>
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution and Application
of Amounts upon Rent Default.......................... 48
SECTION 3.02. Lease Termination, Event of Loss and
Replacement........................................... 50
SECTION 3.03. Payment After Indenture Event of
Default, etc.......................................... 51
SECTION 3.04. Certain Payments...................................... 54
SECTION 3.05. Other Payments........................................ 55
SECTION 3.06. Payments to Owner Trustee............................. 55
SECTION 3.07. Investment of Amounts Held by Indenture
Trustee............................................... 56
SECTION 3.08. Series A Holders...................................... 56
ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of The Bank and the Owner Trustee........... 57
SECTION 4.02. Indenture Event of Default............................ 58
SECTION 4.03. Certain Cure Rights................................... 61
SECTION 4.04. Remedies.............................................. 63
SECTION 4.05. Return of Aircraft, etc............................... 65
SECTION 4.06. Remedies Cumulative................................... 67
SECTION 4.07. Discontinuance of Proceedings......................... 67
SECTION 4.08. Waiver of Past Defaults............................... 68
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices............................................... 68
SECTION 5.02. Action Upon Instructions.............................. 70
SECTION 5.03. Indemnification....................................... 71
SECTION 5.04. No Duties Except as Specified in
Indenture or Instructions............................. 71
SECTION 5.05. No Action Except Under Leases,
Participation Agreements, Trust Indenture
or Instructions....................................... 72
SECTION 5.06. Replacement Engines................................... 72
SECTION 5.07. Indenture Supplements for Replacements................ 74
SECTION 5.08. Effect of Replacement................................. 74
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
SECTION 5.09. Certain Rights of Owner Trustee and
Owner Participant..................................... 74
ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01. Acceptance of Trusts and Duties....................... 76
SECTION 6.02. Absence of Duties..................................... 76
SECTION 6.03. No Representations or Warranties as to
Aircraft or Documents................................. 77
SECTION 6.04. No Segregation of Monies; No Interest................. 77
SECTION 6.05. Reliance; Agents; Advice of Counsel................... 78
SECTION 6.06. Capacity in Which Acting.............................. 79
SECTION 6.07. Compensation.......................................... 79
SECTION 6.08. May Become Certificate Holder......................... 79
SECTION 6.09. Further Assurances; Financing
Statements............................................ 79
ARTICLE VII
INDEMNIFICATION OF INDENTURE
TRUSTEE BY OWNER TRUSTEE
SECTION 7.01. Scope of Indemnification.............................. 80
ARTICLE VIII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 8.01. Notice of Successor Owner Trustee..................... 81
SECTION 8.02. Resignation of Indenture Trustee;
Appointment of Successor.............................. 81
SECTION 8.03. Appointment of Separate Trustees...................... 83
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO THIS
INDENTURE AND OTHER DOCUMENTS
SECTION 9.01. Instructions of Majority; Limitations................. 85
SECTION 9.02. Trustees Protected.................................... 87
SECTION 9.03. Documents Mailed to Holders........................... 87
SECTION 9.04. No Request Necessary for Lease
Supplement or Indenture Supplement.................... 87
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Termination of Indenture............................. 87
SECTION 10.02. No Legal Title to Indenture Estate in
Holders.............................................. 88
SECTION 10.03. Sale of Aircraft by Indenture Trustee
is Binding........................................... 88
SECTION 10.04. Indenture for Benefit of Owner Trustee,
Indenture Trustee, Owner Participant
and Certificate Holders.............................. 88
SECTION 10.05. No Action Contrary to Lessee's Rights
Under any Lease...................................... 89
SECTION 10.06. Notices.............................................. 89
SECTION 10.07. Severability......................................... 89
SECTION 10.08. No Oral Modifications or Continuing
Waivers.............................................. 90
SECTION 10.09. Successors and Assigns............................... 90
SECTION 10.10. Headings............................................. 90
SECTION 10.11. Governing Law; Counterpart Form...................... 90
SECTION 10.12. Collateral........................................... 90
</TABLE>
EXHIBIT A - Form of Indenture Supplement
EXHIBIT B - Form of Tax Certificate
EXHIBIT C - (Intentionally omitted.)
EXHIBIT D - (Intentionally omitted.)
EXHIBIT E - Swap Upside
ANNEX I - Series A Certificates Amortization Schedule
ANNEX II - Series B Certificates Amortization Schedule
(iv)
<PAGE>
AMENDMENT AND RESTATEMENT
OF
TRUST INDENTURE AND SECURITY AGREEMENT
AMENDMENT AND RESTATEMENT dated as of August 25, 1995 of TRUST
INDENTURE AND SECURITY AGREEMENT (Southwest Airlines 1990 Trust II, III & IV)
dated as of December 30, 1991 between FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, a national banking association, in its individual capacity only as
expressly stated herein (when acting in such individual capacity called "The
---
Bank", and otherwise solely as owner trustee under the Trust Agreement referred
- ----
to below (in such capacity, the "Owner Trustee")), and MERIDIAN TRUST COMPANY, a
-------------
Pennsylvania trust company (the "Indenture Trustee").
-----------------
WHEREAS, all capitalized terms used herein shall have the respective
meanings set forth or referred to in Article I hereof;
WHEREAS, the Owner Trustee and the Indenture Trustee have entered into
(a) a Trust Indenture and Security Agreement (Southwest Airlines 1990 Trust II,
III and IV) dated as of December 30, 1991, as supplemented by the Trust
Indenture Supplement No. 1 thereto dated as of December 31, 1991 (as so
supplemented, the "1991 Indenture") relating to three Boeing model 737-2H4
--------------
aircraft bearing U.S. registration numbers N55SW, N565W and N57SW and
manufacturer's serial numbers 21593, 21721 and 21722, respectively and six (6)
Pratt and Whitney JT8D-9A Engines bearing respective serial numbers P707374B,
P707334B, P674648B, P707371B, P687758B and P707364B, (b) a Special Participation
Agreement (Southwest Airlines 1990 Trust II, III & IV) dated as of December 30,
1991, among CL Aircraft XXXI, Inc., as Owner Participant and a Guarantor of the
Series B Certificates (the "Owner Participant"), CL Aircraft XXXI, Inc., CL
-----------------
Aircraft XXXII, Inc. and CL Aircraft XXXIII, Inc., as Initial Owner Participants
(collectively, the "Initial Owner Participants"), Cauff, Lippman & Company,
--------------------------
Inc., as a Guarantor of the Series B Certificates (together with the Owner
Participant, the "Guarantors of the Series B Certificates"), First Security Bank
---------------------------------------
of Utah, National Association, as Owner Trustee (in such capacity under the
Trust Agreements dated as of September 1, 1990 relating to the Southwest
Airlines 1990 Trusts II, III and IV, the "Existing Owner Trustee" and in such
----------------------
capacity under the Trust Agreement dated as of December 30, 1991 relating to the
Southwest Airlines 1990 Trust II, III & IV, the "Owner Trustee"), Meridian Trust
-------------
Company, as Indenture Trustee (the "Indenture Trustee"),
-----------------
TRUST INDENTURE
<PAGE>
2
The Chase Manhattan Bank, N.A., as Senior Lender (the "Senior Lender") and
-------------
Progress Credit Corporation, as Subordinated Lender and Initial Lender (the
"Initial Lender") (the Senior Lender and the Initial Lender collectively
--------------
referred to herein as the "Loan Participants") and (c) various other documents;
-----------------
WHEREAS, the 1991 Indenture provides, among other things (i) for the
issuance by the Owner Trustee to the Loan Participants of Certificates as
provided in the Special Participation Agreement and (ii) for the assignment,
mortgage and pledge by the Owner Trustee to the Indenture Trustee, as part of
the Indenture Estate thereunder, among other things, of certain of the Owner
Trustee's right, title and interest in and to the Aircraft and the Indenture
Documents and the payments and other amounts received thereunder or in respect
thereof in accordance with the terms hereof, as security for, among other
things, the Owner Trustee's and Lessee's obligations to the Loan Participants
and the Certificate Holders, and for the benefit and security of the Loan
Participants and the Certificate Holders;
WHEREAS, the Owner Trustee and Southwest Airlines Co. (the "Lessee")
------
have entered into three Leases, each relating to one of the three Aircraft, each
of which Leases has been supplemented by a Lease Supplement thereto assigned by
an Assumption Agreement and amended by a First Lease Amendment thereto;
WHEREAS, the Owner Trustee and Lessee have executed three Second Lease
Amendments providing, among other things, for the extension of the Base Lease
Term (as defined therein) and the recalculation of Basic Rent and Stipulated
Loss Value (each as defined therein);
WHEREAS, the Owner Trustee and the Indenture Trustee have agreed to
execute this Amendment and Restatement of Trust Indenture and Security Agreement
to provide, among other things, for the extension of the maturity of the Series
A Certificates and the Series B Certificates and to provide replacement Series A
Certificates to the Loan Participants designated as receiving same pursuant to
Section 1.1(a) (ii) of the Special Participation Agreement (or their nominees)
and replacement Series B Certificates to the Loan Participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees), each Certificate in the form set forth in Section
2.01 hereof;
TRUST INDENTURE
<PAGE>
3
WHEREAS, all things have been done to make the Certificates, when
executed by the Owner Trustee and authenticated, issued and delivered hereunder,
the valid obligations of the Owner Trustee; and
WHEREAS, all things necessary to make this Indenture the legal, valid
and binding obligation of the Owner Trustee, for the uses and purposes herein
set forth and in accordance with its terms, have been done and performed and
have happened;
The parties hereto agree as follows and that, effective as of the date
hereof, the 1991 Indenture shall be amended and restated to read in its entirety
as follows:
- - GRANTING CLAUSE - -
NOW, THEREFORE, THIS AMENDMENT AND RESTATEMENT OF TRUST INDENTURE AND
SECURITY AGREEMENT WITNESSETH, that, to secure (i) the prompt payment of the
principal of and Premium Amount (if any) and interest on, and all other amounts
due with respect to (a) the Series A Certificates and (b) the Series B
Certificates in each case from time to time outstanding hereunder, (ii) the
performance and observance by the Owner Trustee and the Owner Participant of all
the agreements, covenants and provisions for the benefit of the Loan
Participants and the Certificate Holders herein and in each Participation
Agreement, the Special Participation Agreement and the Certificates contained,
(iii) the prompt payment of any and all amounts from time to time owing
hereunder and under each Participation Agreement and the other Operative
Agreements by the Owner Trustee, the Owner Participant or the Lessee to the Loan
Participants and the Certificate Holders and (iv) the performance and observance
by the Guarantors of the Series B Certificates of all the agreements, covenants
and provisions for the benefit of the Loan Participants and the Certificate
Holders in each Participation Agreement, the Special Participation Agreement and
the Guarantee, and for the uses and purposes and subject to the terms and
provisions hereof, and in consideration of the premises and of the covenants
herein contained, and of the acceptance of the Certificates by the holders
thereof, and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee
at or before the delivery hereof, the receipt whereof is hereby acknowledged,
the Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain,
TRUST INDENTURE
<PAGE>
4
sell, assign, transfer, convey, mortgage, pledge and confirm, unto the Indenture
Trustee and its successors and assigns, for the security and benefit of the Loan
Participants and the Certificate Holders, as aforesaid, a first priority
security interest in and first mortgage lien upon, all estate, right, title and
interest of the Owner Trustee in, to and under the following described property,
rights and privileges, other than Excluded Payments (which collectively,
excluding Excluded Payments but including all property hereafter specifically
subjected to the Lien of this Indenture by an Indenture Supplement or any other
mortgage supplemental hereto, shall constitute the "Indenture Estate"), to wit:
----------------
1. each Aircraft (including each Airframe and the Engines) and (in
the case of the Engines) all replacements thereof and substitutions
therefor to which the Owner Trustee shall from time to time acquire title
as provided herein and in any related Lease, all as more particularly
described in the Indenture Supplement executed and delivered with respect
to such Aircraft or any such replacements or substitutions therefor, as
provided in this Indenture, and all records, logs and other documents at
any time maintained with respect to the foregoing property;
2. each Lease and all Rent under each thereof, including, without
limitation in respect of each Lease, all Basic Rent, Supplemental Rent,
insurance proceeds and requisition and other payments of any kind under
each thereof and including all rights of the Owner Trustee to execute any
election or option or to give any notice, consent, waiver, or approval
under or in respect of any Lease or to accept any surrender of any Aircraft
or any part thereof, as well as any rights, powers or remedies on the part
of the Owner Trustee, whether arising under any Lease or by statute or at
law or in equity, or otherwise, arising out of any Lease Event of Default;
3. the Participation Agreements, the Special Participation
Agreement, the Bills of Sale, the New Bills of Sale and all other Indenture
Documents (including, without limitation, all rights to amounts paid or
payable to the Owner Trustee thereunder and all rights to enforce such
payments);
TRUST INDENTURE
<PAGE>
5
4. all tolls, rents, issues, profits, revenues and other income of
the property subjected or required to be subjected to the Lien of this
Indenture, including all payments or proceeds in respect thereof after
termination of any Lease with respect to any Aircraft, any Airframe, any
Engine or any Part subject to such Lease, or otherwise, as the result of
the sale, lease or other disposition thereof, and all estate, right, title
and interest of every nature whatsoever of the Owner Trustee in and to the
same and every part thereof;
5. all insurance and requisition proceeds and all other payments of
any kind with respect to any Aircraft, including but not limited to the
insurance required under Section 11 of the Lease to which such Aircraft is
subject;
6. all monies and securities deposited or required to be deposited
with the Owner Trustee or the Indenture Trustee pursuant to any term of
this Indenture or any Lease or required to be held by the Indenture Trustee
hereunder; and
7. all proceeds of the foregoing.
The Owner Trustee is concurrently with the delivery hereof delivering to the
Indenture Trustee an executed chattel paper original counterpart of each Lease,
the Lease Supplement, the First Lease Amendment, Assumption Agreement and the
Second Lease Amendment in respect of each Aircraft, together with executed
copies of the Trust Agreement and each of the other Indenture Documents (other
than the FAA bills of sale). All property referred to in this Granting Clause,
whenever acquired by the Owner Trustee, shall secure all obligations under and
with respect to the Certificates at any time outstanding. Any and all
properties referred to in this Granting Clause which are hereafter acquired by
the Owner Trustee, shall, without further conveyance, assignment or act by the
Owner Trustee or the Indenture Trustee thereby become and be subject to the
security interest hereby granted as fully and completely as though specifically
described herein.
- - HABENDUM CLAUSE - -
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns,
TRUST INDENTURE
<PAGE>
6
in trust for the benefit and security of the Loan Participants and the
Certificate Holders, and for the uses and purposes and subject to the terms and
provisions set forth in this Indenture.
It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Owner Trustee shall remain liable under the Indenture
Documents to perform all of the obligations assumed by it thereunder, all in
accordance with and pursuant to the terms and provisions thereof, and the
Indenture Trustee and the Loan Participants and the Certificate Holders shall
have no obligation or liability under any thereof by reason of or arising out of
the assignment hereunder, nor shall the Loan Participants or the Certificate
Holders be required or obligated in any manner to perform or fulfill any
obligations of the Owner Trustee under or pursuant to any of the Indenture
Documents, except as therein or herein expressly provided, to make any payment,
or to make any inquiry as to the nature or sufficiency of any payment received
by it, or present or file any claim, or take any action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
The Owner Trustee does hereby constitute the Indenture Trustee the
true and lawful attorney of the Owner Trustee, irrevocably, with full power (in
the name of the Owner Trustee or otherwise) to ask, require, demand, receive,
compound and give acquaintance for any and all monies and claims for monies (in
each case including insurance and requisition proceeds) due and to become due
under or arising out of the Indenture Documents and all other property which now
or hereafter constitutes part of the Indenture Estate, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or to
take any action or to institute any proceedings which the Indenture Trustee may
deem to be necessary or advisable in the premises. Under each Lease the Lessee
is directed to make all payments of Rent (other than Excluded Payments) and all
other amounts which are required to be paid to or deposited with the Owner
Trustee pursuant to such Lease (other than Excluded Payments), directly to the
Indenture Trustee at such address or addresses as the Indenture Trustee shall
specify, for application as provided in this Indenture. The Owner Trustee
agrees that promptly on receipt thereof, it will transfer to the Indenture
Trustee any and all monies from time to time received by it constituting part of
the Indenture Estate, for distribution by the Indenture Trustee pursuant to this
Indenture.
TRUST INDENTURE
<PAGE>
7
The Owner Trustee does hereby warrant and represent that (except as
permitted herein) it has not assigned or pledged any of its right, title and
interest hereby assigned to anyone other than the Indenture Trustee other than
pursuant to the Prior Mortgages, which Mortgages have been released, discharged
and satisfied of record.
The Owner Trustee does hereby ratify and confirm the Indenture
Documents and does hereby agree that (except as permitted herein) it will not
take or omit to take any action, the taking or omission of which would result in
an alteration or impairment of any of the Indenture Documents or of any of the
rights created by any thereof or the assignment hereunder.
Notwithstanding the Granting Clause or any of the preceding
paragraphs, there are hereby expressly excluded from the foregoing grant,
bargain, sale, assignment, transfer, conveyance, mortgage, pledge and security
interest all Excluded Payments. Further, nothing in the Granting Clause or any
of the preceding paragraphs shall impair in any respect the rights of the Owner
Trustee or the Owner Participant under Section 5.09.
IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Special Definitions. For all purposes of this
-------------------
Indenture the following terms shall have the following meanings (such
definitions to be equally applicable to both the singular and plural forms of
the terms defined). Any agreement referred to below shall mean such agreement
as amended, supplemented and modified from time to time in accordance with the
applicable provisions thereof and of the other Operative Agreements. Unless
otherwise specified, Section, Article, Exhibit and Annex references are to
Sections, Articles, Exhibits and Annexes of this Indenture.
"Affiliate" of any Person shall mean any other Person directly or
---------
indirectly controlling, directly or indirectly controlled by, or under
direct or indirect common control with, such Person.
TRUST INDENTURE
<PAGE>
8
"Aircraft" means the Airframes together with the Engines as further
--------
defined in each Lease.
"Airframes" means each of the Boeing 737-2H4 Aircraft, serial numbers
---------
21593, 21721, and 21722 bearing respective U.S. Registration Numbers N5SSW,
NS6SW, and NS7SW as further defined in each Lease.
"Assumption Agreement" means each Assignment and Assumption Agreement
--------------------
delivered by the Owner Trustee and an Existing Owner Trustee, in substantially
the form of Exhibit I to the Special Participation Agreement.
"Base Rate" means, for any day, the higher of (a) the Federal Funds
---------
Rate for such day plus 1/2 of 1% per annum or (b) the Prime Rate for such day.
Each change in any interest rate provided for herein based upon the Base Rate
resulting from a change in the Base Rate shall take effect at the time of such
change in the Base Rate.
"Basic Rent" means, collectively, the "Basic Rent" as defined in each
----------
Lease.
"Bills of Sale" means, collectively, the "Manufacturer's FAA Bill of
-------------
Sale" and the "Manufacturer's Warranty Bill of Sale" as defined in each Lease.
"Break Funding Cost" means, for any Series A Certificate, the amount
------------------
equal to the sum of LIBOR Break Amount and Swap Break Amount for such Series A
Certificate.
"Calculation Agent" means The Chase Manhattan Bank (National
-----------------
Association), or its designee.
"Certificates" means, collectively, the Series A Certificates and the
------------
Series B Certificates.
"Certificate Holder" or "holder" means, at any time, any holder of one
------------------
or more Certificates. For all purposes of this Indenture, including, without
limitation, Section 2.17 and Article III, reference to a holder of a given
Series of Certificates shall mean such Person in such capacity and not in its
capacity as the holder of any other Series of Certificates on
TRUST INDENTURE
<PAGE>
9
"Certificate Register" has the meaning specified in Section 2.08.
-------------------
"Closing Date" means December 31, 1991.
-------------------------------------
"Collateral" means, in the case of the Series B Certificates, amounts
----------
paid or payable, and all rights and benefits under, and the collateral
under, the Guarantee.
"Corporate Trust Off ice" means the principal office of the Indenture
-----------------------
Trustee located at 35 North Sixth Street, Reading, Pennsylvania, 19601, or
such other office at which the Indenture Trustee's corporate trust business
shall be administered and which the Indenture Trustee shall have specified
by notice in writing to the Lessee, the Owner Trustee, the Owner
Participant and each Certificate Holder.
"Designated Maturity" means, as at any date of determination, the then
-------------------
remaining weighted average life of the Series A Certificates subject to
prepayment.
"Dollars" and "$" means lawful currency of the United States of
-------
America.
"Engines" means each of the six (6) Pratt & Whitney JT8D-9A Engines,
-------
serial numbers P707374B, P707334B, P674648B, P707371B, P687758B and
P707364B, as further defined in each Lease.
"Excluded Payments" means (i) subject to the provisions of Section
-----------------
4.03, indemnity payments and interest in respect thereof paid or payable by
the Lessee in respect of The Bank in its individual capacity or the Owner
Participant pursuant to Section 8.1 or 8.2 of any Participation Agreement,
(ii) proceeds of public liability insurance (or any similar payment from a
governmental authority) in respect of any Aircraft payable to, or as a
result of losses suffered by, The Bank in its individual capacity or the
Owner Participant, (iii) proceeds of insurance maintained with respect to
any Aircraft by or for the benefit of the Owner Participant (whether
directly or through the Owner Trustee) in excess of that required to be
maintained by the Lessee under Section 11 of any Lease, provided that no
--------
such insurance impairs or reduces coverage under any insurance required to
be maintained by the Lessee under any said Section 11,
TRUST INDENTURE
<PAGE>
10
(iv) payments of Supplemental Rent by the Lessee in respect of any amounts
payable under the Tax Indemnification Agreement, (V) Transaction Costs paid
or payable to The Bank in its individual capacity or the Owner Participant
pursuant to Section 12.2 of any Participation Agreement and (vi) any right
to enforce the payment of any amount described in clauses (i) through (v)
above and the proceeds thereof.
"Existing Owner Trustees" means the "Existing Owner Trustees" party to
-----------------------
the Special Participation Agreement.
"Federal Funds Rate" means for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that (i) if the day for which such
rate is to be determined is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (ii)
if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Calculation Agent on such
day on such transactions as determined by the Calculation Agent.
"First Lease Amendment" means each of the Sale and Lease Agreement
---------------------
Amendments as further defined in the definition of Lease and as defined in
the Special Participation Agreement.
"Guarantee" means the Guarantee 555W, S6SW and 57SW dated as of
---------
December 30, 1991 by the Guarantors of the Series B Certificates in favor
of the holders of the Series B Certificates, as the same may be modified,
supplemented, amended and in effect from time to time.
"Guarantors of the Series B Certificates" means Cauff, Lippman &
---------------------------------------
Company, Inc., a Florida corporation and the Owner Participant.
"Guarantee Beneficiary" has the meaning specified in the Guarantee.
---------------------
TRUST INDENTURE
<PAGE>
11
"Indenture", "this Indenture", and "the Trust Indenture" mean this
--------- -------------- -------------------
Amendment and Restatement of Trust Indenture and Security Agreement,
including any Indenture Supplement and each other supplement from time to
time entered into pursuant hereto.
"Indenture Default" means an Indenture Event of Default or an event
-----------------
which with notice or lapse of time or both would became an Indenture Event
of Default.
"Indenture Documents" means each Participation Agreement, the Special
-------------------
Participation Agreement, each Lease (including Lease Supplements) each
Assumption Agreement, the Bills of Sale aid the New Bills of Sale.
"Indenture Estate" means the "Indenture Estate" as defined in the
----------------
Granting Clause hereof.
"Indenture Event of Default" has the meaning specified in Section
--------------------------
4.02.
"Indenture Supplement" means a supplement to this Indenture
--------------------
substantially in the form of Exhibit A. which shall particularly describe
each Airframe and Engines, or any Replacement Engine, included in the
property of the Owner Trustee covered by this Indenture.
"Initial Lender" means Progress Credit Corporation, a Florida
--------------
corporation.
"Initial Owner Participants" means the "Initial Owner Participants"
--------------------------
party to the Special Participation Agreement.
"Interest Payment Date" means, during the period from and including
---------------------
the Closing Date to and including December 31, 1995, March 31, June 30,
September 30 and December 31 of each year, the first of which shall be
December 31, 1991; and thereafter, the thirtieth day of each calendar
month, or if there is no thirtieth day, the last day of the month.
"Interest Rate" means, during the period from and including the
-------------
Closing Date to and including December 31, 1995, 7.57% and thereafter,
7.94% per annum.
TRUST INDENTURE
<PAGE>
12
"Lease" means any of (i) the Sale and Lease Agreement (Southwest
-----
Airlines 1990 Trust II) dated as of September 1, 1990 between the Lessee
and the Existing Owner Trustee, including Lease Supplement No. 1 thereto
recorded with the FAA on September 28, 1990, as conveyance number KK13034,
the Assumption Agreement, dated December 30, 1991 between the Existing
Owner Trustee and the Owner Trustee, recorded by the FAA on January 3, 1992
as conveyance number H77982, the First Lease Amendment in respect thereof
recorded with the FAA on January 3, 1992 as conveyance number H77984, the
Second Lease Amendment in respect thereof and each other supplement or
amendment heretofore or hereafter entered into pursuant to the terms of
such Lease, (ii) the Sale and Lease Agreement (Southwest Airlines 1990
Trust III) dated as of September 1, 1990 between the Lessee and the Owner
Trustee, including Lease Supplement No. 1 thereto recorded with the FAA on
September 28, 1990, as conveyance number K91061, the Assumption Agreement ,
dated December 30, 1991, between the Existing Owner Trustee and the Owner
Trustee, recorded by the FAA on January 2, 1992, as conveyance number
H77978, the First Lease Amendment in respect thereof recorded with the FAA
on January 2, 1992 as conveyance number H77980, the Second Lease Amendment
in respect thereof and each other supplement or amendment heretofore or
hereafter entered into pursuant to the terms of such Lease, and (iii) the
Sale and Lease Agreement (Southwest Airlines 1990 Trust IV) dated as of
September 1, 1990 between the Lessee and the Owner Trustee, including Lease
Supplement No. 1 thereto recorded with the FAA on September 28, 1990, as
conveyance number H72737, the Assumption Agreement, dated December 30,
1991, between the Existing Owner Trustee and the Owner Trustee, recorded by
the FAA on January 3, 1992, as conveyance number H77986, the First Lease
Amendment in respect thereof recorded with the FAA on January 3, 1992 as
conveyance number H77988, the Second Lease Amendment in respect thereof and
each other supplement or amendment heretofore or hereafter entered into
pursuant to the terms of such Lease.
TRUST INDENTURE
<PAGE>
13
"Lease Default" means a Lease Event of Default or an event which with
-------------
notice or lapse of time or both would become a Lease Event of Default.
"Lease Event of Default" means any of the events specified in Section
----------------------
14 of any Lease.
"Lease Supplements" means, collectively the "Lease Supplement" as
-----------------
defined in each Lease.
"Lending Office" means, for any holder of a Series A Certificate, the
--------------
office from which it maintains the loan evidenced by its Series A
Certificates.
"Lessee" means Southwest Airlines Co., a Texas corporation, or any
------
successor or assignee thereof as permitted by Section 7.4 of any
Participation Agreement.
"LIBOR" means the London Interbank Offered Rate.
-----
"LIBOR Break Amount" means, for any Series A Certificate as at any
------------------
date of prepayment, purchase or acceleration of such Series A Certificate,
an amount equal to the excess, if any, of (i) the amount of interest which
otherwise would have accrued on the principal amount prepaid, purchased or
accelerated for the period from the date of such prepayment, purchase or
acceleration to the next subsequent Interest Payment Date at the applicable
"Floating Rate" (i.e., LIBOR-based rate) of interest in effect on such date
----
(exclusive of any spread) under the Swap Transaction over (ii) the interest
component of the amount the holder of such Series A Certificate would have
bid in the London interbank market for Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable
to such period.
"Loan Participants" means the Loan Participants party to the Special
-----------------
Participation Agreement, and their respective successors and assigns.
"Majority A Holders" means, as of any date of determination thereof,
------------------
the holders of not less than a majority in aggregate outstanding principal
amount of all Series A Certificates.
TRUST INDENTURE
<PAGE>
14
"Majority B Holders" means, as of any date of determination thereof,
------------------
the holders of not less than a majority in aggregate outstanding principal
amount of all Series B Certificates.
"Majority in Interest of Certificate Holders" means, as of any date of
-------------------------------------------
the determination thereof, the Majority A Holders and the Majority B
Holders; provided, however, that (i) such term shall mean the Majority A
-------- -------
Holders if an Indenture Event of Default shall have occurred and be
continuing (unless all principal, interest, Premium Amount and all other
amounts due on the Series A Certificates and to the holders thereof under
the Operative Agreements shall have been theretofore paid in full) and
(ii) such term shall mean the Majority B Holders in the case of any
direction, demand, notice or other action in respect of the Collateral for
the benefit of the holders of the Series B Certificates. For all purposes
of the foregoing definition and the definition of "Majority A Holders" and
"Majority B Holders", in determining as of any date the then aggregate
outstanding principal amount of Certificates of any Series, there shall be
excluded any Certificates, if any, held by the Owner Trustee, the Owner
Participant, the Guarantors of the Series B Certificates or the Lessee or
any Affiliate of any thereof (unless the Owner Trustee, the Owner
Participant, the Guarantors of the Series B Certificates, the Lessee or
their respective Affiliates, as the case may be, own all Certificates then
outstanding), or any interest of the Owner Trustee or the Owner
Participant in any Certificate or any interest of the holder of a Series B
Certificate in a Series A Certificate, in either case, by reason of
subrogation pursuant to Section 4.03 or otherwise.
"Make-Whole Amount" means, with respect to any Series A Certificate,
-----------------
an amount equal to the excess, if any, of (i) the present value, as of the
date of the relevant prepayment, purchase or acceleration of Series A
Certificates, of the respective installments of principal of and interest
on such Series A Certificate that, but for such prepayment, purchase or
acceleration, would have been payable on Payment Dates or Interest Payment
Dates, as the case may be, after such prepayment, purchase or acceleration
(assuming for this purpose no changes in the Interest Rate for the Series A
Certificates from that in effect with respect to the relevant prepayment,
purchase or acceleration), over (ii) the
TRUST INDENTURE
<PAGE>
15
principal amount of such Series A Certificate then being prepaid. Such
present value shall be determined by discounting the amounts of such
installments from their respective Payment Dates or Interest Payment Dates,
as the case may be, to the date of such prepayment at a rate equal to the
Treasury Rate plus 1/2 of 1% (such discounting to be calculated on the
basis of a 360-day year of twelve 30-day months).
"New Bills of Sale" has the meaning assigned to such term in section
-----------------
1.1(a) (i) of the Special Participation Agreement.
"1991 Indenture" means the Trust Indenture and Security Agreement
--------------
(Southwest Airlines 1990 Trust II, III and IV) dated as of December 30,
1991 between the Owner Trustee and the Indenture Trustee, as supplemented
by the Indenture Supplement No. 1 thereto dated December 31, 1991, recorded
by the FAA as one instrument on January 3, 1992, as conveyance number
H77989.
"Non-U.S. Person" means any Person other than (i) a citizen or
---------------
resident of the United States of America, its territories and possessions
(including the Commonwealth of Puerto Rico and all other areas subject to
its jurisdiction) (for purposes of this definition, the "United States"),
(ii) a corporation, partnership or other entity created or organized under
the laws of the United States or any political subdivision thereof or
therein or (iii) an estate or trust that is subject to United States
federal income taxation regardless of the source of its income.
"Operative Agreements" means the Indenture Documents, the Trust
--------------------
Agreement, this Indenture, the Loan Certificates and the Guarantee.
"Owner Participant" means CL Aircraft XXXI, Inc., a Florida
-----------------
corporation, and transferees thereof as and to the extent permitted by
Section 10.1 of each Participation Agreement and Section 8.01 of the Trust
Agreement.
"Participation Agreement" means any of (i) the Participation Agreement
-----------------------
(Southwest Airlines 1990 Trust II) dated as of September 1, 1990 among the
Lessee, Cauff, Lippman & Company, Inc., the Owner Participant (as assignee
of the
TRUST INDENTURE
<PAGE>
16
original Owner Participant party thereto), the Initial Lender and the Owner
Trustee (as assignee of the original Owner Trustee party thereto), (ii) the
Participation Agreement (Southwest Airlines 1990 Trust III) dated as of
September 1, 1990 among the Lessee, Cauff, Lippman & Company, Inc., the
Owner Participant (as assignee of the original Owner Participant party
thereto), the Initial Lender and the Owner Trustee (as assignee of the
original Owner Trustee party thereto), and (iii) the Participation
Agreement (Southwest Airlines 1990 Trust IV) dated as of September 1, 1990
among the Lessee, Cauff, Lippman & Company, Inc., the Owner Participant (as
assignee of the original Owner Participant party thereto), the Initial
Lender and the Owner Trustee (as assignee of the original Owner Trustee
party thereto), as any of the same may be modified, supplemented, amended
and in effect from time to time.
"Parts" means, in respect of any Aircraft, Airframe or Engine, the
-----
"Parts" as defined in the Lease to which such Aircraft, Airframe or Engine
is subject.
"Past Due Rate" means, with respect to the principal of or interest or
-------------
Premium Amount, if any, on any Certificate not paid in full when due
(whether at stated maturity, by acceleration or otherwise), or with respect
to any other amount payable to the holder thereof thereon or under this
Indenture not so paid in full when due, a rate of interest per annum equal
to 2% above the higher of (x) the Interest Rate or (y) the Base Rate (in
either case computed on the basis of a year of 360 days and actual days
elapsed).
"Payment Date" means, (i) with respect to Series A Certificates, each
------------
Interest Payment Date listed under the Schedule of Principal Payments for
such Series of Certificates set forth in Section 2.02(b) (1) and (ii) with
respect to Series B Certificates, each Interest Payment Date on which
principal thereon is scheduled for payment pursuant to Section 2.02(b) (2).
"Permitted Investments" means those investments described in Section
---------------------
22.1 of any Lease.
"Premium Amount" means, with respect to each Series A Certificate, to
--------------
the fullest extent permitted by law, an amount equal to the sum of (i) (a)
if the holder thereof is
TRUST INDENTURE
<PAGE>
17
a bank, a bank operating subsidiary or otherwise a floating rate lender,
the Break Funding Cost in respect of such Certificate or (b) if the holder
thereof is not a bank, a bank operating subsidiary or otherwise a floating
rate lender, the Make-Whole Amount in respect of such Certificate plus (ii)
----
so long as such amount is not payable in connection with an Indenture Event
of Default that is a Lease Event of Default, as of any date of the
determination thereof, the Special Premium.
"Prime Rate" means the rate of interest from time to time announced by
----------
the Calculation Agent at its principal office as its prime commercial
lending rate.
"Prior Mortgages" means any of (i) the Security Agreement and
---------------
Assignment of Leases N555W dated as of September 1, 1990 between the
Existing Owner Trustee party thereto and the Initial Lender, which was
previously released by the General Release of Mortgage, dated December 31,
1991, executed by the Initial Lender recorded by the FAA on January 3,
1992, as conveyance number H77983, (ii) the Security Agreement and
Assignment of Leases N565W dated as of September 1, 1990 between the
Existing Owner Trustee party thereto and the Initial Lender, which was
previously released by the General Release of Mortgage, dated December 31,
1991, executed by the Initial Lender recorded by the FAA on January 2,
1992, as conveyance number H77979 and (iii) the Security Agreement and
Assignment of Leases NS7SW dated as of September 1, 1990 between the
Existing Owner Trustee party thereto which was previously released by the
General Release of Mortgage, dated December 31, 1991, executed by the
Initial Lender, recorded by the FAA on January 3, 1992, as conveyance
number H77988.
"Regulatory Change" shall mean, with respect to any holder of a Series
-----------------
A Certificate, any change after the date of this Indenture in United States
Federal, state or foreign law or regulations, or the adoption or making
after such date of any interpretation, directive or request applying to a
class of banks including such Certificate Holder of or under any United
States Federal, state or foreign law or regulations (whether or not having
the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
TRUST INDENTURE
<PAGE>
18
"Rent" means, collectively, the "Rent" as defined in each Lease.
----
"Replacement Engine" means any engine substituted for an Engine
------------------
pursuant to Section 5.06.
"Second Lease Amendment" means any of (i) the Sale and Lease Agreement
----------------------
Second Amendment (Southwest Airlines 1990 Trust II) dated as of August 25,
1995 between the Lessee and the Owner Trustee, (ii) the Sale and Lease
Agreement Second Amendment (Southwest Airlines 1990 Trust III) dated as of
August 25, 1995 between the Lessee and the Owner Trustee and (iii) the Sale
and Lease Agreement Second Amendment (Southwest Airlines 1990 Trust IV)
dated as of August 25, 1995 between the Lessee and the Owner Trustee each
of which are being filed simultaneously herewith.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Series" means one or more of the series of Certificates issued
------
pursuant to Article II of this Indenture.
"Series A Certificates" means the "Series A Loan Certificates" issued
---------------------
pursuant to Section 2.02(a) and any such certificates issued in exchange or
replacement therefor pursuant to Section 2.08 or 2.09.
"Series B Certificates" means the "Series B Loan Certificates" issued
---------------------
pursuant to Section 2.02(a) and any such certificates issued in exchange or
replacement therefor pursuant to Section 2.08 or 2.09.
"Special Participation Agreement" means the Special Participation
-------------------------------
Agreement (Southwest Airlines 1990 Trust II, III& IV) dated as of December
30, 1991 between the Owner Trustee, the Existing Owner Trustees, the
Indenture Trustee, the Loan Participants, the Initial Lender, the Owner
Participant, the Initial Owner Participants and the Guarantors of the
Series B Certificates.
"Special Premium" means a premium equal to (x) on or prior to December
---------------
31, 1992, 2%, (y) thereafter through (and including) December 31, 1994, 1%
and (z) thereafter, 0%, of
TRUST INDENTURE
<PAGE>
19
the principal amount of such Certificate subject to prepayment.
"Supplemental Rent" means, collectively "Supplemental Rent" as defined
-----------------
in each Lease.
"Swap Break Amount" means, as of any date of determination thereof,
-----------------
and for any Series A Certificate, the lesser of:
(a) the amount the Swap Counterparty will require in accordance with
market practice to have paid to it on such date by the holder of such
Series A Certificate to terminate the Swap Transaction of such holder on
such date; or
(b) the amount a Reference Market-maker (as defined in the Swap Form
with the "party" referred to in such definition being the Swap
Counterparty) designated by the Owner Trustee and reasonably acceptable to
the Swap Counterparty will quote to such holder and the Owner Trustee as
the amount it will require to be paid to it on such date by such holder to
assume the obligations of such holder under the Swap Transaction;
provided that if the Swap Counterparty and the Reference Market-maker quote
--------
the identical amount, or if the Reference Market-maker fails to quote or,
having quoted, fails or refuses to assume the aforesaid obligations of such
holder in accordance with its "quote" or the Swap Counterparty refuses
(acting in accordance with the Swap Form) to accept performance by such
Reference Market-maker, the amount computed in accordance with clause (a)
above shall be the "Swap Break Amount".
"Swap Counterparty" means Chase Securities, Inc., in the case of the
-----------------
swap referenced in clause (i) of "Swap Transaction" below and (ii) The
Chase Manhattan Bank (National Association) in the case of the swap
referenced in clause (ii) of that definition.
"Swap Transaction" means (i) the interest rate exchange transaction
----------------
entered into by the Senior Lender and the Swap Counterparty, which
transaction is governed by the Interest Rate and Currency Exchange
Agreement published in 1987 by, and incorporating by reference therein the
definitions and
TRUST INDENTURE
<PAGE>
20
provisions contained in, the 1991 ISDA Definitions of the International
Swap Dealers Association, Inc. (the "Swap Form") and the terms of the
---------
confirmation of which provide for the exchange of three month LIBOR plus a
Spread for the Interest Rate in respect of a notional amount equal to the
scheduled aggregate principal amount of the Series A Certificates
outstanding from time to time, as said swap transaction may be assigned in
whole or in part; and (ii) in addition, at all times after December 29,
1995, a swap that may exist or, if it does not Exist shall be deemed to
exist between the Senior Lender and Swap Counterparty, which transaction is
governed by the Interest Rate and Currency Exchange Agreement published in
1992 by, and incorporating by reference therein the definitions and
provisions contained in, the 1991 ISDA Definitions of the International
Swap Dealers Association, Inc. (the "New Swap Form") and the terms of the
--------------
confirmation of which provide for the exchange of one month LIBOR plus a
Spread for the Interest Rate in respect of a notional amount of the Series
A Certificates outstanding from time to time, as said swap transaction may
be assigned in whole or in part.
"The Bank" means First Security Bank of Utah, National Association, a
--------
national banking association, in its individual capacity and any successor
financial institution (in its individual capacity) acting as Owner Trustee
hereunder and under the Trust Agreement.
"Treasury Rate" means for any Designated Maturity, the yield to
-------------
maturity of, and resulting from the bidding for, the most recently
auctioned United States Treasury Notes with maturities equal to such
Designated Maturity, and if United States Treasury Notes with such a
maturity are not then auctioned and publicly traded, the weighted average
yield to maturity of United States Treasury Notes with maturities next
above and below such Designated Maturity (calculated as provided below);
such yields in each case to be determined by the Calculation Agent by
averaging (and rounding upward to the nearest whole multiple of 1/100 of 1%
per annum, if the average is not such a multiple), the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the
nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward)
as quoted by two reputable dealers in United States Treasury Notes selected
by the Calculation Agent at approximately 11:00 A.M., New York time, on the
date any Premium Amount shall be
TRUST INDENTURE
<PAGE>
21
payable and notified to the Indenture Trustee, the Owner Trustee and the
holders of the affected Series of Certificates; any weighted average yield
of Treasury Notes with two maturities is to be calculated by the
Calculation Agent in accordance with the following formula:
WAY - Y1 + (Y2 - Y1) (DM - X1)
-------------------
(X2 - X1)
Where:
WAY - Weighted Average Yield
DM - relevant Designated Maturity
Xl - whole integer in years closest to and less than DM which equals the
maturity of a United States Treasury Note then publicly traded.
X2 - whole integer in years closest to and greater than DM which equals
the maturity of a United States Treasury Note then publicly traded.
Y1 - yield, determined as provided above, of United States
Treasury Notes then most recently auctioned with maturities equal to
X1.
Y2 - yield, determined as provided above, of United States Treasury Notes
then moat recently auctioned with maturities equal to X2.
SECTION 1.02. Other Definitions. For all purposes of this
-----------------
Indenture, terms defined in the heading and recitals of this Indenture are used
as so defined and capitalized terms used but not defined in this Indenture are
used as defined in the Leases.
ARTICLE II
THE CERTIFICATES
SECTION 2.01. Form of Certificates. The Certificates and the
--------------------
Indenture Trustee's form of certificate of authentication to appear on the
Certificates shall each be substantially in the form set forth below, as
follows:
TRUST INDENTURE
<PAGE>
22
______________________
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
not in its individual capacity, except am otherwise expressly
provided in the Operative Agreements, but solely as Owner Trustee
under Trust Agreement .
(Southwest Airlines 1990 Trust II, III & IV)
dated as of December 30, 1991
SERIES * LOAN
CERTIFICATE DUE 1992-1999
ISSUED IN CONNECTION WITH THREE BOEING MODEL 737-2H4
AIRCRAFT WITH MANUFACTURER'S SERIAL NUMBERS 21593, 21721 AND
21722 AND INITIALLY BEARING UNITED STATES FEDERAL AVIATION
ADMINISTRATION REGISTRATION NOS. N55SW, N56SW AND N57SW AND
SIX PRATT & WHITNEY JT8D-9A ENGINES
No. R- * -
New York, New York
$ December 31, 1991
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not
in its individual capacity, except as otherwise expressly provided in the
Operative Agreements, but solely as Owner Trustee (herein in such capacity
called the "Owner Trustee") under that certain Trust Agreement (Southwest
-------------
Airlines 1990 Trust II, III & IV) dated as of December 30, 1991, between the
Owner Participant named therein and First Security Bank of Utah, National
Association (herein as such Trust Agreement may be amended or supplemented from
time to time called the "Trust Agreement"), hereby promises to pay to
---------------
___________________________________, or registered transferees, the principal
sum of __________________________________________________ Dollars, in
sixty-four (64) installments, one such installment to be due and payable on each
Payment Date specified, and each such installment to be in an amount equal to
the amount set forth, in Annex A hereto, together with interest on the unpaid
principal amount hereof from time to time outstanding from and including the
date hereof until such principal amount is paid in full. Interest shall accrue
at the Interest Rate and shall be payable
______________________
* Insert Series Letter
TRUST INDENTURE
<PAGE>
23
in arrears on each Interest Payment Date and on the date this Certificate is
paid in full. The Certificate shall bear interest at the applicable Past Due
Rate on any principal hereof, interest and other amounts due hereunder not paid
when due (whether at stated maturity, by acceleration or otherwise) for any
period during which the same shall be overdue, payable on demand by the holder
hereof given through the Indenture Trustee.
Interest shall be calculated on the basis of a year of 360 days and
actual days elapsed. If any sum payable hereunder falls due on a day which is
not a Business Day, then such sum shall be payable on the next succeeding
Business Day. without (so long as payment is made on such succeeding Business
Day) additional interest as a result of such extension.
All payments of principal [, Premium Amount]' and interest and other
amounts to be made to the holder hereof or under the Amendment and Restatement
dated as of August 25, 1995 of Trust Indenture and Security Agreement (Southwest
Airlines 1990 Trust II, III & IV) dated as of December 30, 1991 (as amended or
supplemented from time to time, herein called the "Indenture" the terms defined
---------
therein and not otherwise defined herein being used herein with the same
meanings) between the Owner Trustee and Meridian Trust company, as Indenture
Trustee thereunder, shall be made only from the income and proceeds from the
Indenture Estate and the Collateral and (except in the case of the Collateral)
only to the extent that the Owner Trustee shall have sufficient income or
proceeds from the Indenture Estate to enable the Indenture Trustee to make such
payments in accordance with the terms of the Indenture. Each holder hereof, by
its acceptance of this Certificate, agrees that it will look solely to the
income and proceeds from the Indenture Estate and the collateral to the extent
available for distribution to the holder hereof as above provided and that none
of the Owner Participant, The Bank or the Indenture Trustee is personally liable
to the holder hereof for any amounts payable or any liability under this
Certificate or under the Indenture, except as expressly provided in the
Indenture (in the case of The Bank and the Indenture Trustee) or as expressly
provided in any Participation Agreement and the Special Participation Agreement
(in the case of The Bank, the Indenture Trustee and the Owner Participant)*
____________________
* Insert only in Series A Certificates
TRUST INDENTURE
<PAGE>
24
[If the Owner Trustee elects or is required to prepay this Certificate
under any provision of the Indenture or any Person entitled thereto elects to
purchase this Certificate under Section 2.13 of the Indenture and such
prepayment or purchase or payment, as the case may be, is not consummated on the
date originally scheduled therefor, or if any payment of principal of or
interest on this Certificate is made on a date other than the date scheduled
therefor, the Owner Trustee or other such Person, as the case may be, shall, no
later than three Business Days after its receipt of demand by the holder hereof
(accompanied by a certificate of the type specified in the next succeeding
sentence) , given through the Indenture Trustee with a copy to the Lessee, pay
to the Indenture Trustee for the account of the holder hereof any amounts
required to compensate the holder hereof for any losses, costs or expenses which
it may incur as a result of the failure of such prepayment or purchase or
payment, as the case may be, to occur as scheduled. In connection therewith,
the holder hereof shall furnish to the Owner Trustee or other such Person, as
the case may be, a certificate setting forth, in reasonable detail, the
calculation of the amount of such losses, costs and expenses, which certificate
shall be conclusive absent manifest error.]*
Principal and interest and other amounts due hereon shall be payable
in Dollars in immediately available funds prior to Noon, New York time, on the
due date thereof, to the Indenture Trustee at the Corporate Trust Office and the
Indenture Trustee shall, subject to the terms and conditions of the Indenture,
remit all such amounts so received by it to the holder hereof at such account or
accounts at such financial institution or institutions as the holder hereof
shall have designated to the Indenture Trustee in writing, in immediately
available funds, such payment to be made prior to 2:00 P.M., New York time, on
the due date thereof. If such amounts are received after Noon, New York time on
the due date thereof, such amounts shall be deemed received on the next
following Business Day, and the Indenture Trustee shall make payment thereof
promptly, but not later than 11:00 A.M., New York time the next following
Business Day. In the event the Indenture Trustee shall fail to make any such
payment as provided in the two preceding sentences after its receipt of funds at
the place and prior to the time specified
____________________
* Include only in Series A Certificates.
TRUST INDENTURE
<PAGE>
25
above, the Indenture Trustee, in its individual capacity and not as trustee,
agrees to compensate the holder hereof for loss of use of funds in a
commercially reasonable manner if it shall have failed to use ordinary care in
the disbursing of such funds. All such payments by the Owner Trustee and the
Indenture Trustee shall be made free and clear of and without reduction for or
on account of any wire or other like charge.
Each holder hereof, by its acceptance of this Certificate, agrees
that, except as otherwise expressly provided in the Indenture, each payment
received by it in respect hereof shall be applied, first, to the payment of any
-----
amount (other than the principal of (or Premium Amount] or interest on this
Certificate) due in respect of this Certificate, second, to the payment of
------
(Premium Amount, if any, and]" interest hereon (as well as any interest on
overdue principal and, to the extent permitted by law, interest and other
amounts payable hereunder) due and payable hereunder, third, to the payment of
-----
the principal of this Certificate then due and fourth, the balance, if any,
------
remaining thereafter, to the payment of the principal of this Certificate
remaining unpaid, in the manner set forth in the last sentence of Section 2.06
of the Indenture.
This Certificate is one of the Certificates referred to in the
Indenture which have been or are to be issued by the Owner Trustee pursuant to
the terms of the Indenture. The Indenture Estate is held by the Indenture
Trustee as security, in part, for the Certificates. The beneficial interest of
the Owner Participant in and to the properties of the Owner Trustee pledged or
mortgaged as part of the Indenture Estate is subject and subordinate to the lien
and security interest granted to the Indenture Trustee to the extent provided in
the Indenture. Reference is hereby made to the Indenture and the Special
Participation Agreement referred to therein for a statement of the rights and
obligations of the holder hereof, and the nature and extent of the security for
this Certificate and of the rights and obligations of the other Certificate
Holders, and the nature and extent of the security for the other Certificates,
as well as for a statement of the terms and conditions of the trusts created by
the Indenture, to all of which terms and conditions in the Indenture and the
Special Participation Agreement each holder hereof agrees by its acceptance of
this Certificate.
____________________
* Include only in Series A Certificate.
TRUST INDENTURE
<PAGE>
26
[WITHOUT LIMITING THE GENERALITY OF THE FOREGOING. THE HOLDER HEREOF
EXPRESSLY UNDERSTANDS AND AGREES THAT THIS CERTIFICATE IS SUBORDINATE AND JUNIOR
IN RIGHT OF PAYMENT TO THE SERIES A CERTIFICATES AND CERTAIN OTHER SUMS OWING TO
THE HOLDERS THEREOF TO THE EXTENT AND IN THE MANNER SET FORTH IN THE INDENTURE
.]*
There shall be maintained a Certificate Register for the purpose of
registering transfers and exchanges of Certificates at the Corporate Trust
Office of the Indenture Trustee or at the office of any successor indenture
trustee in the manner provided in Section 2.08 of the Indenture. As provided in
the Indenture, this Certificate or any interest herein may, subject to the next
following paragraph, be assigned or transferred, and the Certificates are
exchangeable for a like aggregate original principal amount of Certificates of
the same Series of any authorized denomination, as requested by the Certificate
Holder surrendering the same.
Prior to the due presentment for registration of transfer of this
Certificate, the Owner Trustee and the Indenture Trustee may deem and treat the
person in whose name this Certificate is registered on the Certificate Register
as the absolute owner of this Certificate and the Certificate Holder for the
purpose of receiving payment of all amounts payable with respect to this
Certificate and for all other purposes whether or not this Certificate is
overdue, and neither the Owner Trustee nor the Indenture Trustee shall be
affected by notice to the contrary.
This Certificate is subject to prepayment only as permitted by
Sections 2.11 and 2.12 of the Indenture and to purchase without consent of the
holder hereof only as provided in Section 2.13 of the Indenture, and the holder
hereof, by its acceptance of this Certificate, agrees to be bound by said
provisions.
This Certificate shall not be secured by or be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose, unless
authenticated by the Indenture Trustee as evidenced by the manual signature of
one of its authorized signatories on the certificate below.
____________________
* Include only in Series B Certificates.
TRUST INDENTURE
<PAGE>
27
This Certificate shall be governed by and construed in accordance with
the law of the State of New York.
TRUST INDENTURE
<PAGE>
28
IN WITNESS WHEREOF, the Owner Trustee has caused this Certificate to
be executed in its corporate name by its officer thereunto duly authorized, as
of the date hereof.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION ,
not in its individual capacity,
but solely as Owner Trustee
By _______________________________
Title:
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Certificates referred to in the within-mentioned
Indenture.
MERIDIAN TRUST COMPANY,
not in its individual
capacity, but solely
as Indenture Trustee
By _______________________________
Authorized Signatory
TRUST INDENTURE
<PAGE>
29
Annex A to Series __ Certificate*
SCHEDULE OF PRINCIPAL PAYMENTS
Payment Date Principal
(Interest Payment Amount to
Date closest to) be Paid**
---------------- ---------
__________________________
* Insert Series Letter.
** The amounts in this column for a Certificate of any Series shall be equal,
for any Payment Date, to the product of (a) the "Principal Amount to be
Paid" for such Payment Date as set forth in Annex I or Annex II, as the
case may be, and (b) a fraction, the numerator of which is the original
principal amount of such Certificate and the denominator of which is
aggregate original principal amount of such Series of Certificates.
TRUST INDENTURE
<PAGE>
30
SECTION 2.02. Terms of Certificates. (a) On the Closing Date the
---------------------
Owner Trustee shall issue loan certificates in two series in an aggregate
original principal amount of $31,692,164.38: one series shall be designated
"Series A Loan Certificates", shall be in an aggregate original principal amount
of $19,683,472.13 and shall be issued to the Loan Participants designated as
receiving same pursuant to section 1.1 (a) (ii) of the special participation
agreement (or their nominees) in such amounts as shall be set forth in said
section 1.1 (a) (ii); and a second series shall be designated "series b loan
certificates", shall be in an aggregate original principal amount of
$12,008,692.25 and shall be issued to the Loan Participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees) in such amounts as shall be set forth in said
Section 1.1(a) (ii).
(b) The principal of the Certificates shall be due and payable on
each Payment Date as follows:
(1) with respect to the Series A Certificates in sixty-four (64)
consecutive installments as provided in Annex I; and
(2) With respect to the Series B Certificates in sixty-four (64)
consecutive installments as provided in Annex ii.
(c) Each Certificate shall bear interest on the unpaid principal
amount thereof from time to time outstanding from and including the date thereof
until such principal amount is paid in full. Such interest on each Certificate
shall accrue at the Interest Rate and shall be payable in arrears on each
Interest Payment Date and on the date such Certificate is paid in full. Interest
hereunder and under the Certificates shall be calculated on the basis of a year
of 360 days and actual days elapsed. If any sum payable under the Certificates
or under this Indenture falls due on a day which is not a Business Day, then
such sum shall be payable on the next succeeding Business Day, without (so long
as payment is made on such succeeding Business Day) additional interest as a
result of such extension. Each Certificate shall bear interest at the
applicable Past Due Rate on any principal thereof and interest and other amounts
due
TRUST INDENTURE
<PAGE>
31
thereunder and hereunder not paid when due (whether at stated maturity, by
acceleration or otherwise) for any period during which the same shall be
overdue, payable on demand by the respective Certificate Holder given through
the Indenture Trustee.
(d) The Certificates shall be executed on behalf of the Owner Trustee
by one of its authorized officers. Certificates bearing the signatures of
individuals who were at any time the proper officers of the Owner Trustee shall
bind the Owner Trustee, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Certificates or did not hold such offices at the respective dates of such
Certificates. No Certificates shall be issued hereunder except those provided
for in Section 2.02(a) and any Certificates issued in exchange or replacement
therefor pursuant to the terms of this Indenture. Each Certificate issued under
this Section 2.02 shall be dated the Closing Date. No Certificate shall be
secured by or entitled to any benefit under this Indenture or be valid or
obligatory for any purpose, unless there appears on such Certificate a
certificate of authentication in the form provided for herein executed by the
Indenture Trustee by the manual signature of one of its authorized officers and
such certificate upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
SECTION 2.03. Taxes. (a) The Owner Trustee agrees to pay, and to
-----
indemnify and hold each Loan Participant and its respective successors, assigns,
employees, agents and servants (each being hereinafter referred to as an
"Indemnitee") harmless from and against, all Taxes (including Taxes payable by
----------
reason of any payment under this Section 2.03), imposed upon any Indemnitee upon
or with respect to or measured by or resulting from this Indenture, any other
Operative Agreement or any Certificate, or any principal, interest or other
payment made or payable by the Owner Trustee hereunder or thereunder. The
Indenture Trustee agrees, to the extent required by applicable law, to withhold
from each payment due hereunder or under any Certificate to a Non-U.S. Person
United States federal withholding taxes at the appropriate rate, and, on a
timely basis, to deposit such amounts with an authorized depository and make
such reports, filings and other reports in connection therewith, and in the
manner, required under applicable law. The Indenture Trustee shall promptly
(but in no event later than the date 30 days after the
TRUST INDENTURE
<PAGE>
32
due date of the relevant payment) furnish to each Certificate Holder with
respect to whom taxes have been withheld a U.S. Treasury Form 1042S and Form
8109-B (or similar forms as at any relevant time in effect), if applicable,
indicating payment in full of any Taxes withheld from any payments by the
Indenture Trustee to such Certificate Holder together with all such other
information and documents reasonably requested by such Certificate Holder and
necessary or appropriate to enable such Person to substantiate a claim for
credit or deduction with respect thereto for income tax purposes of any
jurisdiction with respect to which such Person is required to file a tax return;
provided that each Certificate Holder which is a Non-U.S. Person has furnished
- --------
to the Indenture Trustee a properly completed and currently effective U.S.
Treasury Form 1001 (or such successor form as may be required by the United
States Treasury department) during the calendar year in which the payment is
made, or in either of the two preceding calendar years, and has not notified the
Indenture Trustee of the withdrawal of such Form prior to the date of each
interest payment, only the reduced amount required by applicable law shall be
withheld from payments under the Certificates held by such Certificate Holder in
respect of United States federal income tax; provided, further, that each
-------- -------
Certificate Holder which is a Non-U.S. Person has furnished to the Indenture
Trustee a properly completed and currently effective (1) certificate in
substantially the form of Exhibit B hereto and a U.S. Treasury Form W-8 or (2) a
U.S. Treasury Form 4224, as the case may be (or such successor certificate or
Forms as may be required by the United States Treasury department as necessary
to avoid withholding of United States federal income tax) during the calendar
year in which the payment is made, or in the case of a Form W-8 in either of the
two preceding calendar years, and has not notified the Indenture Trustee of the
withdrawal of such certificate and/or Form prior to the date of each interest
payment, no amount shall be withheld from payments under the Certificates held
by such Certificate Holder in respect of United States federal income tax. Each
Certificate Holder shall indemnify and hold harmless the Indenture Trustee
against any claim for United States withholding taxes which the Indenture
Trustee improperly fails to withhold on payments to such Certificate Holder as a
direct result of the invalidity of any certificate or Form provided by such
Certificate Holder pursuant to this Section 2.03 or the failure of the
Certificate Holder to notify the Indenture Trustee that a previously furnished
form has become incorrect.
TRUST INDENTURE
<PAGE>
33
(b) If at any time while the Certificates shall be outstanding any
applicable law or tax treaty of the United States or in any interpretation or
administration thereof by any judicial or governmental authority of the United
States subjects any Certificate Holder to any tax collected by withholding
imposed by the United States government on interest due under the Certificates
(other than interest attributable to a United States permanent establishment of
Certificate Holder), then, within 30 days after written demand by such
Certificate Holder, the Owner Trustee shall indemnify and hold harmless such
Certificate Holder from and against all withholding taxes referred to above,
including the payment of any amount necessary to hold such Certificate Holder
harmless on an after-tax basis from all taxes required to be paid with respect
to such payment or indemnity under the laws of any taxing authority in any
applicable jurisdiction; provided that the Owner Trustee shall not be under such
--------
obligation to indemnify and hold harmless such Certificate Holder to the extent
that the obligations of the Owner Trustee under this paragraph 2.03(b) were
increased upon, and at the time of, the transfer of the relevant Certificate to
such Certificate Holder (and would not have increased but for such transfer).
Each holder of a Certificate agrees that it will promptly, and in any event
within 30 Business Days, after having actual knowledge thereof use reasonable
efforts to notify the Owner Trustee of any event or events which will subject
such Certificate Holder to any tax collected by withholding described herein and
each such Certificate Holder agrees that it will promptly deliver or cause to be
delivered a certificate of a responsible officer of such Certificate Holder
setting forth the applicable law or the administration or interpretation thereof
that is the basis for the withholding tax (including the computation thereof).
All determinations, estimates, assumptions, allocations and the like required
for the determination of the amount required to be paid to a Certificate Holder
pursuant to this paragraph in order to hold such Certificate Holder harmless on
an after-tax basis from the withholding taxes referred to above shall be made in
good faith by the Certificate Holder.
SECTION 2.04. Payments from Indenture Estate and Collateral Only.
--------------------------------------------------
Except as otherwise expressly provided in the next succeeding sentence of this
Section 2.04, all payments to be made by the Owner Trustee under this Indenture
shall be made only from the income and the proceeds from the Indenture Estate
and only to the extent that the Owner Trustee shall have sufficient income or
proceeds from the Indenture Estate to enable the
TRUST INDENTURE
<PAGE>
34
Indenture Trustee to make payments in accordance with the terms hereof. Each
Certificate Holder, by its acceptance of a Certificate, and the Indenture
Trustee, each agrees that it will look solely to the income and proceeds from
the Indenture Estate and Collateral to the extent available for distribution to
it as above provided and that none of the Owner Participant, The Bank or the
Indenture Trustee is personally liable to it for any amounts payable or any
liability under any Certificate or this Indenture, except (in the case of the
Indenture Trustee and The Bank) as expressly provided herein (in the case of The
Bank, the Indenture Trustee or the Owner Participant), as expressly provided in
any Participation Agreement and the Special Participation Agreement or (in the
case of the Guarantors of the Series B Certificates) as expressly provided in
the Guarantee.
SECTION 2.05. Method of Payment. Principal and interest and other
-----------------
amounts due hereunder or under the Certificates or in respect hereof or thereof
shall be payable in Dollars in immediately available funds prior to Noon, New
York time, on the due date thereof, to the Indenture Trustee at the Corporate
Trust Office and the Indenture Trustee shall, subject to the terms and
conditions hereof, remit all such amounts so received by it to the Certificate
Holders at such account or accounts at such financial institution or
institutions as the Certificate Holders shall have designated to the Indenture
Trustee in writing, in immediately available funds for distribution to the
relevant Certificate Holders, such payment to be made prior to 2:00 P.M., New
York time on the due date thereof. If such amounts are received after Noon, New
York time on the due date thereof, such amounts shall be deemed received on the
next following Business Day, and the Indenture Trustee shall make payment
thereof promptly, but not later than 11:00 A.M., New York time the next
following Business Day. In the event the Indenture Trustee shall fail to make
any such payment as provided in the two preceding sentences after its receipt of
funds at the place and prior to the time specified above, the Indenture Trustee,
in its individual capacity and not as trustee, agrees to compensate the
Certificate Holders for loss of use of funds in a commercially reasonable manner
if it shall have failed to use ordinary care in the disbursing of such funds.
The Owner Trustee and the Indenture Trustee acknowledge that the payment
instructions given in Schedule II to the Special Participation Agreement
constitute the initial written notice required by the first sentence of this
Section 2.05 to make all payments as provided in such Schedule. All such
payments by the Owner
TRUST INDENTURE
<PAGE>
35
Trustee and the Indenture Trustee shall be made free and clear of and without
reduction for or on account of any wire and other like charge. Prior to the due
presentment for registration of transfer of any Certificate, the Owner Trustee
and the Indenture Trustee may deem and treat the Person in whose name any
Certificate is registered on the Certificate Register as the absolute owner of
such Certificate for the purpose of receiving payment of all amounts payable
with respect to such Certificate and for all other purposes whether or not such
Certificate shall be overdue, and neither the Owner Trustee nor the Indenture
Trustee shall be affected by any notice to the contrary.
SECTION 2.06. Application of Payments. Each payment of principal and
-----------------------
interest or other amounts due in respect of each Certificate shall, except as
otherwise expressly provided herein, be applied, first, to the payment of any
amount (other than the principal of or Premium Amount (if any) or interest on
such Certificate) due in respect of such Certificate, second, to the payment of
------
Premium Amount (if any), if any, and interest on such Certificate (as well as
any interest on overdue principal and interest and other amounts payable
thereunder) due thereunder, third, to the payment of the principal of such
-----
Certificate then due and fourth, the balance, if any, remaining thereafter, to
------
the payment of the principal of such Certificate remaining unpaid (provided that
such Certificate shall not be subject to prepayment or purchase without the
consent of the affected Certificate Holder except as permitted by Section 2.11).
The amounts paid pursuant to clause fourth above shall be applied to the
------
installments of principal of such Certificate in inverse order of maturity.
SECTION 2.07. Termination of Interest in Indenture Estate. A
-------------------------------------------
Certificate Holder shall not, as such, have any further interest in, or other
right with respect to, the Indenture Estate when and if the principal amount of
and Premium Amount, if any, and interest on and other amounts due under all
Certificates held by such holder and all other sums due to such Certificate
Holder hereunder and under the other Operative Agreements shall have been paid
in full.
SECTION 2.08. Registration. Transfer and Exchange of Certificates.
---------------------------------------------------
The Indenture Trustee agrees with the Owner Trustee that the Indenture Trustee
shall keep a register (herein sometimes referred to as the "Certificate
-----------
Register") in which provisions shall be made for the registration of
- --------
Certificates and
TRUST INDENTURE
<PAGE>
36
the registration of transfers of Certificates. The Certificate Register shall
be kept at the Corporate Trust Office of the Indenture Trustee or at the office
of any successor indenture trustee, and the Indenture Trustee is hereby
appointed "Certificate Registrar" for the purpose of registering Certificates
and transfers of Certificates as herein provided. Upon surrender for
registration of transfer of any Certificate at the Corporate Trust Office, the
Owner Trustee shall execute, and the Indenture Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same Series dated the Closing Date and of a like
aggregate principal amount. At the option of the Certificate Holder, its
Certificates may be exchanged for other Certificates of the same Series and of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Certificates to be exchanged at the Corporate Trust Office.
Each new Certificate issued upon transfer or exchange shall be in a principal
amount of at least $500,000 (except as may be necessary to evidence the entire
outstanding principal amount of a Certificate). Whenever any Certificates are
so surrendered for exchange, the Owner Trustee shall execute, and the Indenture
Trustee shall authenticate and deliver, the Certificates of the relevant Series
which the Certificate Holder making the exchange is entitled to receive. All
Certificates issued upon any registration of transfer or exchange of
Certificates shall be the valid obligations of the Owner Trustee evidencing the
same respective obligations, and entitled to the same security and benefits
under this Indenture, as the Certificates surrendered upon such registration of
transfer or exchange. Every Certificate presented or surrendered for
registration of transfer or exchange, shall (if so required by the Indenture
Trustee) be duly endorsed, or be accompanied by a written instrument of transfer
in form satisfactory to the Indenture Trustee duly executed by the Certificate
Holder thereof or his attorney duly authorized in writing, and the Indenture
Trustee may require evidence satisfactory to it as to the compliance of any such
transfer with the Securities Act. The Indenture Trustee shall make a notation
on each new Certificate or Certificates of the amount of all payments of
principal previously made on the old Certificate or Certificates with respect to
which such new Certificate is issued and the date to which interest accrued on
such old Certificate or Certificates has been paid. The Indenture Trustee shall
not be required to register the transfer of or exchange any surrendered
Certificates as above provided during the five calendar day period preceding
TRUST INDENTURE
<PAGE>
37
the due date of any payment on such Certificates. Any Certificate Holder may
transfer any or all of its Certificates to any Person other than the Lessee or
its Affiliates. The Owner Trustee and the Indenture Trustee shall treat the
Person in whose name each Certificate is registered on the Certificate Register
as the Certificate Holder with respect thereto for all purposes hereof until due
presentment for registration of transfer as provided in this Section 2.08. The
Indenture Trustee shall give the Lessee and each Certificate Holder notice of
such transfer of a Certificate under this Section 2.08.
SECTION 2.09. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
any Certificate shall become mutilated, destroyed, lost or stolen, the Owner
Trustee shall, upon the written request of the affected Certificate Holder,
execute, and the Indenture Trustee shall authenticate and deliver in replacement
thereof, a new Certificate, of the same series as such Certificate, in the same
principal amount, dated the date of such Certificate and designated as issued
under this Indenture. If the Certificate being replaced has become mutilated,
such Certificate shall be surrendered to the Indenture Trustee and a photocopy
thereof shall be furnished to the Owner Trustee by the Indenture Trustee. If
the Certificate being replaced has been destroyed, lost or stolen, the affected
Certificate Holder shall furnish to the Owner Trustee and the Indenture Trustee
such security or indemnity as may be reasonably required by them to hold the
Owner Trustee and the Indenture Trustee harmless and evidence satisfactory to
the Owner Trustee and the Indenture Trustee of the destruction, loss or theft of
such Certificate and of the ownership thereof; provided, however, that if the
-------- -------
affected Certificate Holder is an original party to the Special Participation
Agreement or an Affiliate thereof, the written notice of such destruction, loss
or theft and such ownership and the written undertaking of such Certificate
Holder delivered to the Owner Trustee and the Indenture Trustee to hold harmless
the Owner Trustee and the Indenture Trustee in respect of the execution,
authentication and delivery of such new Certificate shall be sufficient
evidence, security and indemnity.
SECTION 2.10. Payment of Expenses on Transfer. Upon the issuance of
-------------------------------
a new Certificate or new Certificates pursuant to Section 2.08 or 2.09, the
Owner Trustee and/or the Indenture Trustee may require from the party requesting
such new Certificate or Certificates payment of a sum sufficient to reimburse
the Owner Trustee and/or the Indenture Trustee for, or
TRUST INDENTURE
<PAGE>
38
to provide funds for, the payment of ally tax or other governmental charge in
connection therewith or any charges and expenses connected with such tax or
other governmental charge paid or payable by the Owner Trustee or the Indenture
Trustee.
SECTION 2.11. Prepayment. (a) The Owner Trustee may prepay in whole
----------
or in part, the Certificates of any Series then outstanding at the principal
amount thereof, together with accrued interest thereon to the date of prepayment
plus all Premium Amount and all other amounts due to the holders of the
Certificates hereunder, thereunder and under the other Operative Agreements,
but, in the case of any prepayment of a Series A Certificate, the Swap Upside in
respect of such Certificate. No Series B Certificate may be prepaid pursuant to
this Section 2.11(a) prior to the date all of the Series A Certificates shall
have been duly prepaid in full as provided in the preceding sentence.
(b) The Certificates shall be prepaid in full or (to the extent of
available proceeds pursuant to Section 3.02(a)) in part, together with accrued
interest thereon to the date of prepayment and all other amounts due thereunder
and hereunder and under the other Operative Agreements to the Certificate
Holders (i) upon the occurrence of an Event of Loss with respect to any Airframe
or any Aircraft, on the earlier of the date of the Lessee's payment with respect
to such Event of Loss in Section 10.1 of the Lease to which such Airframe or
Aircraft is/was subject or the last day PERMITTED FOR SUCH PAYMENT UNDER SAID
section 10.1 or (ii) upon or prior to the sale or other disposition of any of
the Aircraft by the Indenture Trustee at the direction of the Owner Participant.
The Owner Trustee will give notice of prepayment under this Section 2.11(b)
promptly after receipt of the Lessee's notice of payment under Section 10.1 of
any Lease or in connection with the sale or other disposition of any of the
Aircraft pursuant to clause (ii) above. Any such notice shall be irrevocable.
Any prepayment of the series a certificates pursuant to this section 2.11(b)
shall be accompanied by the Premium Amount for each holder of a Series a
Certificate.
SECTION 2.12. Provisions Relating to Prepayment.
----------------------------------
(a) The Owner Trustee shall have no right to prepay the principal amount of the
Certificates, in whole or in part, except as permitted by Section 2.11. Any such
prepayment effected pursuant to Section 2.11(a) shall be made by the Owner
Trustee only on a date coincident with an Interest Payment Date and upon at
least 60 calendar days' prior irrevocable written notice to the Indenture
Trustee and the Certificate Holders. Notice of prepayment having been given as
aforesaid, the principal amount
TRUST INDENTURE
<PAGE>
39
of the Certificates so to be prepaid, plus accrued interest thereon to the date
of prepayment, together with the Premium Amount, if any, herein provided, shall
become due and payable on the prepayment date.
(b) On the date fixed for prepayment under Section 2.11, immediately
available funds in Dollars shall be deposited by the Owner Trustee in the
account of the Indenture Trustee at the place and by the time and otherwise in
the manner provided in Section 2.05, in an amount equal to the principal amount
of Certificates to be prepaid together with accrued and unpaid interest thereon
to the date fixed for such prepayment, all Premium Amount, if any, thereon and
all other amounts due to the holders of the Certificates subject to prepayment
hereunder, thereunder and under the other Operative Agreements, but, in the case
of a prepayment pursuant to Section 2.11(a) of any Series A Certificate, net of
the Swap Upside in respect of such Certificate.
SECTION 2.13. Purchase Option. (a) By Owner Participant. At any
--------------- --------------------
time while either (x) a Lease Event of Default has occurred and has been
continuing for a period of 180 days during which the Certificate Holders or the
Indenture Trustee shall not have been stayed or otherwise precluded by operation
of law from taking action to accelerate the Certificates or to exercise remedies
hereunder or under any Lease, or (y) the Certificates shall have become due and
payable as provided in Section 4.04(b) or 4.04(c), and, provided in either case
that no Indenture Default which is not a Lease Default shall have occurred and
be continuing, the Owner Participant may at any time within 60 days thereafter
elect to purchase all, but not less than all, Certificates then outstanding.
Upon receipt of written notice of such election from the Owner Participant,
which notice in order to be effective shall state that it is irrevocable and
shall designate a date not more than fourteen calendar days thereafter as the
purchase date, each Certificate Holder agrees that it will, upon payment to it
in the manner provided for in Section 2.05 from the Owner Participant of an
amount equal to the aggregate unpaid principal amount of all Certificates then
held by such Certificate Holder, together with accrued and unpaid interest
thereon to the date of payment, the Premium Amount, if any, for such Certificate
Holder and all other sums then due and payable to such Certificate Holder
hereunder, under such Certificates and the other Operative Agreements, forthwith
sell, assign, transfer and convey to the purchaser (without recourse,
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representation or warranty of any kind except for its own acts), all of the
right, title and interest of such Certificate Holder in and to the Indenture
Estate, the Collateral, this Indenture, all Certificates held by such
Certificate Holder and the other Operative Agreements (excluding all right,
title and interest under any of the foregoing to the extent such right, title or
interest is with respect to an obligation not then due and payable or past due
(other than any claims in respect of past due interest to the extent included in
the purchase price of the Certificates), with respect to any action or inaction
or state of affairs occurring prior to such sale) and the purchaser shall assume
all of such Certificate Holder's obligations under the other Operative
Agreements and this Indenture. If the purchaser shall so request, such
Certificate Holder will comply with all the provisions of Section 2.08 (other
than those relating to Securities Act compliance) to enable new Certificates of
like Series to be issued to the purchaser in such denominations as the purchaser
shall request. In the case of any such purchase, the purchaser shall furnish to
the Certificate Holders an opinion of counsel of the purchaser satisfactory to
the Certificate Holders that such transfer and conveyance are exempt from
registration under the Securities Act and do not violate any registration
provision of any applicable state securities laws. All charges and expenses
required pursuant to Section 2.10 in connection with the issuance of any such
new Certificate pursuant to this Section shall be borne by the purchaser.
(b) Holders of Series B Certificates. At any time while the Owner
--------------------------------
Participant would be entitled to purchase all Certificates under Section
2.13(a), any holder of a Series B Certificate may, whether or not the Owner
Participant shall have elected pursuant to Section 2.13 (a) to purchase all
Certificates then outstanding, by written notice to the Indenture Trustee, the
Owner Participant and the holders of the Series A Certificates, elect to
purchase all, but not less than all, Series A Certificates then outstanding on
the date specified in such written notice (which shall (x) not be earlier than
the Business Day next following the date of purchase which shall have been
specified in any notice theretofore given by the Owner Participant pursuant to
Section 2.13(a) and (y) not be more than seven days after the date of such
notice from such holder of a Series B Certificate, which notice, in order to be
effective, shall state that it is irrevocable unless all Certificates are
purchased pursuant to Section 2.13 (a) in which event such notice shall be
deemed to have been automatically revoked upon the consummation
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of any such purchase pursuant to Section 2.13(a). Each holder of a Series A
Certificate agrees by its acceptance thereof that it will (unless the Owner
Participant shall have elected pursuant to Section 2.13(a) to purchase the
Certificates then outstanding and shall not, following such election, have
failed to consummate such purchase), upon payment to it in the manner provided
for in Section 2.05 from such holder of a Series B Certificate of an amount
equal to the aggregate unpaid principal amount of all Series A Certificates then
held by such Certificate Holder, together with accrued and unpaid interest
thereon to the date of payment and the Premium Amount (other than the Special
Premium) for such Certificate Holder and all other sums then due and payable to
such holder hereunder, under its Certificates and under the other Operative
Agreements, but net of the Swap Upside (as defined in Exhibit E) for such
holder, forthwith sell, assign, transfer and convey to the purchaser thereof
(without recourse, representation or warranty of any kind except for its own
acts), all of the right, title and interest of such Certificate Holder in and to
the Indenture Estate, the Collateral, this Indenture, all Certificates held by
such Certificate Holder and the other Operative Agreements (excluding all right,
title and interest under any of the foregoing to the extent such right, title or
interest is with respect to an obligation not then due and payable or past due
(other than any claims in respect of past due interest to the extent included in
the purchase price of the Series A Certificates), with respect to any action or
inaction or state of affairs occurring prior to such sale) and the purchaser
shall assume all of such Certificate Holder's obligations under the other
Operative Agreements and this Indenture. If the purchaser shall so request,
such Certificate Holder will comply with all the provisions of Section 2.08
(other than those relating to Securities Act compliance) to enable new
Certificates of a like Series to be issued to the purchaser in such
denominations as it shall request. All charges and expenses in connection with
the issuance of any such new Series A Certificates shall be borne by the
purchaser thereof. In the case of such purchase, the purchaser shall, upon
request, furnish to the holders of the Series A Certificates an opinion of
counsel of the purchaser satisfactory to such Series A Certificate holders (or
other evidence reasonably satisfactory to the Series A Certificate holders) that
such transfer and conveyance are exempt from registration under the Securities
Act and do not violate any registration provision of any applicable state
securities laws. If more than one Series B Certificate holder shall elect to
purchase the Series A Certificates pursuant to this Section
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2.13(b), then each Series B Certificate holder shall be entitled to purchase
from each Series A Certificate holder its pro-rata share of such Certificates so
held, which pro rata share shall be in the same proportion (as nearly as
practicable) as the original principal amount of the Series B Certificates held
by such Series B Certificate holder bears to the aggregate principal amount of
Series B Certificates held by all Series B Certificate holders which shall have
made such election; provided that no purchase of Series A Certificates pursuant
--------
to this Section 2.13(b) shall occur unless all Series A Certificates are so
purchased as provided in this Section 2.13(b).
SECTION 2.14. Yield Protection. (a) The Owner Trustee shall pay
----------------
directly to each holder of a Series A Certificate from time to time promptly
after demand therefor such amounts as such holder determines to be necessary to
compensate it for any costs which are attributable to its making of the loan
evidenced by, or its maintaining of, any Series A Certificate or the funding
arrangements in respect thereof (including, without limitation, any interest
rate swap transaction), or any reduction in any amount receivable by such holder
hereunder in respect of any thereof resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
holder under this Indenture, its Certificates or any of the other Operative
Agreements in respect of any of such Certificates or such funding
arrangements (other than taxes imposed on or measured by the overall net
income of such holder or of its Lending Office by the jurisdiction in which
such holder has its principal office or its Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, such holder; or
(iii) imposes any other condition affecting this Indenture, its
Certificates (or any funding arrangements in respect thereof) or the other
Operative Agreements.
(b) Without limiting the effect of the foregoing provisions of this
Section 2.14 (but without duplication), the Owner Trustee shall pay directly to
each holder of a Series A Certificate from time to time promptly after demand
therefor such
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amounts as such holder determines to be necessary to compensate such holder (or,
without duplication, the bank holding company of which such holder is a
subsidiary) for any costs which are attributable to the maintenance by such
holder (or its Lending Office or such bank holding company), pursuant to any
applicable law or regulation or any interpretation, directive or request
(whether or not having the force of law) of any court or governmental or
monetary authority following any Regulatory Change, of capital in respect of its
Certificates, or the funding arrangements in respect thereof (including, without
limitation, any interest rate swap transaction) (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
assets or equity of such holder (or its Lending Office or such bank holding
company) to a level below that which such holder (or its Lending Office or such
bank holding company) could have achieved but for such Regulatory Change).
(c) Each holder of a Series A Certificate will notify the Owner
Trustee of any event occurring after the date of this Indenture that will
entitle such holder to compensation under paragraph (a) or (b) of this Section
2.14 as promptly as practicable, but in any event within 45 days, after such
holder obtains actual knowledge thereof; provided, however, that if any such
-------- -------
holder fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such holder shall, with respect to compensation
payable pursuant to this Section 2.14 in respect of any costs resulting from
such event, only be entitled to payment under this Section 2.14 for costs
incurred from and after the date 45 days prior to the date that such holder does
give such notice; and provided, further, that each holder will designate a
-------- -------
different Lending Office for the Loan Certificates of such holder affected by
such event if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such holder, be
disadvantageous to such holder. Each holder will furnish to the Owner Trustee a
certificate setting forth the basis and amount of each request by such holder
for compensation under paragraph (a) or (b) for purposes of this Section 2.14.
Determinations and allocations by any holder for purposes of this Section 2.14
of the effect of any Regulatory Change pursuant to Section 2.14(a) hereof, or of
the effect of capital maintained pursuant to Section 2.14(b) hereof, and of the
amounts required to compensate such holder under this Section 2.14, shall be
conclusive, provided that such determinations and allocations are made on a
reasonable basis.
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SECTION 2.15. (Intentionally omitted.)
SECTION 2.16. Certificates in Respect of Replacement Engines. Upon
----------------------------------------------
the execution and delivery of an Indenture Supplement covering a Replacement
Engine, as provided in Section 5.06, each Certificate shall be deemed to have
been issued in connection with such Replacement Engine and each Certificate
issued thereafter upon a transfer or exchange of, or as a replacement for, a
Certificate, shall be designated as having been issued in connection with such
Replacement Engine, but without any other change therein except as provided for
in this Article II.
SECTION 2.17. Terms of Subordination. Subject to Section 3.04(c),
----------------------
the Series B Certificates and all other sums payable to the holders thereof
under the Operative Agreements shall be subordinate and junior in right of
payment to the Series A Certificates and all other sums payable to the holders
thereof under the Operative Agreements to the extent and in the manner
hereinafter set forth:
(a) No payment or distribution shall be made on or in respect of the
principal of, interest (including, without limitation interest accruing
after the commencement of any proceeding of the type referred to in Section
4.02(g) or (h) or Section 14.5 of any Lease (for purposes of this Section
2.17, a "Case")) on, or any other amount payable in respect of, the Series
----
B Certificates, nor shall any payment or distribution be made on or in
respect of any indemnity or other claim or obligation owing to any holder
of a Series B Certificate under any Operative Agreements, in either case,
except directly to the Indenture Trustee for application as expressly
provided in Article III of this Indenture.
(b) In any Case, any payment or distribution of any kind or
character, whether in cash, property, stock or obligations which may be
payable or deliverable on or in respect of any Series B Certificate or
other sum owing to any holder of a Series B Certificate under the Operative
Agreements shall be paid or delivered directly to the Indenture Trustee for
distribution to the holders of the Series A Certificates as provided in
Article III. In the event that, notwithstanding the foregoing, any such
payment or distribution shall be received by the holder (other than from
the Indenture Trustee as provided in Article III) of
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any Series B Certificate before the amount of all principal of and interest
on all Series A Certificates (including, without limitation, interest
accruing after the commencement of a Case) and all other sums owing to the
holders of the Series A Certificates under the Operative Agreements is paid
in full in cash, or provision made for such payment, in accordance with its
terms, such payment or distribution shall be held in trust for and paid
over or delivered to the Indenture Trustee for distribution to the holders
of the Series A Certificates as provided in Article III.
(c) By acceptance of its Series B Certificate, each holder of a
Series B Certificate hereby irrevocably authorizes and empowers the holders
of the Series A Certificates, or the Indenture Trustee acting on their
behalf, to demand, sue for, collect and receive every payment or
distribution made on or in respect of the Series B Certificates or other
sums owing to the holders thereof under the Operative Agreements in any
Case, and to file claims and take such other proceedings, in the holders'
of the Series A Certificates own name or in the name of the holders of the
Series B Certificates or otherwise, as the holders of the Series A
Certificates or the Indenture Trustee acting on their behalf may deem
necessary or advisable for the enforcement of the provisions hereof. By the
acceptance of its Series B Certificate, each holder of a Series B
Certificate agrees duly and promptly to take such action as may be
requested by the holders of the Series A Certificates or the Indenture
Trustee acting on their behalf to collect the indebtedness evidenced by its
Series B Certificate owing to it or otherwise owing to it under the
Operative Agreements for the account of the holders of the Series A
Certificates and/or to file appropriate proofs of claim in respect to such
indebtedness, and to execute and deliver to the holders of the Series A
Certificates or the Indenture Trustee acting on their behalf on demand such
powers of attorney, proofs of claim, assignments of claim or proofs of
claim, or other instruments as may be requested by the holders of the
Series A Certificates or the Indenture Trustee acting on their behalf to
enforce any and all claims upon or with respect to its Series B Certificate
owing to it or otherwise owing to it under the Operative Agreements.
(d) Except as otherwise expressly provided in this Indenture, the
holders of the Series A Certificates or the
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Indenture Trustee acting on their behalf may, at any time and from time to
time, without the consent of or notice to the holders of the Series B
Certificates, without incurring responsibility to such holders and without
impairing or releasing any of the rights of the holders of the Series A
Certificates, or any of the obligations of the holders of the Series B
Certificates hereunder:
(i) to the extent it is entitled to do so hereunder, sell,
exchange, release or otherwise deal with all or any part of any
property by whomsoever mortgaged or pledged to secure, or howsoever
securing, the Series A Certificates;
(ii) to the extent it is entitled to do so hereunder, exercise or
refrain from exercising any rights against the Owner Trustee or the
Lessee or any other Person; and
(iii) to the extent it is entitled to do so hereunder and the same
are applied in accordance with Article III, apply any sums, by
whomsoever paid or however realized, to the Series A Certificates.
(e) By the acceptance of its Series B Certificate, each holder of a
Series B Certificate agrees that in the event that such holder shall
receive any payment on its Series B Certificate or otherwise owing to it
under the Operative Agreements which it is not entitled to receive under
this Section 2.17 or Article III, it will hold any amount so received in
trust for the holders of the Series A Certificates and will forthwith turn
over such payment to the Indenture Trustee on behalf of the holders of
Series A Certificates in the form received to be applied as provided in
Article III.
(f) By the acceptance of its Series B Certificate, each holder of a
Series B Certificate agrees that it may not commence any action or
proceeding against the Owner Trustee the Owner Participant, the Lessee or
any other Person obligated in respect of any Operative Agreements to
recover all or any part of the principal or interest on its Series B
Certificate or any other sum owing to it under any Operative Agreements or
join with any creditor, unless the holders of
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the Series A Certificates shall also join, in bringing any such action or
proceeding.
(g) By the acceptance of its Series B Certificate, each holder of a
Series B Certificate hereby irrevocably authorizes and empowers the
Indenture Trustee on behalf of the holders of the Series A Certificates to
vote the full amount of the indebtedness evidenced by its Series B
Certificate owing to it or otherwise owing to it under the Operative
Agreements in any Case.
(h) No payment or distribution of assets to which the holders of the
Series B Certificates would have been entitled except for the provisions of
this Section 2.17 or Article III and which shall have been received by the
holders of the Series A Certificates shall, as between the obligor thereon,
its creditors, and the holder of the Series B Certificates, be deemed to be
a payment by the obligor to the holders of the Series A Certificates for or
on account of the Series A Certificates, and from and after the payment in
full in cash of all Series A Certificates and all other amounts owing to
the holders thereof under the Operative Agreements, the holders of the
Series B Certificates shall be subrogated to the then or thereafter
existing rights of the holders of Series A Certificates to receive payments
or distributions of assets of the relevant obligor made on or in respect of
the Series A Certificates or such other amounts until the principal of, and
interest on, the Series B Certificates and all other amounts owing to the
holders thereof under the Operative Agreements shall be paid in full, and
no such payments or such other amounts or distributions to the holders of
the Series B Certificates of cash, property or securities, which otherwise
would be payable or distributable to the holders of the Series A
Certificates, shall, as between the obligor thereon, its creditors other
than the holders of the Series A Certificates, and the holder of the Series
B Certificates, be deemed to be a payment by the relevant obligor to the
holder of the Series B Certificates on account thereof.
(i) The provisions of this Section 2.17 and Article III are solely for
the purpose of defining the relative rights of the holders of Series A
Certificates on the one hand, and the holders of the Series B Certificates
on the other hand, and nothing herein shall, except as
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otherwise provided herein, impair, as between the Owner Trustee, the Owner
Participant, the Lessee and the holders of the Series B Certificates, the
obligation of the Owner Trustee, which, subject only to Section 2.04, is
unconditional and absolute, to pay to the holders of the Series B
Certificates the principal thereof, interest thereon and all other amounts
payable hereunder and under the other Operative Agreements in accordance
with the terms and the provisions hereof and thereof nor the obligation of
the Lessee which is unconditional and absolute, to pay Supplemental Rent in
accordance with the terms and provisions of each Lease.
(j) Notwithstanding anything that may be to the contrary in any of
the Operative Agreements, the holders of the Series B Certificates shall at
all times be entitled to all the rights, title, benefits and interest of
the Guarantee Beneficiary and, in respect thereof, shall not be accountable
to the Indenture Trustee or to the holders of the Series A Certificates for
any action taken or not taken or for any sums received in respect of the
Guarantee or any Collateral thereunder.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution and Application of Amounts upon
-------------------------------------------------------
Rent Default.
- -------------
(a) Basic Rent Distribution. Except as otherwise provided in Section
-----------------------
3.03, each installment of Basic Rent, any payment of interest payable on any
Interest Payment Date or on overdue installments of Basic Rent, and any payment
received by the Indenture Trustee as contemplated by Section 4.03 shall be
promptly distributed in the following order of priority:
first, so much of such installment or payment as shall be required to
-----
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal and interest and other amounts) then due on or in respect of the
Series A Certificates shall be distributed to the holders
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thereof ratably, without priority of any one Series A Certificate over any
other Series A Certificate, in the proportion that the amount of such
payment or payments then due under each Series A Certificate bears to the
aggregate amount of the payments then due under all Series A Certificates;
second, so much of such installment or payment as shall be required to
------
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal, interest and other amounts) then due under, on or in respect of
the Series B Certificates shall be distributed to the holders thereof
ratably, without priority of any one Series B Certificate over any other
Series B Certificate, in the proportion that the amount of such payment or
payments then due under each such Series B Certificate bears to the
aggregate amount of the payments then due under all such Series B
Certificates; provided, however, that if an Indenture Default shall have
-------- -------
occurred and be continuing, then any such installment or payment shall not
be distributed as provided in this clause "second" but shall be held by the
------
Indenture Trustee as part of the Indenture Estate until whichever of the
following shall first occur: (i) all Indenture Defaults shall have been
cured, in which event such installment or payment shall, to the extent not
theretofore applied as provided herein, be distributed as provided in this
clause "second", or (ii) Section 3.02 or Section 3.03 shall be applicable,
------
in which event such balance shall be distributed in accordance with the
provisions of said Section 3.02 or Section 3.03, as the case may be, in
which event such installment or payment shall, to the extent not
theretofore applied as provided herein, be distributed as provided in this
clause "second"; and
------
third, the balance, if any, of such installment or payment remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement; provided, however, that if an Indenture
-------- -------
Default shall have occurred and be continuing, then such balance shall not
be distributed as provided in this clause "third" but shall be held by the
-----
Indenture Trustee as part of the Indenture Estate until whichever of the
following shall first occur: (i) all Indenture Defaults shall have been
cured, in which event such balance shall, to the extent not
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theretofore distributed as provided herein, be distributed as provided in
this clause "third", or (ii) Section 3.02 or Section 3.03 shall be
-----
applicable, in which event such balance shall be distributed in accordance
with the provisions of said Section 3.02 or Section 3.03, as the case may
be.
(b) Application of Other Amounts Held by Indenture Trustee Upon Rent
----------------------------------------------------------------
Default. Except as otherwise provided in Section 3.03, if (i) as a result of
- -------
any failure by the Lessee to pay Basic Rent in full on any date when an
installment of Basic Rent is due, or (ii) for any other reason there shall not
have been distributed on any Rent Payment Date the full amount then
distributable pursuant to clauses "first" and "second" of Section 3.01(a), the
----- ------
Indenture Trustee shall, if so requested by a Majority in Interest of
Certificate Holders, distribute other payments of the character referred to in
Section 3.04(b) then held by it or thereafter received by it, to the holders of
all Certificates to the extent necessary to enable the Indenture Trustee to make
all the distributions then due pursuant to such clauses "first" and "second" in
the priority specified in Section 3.01 (a). ----- ------
SECTION 3.02. Lease Termination, Event of Loss and Replacement. (a)
------------------------------------------------
Except as otherwise provided in Section 3.03, any payment received by the
Indenture Trustee as the result of an Event of Loss with respect to any Airframe
or any Aircraft, or in connection with a voluntary prepayment hereunder pursuant
to Section 2.11(a), shall be applied to prepayment of the Certificates and to
all other amounts payable thereunder or hereunder or under the other Operative
Agreements as provided in Section 2.11(a) or 2.11(b) by applying such funds in
the following order of priority: first, so much of such payment as shall be
-----
necessary to reimburse the Indenture Trustee for any costs or expenses incurred
in connection with such prepayment shall be paid to the Indenture Trustee;
second, so much of such payment as shall be necessary to pay all amounts then
- ------
due to the holders of the Series A Certificates pursuant to Section 2.11(a) or
2.11(b), as the case may be, shall be distributed to such holders, ratably,
without priority of any one Series A Certificate holder over any other such
holder; third, so much of such payment as shall be necessary to pay all amounts
-----
then due to the holders of the Series B Certificates pursuant to Section 2.11(a)
or 2.11(b), as the case may be, shall be distributed to such holders, ratably,
without priority of any one Series B Certificate holder over any
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other such holder; and fourth, the balance, if any of such payment remaining
------
thereafter shall be distributed in the manner set forth in clause "tenth" of
Section 3.03. -----
(b) Except as otherwise provided in Section 3.03, any amounts
received directly or indirectly from any governmental authority, insurer or
other party pursuant to any provision of Section 10.4, 10.5 or 11 of any Lease
or otherwise as the result of loss or damage not constituting such an Event of
Loss with respect to the Airframe or any Engine subject to such Lease, or as a
result of such loss or damage constituting such an Event of Loss if and to the
extent that such amounts would at the time be required to be paid to the Lessee
pursuant to said Section 10.4, 10.5 or 11 but for the fact that a Lease Event of
Default shall have occurred and be continuing, shall be held by the Operative
Agreements, as security for the obligations of the Lessee under the Operative
Agreements and shall be invested in accordance with the terms of Section 3.07
and at such time as the conditions for payment to the Lessee specified in said
Section 10.4, 10.5 or 11, as the case may be, shall be fulfilled and there shall
not be continuing any Lease Event of Default, such amount, and the proceeds of
any investment thereof, shall, to the extent not applied to such obligations of
the Lessee, be paid to the Lessee to the extent provided in such Lease.
SECTION 3.03. Payment After Indenture Event of Default, etc. Except
---------------------------------------------
as otherwise provided in Sections 3.04(c) and 3.05(ii), all payments received
and amounts held or realized by the Indenture Trustee after an Indenture Event
of Default shall have occurred and so long as such an Indenture Event of Default
shall be continuing, and after the Indenture Trustee has received a request in
accordance with the first sentence of Section 5.02(b) or after the Indenture
Trustee shall foreclose or enforce this Indenture or after the Certificates
shall have become due and payable as provided in Section 4.04(b) or (c), as well
as all payments or amounts then held by the Indenture Trustee as part of the
Indenture Estate or Collateral, shall be promptly distributed by the Indenture
Trustee in the following order of priority:
first, so much of such payments or amounts as shall be required to
-----
reimburse the Indenture Trustee for any tax, expense, charge or other loss
(including, without limitation, all amounts to be expended at the expense
of, or charged upon the tolls, rents, revenues, issues, income,
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products and profits of, the property included in the Indenture Estate
pursuant to Section 4.05(b)) incurred by the Indenture Trustee (to the
extent not previously reimbursed) (including, without limitation, the
expenses of any sale, taking or other proceeding, reasonable attorneys'
fees and expenses, court costs, and any other expenditures incurred or
expenditures or advances made by the Indenture Trustee in the protection,
exercise or enforcement of any right, power or remedy or any damages
sustained by the Indenture Trustee, liquidated or otherwise, upon such
Indenture Event of Default) shall be applied by the Indenture Trustee in
reimbursement of such expenses;
second, so much of such payments or amounts remaining as shall be
------
required to pay in full to the holders of Series A Certificates all other
amounts payable pursuant to the indemnification provisions of Sections 8.1
and 8.2 of any Participation Agreement or pursuant to any other provision
of any Operative Agreement and secured hereunder (other than amounts
payable pursuant to clause "third", "fourth", "fifth" or "ninth" of this
----- ------ ----- -----
Section 3.03) to the holders of Series A Certificates and remaining unpaid
shall be distributed to such holders, and if the aggregate amount remaining
shall be insufficient to pay all such amounts in full, it shall be
distributed ratably, without priority of any Series A Certificate over any
other, in the proportion that the aggregate amount due each holder of
Series A Certificates under this clause "second" bears to the aggregate
------
amount due all holders of Series A Certificates under this clause "second";
------
third, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate amount of all due but unpaid Premium
Amount (other than Special Premium), if any, and all accrued but unpaid
interest to the date of distribution on the Series A Certificates shall be
distributed to the holders of the Series A Certificates, and if the
aggregate amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any one Series A
Certificate over any other, in the proportion that the aggregate amount of
all due but unpaid Premium Amount (other than Special Premium), if any, and
all accrued but unpaid interest to the date of distribution on each Series
A Certificate bears to the aggregate amount of all due but unpaid Premium
Amount
TRUST INDENTURE
<PAGE>
53
(other than Special Premium), if any, and all accrued but unpaid interest
to the date of distribution on all Series A Certificates;
fourth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate unpaid principal amount of all Series
A Certificates shall be distributed to the holders of the Series A
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series A Certificate over any other, in the proportion
that the aggregate unpaid principal amount of each Series A Certificate
bears to the aggregate unpaid principal amount of all Series A
Certificates;
fifth, so much of such payments or amounts remaining as shall be
-----
required to reimburse all holders of the Certificates in full for payments
made pursuant to Section 5.03 (to the extent not previously reimbursed)
shall be distributed to such holders, and if the aggregate amount remaining
shall be insufficient to reimburse all such payments in full, it shall be
distributed ratably, without priority of any Certificate over any other, in
the proportion that the aggregate amount of the unreimbursed payments made
by each such holder pursuant to Section 5.03 bears to the aggregate amount
of the unreimbursed payments made by all holders of Certificates pursuant
to Section 5.03;
sixth, so much of such payments or amounts remaining as shall be
-----
required to pay to the holders of Series B Certificates all other amounts
payable pursuant to the indemnification provisions of Sections 8.1 and 8.2
of any Participation Agreement or pursuant to any other provision of any
Operative Agreement and secured hereunder (other than amounts payable
pursuant to clause "fifth" , "seventh" or "eighth" of this Section 3.03) to
----- ------- ------
the holders of Series B Certificates and remaining unpaid shall be
distributed to such holders to, and if the aggregate amount remaining shall
be insufficient to pay all such amounts in full, it shall be distributed
ratably, without priority of any Series B Certificate over any other, in
the proportion that the aggregate amount due each holder of Series B
Certificates under this clause "sixth" bears to the aggregate amount due
-----
all holders of Series B Certificates under this clause "sixth";
-----
TRUST INDENTURE
<PAGE>
54
seventh, so much of such payments or amounts remaining as shall be
-------
required to pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Series B Certificates, shall be
distributed to the holders of the Series B Certificates, and if the
aggregate amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any one Series B
Certificate over any other, in the proportion that the aggregate amount of
all accrued but unpaid interest to the date of distribution on each Series
B Certificate bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Series B Certificates;
eighth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate unpaid principal amount of all Series
B Certificates shall be distributed to the holders of the Series B
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series B Certificate over any other, in the proportion
that the aggregate unpaid principal amount of each Series B Certificate
bears to the aggregate principal amount of all Series B Certificates;
ninth, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate amount of all due but unpaid Special
Premium, if any, shall be distributed to the holders of the Series A
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series A Certificate over any other, in the proportion
that the aggregate amount of all due but unpaid Special Premium, if any,
bears to the aggregate amount of all due but unpaid Special Premium, if
any, on all Series A Certificates; and
tenth, the balance, if any, of such payments or amounts remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement.
SECTION 3.04. Certain Payments. (a) Except as otherwise provided in
----------------
this Indenture, any payments received by the Indenture Trustee for which
provision as to the application thereof is made in any Lease or any
Participation Agreement shall
TRUST INDENTURE
<PAGE>
55
be applied forthwith to the purpose for which such payment was made in
accordance with the terms thereof.
(b) Except as otherwise provided in Section 3.01(b), Section 3.02(a),
3.02(b) or Section 3.03, the Indenture Trustee will distribute, promptly upon
receipt, any indemnity payment received by it from the Owner Trustee, The Bank,
the Lessee or the Owner Participant in respect of the Indenture Trustee in its
individual capacity or any Loan Participant or Certificate Holder either
pursuant to Section 8 of any Participation Agreement or as Supplemental Rent or
otherwise, directly to the Person entitled thereto.
(c) Notwithstanding anything to the contrary contained in this
Indenture, any sums received by the Indenture Trustee which constitute (i)
Excluded Payments shall be distributed promptly upon receipt by the Indenture
Trustee directly to the Person or Persons entitled thereto or (ii) Collateral
solely in respect of the Series B Certificates shall be applied, first, as
-----
provided in clause "fifth" of Section 3.03 (but only to the holders of the
-----
Series B Certificates), second, as provided in clause "sixth" of Section 3.03,
------ -----
third, as provided in clause "seventh" of Section 3.03 and fourth, as provided
- ----- ------- ------
in clause "eighth" of Section 3.03.
------
SECTION 3.05. Other Payments. Any payments received by the Indenture
--------------
Trustee for which no provision as to the application thereof is made in this
Indenture shall be distributed by the Indenture Trustee (i) to the extent
received or realized at any time prior to the payment in full of all obligations
to the Certificate Holders secured by the Lien of this Indenture, in the order
of priority specified in Section 3.01, and (ii) to the extent received or
realized at any time after payment in full of all obligations to the Certificate
Holders secured by the Lien of this Indenture, in the following order of
priority: first, in the manner provided in the clause "first" of Section 3.03
----- -----
and second, in the manner provided in clause "tenth" of Section 3.03.
------ -----
SECTION 3.06. Payments to Owner Trustee. Any amounts distributed
-------------------------
hereunder by the Indenture Trustee to the Owner Trustee shall be paid to the
Owner Trustee by wire transfer of funds of the type received by the Indenture
Trustee at such office and to such account or accounts of such entity or
entities as shall be designated by notice from the Owner Trustee to the
Indenture Trustee from time to time. The Owner Trustee hereby
TRUST INDENTURE
<PAGE>
56
notifies the Indenture Trustee that unless and until the Indenture Trustee
receives notice to the contrary from the Owner Trustee, all amounts to be
distributed to the Owner Trustee pursuant to clause "third" of Section 3.01(a)
shall be distributed by wire transfer of funds of the type received by the
Indenture Trustee to such account of the Owner Participant as the Owner
- -Participant may specify by notice to the Indenture Trustee.
SECTION 3.07. Investment of Amounts Held by Indenture Trustee. Any
-----------------------------------------------
amounts held by the Indenture Trustee pursuant to the provisos set forth in
clauses "second" or "third" of Section 3.01(a), pursuant to Section 3.02,
------ -----
pursuant to the second proviso to the fourth sentence of Section 4.03 or
pursuant to any provision of any other Operative Agreement providing for amounts
to be held by the Indenture Trustee shall be invested by the Indenture Trustee
from time to time in Permitted Investments selected by the Owner Trustee or, in
the event the Owner Trustee shall so specify, as selected by the Lessee;
provided that if a Lease Event of Default shall have occurred and be continuing,
- --------
as selected by the Indenture Trustee. Unless otherwise expressly provided in
this Indenture, any income realized as a result of any such investment, net of
the Indenture Trustee's reasonable fees and expenses in making such investment,
shall be held and applied by the Indenture Trustee in the same manner as the
principal amount of such investment is to be applied and any losses, net of
earnings and such reasonable fees and expenses, shall be charged against the
principal amount invested. The Indenture Trustee shall not be liable for any
loss resulting from any investment required to be made by it under this
Indenture other than by reason of its willful misconduct or gross negligence,
and any such investment may be sold (without regard to its maturity) by the
Indenture Trustee without instructions whenever the Indenture Trustee reasonably
believes such sale is necessary to make a distribution required by this
Indenture.
SECTION 3.08. Series A Holders. By the acceptance of its Series A
----------------
Certificate, each holder of a Series A Certificate agrees that in the event
that such holder shall receive any payment on its Series A Certificate or
otherwise owing to it under the Operative Agreements which it is not entitled to
receive under Article III, it will hold any amount so received in trust for the
person entitled to such payment and will forthwith turn over such payment to the
Indenture Trustee in the form received to be applied as provided in Article III.
TRUST INDENTURE
<PAGE>
57
ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of The Bank and the Owner Trustee. (a) The
-------------------------------------------
Bank hereby covenants and agrees that it will not directly or indirectly
create, incur, assume or suffer to exist any Lessor Liens attributable to it
with respect to any of the properties or assets of the Indenture Estate and it
shall, at its own cost and expense, promptly take such action as may be
necessary to discharge duly any such Lessor Lien. The Bank will cause
restitution to be made to the Indenture Estate in the amount of any diminution
of the value thereof as the result of any Lessor Liens thereon attributable to
it.
(b) The Owner Trustee hereby covenants and agrees as follows:
(i) the Owner Trustee will duly and punctually perform its
obligations under each Lease and will duly and punctually pay the principal
of, Premium Amount, if any, and interest on, and all other amounts due
under the Certificates and hereunder in accordance with the terms of the
Certificates and this Indenture and all amounts payable by it to the
Certificate Holders under each Participation Agreement, the Special
Participation Agreement and the other Operative Agreements;
(ii) the Owner Trustee will not directly or indirectly create, incur,
assume or suffer to exist any Lessor Liens with respect to any of the
properties or assets of the Indenture Estate, and shall, at its own cost
and expense, promptly take such action as may be necessary to discharge
duly any such Lessor Lien, and the Owner Trustee will cause restitution to
be made to the Indenture Estate in the amount of any diminution of the
value thereof as the result of any Lessor Liens attributable to it;
(iii) in the event a responsible officer in the Corporate Trust
Administration of The Bank shall have actual knowledge of an Indenture Event
of Default or an Event of Loss, the Owner Trustee will give prompt written
notice of such Indenture Event of Default or Event of Loss to the Indenture
Trustee, the Lessee and each Certificate Holder;
TRUST INDENTURE
<PAGE>
58
(iv) the Owner Trustee will furnish to the Indenture Trustee, and the
Indenture Trustee will furnish to each Certificate Holder at the time
outstanding, promptly upon receipt thereof , duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
other instruments furnished to the Owner Trustee under each Lease,
including, without limitation, a copy of each report or notice received
pursuant to Section 11 of each Lease, to the extent that the same shall not
have been furnished directly to such Certificate Holder or the Indenture
Trustee pursuant to such Lease;
(v) the Owner Trustee will not (except as permitted herein) assign or
pledge or otherwise dispose of, so long as this Indenture shall remain in
effect and shall not have been terminated pursuant to Section 10.01, any of
its right, title or interest hereby assigned to anyone other than the
Indenture Trustee, and, with respect to such right, title and interest
hereby assigned, will not, except as provided in this Indenture, (1) accept
any payment from the Lessee or any sublessee, enter into any agreement
amending or supplementing any of the Indenture Documents, execute any
waiver or modification of, or consent under, the terms of any of the
Indenture Documents, (2) exercise any rights with respect to the Indenture
Estate or the Collateral, (3) settle or compromise any claim arising under
any of the Indenture Documents, or (4) submit or consent to the submission
of any dispute, difference or other matter arising under or in respect of
any of the Indenture Documents to arbitration thereunder; and
(vi) the Owner Trustee will not enter into any business or other
activity other than the business of owning the Aircraft, the leasing
thereof to the Lessee and the carrying out of the transactions contemplated
hereby and by each Lease, each Participation Agreement, the Trust Agreement
and the other Operative Agreements.
SECTION 4.02. Indenture Event of Default. "Indenture Event of
--------------------------- ------------------
Default" means any of the following events (whatever the reason for such
- -------
Indenture Event of Default and whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administration or governmental body):
TRUST INDENTURE
<PAGE>
59
(a) any Lease Event of Default; or
(b) the failure (other than by reason of a Lease Event of
Default) of the Owner Trustee to pay when due any payment of principal of
or Premium Amount, if any, or interest on any Certificate and such failure
shall have continued unremedied for five Business Days, or the failure
(other than by reason of a Lease Event of Default) of the Owner Trustee to
pay when due any other amount due and payable hereunder, or under any
Certificate, and such failure shall have continued unremedied for ten
Business Days after notice thereof to the Owner Trustee; or
(c) any Lessor Lien required to be discharged by The Bank pursuant to
Section 4.01(a) or required to be discharged by the Owner Trustee pursuant
to Section 4.01(b) (ii) or required to be discharged by the Owner
Participant pursuant to Section 6.2.6 of any Participation Agreement shall
remain undischarged for a period of 30 calendar days after a responsible
officer of The Bank, the Owner Trustee or the Owner Participant, as the
case may be, shall have actual knowledge of such Lessor Lien; or
(d) any representation or warranty made by the Owner
Trustee, any Existing Owner Trustee, any Initial Owner Participant, the
Owner Participant or the Trust Company herein or in any other Operative
Agreement, or made by any Person (other than either of the Guarantor of the
Series B Certificates as to the Guarantee) guaranteeing or supporting the
obligations of the Owner Participant under the Operative Agreements in its
guarantee or support agreement, shall prove to have been false or incorrect
when made in any material respect to the Certificate Holders; or
(e) any failure by the Owner Trustee to observe any of its other
covenants in Section 4.01(b) or any failure by the Owner Participant to
observe any of its covenants in Section 6.2.5, 6.2.9 or 6.2.10 of any
Participation Agreement, or disaffirmance or repudiation by any Person
(other than either of the Guarantors of the Series B Certificates as to the
Guarantee) guaranteeing or supporting the obligations of the Owner
Participant under the Operative Agreements of its obligations under its
guarantee or support agreement; or
TRUST INDENTURE
<PAGE>
60
(f) except as provided in the following paragraph (i) or (j), any
failure by the Owner Trustee or The Bank to observe or perform any other
covenant or obligation of the Owner Trustee or The Bank, as the case may
be, contained in this Indenture or in any Participation Agreement or any
failure by the Owner Participant to observe or perform any other covenant
or obligation of the Owner Participant contained in any Participation
Agreement or any failure by any Person (other than either of the Guarantors
of the Series B Certificates as to the Guarantee) guaranteeing or
supporting the obligations of the Owner Participant under the Operative
Agreements to perform any covenant or obligation of such Person under its
guarantee or support agreement which, in any case, is not remedied within a
period of 30 calendar days after notice thereof has been given to the Owner
Trustee, The Bank, the Owner Participant or such Person, as the case may
be; or
(g) either the Trust Estate or the Owner Trustee with respect thereto
(and not in its individual capacity) or the Owner Participant or any Person
(other than either of the Guarantors of the Series B Certificates as to the
Guarantee) guaranteeing or supporting the obligations of the Owner
Participant under the Operative Agreements shall (i) be generally not
paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, (iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a custodian, receiver, trustee or other
officer with similar powers of itself or of any substantial part of its
property, or (v) take corporate or comparable action for the purpose of any
of the foregoing; or
(h) a court or governmental authority of competent jurisdiction shall
enter an order appointing, without consent by the Trust Estate or the Owner
Trustee with respect thereto (and not in its individual capacity) or the
Owner Participant or any Person (other than either of the Guarantors of the
Series B Certificates as to the Guarantee) guaranteeing or supporting the
obligations of the Owner Participant under the Operative Agreements, a
custodian, receiver, trustee or other officer with similar powers with
TRUST INDENTURE
<PAGE>
61
respect to the Trust Estate or the Owner Trustee with respect thereto (and
not in its individual capacity) or the Owner Participant or any such
Person, or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Trust Estate or
the Owner Trustee with respect thereto (and not in its individual capacity)
or the Owner Participant or any such Person, or if any petition for any
such relief shall be filed against the Trust Estate or the Owner Trustee
with respect thereto (and not in its individual capacity) or the Owner
Participant or any such Person, and such petition shall not be dismissed
within, or the order shall be unstayed and remain in effect for a period
of, 60 days; or
(i) any failure by The Bank to give notice, or to resign, if required
by Section 6.3.1.5 of any Participation Agreement, or (if The Bank shall
have given such notice and resigned as required by said Section 6.3.1.5) a
successor Owner Trustee shall not have been appointed and qualified within
30 days after The Bank's ceasing to be a "citizen of the United States"
within the meaning of Section 101(16) of the Act; or
(j) the Owner Trustee, The Bank, the Owner Participant or the Owners
shall do or fail to do any act, or shall meet or fail to meet any
condition, and as a result thereof the lien of this Indenture shall cease
to be a valid first priority lien on the Indenture Estate or shall
otherwise be adversely affected or the security interest granted in the
Pledge Agreement shall cease to be a duly perfected first priority security
interest in the Collateral covered thereby.
SECTION 4.03. Certain Cure Rights. In the event of any default by
-------------------
the Lessee in the payment when due (after giving effect to any applicable grace
period) of any installment of Basic Rent due under any Lease, the Owner
Participant (which term shall, except as otherwise expressly provided below, be
deemed to include, solely for purposes of this Section 4.03, any holder of a
Series B Certificate) may, within two Business Days after such default, without
the consent or concurrence of any Certificate
TRUST INDENTURE
<PAGE>
62
Holder, pay, as provided in Section 2.05, for application in accordance with
Section 3.01 a sum equal to the amount of all (but not less than all) such
overdue Basic Rent. In the event of any default by the Lessee in any obligation
under any Lease other than the payment of Basic Rent, if such default can be
remedied by the payment of money and the Owner Participant shall furnish the
Owner Trustee with all funds necessary for remedying such default, the Owner
Participant may, within five Business Days after the occurrence of such default,
without the consent or concurrence of any Certificate Holder, instruct the Owner
Trustee to exercise the Owner Trustee's rights under Section 20 of such Lease to
perform such obligation on behalf of the Lessee (and the Owner Trustee hereby
agrees to accept such instruction and, upon failure to do so, the holders of the
Series B Certificates may exercise such right on the Owner Trustee's behalf).
Solely for the purpose of determining whether there exists an Indenture Event of
Default (a) any timely payment by the Owner Participant pursuant to, and in
compliance with, the first sentence of this Section 4.03 shall be deemed to
remedy (but solely for purposes of this Indenture) any default by the Lessee in
the payment of installments of Basic Rent theretofore due and payable and to
remedy (but solely for purposes of this Indenture) any default by the Owner
Trustee in the payment of any amount of principal and interest due and payable
under the Certificates and (b) any timely performance by the Owner Trustee (or
the holders of the Series B Certificates) of any obligation of the Lessee under
the relevant Lease pursuant to, and in compliance with, the second sentence of
this Section 4.03 shall be deemed to remedy (but solely for purposes of this
Indenture) any Lease Event of Default to the same extent that like performance
by the Lessee itself would have remedied such Lease Event of Default (but no
such remedy shall relieve the Lessee of its duty to pay all Rent and perform all
of its obligations pursuant to the relevant Lease). If, on the basis specified
in the preceding sentence, any Lease Events of Default shall have been remedied,
then any declaration pursuant to this Indenture that the Certificates are due
and payable or that an Indenture Event of Default exists hereunder, based solely
upon such Lease Events of Default, shall be deemed to be rescinded, and the
Owner Participant or the holders of the Series B Certificates shall (to the
extent of any such payments made by it or them) be subrogated to the rights of
the holders of the Certificates under Section 3.01(a), to receive from the
Indenture Trustee such payment of overdue Rent (and the payment of interest on
account of such Rent being overdue) and shall be entitled, so long as no other
Indenture Event of Default or
TRUST INDENTURE
<PAGE>
63
Indenture Default shall have occurred and be continuing or would result
therefrom, to receive, subject to the provisions of this Indenture, such payment
upon receipt thereof by the Indenture Trustee; provided that the Owner
--------
Participant shall not otherwise attempt to recover any such amount paid by it on
behalf of the Lessee pursuant to this Section 4.03 except by demanding of the
Lessee payment of such amount or by commencing an action at law against the
Lessee for the payment of such amount; provided, further, that at no time while
-------- -------
an Indenture Event of Default shall have occurred and be continuing shall any
such demand be made or shall any such action be commenced (or continued) , and
any amounts nevertheless received by the Owner Participant in respect thereof
shall be held in trust for the benefit of, and promptly paid to, the Indenture
Trustee for distribution as provided in Section 3.03; and further provided that:
------- --------
(x) this Section 4.03 shall not apply with respect to any default in
the payment of Basic Rent due under any Lease if the Lessee itself shall
have theretofore failed to pay Basic Rent in the manner required under such
Lease (after giving effect to any applicable grace period) on (i) each of
the two Rent Payment Dates immediately preceding the date of such default,
or (ii) a total of six Rent Payment Dates;
(y) the second sentence of this Section 4.03 shall cease to apply,
and no payment by the Owner Participant in respect of Supplemental Rent or
performance of any obligation of the Lessee under any Lease by the Owner
Trustee shall be deemed to remedy or to have remedied any Lease Event of
Default for the purposes of this Indenture, if during the twelve-month
period immediately preceding the relevant default by the Lessee there shall
have been expended by the Owner Participant pursuant to the second sentence
of this Section 4.03 (and which shall have not been reimbursed by the
Lessee itself to the Owner Trustee for distribution to the Owner
Participant) an amount in excess of $2,000,000; and
(z) neither the Owner Trustee nor the Owner Participant shall have
the right to cure any Lease Event of Default except as specified in this
Section 4.03.
SECTION 4.04. Remedies. (a) If an Indenture Event of Default
--------
shall have occurred and be continuing and so long as the same shall be
continuing unremedied, then and in every such case,
TRUST INDENTURE
<PAGE>
64
the Indenture Trustee may exercise any or all of the rights and powers and
pursue any and all of the remedies pursuant to this Article IV and shall have
and may exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code and, in the event such Indenture Event of Default is an
Indenture Event of Default referred to in paragraph (a) of Section 4.02 and
Section 4.03 hereof shall either not apply or shall have ceased to apply with
respect to the relevant Lease Event of Default, any and all of the remedies
pursuant to Section 15 of any Lease and all of the rights and remedies of a
lessor under applicable law and may take possession of all or any part of the
properties covered or intended to be covered by the Lien and security interest
created hereby or pursuant hereto and may exclude the Owner Participant, the
Owner Trustee and the Lessee and all persons claiming under any of them wholly
or partly therefrom. Without limiting any of the foregoing, it is understood and
agreed that the Indenture Trustee may exercise any right of sale of any Aircraft
available to it, even though it shall not have taken possession of such Aircraft
and shall not have possession thereof at the time of such sale. It is further
understood and agreed that if the Indenture Trustee shall proceed to foreclose
the Lien of this Indenture, it shall, to the extent that it is then entitled to
do so hereunder and under any Lease, and is not then stayed or prevented from
doing so by operation of law or otherwise, proceed (to the extent it has not
already done so) to exercise one or more of the remedies referred to in Section
15 of such Lease (as it shall determine in its sole good faith discretion);
provided, however, that the Indenture Trustee may not foreclose the Lien of this
- --------- -------
Indenture when stayed or otherwise prevented from exercising remedies under the
Lease during the period ending on the earlier of (i) the expiration of 60 days
from the date the Indenture Trustee was first stayed or otherwise prevented from
exercising one or more of the remedies referred to in Section 15 of the Lease
and (ii) the date the Owner Trustee or the Indenture Trustee is entitled to take
possession of such Aircraft after the occurrence of such Indenture Event of
Default.
(b) If an Indenture Event of Default referred to in clause (g) or (h)
of Section 4.02 shall have occurred, or a Lease Event of Default of the type
referred to in clause (g) or (h) of said Section 4.02 shall have occurred with
respect to the Lessee, then and in every such case the unpaid principal of all
Certificates then outstanding, together with interest accrued but unpaid
thereon, Premium Amount, and all other amounts due to the holders of the
Certificates thereunder and hereunder and under
TRUST INDENTURE
<PAGE>
65
the other Operative Agreements, shall, unless the Indenture Trustee acting upon
the instructions of the Majority in Interest of Certificate Holders shall
otherwise direct, immediately and without further act become due and payable,
without presentment, demand, protest or notice, all of which are hereby waived.
(c) If any other Indenture Event of Default shall have occurred and
be continuing, then and in every such case, the Indenture Trustee may at any
time, by written notice or notices to the Owner Trustee, declare all the
Certificates to be due and payable, whereupon the unpaid principal of all
Certificates then outstanding, together with accrued but unpaid interest
thereon, Premium Amount, and all other amounts due to the holders of the
Certificates thereunder, hereunder and under the other Operative Agreements,
shall immediately and without further act become due and payable without
presentment, demand, protest or other notice, all of which are hereby waived.
(d) Each Certificate Holder shall be entitled, at any sale pursuant
to Section 15 of any Lease or this Article IV, to credit against any purchase
price bid at such sale by such Certificate Holder all or any part of the unpaid
obligations owing to such Certificate Holder and secured by the Lien of this
Indenture; provided, however, that if a holder of a Series B Certificate shall
-------- -------
be the purchaser at any such sale as contemplated hereby, such holder may apply
the amount then due under its Series B Certificate against the purchase price of
the Indenture Estate, but only if and to the extent that such purchase price
exceeds the aggregate unpaid principal amount of all Series A Certificates
together with accrued and unpaid interest thereon to the date of payment on
unpaid Premium Amount plus all other sums then due and payable to the holders of
the Series A Certificates thereunder, hereunder or under the other Operative
Agreements. The Indenture Trustee and the Certificate Holders shall, upon any
such purchase, acquire good title to the property so purchased, to the extent
permitted by applicable law, free of all rights of redemption.
SECTION 4.05. Return of Aircraft, etc. (a) If an Indenture Event of
-----------------------
Default shall have occurred and be continuing, subject to Section 4.03, at the
request of the Indenture Trustee the Owner Trustee shall promptly execute and
deliver to the Indenture Trustee such instruments of title and other documents
as the Indenture Trustee may deem necessary or advisable to enable the Indenture
Trustee or an agent or representative
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designated by the Indenture Trustee, at such time or times and place or places
as the Indenture Trustee may specify, to obtain possession of all or any part of
the Indenture Estate to which the Indenture Trustee shall at the time be
entitled hereunder. If the Owner Trustee shall for any reason fail to execute
and deliver such instruments and documents after such request by the Indenture
Trustee, The Indenture Trustee may (i) obtain a judgment conferring on the
indenture trustee the right to immediate possession and requiring the owner
Trustee to execute and deliver such instruments and documents to the Indenture
Trustee, to the entry of which judgment the owner trustee hereby specifically
consents, and (ii) pursue all or part of the Indenture Estate wherever such
estate may be found and may enter any of the premises of the lessee wherever it
may be or be supposed to be and search for and take possession of and remove the
same. All expenses of obtaining such judgment or of pursuing, searching for and
taking such property shall, until paid, be secured by the Lien of this
Indenture.
(b) Upon every such taking of possession, the Indenture Trustee may,
from time to time, at the expense of the Indenture Estate, make all such
expenditures for maintenance, insurance, repairs, replacements, alterations,
additions and improvements to and of the Indenture Estate, as it may be
instructed by a Majority in Interest of Certificate Holders. In each such case,
the Indenture Trustee shall have the right to maintain, use, operate, store,
lease, control or manage the Indenture Estate and to carry on the business and,
without limiting the express provisions of Section 5.09, to exercise all rights
and powers of the Owner Participant and the Owner Trustee relating to the
Indenture Estate, as the Indenture Trustee shall be instructed by a Majority in
Interest of Certificate Holders, including the right to enter into any and all
such agreements with respect to the maintenance, insurance, use, operation,
storage, leasing, control, management or disposition of the Indenture Estate or
any part thereof as the Indenture Trustee may determine; and except for Excluded
Payments, the Indenture Trustee shall be entitled to collect and receive
directly all tolls, rents (including Rent), revenues, issues, income, products
and profits of the Indenture Estate and every part thereof. Such tolls, rents
(including Rent) , revenues, issues, income products and profits shall be
applied to pay the expenses of the use, operation, storage, leasing, control,
management or disposition of the Indenture Estate and of conducting the business
thereof, and of all maintenance, repairs, replacements, alterations,
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additions and improvements, and to make all payments which the Indenture Trustee
may be required or may elect to make, if any, for taxes, assessments, insurance
or other proper charges upon the Indenture Estate or any part thereof (including
the employment of engineers and accountants to examine, inspect and make reports
upon the properties and books and records of the Owner Trustee), and all other
payments which the Indenture Trustee may be required or authorized to make under
any provision of this Indenture, as well as just and reasonable compensation for
the services of the Indenture Trustee, and of all persons properly engaged and
employed by the Indenture Trustee.
(c) If an Indenture Event of Default shall have occurred and be
continuing, subject to Section 4.03, the Indenture Trustee may take any and all
actions as may be directed by the holders of the Series A Certificates or the
Series B Certificates, as the case may be, in respect of the Collateral.
SECTION 4.06. Remedies Cumulative. Each and every right, power and
-------------------
remedy given to the Indenture Trustee specifically or otherwise in this
Indenture shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law,
in equity or by statute, and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by the Indenture
Trustee, and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to exercise at the
same time or thereafter any other right, power or remedy. No delay or omission
by the Indenture Trustee 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 on the part of the Owner Trustee or the
Lessee or to be an acquiescence therein.
SECTION 4.07. Discontinuance of Proceedings. In case the Indenture
-----------------------------
Trustee shall have instituted any proceeding to enforce any right, power or
remedy under this Indenture by foreclosure, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Indenture Trustee, then and in every such
case the Owner Trustee, the Indenture Trustee and the Lessee shall, subject to
any determination in such proceedings, be restored to their former positions and
rights hereunder with
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respect to the Indenture Estate, and all rights, remedies and powers of the
Indenture Trustee shall continue as if no such proceedings had been instituted.
SECTION 4.08. Waiver of Past Defaults. Upon written instructions
-----------------------
from a Majority in Interest of Certificate Holders, the Indenture Trustee shall
waive any past Indenture Default or Indenture Event of Default hereunder and its
consequences and upon any such waiver such Default shall cease to exist and any
Indenture Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture, but no such waiver shall extend to any
subsequent or other Indenture Default or Indenture Event of Default or impair
any right consequent thereon; provided, however, that in the absence of written
-------- -------
instructions from all Certificate Holders, the Indenture Trustee shall not waive
any Indenture Default (i) in the payment of the principal of, or Premium Amount
or interest on, or other amounts due under, any Certificate then outstanding, or
(ii) in respect of a covenant or provision hereof which, under the proviso to
the first sentence of Section 9.01 or under the second sentence of Section 9.01,
cannot be waived without the consent of each Certificate Holder.
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices.
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(a) Notice of Indenture Event of Default. In the event the Indenture
------------------------------------
Trustee shall have knowledge of an Indenture Event of Default or of an Indenture
Default arising from a failure to pay Basic Rent, the Indenture Trustee shall
forthwith give telephone notice thereof to the Owner Trustee, the Owner
Participant, the Lessee and the Certificate Holders (promptly confirmed by telex
or facsimile to such Persons not later than one Business Day thereafter).
Subject to the terms of Sections 4.08 and 5.03, the Indenture Trustee shall take
such action, or refrain from taking such action, with respect to any such
Indenture Event of Default (including with respect to the exercise of any rights
or remedies hereunder) as the Indenture Trustee shall be instructed in writing
by the Majority in Interest of Certificate Holders. Subject to the provisions
of Section 5.03, if the Indenture Trustee shall not have received
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instructions as above provided within 20 calendar days after mailing notice of
such Indenture Event of Default to the Certificate Holders, the Indenture
Trustee may, subject to instructions thereafter received pursuant to the
preceding provisions of this Section 5.01, take such action, or refrain from
taking such action, but shall be under no duty to take or refrain from taking
any action, with respect to any such Indenture Event of Default as it shall
determine advisable in the best interests of the Certificate Holders and shall
use the same degree of care and skill in connection therewith as a prudent man
would use under the circumstances in the conduct of his own affairs; provided
that the Indenture Trustee may not sell any Airframe or any Engine without the
consent of the Majority in Interest of Certificate Holders. In the event the
Indenture Trustee shall at any time foreclose or otherwise enforce this
Indenture, the Indenture Trustee shall forthwith notify the Certificate Holders,
the Owner Trustee, the Owner Participant and the Lessee. For all purposes of
this Indenture, in the absence of actual knowledge on the part of an officer in
its Corporate Trust Department, in the case of the Indenture Trustee, or its
Corporate Trust Department, in the case of the Owner Trustee, the Indenture
Trustee or the Owner Trustee, as the case may be, shall not be deemed to have
knowledge of any Indenture Default, any Lease Default or any Lease Event of
Default (except, in the case of the Indenture Trustee, the failure of the Lessee
to pay any installment of Basic Rent when due, which failure shall constitute
knowledge of an Indenture Default) unless notified in writing by the Lessee, the
Owner Trustee or one or more Certificate Holders. This Section 5.01, however, is
subject to the condition that, if at any time after the principal of the
Certificates shall have become due and payable pursuant to Section 4.04(b) or
(c) and before any judgment or decree for the payment of the money so due, or
any thereof, shall be entered, all overdue payments of interest upon the
Certificates and all other amounts payable under the Certificates (except the
principal of the Certificates which by such declaration shall have become
payable) shall have been duly paid, and every other Indenture Default and
Indenture Event of Default with respect to any covenant or provision of this
Indenture shall have been cured, then and in every such case a Majority in
Interest of Certificate Holders may (but shall not be obligated to) , by written
instrument filed with the Indenture Trustee, rescind and annul such acceleration
and its consequences; but no such rescission or annulment shall extend to or
affect any subsequent
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Indenture Default or Indenture Event of Default or impair any right consequent
thereon.
(b) Other Notices. The Indenture Trustee will furnish to each
-------------
Certificate Holder promptly upon receipt thereof, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
other instruments furnished to the Indenture Trustee under any Operative
Agreements or the Collateral or received from the Owner Trustee pursuant to
Section 4.01(b) (iv) to the extent the same shall not have been otherwise
directly distributed to the Certificate Holders pursuant to the express
provision of any other Operative Agreement or the Collateral.
SECTION 5.02. Action Upon Instructions. (a) Subject to the terms of
------------------------
Sections 4.08, 5.01, 5.03 and 5.09, upon the written instructions at any time
and from time to time of a Majority in Interest of Certificate Holders, the
Indenture Trustee shall take such of the following actions as may be specified
in such instructions: (i) exercise such election or option, or make such
decision or determination, or give such notice, consent, waiver or approval or
exercise such right, remedy or power or take such other action hereunder, under
any other Operative Agreement or under the Collateral or in respect of any part
or all of the Indenture Estate as shall be specified in such instructions; (ii)
take such action with respect to, or to preserve or protect, the Indenture
Estate (including the discharge of Liens and the Collateral as shall be
specified in such instructions and as are consistent with this Indenture) or the
Collateral; and (iii) take such other action in respect of the subject matter of
this Indenture as is consistent with the terms hereof and the other Operative
Agreements. The Indenture Trustee will execute and the Owner Trustee will file
or cause to be filed such continuation statements with respect to financing
statements relating to the security interest created hereunder in the Indenture
Estate as may be specified from time to time in written instructions of a
Majority in Interest of Certificate Holders (which instructions may, by their
terms, be operative only at a future date and which shall be accompanied by the
execution form of such continuation statement so to be filed).
(b) If any Lease Event of Default shall have occurred and be
continuing, on request of a Majority in Interest of Certificate Holders, the
Indenture Trustee shall exercise such remedies under Section 15 of any Lease as
shall be specified in
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such request. The Indenture Trustee agrees to provide to the Certificate
Holders, the Owner Trustee and the Owner Participant concurrently with such
action by the Indenture Trustee, notice of such action by the Indenture Trustee,
provided that the failure to give any such notice to such Certificate Holders,
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the Owner Trustee or the Owner Participant shall not affect the validity of such
action.
SECTION 5.03. Indemnification. The Indenture Trustee shall not be
---------------
required to take any action or refrain from taking any action under Sections
5.01 (other than the first sentence thereof) or 5.02 or Article IV or in respect
of the Collateral unless the Indenture Trustee shall have been indemnified by
all of the Certificate Holders (or, if in respect of the Collateral, the holders
of the Series entitled to instruct the Indenture Trustee with respect thereto)
against any liability, cost or expense (including counsel fees) which may be
incurred in connection therewith. The Indenture Trustee shall not be under any
obligation to take any action under this Indenture or in respect of the
Collateral and nothing in this Indenture contained shall require the Indenture
Trustee 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 Indenture Trustee shall not be
required to take any action under Section 5.01 (other than the first sentence
thereof) or 5.02 or Article IV, nor shall any other provision of this Indenture
be deemed to impose a duty on the Indenture Trustee to take any action, if the
Indenture Trustee shall have been advised by counsel that such action is
contrary to the terms hereof or is otherwise contrary to law. Notwithstanding
anything that may be to the contrary in the Operative Agreements, the holders of
the Series B Certificates shall have no obligation to indemnify the Indenture
Trustee if the holders of the Series A Certificates were grossly negligent or
were engaging in willful misconduct in giving their instructions to the
Indenture Trustee to take or refrain from taking any action.
SECTION 5.04. No Duties Except as Specified in Indenture or
---------------------------------------------
Instructions. The Indenture Trustee shall not have any duty or obligation to
- ------------
use, operate, store, lease, control, manage, sell, dispose of or otherwise deal
with any Aircraft or any other part of the Indenture Estate or the Collateral,
or to
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otherwise take or refrain from taking any action under, or in connection with,
this Indenture or any part of the Indenture Estate, except as expressly provided
by the terms of this Indenture or as expressly provided in written instructions
from Certificate Holders as provided in this Indenture; and no implied duties or
obligations shall be read into this Indenture against the Indenture Trustee.
The Indenture Trustee 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 7.01) promptly take such action as may be
necessary to duly discharge all Liens on any part of the Indenture Estate or the
Collateral which result from claims against it in its individual capacity not
related to the mortgaging to it of any Aircraft or the administration of the
Indenture Estate or the Collateral or any other transaction contemplated by or
pursuant to the Special Participation Agreement or any document included in the
Indenture Estate.
SECTION 5.05. No Action Except Under Leases Participation Agreements,
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Trust Indenture or Instructions. The Owner Trustee and the Indenture Trustee
- -------------------------------
agree that they will not use, operate, store, lease, control, manage, sell,
dispose of or otherwise deal with any Aircraft or any other part of the
Indenture Estate or the Collateral except (i) in accordance with the terms of
the relevant Lease or the relevant Participation Agreement, or (ii) in
accordance with the powers granted or reserved to, or the authority conferred
upon, the Owner Trustee and the Indenture Trustee pursuant to this Indenture and
in accordance with the express terms hereof.
SECTION 5.06. Replacement Engines. At any time and from time to
-------------------
time, any Engine which has been (or is to be treated as if the same had been)
subject to an Event of Loss and may be replaced under Section 10.2 of the Lease
to which such Engine is/was subject by a Replacement Engine shall be replaced in
accordance with the provisions of this Section 5.06 and the provisions of
Section 10.2 of such Lease, and the Owner Trustee shall, from time to time,
direct the Indenture Trustee to execute and deliver to or as directed in writing
by the Owner Trustee an appropriate instrument releasing such Engine as
appropriate from the Lien of this Indenture and the Indenture Trustee shall
execute and deliver such instrument as aforesaid, but only upon receipt by or
deposit with the Indenture Trustee of the following:
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(a) A written request from the Owner Trustee, requesting such release
and specifically describing the Engine(s) so to be released.
(b) A certificate signed by a duly authorized officer of the Lessee
stating the following:
(i) a description of the Engine which shall be identified by
manufacturer's name and serial number;
(ii) a description of the Replacement Engine (including the
manufacturer's name and serial number) to be received as consideration
for the Engine to be released;
(iii) that on the date of the Indenture Supplement relating to
the Replacement Engine the Owner Trustee will be the legal owner of
such Replacement engine free and clear of all liens except permitted
Liens, that such Replacement Engine will on such date be in good
working order and condition, and that such Replacement Engine is the
same or an improved model as the engine to be released;
(iv) the fair market value of the Replacement Engine as of the
date of such certificate (which value shall not be less than the then
fair market value of the Engine requested to be released, assuming
such Engine was in the condition and repair required to be maintained
under such Lease (but without regard to hours and cycles until
overhaul));
(v) the fair market value of the Engine to be released
(immediately prior to the date such Engine suffered an Event of Loss);
(vi) that no Lease Default has occurred and is continuing or
would result from the making and granting of the request for release
and the addition of such Replacement Engine;
(vii) that the release of the Engine so to be released will not
impair the security of the Indenture or be in contravention of any of
the provisions of this Indenture; and
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(viii) that each of the conditions specified in Section 10.2.2 of
such Lease with respect to such Replacement Engine have been
satisfied.
(c) The appropriate instruments (i) transferring to the Owner Trustee
title to the Replacement Engine to be received as consideration for the
Engine to be released and (ii) assigning to the Owner Trustee the benefit
of all manufacturer's and vendor's warranties generally available with
respect to such Replacement Engine, and an Indenture Supplement subjecting
such Replacement Engine to the Lien of this Indenture.
SECTION 5.07. Indenture Supplements for Replacements. In the event of
--------------------------------------
a Replacement Engine being substituted as contemplated by Section 10.2 of any
Lease, the Owner Trustee and the Indenture Trustee agree for the benefit of the
Certificate Holders and the Lessee, subject to fulfillment of the conditions
precedent and compliance by the Lessee with its obligations set forth in Section
10.2 of such Lease, to execute and deliver an Indenture Supplement with respect
thereto as contemplated by Section 5.06(c), and, provided no Indenture Default
or Indenture Event of Default shall have occurred and be continuing, to execute
and deliver to the Lessee an appropriate instrument releasing the Engine being
replaced from the Lien of the Indenture.
SECTION 5.08. Effect of Replacement. In the event of the
---------------------
substitution of a Replacement Engine pursuant to Section 10.2 of any Lease and
Section 5.06, all provisions of this Indenture relating to the Engine or Engines
being replaced shall be applicable to such Replacement Engine or Engines with
the same force and effect as if such Replacement Engine or Engines were the same
engine or engines as the Engine or Engines being replaced but for the Event of
Loss with respect to the Engine or Engines being replaced.
SECTION 5.09. Certain Rights of Owner Trustee and Owner Participant.
-----------------------------------------------------
Notwithstanding any other provisions of this Indenture, including the Granting
Clause, the following rights shall be reserved to the Owner Trustee or the Owner
Participant, as the case may be (as separate and independent rights) to the
extent described herein:
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(a) at all times the Owner Trustee shall have the right, together with
the Indenture Trustee, to receive from the Lessee all notices,
certificates, reports, filings, opinions of counsel and other documents and
all information which any thereof is permitted or required to give or
furnish to the Owner Trustee or the Lessor pursuant to any Indenture
Document;
(b) so long as no Indenture Default shall have occurred and be
continuing, the Owner Trustee shall have the right together with the
Indenture Trustee (consent of both being required except in the case of
clause (iii) below) (i) to approve as satisfactory any other accountants,
inspectors, engineers or counsel to render services for or issue opinions
to the Owner Trustee pursuant to express provisions of the Indenture
Documents, (ii) to grant such consents, approvals and waivers as may be
requested under the Indenture Documents and (iii) to exercise inspection
rights pursuant to Section 12 of any Lease;
(c) the Owner Trustee shall have the non-exclusive right, as Lessor,
to seek specific performance of the covenants of the Lessee under any Lease
relating to the protection, insurance, maintenance, possession and use of
the Aircraft, and to maintain separate insurance with respect to any
Aircraft pursuant to Section 11.6 of the Lease to which such Aircraft is
subject (provided that no such insurance impairs or reduces coverage under
any insurance required to be maintained by the Lessee under Section 11 of
any Lease); and
(d) at all times each of the Owner Trustee (as Owner Trustee, as The
Bank and as Lessor) and the Owner Participant shall have the right, to the
exclusion of the Indenture Trustee, to demand, collect, sue for or receive
the payment of Excluded Payments due and payable to it.
Notwithstanding the foregoing, and subject to the provisions of Sections 4.03
and 4.04(a), the Indenture Trustee shall at all times have the right, to the
exclusion of the Owner Trustee and the Owner Participant to exercise the
remedies set forth in Section 15 of any Lease and in Article IV hereof.
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ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01. Acceptance of Trusts and Duties. The Indenture Trustee
-------------------------------
Accepts The duties hereby created and applicable to it and agrees to perform the
same but only upon the terms of this Indenture and agrees to receive and
disburse all monies constituting part of the Indenture Estate or Collateral in
accordance with the terms hereof. the Bank and the indenture trustee, in their
individual capacities, shall not be answerable or accountable under any
circumstances, except (a) for their own willful misconduct or gross negligence,
(b) in the case of the indenture trustee, as provided in section 2.05 or the
last sentence of section 5.04, and (c) for liabilities that may result, in the
case of the bank, from the inaccuracy or nonperformance of any representation or
warranty or covenant of the bank expressly made in its individual capacity in
the special participation Agreement or any other operative agreement or in
section 4.01(a) or 6.03 or, in the case of the indenture trustee, from the
inaccuracy of any representation or warranty of the indenture trustee made in
its individual capacity in the Special Participation agreement or any other
Operative Agreement. None of the Owner Participant, the bank or the Indenture
Trustee shall be liable for any action or inaction of any other.
SECTION 6.02. Absence of Duties. In the case of the Indenture
-----------------
Trustee, except in accordance with written instructions furnished pursuant to
Section 5.01 or 5.02, and except as provided in, and without limiting the
generality of, Sections 5.03 and 5.04 and, in the case of the Owner Trustee,
except as provided in Section 4.01(b), the Indenture Trustee and the Owner
Trustee shall have no duty (i) to see to any registration of any Aircraft or any
recording or filing of any Lease or of this Indenture or any other document, or
to see to the maintenance of any such registration, recording or filing, (ii) to
see to any insurance, whether or not the Lessee shall be in default with respect
thereto, (iii) to see to the payment or discharge of any Lien of any kind
against any part of the Trust Estate or the Indenture Estate, (iv) to confirm,
verify or inquire into the failure to receive any financial statements of the
Lessee or (v) to inspect any Aircraft at any time or ascertain or inquire as to
the performance or observance of any of the Lessee's covenants under the Lease
with respect to such Aircraft. Except as expressly otherwise herein, in the
Special Participation
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Agreement and in any Participation Agreement provided, the Loan Participants,
the Certificate Holders and the Owner Participant shall not have any duty or
responsibility hereunder, including, without limitation, any of the duties
mentioned in clauses (i) through (v) above.
SECTION 6.03. No Representations or Warranties as to Aircraft or
--------------------------------------------------
Documents. NEITHER THE INDENTURE TRUSTEE (INDIVIDUALLY OR AS TRUSTEE) NOR THE
- ---------
OWNER TRUSTEE NOR THE BANK MAKES OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS,
VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, QUALITY, DURABILITY,
OPERATION, MERCHANTABILITY, CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR
PURPOSE OF ANY AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF ANY AIRCRAFT OR ANY PART THEREOF OR ANY OTHER
REPRESENTATION OR WARRANTY WITH RESPECT TO ANY AIRCRAFT OR ANY PART THEREOF
WHATSOEVER, except that The Bank in its individual capacity warrants that (i) on
the Delivery Date the Owner Trustee shall have received whatever title was
conveyed to it on the Delivery Date, and (ii) on the Closing Date each Aircraft
shall be free and clear of Lessor Liens attributable to The Bank. Neither The
Bank nor the Indenture Trustee makes or shall be deemed to have made any
representation or warranty as to the validity, legality or enforceability of
this Indenture, the Trust Agreement, the Certificates or any Indenture Document
or as to the correctness of any statement contained in any thereof, except for
the representations and warranties of The Bank and the Indenture Trustee made in
their respective individual capacities under this Indenture or in the Special
Participation Agreement. The Loan Participants, the Certificate Holders and the
Owner Participant make no representation or warranty hereunder whatsoever.
SECTION 6.04. No Segregation of Monies; No Interest. Any monies paid
-------------------------------------
to or retained by the Indenture Trustee pursuant to any provision hereof and not
then required to be distributed to any Certificate Holder, the Lessee or the
Owner Trustee as provided in Article III need not be segregated in any manner
except to the extent required by law, and may be deposited under such general
conditions as may be prescribed by law, and the Indenture Trustee shall not
(except as otherwise provided in
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Section 3.07) be liable for any interest thereon; provided that any payments
--------
received or applied hereunder by the Indenture Trustee shall be accounted for by
the Indenture Trustee so that any portion thereof paid or applied pursuant
hereto shall be identifiable as to the source thereof.
SECTION 6.05. Reliance; Agents; Advice of Counsel. Neither the Owner
-----------------------------------
Trustee nor the Indenture Trustee shall 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. The
Owner Trustee and the Indenture Trustee may accept a copy of a resolution of the
Board of Directors of any party to any Participation Agreement or the Special
Participation Agreement, certified by the Secretary or an Assistant Secretary
thereof as duly adopted and in full force and effect, as conclusive evidence
that such resolution has been duly adopted and that the same is in full force
and effect; provided that the Owner Trustee shall accept the same as conclusive
evidence of adoption and that the same are in full and force and effect in
respect of the resolutions delivered pursuant to Section 2.1(c) (vii) of the
Participation Agreement. As to the aggregate unpaid principal amount of
hereof rely on a certificate signed by any Vice President or other authorized
corporate trust officer of the Indenture Trustee. As to any fact or matter
relating to the Lessee the manner of ascertainment of which is not specifically
described herein, the Owner Trustee and the Indenture Trustee may for all
purposes hereof rely on a certificate, signed by a duly authorized officer of
the Lessee, as to such fact or matter, and such certificate shall constitute
full protection to the Owner Trustee and the Indenture Trustee for any action
taken or omitted to be taken by them in good faith in reliance thereon. The
Indenture Trustee shall assume, and shall be fully protected in assuming, that
the Owner Trustee is authorized by the Trust Agreement to enter into this
Indenture and to take all action to be taken by it pursuant to the provisions
hereof, and shall not inquire into the authorization of the Owner Trustee with
respect thereto. In the administration of the trusts hereunder, the Owner
Trustee and the Indenture Trustee each may execute any of the trusts or powers
hereof and perform its powers and duties hereunder directly or through agents or
attorneys and may, at the expense of the Indenture Estate, advise with counsel,
accountants and other skilled
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persons to be selected and retained by it, and the Owner Trustee and the
Indenture Trustee shall riot be liable for anything done, suffered or omitted in
good faith by them in accordance with the written advice or written opinion of
any such counsel, accountants or other skilled persons.
SECTION 6.06. Capacity in Which Acting. Each of the Owner Trustee
------------------------
and the Indenture Trustee acts hereunder solely as trustee herein, and, in the
case of the Owner Trustee, as provided in the Trust Agreement, and not in its
individual capacity, except as otherwise expressly provided in the Operative
Agreements.
SECTION 6.07. Compensation. The Indenture Trustee shall be entitled
------------
to reasonable compensation, including expenses and disbursements, for all
services rendered hereunder and shall have a priority claim on the Indenture
Estate for the payment of such compensation, to the extent that such
compensation shall not be paid by the Lessee or others, as required under the
Operative Agreements, and shall have the right to use or apply any monies held
by it hereunder in the Indenture Estate toward such payments; it being
acknowledged that, provided that so long as (i) no Indenture Default or
Indenture Event of Default exists or (ii) this Indenture is not amended (x) in a
manner that increases the duties of the Indenture Trustee or (y) in a manner
that requires the Indenture Trustee to devote an amount of time in connection
with such amendment that it deems material, the only fee the Indenture Trustee
will be entitled to will be the fees paid to it on the Closing Date. The
Indenture Trustee agrees that it shall have no right against the Certificate
Holders or (except as provided in any Participation Agreement) the Owner
Participant for any fee as compensation for its services as trustee under this
Indenture.
SECTION 6.08. May Become Certificate Holder. Each of the institutions
-----------------------------
acting as Owner Trustee and Indenture Trustee hereunder may become a Certificate
Holder and have all rights and benefits of a Certificate Holder to the same
extent as if it were not the institution acting as Owner Trustee or Indenture
Trustee, as the case may be.
SECTION 6.09. Further Assurances; Financing Statements. At any time
----------------------------------------
and from time to time, upon the request of the Indenture Trustee or Lessee
(provided that any such request of Lessee is accompanied by an opinion of
--------
counsel satisfactory to a Majority in Interest of Certificate Holders, to the
effect that the action so requested is necessary to enable Lessee to comply with
an Operative Agreement and does not
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80
conflict with any Operative Agreement), the Owner Trustee shall promptly and
duly execute and deliver any and all such further instruments and documents as
may be specified in such request and as are necessary or desirable to perfect,
preserve or protect the mortgage, security interests and assignments created or
intended to be created hereby, or to obtain for the Indenture Trustee the full
benefit of the specific rights and powers herein granted, including, without
limitation, the execution and delivery of Uniform Commercial Code financing
statements and continuation statements with respect thereto, or similar
instruments relating to the perfection of the mortgage, security interests or
assignments created or intended to be created hereby.
ARTICLE VII
INDEMNIFICATION OF INDENTURE
TRUSTEE BY OWNER TRUSTEE
SECTION 7.01. Scope of Indemnification. The Owner Trustee, not in
------------------------
its individual capacity, but solely in its capacity as owner trustee under the
Trust Agreement, hereby agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for, and does
hereby indemnify, protect, save and keep harmless the Indenture Trustee, in its
individual capacity, and its successors, assigns, agents and servants, from and
against any and all liabilities, obligations, losses, damages, penalties, taxes
(excluding any taxes payable by the Indenture Trustee on or measured by any
compensation received by the Indenture Trustee for its services under this
Indenture), claims, actions, suits, costs, expenses or disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever which may
be imposed on, incurred by or asserted against the Indenture Trustee in its
individual capacity (whether or not also agreed to be indemnified against by any
other person under any other document) in any way relating to or arising out of
this Indenture, the Certificates, the other Operative Agreements or the
enforcement of any of the terms of any thereof, or in any way relating to or
arising out of the manufacture, purchase, acceptance, non-acceptance, rejection,
ownership, delivery, lease, possession, use, operation, condition, sale, return
or other disposition of any Aircraft or any or any part thereof (including,
without limitation, latent and other defects, whether or not discoverable, and
any claim for patent, trademark or copyright infringement), or in any way
relating to or arising out of the administration of the Indenture Estate or the
action or inaction of the Indenture Trustee hereunder, except only (i) in the
case of willful misconduct or
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81
gross negligence of the Indenture Trustee in the performance of its duties
hereunder, (ii) as may result from the inaccuracy of any representation or
warranty of the Indenture Trustee in its individual capacity in the Special
Participation Agreement, (iii) as otherwise provided in Section 2.05 or the last
sentence of Section 5.04 or (iv) to the extent otherwise excluded by the terms
of Section 8.1 of any Participation Agreement from the Lessee's general
indemnity under said Section. The Indenture Trustee in its individual capacity
shall be entitled to indemnification from the Indenture Estate for any
liability, obligation, loss, damage, penalty, claim, action, suit, cost, expense
or disbursement indemnified against pursuant to this Section 7.01 to the extent
not reimbursed by the Lessee or others, but without releasing any of them from
their respective agreements of reimbursement; and to secure the same the
Indenture Trustee shall have a prior lien on the Indenture Estate. The
indemnities contained in this Section 7.01 shall survive the termination of this
Indenture.
ARTICLE VIII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 8.01. Notice of Successor Owner Trustee. In the case of any
---------------------------------
appointment of a successor to the Owner Trustee pursuant to the Trust Agreement
or any merger, conversion, consolidation or sale of substantially all of the
corporate trust business of the Owner Trustee pursuant to the Trust Agreement,
the successor Owner Trustee shall give prompt written notice thereof to the
Indenture Trustee and to each Certificate Holder.
SECTION 8.02. Resignation of Indenture Trustee; Appointment of
------------------------------------------------
Successor. (a) The Indenture Trustee or any successor thereto may resign at
- ---------
any time without cause by giving at least 30 calendar days' prior written notice
to the Owner Participant, the Lessee, the Owner Trustee and each Certificate
Holder, such resignation to be effective upon the acceptance of the trusteeship
by a successor Indenture Trustee. In addition, a Majority in Interest of
Certificate Holders may at any time remove the Indenture Trustee without cause
by an instrument in writing delivered to the Owner Participant, the Owner
Trustee, the Lessee and the Indenture Trustee, and the Owner Trustee shall
promptly notify each Certificate Holder thereof in writing, such removal to be
effective upon the acceptance of the trusteeship by a successor Indenture
Trustee. In the case of the resignation or removal of the Indenture Trustee, a
Majority in Interest of Certificate Holders may appoint a successor Indenture
Trustee by
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an instrument signed by such Holders. If a successor Indenture Trustee shall
not have been appointed within 30 calendar days after such notice of resignation
or removal, the Indenture Trustee, the Owner Trustee or any Certificate Holder
may apply to any court of competent jurisdiction to appoint a successor
Indenture Trustee to act until such time, if any, as a successor shall have been
appointed as above provided. The successor Indenture Trustee so appointed by
such court shall immediately and without further act be superseded by any
successor Indenture Trustee appointed as above provided within one year from the
date of the appointment by such court.
(b) Any successor Indenture Trustee, however appointed, shall execute
and deliver to the Owner Trustee and to the predecessor Indenture Trustee an
instrument accepting such appointment, and thereupon such successor Indenture
Trustee, without further act, shall become vested with all the estates,
properties, rights, powers and duties of the predecessor Indenture Trustee
hereunder in the trusts hereunder applicable to it with like effect as if
originally named the Indenture Trustee herein; but nevertheless upon the written
request of such successor Indenture Trustee, such predecessor Indenture Trustee
shall execute and deliver an instrument transferring to such successor Indenture
Trustee, upon the trusts herein expressed applicable to it, all the estates,
properties, rights and powers of such predecessor Indenture Trustee, and such
predecessor Indenture Trustee shall duly assign, transfer, deliver and pay over
to such successor Indenture Trustee all monies or other property then held by
such predecessor Indenture Trustee hereunder.
(c) Any successor Indenture Trustee, however appointed, shall be a
"citizen of the United States" within the meaning of Section 101(16) of the Act
and shall also be a bank or trust company having a combined capital and surplus
of at least $100,000,000, if there be such an institution willing, able and
legally qualified to perform the duties of the Indenture Trustee hereunder upon
reasonable or customary terms.
(d) Any corporation into which the Indenture Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Indenture Trustee
shall be a party, or any corporation to which substantially all the corporate
trust business of the Indenture Trustee may be transferred, shall, subject to
the terms of paragraph (c) of this Section, be the Indenture Trustee under this
Indenture without further act.
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83
SECTION 8.03. Appointment of Separate Trustees. (a) At any time or
--------------------------------
times, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Indenture Estate may at the time be located or in which
any action of the Indenture Trustee may be required to be performed or taken or
if the Indenture Trustee shall be advised by counsel satisfactory to it that it
is so necessary or prudent in the interests of the Certificate Holders, or in
the event the Indenture Trustee shall have been requested to do so by a Majority
in Interest of Certificate Holders, the Indenture Trustee, by an instrument in
writing signed by it, and without the concurrence of the Owner Trustee, may
appoint one or more individuals or corporations to act as separate trustee or
separate trustees or co-trustee, acting jointly with the Indenture Trustee, or
to act as separate trustee or trustees of all or any part of the Indenture
Estate with such powers as may be provided in an agreement supplemental hereto.
(b) The Indenture Trustee and, at the request of the Indenture
Trustee, the Owner Trustee, shall execute, acknowledge and deliver all such
instruments as may be required by the legal requirements of any jurisdiction or
by any such separate trustee or separate trustees or co-trustee for the purpose
of more fully confirming such title, rights or duties to such separate trustee
or separate trustees or co-trustee and the Owner Trustee hereby makes,
constitutes and appoints the Indenture Trustee its agent and attorney-in-fact
for it and in its name, place and stead to execute, acknowledge and deliver the
same in the event that the Owner Trustee shall not itself execute and deliver
the same within 20 days after receipt by it of such request so to do. Upon the
acceptance in writing of such appointment by any such separate trustee or
separate trustees or co-trustee, it, he or they shall be vested with such title
to the Indenture Estate or any part thereof, and with such rights and duties, as
shall be specified in the instrument of appointment, jointly with the Indenture
Trustee (except insofar as local law makes it necessary for any such separate
trustee or separate trustees or co-trustee to act alone) subject to all the
terms of this Trust Indenture. Any separate trustee or separate trustees or co-
trustee may, at any time by an instrument in writing, constitute the Indenture
Trustee its or his attorney-in-fact and agent with full power and authority to
do all acts and things and to exercise all discretion on its or his behalf and
in its or his name. In case any such separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, the title to the Indenture
Estate and all assets, property, rights, powers, trusts, obligations and duties
of such separate trustee or co-trustee shall, so far as permitted by law, vest
in and be exercised by
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84
the Indenture Trustee, without the appointment of a successor to such separate
trustee or co-trustee unless and until a successor is appointed.
(c) All provisions of this Indenture which are for the benefit of the
Indenture Trustee shall extend to and apply to each separate trustee or co-
trustee appointed pursuant to the foregoing provisions of this Section 8.03,
including without limitation Article Vii.
(d) Every separate trustee and co-trustee hereunder shall, to the
extent permitted by law, be appointed and act and the Indenture Trustee shall
act, subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon
the Indenture Trustee in respect of the receipt, custody, investment
and payment of monies shall be exercised solely by the Indenture
Trustee;
(ii) all other rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or separate trustees or co-trustee jointly except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Indenture Trustee
shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the
holding of title to the Indenture Estate in any such jurisdiction)
shall be exercised and performed by such separate trustee or separate
trustees or co-trustee;
(iii) no power hereby given to, or with respect to which it is
hereby provided may be exercised by, any such separate trustee or
separate trustees or co-trustee shall be exercised hereunder by such
person except jointly with, or with the consent of, the Indenture
Trustee; and
(iv) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder.
If at any time the Indenture Trustee shall deem it no longer necessary or
prudent in order to conform to any such law, or take
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85
any such action or shall be advised by such counsel that it is no longer legally
required or necessary or prudent in the interest of the Certificate Holders or
in the event the Indenture Trustee shall have been requested to do so by a
Majority in Interest of Certificate Holders, the Indenture Trustee shall execute
and deliver an indenture supplemental hereto and all other instruments and
agreements necessary or proper to remove any separate trustee or separate
trustees or co-trustee.
(e) Any request, approval or consent in writing by the Indenture
Trustee to any separate trustee or separate trustees or co-trustee shall be
sufficient warrant to such separate trustee or separate trustees or co-trustee,
as the case may be, to take such action as may be so requested, approved or
consented to.
(f) Notwithstanding any other provision of this Section 8.03, the
powers of any separate trustee or separate trustees or co-trustee appointed
pursuant to this Section 8.03 shall not in any case exceed those of the
Indenture Trustee hereunder.
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO THIS
INDENTURE AND OTHER DOCUMENTS
SECTION 9.01. Instructions of Majority; Limitations. (a) At any time
-------------------------------------
and from time to time, (i) the Owner Trustee (but only on the written request of
the Owner Participant) and the Indenture Trustee (but only on the written
request of a Majority in Interest of Certificate Holders) shall execute a
supplement hereto for the purpose of adding provisions to, or changing or
eliminating provisions of, this Indenture as specified in such request, and (ii)
the Owner Trustee may (but only with the written consent of the Owner
Participant and on the written request of a Majority in Interest of Certificate
Holders) enter into such written amendment of or supplement to any Lease or any
other Indenture Document to which it is party as may be specified in such
request; provided, however, that, without the consent of each Certificate
-------- -------
Holder, no such amendment of or supplement to any such document, or waiver or
modification of the terms of any thereof, shall (i) modify any of the provisions
of this Section 9.01 or the definitions of the terms "Excluded Payments",
-----------------
"Indenture Default", "Indenture Event of Default", "Lease Default", "Lease Event
----------------- -------------------------- ------------- -----------
of Default", "Lessor's Cost", "Majority in Interest of Certificate Holders" or
- ---------- ------------- -------------------------------------------
"Indenture Documents" contained herein or in any other Operative Agreement
-------------------
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86
(except to change default definitions by providing for additional events of
default), (ii) increase the principal amount of any Certificate or reduce the
amount or extend the time of payment of any amount owing or payable under any
Certificate or (except as provided in this Indenture) increase or reduce the
Premium Amount or interest payable on any Certificate (except that only the
consent of the Certificate Holder shall be required for any decrease in any
amounts of or the rate of Premium Amount or interest payable on such Certificate
or any extension for the time of payment of any amount payable under such
Certificate), or alter or modify the provisions of Article III with respect to
the order of priorities in which distributions thereunder shall be made or with
respect to the amount or time of payment of any such distribution, (iii) reduce,
modify or amend any indemnities in favor of the Loan Participants or any
Certificate Holder or in favor of or to be paid by the Owner Participant or
alter the definition of "Indemnified Party" to exclude any Loan Participant or
-----------------
any Certificate Holder (except as consented to by each Person adversely affected
thereby), (iv) or reduce the amount or extend the time of payment of Basic Rent,
Stipulated Loss Value or Termination Value (or other amounts payable therewith)
for any Aircraft as set forth in the Lease to which it is subject (except to the
extent required to match any action consented to by any Certificate Holder
referred to in the parenthetical phrase in clause (ii) above), or (v) modify,
amend or supplement any Lease or consent to any assignment of any Lease, in
either case releasing the Lessee from its obligations in respect of the payment
of Basic Rent (except as above provided), Stipulated Loss Value or Termination
Value (or other amounts payable therewith) for the Aircraft subject to such
Lease or altering the absolute and unconditional character of such obligations
as set forth in Section 17 of such Lease or change any of the circumstances
under which Stipulated Loss Value or Termination Value (or other amounts payable
therewith) are payable. This Section 9.01 shall not apply to any indenture or
indentures supplemental hereto permitted by, and complying with the terms of,
Section 5.07, Section 8.03 or Section 9.04. Notwithstanding the foregoing,
without the consent of each Certificate Holder, no such supplement to this
Indenture, or waiver or modification of the terms hereof or of any other
agreement or document shall expressly permit the creation of any Lien on the
Indenture Estate or any part thereof, except as herein expressly permitted, or
deprive any Certificate Holder of the benefit of the Lien of this Indenture on
the Indenture Estate, except as provided in Sections 5.01 and 5.02 or in
connection with the exercise of remedies under Article IV.
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87
SECTION 9.02. Trustees Protected. If, in the opinion of the
------------------
institution acting as Owner Trustee under the Trust Agreement or the institution
acting as the Indenture Trustee hereunder any document required to be executed
pursuant to the terms of Section 9.01 affects any right, duty, immunity or
indemnity with respect to it under this indenture, the Indenture Trustee and the
Owner Trustee may in their discretion decline to execute such document.
SECTION 9.03. Documents Mailed to Holders. Promptly after the
---------------------------
execution by the Owner Trustee or the Indenture Trustee of any document entered
into pursuant to Section 9.01, the Owner Trustee shall mail, by certified mail,
postage prepaid, a conformed copy thereof to Indenture Trustee and the Indenture
Trustee shall mail, by certified mail, postage prepaid, a conformed copy thereof
to each Certificate Holder at its address shown on the Certificate Register, but
the failure of the Owner Trustee or Indenture Trustee, as the case may be, to
mail such conformed copies shall not impair or affect the validity of such
document.
SECTION 9.04. No Request Necessary for Lease Supplement or Indenture
------------------------------------------------------
Supplement. Notwithstanding anything contained in Section 9.01, no written
- ----------
request or consent of the Indenture Trustee, any Certificate Holder or the Owner
Participant pursuant to Section 9.01 shall be required to enable the Owner
Trustee to enter into any Lease Supplement with the Lessee pursuant to the terms
of any Lease to subject an Aircraft or other property thereto or to execute and
deliver an Indenture Supplement to subject an Aircraft or other property hereto
pursuant to the terms hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Termination of Indenture. Upon (or at any time after)
------------------------
payment in full of the principal of and interest on and Premium Amount, if any,
and all other amounts due under, or otherwise due to the holders of, all
Certificates and provided that there shall then be no other amounts due to the
Loan Participants, the Certificate Holders and the Indenture Trustee hereunder
or under any Participation Agreement or the other Operative Agreements or
otherwise secured hereby, the Owner Trustee shall direct the Indenture Trustee
to execute and deliver to or as directed in writing by the Owner Trustee an
appropriate instrument releasing each Aircraft from the Lien of this
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88
Indenture and releasing the Operative Agreements from the assignment and pledge
thereof hereunder, and the Indenture Trustee shall execute and deliver such
instrument as aforesaid and, at the Owner Trustee's expense, will execute and
deliver such other instruments or documents as may be reasonably requested by
the Owner Participant to give effect to such release; provided, however, that
-------- -------
this Indenture and the trusts created hereby shall earlier terminate and this
Indenture shall be of no further force or effect upon any sale or other final
disposition by the Indenture Trustee of all property part of the Indenture
Estate and, in the case of any sale or other disposition pursuant to Section
4.04, the final distribution by the Indenture Trustee of all monies or other
property or proceeds constituting part of the Indenture Estate in accordance
with the terms hereof. Except as aforesaid otherwise provided, this Indenture
and the trusts created hereby shall continue in full force and effect in
accordance with the terms hereof.
SECTION 10.02. No Legal Title to Indenture Estate in Holders. No
---------------------------------------------
Certificate Holder shall have legal title to any part of the Indenture Estate.
No transfer, by operation of law or otherwise, of any Certificate or other
right, title and interest of any Certificate Holder in and to the Indenture
Estate or hereunder shall operate to terminate this Indenture or entitle such
Certificate Holder or any successor or transferee of such holder to an
accounting or to the transfer to it of legal title to any part of the Indenture
Estate.
SECTION 10.03. Sale of Aircraft by Indenture Trustee is Binding. Any
------------------------------------------------
sale or other conveyance of any Aircraft or any part of the Indenture Estate by
the Indenture Trustee made pursuant to the terms of this Indenture or of any
Lease shall bind the Certificate Holders and shall be effective to transfer or
convey all right, title and interest of the Indenture Trustee, the Owner
Trustee, the Owner Participant and the Certificate Holders in and to such
Aircraft or such part of the Indenture Estate (and, without limiting the
generality of foregoing, shall be free and clear of the Lien of this Indenture).
No purchaser or other grantee shall be required to inquire as to the
authorization, necessity, expediency or regularity of such sale or conveyance or
as to the application of any sale or other proceeds with respect thereto by the
Indenture Trustee.
SECTION 10.04. Indenture for Benefit of Owner Trustee Indenture
------------------------------------------------
Trustee. Owner Participant and Certificate Holders. Nothing in this Indenture,
- --------------------------------------------------
whether express or implied, shall be construed to give to any Person other than
The Bank, the Owner Trustee, the Indenture Trustee, the Owner Participant, the
Lessee
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89
and the Certificate Holders any legal or equitable right, remedy or claim under
or in respect of this Indenture.
SECTION 10.05. No Action Contrary to Lessee's Rights Under any Lease.
-----------------------------------------------------
Notwithstanding any of the provisions of this Indenture or the Trust Agreement
to the contrary, so long as no Lease Event of Default shall have occurred and be
continuing, neither the Indenture Trustee nor the Owner Trustee will take any
action in violation of the Lessee's rights under any Lease, including the right
to possession and use of the Aircraft subject to such Lease in accordance with
the terms of such Lease.
SECTION 10.06. 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
Indenture to be made, given, furnished or filed shall be in writing, mailed by
certified mail, postage prepaid, or by confirmed telex, or by confirmed telecopy
and (i) if to the Indenture Trustee, addressed to it at its office at 35 North
Sixth Street, Reading, Pennsylvania 19601, Attention: Corporate Trust
Administration (telecopier: (215) 655-1349), (ii) if to the Owner Trustee,
addressed to it at its office at 79 South Main Street, P.O. Box 30007, Salt Lake
City, Utah 84130, Attention: Corporate Trust Department (telecopy: (801) 350-
5053), or (iii) if to any Participant or any Certificate Holder, addressed to
such party at such address as such party shall have furnished by notice to the
Owner Trustee and the Indenture Trustee, or, until an address is so furnished,
addressed to the address of such party (if any) set forth on the signature pages
of the Special Participation Agreement. Whenever any notice in writing is
required to be given by the Owner Trustee or the Indenture Trustee or any
Certificate Holder to any of the other of them, such notice shall be deemed
given and such requirement satisfied when such notice is received, if such
notice is received, if such notice is mailed by certified mail, postage prepaid,
or is sent by confirmed telex, or by confirmed telecopy addressed as provided
above. 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
Indenture.
SECTION 10.07. Severability. Any provision of this Indenture which
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE>
90
SECTION 10.08. No Oral Modifications or Continuing Waivers. No terms
-------------------------------------------
or provisions of this Indenture or the Certificates 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 Indenture; and any waiver of the terms
hereof or of any certificate shall be effective only in the specific instance
and for the specific purpose given.
SECTION 10.09. 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.
Any request, notice, direction, consent, waiver or other instrument or action by
any Certificate Holder shall bind the successors and assigns of such Certificate
Holder. This Indenture and the Indenture Estate shall not be affected by any
amendment or supplement to the Trust Agreement or by any other action taken
under or in respect of the Trust Agreement, except that each reference in this
Indenture to the Trust Agreement shall mean the Trust Agreement as amended and
supplemented from time to time to the extent permitted hereby and thereby.
SECTION 10.10. Headings. The headings of the various Articles and
--------
Sections herein and in the table of contents hereto are for the convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 10.11. Governing Law; Counterpart Form. This Indenture shall
-------------------------------
in all respects be governed by, and construed in accordance with, the law of the
State of New York, including all matters of construction, validity and
performance. This Indenture 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
instrument.
SECTION 10.12. Collateral. The Indenture Trustee shall (i) take such
----------
action with respect to the Collateral under the Guarantee or Pledge Agreement,
as the case may be, (ii) act on instructions in respect thereof, (iii) be
entitled to indemnification in respect of any action taken with respect to any
Collateral, (iv) have duties and take action in respect of the Collateral and
(v) otherwise be entitled to protections of this Indenture in respect of the
Collateral, as though, in each case, the Collateral were a part of the Indenture
Estate.
TRUST INDENTURE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers there-unto duly authorized, as of
the day and year first above written, and acknowledge that this Indenture has
been made and delivered in the City of New York, and this Indenture having
become effective only upon such execution and delivery.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as otherwise expressly
provided in the Operative Agreements,
but solely as Owner Trustee
By [SIGNATURE ILLEGABLE]
-----------------------------------
Title: Asst. Vice President
MERIDIAN TRUST COMPANY,
as Indenture Trustee
By ___________________________________
Title:
TRUST INDENTURE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers there-unto duly authorized, as of
the day and year first above written, and acknowledge that this Indenture has
been made and delivered in the City of New York, and this Indenture having
become effective only upon such execution and delivery.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as otherwise expressly provided
in the Operative Agreements, but solely
as Owner Trustee
By_____________________________________
Title:
MERIDIAN TRUST COMPANY,
as Indenture Trustee
By ?????????
-------------------------------------
Title: VICE PRESIDENT
TRUST INDENTURE
<PAGE>
EXHIBIT A
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
TRUST INDENTURE SUPPLEMENT NO. ___
TRUST INDENTURE SUPPLEMENT NO. ___ (Southwest Airlines 1990 Trust II,
III & IV) dated ___________ (this "Indenture Supplement") of FIRST SECURITY
--------------------
BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual capacity, except as
otherwise expressly provided in the Operative Agreements, but solely as owner
trustee under the Trust Agreement (in such capacity, herein called the "Owner
-----
Trustee").
- -------
W I T N E S S E T H:
WHEREAS, the Amendment and Restatement dated as of August 25, 1995 of
Trust Indenture and Security Agreement dated as of December 30, 1991 (Southwest
Airlines 1990 Trust II, III & IV) (the "Indenture") between the Owner Trustee
---------
and Meridian Trust Company as Indenture Trustee (the "Indenture Trustee"),
-----------------
provides for the execution and delivery of a supplement thereto substantially in
the form hereof which shall particularly describe the Aircraft (such term and
other defined terms in the Indenture being herein used with the same meanings)
and Replacement Engine included in the Trust Indenture Estate, and shall
specifically mortgage such Aircraft or Replacement Engine, as the case may be,
to the Indenture Trustee.
WHEREAS*, the Indenture relates to each Airframe and Engines described
below and a counterpart of the Indenture is attached hereto and made a part
hereof and this Indenture Supplement, together with such counterpart of the
Indenture, is being filed for recordation on the date hereof with the Federal
Aviation Administration as one document.
WHEREAS**, the Indenture and Trust Indenture Supplement No. ___
(Southwest Airlines 1990 Trust II, III & IV) dated ______________ (the Indenture
being attached to and made a part of such Indenture Supplement and filed
therewith) have been duly recorded pursuant to the Federal Aviation Act of 1958,
_______________________
* This recital is to be included only in the first Indenture Supplement.
** This recital not to be included in the first Indenture Supplement.
<PAGE>
2
as amended, on __________ , 1991, as one document and have been assigned
Conveyance No.___________;
NOW, THEREFORE, THIS INDENTURE SUPPLEMENT WITNESSETH, that, to secure
(i) the prompt payment of the principal of and Premium Amount (if any) and
interest on, and all other amounts due with respect to, (a) the Series A
Certificate and (b) the Series B, Certificates from time to time outstanding
under the Indenture, (ii) the performance and observance by the Owner Trustee
and the Owner Participant of all the agreements, covenants and provisions for
the benefit of the Loan Participants and the Certificate Holders in the
Indenture and in each Participation Agreement, the Special Participation
Agreement and the Certificates contained, (iii) the prompt payment of any and
all amounts from time to time owing under the Indenture or each Participation
Agreement or the other Operative Agreements by the Owner Trustee, the Owner
Participant or the Lessee to the Loan Participants and the Certificate Holders
and (iv) the performance and observance by the Guarantors of the Series B
Certificates of all the agreements, covenants and provisions for the benefit of
the Loan Participants and the Certificate Holders in each Participation
Agreement, the Special Participation Agreement and the Guarantee, and for the
uses and purposes and subject to the terms and provisions of the Indenture, and
in consideration of the premises and of the covenants contained in the
Indenture, and of the acceptance of the Certificates by the Certificate Holders,
and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee at or
before the delivery hereof, the receipt whereof is hereby acknowledged, the
Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign,
transfer, convey, mortgage, pledge and confirm, unto the Indenture Trustee and
its successors and assigns, for the security and benefit of the Loan
Participants and the Certificate Holders, in the trust created by the Indenture,
a first priority security interest in and first mortgage lien upon, all right,
title and interest of the Owner Trustee in, to and under the following described
property:
INDENTURE SUPPLEMENT
<PAGE>
3
AIRFRAMES
Three airframes identified as follows:
FAA Manufacturer's
Registration Serial
Manufacturer Model Number Number
- ------------ ----- ------ ------
together with all Parts, appliances, equipment, instruments and accessories
(including, without limitation, radio and radar) from time to time thereto
belonging, owned by the Owner Trustee and installed in or appurtenant to said
aircraft.
AIRCRAFT ENGINES
( ) aircraft engines, each such engine
having 750 or more rated takeoff horsepower
or the equivalent thereof, identified as follows:
Manufacturer's
Manufacturer Model Serial Number
- ------------ ----- -------------
together with all Parts, equipment and accessories thereto belonging, by
whomsoever manufactured, owned by the Owner Trustee and installed in or
appurtenant to said aircraft engines.
Together with all substitutions, replacements and renewals of the
property above described, and all property which shall hereafter become
physically attached to or incorporated in the property above described, whether
the same are now owned by the Owner Trustee or shall hereafter be acquired by
it.
As further security for the obligations referred to above and secured
by the Indenture and hereby, the Owner Trustee has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does
hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and
confirm, unto the Indenture Trustee, its successors and assigns, for the
INDENTURE SUPPLEMENT
<PAGE>
4
security and benefit of the Loan Participants and the Certificate Holders, in
the trust created by the Indenture, all of the right, title and interest of the
Owner Trustee in, to and under [the Lease Supplement (Southwest Airlines 1990
Trust II) No. 1 dated September 27, 1990, the Lease Supplement (Southwest
Airlines 1990 Trust III) No. 1 dated September 27, 1990 and the Lease Supplement
(Southwest Airlines 1990 Trust IV) No. 1 dated September 27, 1990] [the Lease
Supplement (Southwest Airlines 1990 Trust __) No. __ of even date] (other than
Excluded Payments, if any) covering the property described above.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns, for the benefit and security of
the Loan Participants and the Certificate Holders for the uses and purposes and
subject to the terms and provisions set forth in the Indenture.
This Indenture Supplement shall be construed as supplemental to the
Indenture and shall form a part thereof, and the Indenture is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
This Indenture Supplement is being delivered in the State of New York.
AND, FURTHER, the Owner Trustee hereby acknowledges that each
Airframe/Engines referred to in this Indenture Supplement and the aforesaid
Lease Supplements have been delivered to the Owner Trustee and are included in
the property of the Owner Trustee and are covered by all the terms and
conditions of the Trust Agreement and are subject to the Lien of the Indenture.
INDENTURE SUPPLEMENT
<PAGE>
5
IN WITNESS WHEREOF, the Owner Trustee has caused this Indenture
Supplement to be duly executed by one of its officers thereunto authorized, this
_________ day of ________, ______.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION ,
not in its individual capacity
except as otherwise expressly
provided in the Operative Agreements,
but solely as Owner Trustee
By__________________________________
Title:
INDENTURE SUPPLEMENT
<PAGE>
EXHIBIT B
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
FORM OF TAX CERTIFICATE
Reference is made to the Certificate[s] held by the undersigned
pursuant to the Trust Indenture and Security Agreement (Southwest Airlines 1990
Trust II, III & IV) dated as of December 30, 1991 between First Security Bank of
Utah, National Association, as Owner Trustee, and Meridian Trust Company, as
Indenture Trustee (capitalized terms not otherwise defined herein being used
herein as therein defined). The undersigned hereby declares under the penalties
of perjury that:
(1) The undersigned is the beneficial owner of the Certificates
issued in its name;
(2) the income from the Certificates held by the undersigned is not
effectively connected with a trade or business within the United
States conducted through a permanent establishment of the
undersigned within the United States;
(3) the undersigned is not a bank;
(4) the undersigned is not a controlled foreign corporation related
(within the meaning of Internal Revenue Code ("I.R.C.") Section
864(d)(4)) to the Owner Trustee or the Owner Participant;
(5) the undersigned is not a 10% shareholder (within the meaning of
I.R.C. Section 871(h) (3) (b)) of the Owner Trustee or the Owner
Participant;
(6) the undersigned is a person other than (i) a citizen or resident
of the United States of America, its territories and possessions
(including the Commonwealth of Puerto Rico and all other areas
subject to its jurisdiction) (the "United States") , (ii) a
corporation, partnership or other entity created or organized
under the laws of the United States or any political subdivision
thereof or therein or (iii) an estate or trust that is subject to
United States federal income taxation regardless of the source of
its income; and
(7) the undersigned, if an individual, will not (i) be a lawful
permanent resident of the United States at
<PAGE>
2
any time during the calendar year, (ii) meet the substantial
presence test of I.R.C. Section 7701(b)(3), or (iii) make an
election under I.R.C. Section 7701(b) (4) to be treated as a
United States resident.
By executing this certificate, the undersigned agrees that (1) if the
information provided on this certificate changes, the undersigned shall so
inform the Indenture Trustee in writing within thirty days of such change and
(2) the undersigned shall furnish the Indenture Trustee a properly completed and
currently effective certificate in either the calendar year in which payment is
to be made by the Indenture Trustee to the undersigned, or in either or the two
calendar years preceding such payment.
Date:
[Name of Certificate Holder]
By__________________________
Title:
<PAGE>
EXHIBIT C
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
(Intentionally omitted.)
<PAGE>
EXHIBIT D
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
(Intentionally omitted.)
<PAGE>
EXHIBIT E
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Swap Upside
-----------
"Swap Upside" means, as at any date of (i) prepayment of any Series A
-----------
Certificate pursuant to Section 2.11(a) or (ii) purchase by a holder or holders
of Series B Certificates pursuant to Section 2.13(b) and for any holder of
Series A Certificate that is a bank, a bank operating subsidiary or otherwise a
floating rate lender, an amount, if any, equal to the amount the Swap Counter-
party pays to such holder on such date to terminate the Swap Transaction of such
holder on such date.
<PAGE>
ANNEX I
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Schedule of Series A Certificates Principal Payments
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
---------------- ---------
<S> <C>
31-Mar- 92 $577,950.46
30-Jun-92 $589,009.71
30-Sep-92 $596.386.96
31-Dec-92 $607,924.40
31-Mar-93 $626,965.77
30-Jun-93 $635,322.57
30-Sep-93 $644,104.70
31-Dec-93 $656,565.26
31-Mar-94 $675,469.76
30-Jun-94 $685,293.62
30-Sep-94 $695,591.61
31-Dec-94 $709,048.21
31-Mar-95 $727,805.02
30-Jun-95 $739,211.83
30-Sep-95 $751,145.40
31-Dec-95 $765,676.73
</TABLE>
- CONTINUED -
<PAGE>
Schedule of Series A Certificates Principal Payments (Continued)
- ----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
--------------- -------
<S> <C>
30-Jan-96 159,716.30
29-Feb-96 160,781.08
30-Mar-96 161,852.95
30-Apr-96 162,931.97
30-May-96 164,018.18
30-Jun-96 165,111.64
30-Jul-96 166,212.38
30-Aug-96 167,320.46
30-Sep-96 168,435.94
30-Oct-96 169,558.84
30-Nov-96 170,689.23
30-Dec-96 171,827.16
30-Jan-97 172,972.68
28-Feb-97 174,125.82
30-Mar-97 175,286.67
30-Apr-97 176,455.24
30-May-97 177,631.61
30-Jun-97 178,815.83
30-Jul-97 180,007.92
30-Aug-97 181,207.98
30-Sep-97 182,416.04
30-Oct-97 183,632.14
30-Nov-97 184,856.35
30-Dec-97 186,088.73
30-Jan-98 187,329.33
28-Feb-98 188,578.18
30-Mar-98 189,835.37
30-Apr-98 191,100.94
30-May-98 192,374.95
30-Jun-98 193,657.45
30-Jul-98 194,948.49
30-Aug-98 196,248.16
30-Sep-98 197,556.47
30-Oct-98 198,873.52
30-Nov-98 200,199.34
30-Dec-98 201,534.00
30-Jan-99 202,877.57
28-Feb-99 204,230.08
30-Mar-99 205,591.61
30-Apr-99 206,962.23
30-May-99 208,341.97
30-Jun-99 209,730.92
30-Jul-99 211,129.13
30-Aug-99 212,536.65
30-Sep-99 213,953.56
30-Oct-99 215,379.93
30-Nov-99 216,815.78
30-Dec-99 218,261.23
</TABLE>
<PAGE>
ANNEX II
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Schedule of Series B Certificates Principal Payments
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
------------------ -------------
<S> <C>
31-Mar-92 $111,611.17
30-Jun-92 $113,746.88
30-Sep-92 $113,445.68
31-Dec-92 $115,640.35
31-Mar-93 $122,736.68
30-Jun-93 $122,655.68
30-Sep-93 $122,624.73
31-Dec-93 $124,996.98
31-Mar-94 $132,066.97
30-Jun-94 $132,268.18
30-Sep-94 $132,528.82
31-Dec-94 $135,092.67
31-Mar-95 $142,134.25
30-Jun-95 $142,639.96
30-Sep-95 $143,215.22
31-Dec-95 $145,985.80
31-Dec-99 $9,955,302.21
</TABLE>
<PAGE>
================================================================================
SALE AND LEASE AGREEMENT SECOND AMENDMENT
(Southwest Airlines 1990 Trust III)
Dates as of August 25, 1995
BETWEEN
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION
As Owner Trustee
LESSOR
AND
SOUTHWEST AIRLINES CO.,
LESSEE
____________________
One Boeing Model 737-2H4 Aircraft
N56SW
================================================================================
I HEREBY CERTIFY THAT I
HAVE COMPARED THIS DOCUMENT
WITH THE ORIGINAL AND THAT IT
IS A TRUE AND EXACT COPY OF
SUCH ORIGINAL.
WILLIAM C. BOSTON
848-0600
SIGNATURE NOT LEGIBLE
<PAGE>
SALE AND LEASE AGREEMENT SECOND AMENDMENT
(SOUTHWEST AIRLINES 1990 TRUST III)
This SALE AND LEASE AGREEMENT SECOND AMENDMENT (hereinafter referred to as
this "Lease Amendment") dated as of August 25, 1995, between FIRST SECURITY BANK
---------------
OF UTAH, NATIONAL ASSOCIATION, a national banking association, not in its
individual capacity but solely as Owner Trustee under a certain Trust Agreement
dated as of December 30, 1991 ("Lessor"), AND SOUTHWEST AIRLINES CO., A TEXAS
------
CORPORATION ("LESSEE").
WITNESSETH:
-----------
WHEREAS, First Security Bank of Utah, National Association, as owner
trustee (the "Previous Lessor") under the trust Agreement dated September
1,1990, and Lessee are parties to a Sale and Lease Agreement relating to one
Boeing Model 737-2H4 aircraft, bearing manufacturer's serial no. 21721 and U.S.
registration number Ns6SW, and two pratt & Whitney JT8D-9A engines bearing
manufacturer's serial nos. P674648B and P707371B (such aircraft and engines
being hereinafter called the "Aircraft"), dated as of September 1, 1990 (the
--------
"Original Lease"), whereby, subject to the terms and conditions set forth
--------------
therein, the Previous Lessor has leased to Lessee, and Lessee has leased from
the Previous Lessor, the Aircraft, such lease being evidenced by the execution
and delivery of Sale and Lease Supplement No.1, dated September 27, 1990 ("Lease
-----
Supplement No.1"), covering the Aircraft.
- ---------------
WHEREAS, a counterpart of the Original Lease, attached to and made a
part of Lease Supplement No.1, was recorded by the Federal Aviation
Administration on September 28, 1990, and assigned Conveyance No. K91061;
WHEREAS, the Owner Trustee assigned the Original Lease and Lease
Supplement No.1 to the Lessor under the Assignment and Assumption Agreement,
dated December 30, 1991, recorded by the Federal Aviation Administration on
January 2, 1992 as Conveyance No. H77978;
WHEREAS, Lessor and Lessee amended the Original Lease by the Sales and
Lease Agreement Amendment (Southwest Airlines 1990 Trust HI) dated as of
December 30,1991 (the "First Amendment"), which instrument was recorded by the
---------------
Federal Aviation Administration on January 2, 1992, and assigned Conveyance No.
H77980;
WHEREAS, the Original Lease as supplemented and amended by Lease
Supplement No.1 and the First Amendment is hereinafter called the "Lease";
-----
WHEREAS, the Lessor, with the written consent of the Owner Participant
and on the written request of a Majority in Interest of Certificate Holders (as
defined in tile Indenture), and Lessee wish to amend the Lease by entering into
this Lease Amendment;
-2-
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the parties hereto agree as follows:
Section 1. Definitions: Amendments to Section 1 of the Lease.
-------------------------------------------------
Capitalized terms used herein without definition shall have the respective
meanings attributed thereto in the Lease. Each definition of any term specified
below in Section 1 of the Lease is amended to read in its respective entirety as
follows:
"Base Lease Term" means the period commencing on the Base Lease
Term Commencement Date and expiring on December 31, 1999.
"Rent Payment Date" means each December 31, March 31, June 30,
and September 30 during the Term, commencing September 30, 1990
through and including December 31, 1995, and thereafter the last day
of each calendar month during the Term, commencing January 31, 1996.
"Stipulated Loss Value" means (i) during the Base Lease Term to
and including December 31, 1995, $12,100,000, (ii) thereafter during
the Base Lease Term, $7,000,000, and (iii) during any Renewal Lease
Term, such amount shall be calculated in accordance with Section 18.1.
Section 2. Amendment to Section 3.3. Section 3.3 of the Lease is
------------------------
amended to read as follows:
"Basic Rent. Lessee hereby agrees to pay to Lessor Basic Rent with
----------
respect to the Aircraft, in arrears, on each Rent Payment Date, in the
amount of $432,000 through the December 31, 1995 Rent Payment Date and
$80,000 on each Rent Payment Date thereafter; provided that on the
first Rent Payment Date (September 30, 1990), only Basic Rent in the
amount of $4,800 per each day elapsed during the Interim Lease Term
shall be due."
Section 3. Amendments to Section 5.
------------------------
(a) Section 5.1.7 of the Lease is hereby amended to read as follows:
"Notwithstanding Section 5.1.1 hereof or any other provision of any
Operative Agreement, Lessee shall have no obligation to install on the
Aircraft a hush kit in order to comply with the Stage Ill noise level
restrictions promulgated by the FAA or otherwise, it being understood
that the Aircraft may be returned to Lessor in Stage II condition."
-3-
<PAGE>
(b) The first two sentences of Section 5.3.2 of the Lease are amended
to read as follows:
"Every ESV-1 Engine shall have no more than 5,000 hours or cycles
since its last ESV-1. Each ESV-2 Engine shall have no more than 7,000
hours or cycles since its last ESV-2."
Section 4. Effective Date of Amendments. The amendments to the Lease
----------------------------
set forth in Sections 1 through 3 hereof shall be effective as of the date first
set forth above.
Section 5. Ratification. Except as amended hereby, the Lease shall
------------
remain in full force and effect in all respects.
Section 6. Miscellaneous. This Lease Amendment is being delivered in
-------------
the State of Texas and shall in all respects be governed by, and construed in
accordance with, the laws of the State of Texas, including all matters of
construction, performance and validity. This Lease Amendment 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 instrument. All references herein to numbered
sections, unless otherwise indicated, are to sections of this Lease Amendment.
To the extent, if any, that the Lease or this Lease Amendment constitutes
chattel paper (as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction), no security interest in this Lease
Amendment may be created through the transfer or possession of any counterpart
other than the original counterpart, which shall be identified as the
counterpart containing on the signature page thereof the receipt therefor
executed by the Indenture Trustee.
-4-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Sale and
Lease Agreement Second Amendment to be duly executed as of the day and year
first above written.
LESSOR
FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee
By /s/ Nancy M. Dahl
----------------------------------
Name: NANCY M. DAHL
Title: ASSISTANT VICE PRESIDENT
LESSEE
SOUTHWEST AIRLINES CO.
By___________________________________
Laura H. Wright
Assistant Treasurer
-5-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Sale and
Lease Agreement Second Amendment to be duly executed as of the day and year
first above written.
LESSOR
FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, not in its individual capacity
but solely as Owner Trustee
By___________________________________
Name:
Title:
LESSEE
SOUTHWEST AIRLINES CO.
By /S/ Laura H. Wright
-----------------------------------
Laura H. Wright
Assistant Treasurer
-6-
<PAGE>
___________
The undersigned Jet Aircraft Holdings, Inc. , formerly Cauff, Lippman &
Co., Inc., a Florida corporation, hereby confirms for the benefit of Lessee that
its Guaranty dated as of September 1, 1990 made to Lessee applies with respect
to the Lease as amended hereby.
JET AIRCRAFT HOLDINGS, INC.
By /s/ Wayne D. Lippman
-----------------------
Name: Wayne D. Lippman
Title: E.V.P
-7-
<PAGE>
EXECUTION COPY
================================================================================
AMENDMENT AND RESTATEMENT
Dated as of
August 25, 1995
OF
TRUST INDENTURE AND SECURITY AGREEMENT
(Southwest Airlines 1990 Trust II, III & IV)
Dated as of
December 30, 1991
BETWEEN
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
Owner Trustee
AND
MERIDIAN TRUST COMPANY,
Indenture Trustee
___________________________________
Three Boeing Model 737-2M4 Aircraft
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS........................................................... 2
GRANTING CLAUSE.................................................... 3
ARTICLE I
DEFINITIONS
SECTION 1.01. Special Definitions............................ 7
SECTION 1.02. Other Definitions.............................. 21
ARTICLE II
THE CERTIFICATES
SECTION 2.01. Form of Certificates........................... 21
SECTION 2.02. Terms of Certificates.......................... 30
SECTION 2.03. Taxes.......................................... 31
SECTION 2.04. Payments from Indenture Estate and
Collateral Only................................ 33
SECTION 2.05. Method of Payment.............................. 34
SECTION 2.06. Application of Payments........................ 35
SECTION 2.07. Termination of Interest in Indenture
Estate......................................... 35
SECTION 2.08. Registration, Transfer and Exchange of
Certificates................................... 35
SECTION 2.09. Mutilated, Destroyed, Lost or Stolen
Certificates................................... 37
SECTION 2.10. Payment of Expenses on Transfer................ 37
SECTION 2.11. Prepayment..................................... 38
SECTION 2.12. Provisions Relating to Prepayment.............. 38
SECTION 2.13. Purchase Option................................ 39
SECTION 2.14. Yield Protection............................... 42
SECTION 2.15. (Intentionally omitted.)....................... 44
SECTION 2.16. Certificates in Respect of Replacement
Engines........................................ 44
SECTION 2.17. Terms of Subordination......................... 44
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution and Application
of Amounts upon Rent Default................... 48
SECTION 3.02. Lease Termination, Event of Loss and
Replacement.................................... 50
SECTION 3.03. Payment After Indenture Event of
Default, etc................................... 51
SECTION 3.04. Certain Payments............................... 54
SECTION 3.05. Other Payments................................. 55
SECTION 3.06. Payments to Owner Trustee...................... 55
SECTION 3.07. Investment of Amounts Held by Indenture
Trustee........................................ 56
SECTION 3.08. Series A Holders............................... 56
ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of The Bank and the Owner
Trustee........................................ 57
SECTION 4.02. Indenture Event of Default..................... 58
SECTION 4.03. Certain Cure Rights............................ 61
SECTION 4.04. Remedies....................................... 63
SECTION 4.05. Return of Aircraft, etc........................ 65
SECTION 4.06. Remedies Cumulative............................ 67
SECTION 4.07. Discontinuance of Proceedings.................. 67
SECTION 4.08. Waiver of Past Defaults........................ 68
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices........................................ 68
SECTION 5.02. Action Upon Instructions....................... 70
SECTION 5.03. Indemnification................................ 71
SECTION 5.04. No Duties Except as Specified in
Indenture or Instructions...................... 71
SECTION 5.05. No Action Except Under Leases,
Participation Agreements, Trust
Indenture or Instructions...................... 72
SECTION 5.06. Replacement Engines............................ 72
SECTION 5.07. Indenture Supplements for Replacements......... 74
SECTION 5.08. Effect of Replacement.......................... 74
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.09. Certain Rights of Owner Trustee and
Owner Participant.............................. 74
ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01. Acceptance of Trusts and Duties................ 76
SECTION 6.02. Absence of Duties.............................. 76
SECTION 6.03. No Representations or Warranties as to
Aircraft or Documents.......................... 77
SECTION 6.04. No Segregation of Monies; No Interest.......... 77
SECTION 6.05. Reliance; Agents; Advice of Counsel............ 78
SECTION 6.06. Capacity in Which Acting....................... 79
SECTION 6.07. Compensation................................... 79
SECTION 6.08. May Become Certificate Holder.................. 79
SECTION 6.09. Further Assurances; Financing
Statements..................................... 79
ARTICLE VII
INDEMNIFICATION OF INDENTURE
TRUSTEE BY OWNER TRUSTEE
SECTION 7.01. Scope of Indemnification....................... 80
ARTICLE VIII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 8.01. Notice of Successor Owner Trustee.............. 81
SECTION 8.02. Resignation of Indenture Trustee;
Appointment of Successor....................... 81
SECTION 8.03. Appointment of Separate Trustees............... 83
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO THIS
INDENTURE AND OTHER DOCUMENTS
SECTION 9.01. Instructions of Majority; Limitations.......... 85
SECTION 9.02. Trustees Protected............................. 87
SECTION 9.03. Documents Mailed to Holders.................... 87
SECTION 9.04. No Request Necessary for Lease
Supplement or Indenture Supplement............. 87
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Termination of Indenture...................... 87
SECTION 10.02. No Legal Title to Indenture Estate in
Holders....................................... 88
SECTION 10.03. Sale of Aircraft by Indenture Trustee
is Binding.................................... 88
SECTION 10.04. Indenture for Benefit of Owner Trustee,
Indenture Trustee, Owner Participant
and Certificate Holders....................... 88
SECTION 10.05. No Action Contrary to Lessee's Rights
Under any Lease............................... 89
SECTION 10.06. Notices....................................... 89
SECTION 10.07. Severability.................................. 89
SECTION 10.08. No Oral Modifications or Continuing
Waivers....................................... 90
SECTION 10.09. Successors and Assigns........................ 90
SECTION 10.10. Headings...................................... 90
SECTION 10.11. Governing Law; Counterpart Form............... 90
SECTION 10.12. Collateral.................................... 90
</TABLE>
EXHIBIT A - Form of Indenture Supplement
EXHIBIT B - Form of Tax Certificate
EXHIBIT C - (Intentionally omitted.)
EXHIBIT D - (Intentionally omitted.)
EXHIBIT E - Swap Upside
ANNEX I - Series A Certificates Amortization Schedule
ANNEX II - Series B Certificates Amortization Schedule
(iv)
<PAGE>
AMENDMENT AND RESTATEMENT
OF
TRUST INDENTURE AND SECURITY AGREEMENT
AMENDMENT AND RESTATEMENT dated as of August 25, 1995 of TRUST
INDENTURE AND SECURITY AGREEMENT (Southwest Airlines 1990 Trust II, III & IV)
dated as of December 30, 1991 between FIRST SECURITY BANK OF UTAH, NATIONAL
ASSOCIATION, a national banking association, in its individual capacity only as
expressly stated herein (when acting in such individual capacity called "The
---
Bank", and otherwise solely as owner trustee under the Trust Agreement referred
- ----
to below (in such capacity, the "Owner Trustee")), and MERIDIAN TRUST COMPANY, a
-------------
Pennsylvania trust company (the "Indenture Trustee").
-----------------
WHEREAS, all capitalized terms used herein shall have the respective
meanings set forth or referred to in Article I hereof;
WHEREAS, the Owner Trustee and the Indenture Trustee have entered into
(a) a Trust Indenture and Security Agreement (Southwest Airlines 1990 Trust II,
III and IV) dated as of December 30, 1991, as supplemented by the Trust
Indenture Supplement No. 1 thereto dated as of December 31, 1991 (as so
supplemented, the "1991 Indenture") relating to three Boeing model 737-2H4
--------------
aircraft bearing U.S. registration numbers N55SW, N565W and N57SW and
manufacturer's serial numbers 21593, 21721 and 21722, respectively and six (6)
Pratt and Whitney JT8D-9A Engines bearing respective serial numbers P707374B,
P707334B, P674648B, P707371B, P687758B and P707364B, (b) a Special Participation
Agreement (Southwest Airlines 1990 Trust II, III & IV) dated as of December 30,
1991, among CL Aircraft XXXI, Inc., as Owner Participant and a Guarantor of the
Series B Certificates (the "Owner Participant"), CL Aircraft XXXI, Inc., CL
-----------------
Aircraft XXXII, Inc. and CL Aircraft XXXIII, Inc., as Initial Owner Participants
(collectively, the "Initial Owner Participants"), Cauff, Lippman & Company,
--------------------------
Inc., as a Guarantor of the Series B Certificates (together with the Owner
Participant, the "Guarantors of the Series B Certificates"), First Security Bank
---------------------------------------
of Utah, National Association, as Owner Trustee (in such capacity under the
Trust Agreements dated as of September 1, 1990 relating to the Southwest
Airlines 1990 Trusts II, III and IV, the "Existing Owner Trustee" and in such
----------------------
capacity under the Trust Agreement dated as of December 30, 1991 relating to the
Southwest Airlines 1990 Trust II, III & IV, the "Owner Trustee"), Meridian Trust
-------------
Company, as Indenture Trustee (the "Indenture Trustee"),
-----------------
TRUST INDENTURE
<PAGE>
2
The Chase Manhattan Bank, N.A., as Senior Lender (the "Senior Lender") and
-------------
Progress Credit Corporation, as Subordinated Lender and Initial Lender (the
"Initial Lender") (the Senior Lender and the Initial Lender collectively
---------------
referred to herein as the "Loan Participants") and (c) various other documents;
-----------------
WHEREAS, the 1991 Indenture provides, among other things (i) for the
issuance by the Owner Trustee to the Loan Participants of Certificates as
provided in the Special Participation Agreement and (ii) for the assignment,
mortgage and pledge by the Owner Trustee to the Indenture Trustee, as part of
the Indenture Estate thereunder, among other things, of certain of the Owner
Trustee's right, title and interest in and to the Aircraft and the Indenture
Documents and the payments and other amounts received thereunder or in respect
thereof in accordance with the terms hereof, as security for, among other
things, the Owner Trustee's and Lessee's obligations to the Loan Participants
and the Certificate Holders, and for the benefit and security of the Loan
Participants and the Certificate Holders;
WHEREAS, the Owner Trustee and Southwest Airlines Co. (the "Lessee")
------
have entered into three Leases, each relating to one of the three Aircraft, each
of which Leases has been supplemented by a Lease Supplement thereto assigned by
an Assumption Agreement and amended by a First Lease Amendment thereto;
WHEREAS, the Owner Trustee and Lessee have executed three Second Lease
Amendments providing, among other things, for the extension of the Base Lease
Term (as defined therein) and the recalculation of Basic Rent and Stipulated
Loss Value (each as defined therein);
WHEREAS, the Owner Trustee and the Indenture Trustee have agreed to
execute this Amendment and Restatement of Trust Indenture and Security Agreement
to provide, among other things, for the extension of the maturity of the Series
A Certificates and the Series B Certificates and to provide replacement Series A
Certificates to the Loan Participants designated as receiving same pursuant to
Section 1.1(a) (ii) of the Special Participation Agreement (or their nominees)
and replacement Series B Certificates to the Loan Participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees), each Certificate in the form set forth in Section
2.01 hereof;
TRUST INDENTURE
<PAGE>
3
WHEREAS, all things have been done to make the Certificates, when
executed by the Owner Trustee and authenticated, issued and delivered hereunder,
the valid obligations of the Owner Trustee; and
WHEREAS, all things necessary to make this Indenture the legal, valid
and binding obligation of the Owner Trustee, for the uses and purposes herein
set forth and in accordance with its terms, have been done and performed and
have happened;
The parties hereto agree as follows and that, effective as of the date
hereof, the 1991 Indenture shall be amended and restated to read in its entirety
as follows:
- - GRANTING CLAUSE - -
NOW, THEREFORE, THIS AMENDMENT AND RESTATEMENT OF TRUST INDENTURE AND
SECURITY AGREEMENT WITNESSETH, that, to secure (i) the prompt payment of the
principal of and Premium Amount (if any) and interest on, and all other amounts
due with respect to (a) the Series A Certificates and (b) the Series B
Certificates in each case from time to time outstanding hereunder, (ii) the
performance and observance by the Owner Trustee and the Owner Participant of all
the agreements, covenants and provisions for the benefit of the Loan
Participants and the Certificate Holders herein and in each Participation
Agreement, the Special Participation Agreement and the Certificates contained,
(iii) the prompt payment of any and all amounts from time to time owing
hereunder and under each Participation Agreement and the other Operative
Agreements by the Owner Trustee, the Owner Participant or the Lessee to the Loan
Participants and the Certificate Holders and (iv) the performance and observance
by the Guarantors of the Series B Certificates of all the agreements, covenants
and provisions for the benefit of the Loan Participants and the Certificate
Holders in each Participation Agreement, the Special Participation Agreement and
the Guarantee, and for the uses and purposes and subject to the terms and
provisions hereof, and in consideration of the premises and of the covenants
herein contained, and of the acceptance of the Certificates by the holders
thereof, and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee
at or before the delivery hereof, the receipt whereof is hereby acknowledged,
the Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain,
TRUST INDENTURE
<PAGE>
4
sell, assign, transfer, convey, mortgage, pledge and confirm, unto the Indenture
Trustee and its successors and assigns, for the security and benefit of the Loan
Participants and the Certificate Holders, as aforesaid, a fir st priority
security interest in and first mortgage lien upon, all estate, right, title and
interest of the Owner Trustee in, to and under the following described property,
rights and privileges, other than Excluded Payments (which collectively,
excluding Excluded Payments but including all property hereafter specifically
subjected to the Lien of this Indenture by an Indenture Supplement or any other
mortgage supplemental hereto, shall constitute the "Indenture Estate"), to wit:
----------------
1. each Aircraft (including each Airframe and the Engines) and (in
the case of the Engines) all replacements thereof and substitutions
therefor to which the Owner Trustee shall from time to time acquire title
as provided herein and in any related Lease, all as more particularly
described in the Indenture Supplement executed and delivered with respect
to such Aircraft or any such replacements or substitutions therefor, as
provided in this Indenture, and all records, logs and other documents at
any time maintained with respect to the foregoing property;
2. each Lease and all Rent under each thereof, including, without
limitation in respect of each Lease, all Basic Rent, Supplemental Rent,
insurance proceeds and requisition and other payments of any kind under
each thereof and including all rights of the Owner Trustee to execute any
election or option or to give any notice, consent, waiver, or approval
under or in respect of any Lease or to accept any surrender of any Aircraft
or any part thereof, as well as any rights, powers or remedies on the part
of the Owner Trustee, whether arising under any Lease or by statute or at
law or in equity, or otherwise, arising out of any Lease Event of Default;
3. the Participation Agreements, the Special Participation
Agreement, the Bills of Sale, the New Bills of Sale and all other Indenture
Documents (including, without limitation, all rights to amounts paid or
payable to the Owner Trustee thereunder and all rights to enforce such
payments);
TRUST INDENTURE
<PAGE>
5
4. all tolls, rents, issues, profits, revenues and other income of
the property subjected or required to be subjected to the Lien of this
Indenture, including all payments or proceeds in respect thereof after
termination of any Lease with respect to any Aircraft, any Airframe, any
Engine or any Part subject to such Lease, or otherwise, as the result of
the sale, lease or other disposition thereof, and all estate, right, title
and interest of every nature whatsoever of the Owner Trustee in and to the
same and every part thereof;
5. all insurance and requisition proceeds and all other payments of
any kind with respect to any Aircraft, including but not limited to the
insurance required under Section 11 of the Lease to which such Aircraft is
subject;
6. all monies and securities deposited or required to be deposited
with the Owner Trustee or the Indenture Trustee pursuant to any term of
this Indenture or any Lease or required to be held by the Indenture Trustee
hereunder; and
7. all proceeds of the foregoing.
The Owner Trustee is concurrently with the delivery hereof delivering to the
Indenture Trustee an executed chattel paper original counterpart of each Lease,
the Lease Supplement, the First Lease Amendment, Assumption Agreement and the
Second Lease Amendment in respect of each Aircraft, together with executed
copies of the Trust Agreement and each of the other Indenture Documents (other
than the FAA bills of sale). All property referred to in this Granting Clause,
whenever acquired by the Owner Trustee, shall secure all obligations under and
with respect to the Certificates at any time outstanding. Any and all properties
referred to in this Granting Clause which are hereafter acquired by the Owner
Trustee, shall, without further conveyance, assignment or act by the Owner
Trustee or the Indenture Trustee thereby become and be subject to the security
interest hereby granted as fully and completely as though specifically described
herein.
- - HABENDUM CLAUSE - -
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns,
TRUST INDENTURE
<PAGE>
6
in trust for the benefit and security of the Loan Participants and the
Certificate Holders, and for the uses and purposes and subject to the terms and
provisions set forth in this Indenture.
It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Owner Trustee shall remain liable under the Indenture
Documents to perform all of the obligations assumed by it thereunder, all in
accordance with and pursuant to the terms and provisions thereof, and the
Indenture Trustee and the Loan Participants and the Certificate Holders shall
have no obligation or liability under any thereof by reason of or arising out of
the assignment hereunder, nor shall the Loan Participants or the Certificate
Holders be required or obligated in any manner to perform or fulfill any
obligations of the Owner Trustee under or pursuant to any of the Indenture
Documents, except as therein or herein expressly provided, to make any payment,
or to make any inquiry as to the nature or sufficiency of any payment received
by it, or present or file any claim, or take any action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
The Owner Trustee does hereby constitute the Indenture Trustee the
true and lawful attorney of the Owner Trustee, irrevocably, with full power (in
the name of the Owner Trustee or otherwise) to ask, require, demand, receive,
compound and give acquaintance for any and all monies and claims for monies (in
each case including insurance and requisition proceeds) due and to become due
under or arising out of the Indenture Documents and all other property which now
or hereafter constitutes part of the Indenture Estate, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or to
take any action or to institute any proceedings which the Indenture Trustee may
deem to be necessary or advisable in the premises. Under each Lease the Lessee
is directed to make all payments of Rent (other than Excluded Payments) and all
other amounts which are required to be paid to or deposited with the Owner
Trustee pursuant to such Lease (other than Excluded Payments), directly to the
Indenture Trustee at such address or addresses as the Indenture Trustee shall
specify, for application as provided in this Indenture. The Owner Trustee
agrees that promptly on receipt thereof, it will transfer to the Indenture
Trustee any and all monies from time to time received by it constituting part of
the Indenture Estate, for distribution by the Indenture Trustee pursuant to this
Indenture.
TRUST INDENTURE
<PAGE>
7
The Owner Trustee does hereby warrant and represent that (except as
permitted herein) it has not assigned or pledged any of its right, title and
interest hereby assigned to anyone other than the Indenture Trustee other than
pursuant to the Prior Mortgages, which Mortgages have been released, discharged
and satisfied of record.
The Owner Trustee does hereby ratify and confirm the Indenture
Documents and does hereby agree that (except as permitted herein) it will not
take or omit to take any action, the taking or omission of which would result in
an alteration or impairment of any of the Indenture Documents or of any of the
rights created by any thereof or the assignment hereunder.
Notwithstanding the Granting Clause or any of the preceding
paragraphs, there are hereby expressly excluded from the foregoing grant,
bargain, sale, assignment, transfer, conveyance, mortgage, pledge and security
interest all Excluded Payments. Further, nothing in the Granting Clause or any
of the preceding paragraphs shall impair in any respect the rights of the Owner
Trustee or the Owner Participant under Section 5.09.
IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Special Definitions. For all purposes of this
-------------------
Indenture the following terms shall have the following meanings (such
definitions to be equally applicable to both the singular and plural forms of
the terms defined). Any agreement referred to below shall mean such agreement as
amended, supplemented and modified from time to time in accordance with the
applicable provisions thereof and of the other Operative Agreements. Unless
otherwise specified, Section, Article, Exhibit and Annex references are to
Sections, Articles, Exhibits and Annexes of this Indenture.
"Affiliate" of any Person shall mean any other Person directly or
---------
indirectly controlling, directly or indirectly controlled by, or under
direct or indirect common control with, such Person.
TRUST INDENTURE
<PAGE>
8
"Aircraft" means the Airframes together with the Engines as further
--------
defined in each Lease.
"Airframes" means each of the Boeing 737-2H4 Aircraft, serial numbers
---------
21593, 21721, and 21722 bearing respective U.S. Registration Numbers N5SSW,
NS6SW, and NS7SW as further defined in each Lease.
"Assumption Agreement" means each Assignment and Assumption Agreement
--------------------
delivered by the Owner Trustee and an Existing Owner Trustee, in
substantially the form of Exhibit I to the Special Participation Agreement.
"Base Rate" means, for any day, the higher of (a) the Federal Funds
---------
Rate for such day plus 1/2 of 1% per annum or (b) the Prime Rate for such
day. Each change in any interest rate provided for herein based upon the
Base Rate resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.
"Basic Rate" means, collectively, the "Basic Rent" as defined in each
----------
Lease.
"Bills of Sale" means, collectively, the "Manufacturer's FAA Bill of
--------------------
Sale" and the "Manufacturer's Warranty Bill of Sale" as defined in each
Lease.
"Break Funding Cost" means, for any Series A Certificate, the amount
------------------
equal to the sum of LIBOR Break Amount and Swap Break Amount for such
Series A Certificate.
"Calculation Agent" means The Chase Manhattan Bank (National
-----------------
Association), or its designee.
"Certificates" means, collectively, the Series A Certificates and the
------------
Series B Certificates.
"Certificate Holder" or "holder" means, at any time, any holder of one
------------------ ------
or more Certificates. For all purposes of this Indenture, including,
without limitation, Section 2.17 and Article III, reference to a holder of
a given Series of Certificates shall mean such Person in such capacity and
not in its capacity as the holder of any other Series of Certificates.
TRUST INDENTURE
<PAGE>
9
"Certificate Register" has the meaning specified in Section 2.08.
--------------------
"Closing Date" means December 31, 1991.
------------
"Collateral" means, in the case of the Series B Certificates, amounts
----------
paid or payable, and all rights and benefits under, and the collateral
under, the Guarantee.
"Corporate Trust Office" means the principal office of the Indenture
----------------------
Trustee located at 35 North Sixth Street, Reading, Pennsylvania, 19601, or
such other office at which the Indenture Trustee's corporate trust business
shall be administered and which the Indenture Trustee shall have specified
by notice in writing to the Lessee, the Owner Trustee, the Owner
Participant and each Certificate Holder.
"Designated Maturity" means, as at any date of determination, the then
-------------------
remaining weighted average life of the Series A Certificates subject to
prepayment.
"Dollars" and "$" means lawful currency of the United States of
------- -
America.
"Engines" means each of the six (6) Pratt & Whitney JT8D-9A Engines,
-------
serial numbers P707374B, P707334B, P674648B, P707371B, P687758B and
P707364B, as further defined in each Lease.
"Excluded Payments" means (i) subject to the provisions of Section
-----------------
4.03, indemnity payments and interest in respect thereof paid or payable by
the Lessee in respect of The Bank in its individual capacity or the Owner
Participant pursuant to Section 8.1 or 8.2 of any Participation Agreement,
(ii) proceeds of public liability insurance (or any similar payment from a
governmental authority) in respect of any Aircraft payable to, or as a
result of losses suffered by, The Bank in its individual capacity or the
Owner Participant, (iii) proceeds of insurance maintained with respect to
any Aircraft by or for the benefit of the Owner Participant (whether
directly or through the Owner Trustee) in excess of that required to be
maintained by the Lessee under Section 11 of any Lease, provided that no
--------
such insurance impairs or reduces coverage under any insurance required to
be maintained by the Lessee under any said Section 11,
TRUST INDENTURE
<PAGE>
10
(iv) payments of Supplemental Rent by the Lessee in respect of any
amounts payable under the Tax Indemnification Agreement, (V) Transaction
Costs paid or payable to The Bank in its individual capacity or the Owner
Participant pursuant to Section 12.2 of any Participation Agreement and
(vi) any right to enforce the payment of any amount described in clauses
(i) through (v) above and the proceeds thereof.
"Existing Owner Trustees" means the "Existing Owner Trustees" party to
-----------------------
the Special Participation Agreement.
"Federal Funds Rate" means for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that (i) if the day for which such
rate is to be determined is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (ii)
if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Calculation Agent on such
day on such transactions as determined by the Calculation Agent.
"First Lease Amendment" means each of the Sale and Lease Agreement
---------------------
Amendments as further defined in the definition of Lease and as defined in
the Special Participation Agreement.
"Guarantee" means the Guarantee 555W, S6SW and 57SW dated as of
---------
December 30, 1991 by the Guarantors of the Series B Certificates in favor
of the holders of the Series B Certificates, as the same may be modified,
supplemented, amended and in effect from time to time.
"Guarantors of the Series B Certificates" means Cauff, Lippman &
---------------------------------------
Company, Inc., a Florida corporation and the Owner Participant.
"Guarantee Beneficiary" has the meaning specified in the Guarantee.
---------------------
TRUST INDENTURE
<PAGE>
11
"Indenture", "this Indenture", and "the Trust Indenture" mean this
--------- -------------- -------------------
Amendment and Restatement of Trust Indenture and Security Agreement,
including any Indenture Supplement and each other supplement from time to
time entered into pursuant hereto.
"Indenture Default" means an Indenture Event of Default or an event
-----------------
which with notice or lapse of time or both would became an Indenture Event
of Default.
"Indenture Documents" means each Participation Agreement, the Special
-------------------
Participation Agreement, each Lease (including Lease Supplements) each
Assumption Agreement, the Bills of Sale aid the New Bills of Sale.
"Indenture Estate" means the "Indenture Estate" as defined in the
----------------
Granting Clause hereof.
"Indenture Event of Default" has the meaning specified in Section
--------------------------
4.02.
"Indenture Supplement" means a supplement to this Indenture
--------------------
substantially in the form of Exhibit A. which shall particularly describe
each Airframe and Engines, or any Replacement Engine, included in the
property of the Owner Trustee covered by this Indenture.
"Initial Lender" means Progress Credit Corporation. a Florida
--------------
corporation.
"Initial Owner Participants" means the "Initial Owner Participants"
--------------------------
party to the Special Participation Agreement.
"Interest Payment Date" means, during the period from and including
---------------------
the Closing Date to and including December 31, 1995, March 31, June 30,
September 30 and December 31 of each year, the first of which shall be
December 31, 1991; and thereafter, the thirtieth day of each calendar
month, or if there is no thirtieth day, the last day of the month.
"Interest Rate" means, during the period from and including the
-------------
Closing Date to and including December 31, 1995, 7.57% and thereafter,
7.94% per annum.
TRUST INDENTURE
<PAGE>
12
"Lease" means any of (i) the Sale and Lease Agreement (Southwest Airlines
-----
1990 Trust II) dated as of September 1, 1990 between the Lessee and the Existing
Owner Trustee, including Lease Supplement No. 1 thereto recorded with the FAA on
September 28, 1990, as conveyance number KK13034, the Assumption Agreement,
dated December 30, 1991 between the Existing Owner Trustee and the Owner
Trustee, recorded by the FAA on January 3, 1992 as conveyance number H77982, the
First Lease Amendment in respect thereof recorded with the FAA on January 3,
1992 as conveyance number H77984, the Second Lease Amendment in respect thereof
and each other supplement or amendment heretofore or hereafter entered into
pursuant to the terms of such Lease, (ii) the Sale and Lease Agreement
(Southwest Airlines 1990 Trust III) dated as of September 1, 1990 between the
Lessee and the Owner Trustee, including Lease Supplement No. 1 thereto recorded
with the FAA on September 28, 1990, as conveyance number K91061, the Assumption
Agreement , dated December 30, 1991, between the Existing Owner Trustee and the
Owner Trustee, recorded by the FAA on January 2, 1992, as conveyance number
H77978, the First Lease Amendment in respect thereof recorded with the FAA on
January 2, 1992 as conveyance number H77980, the Second Lease Amendment in
respect thereof and each other supplement or amendment heretofore or hereafter
entered into pursuant to the terms of such Lease, and (iii) the Sale and Lease
Agreement (Southwest Airlines 1990 Trust IV) dated as of September 1, 1990
between the Lessee and the Owner Trustee, including Lease Supplement No. 1
thereto recorded with the FAA on September 28, 1990, as conveyance number
H72737, the Assumption Agreement, dated December 30, 1991, between the Existing
Owner Trustee and the Owner Trustee, recorded by the FAA on January 3, 1992, as
conveyance number H77986, the First Lease Amendment in respect thereof recorded
with the FAA on January 3, 1992 as conveyance number H77988, the Second Lease
Amendment in respect thereof and each other supplement or amendment heretofore
or hereafter entered into pursuant to the terms of such Lease.
TRUST INDENTURE
<PAGE>
13
"Lease Default" means a Lease Event of Default or an event which
-------------
with notice or lapse of time or both would become a Lease Event of
Default.
"Lease Event of Default" means any of the events specified in Section
----------------------
14 of any Lease.
"Lease Supplements" means, collectively the "Lease Supplement" as
-----------------
defined in each Lease.
"Lending Office" means, for any holder of a Series A Certificate, the
--------------
office from which it maintains the loan evidenced by its Series A
Certificates.
"Lessee" means Southwest Airlines Co., a Texas corporation, or any
------
successor or assignee thereof as permitted by Section 7.4 of any
Participation Agreement.
"LIBOR" means the London Interbank Offered Rate.
-----
"LIBOR Break Amount" means, for any Series A Certificate as at any
------------------
date of prepayment, purchase or acceleration of such Series A Certificate,
an amount equal to the excess, if any, of (i) the amount of interest which
otherwise would have accrued on the principal amount prepaid, purchased or
accelerated for the period from the date of such prepayment, purchase or
acceleration to the next subsequent Interest Payment Date at the applicable
"Floating Rate" (i.e., LIBOR-based rate) of interest in effect on such date
----
(exclusive of any spread) under the Swap Transaction over (ii) the interest
component of the amount the holder of such Series A Certificate would have
bid in the London interbank market for Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable
to such period.
"Loan Participants" means the Loan Participants party to the Special
-----------------
Participation Agreement, and their respective successors and assigns.
"Majority A Holders" means, as of any date of determination thereof,
------------------
the holders of not less than a majority in aggregate outstanding principal
amount of all Series A Certificates.
TRUST INDENTURE
<PAGE>
14
"Majority B Holders" means, as of any date of determination thereof,
------------------
the holders of not less than a majority in aggregate outstanding principal
amount of all Series B Certificates.
"Majority in Interest of Certificate Holders" means, as of any date of
-------------------------------------------
the determination thereof, the Majority A Holders and the Majority B
Holders; provided, however, that (i) such term shall mean the Majority A
-------- -------
Holders if an Indenture Event of Default shall have occurred and be
continuing (unless all principal, interest, Premium Amount and all other
amounts due on the Series A Certificates and to the holders thereof under
the Operative Agreements shall have been theretofore paid in full) and (ii)
such term shall mean the Majority B Holders in the case of any direction,
demand, notice or other action in respect of the Collateral for the benefit
of the holders of the Series B Certificates. For all purposes of the
foregoing definition and the definition of "Majority A Holders" and
"Majority B Holders", in determining as of any date the then aggregate
outstanding principal amount of Certificates of any Series, there shall be
excluded any Certificates, if any, held by the Owner Trustee, the Owner
Participant, the Guarantors of the Series B Certificates or the Lessee or
any Affiliate of any thereof (unless the Owner Trustee, the Owner
Participant, the Guarantors of the Series B Certificates, the Lessee or
their respective Affiliates, as the case may be, own all Certificates then
outstanding), or any interest of the Owner Trustee or the Owner Participant
in any Certificate or any interest of the holder of a Series B Certificate
in a Series A Certificate, in either case, by reason of subrogation
pursuant to Section 4.03 or otherwise.
"Make-Whole Amount" means, with respect to any Series A Certificate,
-----------------
an amount equal to the excess, if any, of (i) the present value, as of the
date of the relevant prepayment, purchase or acceleration of Series A
Certificates, of the respective installments of principal of and interest
on such Series A Certificate that, but for such prepayment, purchase or
acceleration, would have been payable on Payment Dates or Interest Payment
Dates, as the case may be, after such prepayment, purchase or acceleration
(assuming for this purpose no changes in the Interest Rate for the Series A
Certificates from that in effect with respect to the relevant prepayment,
purchase or acceleration), over (ii) the
TRUST INDENTURE
<PAGE>
15
principal amount of such Series A Certificate then being prepaid. Such
present value shall be determined by discounting the amounts of such
installments from their respective Payment Dates or Interest Payment Dates,
as the case may be, to the date of such prepayment at a rate equal to the
Treasury Rate plus 1/2 of 1% (such discounting to be calculated on the
basis of a 360-day year of twelve 30-day months).
"New Bills of Sale" has the meaning assigned to such term in Section
-----------------
1.1(a) (i) of the Special Participation Agreement.
"1991 Indenture" means the Trust Indenture and Security Agreement
--------------
(Southwest Airlines 1990 Trust II, III and IV) dated as of December 30,
1991 between the Owner Trustee and the Indenture Trustee, as supplemented
by the Indenture Supplement No. 1 thereto dated December 31, 1991, recorded
by the FAA as one instrument on January 3, 1992, as conveyance number
H77989.
"Non-U.S. Person" means any Person other than (i) a citizen or
---------------
resident of the United States of America, its territories and possessions
(including the Commonwealth of Puerto Rico and all other areas subject to
its jurisdiction) (for purposes of this definition, the "United States"),
(ii) a corporation, partnership or other entity created or organized under
the laws of the United States or any political subdivision thereof or
therein or (iii) an estate or trust that is subject to United States
federal income taxation regardless of the source of its income.
"Operative Agreements" means the Indenture Documents, the Trust
--------------------
Agreement, this Indenture, the Loan Certificates and the Guarantee.
"Owner Participant" means CL Aircraft XXXI, Inc., a Florida
-----------------
corporation, and transferees thereof as and to the extent permitted by
Section 10.1 of each Participation Agreement and Section 8.01 of the Trust
Agreement.
"Participation Agreement" means any of (i) the Participation Agreement
-----------------------
(Southwest Airlines 1990 Trust II) dated as of September 1, 1990 among the
Lessee, Cauff, Lippman & Company, Inc., the Owner Participant (as assignee
of the
TRUST INDENTURE
<PAGE>
16
original Owner Participant party thereto), the Initial Lender and the Owner
Trustee (as assignee of the original Owner Trustee party thereto), (ii) the
Participation Agreement (Southwest Airlines 1990 Trust III) dated as of
September 1, 1990 among the Lessee, Cauff, Lippman & Company, Inc., the
Owner Participant (as assignee of the original Owner Participant party
thereto), the Initial Lender and the Owner Trustee (as assignee of the
original Owner Trustee party thereto), and (iii) the Participation
Agreement (Southwest Airlines 1990 Trust IV) dated as of September 1, 1990
among the Lessee, Cauff, Lippman & Company, Inc., the Owner Participant (as
assignee of the original Owner Participant party thereto), the Initial
Lender and the Owner Trustee (as assignee of the original Owner Trustee
party thereto), as any of the same may be modified, supplemented, amended
and in effect from time to time.
"Parts" means, in respect of any Aircraft, Airframe or Engine, the
-----
"Parts" as defined in the Lease to which such Aircraft, Airframe or Engine
is subject.
"Past Due Rate" means, with respect to the principal of or interest or
-------------
Premium Amount, if any, on any Certificate not paid in full when due
(whether at stated maturity, by acceleration or otherwise), or with respect
to any other amount payable to the holder thereof thereon or under this
Indenture not so paid in full when due, a rate of interest per annum equal
to 2% above the higher of (x) the Interest Rate or (y) the Base Rate (in
either case computed on the basis of a year of 360 days and actual days
elapsed).
"Payment Date" means, (i) with respect to Series A Certificates, each
------------
Interest Payment Date listed under the Schedule of Principal Payments for
such Series of Certificates set forth in Section 2.02(b) (1) and (ii) with
respect to Series B Certificates, each Interest Payment Date on which
principal thereon is scheduled for payment pursuant to Section 2.02(b) (2).
"Permitted Investments" means those investments described in Section
---------------------
22.1 of any Lease.
"Premium Amount" means, with respect to each Series A Certificate, to
--------------
the fullest extent permitted by law, an amount equal to the sum of (i) (a)
if the holder thereof is
TRUST INDENTURE
<PAGE>
17
a bank, a bank operating subsidiary or otherwise a floating rate lender,
the Break Funding Cost in respect of such Certificate or (b) if the holder
thereof is not a bank, a bank operating subsidiary or otherwise a floating
rate lender, the Make-Whole Amount in respect of such Certificate plus (ii)
----
so long as such amount is not payable in connection with an Indenture Event
of Default that is a Lease Event of Default, as of any date of the
determination thereof, the Special Premium.
"Prime Rate" means the rate of interest from time to time announced by
----------
the Calculation Agent at its principal office as its prime commercial
lending rate.
"Prior Mortgages" means any of (i) the Security Agreement and
---------------
Assignment of Leases N55SW dated as of September 1, 1990 between the
Existing Owner Trustee party thereto and the Initial Lender, which was
previously released by the General Release of Mortgage, dated December 31,
1991, executed by the Initial Lender recorded by the FAA on January 3,
1992, as conveyance number H77983, (ii) the Security Agreement and
Assignment of Leases NS6SW dated as of September 1, 1990 between the
Existing Owner Trustee party thereto and the Initial Lender, which was
previously released by the General Release of Mortgage, dated December 31,
1991, executed by the Initial Lender recorded by the FAA on January 2,
1992, as conveyance number H77979 and (iii) the Security Agreement and
Assignment of Leases N575W dated as of September 1, 1990 between the
Existing Owner Trustee party thereto which was previously released by the
General Release of Mortgage, dated December 31, 1991, executed by the
Initial Lender, recorded by the FAA on January 3, 1992, as conveyance
number H77988.
"Regulatory Change" shall mean, with respect to any holder of a Series
-----------------
A Certificate, any change after the date of this Indenture in United States
Federal, state or foreign law or regulations, or the adoption or making
after such date of any interpretation, directive or request applying to a
class of banks including such Certificate Holder of or under any United
States Federal, state or foreign law or regulations (whether or not having
the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
TRUST INDENTURE
<PAGE>
18
"Rent" means, collectively, the "Rent" as defined in each Lease.
----
"Replacement Engine" means any engine substituted for an Engine
------------------
pursuant to Section 5.06.
"Second Lease Amendment" means any of (i) the Sale and Lease Agreement
----------------------
Second Amendment (Southwest Airlines 1990 Trust II) dated as of August 25,
1995 between the Lessee and the Owner Trustee, (ii) the Sale and Lease
Agreement Second Amendment (Southwest Airlines 1990 Trust III) dated as of
August 25, 1995 between the Lessee and the Owner Trustee and (iii) the Sale
and Lease Agreement Second Amendment (Southwest Airlines 1990 Trust IV)
dated as of August 25, 1995 between the Lessee and the Owner Trustee each
of which are being filed simultaneously herewith.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Series" means one or more of the series of Certificates issued
------
pursuant to Article II of this Indenture.
"Series A Certificates" means the "Series A Loan Certificates" issued
---------------------
pursuant to Section 2.02(a) and any such certificates issued in exchange or
replacement therefor pursuant to Section 2.08 or 2.09.
"Series B Certificates" means the "Series B Loan Certificates" issued
---------------------
pursuant to Section 2.02(a) and any such certificates issued in exchange or
replacement therefor pursuant to Section 2.08 or 2.09.
"Special Participation Agreement" means the Special Participation
-------------------------------
Agreement (Southwest Airlines 1990 Trust II, III & IV) dated as of December
30, 1991 between the Owner Trustee, the Existing Owner Trustees, the
Indenture Trustee, the loan Participants, the Initial Lender, the Owner
Participant, the Initial Owner Participants and the Guarantors of the
Series B Certificates.
"Special Premium" means a premium equal to (x) on or prior to December
---------------
31, 1992, 2%, (y) thereafter through (and including) December 31, 1994, 1%
and (z) thereafter, 0%, of
TRUST INDENTURE
<PAGE>
19
the principal amount of such Certificate subject to prepayment.
"Supplemental Rent" means, collectively "Supplemental Rent" as defined
-----------------
in each Lease.
"Swap Break Amount" means, as of any date of determination thereof,
-----------------
and for any Series A Certificate, the lesser of:
(a) the amount the Swap Counterparty will require in accordance with
market practice to have paid to it on such date by the holder of such
Series A Certificate to terminate the Swap Transaction of such holder on
such date; or
(b) the amount a Reference Market-maker (as defined in the Swap Form
with the "party" referred to in such definition being the Swap
counterparty) designated by the Owner Trustee and reasonably acceptable to
the Swap Counterparty will quote to such holder and the Owner Trustee as
the amount it will require to be paid to it on such date by such holder to
assume the obligations of such holder under the Swap Transaction;
provided that if the Swap Coonterparty and the Reference Market-maker quote
--------
the identical amount, or if the Reference Market-maker fails to quote or,
having quoted, fails or refuses to assume the aforesaid obligations of such
holder in accordance with its "quote" or the Swap Counterparty refuses
(acting in accordance with the Swap Form) to accept performance by such
Reference Market-maker, the amount computed in accordance with clause (a)
above shall be the "Swap Break Amount".
"Swap Counterparty" means Chase Securities, Inc., in the case of the
-----------------
swap referenced in clause (i) of "Swap Transaction" below and (ii) The
Chase Manhatten Bank (National Association) in the case of the swap
referenced in clause (ii) of that definition.
"Swap Transaction" means (i) the interest rate exchange transaction
----------------
entered into by the Senior Lender and the Swap Counterparty, which
transaction is governed by the Interest Rate and Currency Exchange
Agreement published in 1987 by, and incorporating by reference therein the
definitions and
TRUST INDENTURE
<PAGE>
20
provisions contained in, the 1991 ISDA Definitions of the International
Swap Dealers Association, Inc. (the "Swap Form") and the terms of the
---------
confirmation of which provide for the exchange of three month LIBOR plus a
Spread for the Interest Rate in respect of a notional amount equal to the
scheduled aggregate principal amount of the Series A Certificates
outstanding from time to time, as maid swap transaction may be assigned in
whole or in part; and (ii) in addition, at all times after December 29,
1995, a swap that may exist or, if it does not exist, shall be deemed to
exist between the Senior Lender and Swap Counterparty, which transaction is
governed by the Interest Rate and Currency Exchange Agreement published in
1992 by, and incorporating by reference therein the definitions and
provisions contained in, the 1991 ISLA Definitions of the International
Swap Dealers Association, Inc. (the "New Swap Form") and the terms
-------------
of the confirmation of which provide for the exchange of one month LIBOR
plus a Spread for the Interest Rate in respect of a notional amount of the
Series A Certificates outstanding from time to time, as said swap
transaction may be assigned in whole or in part.
"The Bank" means First Security Bank of Utah, National Association, a
--------
national banking association, in its individual capacity and any successor
financial institution (in its individual capacity) acting as Owner Trustee
hereunder and under the Trust Agreement.
"Treasury Rate" means for any Designated Maturity, the yield to
-------------
maturity of, and resulting from the bidding for, the most recently
auctioned United States Treasury Notes with maturities equal to such
Designated Maturity, and if United States Treasury Notes with such a
maturity are not then auctioned and publicly traded, the weighted average
yield to maturity of United States Treasury Notes with maturities next
above and below such Designated Maturity (calculated as provided below);
such yields in each case to be determined by the Calculation Agent by
averaging (and rounding upward to the nearest whole multiple of 1/100 of 1%
per annum, if the average is not such a multiple) , the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the
nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward)
as quoted by two reputable dealers in United States Treasury Notes selected
by the Calculation Agent at approximately 11:00 AM., New York time, on the
date any Premium Amount shall be
TRUST INDENTURE
<PAGE>
21
payable and notified to the Indenture Trustee, the Owner Trustee and the
holders of the affected Series of Certificates; any weighted average yield
of Treasury Notes with two maturities is to be calculated by the
Calculation Agent in accordance with the following formula:
WAY - Y1 + (Y2 - Y1) (DM - Xl)
------------------
(X2 - Xl)
Where :
WAY - Weighted Average Yield
DM - relevant Designated Maturity
Xl - whole integer in years closest to and less than DM which equals the
maturity of a United States Treasury Note then publicly traded.
X2 - whole integer in years closest to and greater than DM which equals
the maturity of a United States Treasury Note then publicly traded.
Y1 - yield, determined as provided above, of United States Treasury Note.
then moat recently auctioned with maturities equal to Xl.
Y2 - yield, determined as provided above, of United States Treasury Notes
then most recently auctioned with maturities equal to X2.
SECTION 1.02. Other Definitions. For all purposes of this Indenture,
-----------------
terms defined in the heading and recitals of this Indenture are used as so
defined and capitalized terms used but not defined in this Indenture are used as
defined in the Leases.
ARTICLE II
THE CERTIFICATES
SECTION 2.01. Form of Certificates. The Certificates and the
--------------------
Indenture Trustee's form of certificate of authentication to appear on the
Certificates shall each be substantially in the form set forth below, as
follows:
TRUST INDENTURE
<PAGE>
22
___________________
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION,
not in its individual capacity, except as otherwise expressly
provided in the Operative Agreements, but solely as Owner Trustee
under Trust Agreement
(Southwest Airlines 1990 Trust II, III & IV)
dated as of December 30, 1991
SERIES * LOAN
CERTIFICATE DUE 1992-1999
ISSUED IN CONNECTION WITH THREE BOEING MODEL 737-2H4
AIRCRAFT WITH MANUFACTURER'S SERIAL NUMBERS 21593, 21721 AND
21722 AND INITIALLY BEARING UNITED STATES FEDERAL AVIATION
ADMINISTRATION REGISTRATION NOS. N55SW, N56SW AND N57SW AND
SIX PRATT & WHITNEY JT8D-9A ENGINES
No. R- * - New York, New York
$ December 31, 1991
FIRST SECURITY BANK OF UTAH, NATIONAL ASSOCIATION, not in its
individual capacity, except as otherwise expressly provided in the Operative
Agreements, but solely as Owner Trustee (herein in such capacity called the
"Owner Trustee") under that certain Trust Agreement (Southwest Airlines 1990
-------------
Trust II, III & IV) dated as of December 30, 1991, between the Owner Participant
named therein and First Security Bank of Utah, National Association (herein as
Bank Trust Agreement may be amended or supplemented from time to time called the
"Trust Agreement"), hereby promises to pay to _________________________________,
---------------
or registered transferees, the principal sum of ______________________________
_______________________________________________________________________
Dollars, in sixty-four (64) installments, one such installment to be due and
payable on each Payment Date specified, and each such installment to be in an
amount equal to the amount set forth, in Annex A hereto, together with interest
on the unpaid principal amount hereof from time to time outstanding from and
including the date hereof until such principal amount is paid in full. Interest
shall accrue at the Interest Rate and shall be payable
____________________
* Insert Series Letter
TRUST INDENTURE
<PAGE>
23
in arrears on each Interest Payment Date and on the date this Certificate is
paid in full. This Certificate shall bear interest at the applicable Past Due
Rate on any principal hereof, interest and other amounts due hereunder not paid
when due (whether at stated maturity, by acceleration or otherwise) for any
period during which the same shall be overdue, payable on demand by the holder
hereof given through the Indenture Trustee.
Interest shall be calculated on the basis of a year of 360 days and
actual days elapsed. If any sum payable hereunder falls due on a day which is
not a Business Day, then such sum shall be payable on the next succeeding
Business Day, without (so long as payment is made on such succeeding Business
Day) additional interest as a result of such extension.
All payments of principal[, Premium Amount]" and interest and other
amounts to be made to the holder hereof or under the Amendment and Restatement
dated as of August 25, 1995 of Trust Indenture and security Agreement (Southwest
Airlines 1990 Trust II, III & IV) dated as of December 30, 1991 (as amended or
supplemented from time to time, herein called the "Indenture", the terms defined
---------
therein and not otherwise defined herein being used herein with the same
meanings) between the Owner Trustee and Meridian Trust company, as Indenture
Trustee thereunder, shall be made only from the income and proceeds from the
Indenture Estate and the Collateral and (except in the case of the Collateral)
only to the extent that the Owner Trustee shall have sufficient income or
proceeds from the Indenture Estate to enable the Indenture Trustee to make such
payments in accordance with the terms of the Indenture. Each holder hereof, by
its acceptance of this Certificate, agrees that it will look solely to the
income and proceeds from the Indenture Estate and the Collateral to the extent
available for distribution to the holder hereof as above provided and that none
of the Owner Participant, The Bank or the Indenture Trustee is personally liable
to the holder hereof for any amounts payable or any liability under this
Certificate or under the Indenture, except as expressly provided in the
Indenture (in the case of The Bank and the Indenture Trustee) or as expressly
provided in any Participation Agreement and the Special Participation Agreement
(in the case of The Bank, the Indenture Trustee and the Owner Participant).
____________________
* Insert only in Series A Certificates
TRUST INDENTURE
<PAGE>
24
If the Owner Trustee elects or is required to prepay this Certificate
under any provision of the Indenture or any Person entitled thereto elects to
purchase this Certificate under Section 2.13 of the Indenture and such
prepayment or purchase or payment, as the case may be, is not consummated on the
date originally scheduled therefor, or if any payment of principal of or
interest on this Certificate is made on a date other than the date scheduled
therefor, the Owner Trustee or other such Person, as the case may be, shall, no
later than three Business Days after its receipt of demand by the holder hereof
(accompanied by a certificate of the type specified in the next succeeding
sentence), given through the Indenture Trustee with a copy to the Lessee, pay to
the Indenture Trustee for the account of the holder hereof any amounts required
to compensate the holder hereof for any losses, costs or expenses which it may
incur as a result of the failure of such prepayment or purchase or payment, as
the case may be, to occur as scheduled. In connection therewith, the holder
hereof shall furnish to the Owner Trustee or other such Person, as the case may
be, a certificate setting forth, in reasonable detail, the calculation of the
amount of such losses, costs and expenses, which certificate shall be conclusive
absent manifest error.]*
Principal and interest and other amounts due hereon shall be payable
in Dollars in immediately available funds prior to Noon, New York time, on the
due date thereof, to the Indenture Trustee at the Corporate Trust Office and the
Indenture Trustee shall, subject to the terms and conditions of the Indenture,
remit all such amounts so received by it to the holder hereof at such account or
accounts at such financial institution or institutions as the holder hereof
shall have designated to the Indenture Trustee in writing, in immediately
available funds, such payment to be made prior to 2:00 P.M., New York time, on
the due date thereof. If such amounts are received after Noon, New York time on
the due date thereof, such amounts shall be deemed received on the next
following Business Day, and the Indenture Trustee shall make payment thereof
promptly, but not later than 11:00 A.M., New York time the next following
Business Day. In the event the Indenture Trustee shall fail to make any such
payment as provided in the two preceding sentences after its receipt of funds at
the place and prior to the time specified
____________________
* Include only in Series A Certificates.
TRUST INDENTURE
<PAGE>
25
above, the Indenture Trustee, in its individual capacity and not as trustee,
agrees to compensate the holder hereof for loss of use of funds in a
commercially reasonable manner if it shall have failed to use ordinary care in
the disbursing of such funds. All such payments by the Owner Trustee and the
Indenture Trustee shall be made free and clear of and without reduction for or
on account of any wire or other like charge.
Each holder hereof, by its acceptance of this Certificate, agrees
that, except as otherwise expressly provided in the Indenture, each payment
received by it in respect hereof shall be applied, first, to the payment of any
-----
amount (other than the principal of (or Premium Amount] or interest on this
Certificate) due in respect of this Certificate, second, to the payment of
------
[Premium Amount, if any, and]* interest hereon (as well as any interest on
overdue principal and, to the extent permitted by law, interest and other
amounts payable hereunder) due and payable hereunder, third, to the payment of
-----
the principal of this Certificate then due and fourth, the balance, if any,
------
remaining thereafter, to the payment of the principal of this Certificate
remaining unpaid, in the manner set forth in the last sentence of Section 2.06
of the Indenture.
This Certificate is one of the Certificates referred to in the
Indenture which have been or are to be issued by the Owner Trustee pursuant to
the terms of the Indenture. The Indenture Estate is held by the Indenture
Trustee as security, in part, for the Certificates. The beneficial interest of
the Owner Participant in and to the properties of the Owner Trustee pledged or
mortgaged as part of the Indenture Estate is subject and subordinate to the lien
and security interest granted to the Indenture Trustee to the extent provided in
the Indenture. Reference is hereby made to the Indenture and the Special
Participation Agreement referred to therein for a statement of the rights and
obligations of the holder hereof, and the nature and extent of the security for
this Certificate and of the rights and obligations of the other Certificate
Holders, and the nature and extent of the security for the other Certificates,
as well as for a statement of the terms and conditions of the trusts created by
the Indenture, to all of which terms and conditions in the Indenture and the
Special Participation Agreement each holder hereof agrees by its acceptance of
this Certificate.
____________________
* Include only in Series A Certificate.
TRUST INDENTURE
<PAGE>
26
[WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE HOLDER HEREOF
EXPRESSLY UNDERSTANDS AND AGREES THAT THIS CERTIFICATE IS SUBORDINATE AND JUNIOR
IN RIGHT OF PAYMENT TO THE SERIES A CERTIFICATES AND CERTAIN OTHER SUMS OWING TO
THE HOLDERS THEREOF TO THE EXTENT AND IN THE MANNER SET FORTE IN THE
INDENTURE.]*
There shall be maintained a Certificate Register for the purpose of
registering transfers and exchanges of Certificates at the Corporate Trust
Office of the Indenture Trustee or at the office of any successor indenture
trustee in the manner provided in Section 2.08 of the Indenture. As provided in
the Indenture, this Certificate or any interest herein may, subject to the next
following paragraph, be assigned or transferred, and the Certificates are
exchangeable for a like aggregate original principal amount of Certificates of
the same Series of any authorized denomination, as requested by the Certificate
Holder surrendering the same.
Prior to the due presentment for registration of transfer of this
Certificate, the Owner Trustee and the Indenture Trustee may deem and treat the
person in whose name this Certificate is registered on the Certificate Register
as the absolute owner of this Certificate and the Certificate Holder for the
purpose of receiving payment of all amounts payable with respect to this
Certificate and for all other purposes whether or not this Certificate is
overdue, and neither the Owner Trustee nor the Indenture Trustee shall be
affected by notice to the contrary.
This Certificate is subject to prepayment only as permitted by
Sections 2.11 and 2.12 of the Indenture and to purchase without consent of the
holder hereof only as provided in Section 2.13 of the Indenture, and the holder
hereof, by its acceptance of this Certificate, agrees to be bound by said
provisions.
This Certificate shall not be secured by or be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose, unless
authenticated by the Indenture Trustee as evidenced by the manual signature of
one of its authorized signatories on the certificate below.
____________________
* Include only in Series B Certificates.
TRUST INDENTURE
<PAGE>
27
This Certificate shall be governed by and construed in accordance with
the law of the State of New York.
TRUST INDENTURE
<PAGE>
28
IN WITNESS WHEREOF, the Owner Trustee has caused this Certificate to
be executed in its corporate name by its officer thereunto duly authorized, as
of the date hereof.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
but solely as Owner Trustee
By ___________________________
Title:
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Certificates referred to in the within-mentioned
Indenture.
MERIDIAN TRUST COMPANY,
not in its individual
capacity, but solely
as Indenture Trustee
By _________________________
Authorized Signatory
TRUST INDENTURE
<PAGE>
29
Annex A to Series __ Certificate*
SCHEDULE OF PRINCIPAL PAYMENTS
Payment Date Principal
(Interest Payment Amount to
Date closest to) be paid**
---------------- ---------
____________________
* Insert Series Letter.
** The amounts in this column for a Certificate of any Series shall be equal,
for any Payment Date, to the product of (a) the "Principal Amount to be
Paid" for such Payment Date as set forth in Annex I or Annex II, as the
case may be, and (b) a fraction, the numerator of which is the original
principal amount of such Certificate and the denominator of which is
aggregate original principal amount of such Series of Certificates.
TRUST INDENTURE
<PAGE>
30
SECTION 2.02. Terms of Certificates. (a) On the Closing Date the
---------------------
Owner Trustee shall issue loan certificates in two series in an aggregate
original principal amount of $31,692,164.38: one series shall be designated
"Series A Loan Certificates", shall be in an aggregate original principal amount
of $19,683,472.13 and shall be issued to the Loan Participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees) in such amounts as shall be set forth in said
Section 1.1(a) (ii); and a second series shall be designated "Series B Loan
Certificates", shall be in an aggregate original principal amount of
$12,008,692.25 and shall be issued to the Loan Participants designated as
receiving same pursuant to Section 1.1(a) (ii) of the Special Participation
Agreement (or their nominees) in such amounts as shall be set forth in said
Section 1.1(a) (ii).
(b) The principal of the Certificates shall be due and payable on
each Payment Date as follows:
(1) With respect to the Series A Certificates in sixty-four (64)
consecutive installments as provided in Annex I; and
(2) With respect to the Series B Certificate. in sixty-four (64)
consecutive installments as provided in Annex II.
(c) Each Certificate shall bear interest on the unpaid principal
amount thereof from time to time outstanding from and including the date thereof
until such principal amount is paid in full. Such interest on each Certificate
shall accrue at the Interest Rate and shall be payable in arrears on each
Interest Payment Date and on the date such Certificate is paid in full. Interest
hereunder and under the Certificates shall be calculated on the basis of a year
of 360 days and actual days elapsed. If any sum payable under the Certificates
or under this Indenture falls due on a day which is riot a Business Day, then
such sum shall be payable on the next succeeding Business Day, without (so long
as payment is made on such succeeding Business Day) additional interest as a
result of such extension. Each Certificate shall bear interest at the
applicable Past Due Rate on any principal thereof and interest and other amounts
due
TRUST INDENTURE
<PAGE>
31
thereunder and hereunder not paid when due (whether at stated maturity, by
acceleration or otherwise) for any period during which the same shall be
overdue, payable on demand by the respective Certificate Holder given through
the Indenture Trustee.
(d) The Certificates shall be executed on behalf of the Owner Trustee
by one of its authorized officers. Certificates bearing the signatures of
individuals who were at any time the proper officers of the Owner Trustee shall
bind the Owner Trustee, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Certificates or did not hold such offices at the respective dates of such
Certificates. No Certificates shall be issued hereunder except those provided
for in Section 2.02 (a) and any Certificates issued in exchange or replacement
therefor pursuant to the terms of this Indenture. Each Certificate issued under
this Section 2.02 shall be dated the Closing Date. No Certificate shall be
secured by or entitled to any benefit under this Indenture or be valid or
obligatory for any purpose, unless there appears on such Certificate a
certificate of authentication in the form provided for herein executed by the
Indenture Trustee by the manual signature of one of its authorized officers and
such certificate upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
SECTION 2.03. Taxes. (a) The Owner Trustee agrees to pay, and to
-----
indemnify and hold each Loan Participant and its respective successors, assigns,
employees, agents and servants (each being hereinafter referred to as an
"Indemnitee") harmless from and against, all Taxes (including Taxes payable by
----------
reason of any payment under this Section 2.03), imposed upon any Indemnitee upon
or with respect to or measured by or resulting from this Indenture, any other
Operative Agreement or any Certificate, or any principal, interest or other
payment made or payable by the Owner Trustee hereunder or thereunder. The
Indenture Trustee agrees, to the extent required by applicable law, to withhold
from each payment due hereunder or under any Certificate to a Non-U.S. Person
United States federal withholding taxes at the appropriate rate, and, on a
timely basis, to deposit such amounts with an authorized depository and make
such reports, filings and other reports in connection therewith, and in the
manner, required under applicable law. The Indenture Trustee shall promptly
(but in no event later than the date 30 days after the
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due date of the relevant payment) furnish to each Certificate Holder with
respect to whom taxes have been withheld a U.S. Treasury Form 1042S and Form
8109-B (or similar forms as at any relevant time in effect), if applicable,
indicating payment in full of any Taxes withheld from any payments by the
Indenture Trustee to such Certificate Holder together with all such other
information and documents reasonably requested by such Certificate Holder and
necessary or appropriate to enable such Person to substantiate a claim for
credit or deduction with respect thereto for income tax purposes of any
jurisdiction with respect to which such Person is required to file a tax return;
provided that each Certificate Holder which is a Non-U.S. Person has furnished
- --------
to the Indenture Trustee a properly completed and currently effective U.S.
Treasury Form 1001 (or such successor form as may be required by the United
States Treasury department) during the calendar year in which the payment is
made, or in either of the two preceding calendar years, and has not notified the
Indenture Trustee of the withdrawal of such Form prior to the date of each
interest payment, only the reduced amount required by applicable law shall be
withheld from payments under the Certificates held by such Certificate Holder in
respect of United States federal income tax; provided, further, that each
-------- ------
Certificate Holder which is a Non-U.S. Person has furnished to the Indenture
Trustee a properly completed and currently effective (1) certificate in
substantially the form of Exhibit B hereto and a U.S. Treasury Form W-8 or (2) a
U.S. Treasury Form 4224, as the case may be (or such successor certificate or
Forms as may be required by the United States Treasury department as necessary
to avoid withholding of United States federal income tax) during the calendar
year in which the payment is made, or in the case of a Form W-8 in either of the
two preceding calendar years, and has not notified the Indenture Trustee of the
withdrawal of such certificate and/or Form prior to the date of each interest
payment, no amount shall be withheld from payments under the Certificates held
by such Certificate Holder in respect of United States federal income tax. Each
Certificate Holder shall indemnify and hold harmless the Indenture Trustee
against any claim for United States withholding taxes which the Indenture
Trustee improperly fails to withhold on payments to such Certificate Holder as a
direct result of the invalidity of any certificate or Form provided by such
Certificate Holder pursuant to this Section 2.03 or the failure of the
Certificate Holder to notify the Indenture Trustee that a previously furnished
form has become incorrect.
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(b) If at any time while the Certificates shall be outstanding any
applicable law or tax treaty of the United States or in any interpretation or
administration thereof by any judicial or governmental authority of the United
States subjects any Certificate Holder to any tax collected by withholding
imposed by the United States government on interest due under the Certificates
(other than interest attributable to a United States permanent establishment of
Certificate Holder), then, within 30 days after written demand by such
Certificate Holder, the Owner Trustee shall indemnify and hold harmless such
Certificate Holder from and against all withholding taxes referred to above,
including the payment of any amount necessary to hold such Certificate Holder
harmless on an after-tax basis from all taxes required to be paid with respect
to such payment or indemnity under the laws of any taxing authority in any
applicable jurisdiction; provided that the Owner Trustee shall not be under such
--------
obligation to indemnify and hold harmless such Certificate Holder to the extent
that the obligations of the Owner Trustee under this paragraph 2.03(b) were
increased upon, and at the time of, the transfer of the relevant Certificate to
such Certificate Holder (and would not have increased but for such transfer).
Each holder of a Certificate agrees that it will promptly, and in any event
within 30 Business Days, after having actual knowledge thereof use reasonable
efforts to notify the Owner Trustee of any event or events which will subject
such Certificate Holder to any tax collected by withholding described herein and
each such Certificate Holder agrees that it will promptly deliver or cause to be
delivered a certificate of a responsible officer of such Certificate Holder
setting forth the applicable law or the administration or interpretation thereof
that is the basis for the withholding tax (including the computation thereof).
All determinations, estimates, assumptions, allocations and the like required
for the determination of the amount required to be paid to a Certificate Holder
pursuant to this paragraph in order to hold such Certificate Holder harmless on
an after-tax basis from the withholding taxes referred to above shall be made in
good faith by the Certificate Holder.
SECTION 2.04. Payments from Indenture Estate and Collateral Only.
--------------------------------------------------
Except as otherwise expressly provided in the next succeeding sentence of this
Section 2.04, all payments to be made by the Owner Trustee under this Indenture
shall be made only from the income and the proceeds from the Indenture Estate
and only to the extent that the Owner Trustee shall have sufficient income or
proceeds from the Indenture Estate to enable the
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34
Indenture Trustee to make payments in accordance with the terms hereof. Each
Certificate Holder, by its acceptance of a Certificate, and the Indenture
Trustee, each agrees that it will look solely to the income and proceeds from
the Indenture Estate and Collateral to the extent available for distribution to
it as above provided and that none of the Owner Participant, The Bank or the
Indenture Trustee is personally liable to it for any amounts payable or any
liability under any Certificate or this Indenture, except (in the case of the
Indenture Trustee and The Bank) as expressly provided herein (in the case of The
Bank, the Indenture Trustee or the Owner Participant), as expressly provided in
any Participation Agreement and the Special Participation Agreement or (in the
case of the Guarantors of the Series B Certificates) as expressly provided in
the Guarantee.
SECTION 2.05. Method of Payment. Principal and interest and other
-----------------
amounts due hereunder or under the Certificates or in respect hereof or thereof
shall be payable in Dollars in immediately available funds prior to Noon, New
York time, on the due date thereof 1 to the Indenture Trustee at the Corporate
Trust Office and the Indenture Trustee shall, subject to the terms and
conditions hereof, remit all such amounts so received by it to the Certificate
Holders at such account or accounts at such financial institution or
institutions as the Certificate Holders shall have designated to the Indenture
Trustee in writing, in immediately available funds for distribution to the
relevant Certificate Holders, such payment to be made prior to 2:00 P.M., New
York time on the due date thereof. If such amounts are received after Noon, New
York time on the due date thereof, such amounts shall be deemed received on the
next following Business Day, and the Indenture Trustee shall make payment
thereof promptly, but not later than 11:00 AM., New York time the next following
Business Day. In the event the Indenture Trustee shall fail to make any such
payment as provided in the two preceding sentences after its receipt of funds at
the place and prior to the time specified above, the Indenture Trustee, in its
individual capacity and not as trustee, agrees to compensate the Certificate
Holders for loss of use of funds in a commercially reasonable manner if it shall
have failed to use ordinary care in the disbursing of such funds. The Owner
Trustee and the Indenture Trustee acknowledge that the payment instructions
given in Schedule II to the Special Participation Agreement constitute the
initial written notice required by the first sentence of this Section 2.05 to
make all payments as provided in such Schedule. All such payments by the Owner
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Trustee and the Indenture Trustee shall be made free and clear of and without
reduction for or on account of any wire and other like charge. Prior to the due
presentment for registration of transfer of any Certificate, the Owner Trustee
and the Indenture Trustee may deem and treat the Person in whose name any
Certificate is registered on the Certificate Register as the absolute owner of
such Certificate for the purpose of receiving payment of all amounts payable
with respect to such Certificate and for all other purposes-whether or not such
Certificate shall be overdue, and neither the Owner Trustee nor the Indenture
Trustee shall be affected by any notice to the contrary.
SECTION 2.06. Application of Payments. Each payment of principal and
-----------------------
interest or other amounts due in respect of each Certificate shall, except as
otherwise expressly provided herein, be applied, first, to the payment of any
-----
amount (other than the principal of or Premium Amount (if any) or interest on
such Certificate) due in respect of such Certificate, second, to the payment of
------
Premium Amount (if any), if any, and interest on such Certificate (as well as
any interest on overdue principal and interest and other amounts payable
thereunder) due thereunder, third, to the payment of the principal of such
-----
Certificate then due and fourth, the balance, if any, remaining thereafter, to
------
the payment of the principal of such Certificate remaining unpaid (provided that
such Certificate shall not be subject to prepayment or purchase without the
consent of the affected Certificate Holder except as permitted by Section 2.11).
The amounts paid pursuant to clause fourth above shall be applied to the
------
installments of principal of such Certificate in inverse order of maturity.
SECTION 2.07. Termination of Interest in Indenture Estate. A
-------------------------------------------
Certificate Holder shall not, as such, have any further interest in, or other
right with respect to, the Indenture Estate when and if the principal amount of
and Premium Amount, if any, and interest on and other amounts due under all
Certificates held by such holder and all other sums due to such Certificate
Holder hereunder and under the other Operative Agreements shall have been paid
in full.
SECTION 2.08. Registration, Transfer and Exchange of Certificates.
---------------------------------------------------
The Indenture Trustee agrees with the Owner Trustee that the Indenture Trustee
shall keep a register (herein sometimes referred to as the "Certificate
-----------
Register") in which provisions shall be made for the registration of
- --------
Certificates and
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36
the registration of transfers of Certificates. The Certificate Register shall
be kept at the Corporate Trust Office of the Indenture Trustee or at the office
of any successor indenture trustee, and the Indenture Trustee is hereby
appointed "Certificate Registrar" for the purpose of registering Certificates
and transfers of Certificates as herein provided. Upon surrender for
registration of transfer of any Certificate at the Corporate Trust Office, the
Owner Trustee shall execute, and the Indenture Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same Series dated the Closing Date and of a like
aggregate principal amount. At the option of the Certificate Holder, its
Certificates may be exchanged for other Certificates of the same Series and of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Certificates to be exchanged at the Corporate Trust Office.
Each new Certificate issued upon transfer or exchange shall be in a principal
amount of at least $500,000 (except as may be necessary to evidence the entire
outstanding principal amount of a Certificate). Whenever any Certificates are
so surrendered for exchange, the Owner Trustee shall execute, and the Indenture
Trustee shall authenticate and deliver, the Certificates of the relevant Series
which the Certificate Holder making the exchange is entitled to receive. All
Certificates issued upon any registration of transfer or exchange of
Certificates shall be the valid obligations of the Owner Trustee evidencing the
same respective obligations, and entitled to the same security and benefits
under this Indenture, as the Certificates surrendered upon such registration of
transfer or exchange. Every Certificate presented or surrendered for
registration of transfer or exchange, shall (if so required by the Indenture
Trustee) be duly endorsed, or be accompanied by a written instrument of transfer
in form satisfactory to the Indenture Trustee duly executed by the Certificate
Holder thereof or his attorney duly authorized in writing, and the Indenture
Trustee may require evidence satisfactory to it as to the compliance of any such
transfer with the Securities Act. The Indenture Trustee shall make a notation
on each new Certificate or Certificates of the amount of all payments of
principal previously made on the old Certificate or Certificates with respect to
which such new Certificate is issued and the date to which interest accrued on
such old Certificate or Certificates has been paid. The Indenture Trustee shall
not be required to register the transfer of or exchange any surrendered
Certificates as above provided during the five calendar day period preceding
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37
the due date of any payment on such Certificates. Any Certificate Holder may
transfer any or all of its Certificates to any Person other than the Lessee or
its Affiliates. The Owner Trustee and the Indenture Trustee shall treat the
Person in whose name each Certificate is registered on the Certificate Register
as the Certificate Holder with respect thereto for all purposes hereof until due
presentment for registration of transfer as provided in this Section 2.08. The
Indenture Trustee shall give the Lessee and each Certificate Holder notice of
such transfer of a Certificate under this Section 2.08.
SECTION 2.09. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
any Certificate shall become mutilated, destroyed, lost or stolen, the Owner
Trustee shall, upon the written request of the affected Certificate Holder,
execute, and the Indenture Trustee shall authenticate and deliver in replacement
thereof, a new Certificate, of the same series as such Certificate, in the same
principal amount, dated the date of such Certificate and designated as issued
under this Indenture. If the Certificate being replaced has become mutilated,
such Certificate shall be surrendered to the Indenture Trustee and a photocopy
thereof shall be furnished to the Owner Trustee by the Indenture Trustee. If the
Certificate being replaced has been destroyed, lost or stolen, the affected
Certificate Holder shall furnish to the Owner Trustee and the Indenture Trustee
such security or indemnity as may be reasonably required by them to hold the
Owner Trustee and the Indenture Trustee harmless and evidence satisfactory to
the Owner Trustee and the Indenture Trustee of the destruction, loss or theft of
such Certificate and of the ownership thereof; provided, however, that if the
-------- -------
affected Certificate Holder is an original party to the Special Participation
Agreement or an Affiliate thereof, the written notice of such destruction, loss
or theft and such ownership and the written undertaking of such Certificate
Holder delivered to the Owner Trustee and the Indenture Trustee to hold harmless
the Owner Trustee and the Indenture Trustee in respect of the execution,
authentication and delivery of such new Certificate shall be sufficient
evidence, security and indemnity.
SECTION 2.10. Payment of Expenses on Transfer. Upon the issuance of
-------------------------------
a new Certificate or new Certificates pursuant to Section 2.08 or 2.09, the
Owner Trustee and/or the Indenture Trustee may require from the party requesting
such new Certificate or Certificates payment of a sum sufficient to reimburse
the Owner Trustee and/or the Indenture Trustee for, or
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38
to provide funds for, the payment of any tax or other governmental charge in
connection therewith or any charges and expenses connected with Such tax or
other governmental charge paid or payable by the Owner Trustee or the Indenture
Trustee.
SECTION 2.11. Prepayment. (a) The Owner Trustee may prepay in whole
----------
or in part, the Certificates of any Series then outstanding at the principal
amount thereof, together with accrued interest thereon to the date of prepayment
plus all Premium Amount and all other amounts due to the holders of the
Certificates hereunder, thereunder and under the other Operative Agreements,
but, in the case of any prepayment of a Series A Certificate, the Swap Upside in
respect of such Certificate. No Series B Certificate may be prepaid pursuant to
this Section 2.11(a) prior to the date all of the Series A Certificates shall
have been duly prepaid in full as provided in the preceding sentence.
(b) The Certificates shall be prepaid in full or (to the extent of
available proceeds pursuant to Section 3.02(a)) in part, together with accrued
interest thereon to the date of prepayment and all other amounts due thereunder
and hereunder and under the other Operative Agreements to the Certificate
Holders (i) upon the occurrence of an Event of Loss with respect to any Airframe
or any Aircraft, on the earlier of the date of the Lessee's payment with respect
to such Event of Loss in Section 10.1 of the Lease to which such Airframe or
Aircraft is/was subject or the last day permitted for such payment under said
Section 10.1 or (ii) upon or prior to the sale or other disposition of any of
the Aircraft by the Indenture Trustee at the direction of the Owner Participant.
The Owner Trustee will give notice of prepayment under this Section 2.11(b)
promptly after receipt of the Lessee's notice of payment under Section 10.1 of
any Lease or in connection with the sale or other disposition of any of the
Aircraft pursuant to clause (ii) above. Any such notice shall be irrevocable.
Any prepayment of the Series A Certificates pursuant to this Section 2.11(b)
shall be accompanied by the Premium Amount for each holder of a Series A
Certificate.
SECTION 2.12. Provisions Relating to Prepayment. (a) The Owner
---------------------------------
Trustee shall have no right to prepay the principal amount of the Certificates,
in whole or in part, except as permitted by Section 2.11. Any such prepayment
effected pursuant to Section 2.11(a) shall be made by the Owner Trustee only on
a date coincident with an Interest Payment Date and upon at least 60 calendar
days' prior irrevocable written notice to the Indenture Trustee and the
Certificate Holders. Notice of prepayment having been given as aforesaid, the
principal amount
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39
of the Certificates so to be prepaid, plus accrued interest thereon to the date
of prepayment, together with the Premium Amount, if any, herein provided, shall
become due and payable on the prepayment date.
(b) On the date fixed for prepayment under Section 2.11, immediately
available funds in Dollars shall be deposited by the Owner Trustee in the
account of the Indenture Trustee at the place and by the time and otherwise in
the manner provided in Section 2.05, in an amount equal to the principal amount
of Certificates to be prepaid together with accrued and unpaid interest thereon
to the date fixed for such prepayment, all Premium Amount, if any, thereon and
all other amounts due to the holders of the Certificates subject to prepayment
hereunder, thereunder and under the other Operative Agreements, but, in the case
of a prepayment pursuant to Section 2.11(a) of any Series A Certificate, net of
the Swap Upside in respect of such Certificate.
SECTION 2.13. Purchase Option. (a) By Owner Participant. At any
--------------- --------------------
time while either (x) a Lease Event of Default has occurred and has been
continuing for a period of 180 days during which the Certificate Holders or the
Indenture Trustee shall not have been stayed or otherwise precluded by operation
of law from taking action to accelerate the Certificates or to exercise remedies
hereunder or under any Lease, or (y) the Certificates shall have become due and
payable as provided in Section 4.04(b) or 4.04(c), and, provided in either case
that no Indenture Default which is not a Lease Default shall have occurred and
be continuing, the Owner Participant may at any time within 60 days thereafter
elect to purchase all, but not less than all, Certificates then outstanding.
Upon receipt of written notice of such election from the Owner Participant,
which notice in order to be effective shall state that it is irrevocable and
shall designate a date not more than fourteen calendar days thereafter as the
purchase date, each Certificate Holder agrees that it will, upon payment to it
in the manner provided for in Section 2.05 from the Owner Participant of an
amount equal to the aggregate unpaid principal amount of all Certificates then
held by such Certificate Holder, together with accrued and unpaid interest
thereon to the date of payment, the Premium Amount, if any, for such Certificate
Holder and all other sums then due and payable to such Certificate Holder
hereunder, under such Certificates and the other Operative Agreements, forthwith
sell, assign, transfer and convey to the purchaser (without recourse,
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40
representation or warranty of any kind except for its own acts), all of the
right, title and interest of such Certificate Holder in and to the Indenture
Estate, the Collateral, this Indenture, all Certificates held by such
Certificate Holder and the other Operative Agreements (excluding all right,
title and interest under any of the foregoing to the extent such right, title or
interest is with respect to an obligation not then due and payable or past due
(other than any claims in respect of past due interest to the extent included in
the purchase price of the Certificates), with respect to any action or inaction
or state of affairs occurring prior to such sale) and the purchaser shall assume
all of such Certificate Holder's obligations under the other Operative
Agreements and this Indenture. If the purchaser shall so request, such
Certificate Holder will comply with all the provisions of Section 2.08 (other
than those relating to Securities Act compliance) to enable new Certificates of
like Series to be issued to the purchaser in such denominations as the purchaser
shall request. In the case of any such purchase, the purchaser shall furnish to
the Certificate Holders an opinion of counsel of the purchaser satisfactory to
the Certificate Holders that such transfer and conveyance are exempt from
registration under the Securities Act and do not violate any registration
provision of any applicable state securities laws. All charges and expenses
required pursuant to Section 2.10 in connection with the issuance of any such
new Certificate pursuant to this Section shall be borne by the purchaser.
(b) Holders of Series B Certificates. At any time while the Owner
--------------------------------
Participant would be entitled to purchase all Certificates under Section
2.13(a), any holder of a Series B Certificate may, whether or not the Owner
Participant shall have elected pursuant to Section 2.13(a) to purchase all
Certificates then outstanding, by written notice to the Indenture Trustee, the
Owner Participant and the holders of the Series A Certificates, elect to
purchase all, but not less than all, Series A Certificates then outstanding on
the date specified in such written notice (which shall (x) not be earlier than
the Business Day next following the date of purchase which shall have been
specified in any notice theretofore given by the Owner Participant pursuant to
Section 2.13(a) and (y) not be more than seven days after the date of such
notice from such holder of a Series B Certificate, which notice, in order to be
effective, shall state that it is irrevocable unless all Certificates are
purchased pursuant to Section 2.13(a) in which event such notice shall be deemed
to have been automatically revoked upon the consummation
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41
of any such purchase pursuant to Section 2.13(a). Each holder of a Series A
Certificate agrees by its acceptance thereof that it will (unless the Owner
Participant shall have elected pursuant to Section 2.13(a) to purchase the
Certificates then outstanding and shall not, following such election, have
failed to consummate such purchase), upon payment to it in the manner provided
for in Section 2.05 from such holder of a Series B Certificate of an amount
equal to the aggregate unpaid principal amount of all Series A Certificates then
held by such Certificate Holder, together with accrued and unpaid interest
thereon to the date of payment and the Premium Amount (other than the Special
Premium) for such Certificate Holder and all other sums then due and payable to
such holder hereunder, under its Certificates and under the other Operative
Agreements, but net of the Swap Upside (as defined in Exhibit E) for such
holder, forthwith sell, assign, transfer and convey to the purchaser thereof
(without recourse, representation or warranty of any kind except for its own
acts), all of the right, title and interest of such Certificate Holder in and
to the Indenture Estate, the Collateral, this Indenture, all Certificates held
by such Certificate Holder and the other Operative Agreements (excluding all
right, title and interest under any of the foregoing to the extent such right,
title or interest is with respect to an obligation not then due and payable or
past due (other than any claims in respect of past due interest to the extent
included in the purchase price of the Series A Certificates), with respect to
any action or inaction or state of affairs occurring prior to such sale) and the
purchaser shall assume all of such Certificate Holder's obligations under the
other Operative Agreements and this Indenture. If the purchaser shall so
request, such Certificate Holder will comply with all the provisions of Section
2.08 (other than those relating to Securities Act compliance) to enable new
Certificates of a like Series to be issued to the purchaser in such
denominations as it shall request. All charges and expenses in connection with
the issuance of any such new Series A Certificates shall be borne by the
purchaser thereof. In the case of such purchase, the purchaser shall, upon
request, furnish to the holders of the Series A Certificates an opinion of
counsel of the purchaser satisfactory to such Series A Certificate holders (or
other evidence reasonably satisfactory to the Series A Certificate holders) that
such transfer and conveyance are exempt from registration under the Securities
Act and do not violate any registration provision of any applicable state
securities laws. If more than one Series B Certificate holder shall elect to
purchase the Series A Certificates pursuant to this Section
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2.13(b), then each Series B Certificate holder shall be entitled to purchase
from each Series A Certificate holder its pro-rata share of such Certificates so
held, which pro rata share shall be in the same proportion (as nearly as
practicable) as the original principal amount of the Series B Certificates held
by such Series B Certificate holder bears to the aggregate principal amount of
Series B Certificates held by all Series B Certificate holders which shall have
made such election; provided that no purchase of Series A Certificates pursuant
--------
to this Section 2.13(b) shall occur unless all Series A Certificates are so
purchased as provided in this Section 2.13(b).
SECTION 2.14. Yield Protection. (a) The Owner Trustee shall pay
----------------
directly to each holder of a Series A Certificate from time to time promptly
after demand therefor such amounts as such holder determines to be necessary to
compensate it for any costs which are attributable to its making of the loan
evidenced by, or its maintaining of, any Series A Certificate or the funding
arrangements in respect thereof (including, without limitation, any interest
rate swap transaction), or any reduction in any amount receivable by such
holder hereunder in respect of any thereof resulting from any Regulatory Change
which:
(i) changes the basis of taxation of any amounts payable to such
holder under this Indenture, its Certificates or any of the other Operative
Agreements in respect of any of such Certificates or such funding
arrangements (other than taxes imposed on or measured by the overall net
income of such holder or of its Lending Office by the jurisdiction in which
such holder has its principal office or its Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, such holder; or
(iii) imposes any other condition affecting this Indenture, its
Certificates (or any funding arrangements in respect thereof) or the other
Operative Agreements.
(b) Without limiting the effect of the foregoing provisions of this
Section 2.14 (but without duplication), the Owner Trustee shall pay directly to
each holder of a Series A Certificate from time to time promptly after demand
therefor such
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43
amounts as such holder determines to be necessary to compensate such holder (or,
without duplication, the bank holding company of which such holder is a
subsidiary) for any costs which are attributable to the maintenance by such
holder (or its Lending Office or such bank holding company); pursuant to any
applicable law or regulation or any interpretation, directive or request
(whether or not having the force of law) of any court or governmental or
monetary authority following any Regulatory Change, of capital in respect of its
Certificates, or the funding arrangements in respect thereof (including, without
limitation, any interest rate swap transaction) (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
assets or equity of such holder (or its Lending Office or such bank holding
company) to a level below that which such holder (or its Lending Office or such
bank holding company) could have achieved but for such Regulatory Change).
(c) Each holder of a Series A Certificate will notify the Owner
Trustee of any event occurring after the date of this Indenture that will
entitle such holder to compensation under paragraph (a) or (b) of this Section
2.14 as promptly as practicable, but in any event within 45 days, after such
holder obtains actual knowledge thereof; provided, however, that if any such
-------- -------
holder fails to give such notice within 45 days after it obtains actual
knowledge of such an event, such holder shall, with respect to compensation
payable pursuant to this Section 2.14 in respect of any costs resulting from
such event, only be entitled to payment under this Section 2.14 for costs
incurred from and after the date 45 days prior to the date that such holder does
give such notice; and provided, further, that each holder will designate a
-------- -------
different Lending Office for the Loan Certificates of such holder affected by
such event if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such holder, be
disadvantageous to such holder. Each holder will furnish to the Owner Trustee a
certificate setting forth the basis and amount of each request by such holder
for compensation under paragraph (a) or (b) for purposes of this Section 2.14.
Determinations and allocations by any holder for purposes of this Section 2.14
of the effect of any Regulatory Change pursuant to Section 2.14(a) hereof, or of
the effect of capital maintained pursuant to Section 2.14(b) hereof, and of the
amounts required to compensate such holder under this Section 2.14, shall be
conclusive, provided that such determinations and allocations are made on a
reasonable basis.
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SECTION 2.15. (Intentionally omitted.)
SECTION 2.16. Certificates in Respect of Replacement Engines. Upon
----------------------------------------------
the execution and delivery of an Indenture Supplement covering a Replacement
Engine, as provided in Section 5.06, each Certificate shall be deemed to have
been issued in connection with such Replacement Engine and each Certificate
issued thereafter upon a transfer or exchange of, or as a replacement for, a
Certificate, shall be designated as having been issued in connection with such
Replacement Engine, but without any other change therein except as provided for
in this Article II.
SECTION 2.17. Terms of Subordination. Subject to Section 3.04(c),
----------------------
the Series B Certificates and all other sums payable to the holders thereof
under the Operative Agreements shall be subordinate and junior in right of
payment to the Series A Certificates and all other sums payable to the holders
thereof under the Operative Agreements to the extent and in the manner
hereinafter set forth:
(a) No payment or distribution shall be made on or in respect of the
principal of, interest (including, without limitation, interest accruing
after the commencement of any proceeding of the type referred to in Section
4.02(g) or (h) or Section 14.5 of any Lease (for purposes of this Section
2.17, a "Case")) on, or any other amount payable in respect of, the Series
----
B Certificates, nor shall any payment or distribution be made on or in
respect of any indemnity or other claim or obligation owing to any holder
of a Series B Certificate under any Operative Agreements, in either case,
except directly to the Indenture Trustee for application as expressly
provided in Article III of this Indenture.
(b) In any Case, any payment or distribution of any kind or
character, whether in cash, property, stock or obligations which may be
payable or deliverable on or in respect of any Series B Certificate or
other sum owing to any holder of a Series B Certificate under the Operative
Agreements shall be paid or delivered directly to the Indenture Trustee for
distribution to the holders of the Series A Certificates as provided in
Article III. In the event that, notwithstanding the foregoing, any such
payment or distribution shall be received by the holder (other than from
the Indenture Trustee as provided in Article III) of
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any Series B Certificate before the amount of all principal of and interest
on all Series A Certificates (including, without limitation, interest
accruing after the commencement of a Case) and all other sums owing to the
holders of the Series A Certificates under the Operative Agreements is paid
in full in cash, or provision made for such payment, in accordance with its
terms, such payment or distribution shall be held in trust for and paid
over or delivered to the Indenture Trustee for distribution to the holders
of the Series A Certificates as provided in Article III.
(c) By acceptance of its Series B Certificate, each holder of a
Series B Certificate hereby irrevocably authorizes and empowers the holders
of the Series A Certificates, or the Indenture Trustee acting on their
behalf, to demand, sue for, collect and receive every payment or
distribution made on or in respect of the Series B Certificates or other
sums owing to the holders thereof under the Operative Agreements in any
Case, and to file claims and take such other proceedings, in the holders'
of the Series A Certificates own name or in the name of the holders of the
Series B Certificates or otherwise, as the holders of the Series A
Certificates or the Indenture Trustee acting on their behalf may deem
necessary or advisable for the enforcement of the provisions hereof. By the
acceptance of its Series B Certificate, each holder of a Series B
Certificate agrees duly and promptly to take such action as may be
requested by the holders of the Series A Certificates or the Indenture
Trustee acting on their behalf to collect the indebtedness evidenced by its
Series B Certificate owing to it or otherwise owing to it under the
Operative Agreements for the account of the holders of the Series A
Certificates and/or to file appropriate proofs of claim in respect to such
indebtedness, and to execute and deliver to the holders of the Series A
Certificates or the Indenture Trustee acting on their behalf on demand such
powers of attorney, proofs of claim, assignments of claim or proofs of
claim, or other instruments as may be requested by the holders of the
Series A Certificates or the Indenture Trustee acting on their behalf to
enforce any and all claims upon or with respect to its Series B Certificate
owing to it or otherwise owing to it under the Operative Agreements.
(d) Except as otherwise expressly provided in this Indenture, the
holders of the Series A Certificates or the
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Indenture Trustee acting on their behalf may, at any time and from time to
time, without the consent of or notice to the holders of the Series B
Certificates, without incurring responsibility to such holders and without
impairing or releasing any of the rights of the holders of the Series A
Certificates, or any of the obligations of the holders of the Series B
Certificates hereunder:
(i) to the extent it is entitled to do so hereunder, sell,
exchange, release or otherwise deal with all or any part of any
property by whomsoever mortgaged or pledged to secure, or howsoever
securing, the Series A Certificates;
(ii) to the extent it is entitled to do so hereunder, exercise
or refrain from exercising any rights against the Owner Trustee or the
Lessee or any other Person; and
(iii) to the extent it is entitled to do so hereunder and the
same are applied in accordance with Article III, apply any sums, by
whomsoever paid or however realized, to the Series A Certificates.
(e) By the acceptance of its Series B Certificate, each holder of a
Series B Certificate agrees that in the event that such holder shall
receive any payment on its Series B Certificate or otherwise owing to it
under the Operative Agreements which it is not entitled to receive under
this Section 2.17 or Article III, it will hold any amount so received in
trust for the holders of the Series A Certificates and will forthwith turn
over such payment to the Indenture Trustee on behalf of the holders of
Series A Certificates in the form received to be applied as provided in
Article III.
(f) By the acceptance of its Series B Certificate, each holder of a
Series B Certificate agrees that it may not commence any action or
proceeding against the Owner Trustee, the Owner Participant, the Lessee or
any other Person obligated in respect of any Operative Agreements to
recover all or any part of the principal or interest on its Series B
Certificate or any other sum owing to it under any Operative Agreements or
join with any creditor, unless the holders of
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47
the Series A Certificates shall also join, in bringing any such action or
proceeding.
(g) By the acceptance of its Series B Certificate, each holder of a
Series B Certificate hereby irrevocably authorizes and empowers the
Indenture Trustee on behalf of the holders of the Series A Certificates to
vote the full amount of the indebtedness evidenced by its Series B
Certificate owing to it or otherwise owing to it under the Operative
Agreements in any Case.
(h) No payment or distribution of assets to which the holders of the
Series B Certificates would have been entitled except for the provisions of
this Section 2.17 or Article III and which shall have been received by the
holders of the Series A Certificates shall, as between the obligor thereon,
its creditors, and the holder of the Series B Certificates, be deemed to be
a payment by the obligor to the holders of the Series A Certificates for or
on account of the Series A Certificates, and from and after the payment in
full in cash of all Series A Certificates and all other amounts owing to
the holders thereof under the Operative Agreements, the holders of the
Series B Certificates shall be subrogated to the then or thereafter
existing rights of the holders of Series A Certificates to receive payments
or distributions of assets of the relevant obligor made on or in respect of
the Series A Certificates or such other amounts until the principal of, and
interest on, the Series B Certificates and all other amounts owing to the
holders thereof under the Operative Agreements shall be paid in full, and
no such payments or such other amounts or distributions to the holders of
the Series B Certificates of cash, property or securities, which otherwise
would be payable or distributable to the holders of the Series A
Certificates, shall, as between the obligor thereon, its creditors other
than the holders of the Series A Certificates, and the holder of the Series
B Certificates, be deemed to be a payment by the relevant obligor to the
holder of the Series B Certificates on account thereof.
(i) The provisions of this Section 2.17 and Article III are solely
for the purpose of defining the relative rights of the holders of Series A
Certificates on the one hand, and the holders of the Series B Certificates
on the other hand, and nothing herein shall, except as
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48
otherwise provided herein, impair, as between the Owner Trustee, the Owner
Participant, the Lessee and the holders of the Series B Certificates, the
obligation of the Owner Trustee, which, subject only to Section 2.04, is
unconditional and absolute, to pay to the holders of the Series B
Certificates the principal thereof, interest thereon and all other amounts
payable hereunder and under the other Operative Agreements in accordance
with the terms and the provisions hereof and thereof nor the obligation of
the Lessee which is unconditional and absolute, to pay Supplemental Rent in
accordance with the terms and provisions of each Lease.
(j) Notwithstanding anything that may be to the contrary in any of
the Operative Agreements, the holders of the Series B Certificates shall
at all times be entitled to all the rights, title, benefits and interest of
the Guarantee Beneficiary and, in respect thereof, shall not be accountable
to the Indenture Trustee or to the holders of the Series A Certificates for
any action taken or not taken or for any sums received in respect of the
Guarantee or any Collateral thereunder.
ARTICLE III
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME FROM THE INDENTURE ESTATE
SECTION 3.01. Basic Rent Distribution and Application of Amounts upon
-------------------------------------------------------
Rent Default.
- -------------
(a) Basic Rent Distribution. Except as otherwise provided in Section
-----------------------
3.03, each installment of Basic Rent, any payment of interest payable on any
Interest Payment Date or on overdue installments of Basic Rent, and any payment
received by the Indenture Trustee as contemplated by Section 4.03 shall be
promptly distributed in the following order of priority:
first, so much of such installment or payment as shall be required to
-----
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal and interest and other amounts) then due on or in respect of the
Series A Certificates shall be distributed to the holders
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thereof ratably, without priority of any one Series A Certificate over any
other Series A Certificate, in the proportion that the amount of such
payment or payments then due under each Series A Certificate bears to the
aggregate amount of the payments then due under all Series A Certificates;
second, so much of such installment or payment as shall be required to
------
pay in full the aggregate amount of the payment or payments of principal
and interest and other amounts (as well as any interest on overdue
principal, interest and other amounts) then due under, on or in respect of
the Series B Certificates shall be distributed to the holders thereof
ratably, without priority of any one Series B Certificate over any other
Series B Certificate, in the proportion that the amount of such payment or
payments then due under each such Series B Certificate bears to the
aggregate amount of the payments then due under all such Series B
Certificates; provided, however, that if an Indenture Default shall have
-------- -------
occurred and be continuing, then any such installment or payment shall not
be distributed as provided in this clause "second" but shall be held by the
------
Indenture Trustee as part of the Indenture Estate until whichever of the
following shall first occur: (i) all Indenture Defaults shall have been
cured, in which event such installment or payment shall, to the extent not
theretofore applied as provided herein, be distributed as provided in this
clause "second", or (ii) section 3.02 or section 3.03 shall be applicable,
------
in which event such balance shall be distributed in accordance with the
provisions of said section 3.02 or section 3.03, as the case may be, in
which event such installment or payment shall, to the extent not
theretofore applied as provided herein, be distributed as provided in this
clause "second"; and
------
third, the balance, if any, of such installment or payment remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement; provided, however, that if an Indenture
-------- -------
Default shall have occurred and be continuing, then such balance shall not
be distributed as provided in this clause "third" but shall be held by the
-----
Indenture Trustee as part of the Indenture Estate until whichever of the
following shall first occur: (i) all Indenture Defaults shall have been
cured, in which event such balance shall, to the extent not
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50
theretofore distributed as provided herein, be distributed as provided in
this clause "third", or (ii) Section 3.02 or Section 3.03 shall be
-----
applicable, in which event such balance shall be distributed in accordance
with the provisions of said Section 3.02 or Section 3.03, as the case may
be.
(b) Application of Other Amounts Held by Indenture Trustee Upon Rent
----------------------------------------------------------------
Default. Except as otherwise provided in Section 3.03, if (i) as a result of
- -------
any failure by the Lessee to pay Basic Rent in full on any date when an
installment of Basic Rent is due, or (ii) for any other reason there shall not
have been distributed on any Rent Payment Date the full amount then
distributable pursuant to clauses "first" and "second" of section 3.01(a), the
----- ------
Indenture Trustee shall, if so requested by a Majority in Interest of
Certificate Holders, distribute other payments of the character referred to in
section 3.04(b) then held by it or thereafter received by it, to the holders of
all Certificates to the extent necessary to enable the Indenture Trustee to make
all the distributions then due pursuant to such clauses "first" and "second" in
----- ------
the priority specified in Section 3.01 (a).
SECTION 3.02. Lease Termination, Event of Loss and Replacement. (a)
------------------------------------------------
Except as otherwise provided in Section 3.03, any payment received by the
Indenture Trustee as the result of an Event of Loss with respect to any Airframe
or any Aircraft, or in connection with a voluntary prepayment hereunder pursuant
to Section 2.11(a), shall be applied to prepayment of the Certificates and to
all other amounts payable thereunder or hereunder or under the other Operative
Agreements as provided in Section 2.11(a) or 2.11(b) by applying such funds in
the following order of priority: first, so much of such payment as shall be
-----
necessary to reimburse the Indenture Trustee for any costs or expenses incurred
in connection with such prepayment shall be paid to the Indenture Trustee;
second, so much of such payment as shall be necessary to pay all amounts then
- ------
due to the holders of the Series A Certificates pursuant to Section 2.11(a) or
2.11(b), as the case may be, shall be distributed to such holders, ratably,
without priority of any one Series A Certificate holder over any other such
holder; third, so much of such payment as shall be necessary to pay all amounts
-----
then due to the holders of the Series B Certificates pursuant to Section 2.11(a)
or 2.11(b), as the case may be, shall be distributed to such holders, ratably,
without priority of any one Series B Certificate holder over any
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51
other such holder; and fourth, the balance, if any of such payment remaining
------
thereafter shall be distributed in the manner set forth in clause "tenth" OF
-----
SECTION 3.03.
(b) Except as otherwise provided in Section 3.03, any amounts
received directly or indirectly from any governmental authority, insurer or
other party pursuant to any provision of Section 10.4, 10.5 or 11 of any Lease
or otherwise as the result of loss or damage not constituting such an Event of
Loss with respect to the Airframe or any Engine subject to such Lease, or as a
result of such loss or damage constituting such an Event of Loss if and to the
extent that such amounts would at the time be required to be paid to the Lessee
pursuant to said Section 10.4, 10.5 or 11 but for the fact that a Lease Event of
Default shall have occurred and be continuing, shall be held by the Operative
Agreements, as security for the obligations of the Lessee under the Operative
Agreements and shall be invested in accordance with the terms of Section 3.07
and at such time as the conditions for payment to the Lessee specified in said
Section 10.4, 10.5 or 11, as the case may be, shall be fulfilled and there shall
not be continuing any Lease Event of Default, such amount, and the proceeds of
any investment thereof, shall, to the extent not applied to such obligations of
the Lessee, be paid to the Lessee to the extent provided in such Lease.
SECTION 3.03. Payment After Indenture Event of Default, etc. Except
---------------------------------------------
as otherwise provided in Sections 3.04(c) and 3.05(ii), all payments received
and amounts held or realized by the Indenture Trustee after an Indenture Event
of Default shall have occurred and so long as such an Indenture Event of Default
shall be continuing, and after the Indenture Trustee has received a request in
accordance with the first sentence of Section 5.02(b) or after the Indenture
Trustee shall foreclose or enforce this Indenture or after the Certificates
shall have become due and payable as provided in Section 4.04(b) or (c), as well
as all payments or amounts then held by the Indenture Trustee as part of the
Indenture Estate or Collateral, shall be promptly distributed by the Indenture
Trustee in the following order of priority:
first, so much of such payments or amounts as shall be required to
-----
reimburse the Indenture Trustee for any tax, expense, charge or other loss
(including, without limitation, all amounts to be expended at the expense
of, or charged upon the tolls, rents, revenues, issues, income,
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52
products and profits of, the property included in the Indenture Estate
pursuant to Section 4.05(b)) incurred by the Indenture Trustee (to the
extent not previously reimbursed) (including, without limitation, the
expenses of any sale, taking or other proceeding, reasonable attorneys'
fees and expenses, court costs, and any other expenditures incurred or
expenditures or advances made by the Indenture Trustee in the protection,
exercise or enforcement of any right, power or remedy or any damages
sustained by the Indenture Trustee, liquidated or otherwise, upon such
Indenture Event of Default) shall be applied by the Indenture Trustee in
reimbursement of such expenses;
second, so much of such payments or amounts remaining as shall be
------
required to pay in full to the holders of Series A Certificates all other
amounts payable pursuant to the indemnification provisions of Sections 8.1
and 8.2 of any Participation Agreement or pursuant to any other provision
of any Operative Agreement and secured hereunder (other than amounts
payable pursuant to clause "third", "fourth", "fifth" or "ninth" of this
----- ------ ----- -----
section 3.03) to the holders of Series a Certificates and remaining unpaid
shall be distributed to such holders, and if the aggregate amount remaining
shall be insufficient to pay all such amounts in full, it shall be
distributed ratably, without priority of any Series A Certificate over any
other, in the proportion that the aggregate amount due to each holder of
Series A Certificates under this clause "second" bears to the aggregate
------
amount due all holders of Series A Certificates under this clause "second";
------
third, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate amount of all due but unpaid Premium
Amount (other than Special Premium), if any, and all accrued but unpaid
interest to the date of distribution on the Series A Certificates shall be
distributed to the holders of the Series A Certificates, and if the
aggregate amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any one Series A
Certificate over any other, in the proportion that the aggregate amount of
all due but unpaid Premium Amount (other than Special Premium), if any, and
all accrued but unpaid interest to the date of distribution on each Series
A Certificate bears to the aggregate amount of all due but unpaid Premium
Amount
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53
(other than Special Premium), if any, and all accrued but unpaid interest
to the date of distribution on all Series A Certificates;
fourth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate unpaid principal amount of all Series
A Certificates shall be distributed to the holders of the Series A
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series A Certificate over any other, in the proportion
that the aggregate unpaid principal amount of each Series A Certificate
bears to the aggregate unpaid principal amount of all Series A
Certificates;
fifth, so much of such payments or amounts remaining as shall be
-----
required to reimburse all holders of the Certificates in full for payments
made pursuant to Section 5.03 (to the extent not previously reimbursed)
shall be distributed to such holders, and if the aggregate amount remaining
shall be insufficient to reimburse all such payments in full, it shall be
distributed ratably, without priority of any Certificate over any other, in
the proportion that the aggregate amount of the unreimbursed payments made
by each such holder pursuant to Section 5.03 bears to the aggregate amount
of the unreimbursed payments made by all holders of Certificates pursuant
to Section 5.03;
sixth, so much of such payments or amounts remaining as shall be
-----
required to pay to the holders of Series B Certificates all other amounts
payable pursuant to the indemnification provisions of Sections 8.1 and 8.2
of any Participation Agreement or pursuant to any other provision of any
Operative Agreement and secured hereunder (other than amounts payable
pursuant to clause "fifth" , "seventh" or "eighth" of this Section 3.03) to
----- ------- ------
the holders of Series B Certificates and remaining unpaid shall be
distributed to such holders to, and if the aggregate amount remaining shall
be insufficient to pay all such amounts in full, it shall be distributed
ratably, without priority of any Series B Certificate over any other, in
the proportion that the aggregate amount due each holder of Series B
Certificates under this clause "sixth" bears to the aggregate amount due
-----
all holders of Series B Certificates under this clause "sixth";
-----
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54
seventh, so much of such payments or amounts remaining as shall be
-------
required to pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Series B Certificates, shall be
distributed to the holders of the Series B Certificates, and if the
aggregate amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any one Series B
Certificate over any other, in the proportion that the aggregate amount of
all accrued but unpaid interest to the date of distribution on each Series
B Certificate bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Series B Certificates;
eighth, so much of such payments or amounts remaining as shall be
------
required to pay in full the aggregate unpaid principal amount of all Series
B Certificates shall be distributed to the holders of the Series B
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series B Certificate over any other, in the proportion
that the aggregate unpaid principal amount of each Series B Certificate
bears to the aggregate principal amount of all Series B Certificates;
ninth, so much of such payments or amounts remaining as shall be
-----
required to pay in full the aggregate amount of all due but unpaid Special
Premium, if any, shall be distributed to the holders of the Series A
Certificates, and if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed ratably, without
priority of any one Series A Certificate over any other, in the proportion
that the aggregate amount of all due but unpaid Special Premium, if any,
bears to the aggregate amount of all due but unpaid Special Premium, if
any, on all Series A Certificates; and
tenth, the balance, if any, of such payments or amounts remaining
-----
thereafter shall be distributed to the Owner Trustee for distribution
pursuant to the Trust Agreement.
SECTION 3.04. Certain Payments. (a) Except as otherwise provided in
----------------
this Indenture, any payments received by the Indenture Trustee for which
provision as to the application thereof is made in any Lease or any
Participation Agreement shall
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55
be applied forthwith to the purpose for which such payment was made in
accordance with the terms thereof.
(b) Except as otherwise provided in Section 3.01(b), Section 3.02(a),
3.02(b) or Section 3.03, the Indenture Trustee will distribute, promptly upon
receipt, any indemnity payment received by it from the Owner Trustee, The Bank,
the Lessee or the Owner Participant in respect of the Indenture Trustee in its
individual capacity or any Loan Participant or Certificate Holder either
pursuant to Section 8 of any Participation Agreement or as Supplemental Rent or
otherwise, directly to the Person entitled thereto.
(c) Notwithstanding anything to the contrary contained in this
Indenture, any sums received by the Indenture Trustee which constitute (i)
Excluded Payments shall be distributed promptly upon receipt by the Indenture
Trustee directly to the Person or Persons entitled thereto or (ii) Collateral
solely in respect of the Series B Certificates shall be applied, first, as
-----
provided in clause "fifth" of Section 3.03 (but only to the holders of the
-----
Series B Certificates), second, as provided in clause "sixth" of Section 3.03,
------
third, as provided in clause "seventh" of Section 3.03 and fourth, as provided
- ----- ------- ------
in clause "eighth" of Section 3.03.
------
SECTION 3.05. Other Payments. Any payments received by the Indenture
--------------
Trustee for which no provision as to the application thereof is made in this
Indenture shall be distributed by the Indenture Trustee (i) to the extent
received or realized at any time prior to the payment in full of all obligations
to the Certificate Holders secured by the Lien of this Indenture, in the order
of priority specified in Section 3.01, and (ii) to the extent received or
realized at any time after payment in full of all obligations to the Certificate
Holders secured by the Lien of this Indenture, in the following order of
priority: first, in the manner provided in the clause "first" of Section 3.03
----- -----
and second, in the manner provided in clause "tenth" of Section 3.03.
------ -----
SECTION 3.06. Payments to Owner Trustee. Any amounts distributed
-------------------------
hereunder by the Indenture Trustee to the Owner Trustee shall be paid to the
Owner Trustee by wire transfer of funds of the type received by the Indenture
Trustee at such office and to such account or accounts of such entity or
entities as shall be designated by notice from the Owner Trustee to the
Indenture Trustee from time to time. The Owner Trustee hereby
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notifies the Indenture Trustee that unless and until the Indenture Trustee
receives notice to the contrary from the Owner Trustee, all amounts to be
distributed to the Owner Trustee pursuant to clause "third" of Section 3.01(a)
-----
shall be distributed by wire transfer of funds of the type received by the
Indenture Trustee to such account of the Owner Participant as the Owner
Participant may specify by notice to the Indenture Trustee.
SECTION 3.07. Investment of Amounts Held by Indenture Trustee. Any
-----------------------------------------------
amounts held by the Indenture Trustee pursuant to the provisos set forth in
clauses "second" or "third" of Section 3.01(a), pursuant to Section 3.02,
------ -----
pursuant to the second proviso to the fourth sentence of Section 4.03 or
pursuant to any provision of any other Operative Agreement providing for amounts
to be held by the Indenture Trustee shall be invested by the Indenture Trustee
from time to time in Permitted Investments selected by the Owner Trustee or, in
the event the Owner Trustee shall so specify, as selected by the Lessee;
provided that if a Lease Event of Default shall have occurred and be continuing,
- --------
as selected by the Indenture Trustee. Unless otherwise expressly provided in
this Indenture, any income realized as a result of any such investment, net of
the Indenture Trustee's reasonable fees and expenses in making such investment,
shall be held and applied by the Indenture Trustee in the same manner as the
principal amount of such investment is to be applied and any losses, net of
earnings and such reasonable fees and expenses, shall be charged against the
principal amount invested. The Indenture Trustee shall not be liable for any
loss resulting from any investment required to be made by it under this
Indenture other than by reason of its willful misconduct or gross negligence,
and any such investment may be sold (without regard to its maturity) by the
Indenture Trustee without instructions whenever the Indenture Trustee reasonably
believes such sale is necessary to make a distribution required by this
Indenture.
SECTION 3.08. Series A Holders. By the acceptance of its Series A
----------------
Certificate, each holder of a Series A Certificate agrees that in the event that
such holder shall receive any payment on its Series A Certificate or otherwise
owing to it under the Operative Agreements which it is not entitled to receive
under Article III, it will hold any amount so received in trust for the person
entitled to such payment and will forthwith turn over such payment to the
Indenture Trustee in the form received to be applied as provided in Article III.
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ARTICLE IV
COVENANTS; EVENTS OF DEFAULT;
REMEDIES OF INDENTURE TRUSTEE
SECTION 4.01. Covenants of The Bank and the Owner Trustee. (a) The
-------------------------------------------
Bank hereby covenants and agrees that it will not directly or indirectly create,
incur, assume or suffer to exist any Lessor Liens attributable to it with
respect to any of the properties or assets of the Indenture Estate and it shall,
at its own cost and expense, promptly take such action as may be necessary to
discharge duly any such Lessor Lien. The Bank will cause restitution to be made
to the Indenture Estate in the amount of any diminution of the value thereof as
the result of any Lessor Liens thereon attributable to it.
(b) The Owner Trustee hereby covenants and agrees as follows:
(i) the Owner Trustee will duly and punctually perform its
obligations under each Lease and will duly and punctually pay the principal
of, Premium Amount, if any, and interest on, and all other amounts due
under the Certificates and hereunder in accordance with the terms of the
Certificates and this Indenture and all amounts payable by it to the
Certificate Holders under each Participation Agreement, the Special
Participation Agreement and the other Operative Agreements;
(ii) the Owner Trustee will not directly or indirectly create, incur,
assume or suffer to exist any Lessor Liens with respect to any of the
properties or assets of the Indenture Estate, and shall, at its own cost
and expense, promptly take such action as may be necessary to discharge
duly any such Lessor Lien, and the Owner Trustee will cause restitution to
be made to the Indenture Estate in the amount of any diminution of the
value thereof as the result of any Lessor Liens attributable to it;
(iii) in the event a responsible officer in the Corporate Trust
Administration of The Bank shall have actual knowledge of an Indenture
Event of Default or an Event of Loss, the Owner Trustee will give prompt
written notice of such Indenture Event of Default or Event of Loss to the
Indenture Trustee, the Lessee and each Certificate Holder;
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(iv) the Owner Trustee will furnish to the Indenture Trustee, and the
Indenture Trustee will furnish to each Certificate Holder at the time
outstanding, promptly upon receipt thereof , duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
other instruments furnished to the Owner Trustee under each Lease,
including, without limitation, a copy of each report or notice received
pursuant to Section 11 of each Lease, to the extent that the same shall not
have been furnished directly to such Certificate Holder or the Indenture
Trustee pursuant to such Lease;
(v) the Owner Trustee will not (except as permitted herein) assign or
pledge or otherwise dispose of, so long as this Indenture shall remain in
effect and shall not have been terminated pursuant to Section 10.01, any of
its right, title or interest hereby assigned to anyone other than the
Indenture Trustee, and, with respect to such right, title and interest
hereby assigned, will not, except as provided in this Indenture, (1) accept
any payment from the Lessee or any sublessee, enter into any agreement
amending or supplementing any of the Indenture Documents, execute any
waiver or modification of, or consent under, the terms of any of the
Indenture Documents, (2) exercise any rights with respect to the Indenture
Estate or the Collateral, (3) settle or compromise any claim arising under
any of the Indenture Documents, or (4) submit or consent to the submission
of any dispute, difference or other matter arising under or in respect of
any of the Indenture Documents to arbitration thereunder; and
(vi) the Owner Trustee will not enter into any business or other
activity other than the business of owning the Aircraft, the leasing
thereof to the Lessee and the carrying out of the transactions contemplated
hereby and by each Lease, each Participation Agreement, the Trust Agreement
and the other Operative Agreements.
SECTION 4.02. Indenture Event of Default. "Indenture Event of
-------------------------- ------------------
Default" means any of the following events (whatever the reason for such
- -------
Indenture Event of Default and whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administration or governmental body):
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(a) any Lease Event of Default; or
(b) the failure (other than by reason of a Lease Event of Default) of the
Owner Trustee to pay when due any payment of principal of or Premium Amount, if
any, or interest on any Certificate and such failure shall have continued
unremedied for five Business Days, or the failure (other than by reason of a
Lease Event of Default) of the Owner Trustee to pay when due any other amount
due and payable hereunder, or under any Certificate, and such failure shall have
continued unremedied for ten Business Days after notice thereof to the Owner
Trustee; or
(c) any Lessor Lien required to be discharged by The Bank pursuant to
Section 4.01(a) or required to be discharged by the Owner Trustee pursuant to
Section 4.01(b) (ii) or required to be discharged by the Owner Participant
pursuant to Section 6.2.6 of any Participation Agreement shall remain
undischarged for a period of 30 calendar days after a responsible officer of The
Bank, the Owner Trustee or the Owner Participant, as the case may be, shall have
actual knowledge of such Lessor Lien; or
(d) any representation or warranty made by the Owner Trustee, any Existing
Owner Trustee, any Initial Owner Participant, the Owner Participant or the Trust
Company herein or in any other Operative Agreement, or made by any Person (other
than either of the Guarantor of the Series B Certificates as to the Guarantee)
guaranteeing or supporting the obligations of the Owner Participant under the
Operative Agreements in its guarantee or support agreement, shall prove to have
been false or incorrect when made in any material respect to the Certificate
Holders; or
(e) any failure by the Owner Trustee to observe any of its other covenants
in Section 4.01(b) or any failure by the Owner Participant to observe any of its
covenants in Section 6.2.5, 6.2.9 or 6.2.10 of any Participation Agreement, or
disaffirmance or repudiation by any Person (other than either of the Guarantors
of the Series B Certificates as to the Guarantee) guaranteeing or supporting the
obligations of the Owner Participant under the Operative Agreements of its
obligations under its guarantee or support agreement; or
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(f) except as provided in the following paragraph (i) or (j), any failure
by the Owner Trustee or The Bank to observe or perform any other covenant or
obligation of the Owner Trustee or The Bank, as the case may be, contained in
this Indenture or in any Participation Agreement or any failure by the Owner
Participant to observe or perform any other covenant or obligation of the Owner
Participant contained in any Participation Agreement or any failure by any
Person (other than either of the Guarantors of the Series B Certificates as to
the Guarantee) guaranteeing or supporting the obligations of the Owner
Participant under the Operative Agreements to perform any covenant or obligation
of such Person under its guarantee or support agreement which, in any case, is
not remedied within a period of 30 calendar days after notice thereof has been
given to the Owner Trustee, The Bank, the Owner Participant or such Person, as
the case may be; or
(g) either the Trust Estate or the Owner Trustee with respect thereto (and
not in its individual capacity) or the Owner Participant or any Person (other
than either of the Guarantors of the Series B Certificates as to the Guarantee)
guaranteeing or supporting the obligations of the Owner Participant under the
Operative Agreements shall (i) be generally not paying its debts as they become
due, (ii) file, or consent by answer or otherwise to the filing against it of a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, (iii) make an assignment for the benefit of its
creditors, (iv) consent to the appointment of a custodian, receiver, trustee or
other officer with similar powers of itself or of any substantial part of its
property, or (v) take corporate or comparable action for the purpose of any of
the foregoing; or
(h) a court or governmental authority of competent jurisdiction shall
enter an order appointing, without consent by the Trust Estate or the Owner
Trustee with respect thereto (and not in its individual capacity) or the Owner
Participant or any Person (other than either of the Guarantors of the Series B
Certificates as to the Guarantee) guaranteeing or supporting the obligations of
the Owner Participant under the Operative Agreements, a custodian, receiver,
trustee or other officer with similar powers with
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61
respect to the Trust Estate or the Owner Trustee with respect thereto (and
not in its individual capacity) or the Owner Participant or any such
Person, or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Trust Estate or
the Owner Trustee with respect thereto (and not in its individual capacity)
or the Owner Participant or any such Person, or if any petition for any
such relief shall be filed against the Trust Estate or the Owner Trustee
with respect thereto (and not in its individual capacity) or the Owner
Participant or any such Person, and such petition shall not be dismissed
within, or the order shall be unstayed and remain in effect for a period
of, 60 days; or
(i) any failure by The Bank to give notice, or to resign, if required
by Section 6.3.1.5 of any Participation Agreement, or (if The Bank shall
have given such notice and resigned as required by said Section 6.3.1.5) a
successor Owner Trustee shall not have been appointed and qualified within
30 days after The Bank's ceasing to be a "citizen of the United States"
within the meaning of Section 101(16) of the Act; or
(j) the Owner Trustee, The Bank, the Owner Participant or the Owners
shall do or fail to do any act, or shall meet or fail to meet any
condition, and as a result thereof the lien of this Indenture shall cease
to be a valid first priority lien on the Indenture Estate or shall
otherwise be adversely affected or the security interest granted in the
Pledge Agreement shall cease to be a duly perfected first priority security
interest in the Collateral covered thereby.
SECTION 4.03. Certain Cure Rights. In the event of any default by
-------------------
the Lessee in the payment when due (after giving effect to any applicable grace
period) of any installment of Basic Rent due under any Lease, the Owner
Participant (which term shall, except as otherwise expressly provided below, be
deemed to include, solely for purposes of this Section 4.03, any holder of a
Series B Certificate) may, within two Business Days after such default, without
the consent or concurrence of any Certificate
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62
Holder, pay, as provided in Section 2.05, for application in accordance with
Section 3.01 a sum equal to the amount of all (but not less than all) such
overdue Basic Rent. In the event of any default by the Lessee in any obligation
under any Lease other than the payment of Basic Rent, if such default can be
remedied by the payment of money and the Owner Participant shall furnish the
Owner Trustee with all funds necessary for remedying such default, the Owner
Participant may, within five Business Days after the occurrence of such default,
without the consent or concurrence of any Certificate Holder, instruct the Owner
Trustee to exercise the Owner Trustee's rights under Section 20 of such Lease to
perform such obligation on behalf of the Lessee (and the Owner Trustee hereby
agrees to accept such instruction and, upon failure to do so, the holders of the
Series B Certificates may exercise such right on the Owner Trustee's behalf).
Solely for the purpose of determining whether there exists an Indenture Event of
Default (a) any timely payment by the Owner Participant pursuant to, and in
compliance with, the first sentence of this Section 4.03 shall be deemed to
remedy (but solely for purposes of this Indenture) any default by the Lessee in
the payment of installments of Basic Rent theretofore due and payable and to
remedy (but solely for purposes of this Indenture) any default by the Owner
Trustee in the payment of any amount of principal and interest due and payable
under the Certificates and (b) any timely performance by the Owner Trustee (or
the holders of the Series B Certificates) of any obligation of the Lessee under
the relevant Lease pursuant to, and in compliance with, the second sentence of
this Section 4.03 shall be deemed to remedy (but solely for purposes of this
Indenture) any Lease Event of Default to the same extent that like performance
by the Lessee itself would have remedied such Lease Event of Default (but no
such remedy shall relieve the Lessee of its duty to pay all Rent and perform all
of its obligations pursuant to the relevant Lease). If, on the basis specified
in the preceding sentence, any Lease Events of Default shall have been remedied,
then any declaration pursuant to this Indenture that the Certificates are due
and payable or that an Indenture Event of Default exists hereunder, based solely
upon such Lease Events of Default, shall be deemed to be rescinded, and the
Owner Participant or the holders of the Series B Certificates shall (to the
extent of any such payments made by it or them) be subrogated to the rights of
the holders of the Certificates under Section 3.01(a), to receive from the
Indenture Trustee such payment of overdue Rent (and the payment of interest on
account of such Rent being overdue) and shall be entitled, so long as no other
Indenture Event of Default or
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63
Indenture Default shall have occurred and be continuing or would result
therefrom, to receive, subject to the provisions of this Indenture, such payment
upon receipt thereof by the Indenture Trustee; provided that the Owner
--------
Participant shall not otherwise attempt to recover any such amount paid by it on
behalf of the Lessee pursuant to this Section 4.03 except by demanding of the
Lessee payment of such amount or by commencing an action at law against the
Lessee for the payment of such amount; provided, further, that at no time while
-------- -------
an Indenture Event of Default shall have occurred and be continuing shall any
such demand be made or shall any such action be commenced (or continued) , and
any amounts nevertheless received by the Owner Participant in respect thereof
shall be held in trust for the benefit of, and promptly paid to, the Indenture
Trustee for distribution as provided in Section 3.03; and further provided that:
------- --------
(x) his Section 4.03 shall not apply with respect to any default in
the payment of Basic Rent due under any Lease if the Lessee itself shall
have theretofore failed to pay Basic Rent in the manner required under such
Lease (after giving effect to any applicable grace period) on (i) each of
the two Rent Payment Dates immediately preceding the date of such default,
or (ii) a total of six Rent Payment Dates;
(y) the second sentence of this Section 4.03 shall cease to apply,
and no payment by the Owner Participant in respect of Supplemental Rent or
performance of any obligation of the Lessee under any Lease by the Owner
Trustee shall be deemed to remedy or to have remedied any Lease Event of
Default for the purposes of this Indenture, if during the twelve-month
period immediately preceding the relevant default by the Lessee there shall
have been expended by the Owner Participant pursuant to the second sentence
of this Section 4.03 (and which shall have not been reimbursed by the
Lessee itself to the Owner Trustee for distribution to the Owner
Participant) an amount in excess of $2,000,000; and
(z) neither the Owner Trustee nor the Owner Participant shall have
the right to cure any Lease Event of Default except as specified in this
Section 4.03.
SECTION 4.04. Remedies. (a) If an Indenture Event of Default shall
--------
have occurred and be continuing and so long as the same shall be continuing
unremedied, then and in every such case,
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64
the Indenture Trustee may exercise any or all of the rights and powers and
pursue any and all of the remedies pursuant to this Article IV and shall have
and may exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code and, in the event such Indenture Event of Default is an
Indenture Event of Default referred to in paragraph (a) of Section 4.02 and
Section 4.03 hereof shall either not apply or shall have ceased to apply with
respect to the relevant Lease Event of Default, any and all of the remedies
pursuant to Section 15 of any Lease and all of the rights and remedies of a
lessor under applicable law and may take possession of all or any part of the
properties covered or intended to be covered by the Lien and security interest
created hereby or pursuant hereto and may exclude the Owner Participant, the
Owner Trustee and the Lessee and all persons claiming under any of them wholly
or partly therefrom. Without limiting any of the foregoing, it is understood and
agreed that the Indenture Trustee may exercise any right of sale of any Aircraft
available to it, even though it shall not have taken possession of such Aircraft
and shall not have possession thereof at the time of such sale. It is further
understood and agreed that if the Indenture Trustee shall proceed to foreclose
the Lien of this Indenture, it shall, to the extent that it is then entitled to
do so hereunder and under any Lease, and is not then stayed or prevented from
doing so by operation of law or otherwise, proceed (to the extent it has not
already done so) to exercise one or more of the remedies referred to in Section
15 of such Lease (as it shall determine in its sole good faith discretion);
provided, however, that the Indenture Trustee may not foreclose the Lien of this
- -------- -------
Indenture when stayed or otherwise prevented from exercising remedies under the
Lease during the period ending on the earlier of (i) the expiration of 60 days
from the date the Indenture Trustee was first stayed or otherwise prevented from
exercising one or more of the remedies referred to in Section 15 of the Lease
and (ii) the date the Owner Trustee or the Indenture Trustee is entitled to take
possession of such Aircraft after the occurrence of such Indenture Event of
Default.
(b) If an Indenture Event of Default referred to in clause (g) or (h)
of Section 4.02 shall have occurred, or a Lease Event of Default of the type
referred to in clause (g) or (h) of said Section 4.02 shall have occurred with
respect to the Lessee, then and in every such case the unpaid principal of all
Certificates then outstanding, together with interest accrued but unpaid
thereon, Premium Amount, and all other amounts due to the holders of the
Certificates thereunder and hereunder and under
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65
the other Operative Agreements, shall, unless the Indenture Trustee acting upon
the instructions of the Majority in Interest of Certificate Holders shall
otherwise direct, immediately and without further act become due and payable,
without presentment, demand, protest or notice, all of which are hereby waived.
(c) If any other Indenture Event of Default shall have occurred and
be continuing, then and in every such case, the Indenture Trustee may at any
time, by written notice or notices to the Owner Trustee, declare all the
Certificates to be due and payable, whereupon the unpaid principal of all
Certificates then outstanding, together with accrued but unpaid interest
thereon, Premium Amount, and all other amounts due to the holders of the
Certificates thereunder, hereunder and under the other Operative Agreements,
shall immediately and without further act become due and payable without
presentment, demand, protest or other notice, all of which are hereby waived.
(d) Each Certificate Holder shall be entitled, at any sale pursuant
to Section 15 of any Lease or this Article IV, to credit against any purchase
price bid at such sale by such Certificate Holder all or any part of the unpaid
obligations owing to such Certificate Holder and secured by the Lien of this
Indenture; provided, however, that if a holder of a Series B Certificate shall
-------- -------
be the purchaser at any such sale as contemplated hereby, such holder may apply
the amount then due under its Series B Certificate against the purchase price of
the Indenture Estate, but only if and to the extent that such purchase price
exceeds the aggregate unpaid principal amount of all Series A Certificates
together with accrued and unpaid interest thereon to the date of payment on
unpaid Premium Amount plus all other sums then due and payable to the holders of
the Series A Certificates thereunder, hereunder or under the other Operative
Agreements. The Indenture Trustee and the Certificate Holders shall, upon any
such purchase, acquire good title to the property so purchased, to the extent
permitted by applicable law, free of all rights of redemption.
SECTION 4.05. Return of Aircraft, etc. (a) If an Indenture Event of
------------------------
Default shall have occurred and be continuing, subject to Section 4.03, at the
request of the Indenture Trustee the Owner Trustee shall promptly execute and
deliver to the Indenture Trustee such instruments of title and other documents
as the Indenture Trustee may deem necessary or advisable to enable the Indenture
Trustee or an agent or representative
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66
designated by the Indenture Trustee, at such time or times and place or places
as the Indenture Trustee may specify, to obtain possession of all or any part of
the Indenture Estate to which the Indenture Trustee shall at the time be
entitled hereunder. If the Owner Trustee shall for any reason fail to execute
and deliver such instruments and documents after such request by the indenture
trustee, the indenture trustee may (i) obtain a judgment conferring on the
Indenture Trustee the right to immediate possession and requiring the Owner
Trustee to execute and deliver such instruments and documents to the Indenture
Trustee, to the entry of which judgment the Owner Trustee hereby specifically
consents, and (ii) pursue all or part of the Indenture Estate wherever such
Estate may be found and may enter any of the premises of the Lessee wherever it
may be or be supposed to be and search for and take possession of and remove the
same. All expenses of obtaining such judgment or of pursuing, searching for and
taking such property shall, until paid, be secured by the Lien of this
Indenture.
(b) Upon every such taking of possession, the Indenture Trustee may,
from time to time, at the expense of the Indenture Estate, make all such
expenditures for maintenance, insurance, repairs, replacements, alterations,
additions and improvements to and of the Indenture Estate, as it may be
instructed by a Majority in Interest of Certificate Holders. In each such case,
the Indenture Trustee shall have the right to maintain, use, operate, store,
lease, control or manage the Indenture Estate and to carry on the business and,
without limiting the express provisions of Section 5.09, to exercise all rights
and powers of the Owner Participant and the Owner Trustee relating to the
Indenture Estate, as the Indenture Trustee shall be instructed by a Majority in
Interest of Certificate Holders, including the right to enter into any and all
such agreements with respect to the maintenance, insurance, use, operation,
storage, leasing, control, management or disposition of the Indenture Estate or
any part thereof as the Indenture Trustee may determine; and except for Excluded
Payments, the Indenture Trustee shall be entitled to collect and receive
directly all tolls, rents (including Rent), revenues, issues, income, products
and profits of the Indenture Estate and every part thereof. Such tolls, rents
(including Rent) , revenues, issues, income products and profits shall be
applied to pay the expenses of the use, operation, storage, leasing, control,
management or disposition of the Indenture Estate and of conducting the business
thereof, and of all maintenance, repairs, replacements, alterations,
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67
additions and improvements, and to make all payments which the Indenture Trustee
may be required or may elect to make, if any, for taxes, assessments, insurance
or other proper charges upon the Indenture Estate or any part thereof (including
the employment of engineers and accountants to examine, inspect and make reports
upon the properties and books and records of the Owner Trustee), and all other
payments which the Indenture Trustee may be required or authorized to make under
any provision of this Indenture, as well as just and reasonable compensation for
the services of the Indenture Trustee, and of all persons properly engaged and
employed by the Indenture Trustee.
(c) If an Indenture Event of Default shall have occurred and be
continuing, subject to Section 4.03, the Indenture Trustee may take any and all
actions as may be directed by the holders of the Series A Certificates or the
Series B Certificates, as the case may be, in respect of the Collateral.
SECTION 4.06. Remedies Cumulative. Each and every right, power and
-------------------
remedy given to the Indenture Trustee specifically or otherwise in this
Indenture shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law,
in equity or by statute, and each and every right, power and remedy whether
specifically herein given or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by the Indenture
Trustee, and the exercise or the beginning of the exercise of any power or
remedy shall not be construed to be a waiver of the right to exercise at the
same time or thereafter any other right, power or remedy. No delay or omission
by the Indenture Trustee 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 on the part of the Owner Trustee or the
Lessee or to be an acquiescence therein.
SECTION 4.07. Discontinuance of Proceedings. In case the Indenture
-----------------------------
Trustee shall have instituted any proceeding to enforce any right, power or
remedy under this Indenture by foreclosure, entry or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the Indenture Trustee, then and in every such
case the Owner Trustee, the Indenture Trustee and the Lessee shall, subject to
any determination in such proceedings, be restored to their former positions and
rights hereunder with
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respect to the Indenture Estate, and all rights, remedies and powers of the
Indenture Trustee shall continue as if no such proceedings had been instituted.
SECTION 4.08. Waiver of Past Defaults. Upon written instructions
------------------------
from a Majority in Interest of Certificate Holders, the Indenture Trustee shall
waive any past Indenture Default or Indenture Event of Default hereunder and its
consequences and upon any such waiver such Default shall cease to exist and any
Indenture Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture, but no such waiver shall extend to any
subsequent or other Indenture Default or Indenture Event of Default or impair
any right consequent thereon; provided, however, that in the absence of written
-------- -------
instructions from all Certificate Holders, the Indenture Trustee shall not waive
any Indenture Default (i) in the payment of the principal of, or Premium Amount
or interest on, or other amounts due under, any Certificate then outstanding, or
(ii) in respect of a covenant or provision hereof which, under the proviso to
the first sentence of Section 9.01 or under the second sentence of Section 9.01,
cannot be waived without the consent of each Certificate Holder.
ARTICLE V
DUTIES OF THE INDENTURE TRUSTEE
SECTION 5.01. Notices.
-------
(a) Notice of Indenture Event of Default. In the event the Indenture
------------------------------------
Trustee shall have knowledge of an Indenture Event of Default or of an Indenture
Default arising from a failure to pay Basic Rent, the Indenture Trustee shall
forthwith give telephone notice thereof to the Owner Trustee, the Owner
Participant, the Lessee and the Certificate Holders (promptly confirmed by telex
or facsimile to such Persons not later than one Business Day thereafter).
Subject to the terms of Sections 4.08 and 5.03, the Indenture Trustee shall take
such action, or refrain from taking such action, with respect to any such
Indenture Event of Default (including with respect to the exercise of any rights
or remedies hereunder) as the Indenture Trustee shall be instructed in writing
by the Majority in Interest of Certificate Holders. Subject to the provisions
of Section 5.03, if the Indenture Trustee shall not have received
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instructions as above provided within 20 calendar days after mailing notice of
such Indenture Event of Default to the Certificate Holders, the Indenture
Trustee may, subject to instructions thereafter received pursuant to the
preceding provisions of this Section 5.01, take such action, or refrain from
taking such action, but shall be under no duty to take or refrain from taking
any action, with respect to any such Indenture Event of Default as it shall
determine advisable in the best interests of the Certificate Holders and shall
use the same degree of care and skill in connection therewith as a prudent man
would use under the circumstances in the conduct of his own affairs; provided
that the Indenture Trustee may not sell any Airframe or any Engine without the
consent of the Majority in Interest of Certificate Holders. In the event the
Indenture Trustee shall at any time foreclose or otherwise enforce this
Indenture, the Indenture Trustee shall forthwith notify the Certificate Holders,
the Owner Trustee, the Owner Participant and the Lessee. For all purposes of
this Indenture, in the absence of actual knowledge on the part of an officer in
its Corporate Trust Department, in the case of the Indenture Trustee, or its
Corporate Trust Department, in the case of the Owner Trustee, the Indenture
Trustee or the Owner Trustee, as the case may be, shall not be deemed to have
knowledge of any Indenture Default, any Lease Default or any Lease Event of
Default (except, in the case of the Indenture Trustee, the failure of the Lessee
to pay any installment of Basic Rent when due, which failure shall constitute
knowledge of an Indenture Default) unless notified in writing by the Lessee, the
Owner Trustee or one or more Certificate Holders. This Section 5.01, however,
is subject to the condition that, if at any time after the principal of the
Certificates shall have become due and payable pursuant to Section 4.04(b) or
(c) and before any judgment or decree for the payment of the money so due, or
any thereof, shall be entered, all overdue payments of interest upon the
Certificates and all other amounts payable under the Certificates (except the
principal of the Certificates which by such declaration shall have become
payable) shall have been duly paid, and every other Indenture Default and
Indenture Event of Default with respect to any covenant or provision of this
Indenture shall have been cured, then and in every such case a Majority in
Interest of Certificate Holders may (but shall not be obligated to) , by written
instrument filed with the Indenture Trustee, rescind and annul such acceleration
and its consequences; but no such rescission or annulment shall extend to or
affect any subsequent
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Indenture Default or Indenture Event of Default or impair any right consequent
thereon.
(b) Other Notices. The Indenture Trustee will furnish to each
-------------
Certificate Holder promptly upon receipt thereof, duplicates or copies of all
reports, notices, requests, demands, certificates, financial statements and
other instruments furnished to the Indenture Trustee under any Operative
Agreements or the Collateral or received from the Owner Trustee pursuant to
Section 4.01(b) (iv) to the extent the same shall not have been otherwise
directly distributed to the Certificate Holders pursuant to the express
provision of any other Operative Agreement or the Collateral.
SECTION 5.02. Action Upon Instructions. (a) Subject to the terms of
------------------------
Sections 4.08, 5.01, 5.03 and 5.09, upon the written instructions at any time
and from time to time of a Majority in Interest of Certificate Holders, the
Indenture Trustee shall take such of the following actions as may be specified
in such instructions: (i) exercise such election or option, or make such
decision or determination, or give such notice, consent, waiver or approval or
exercise such right, remedy or power or take such other action hereunder, under
any other Operative Agreement or under the Collateral or in respect of any part
or all of the Indenture Estate as shall be specified in such instructions; (ii)
take such action with respect to, or to preserve or protect, the Indenture
Estate (including the discharge of Liens and the Collateral as shall be
specified in such instructions and as are consistent with this Indenture) or the
Collateral; and (iii) take such other action in respect of the subject matter of
this Indenture as is consistent with the terms hereof and the other Operative
Agreements. The Indenture Trustee will execute and the Owner Trustee will file
or cause to be filed such continuation statements with respect to financing
statements relating to the security interest created hereunder in the Indenture
Estate as may be specified from time to time in written instructions of a
Majority in Interest of Certificate Holders (which instructions may, by their
terms, be operative only at a future date and which shall be accompanied by the
execution form of such continuation statement so to be filed).
(b) If any Lease Event of Default shall have occurred and be
continuing, on request of a Majority in Interest of Certificate Holders, the
Indenture Trustee shall exercise such remedies under Section 15 of any Lease as
shall be specified in
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such request. The Indenture Trustee agrees to provide to the Certificate
Holders, the Owner Trustee and the Owner Participant concurrently with such
action by the Indenture Trustee, notice of such action by the Indenture Trustee,
provided that the failure to give any such notice to such Certificate Holders,
- --------
the Owner Trustee or the Owner Participant shall not affect the validity of such
action.
SECTION 5.03. Indemnification. The Indenture Trustee shall not be
---------------
required to take any action or refrain from taking any action under Sections
5.01 (other than the first sentence thereof) or 5.02 or Article IV or in respect
of the Collateral unless the Indenture Trustee shall have been indemnified by
all of the Certificate Holders (or, if in respect of the Collateral, the holders
of the Series entitled to instruct the Indenture Trustee with respect thereto)
against any liability, cost or expense (including counsel fees) which may be
incurred in connection therewith. The Indenture Trustee shall not be under any
obligation to take any action under this Indenture or in respect of the
Collateral and nothing in this Indenture contained shall require the Indenture
Trustee 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 Indenture Trustee shall not be
required to take any action under Section 5.01 (other than the first sentence
thereof) or 5.02 or Article IV, nor shall any other provision of this Indenture
be deemed to impose a duty on the Indenture Trustee to take any action, if the
Indenture Trustee shall have been advised by counsel that such action is
contrary to the terms hereof or is otherwise contrary to law. Notwithstanding
anything that may be to the contrary in the Operative Agreements, the holders of
the Series B Certificates shall have no obligation to indemnify the Indenture
Trustee if the holders of the Series A Certificates were grossly negligent or
were engaging in willful misconduct in giving their instructions to the
Indenture Trustee to take or refrain from taking any action.
SECTION 5.04. No Duties Except as Specified in Indenture or
---------------------------------------------
Instructions. The Indenture Trustee shall not have any duty or obligation to
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use, operate, store, lease, control, manage, sell, dispose of or otherwise deal
with any Aircraft or any other part of the Indenture Estate or the Collateral,
or to
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otherwise take or refrain from taking any action under, or in connection with,
this Indenture or any part of the Indenture Estate, except as expressly provided
by the terms of this Indenture or as expressly provided in written instructions
from Certificate Holders as provided in this Indenture; and no implied duties or
obligations shall be read into this Indenture against the Indenture Trustee.
The Indenture Trustee 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 7.01) promptly take such action as may be
necessary to duly discharge all Liens on any part of the Indenture Estate or the
Collateral which result from claims against it in its individual capacity not
related to the mortgaging to it of any Aircraft or the administration of the
Indenture Estate or the Collateral or any other transaction contemplated by or
pursuant to the Special Participation Agreement or any document included in the
Indenture Estate.
SECTION 5.05. No Action Except Under Leases Participation Agreements,
-------------------------------------------------------
Trust Indenture or Instructions. The Owner Trustee and the Indenture Trustee
- -------------------------------
agree that they will not use, operate, store, lease, control, manage, sell,
dispose of or otherwise deal with any Aircraft or any other part of the
Indenture Estate or the Collateral except (i) in accordance with the terms of
the relevant Lease or the relevant Participation Agreement, or (ii) in
accordance with the powers granted or reserved to, or the authority conferred
upon, the Owner Trustee and the Indenture Trustee pursuant to this Indenture and
in accordance with the express terms hereof.
SECTION 5.06. Replacement Engines. At any time and from time to
-------------------
time, any Engine which has been (or is to be treated as if the same had been)
subject to an Event of Loss and may be replaced under Section 10.2 of the Lease
to which such Engine is/was subject by a Replacement Engine shall be replaced in
accordance with the provisions of this Section 5.06 and the provisions of
Section 10.2 of such Lease, and the Owner Trustee shall, from time to time,
direct the Indenture Trustee to execute and deliver to or as directed in writing
by the Owner Trustee an appropriate instrument releasing such Engine as
appropriate from the Lien of this Indenture and the Indenture Trustee shall
execute and deliver such instrument as aforesaid, but only upon receipt by or
deposit with the Indenture Trustee of the following:
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(a) A written request from the Owner Trustee, requesting such release
and specifically describing the Engine(s) so to be released.
(b) A certificate signed by a duly authorized officer of the Lessee
stating the following:
(i) a description of the Engine which shall be identified by
manufacturer's name and serial number;
(ii) a description of the Replacement Engine (including the
manufacturer's name and serial number) to be received as consideration
for the Engine to be released;
(iii) that on the date of the Indenture Supplement relating to the
Replacement Engine the Owner Trustee will be the legal owner of such
replacement Engine free and clear of all Liens except Permitted Liens,
that such Replacement Engine will on such date be in good working
order and condition, and that such Replacement Engine is the same or
an improved model as the Engine to be released;
(iv) the fair market value of the Replacement Engine as of the
date of such certificate (which value shall not be less than the then
fair market value of the Engine requested to be released, assuming
such Engine was in the condition and repair required to be maintained
under such Lease (but without regard to hours and cycles until
overhaul));
(v) the fair market value of the Engine to be released
(immediately prior to the date such Engine suffered an Event of Loss);
(vi) that no Lease Default has occurred and is continuing or
would result from the making and granting of the request for release
and the addition of such Replacement Engine;
(vii) that the release of the Engine so to be released will not
impair the security of the Indenture or be in contravention of any of
the provisions of this Indenture; and
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(viii) that each of the conditions specified in Section 10.2.2 of
such Lease with respect to such Replacement Engine have been
satisfied.
(c) The appropriate instruments (i) transferring to the Owner Trustee
title to the Replacement Engine to be received as consideration for the
Engine to be released and (ii) assigning to the Owner Trustee the benefit
of all manufacturer's and vendor's warranties generally available with
respect to such Replacement Engine, and an Indenture Supplement subjecting
such Replacement Engine to the Lien of this Indenture.
SECTION 5.07. Indenture Supplements for Replacements. In the event of
--------------------------------------
a Replacement Engine being substituted as contemplated by Section 10.2 of any
Lease, the Owner Trustee and the Indenture Trustee agree for the benefit of the
Certificate Holders and the Lessee, subject to fulfillment of the conditions
precedent and compliance by the Lessee with its obligations set forth in Section
10.2 of such Lease, to execute and deliver an Indenture Supplement with respect
thereto as contemplated by Section 5.06(c), and, provided no Indenture Default
or Indenture Event of Default shall have occurred and be continuing, to execute
and deliver to the Lessee an appropriate instrument releasing the Engine being
replaced from the Lien of the Indenture.
SECTION 5.08. Effect of Replacement. In the event of the
---------------------
substitution of a Replacement Engine pursuant to Section 10.2 of any Lease and
Section 5.06, all provisions of this Indenture relating to the Engine or Engines
being replaced shall be applicable to such Replacement Engine or Engines with
the same force and effect as if such Replacement Engine or Engines were the same
engine or engines as the Engine or Engines being replaced but for the Event of
Loss with respect to the Engine or Engines being replaced.
SECTION 5.09. Certain Rights of Owner Trustee and Owner Participant.
-----------------------------------------------------
Notwithstanding any other provisions of this Indenture, including the Granting
Clause, the following rights shall be reserved to the Owner Trustee or the Owner
Participant, as the case may be (as separate and independent rights) to the
extent described herein:
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(a) at all times the Owner Trustee shall have the right, together
with the Indenture Trustee, to receive from the Lessee all notices,
certificates, reports, filings, opinions of counsel and other documents and
all information which any thereof is permitted or required to give or
furnish to the Owner Trustee or the Lessor pursuant to any Indenture
Document;
(b) so long as no Indenture Default shall have occurred and be
continuing, the Owner Trustee shall have the right together with the
Indenture Trustee (consent of both being required except in the case of
clause (iii) below) (i) to approve as satisfactory any other accountants,
inspectors, engineers or counsel to render services for or issue opinions
to the Owner Trustee pursuant to express provisions of the Indenture
Documents, (ii) to grant such consents, approvals and waivers as may be
requested under the Indenture Documents and (iii) to exercise inspection
rights pursuant to Section 12 of any Lease;
(c) the Owner Trustee shall have the non-exclusive right, as Lessor,
to seek specific performance of the covenants of the Lessee under any Lease
relating to the protection, insurance, maintenance, possession and use of
the Aircraft, and to maintain separate insurance with respect to any
Aircraft pursuant to Section 11.6 of the Lease to which such Aircraft is
subject (provided that no such insurance impairs or reduces coverage under
--------
any insurance required to be maintained by the Lessee under Section 11 of
any Lease); and
(d) at all times each of the Owner Trustee (as Owner Trustee, as The
Bank and as Lessor) and the Owner Participant shall have the right, to the
exclusion of the Indenture Trustee, to demand, collect, sue for or receive
the payment of Excluded Payments due and payable to it.
Notwithstanding the foregoing, and subject to the provisions of Sections 4.03
and 4.04(a), the Indenture Trustee shall at all times have the right, to the
exclusion of the Owner Trustee and the Owner Participant to exercise the
remedies set forth in Section 15 of any Lease and in Article IV hereof.
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ARTICLE VI
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
SECTION 6.01. Acceptance of Trusts and Duties. The Indenture Trustee
-------------------------------
accepts the duties hereby created and applicable to it and agrees to perform the
same but only upon the terms of this indenture and agrees to receive and
disburse all monies constituting part of the Indenture Estate or Collateral in
accordance with the terms hereof. The bank and the Indenture Trustee, in their
individual capacities, shall not be answerable or accountable under any
circumstances, except (a) for their own willful misconduct or gross negligence,
(b) in the case of the Indenture Trustee, as provided in Section 2.05 or the
last sentence of Section 5.04, and (c) for liabilities that may result, in the
case of The Bank, from the inaccuracy or nonperformance of any representation or
warranty or covenant of The Bank expressly made in its individual capacity in
the Special Participation Agreement or any other Operative Agreement or in
Section 4.01(a) or 6.03 or, in the case of the Indenture Trustee, from the
inaccuracy of any representation or warranty of the Indenture Trustee made in
its individual capacity in the Special Participation Agreement or any other
Operative Agreement. None of the Owner Participant, The Bank or the Indenture
Trustee shall be liable for any action or inaction of any other.
SECTION 6.02. Absence of Duties. In the case of the Indenture
-----------------
Trustee, except in accordance with written instructions furnished pursuant to
Section 5.01 or 5.02, and except as provided in, and without limiting the
generality of, Sections 5.03 and 5.04 and, in the case of the Owner Trustee,
except as provided in Section 4.01(b), the Indenture Trustee and the Owner
Trustee shall have no duty (i) to see to any registration of any Aircraft or any
recording or filing of any Lease or of this Indenture or any other document, or
to see to the maintenance of any such registration, recording or filing, (ii) to
see to any insurance, whether or not the Lessee shall be in default with respect
thereto, (iii) to see to the payment or discharge of any Lien of any kind
against any part of the Trust Estate or the Indenture Estate, (iv) to confirm,
verify or inquire into the failure to receive any financial statements of the
Lessee or (v) to inspect any Aircraft at any time or ascertain or inquire as to
the performance or observance of any of the Lessee's covenants under the Lease
with respect to such Aircraft. Except as expressly otherwise herein, in the
Special Participation
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Agreement and in any Participation Agreement provided, the Loan Participants,
the Certificate Holders and the Owner Participant shall not have any duty or
responsibility hereunder, including, without limitation, any of the duties
mentioned in clauses (i) through (v) above.
SECTION 6.03. No Representations or Warranties as to Aircraft or
--------------------------------------------------
Documents. NEITHER THE INDENTURE TRUSTEE (INDIVIDUALLY OR AS TRUSTEE) NOR THE
- ----------
OWNER TRUSTEE NOR THE BANK MAKES OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS,
VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, QUALITY, DURABILITY,
OPERATION, MERCHANTABILITY, CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR
PURPOSE OF ANY AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR
OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR AS TO THE QUALITY OF THE
MATERIAL OR WORKMANSHIP OF ANY AIRCRAFT OR ANY PART THEREOF OR ANY OTHER
REPRESENTATION OR WARRANTY WITH RESPECT TO ANY AIRCRAFT OR ANY PART THEREOF
WHATSOEVER, except that The Bank in its individual capacity warrants that (i) on
the Delivery Date the Owner Trustee shall have received whatever title was
conveyed to it on the Delivery Date, and (ii) on the Closing Date each Aircraft
shall be free and clear of Lessor Liens attributable to The Bank. Neither The
Bank nor the Indenture Trustee makes or shall be deemed to have made any
representation or warranty as to the validity, legality or enforceability of
this Indenture, the Trust Agreement, the Certificates or any Indenture Document
or as to the correctness of any statement contained in any thereof, except for
the representations and warranties of The Bank and the Indenture Trustee made in
their respective individual capacities under this Indenture or in the Special
Participation Agreement. The Loan Participants, the Certificate Holders and the
Owner Participant make no representation or warranty hereunder whatsoever.
SECTION 6.04. No Segregation of Monies; No Interest. Any monies paid
-------------------------------------
to or retained by the Indenture Trustee pursuant to any provision hereof and not
then required to be distributed to any Certificate Holder, the Lessee or the
Owner Trustee as provided in Article III need not be segregated in any manner
except to the extent required by law, and may be deposited under such general
conditions as may be prescribed by law, and the Indenture Trustee shall not
(except as otherwise provided in
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Section 3.07) be liable for any interest thereon; provided that any payments
--------
received or applied hereunder by the Indenture Trustee shall be accounted for by
the Indenture Trustee so that any portion thereof paid or applied pursuant
hereto shall be identifiable as to the source thereof.
SECTION 6.05. Reliance; Agents; Advice of Counsel. Neither the Owner
-----------------------------------
Trustee nor the Indenture Trustee shall 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. The
Owner Trustee and the Indenture Trustee may accept a copy of a resolution of the
Board of Directors of any party to any Participation Agreement or the Special
Participation Agreement, certified by the Secretary or an Assistant Secretary
thereof as duly adopted and in full force and effect, as conclusive evidence
that such resolution has been duly adopted and that the same is in full force
and effect; provided that the Owner Trustee shall accept the same as conclusive
evidence of adoption and that the same are in full and force and effect in
respect of the resolutions delivered pursuant to Section 2.1(c) (vii) of the
Participation Agreement. As to the aggregate unpaid principal amount of
Certificates outstanding as of any date, the Owner Trustee may for all purposes
hereof rely on a certificate signed by any Vice President or other authorized
corporate trust officer of the Indenture Trustee. As to any fact or matter
relating to the Lessee the manner of ascertainment of which is not specifically
described herein, the Owner Trustee and the Indenture Trustee may for all
purposes hereof rely on a certificate, signed by a duly authorized officer of
the Lessee, as to such fact or matter, and such certificate shall constitute
full protection to the Owner Trustee and the Indenture Trustee for any action
taken or omitted to be taken by them in good faith in reliance thereon. The
Indenture Trustee shall assume, and shall be fully protected in assuming, that
the Owner Trustee is authorized by the Trust Agreement to enter into this
Indenture and to take all action to be taken by it pursuant to the provisions
hereof, and shall not inquire into the authorization of the Owner Trustee with
respect thereto. In the administration of the trusts hereunder, the Owner
Trustee and the Indenture Trustee each may execute any of the trusts or powers
hereof and perform its powers and duties hereunder directly or through agents or
attorneys and may, at the expense of the Indenture Estate, advise with counsel,
accountants and other skilled
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persons to be selected and retained by it, and the Owner Trustee and the
Indenture Trustee shall riot be liable for anything done, suffered or omitted in
good faith by them in accordance with the written advice or written opinion of
any such counsel, accountants or other skilled persons.
SECTION 6.06. Capacity in Which Acting. Each of the Owner Trustee
------------------------
and the Indenture Trustee acts hereunder solely as trustee herein, and, in the
case of the Owner Trustee, as provided in the Trust Agreement, and not in its
individual capacity, except as otherwise expressly provided in the Operative
Agreements.
SECTION 6.07. Compensation. The Indenture Trustee shall be entitled
------------
to reasonable compensation, including expenses and disbursements, for all
services rendered hereunder and shall have a priority claim on the Indenture
Estate for the payment of such compensation, to the extent that such
compensation shall not be paid by the Lessee or others, as required under the
Operative Agreements, and shall have the right to use or apply any monies held
by it hereunder in the Indenture Estate toward such payments; it being
acknowledged that, provided that so long as (i) no Indenture Default or
Indenture Event of Default exists or (ii) this Indenture is not amended (x) in a
manner that increases the duties of the Indenture Trustee or (y) in a manner
that requires the Indenture Trustee to devote an amount of time in connection
with such amendment that it deems material, the only fee the Indenture Trustee
will be entitled to will be the fees paid to it on the Closing Date. The
Indenture Trustee agrees that it shall have no right against the Certificate
Holders or (except as provided in any Participation Agreement) the Owner
Participant for any fee as compensation for its services as trustee under this
Indenture.
SECTION 6.08. May Become Certificate Holder. Each of the institutions
-----------------------------
acting as Owner Trustee and Indenture Trustee hereunder may become a Certificate
Holder and have all rights and benefits of a Certificate Holder to the same
extent as if it were not the institution acting as Owner Trustee or Indenture
Trustee, as the case may be.
SECTION 6.09. Further Assurances; Financing Statements. At any time
----------------------------------------
and from time to time, upon the request of the Indenture Trustee or Lessee
(provided that any such request of Lessee is accompanied by an opinion of
--------
counsel satisfactory to a Majority in Interest of Certificate Holders, to the
effect that the action so requested is necessary to enable Lessee to comply with
an Operative Agreement and does not
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conflict with any Operative Agreement), the Owner Trustee shall promptly and
duly execute and deliver any and all such further instruments and documents as
may be specified in such request and as are necessary or desirable to perfect,
preserve or protect the mortgage, security interests and assignments created or
intended to be created hereby, or to obtain for the Indenture Trustee the full
benefit of the specific rights and powers herein granted, including, without
limitation, the execution and delivery of Uniform Commercial Code financing
statements and continuation statements with respect thereto, or similar
instruments relating to the perfection of the mortgage, security interests or
assignments created or intended to be created hereby.
ARTICLE VII
INDEMNIFICATION OF INDENTURE
TRUSTEE BY OWNER TRUSTEE
SECTION 7.01. Scope of Indemnification. The Owner Trustee, not in
------------------------
its individual capacity, but solely in its capacity as owner trustee under the
Trust Agreement, hereby agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for, and does
hereby indemnify, protect, save and keep harmless the Indenture Trustee, in its
individual capacity, and its successors, assigns, agents and servants, from and
against any and all liabilities, obligations, losses, damages, penalties, taxes
(excluding any taxes payable by the Indenture Trustee on or measured by any
compensation received by the Indenture Trustee for its services under this
Indenture), claims, actions, suits, costs, expenses or disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever which may
be imposed on, incurred by or asserted against the Indenture Trustee in its
individual capacity (whether or not also agreed to be indemnified against by any
other person under any other document) in any way relating to or arising out of
this Indenture, the Certificates, the other Operative Agreements or the
enforcement of any of the terms of any thereof, or in any way relating to or
arising out of the manufacture, purchase, acceptance, non-acceptance, rejection,
ownership, delivery, lease, possession, use, operation, condition, sale, return
or other disposition of any Aircraft or any or any part thereof (including,
without limitation, latent and other defects, whether or not discoverable, and
any claim for patent, trademark or copyright infringement), or in any way
relating to or arising out of the administration of the Indenture Estate or the
action or inaction of the Indenture Trustee hereunder, except only (i) in the
case of willful misconduct or
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gross negligence of the Indenture Trustee in the performance of its duties
hereunder, (ii) as may result from the inaccuracy of any representation or
warranty of the Indenture Trustee in its individual capacity in the Special
Participation Agreement, (iii) as otherwise provided in Section 2.05 or the last
sentence of Section 5.04 or (iv) to the extent otherwise excluded by the terms
of Section 8.1 of any Participation Agreement from the Lessee's general
indemnity under said Section. The Indenture Trustee in its individual capacity
shall be entitled to indemnification from the Indenture Estate for any
liability, obligation, loss, damage, penalty, claim, action, suit, cost, expense
or disbursement indemnified against pursuant to this Section 7.01 to the extent
not reimbursed by the Lessee or others, but without releasing any of them from
their respective agreements of reimbursement; and to secure the same the
Indenture Trustee shall have a prior lien on the Indenture Estate. The
indemnities contained in this Section 7.01 shall survive the termination of this
Indenture.
ARTICLE VIII
SUCCESSOR TRUSTEES; SEPARATE TRUSTEES
SECTION 8.01. Notice of Successor Owner Trustee. In the case of any
---------------------------------
appointment of a successor to the Owner Trustee pursuant to the Trust Agreement
or any merger, conversion, consolidation or sale of substantially all of the
corporate trust business of the Owner Trustee pursuant to the Trust Agreement,
the successor Owner Trustee shall give prompt written notice thereof to the
Indenture Trustee and to each Certificate Holder.
SECTION 8.02. Resignation of Indenture Trustee; Appointment of
------------------------------------------------
Successor. (a) The Indenture Trustee or any successor thereto may resign at
- ---------
any time without cause by giving at least 30 calendar days' prior written notice
to the Owner Participant, the Lessee, the Owner Trustee and each Certificate
Holder, such resignation to be effective upon the acceptance of the trusteeship
by a successor Indenture Trustee. In addition, a Majority in Interest of
Certificate Holders may at any time remove the Indenture Trustee without cause
by an instrument in writing delivered to the Owner Participant, the Owner
Trustee, the Lessee and the Indenture Trustee, and the Owner Trustee shall
promptly notify each Certificate Holder thereof in writing, such removal to be
effective upon the acceptance of the trusteeship by a successor Indenture
Trustee. In the case of the resignation or removal of the Indenture Trustee, a
Majority in Interest of Certificate Holders may appoint a successor Indenture
Trustee by
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an instrument signed by such Holders. If a successor Indenture Trustee shall
not have been appointed within 30 calendar days after such notice of resignation
or removal, the Indenture Trustee, the Owner Trustee or any Certificate Holder
may apply to any court of competent jurisdiction to appoint a successor
Indenture Trustee to act until such time, if any, as a successor shall have been
appointed as above provided. The successor Indenture Trustee so appointed by
such court shall immediately and without further act be superseded by any
successor Indenture Trustee appointed as above provided within one year from the
date of the appointment by such court.
(b) Any successor Indenture Trustee, however appointed, shall execute
and deliver to the Owner Trustee and to the predecessor Indenture Trustee an
instrument accepting such appointment, and thereupon such successor Indenture
Trustee, without further act, shall become vested with all the estates,
properties, rights, powers and duties of the predecessor Indenture Trustee
hereunder in the trusts hereunder applicable to it with like effect as if
originally named the Indenture Trustee herein; but nevertheless upon the written
request of such successor Indenture Trustee, such predecessor Indenture Trustee
shall execute and deliver an instrument transferring to such successor Indenture
Trustee, upon the trusts herein expressed applicable to it, all the estates,
properties, rights and powers of such predecessor Indenture Trustee, and such
predecessor Indenture Trustee shall duly assign, transfer, deliver and pay over
to such successor Indenture Trustee all monies or other property then held by
such predecessor Indenture Trustee hereunder.
(c) Any successor Indenture Trustee, however appointed, shall be a
"citizen of the United States" within the meaning of Section 101(16) of the Act
and shall also be a bank or trust company having a combined capital and surplus
of at least $100,000,000, if there be such an institution willing, able and
legally qualified to perform the duties of the Indenture Trustee hereunder upon
reasonable or customary terms.
(d) Any corporation into which the Indenture Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Indenture Trustee
shall be a party, or any corporation to which substantially all the corporate
trust business of the Indenture Trustee may be transferred, shall, subject to
the terms of paragraph (c) of this Section, be the Indenture Trustee under this
Indenture without further act.
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SECTION 8.03. Appointment of Separate Trustees. (a) At any time or
--------------------------------
times, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Indenture Estate may at the time be located or in which
any action of the Indenture Trustee may be required to be performed or taken or
if the Indenture Trustee shall be advised by counsel satisfactory to it that it
is so necessary or prudent in the interests of the Certificate Holders, or in
the event the Indenture Trustee shall have been requested to do so by a Majority
in Interest of Certificate Holders, the Indenture Trustee, by an instrument in
writing signed by it, and without the concurrence of the Owner Trustee, may
appoint one or more individuals or corporations to act as separate trustee or
separate trustees or co-trustee, acting jointly with the Indenture Trustee, or
to act as separate trustee or trustees of all or any part of the Indenture
Estate with such powers as may be provided in an agreement supplemental hereto.
(b) The Indenture and, at the request of the Indenture Trustee, the
Owner Trustee, shall execute, acknowledge and deliver all such instruments as
may be required by the legal requirements of any jurisdiction or by any such
separate trustee or separate trustees or co-trustee for the purpose of more
fully confirming such title, rights or duties to such separate trustee or
separate trustees or co-trustee and the Owner Trustee hereby makes, constitutes
and appoints the Indenture Trustee its agent and attorney-in-fact for it and in
its name, place and stead to execute, acknowledge and deliver the same in the
event that the Owner Trustee shall not itself execute and deliver the same
within 20 days after receipt by it of such request so to do. Upon the acceptance
in writing of such appointment by any such separate trustee or separate trustees
or co-trustee, it, he or they shall be vested with such title to the Indenture
Estate or any part thereof, and with such rights and duties, as shall be
specified in the instrument of appointment, jointly with the Indenture Trustee
(except insofar as local law makes it necessary for any such separate trustee or
separate trustees or co-trustee to act alone) subject to all the terms of this
Trust Indenture. Any separate trustee or separate trustees or co-trustee may, at
any time by an instrument in writing, constitute the Indenture Trustee its or
his attorney-in-fact and agent with full power and authority to do all acts and
things and to exercise all discretion on its or his behalf and in its or his
name. In case any such separate trustee or co-trustee shall die, become
incapable of acting, resign or be removed, the title to the Indenture Estate and
all assets, property, rights, powers, trusts, obligations and duties of such
separate trustee or co-trustee shall, so far as permitted by law, vest in and be
exercised by
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the Indenture Trustee, without the appointment of a successor to such separate
trustee or co-trustee unless and until a successor is appointed.
(c) All provisions of this Indenture which are for the benefit of the
Indenture Trustee shall extend to and apply to each separate trustee or co-
trustee appointed pursuant to the foregoing provisions of this Section 8.03,
including without limitation Article VII.
(d) Every separate trustee and co-trustee hereunder shall, to the
extent permitted by law, be appointed and act and the Indenture Trustee shall
act, subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon
the Indenture Trustee in respect of the receipt, custody, investment
and payment of monies shall be exercised solely by the Indenture
Trustee;
(ii) all other rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or separate trustees or co-trustee jointly except to
the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Indenture Trustee
shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the
holding of title to the Indenture Estate in any such jurisdiction)
shall be exercised and performed by such separate trustee or separate
trustees or co-trustee;
(iii) no power hereby given to, or with respect to which it is
hereby provided may be exercised by, any such separate trustee or
separate trustees or co-trustee shall be exercised hereunder by such
person except jointly with, or with the consent of, the Indenture
Trustee; and
(iv) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder.
If at any time the Indenture Trustee shall deem it no longer necessary or
prudent in order to conform to any such law, or take
TRUST INDENTURE
<PAGE>
85
any such action or shall be advised by such counsel that it is no longer legally
required or necessary or prudent in the interest of the Certificate Holders or
in the event the Indenture Trustee shall have been requested to do so by a
Majority in Interest of Certificate Holders, the Indenture Trustee shall execute
and deliver an indenture supplemental hereto and all other instruments and
agreements necessary or proper to remove any separate trustee or separate
trustees or co-trustee.
(e) Any request, approval or consent in writing by the Indenture
Trustee to any separate trustee or separate trustees or co-trustee shall be
sufficient warrant to such separate trustee or separate trustees or co-trustee,
as the case may be, to take such action as may be so requested, approved or
consented to.
(f) Notwithstanding any other provision of this Section 8.03, the
powers of any separate trustee or separate trustees or co-trustee appointed
pursuant to this Section 8.03 shall not in any case exceed those of the
Indenture Trustee hereunder.
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO THIS
INDENTURE AND OTHER DOCUMENTS
SECTION 9.01. Instructions of Majority; Limitations. (a) At any time
-------------------------------------
and from time to time, (i) the Owner Trustee (but only on the written request of
the Owner Participant) and the Indenture Trustee (but only on the written
request of a Majority in Interest of Certificate Holders) shall execute a
supplement hereto for the purpose of adding provisions to, or changing or
eliminating provisions of, this Indenture as specified in such request, and (ii)
the Owner Trustee may (but only with the written consent of the Owner
Participant and on the written request of a Majority in Interest of Certificate
Holders) enter into such written amendment of or supplement to any Lease or any
other Indenture Document to which it is party as may be specified in such
request; provided, however, that, without the consent of each Certificate
-------- -------
Holder, no such amendment of or supplement to any such document, or waiver or
modification of the terms of any thereof, shall (i) modify any of the provisions
of this Section 9.01 or the definitions of the terms "Excluded Payments",
-----------------
"Indenture Default", "Indenture Event of Default", "Lease Default", "Lease Event
----------------- -------------------------- ------------- -----------
of Default", "Lessor's Cost", "Majority in Interest of Certificate Holders" or
- ---------- ------------- -------------------------------------------
"Indenture Documents" contained herein or in any other Operative Agreement
-------------------
TRUST INDENTURE
<PAGE>
86
(except to change default definitions by providing for additional events of
default), (ii) increase the principal amount of any Certificate or reduce the
amount or extend the time of payment of any amount owing or payable under any
Certificate or (except as provided in this Indenture) increase or reduce the
Premium Amount or interest payable on any Certificate (except that only the
consent of the Certificate Holder shall be required for any decrease in any
amounts of or the rate of Premium Amount or interest payable on such Certificate
or any extension for the time of payment of any amount payable under such
Certificate), or alter or modify the provisions of Article III with respect to
the order of priorities in which distributions thereunder shall be made or with
respect to the amount or time of payment of any such distribution, (iii) reduce,
modify or amend any indemnities in favor of the Loan Participants or any
Certificate Holder or in favor of or to be paid by the Owner Participant or
alter the definition of "Indemnified Party" to exclude any Loan Participant or
-----------------
any Certificate Holder (except as consented to by each Person adversely affected
thereby), (iv) or reduce the amount or extend the time of payment of Basic Rent,
Stipulated Loss Value or Termination Value (or other amounts payable therewith)
for any Aircraft as set forth in the Lease to which it is subject (except to the
extent required to match any action consented to by any Certificate Holder
referred to in the parenthetical phrase in clause (ii) above), or (v) modify,
amend or supplement any Lease or consent to any assignment of any Lease, in
either case releasing the Lessee from its obligations in respect of the payment
of Basic Rent (except as above provided), Stipulated Loss Value or Termination
Value (or other amounts payable therewith) for the Aircraft subject to such
Lease or altering the absolute and unconditional character of such obligations
as set forth in Section 17 of such Lease or change any of the circumstances
under which Stipulated Loss Value or Termination Value (or other amounts payable
therewith) are payable. This Section 9.01 shall not apply to any indenture or
indentures supplemental hereto permitted by, and complying with the terms of,
Section 5.07, Section 8.03 or Section 9.04. Notwithstanding the foregoing,
without the consent of each Certificate Holder, no such supplement to this
Indenture, or waiver or modification of the terms hereof or of any other
agreement or document shall expressly permit the creation of any Lien on the
Indenture Estate or any part thereof, except as herein expressly permitted, or
deprive any Certificate Holder of the benefit of the Lien of this Indenture on
the Indenture Estate, except as provided in Sections 5.01 and 5.02 or in
connection with the exercise of remedies under Article IV.
TRUST INDENTURE
<PAGE>
87
SECTION 9.02. Trustees Protected. If, in the opinion of the
------------------
institution acting as Owner Trustee under the Trust Agreement or the institution
acting as the Indenture Trustee hereunder any document required to be executed
pursuant to the terms of Section 9.01 affects any right, duty, immunity or
indemnity with respect to it under this Indenture, the Indenture Trustee and the
Owner Trustee may in their discretion decline to execute such document.
SECTION 9.03. Documents Mailed to Holders. Promptly after the
---------------------------
execution by the Owner Trustee or the Indenture Trustee of any document entered
into pursuant to Section 9.01, the Owner Trustee shall mail, by certified mail,
postage prepaid, a conformed copy thereof to Indenture Trustee and the Indenture
Trustee shall mail, by certified mail, postage prepaid, a conformed copy thereof
to each Certificate Holder at its address shown on the Certificate Register, but
the failure of the Owner Trustee or Indenture Trustee, as the case may be, to
mail such conformed copies shall not impair or affect the validity of such
document.
SECTION 9.04. No Request Necessary for Lease Supplement or Indenture
------------------------------------------------------
Supplement. Notwithstanding anything contained in Section 9.01, no written
- ----------
request or consent of the Indenture Trustee, any Certificate Holder or the Owner
Participant pursuant to Section 9.01 shall be required to enable the Owner
Trustee to enter into any Lease Supplement with the Lessee pursuant to the terms
of any Lease to subject an Aircraft or other property thereto or to execute and
deliver an Indenture Supplement to subject an Aircraft or other property hereto
pursuant to the terms hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Termination of Indenture. Upon (or at any time after)
------------------------
payment in full of the principal of and interest on and Premium Amount, if any,
and all other amounts due under, or otherwise due to the holders of, all
Certificates and provided that there shall then be no other amounts due to the
--------
Loan Participants, the Certificate Holders and the Indenture Trustee hereunder
or under any Participation Agreement or the other Operative Agreements or
otherwise secured hereby, the Owner Trustee shall direct the Indenture Trustee
to execute and deliver to or as directed in writing by the Owner Trustee an
appropriate instrument releasing each Aircraft from the Lien of this
TRUST INDENTURE
<PAGE>
88
Indenture and releasing the Operative Agreements from the assignment and pledge
thereof hereunder, and the Indenture Trustee shall execute and deliver such
instrument as aforesaid and, at the Owner Trustee's expense, will execute and
deliver such other instruments or documents as may be reasonably requested by
the Owner Participant to give effect to such release; provided, however, that
-------- -------
this Indenture and the trusts created hereby shall earlier terminate and this
Indenture shall be of no further force or effect upon any sale or other final
disposition by the Indenture Trustee of all property part of the Indenture
Estate and, in the case of any sale or other disposition pursuant to Section
4.04, the final distribution by the Indenture Trustee of all monies or other
property or proceeds constituting part of the Indenture Estate in accordance
with the terms hereof. Except as aforesaid otherwise provided, this Indenture
and the trusts created hereby shall continue in full force and effect in
accordance with the terms hereof.
SECTION 10.02. No Legal Title to Indenture Estate in Holders. No
---------------------------------------------
Certificate Holder shall have legal title to any part of the Indenture Estate.
No transfer, by operation of law or otherwise, of any Certificate or other
right, title and interest of any Certificate Holder in and to the Indenture
Estate or hereunder shall operate to terminate this Indenture or entitle such
Certificate Holder or any successor or transferee of such holder to an
accounting or to the transfer to it of legal title to any part of the Indenture
Estate.
SECTION 10.03. Sale of Aircraft by Indenture Trustee is Binding. Any
------------------------------------------------
sale or other conveyance of any Aircraft or any part of the Indenture Estate by
the Indenture Trustee made pursuant to the terms of this Indenture or of any
Lease shall bind the Certificate Holders and shall be effective to transfer or
convey all right, title and interest of the Indenture Trustee, the Owner
Trustee, the Owner Participant and the Certificate Holders in and to such
Aircraft or such part of the Indenture Estate (and, without limiting the
generality of foregoing, shall be free and clear of the Lien of this Indenture).
No purchaser or other grantee shall be required to inquire as to the
authorization, necessity, expediency or regularity of such sale or conveyance or
as to the application of any sale or other proceeds with respect thereto by the
Indenture Trustee.
SECTION 10.04. Indenture for Benefit of Owner Trustee Indenture
------------------------------------------------
Trustee. Owner Participant and Certificate Holders. Nothing in this Indenture,
- --------------------------------------------------
whether express or implied, shall be construed to give to any Person other than
The Bank, the Owner Trustee, the Indenture Trustee, the Owner Participant, the
Lessee
TRUST INDENTURE
<PAGE>
89
and the Certificate Holders any legal or equitable right, remedy or claim under
or in respect of this Indenture.
SECTION 10.05. No Action Contrary to Lessee's Rights Under any Lease.
-----------------------------------------------------
Notwithstanding any of the provisions of this Indenture or the Trust Agreement
to the contrary, so long as no Lease Event of Default shall have occurred and be
continuing, neither the Indenture Trustee nor the Owner Trustee will take any
action in violation of the Lessee's rights under any Lease, including the right
to possession and use of the Aircraft subject to such Lease in accordance with
the terms of such Lease.
SECTION 10.06. 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
Indenture to be made, given, furnished or filed shall be in writing, mailed by
certified mail, postage prepaid, or by confirmed telex, or by confirmed telecopy
and (i) if to the Indenture Trustee, addressed to it at its office at 35 North
Sixth Street, Reading, Pennsylvania 19601, Attention: Corporate Trust
Administration (telecopier: (215) 655-1349), (ii) if to the Owner Trustee,
addressed to it at its office at 79 South Main Street, P.O. Box 30007, Salt Lake
City, Utah 84130, Attention: Corporate Trust Department (telecopy: (801) 350-
5053), or (iii) if to any Participant or any Certificate Holder, addressed to
such party at such address as such party shall have furnished by notice to the
Owner Trustee and the Indenture Trustee, or, until an address is so furnished,
addressed to the address of such party (if any) set forth on the signature pages
of the Special Participation Agreement. Whenever any notice in writing is
required to be given by the Owner Trustee or the Indenture Trustee or any
Certificate Holder to any of the other of them, such notice shall be deemed
given and such requirement satisfied when such notice is received, if such
notice is received, if such notice is mailed by certified mail, postage prepaid,
or is sent by confirmed telex, or by confirmed telecopy addressed as provided
above. 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
Indenture.
SECTION 10.07. Severability. Any provision of this Indenture which
------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
TRUST INDENTURE
<PAGE>
90
SECTION 10.08. No Oral Modifications or Continuing Waivers. No terms
-------------------------------------------
or provisions of this Indenture or the Certificates 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 Indenture; and any waiver of the terms
hereof or of any Certificate shall be effective only in the specific instance
and for the specific purpose given.
SECTION 10.09. 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.
Any request, notice, direction, consent, waiver or other instrument or action by
any Certificate Holder shall bind the successors and assigns of such Certificate
Holder. This Indenture and the Indenture Estate shall not be affected by any
amendment or supplement to the Trust Agreement or by any other action taken
under or in respect of the Trust Agreement, except that each reference in this
Indenture to the Trust Agreement shall mean the Trust Agreement as amended and
supplemented from time to time to the extent permitted hereby and thereby.
SECTION 10.10. Headings. The headings of the various Articles and
--------
Sections herein and in the table of contents hereto are for the convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 10.11. Governing Law; Counterpart Form. This Indenture shall
-------------------------------
in all respects be governed by, and construed in accordance with, the law of the
State of New York, including all matters of construction, validity and
performance. This Indenture 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
instrument.
SECTION 10.12. Collateral. The Indenture Trustee shall (i) take such
----------
action with respect to the Collateral under the Guarantee or Pledge Agreement,
as the case may be, (ii) act on instructions in respect thereof, (iii) be
entitled to indemnification in respect of any action taken with respect to any
Collateral, (iv) have duties and take action in respect of the Collateral and
(v) otherwise be entitled to protections of this Indenture in respect of the
Collateral, as though, in each case, the Collateral were a part of the Indenture
Estate.
TRUST INDENTURE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers there-unto duly authorized, as of
the day and year first above written, and acknowledge that this Indenture has
been made and delivered in the City of New York, and this Indenture having
become effective only upon such execution and delivery.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as otherwise expressly
provided in the Operative Agreements,
but solely as Owner Trustee
By [SIGNATURE ILLEGIBLE]
----------------------------------
Title: Asst. Vice President
MERIDIAN TRUST COMPANY,
as Indenture Trustee
By__________________________________
Title:
TRUST INDENTURE
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers there-unto duly authorized, as of
the day and year first above written, and acknowledge that this Indenture has
been made and delivered in the City of New York, and this Indenture having
become effective only upon such execution and delivery.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION,
not in its individual capacity,
except as otherwise expressly provided
in the Operative Agreements, but solely
as Owner Trustee
By_____________________________________
Title:
MERIDIAN TRUST COMPANY,
as Indenture Trustee
By [SIGNATURE ILLEGIBLE]
-------------------------------------
Title: VICE PRESIDENT
TRUST INDENTURE
<PAGE>
EXHIBIT A
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
TRUST INDENTURE SUPPLEMENT No. ___
TRUST INDENTURE SUPPLEMENT NO. ___ (Southwest Airlines 1990 Trust II,
III & IV) dated _______, ____ (this "Indenture Supplement") of FIRST SECURITY
--------------------
BANK OF UTAH, NATIONAL ASSOCIATION, not in its individual capacity, except as
otherwise expressly provided in the Operative Agreements, but solely as owner
trustee under the Trust Agreement (in such capacity, herein called the "Owner
-----
Trustee").
- -------
W I T N E S S E T H:
WHEREAS, the Amendment and Restatement dated as of August 25, 1995 of
Trust Indenture and Security Agreement dated as of December 30, 1991 (Southwest
Airlines 1990 Trust II, III & IV) (the "Indenture") between the Owner Trustee
---------
and Meridian Trust Company as Indenture Trustee (the "Indenture Trustee"),
-----------------
provides for the execution and delivery of a supplement thereto substantially in
the form hereof which shall particularly describe the Aircraft (such term and
other defined terms in the Indenture being herein used with the same meanings)
and Replacement Engine included in the Trust Indenture Estate, and shall
specifically mortgage such Aircraft or Replacement Engine, as the case may be,
to the Indenture Trustee.
WHEREAS*, the Indenture relates to each Airframe and Engines described
below and a counterpart of the Indenture is attached hereto and made a part
hereof and this Indenture Supplement, together with such counterpart of the
Indenture, is being filed for recordation on the date hereof with the Federal
Aviation Administration as one document.
WHEREAS**, the Indenture and Trust Indenture Supplement No. ___
(Southwest Airlines 1990 Trust II, III & IV) dated ______________ (the Indenture
being attached to and made a part of such Indenture Supplement and filed
therewith) have been duly recorded pursuant to the Federal Aviation Act of 1958,
____________________
* This recital is to be included only in the first Indenture Supplement.
** This recital not to be included in the first Indenture Supplement.
<PAGE>
2
as amended, on __________ , 1991, as one document and have been
assigned Conveyance No. __________;
NOW, THEREFORE, THIS INDENTURE SUPPLEMENT WITNESSETH, that, to secure
(i) the prompt payment of the principal of and Premium Amount (if any) and
interest on, and all other amounts due with respect to, (a) the Series A
Certificate and (b) the Series B, Certificates from time to time outstanding
under the Indenture, (ii) the performance and observance by the Owner Trustee
and the Owner Participant of all the agreements, covenants and provisions for
the benefit of the Loan Participants and the Certificate Holders in the
Indenture and in each Participation Agreement, the Special Participation
Agreement and the Certificates contained, (iii) the prompt payment of any and
all amounts from time to time owing under the Indenture or each Participation
Agreement or the other Operative Agreements by the Owner Trustee, the Owner
Participant or the Lessee to the Loan Participants and the Certificate Holders
and (iv) the performance and observance by the Guarantors of the Series B
Certificates of all the agreements, covenants and provisions for the benefit of
the Loan Participants and the Certificate Holders in each Participation
Agreement, the Special Participation Agreement and the Guarantee, and for the
uses and purposes and subject to the terms and provisions of the Indenture, and
in consideration of the premises and of the covenants contained in the
Indenture, and of the acceptance of the Certificates by the Certificate Holders,
and of the sum of $1 paid to the Owner Trustee by the Indenture Trustee at or
before the delivery hereof, the receipt whereof is hereby acknowledged, the
Owner Trustee has granted, bargained, sold, assigned, transferred, conveyed,
mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign,
transfer, convey, mortgage, pledge and confirm, unto the Indenture Trustee and
its successors and assigns, for the security and benefit of the Loan
Participants and the Certificate Holders, in the trust created by the Indenture,
a first priority security interest in and first mortgage lien upon, all right,
title and interest of the Owner Trustee in, to and under the following described
property:
INDENTURE SUPPLEMENT
<PAGE>
3
AIRFRAMES
Three airframes identified as follows:
FAA Manufacturer' s
Registration Serial
Manufacturer Model Number Number
- ------------ ----- ------ ------
together with all Parts, appliances, equipment, instruments and accessories
(including, without limitation, radio and radar) from time to time thereto
belonging, owned by the Owner Trustee and installed in or appurtenant to said
aircraft.
AIRCRAFT ENGINES
( ) aircraft engines, each such engine
having 750 or more rated takeoff horsepower
or the equivalent thereof, identified as follows:
Manufacturer' s
Manufacturer Model Serial Number
- ------------ ----- -------------
together with all Parts, equipment and accessories thereto belonging, by
whomsoever manufactured, owned by the Owner Trustee and installed in or
appurtenant to said aircraft engines.
Together with all substitutions, replacements and renewals of the
property above described, and all property which shall hereafter become
physically attached to or incorporated in the property above described, whether
the same are now owned by the Owner Trustee or shall hereafter be acquired by
it.
As further security for the obligations referred to above and secured
by the Indenture and hereby, the Owner Trustee has granted, bargained, sold,
assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does
hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge and
confirm, unto the Indenture Trustee, its successors and assigns, for the
INDENTURE SUPPLEMENT
<PAGE>
4
security and benefit of the Loan Participants and the Certificate Holders, in
the trust created by the Indenture, all of the right, title and interest of the
Owner Trustee in, to and under [the Lease Supplement (Southwest Airlines 1990
Trust II) No. 1 dated September 27, 1990, the Lease Supplement (Southwest
Airlines 1990 Trust III) No. 1 dated September 27, 1990 and the Lease Supplement
(Southwest Airlines 1990 Trust IV) No. 1 dated September 27, 1990] [the Lease
Supplement (Southwest Airlines 1990 Trust __) No. __ of even date] (other than
Excluded Payments, if any) covering the property described above.
TO HAVE AND TO HOLD all and singular the aforesaid property unto the
Indenture Trustee, its successors and assigns, for the benefit and security of
the Loan Participants and the Certificate Holders for the uses and purposes and
subject to the terms and provisions set forth in the Indenture.
This Indenture Supplement shall be construed as supplemental to the
Indenture and shall form a part thereof, and the Indenture is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
This Indenture Supplement is being delivered in the State of New York.
AND, FURTHER, the Owner Trustee hereby acknowledges that each
Airframe/Engines referred to in this Indenture Supplement and the aforesaid
Lease Supplements have been delivered to the Owner Trustee and are included in
the property of the Owner Trustee and are covered by all the terms and
conditions of the Trust Agreement and are subject to the Lien of the Indenture.
INDENTURE SUPPLEMENT
<PAGE>
Schedule of Series A Certificates Principal Payments (Continued)
----------------------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
<S> <C>
30-Jan-96 159,716.30
29-Feb-96 160,781.08
30-Mar-96 161,852.95
30-Apr-96 162,931.97
30-May-96 164,018.18
30-Jun-96 165,111.64
30-Jul-96 166,212.38
30-Aug-96 167,320.46
30-Sep-96 168,435.94
30-Oct-96 169,558.84
30-Nov-96 170,689.23
30-Dec-96 171,827.16
30-Jan-97 172,972.68
28-Feb-97 174,125.82
30-Mar-97 175,286.67
30-Apr-97 176,455.24
30-May-97 177,631.61
30-Jun-97 178,815.83
30-Jul-97 180,007.92
30-Aug-97 181,207.98
30-Sep-97 182,416.04
30-Oct-97 183,632.14
30-Nov-97 184,856.35
30-Dec-97 186,088.73
30-Jan-98 187,329.33
28-Feb-98 188,578.18
30-Mar-98 189,835.37
30-Apr-98 191,100.94
30-May-98 192,374.95
30-Jun-98 193,657.45
30-Jul-98 194,948.49
30-Aug-98 196,248.16
30-Sep-98 197,556.47
30-Oct-98 198,873.52
30-Nov-98 200,199.34
30-Dec-98 201,534.00
30-Jan-99 202,877.57
28-Feb-99 204,230.08
30-Mar-99 205,591.61
30-Apr-99 206,962.23
30-May-99 208,341.97
30-Jun-99 209,730.92
30-Jul-99 211,129.13
30-Aug-99 212,536.65
30-Sep-99 213,953.56
30-Oct-99 215,379.93
30-Nov-99 216,815.78
30-Dec-99 218,261.23
</TABLE>
<PAGE>
ANNEX I
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Schedule of Series A Certificates Principal Payments
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
----------------- ---------
<S> <C>
31-Mar-92 $577,950.46
30-Jun-92 $589,009.71
30-Sep-92 $536,386.96
31-Dec-92 $607,924.40
31-Mar-93 $626,965.77
30-Jun-93 $635,322.57
30-Sep-93 $644,104.70
31-Dec-93 $656,565.26
31-Mar-94 $675,469.76
30-Jun-94 $685,293.62
30-Sep-94 $695,591.61
31-Dec-94 $709,048.21
31-Mar-95 $727,805.02
30-Jun-95 $739,211.83
30-Sep-95 $751,145.40
31-Dec-95 $765,676.73
</TABLE>
- CONTINUED -
<PAGE>
EXHIBIT E
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Swap Upside
-----------
"Swap Upside" means, as at any date of (i) prepayment of any Series A
-----------
Certificate pursuant to Section 2.11(a) or (ii) purchase by a holder or holders
of Series B Certificates pursuant to Section 2.13(b) and for any holder of
Series A Certificate that is a bank, a bank operating subsidiary or otherwise a
floating rate lender, an amount, if any, equal to the amount the Swap Counter-
party pays to such holder on such date to terminate the Swap Transaction of such
holder on such date.
<PAGE>
EXHIBIT D
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
(Intentionally omitted.)
<PAGE>
EXHIBIT C
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
(Intentionally omitted.)
<PAGE>
any time during the calendar year, (ii) meet the substantial
presence test of I.R.C. Section 7701(b)(3), or (iii) make an
election under I.R.C. Section 7701(b) (4) to be treated as a
United States resident.
By executing this certificate, the undersigned agrees that (1) if the
information provided on this certificate changes, the undersigned shall so
inform the Indenture Trustee in writing within thirty days of such change and
(2) the undersigned shall furnish the Indenture Trustee a properly completed and
currently effective certificate in either the calendar year in which payment is
to be made by the Indenture Trustee to the undersigned, or in either or the two
calendar years preceding such payment.
Date:
[Name of Certificate Holder]
By__________________________
Title:
114
<PAGE>
EXHIBIT B
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
FORM OF TAX CERTIFICATE
Reference is made to the Certificate[s] held by the undersigned
pursuant to the Trust Indenture and Security Agreement (Southwest Airlines 1990
Trust II, III & IV) dated as of December 30, 1991 between First Security Bank of
Utah, National Association, as Owner Trustee, and Meridian Trust Company, as
Indenture Trustee (capitalized terms not otherwise defined herein being used
herein as therein defined). The undersigned hereby declares under the penalties
of perjury that:
(1) The undersigned is the beneficial owner of the Certificates
issued in its name;
(2) the income from the Certificates held by the undersigned is not
effectively connected with a trade or business within the United
States conducted through a permanent establishment of the
undersigned within the United States;
(3) the undersigned is not a bank;
(4) the undersigned is not a controlled foreign corporation related
(within the meaning of Internal Revenue Code ("I.R.C.") Section
864(d)(4)) to the owner Trustee or the Owner Participant;
(5) the undersigned is not a 10% shareholder (within the meaning of
i.r.c. Section 871(h) (3) (b)) of the Owner Trustee or the Owner
Participant;
(6) the undersigned is a person other than (i) a citizen or resident
of the United States of America, its territories and possessions
(including the Commonwealth of Puerto Rico and all other areas
subject to its jurisdiction) (the "United States") , (ii) a
corporation, partnership or other entity created or organized
under the laws of the United States or any political subdivision
thereof or therein or (iii) an estate or trust that is subject to
United States federal income taxation regardless of the source of
its income; and
(7) the undersigned, if an individual, will not (i) be a lawful
permanent resident of the United States at
<PAGE>
5
IN WITNESS WHEREOF, the Owner Trustee has caused this Indenture
Supplement to be duly executed by one of its officers thereunto authorized, this
_____ day of ________, ____.
FIRST SECURITY BANK OF UTAH,
NATIONAL ASSOCIATION ,
not in its individual capacity
except as otherwise expressly
provided in the Operative Agreements,
but solely as Owner Trustee
By_____________________________________
Title:
INDENTURE SUPPLEMENT
<PAGE>
ANNEX II
to
Amendment and Restatement
of Trust Indenture and
Security Agreement
Schedule of Series B Certificates Principal Payments
----------------------------------------------------
<TABLE>
<CAPTION>
Payment Date Principal
(Interest Payment Amount to
Date Closest to) Be Paid
----------------- ---------
<S> <C>
31-Mar-92 $111,611.17
30-Jun-92 $113,746.88
30-Sep-92 $113,445.68
31-Dec-92 $115,640.35
31-Mar-93 $122,736.68
30-Jun-93 $122,655.68
30-Sep-93 $122,624.73
31-Dec-93 $124,996.98
31-Mar-94 $132,066.97
30-Jun-94 $132,268.18
30-Sep-94 $132,528.82
31-Dec-94 $135,092.67
31-Mar-95 $142,134.25
30-Jun-95 $142,639.96
30-Sep-95 $143,215.22
31-Dec-95 $145,985.80
31-Dec-99 $9,955,302.21
</TABLE>
