AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 2002
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
SOUTHWEST AIRLINES CO.
(Exact name of registrant as specified in its charter)
TEXAS 741563240
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2702 Love Field Drive, Dallas, TX 75235
214/792-4000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
LAURA WRIGHT
Vice President -- Finance and Treasurer
Southwest Airlines Co.
2702 Love Field Drive, Dallas, TX 75235
214/792-4459
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-------------------------
COPIES OF CORRESPONDENCE TO:
DEBORAH ACKERMAN
Vice President - General Counsel
Southwest Airlines Co.
2702 Love Field Drive, Dallas, TX 75235
214/792-4665
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AGGREGATE OFFERING AMOUNT OF
BE REGISTERED PRICE REGISTRATION FEE
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Debt Securities
and Pass Through Certificates (1)(2) $694,781,435 $63,920 (3)
============================================================================================
(1) The Debt Securities registered hereby include such additional amount as may
be necessary so that, if Debt Securities are issued at an original issue
discount, the aggregate initial offering price of all Debt Securities will equal
$694,781,435.
(2) In no event will the aggregate initial offering price of all securities
issued from time to time pursuant to this registration statement exceed
$694,781,435 or the equivalent thereof in one or more foreign currencies or
composite currencies, including the euro.
(3) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
------------------
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectuses herein are combined prospectuses that also relate to: (1)
Registration Statement No. 333-71392 previously filed by Southwest Airlines Co.
as to which securities having an aggregate offering price of $750,000 remain
unsold, and for which the registration fee was previously paid, and (2)
Registration Statement No. 333-29257 previously filed by Southwest Airlines Co.
as to which securities having an aggregate offering price of $304,468,565 remain
unsold, and for which the registration fee was previously paid. Upon
effectiveness, this Registration Statement shall constitute Post-Effective
Amendment No. 1 to Registration Statement No. 333-71392 and Post-Effective
Amendment No. 1 to Registration Statement No. 333-29257.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
EXPLANATORY NOTE
This Registration Statement contains two separate forms of prospectuses
to be used in connection with offerings of Debt Securities and Pass Through
Certificates.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities and it is not soliciting an offer to buy securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 30, 2002
PROSPECTUS
SOUTHWEST AIRLINES CO.
DEBT SECURITIES
By this prospectus, we may offer from time to time up to $1,000,000,000
of our unsecured debt securities. When we offer debt securities, we will provide
you with a prospectus supplement describing the terms of the specific issue of
debt securities, including the offering price of the debt securities.
You should read this prospectus and the prospectus supplement relating
to the specific issue of debt securities carefully before you invest.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ______________________, 2002.
TABLE OF CONTENTS
PAGE
About this Prospectus.................................................... i
Forward-Looking Statements............................................... ii
The Company.............................................................. 1
Use of Proceeds.......................................................... 1
Ratios of Earnings to Fixed Charges...................................... 1
Description of Debt Securities Southwest May Offer....................... 2
Plan of Distribution..................................................... 11
Validity of the Debt Securities.......................................... 12
Experts.................................................................. 13
Where You Can Find More Information...................................... 13
You should rely only on the information contained in this prospectus or
any prospectus supplement or information contained in documents which you are
referred to in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with information different from that contained
in this prospectus or any prospectus supplement. We are offering to sell the
debt securities only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus or any prospectus supplement is
accurate only as of the date on the front of those documents, regardless of the
time of delivery of the documents or any sale of the debt securities.
ABOUT THIS PROSPECTUS
This prospectus is part of three registration statements that we filed
with the Securities and Exchange Commission utilizing a shelf registration
process. Under this shelf process, we may sell the securities described in this
prospectus in one or more offerings up to a total offering amount of
$1,000,000,000. This prospectus provides you with a general description of the
debt securities we may offer.
Each time we sell debt securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described in the
section entitled "Where You Can Find More Information."
For more detail, you should read our registration statements and the
exhibits filed with our registration statements.
In this prospectus, references to "Southwest," "we," "us" and "our"
mean Southwest Airlines Co.
(i)
FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which represent our
expectations or beliefs concerning future events. When used in this prospectus
and the incorporated documents, the words "expects," "plans," "anticipates" and
similar expressions are intended to identify forward-looking statements. All
forward-looking statements in this prospectus are based upon information
available to us on the date of this prospectus. We undertake no obligation to
update publicly or revise any forward-looking statement, whether as a result of
new information, future events or otherwise. Forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from historical experience or our expectations. Additional information
concerning these and other factors is contained in our SEC filings, including
but not limited to our Forms 10-K, 10-Q and 8-K.
(ii)
THE COMPANY
Southwest Airlines Co. is a major domestic airline that provides
primarily shorthaul, high-frequency, point-to-point, low-fare service. We were
incorporated in Texas in 1967 and commenced Customer Service on June 18, 1971
with three Boeing 737 aircraft serving three Texas cities -- Dallas, Houston,
and San Antonio. As of September 30, 2002, we operated 370 Boeing 737 aircraft
and provided service to 59 airports in 58 cities in 30 states throughout the
United States.
Additional information about us is included in our reports and other
documents incorporated by reference in this prospectus. Please refer to the
section "Where You Can Find More Information."
Our principal executive offices are located at 2702 Love Field Drive,
P.O. Box 36611, Dallas, Texas 75235, and our telephone number is (214) 792-4000.
USE OF PROCEEDS
We intend to use the net proceeds from the offering of the debt
securities for general corporate purposes, unless otherwise specified in the
prospectus supplement relating to a specific issuance of debt securities. Such
general corporate purposes may include, among other possible uses, the repayment
of short-term or long-term indebtedness and capital expenditures.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratios of earnings to
fixed charges for the periods indicated:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------------ ------------------------------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
3.50 4.58 5.01 5.97 4.94 5.78 2.69
Earnings represent:
- Income before income taxes, excluding the cumulative effect of
accounting changes; plus
- Fixed charges, excluding capitalized interest.
Fixed charges include:
- Interest, whether expensed or capitalized; and
- A portion of rental expense. Our management believes this is
representative of the interest factor in those periods.
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DESCRIPTION OF DEBT SECURITIES SOUTHWEST MAY OFFER
We will issue the debt securities under a contract called the indenture
between us and Wells Fargo Bank, N.A., which acts as trustee. We may issue as
many distinct series of debt securities under the indenture as we wish.
The trustee has two main roles. First, the trustee can enforce your
rights against us if we default. There are some limitations on the extent to
which the trustee acts on your behalf, described later in this section under
"Default and Related Matters - Remedies If an Event of Default Occurs." Second,
the trustee performs administrative duties for us, such as sending you interest
payments, transferring your debt securities to a new buyer if you sell and
sending you notices.
The indenture and its associated documents contain the full legal text
of the matters described in this section. The indenture and the debt securities
are governed by Texas law. A copy of the indenture may be obtained from us as
described below under "Where You Can Find More Information."
This section summarizes the material terms of the debt securities that
we expect will be common to all series, although the prospectus supplement which
describes the terms of each series of debt securities may also describe
differences with the material terms summarized here.
Because this section is a summary, it does not describe every aspect of
the debt securities. This summary is subject to and qualified in its entirety by
reference to all the provisions of the indenture, including definitions of
certain terms used in the indenture. In this summary, we describe the meaning
for only the more important terms. You must look to the indenture for the most
complete description of what is described in summary form in this prospectus.
This summary also is subject to and qualified by reference to the
description of the particular terms of your series described in the prospectus
supplement. Those terms may vary from the terms described in this prospectus.
The prospectus supplement relating to each series of debt securities will be
attached to the front of this prospectus. There may also be a further prospectus
supplement, known as a pricing supplement, which contains the precise terms of
debt securities you are offered.
We may issue the debt securities as original issue discount securities,
which will be offered and sold at a substantial discount below their stated
principal amount. The prospectus supplement relating to the original issue
discount securities will describe federal income tax consequences and other
special considerations applicable to them. The prospectus supplement relating to
specific debt securities will also describe any special considerations and
certain additional tax considerations applicable to such debt securities.
In addition, the specific financial, legal and other terms particular
to a series of debt securities are described in the prospectus supplement and
any pricing supplement relating to the series. The prospectus supplement
relating to a series of debt securities will describe the following terms of the
series:
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- the title of the series of debt securities;
- any limit on the aggregate principal amount of the series of debt
securities;
- the person to whom interest on a debt security is payable, if
other than the holder on the regular record date;
- the date or dates on which the series of debt securities will
mature;
- the rate or rates, which may be fixed or variable, per annum at
which the series of debt securities will bear interest, if any,
and the date or dates from which that interest, if any, will
accrue;
- the place or places where the principal of (and premium, if any)
and interest on the debt securities are payable;
- the dates on which interest, if any, on the series of debt
securities will be payable and the regular record dates for the
interest payment dates;
- any mandatory or optional sinking funds or similar provisions;
- the date, if any, after which and the price or prices at which the
series of debt securities may, in accordance with any optional or
mandatory redemption provisions, be redeemed and the other
detailed terms and provisions of those optional or mandatory
redemption provisions, if any;
- if other than denominations of $1,000 and any of its integral
multiples, the denominations in which the series of debt
securities will be issuable;
- the applicability of the provisions described under "Defeasance;"
- if the series of debt securities will be issuable only in the form
of a global security, the depository or its nominee with respect
to the series of debt securities and the circumstances under which
the global security may be registered for transfer or exchange in
the name of a person other than the depositary or the nominee; and
- any other special feature of the series of debt securities.
LEGAL OWNERSHIP
Street Name and Other Indirect Holders. Investors who hold debt
securities in accounts at banks or brokers will generally not be recognized by
us as legal holders of debt securities. This is called holding in street name.
Instead, we would recognize only the bank or broker, or the financial
institution the bank or broker uses to hold its debt securities. These
intermediary banks, brokers and other financial institutions pass along
principal, interest and other payments on the debt securities, either because
they agree to do so in their customer agreements or because they are
3
legally required to. If you hold debt securities in street name, you should
check with your own institution to find out:
- how it handles securities payments and notices;
- whether it imposes fees or charges;
- how it would handle voting if required;
- whether and how you can instruct it to send you debt securities
registered in your own name so that you can be a direct holder as
described below; and
- how it would pursue rights under the debt securities if there were
a default or other event triggering the need for holders to act to
protect their interests.
Direct Holders. Our obligations, as well as the obligations of the
trustee and those of any third parties employed by us or the trustee, run only
to persons who are registered as holders of debt securities. As noted above, we
do not have obligations to you if you hold debt securities in street name or
other indirect means, either because you choose to hold debt securities in that
manner or because the debt securities are issued in the form of global
securities as described below. For example, once we make payment to the
registered holder, we have no further responsibility for the payment, even if
that holder is legally required to pass the payment along to you as a street
name customer but does not do so.
GLOBAL SECURITIES
What is a Global Security? A global security is a special type of
indirectly held security, as described above under "Street Name and Other
Indirect Holders." If we choose to issue debt securities in the form of global
securities, the ultimate beneficial owners can only be indirect holders. We do
this by requiring that the global security be registered in the name of a
financial institution we select and by requiring that the debt securities
included in the global security not be transferred to the name of any other
direct holder unless the special circumstances described below occur. The
financial institution that acts as the sole direct holder of the global security
is called the depositary. Any person wishing to own a debt security must do so
indirectly by virtue of an account with a broker, bank or other financial
institution that in turn has an account with the depositary. The prospectus
supplement indicates whether your series of securities will be issued only in
the form of global securities.
Special Investor Considerations for Global Securities. As an indirect
holder, an investor's rights relating to a global security will be governed by
the account rules of the investor's financial institution and of the depositary,
as well as general laws relating to securities transfers. We do not recognize
this type of investor as a holder of debt securities and instead deal only with
the depositary that holds the global security.
If you are an investor, you should be aware that if debt securities are
issued only in the form of global securities:
- You cannot get debt securities registered in your own name.
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- You cannot receive physical certificates for your interest in the
debt securities.
- You will be a street name holder and must look to your own bank or
broker for payments on the debt securities and protection of your
legal rights relating to the debt securities. See "Legal Ownership
-- Street Name and Other Indirect Holders."
- You may not be able to sell interests in the debt securities to
some insurance companies and other institutions that are required
by law to own their securities in the form of physical
certificates.
- The depositary's policies will govern payments, transfers,
exchange and other matters relating to your interest in the global
security. We and the trustee have no responsibility for any aspect
of the depositary's actions or for its records of ownership
interest in the global security. We and the trustee also do not
supervise the depositary in any way.
Special Situations when Global Security will be Terminated. In a few
special situations described in the next paragraph, the global security will
terminate and interests in it will be exchanged for physical certificates
representing debt securities. After that exchange, the choice of whether to hold
debt securities directly or in street name will be up to you. You must consult
your own bank or broker to find out how to have your interests in debt
securities transferred to your own name, so that you will be a direct holder.
The rights of street name investors and direct holders in the debt securities
have been previously described under "Legal Ownership" in the subsections
entitled "Street Name and Other Indirect Holders" and "Direct Holders."
The special situations for termination of a global security are:
- When the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary and a successor
depositary is not appointed by us within 90 days.
- When we notify the trustee that we wish to terminate the global
security.
- When an event of default on the securities has occurred and has
not been cured, disregarding for this purpose any requirement of
notice or that the default exists for a specified period of time.
(Default is discussed later under "Default and Related Matters.")
The prospectus supplement may also list additional situations for
terminating a global security that would apply only to the particular series of
debt securities covered by the prospectus supplement. When a global security
terminates, the depositary (and not us or the trustee) is responsible for
deciding the names of the institutions that will be the initial direct holders.
IN THE REMAINDER OF THIS DESCRIPTION "YOU" MEANS DIRECT HOLDERS AND NOT
STREET NAME OR OTHER INDIRECT HOLDERS OF DEBT SECURITIES. INDIRECT HOLDERS
SHOULD READ THE PREVIOUS SUBSECTION ENTITLED "STREET NAME AND OTHER INDIRECT
HOLDERS."
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OVERVIEW OF REMAINDER OF THIS DESCRIPTION
The remainder of this description summarizes:
- ADDITIONAL MECHANICS relevant to the debt securities under normal
circumstances, such as how you transfer ownership and where we
make payments;
- Your rights in several SPECIAL SITUATIONS, such as if we merge
with another company, or if we want to change a term of the debt
securities via MODIFICATION AND WAIVER;
- A DEFEASANCE clause, which may allow for us to be completely
released from our payment and other obligations on the debt
securities; and
- Your rights if we DEFAULT or experience other financial
difficulties.
ADDITIONAL MECHANICS
Form, Exchange and Transfer. The debt securities will be issued:
- only in fully registered form;
- without interest coupons; and
- in denominations that are even multiples of $1,000.
You may have your debt securities divided into more debt securities of
smaller denominations or combined into fewer debt securities of larger
denominations, as long as the total principal amount is not changed. This is
called an exchange.
You may exchange or transfer debt securities at the office of the
trustee. The trustee acts as our agent for registering debt securities in the
names of holders and transferring debt securities. We may change this
appointment to another entity or perform these functions ourselves. The entity
performing the role of maintaining the list of registered holders is called the
security registrar. It will also perform transfers.
You will not be required to pay a service charge to transfer or
exchange debt securities, but you may be required to pay for any tax or other
governmental charge associated with the exchange or transfer. The transfer or
exchange will only be made if the security registrar is satisfied with your
proof of ownership.
If we have designated additional transfer agents, they are named in the
prospectus supplement. We may cancel the designation of any particular transfer
agent. We may also approve a change in the office through which any transfer
agent acts.
If the debt securities are redeemable, we may block the transfer or
exchange of debt securities for a period beginning 15 days before the day we
mail the notice of redemption, in order to freeze the list of holders to prepare
the mailing. We may also refuse to register transfers or
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exchanges of debt securities selected for redemption, except that we will
continue to permit transfers and exchanges of the unredeemed portion of any debt
security being partially redeemed.
Payment and Paying Agents. We will pay interest to you if you are a
direct holder listed in the trustee's records at the close of business on a
particular day in advance of each due date for interest, even if you no longer
own the debt security on the interest due date. That particular day, usually
about two weeks in advance of the interest due date, is called the regular
record date and is stated in the prospectus supplement. Holders buying and
selling debt securities must work out between them how to compensate for the
fact that we will pay all the interest for an interest period to the one who is
the registered holder on the regular record date. The most common manner is to
adjust the sales price of the securities to pro rate interest fairly between
buyer and seller. This prorated interest amount is called accrued interest.
We will pay interest, principal and any other money due on the debt
securities at the corporate trust office of the trustee in Fort Worth, Texas.
That office is currently located at 505 Main Street, Suite 301, Fort Worth,
Texas 76102. You must make arrangements to have your payments picked up at or
wired from that office. We may also choose to pay interest by mailing checks.
STREET NAME AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS,
BROKERS OR OTHER FINANCIAL INSTITUTIONS FOR INFORMATION ON HOW THEY WILL RECEIVE
PAYMENTS.
We may also arrange for additional payment offices, and may cancel or
change these offices, including the use of the trustee's corporate trust office.
These offices are called paying agents. We may also choose to act as our own
paying agent. We must notify you of changes in the paying agents for any
particular series of debt securities.
Notices. We and the trustee will send notices regarding the debt
securities only to direct holders, using their addresses as listed in the
trustee's records.
Regardless of who acts as paying agent, all money paid by us to a
paying agent that remains unclaimed at the end of two years after the amount is
due to direct holders will be repaid to us. After that two-year period, you may
look only to us for payment and not to the trustee, any other paying agent or
anyone else.
SPECIAL SITUATIONS
Mergers and Similar Events. We are generally permitted to consolidate
or merge with another entity. We are also permitted to sell or convey all or
substantially all of our assets to another entity. However, we may not take any
of these actions unless all of the following conditions are met:
Where we consolidate or merge out of existence or sell or convey all or
substantially all of our assets, the other entity must be organized under the
laws of a state or under federal law, and it must agree to be legally
responsible for the debt securities.
7
Immediately after the merger, sale of assets or other transaction, we
must not be in default on the debt securities. A default for this purpose would
also include any event that would be an event of default if the requirements for
giving us default notice or our default having to exist for a specific period of
time were disregarded.
MODIFICATION AND WAIVER
There are three types of changes we can make to the indenture and the
debt securities.
Changes Requiring Your Approval. First, there are changes that cannot
be made to your debt securities without your specific approval. Following is a
list of those types of changes:
- extend the stated maturity of the principal or interest on a debt
security;
- reduce any amounts due on a debt security;
- reduce the amount of principal payable on an original discount
security upon acceleration of the maturity of the debt security
following a default;
- impair your right to sue for payment; and
- reduce the percentage of the principal amount of debt securities
of any series or all series (voting as one class) the consent of
which is needed to modify or amend the indenture.
Changes Requiring a Vote. The second type of change to the indenture
and the debt securities is the kind that requires a vote in favor by the holders
of debt securities owning at least a majority of the principal amount of the
particular series affected. Most changes fall into this category, except for
clarifying changes and certain other changes that would not adversely affect the
interest of holders of the debt securities described in the next paragraph. We
may obtain a waiver of a past default from the holders of debt securities owning
a majority of the principal amount of the particular series affected. However,
we cannot obtain a waiver of a payment default unless we obtain an individual
consent to the waiver from every holder.
Changes Not Requiring Approval. The third type of change to the
indenture and the debt securities does not require any vote by holders of debt
securities. This type is limited to clarifications and certain other changes
that would not adversely affect the interests of holders of the debt securities.
Holders of debt securities will also not be eligible to vote if the debt
securities have been fully defeased as described below under "Defeasance."
STREET NAME AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS,
BROKERS OR OTHER FINANCIAL INSTITUTIONS FOR INFORMATION ON HOW APPROVAL MAY BE
GRANTED OR DENIED IF WE SEEK TO CHANGE THE INDENTURE OR THE DEBT SECURITIES OR
REQUEST A WAIVER.
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ABSENCE OF RESTRICTIVE COVENANTS
The indenture does not contain any promises by us on how we will
operate our business, and does not restrict our ability to incur debt or grant
liens on our assets. If we determine to include such a promise for the benefit
of a particular series of debt securities, such promise, or restrictive
covenant, will be described in the prospectus supplement relating to that series
of debt securities.
DEFEASANCE
We may be completely released from our payment and other obligations on
the debt securities. The following discussion of defeasance will be applicable
to your series of debt securities only if we choose to have them apply to that
series. If we do so choose, we will state that in the prospectus supplement.
If there is a change in federal tax law, or if we obtain a ruling from
the Internal Revenue Service, as described below, we can legally release
ourselves from any payment or other obligations on the debt securities, called
full or legal defeasance, if we put in place the following arrangements for you
to be repaid:
- We must deposit in trust for your benefit and the benefit of all
direct holders of the debt securities a combination of money and
U.S. government or U.S. government agency notes or bonds that will
generate enough cash to make interest, principal and any other
payments on the debt securities on their various due dates.
- There must be a change in federal tax law or a ruling from the
Internal Revenue Service that lets us make the above deposit
without causing you to be taxed on the debt securities any
differently than if we did not make the deposit and just repaid
the debt securities. Under current federal tax law, the deposit
and our legal release from the debt securities would be treated as
though we took back your debt securities and gave you your share
of the cash and notes or bonds deposited in trust. In that event,
you could recognize gain or loss on the debt securities you give
back to us.
- We must deliver to the trustee a legal opinion of our counsel
confirming, among other things, the tax law change described
above.
If we are able to fully defease the debt securities, as described
above, you would have to rely solely on the trust deposit for repayment on the
debt securities. You could not look to us for repayment.
DEFAULT AND RELATED MATTERS
Ranking. The debt securities are not secured by any of our property or
assets. Accordingly, your ownership of debt securities means you are one of our
unsecured creditors. The debt securities are not subordinated to any of our
other debt obligations and therefore they rank equally in contractual right of
payment with all of our other unsubordinated indebtedness.
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Events of Default. You will have special rights if an event of default
occurs and is not cured, as described later in this subsection.
What is an Event of Default? The term "event of default" means any of
the following:
- We do not pay the principal or any premium on a debt security when
due.
- We do not pay interest on a debt security within 30 days of its
due date.
- We remain in breach of any other covenant or agreement in the
indenture for 90 days after we receive a notice of default stating
we are in breach. The notice must be sent by either the trustee or
holders of 25% of the outstanding principal amount of debt
securities of the affected series.
- We default on any indebtedness for borrowed money totaling over
$50,000,000 and our obligation to repay such indebtedness is
accelerated, and this repayment obligation remains accelerated for
10 days after we receive a notice of default by the trustee or
holders of 25% of the outstanding principal amount of the affected
debt securities.
- We file for bankruptcy, or certain other events in bankruptcy,
insolvency or reorganization occur.
Remedies if an Event of Default Occurs. If an event of default has
occurred and has not been cured, the trustee or the holders of at least 25% in
principal amount of the debt securities of the affected series may declare the
entire principal amount (or, in the case of original issue discount securities,
the portion of the principal amount that is specified in the terms of the
affected debt security) of all the debt securities of that series, plus accrued
interest, to be due and immediately payable. This is called a declaration of
acceleration of maturity. However, a declaration of acceleration of maturity may
be cancelled, but only before a judgment or decree based on the acceleration has
been obtained, by the holders of at least a majority in principal amount of the
debt securities of the affected series.
Reference is made to the prospectus supplement relating to any series
of debt securities which are original issue discount securities for the
particular provisions relating to acceleration of the maturity of a portion of
the principal amount of original issue discount securities upon the occurrence
of an event of default and its continuation.
Except in cases of default, where the trustee has some special duties,
the trustee is not required to take any action under the indenture at the
request of any holders unless the holders offer the trustee reasonable
protection from expenses and liability, called an indemnity. If reasonable
indemnity is provided, the holders of a majority of the outstanding principal
amount of the securities of the relevant series may direct the time, method and
place of conducting any lawsuit or other formal legal action seeking any remedy
available to the trustee. These majority holders may also direct the trustee in
performing any other action under the indenture.
10
Before you bypass the trustee and bring your own lawsuit or other
formal legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must occur:
- You must give the trustee written notice that an event of default
has occurred and remains uncured.
- The holders of at least 25% of the outstanding principal amount of
all the securities of the relevant series must make a written
request that the trustee take action because of an event of
default, and must offer reasonable indemnity to the trustee
against the cost and other liabilities of taking that action.
- The trustee must have not taken action for 60 days after receipt
of the above written request and offer of indemnity and no
directions inconsistent with the above written request must have
been given to the trustee during such period.
However, you are entitled at any time to bring a lawsuit for the
payment of money due on your debt security on or after its due date.
STREET NAME AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS,
BROKERS OR OTHER FINANCIAL INSTITUTIONS FOR INFORMATION ON HOW TO GIVE NOTICE OR
DIRECTION TO OR MAKE A REQUEST OF THE TRUSTEE AND TO MAKE OR CANCEL A
DECLARATION OF ACCELERATION.
We will furnish to the trustee every year a written statement of
certain of our officers certifying that to their knowledge we are in compliance
with the indenture and the debt securities, or else specifying any default and
indicating the nature and status of the default.
CONCERNING THE TRUSTEE
The trustee under the indenture is Wells Fargo Bank, N.A.
The indenture contains certain limitations on the right of the trustee,
should it become a creditor of ours, to obtain payment of claims in certain
cases, or to realize for its own account on certain property received in respect
of any such claim as security or otherwise. The trustee will be permitted to
engage in certain other transactions; however, if after an event of default has
occurred and is continuing, the trustee acquires any conflicting interest (as
described in the indenture) it must eliminate such conflict or resign.
PLAN OF DISTRIBUTION
We may sell debt securities:
- to or through underwriting syndicates represented by managing
underwriters;
- through one or more underwriters without a syndicate for them to
offer and sell to the public;
11
- through dealers or agents; and
- to investors directly in negotiated sales or in competitively bid
transactions.
Any underwriter or agent involved in the offer and sale of any series
of the debt securities will be named in the prospectus supplement.
The prospectus supplement for each series of debt securities will
describe:
- the terms of the offering of those debt securities, including the
name of the agent or the name or names of any underwriters;
- the public offering or purchase price;
- any discounts and commissions to be allowed or paid to the agent
or underwriters and all other items constituting underwriting
compensation;
- any discounts and commissions to be allowed or paid to dealers;
and
- other specific terms of the particular debt securities.
Only the agents or underwriters named in a prospectus supplement are
agents or underwriters in connection with the debt securities being offered by
that prospectus supplement.
Underwriters, agents and dealers may be entitled, under agreements with
us, to indemnification against certain civil liabilities, including liabilities
under the Securities Act of 1933.
Underwriters to whom debt securities are sold by us for public offering
and sale are obliged to purchase all of those particular debt securities if any
are purchased. This obligation is subject to certain conditions and may be
modified in the applicable prospectus supplement.
Each series of debt securities will be a new issue of securities and
will not have an established trading market. Unless otherwise indicated in the
applicable prospectus supplement, we will not list any series of debt securities
on an exchange. No assurance can be given that you will be able to resell any
debt securities that you may purchase.
Underwriters, dealers or agents may engage in transactions with, or
perform services for, us or our affiliates in the ordinary course of business.
VALIDITY OF THE DEBT SECURITIES
Unless otherwise indicated in the applicable prospectus supplement, the
validity of the debt securities offered hereby will be passed upon for us by
Deborah Ackerman, Vice President -- General Counsel.
12
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2001, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any documents we file at the SEC's public reference room, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also available to
the public on the SEC's web site at http://www.sec.gov and through the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, on which our common
stock is listed.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information as well as
the information included in this prospectus. We incorporate by reference the
documents listed below and any future filings made with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until we sell
all the debt securities.
- Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 2002; and
- Current Reports on Form 8-K dated February 28 and July 30, 2002.
Any party to whom this prospectus is delivered, including a holder in street
name, may request a copy of these filings (other than any exhibits unless
specifically incorporated by reference into this prospectus), at no cost, by
writing or telephoning us at the following address:
Southwest Airlines Co.
Investor Relations
P.O. Box 36611, HDQ-6FC
2702 Love Field Drive
Dallas, Texas 75235
(214) 792-4000
13
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities and it is not soliciting an offer to buy securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 30, 2002
PROSPECTUS
SOUTHWEST AIRLINES CO.
PASS THROUGH CERTIFICATES
This prospectus relates to the issuance of Pass Through Certificates by
one or more Pass Through Trusts to be formed by Southwest Airlines Co.
THE CERTIFICATES:
- Will be issued in one or more series with distribution rates and
distribution dates specified in the prospectus supplement;
- Will represent interests in the relevant Pass Through Trust only
and will be repaid only from the assets of that Trust, and will
not represent obligations of, or be guaranteed by, Southwest;
- May have one or more forms of liquidity enhancement; and
- Will be issued in registered form and may be issued in accordance
with a book-entry system.
The aggregate public offering price of the Certificates will not
exceed $1,000,000,000.
EACH PASS THROUGH TRUST:
- Will issue one or more series of Certificates;
- Will use the proceeds of each series of Certificates to purchase
Equipment Notes of one or more series, each with an interest rate
equal to the rate on the related series of Certificates and with a
maturity date on or prior to the final distribution date for the
related series of Certificates; and
- Will pass through principal and interest paid on the Equipment
Notes that it owns, subject to any applicable subordination
provisions.
THE EQUIPMENT NOTES:
- Will be issued in series;
- Will be issued either in connection with sale/leaseback
transactions relating to aircraft leased to us, or to finance or
refinance all or a portion of the cost of aircraft owned by us or
to raise funds for general corporate purposes;
- If issued in connection with leased aircraft, will not be our
obligations and will not be guaranteed by us, but amounts due from
us under the relevant lease will be sufficient to make all
payments required under those Equipment Notes; and
- Will be secured by the aircraft specified in the prospectus
supplement and, in the case of any leased aircraft, by the
interest of lessor in that lease.
This prospectus is accompanied by a prospectus supplement that includes
additional information as to the particular series of Certificates being sold
and the underlying Equipment Notes. Sales of Certificates may not be consummated
without both this prospectus and a prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ___________, 2002.
TABLE OF CONTENTS
PAGE
PROSPECTUS
About this Prospectus........................................................i
Forward-Looking Statements..................................................ii
The Company..................................................................1
Summary......................................................................1
Use of Proceeds..............................................................4
Ratios of Earnings to Fixed Charges..........................................4
Description of the Certificates..............................................5
Description of the Equipment Notes..........................................23
Certain United States Federal Income Tax Consequences.......................28
ERISA Considerations........................................................32
Plan of Distribution........................................................32
Validity of the Certificates................................................34
Experts.....................................................................34
Where You Can Find More Information.........................................34
You should rely only on the information contained in this prospectus or
any prospectus supplement or information contained in documents which you are
referred to in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with information different from that contained
in this prospectus or any prospectus supplement. We are offering to sell the
pass through certificates only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus or any prospectus
supplement is accurate only as of the date on the front of those documents,
regardless of the time of delivery of the documents or any sale of the pass
through certificates.
ABOUT THIS PROSPECTUS
This prospectus is part of three registration statements that we filed
with the Securities and Exchange Commission utilizing a shelf registration
process. Under this shelf process, the Certificates described in this prospectus
may be sold in one or more offerings up to a total offering amount of
$1,000,000,000. This prospectus provides you with a general description of the
Certificates that may be offered.
Each time Certificates are sold, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information described in the
section entitled "Where You Can Find More Information."
For more detail, you should read our registration statements and the
exhibits filed with our registration statements.
(i)
In this prospectus, references to "Southwest," "we," "us" and "our"
mean Southwest Airlines Co.
FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which represent our
expectations or beliefs concerning future events. When used in this prospectus
and the incorporated documents, the words "expects," "plans," "anticipates" and
similar expressions are intended to identify forward-looking statements. All
forward-looking statements in this prospectus are based upon information
available to us on the date of this prospectus. We undertake no obligation to
update publicly or revise any forward-looking statement, whether as a result of
new information, future events or otherwise. Forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from historical experience or our expectations. Additional information
concerning these and other factors is contained in our SEC filings, including
but not limited to our Forms 10-K, 10-Q and 8-K.
(ii)
THE COMPANY
Southwest Airlines Co. is a major domestic airline that provides
primarily shorthaul, high-frequency, point-to-point, low-fare service. We were
incorporated in Texas in 1967 and commenced Customer Service on June 18, 1971
with three Boeing 737 aircraft serving three Texas cities -- Dallas, Houston,
and San Antonio. As of September 30, 2002, we operated 370 Boeing 737 aircraft
and provided service to 59 airports in 58 cities in 30 states throughout the
United States.
Additional information about us is included in our reports and other
documents incorporated by reference in this prospectus. Please refer to the
section "Where You Can Find More Information."
Our principal executive offices are located at 2702 Love Field Drive,
P.O. Box 36611, Dallas, Texas 75235, and our telephone number is (214) 792-4000.
SUMMARY
CERTIFICATES
Pass through certificates are securities that evidence an ownership
interest in a pass through trust. The holders of the certificates issued by a
pass through trust will be the beneficiaries of that trust. For convenience, we
may refer to pass through certificates as "certificates" and refer to the holder
of a pass through certificate as a "certificateholder."
The beneficial interest in a pass through trust represented by a
certificate will be a percentage interest in the property of that trust equal to
the original face amount of such certificate divided by the original face amount
of all of the certificates issued by that trust. Each certificate will represent
a beneficial interest only in the property of the pass through trust that issued
the certificate. Multiple series of certificates may be issued. If more than one
series of certificates is issued, each series of certificates will be issued by
a separate pass through trust.
The property that will be held by each pass through trust will include
equipment notes secured by aircraft that we own or lease. Payments of principal
and interest on the equipment notes owned by a pass through trust will be passed
through to holders of certificates issued by that trust in accordance with the
terms of the pass through trust agreement pursuant to which the trust was
formed.
If certificates of any series are entitled to the benefits of a
liquidity facility or other form of credit enhancement, the prospectus
supplement relating to that series will describe the terms of the liquidity
facility or other form of credit enhancement. A liquidity facility is a
revolving credit agreement, letter of credit, bank guarantee, insurance policy
or other instrument or agreement under which another person agrees to make
certain payments in respect of the certificates if there is a shortfall in
amounts otherwise available for distribution. While a liquidity facility is
designed to increase the likelihood of the timely payment of certain amounts due
under certificates, it is not a guarantee of timely or ultimate payment.
The rights of a pass through trustee to receive monies payable under
equipment notes held for that pass through trustee may be subject to the effect
of subordination provisions contained in
1
an intercreditor agreement described in the prospectus supplement for a series
of certificates. An intercreditor agreement will set forth the terms and
conditions upon which payments made under the equipment notes and payments made
under any liquidity facility will be received, shared and distributed among the
several pass through trustees and the liquidity provider.
We may offer and sell up to $1,000,000,000 of aggregate initial
offering price of certificates pursuant to this prospectus and related
prospectus supplements in one or more offerings of certificates.
PASS THROUGH TRUSTS
We will form a separate pass through trust to issue each series of
certificates. Each pass through trust will be formed by us, as creator of each
pass through trust, and a national or state bank or trust company, as trustee.
Unless otherwise stated in a prospectus supplement, Wells Fargo
Delaware Trust Company will be the trustee of each pass through trust. For
convenience, we may refer to the pass through trustee as the "trustee".
Each pass through trust will be governed by a trust instrument that
creates the trust and sets forth the powers of the trustee and the rights of the
beneficiaries. The beneficiaries of a pass through trust will be the holders of
certificates issued by that trust. The trust instrument for each pass through
trust will consist of a basic pass through trust agreement between us and the
pass through trustee, which we refer to as the "Basic Agreement," and a
supplement to that basic agreement, which we refer to as a "pass through trust
supplement."
When a pass through trust supplement is signed and delivered, the pass
through trustee, on behalf of the related pass through trust, will enter into
one or more purchase or refunding agreements, typically referred to as "note
purchase agreements" or "participation agreements" under which it will agree to
purchase one or more promissory notes secured by aircraft described in the
applicable prospectus supplement. These secured promissory notes are referred to
as "equipment notes."
Under the applicable note purchase agreement or participation
agreement, the pass through trustee, on behalf of the related pass through
trust, will purchase one or more equipment notes. The equipment notes that are
the property of a pass through trust will have:
- identical interest rates, in each case equal to the rate
applicable to the certificates issued by such pass through trust;
and
- identical priority of payment relative to each of the other
equipment notes held for such pass through trust.
If any portion of the proceeds of an offering of a series of
certificates is not used to purchase equipment notes on the date the
certificates are originally issued, those proceeds will be held for the benefit
of the certificateholders. If any of the proceeds are not later used to purchase
equipment notes by the date specified in the applicable prospectus supplement,
the proceeds will be returned to the certificateholders.
2
EQUIPMENT NOTES
The equipment notes owned by a pass through trust may consist of any
combination of:
- Equipment notes issued by an owner trustee and secured by an
aircraft owned by that trustee and leased to us. We refer to these
equipment notes as "leased aircraft notes."
- Equipment notes issued by us and secured by an aircraft owned by
us. We refer to these equipment notes as "owned aircraft notes."
Leased Aircraft Notes. Except as specified in a prospectus supplement,
leased aircraft notes will be issued by a bank, trust company, financial
institution or other entity solely in its capacity as owner trustee in a
leveraged lease transaction. In a leveraged lease transaction, one or more
persons will form an owner trust to acquire an aircraft and then that owner
trust will lease the aircraft to us. The investors that are the beneficiaries of
the owner trusts are typically referred to as owner participants. Each owner
participant will contribute a portion of the purchase price of the aircraft to
the owner trust, and the remainder of the purchase price of the aircraft will be
financed, or "leveraged," through the issuance of leased aircraft notes. Leased
aircraft notes may also be issued to refinance an aircraft previously financed
in a leveraged lease transaction or otherwise.
The leased aircraft notes will be issued pursuant to a separate
indenture between the owner trustee and a bank, trust company, financial
institution or other entity, as loan trustee. The indenture entered into in
connection with the issuance of leased aircraft notes will be referred to as a
"leased aircraft indenture." The loan trustee under a leased aircraft indenture
will act as a trustee for the holders of the leased aircraft notes issued under
that leased aircraft indenture.
In a leveraged lease transaction, we will pay or advance rent and other
amounts to the owner trustee in its capacity as lessor under the lease. The
owner trustee will use the rent payments and certain other amounts received by
it to make payments of principal and interest on the leased aircraft notes. The
owner trustee also will assign its rights to receive basic rent and certain
other payments to a loan trustee as security for the owner trustee's obligations
to pay principal of, premium, if any, and interest on the leased aircraft notes.
Payments or advances required to be made under a lease and related
agreements will at all times be sufficient to make scheduled payments of
principal of, and interest on, the leased aircraft notes issued to finance the
aircraft subject to that lease. However, we will not have any direct obligation
to pay principal of, or interest on, the leased aircraft notes. No owner
participant or owner trustee will be personally liable for any amount payable
under a leased aircraft indenture or the leased aircraft notes issued under that
indenture.
Owned Aircraft Notes. We may finance or refinance aircraft that we own
through the issuance of owned aircraft notes. Owned aircraft notes relating to
an owned aircraft will be issued under a separate indenture relating to that
owned aircraft. Each separate indenture relating to owned aircraft notes will be
between us and a bank, trust company, financial institution or other entity, as
loan trustee. The indenture entered into in connection with the issuance of
owned aircraft notes will be referred to as an "owned aircraft indenture."
Because we often refer to owned aircraft indentures and leased aircraft
indentures together, we sometimes refer to them collectively as the
3
"indentures." The loan trustee under an owned aircraft indenture will act as a
trustee for the holders of the owned aircraft notes issued under that owned
aircraft indenture.
Unlike the leased aircraft notes, we will have a direct obligation to
pay the principal of, and interest on, the owned aircraft notes.
USE OF PROCEEDS
The trustee will use the proceeds of the certificates for the purchase
of one or more equipment notes. Except as set forth in a prospectus supplement
for a specific offering of certificates, the equipment notes will be issued:
- To finance the purchase of aircraft by us, or to refinance any
debt previously issued by us in connection with our purchase of
aircraft;
- To finance or refinance the debt portion and, in certain cases, to
refinance some of the equity portion of one or more separate
leveraged lease transactions entered into by us, as lessee of
aircraft; and
- To provide us with funds for general corporate purposes.
General corporate purposes of Southwest may include, among other
possible uses, the repayment of short-term or long-term indebtedness and capital
expenditures.
To the extent that the proceeds of any offering of certificates are not
used to purchase equipment notes on the date of issuance of those certificates,
the relevant proceeds will be held for the benefit of those certificateholders.
If those proceeds are not used to purchase equipment notes by the date specified
in the applicable prospectus supplement, they will be returned to the applicable
certificateholders. See "Description of Certificates -- Delayed Purchase of
Equipment Notes" for a description of the procedure for delayed purchase of
equipment notes.
The prospectus supplement with respect to any offering of certificates
will provide additional details with respect to the use of proceeds of those
certificates, and with respect to the use of proceeds of any equipment notes to
be purchased by a pass through trust.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical ratios of earnings to
fixed charges for the periods indicated:
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------------------------------------ ------------------------------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
3.50 4.58 5.01 5.97 4.94 5.78 2.69
4
Earnings represent:
- Income before income taxes, excluding the cumulative effect of
accounting changes; plus
- Fixed charges, excluding capitalized interest.
Fixed charges include:
- Interest, whether expensed or capitalized; and
- A portion of rental expense. Our management believes this is
representative of the interest factor in those periods.
DESCRIPTION OF THE CERTIFICATES
The following summary describes the material terms of the certificates
that we expect will be common to all series of certificates. We will describe
the financial terms and other specific terms of any series of certificates in a
prospectus supplement. To the extent that any provision in any prospectus
supplement is inconsistent with any provision in this prospectus, the provision
of the prospectus supplement will control.
Because the following description is a summary, it does not describe
every aspect of the certificates, and it is subject to and qualified in its
entirety by reference to all the provisions of the pass through trust agreement
and the applicable supplements to the pass through trust agreement. For
convenience, we will refer to the pass through trust agreement between the pass
through trustee and us as the "Basic Agreement," and to the Basic Agreement as
supplemented by a supplement as a "pass through trust agreement." The form of
Basic Agreement has been filed as an exhibit to the registration statement of
which this prospectus is a part. The supplement to the Basic Agreement relating
to each series of certificates and the forms of the other agreements described
in this prospectus and the applicable prospectus supplement will be filed as
exhibits to a post-effective amendment to the registration statement of which
this prospectus is a part, a Current Report on Form 8-K, a Quarterly Report on
Form 10-Q or an Annual Report on Form 10-K, as applicable, filed by us with the
SEC.
GENERAL
Except as amended by a supplement to the Basic Agreement, the terms of
the Basic Agreement generally will apply to all of the pass through trusts that
we form to issue certificates. We will create a separate pass through trust for
each series of certificates by entering into a separate supplement to the Basic
Agreement. Each supplement to the Basic Agreement will contain the additional
terms governing the specific pass through trust to which it relates and, to the
extent inconsistent with the Basic Agreement, will supersede the Basic
Agreement.
Certificates for a pass through trust will be issued pursuant to the
pass through trust agreement applicable to such pass through trust. Unless
otherwise stated in the applicable prospectus supplement, each pass through
certificate will be issued in a minimum denomination of
5
$1,000 or a multiple of $1,000, except that one certificate of each series may
be issued in a different denomination.
Each certificate will represent a fractional undivided interest in the
property of the pass through trust that issued the certificate. All payments and
distributions made with respect to a certificate will be made only from the
property owned by the pass through trust that issued the certificate. The
certificates do not represent an interest in or obligation of Southwest, the
pass through trustee, any of the owner trustees or loan trustees, in their
individual capacities, or any owner participant. Each certificateholder by its
acceptance of a certificate agrees to look solely to the income and proceeds
from the property of the applicable pass through trust as provided in the pass
through trust agreement.
The property of each pass through trust for which a series of
certificates will be issued will include:
- the equipment notes held for the pass through trust;
- all monies at any time paid under the equipment notes held for the
pass through trust;
- the rights of such pass through trust to acquire equipment notes;
- funds from time to time deposited with the pass through trustee in
accounts relating to that pass through trust; and
- if so specified in the relevant prospectus supplement, rights
under intercreditor agreements relating to cross-subordination
arrangements and monies receivable under a liquidity facility.
The rights of a pass through trustee to receive monies payable under
equipment notes held for that pass through trustee may be subject to the effect
of subordination provisions contained in an intercreditor agreement described in
the prospectus supplement for a series of certificates. An intercreditor
agreement refers to an agreement among the pass through trustees and, if
applicable, a liquidity provider under a liquidity facility, as creditors of the
issuers of the equipment notes owned by the pass through trustees. An
intercreditor agreement will set forth the terms and conditions upon which
payments made under the equipment notes and payments made under any liquidity
facility will be received, shared and distributed among the several pass through
trustees and the liquidity provider. In addition, the intercreditor agreement
will set forth agreements among the pass through trustees and the liquidity
provider relating to the exercise of remedies under the equipment notes and the
indentures.
Cross-subordination refers to an agreement under which payments on a
junior class of equipment notes issued under an indenture are distributed to a
pass through trustee that holds a senior class of equipment notes issued under a
different indenture on which all required payments were not made. The effect of
this distribution mechanism is that holders of certificates of a pass through
trust that owns a junior class of equipment notes will not receive payments made
on that junior class of equipment notes until certain distributions are made on
the certificates of the pass through trust that owns a senior class of equipment
notes.
6
Equipment notes owned by a pass through trust may be leased aircraft
notes, owned aircraft notes or a combination of leased aircraft notes and owned
aircraft notes.
Leased aircraft notes will be issued in connection with the leveraged
lease of an aircraft to us. Except as set forth in the applicable prospectus
supplement, each leased aircraft will be leased to us under a lease between us,
as lessee, and an owner trustee, as lessor. Each owner trustee will issue leased
aircraft notes on a non-recourse basis under a separate leased aircraft
indenture between it and the applicable loan trustee. The owner trustee will use
the proceeds of the sale of the leased aircraft notes to finance or refinance a
portion of the purchase price paid or to be paid by the owner trustee for the
applicable leased aircraft. The owner trustee will obtain the remainder of the
funding for the leased aircraft from an equity contribution from the owner
participant that is the beneficiary of the owner trust and, to the extent set
forth in the applicable prospectus supplement, additional debt secured by the
applicable leased aircraft or other sources. A leased aircraft also may be
subject to other financing arrangements.
Generally, neither the owner trustee nor the owner participant will be
personally liable for any principal or interest payable under any leased
aircraft indenture or any leased aircraft notes. In some cases, an owner
participant may be required to make payments to an owner trustee that are to be
used by the owner trustee to pay principal of, and interest on, the equipment
notes. If an owner participant is required to make payments to be used by an
owner trustee to pay principal of, and interest on, the equipment notes and the
owner participant fails to make the payment, we will be required to provide the
owner trustee with funds sufficient to make the payment. We will be obligated to
make payments or advances under a lease and the related documents sufficient to
pay when due all scheduled principal and interest payments on the leased
aircraft notes issued to finance the aircraft subject to that lease.
We will issue owned aircraft notes under separate owned aircraft
indentures. Owned aircraft notes will be issued in connection with the financing
or refinancing of an aircraft that we own. Owned aircraft notes will be
obligations that have recourse to us and the related aircraft. Any owned
aircraft may secure additional debt or be subject to other financing
arrangements.
An indenture may provide for the issuance of multiple classes of
equipment notes. If an indenture provides for multiple classes of equipment
notes, it may also provide for differing priority of payments among the
different classes. Equipment notes issued under an indenture may be held in more
than one pass through trust, and one pass through trust may hold equipment notes
issued under more than one indenture. Unless otherwise provided in a prospectus
supplement, only equipment notes having the same priority of payment may be held
for the same pass through trust.
Except as set forth in the prospectus supplement for any series of
certificates, interest payments on the equipment notes held for a pass through
trust will be passed through to the registered holders of certificates of that
pass through trust at the annual rate shown on the cover page of the prospectus
supplement for the certificates issued by that pass through trust. The
certificateholders' right to receive payments made in respect of the equipment
notes is subject to the effect of any cross-subordination provisions described
in the prospectus supplement for a series of certificates.
7
We refer you to the prospectus supplement that accompanies this
prospectus for a description of the specific series of certificates being
offered by this prospectus and the applicable prospectus supplement, including:
- the specific designation, title and amount of the certificates;
- amounts payable on and distribution dates for the certificates;
- the specific form of the certificates, including whether or not
the certificates are to be issued in accordance with a book-entry
system;
- a description of the equipment notes to be purchased by the pass
through trust issuing that series of certificates, including:
- the period or periods within which, the price or prices at
which, and the terms and conditions upon which the equipment
notes may or must be redeemed or defeased in whole or in part,
by us or an owner trustee;
- the payment priority of the equipment notes in relation to any
other equipment notes issued with respect to the related
aircraft; and
- any intercreditor or other rights or limitations between or
among the holders of equipment notes of different priorities
issued with respect to the same aircraft;
- a description of the aircraft to be financed with the proceeds of
the issuance of the equipment notes;
- a description of the note purchase agreement or participation
agreement setting forth the terms and conditions upon which that
pass through trust will purchase equipment notes;
- a description of the indentures under which the equipment notes to
be purchased for that pass through trust will be issued;
- a description of the events of default, the remedies exercisable
upon the occurrence of events of default and any limitations on
the exercise of those remedies under the indentures pursuant to
which the equipment notes to be purchased for that pass through
trust will be issued;
- if the certificates relate to leased aircraft, a description of
the leases to be entered into by the owner trustees and us;
- if the certificates relate to leased aircraft, a description of
the provisions of the leased aircraft indentures governing:
- the rights of the related owner trustee and/or owner
participant to cure our failure to pay rent under the leases;
and
8
- any limitations on the exercise of remedies with respect to
the leased aircraft notes;
- if the certificates relate to leased aircraft, a description of
the participation agreements that will set forth the terms and
conditions upon which the owner participant, the owner trustee,
the pass through trustees, the loan trustee and we agree to enter
into a leveraged lease transaction;
- if the certificates relate to an owned aircraft, a description of
the participation agreements that will set forth the terms and
conditions upon which the applicable pass through trustees, the
loan trustee and we agree to enter into a financing transaction
for the owned aircraft;
- a description of the limitations, if any, on amendments to leases,
indentures, pass through trust agreements, participation
agreements and other material agreements entered into in
connection with the issuance of equipment notes;
- a description of any cross-default provisions in the indentures;
- a description of any cross-collateralization provisions in the
indentures;
- a description of any agreement among the holders of equipment
notes and any liquidity provider governing the receipt and
distribution of monies with respect to the equipment notes and the
enforcement of remedies under the indentures, including a
description of any applicable intercreditor and
cross-subordination arrangements;
- a description of any liquidity facility or other credit
enhancement relating to the certificates;
- if the certificates relate to aircraft that have not yet been
delivered or financed, a description of any deposit or escrow
agreement or other arrangement providing for the deposit and
investment of funds pending the purchase of equipment notes and
the financing of an owned aircraft or leased aircraft; and
- any other special terms pertaining to the certificates.
The concept of cross-default mentioned above refers to a situation
where a default under one indenture or lease results in a default under other
indentures or leases. We currently do not expect any indentures or leases to
contain cross-default provisions. The concept of cross-collateralization
mentioned above refers to the situation where collateral that secures
obligations incurred under one indenture also serves as collateral for
obligations under one or more other indentures. We currently do not expect any
indentures to be cross-collateralized.
BOOK-ENTRY REGISTRATION
General. If specified in the applicable prospectus supplement, the
certificates will be subject to the procedures and provisions described below.
9
Upon issuance, each series of certificates will be represented by one
or more fully registered global certificates. Each global certificate will be
deposited with, or on behalf of, The Depository Trust Company, referred to as
DTC, and registered in the name of Cede & Co., the nominee of DTC. No purchaser
of a certificate will be entitled to receive a physical certificate representing
an interest in the global certificates, except as set forth below under "--
Physical Certificates." For convenience, we refer to such purchasers as
"certificate owners." Unless and until physical certificates are issued under
the limited circumstances described below, all references in this prospectus and
any prospectus supplement to actions by certificateholders will refer to actions
taken by DTC upon instructions from DTC participants, and all references to
distributions, notices, reports and statements to certificateholders will refer,
as the case may be, to distributions, notices, reports and statements to DTC or
Cede, as the registered holder of the certificates, or to DTC participants for
distribution to certificateholders in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934.
Under the New York Uniform Commercial Code, a "clearing corporation" is
defined as:
- a person that is registered as a "clearing agency" under the
federal securities laws;
- a federal reserve bank; or
- any other person that provides clearance or settlement services
with respect to financial assets that would require it to register
as a clearing agency under the federal securities laws but for an
exclusion or exemption from the registration requirement, if its
activities as a clearing corporation, including promulgation of
rules, are subject to regulation by a federal or state
governmental authority.
A "clearing agency" is an organization established for the execution of
trades by transferring funds, assigning deliveries and guaranteeing the
performance of the obligations of parties to trades.
DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions between DTC
participants through electronic book-entry changes in the accounts of DTC
participants. The ability to execute transactions through book-entry changes in
accounts eliminates the need for transfer of physical certificates. DTC is owned
by a number of DTC participants and by the New York Stock Exchange, the American
Stock Exchange, and the National Association of Securities Dealers. DTC
participants include securities brokers and dealers, banks, trust companies and
clearing corporations and certain other organizations. Banks, brokers, dealers,
trust companies and other entities that clear through or maintain a custodial
relationship with a DTC participant, either directly or indirectly, are indirect
participants in the DTC system.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of the
certificates among DTC participants on whose
10
behalf it acts with respect to the certificates and to receive and transmit
distributions of principal, premium, if any, and interest with respect to the
certificates. DTC participants and indirect DTC participants with which
certificate owners have accounts similarly are required to make book-entry
transfers and receive and transmit the payments on behalf of their respective
customers. Certificate owners that are not DTC participants or indirect DTC
participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, the certificates may do so only through DTC participants and
indirect DTC participants. In addition, certificate owners will receive all
distributions of principal, premium, if any, and interest from the pass through
trustee through DTC participants or indirect DTC participants, as the case may
be.
Under a book-entry format, certificate owners may experience some delay
in their receipt of payments, because payments with respect to the certificates
will be forwarded by the pass through trustee to Cede, as nominee for DTC. DTC
will forward payments in same-day funds to each DTC participant who is credited
with ownership of the certificates in an amount proportionate to the principal
amount of that DTC participant's holdings of beneficial interests in the
certificates, as shown on the records of DTC or its nominee. Each such DTC
participant will forward payments to its indirect DTC participants in accordance
with standing instructions and customary industry practices. DTC participants
and indirect DTC participants will be responsible for forwarding distributions
to certificate owners for whom they act. Accordingly, although certificate
owners will not possess physical certificates, DTC's rules provide a mechanism
by which certificate owners will receive payments on the certificates and will
be able to transfer their interests.
Unless and until physical certificates are issued under the limited
circumstances described below, the only physical certificateholder will be Cede,
as nominee of DTC. Certificate owners will not be recognized by the pass through
trustee as registered owners of certificates under the pass through trust
agreement. Certificate owners will be permitted to exercise their rights under
the pass through trust agreement only indirectly through DTC. DTC will take any
action permitted to be taken by a certificateholder under the pass through trust
agreement only at the direction of one or more DTC participants to whose
accounts with DTC the certificates are credited. In the event any action
requires approval by certificateholders of a certain percentage of the
beneficial interests in a pass through trust, DTC will take action only at the
direction of and on behalf of DTC participants whose holdings include undivided
interests that satisfy the required percentage. DTC may take conflicting actions
with respect to other undivided interests to the extent that the actions are
taken on behalf of DTC participants whose holdings include those undivided
interests. DTC will convey notices and other communications to DTC participants,
and DTC participants will convey notices and other communications to indirect
DTC participants in accordance with arrangements among them. Arrangements among
DTC and its direct and indirect participants are subject to any statutory or
regulatory requirements as may be in effect from time to time. DTC's rules
applicable to itself and DTC participants are on file with the SEC.
A certificate owner's ability to pledge the certificates to persons or
entities that do not participate in the DTC system, or otherwise to act with
respect to the certificates, may be limited due to the lack of a physical
certificate to evidence ownership of the certificates, and because DTC can only
act on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants.
Neither we nor the pass through trustee will have any liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the certificates held by
11
Cede, as nominee for DTC, for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests or for the performance by DTC,
any DTC participant or any indirect DTC participant of their respective
obligations under the rules and procedures governing their obligations.
The applicable prospectus supplement will specify any additional
book-entry registration procedures applicable to certificates denominated in a
currency other than U.S. dollars.
Same-Day Settlement and Payment. As long as the certificates are
registered in the name of DTC or its nominee, we will make all payments to the
loan trustee under any lease or any owned aircraft indenture in immediately
available funds. The pass through trustee will pass through to DTC in
immediately available funds all payments received from us, including the final
distribution of principal with respect to the certificates of any pass through
trust.
Any certificates registered in the name of DTC or its nominee will
trade in DTC's Same-Day Funds Settlement System until maturity. DTC will require
secondary market trading activity in the certificates to settle in immediately
available funds. We cannot give any assurance as to the effect, if any, of
settlement in same-day funds on trading activity in the certificates.
Physical Certificates. Physical certificates will be issued in paper
form to certificateholders or their nominees, rather than to DTC or its nominee,
only if:
- we advise the pass through trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities
as depository with respect to the certificates and we are unable
to locate a qualified successor;
- we elect to terminate the book-entry system through DTC; or
- after the occurrence of certain events of default or other events
specified in the related prospectus supplement, certificateholders
owning at least a majority in interest in a pass through trust
advise the applicable pass through trustee, us and DTC through DTC
participants that the continuation of a book-entry system through
DTC or a successor to DTC is no longer in the certificate owners'
best interest.
Upon the occurrence of any of the events described in the three
subparagraphs above, the applicable pass through trustee will notify all
certificate owners through DTC participants of the availability of physical
certificates. Upon surrender by DTC of the global certificates and receipt of
instructions for re-registration, the pass through trustee will reissue the
certificates as physical certificates to certificate owners.
After physical certificates are issued, the pass through trustee or a
paying agent will make distributions of principal, premium, if any, and interest
with respect to certificates directly to holders in whose names the physical
certificates were registered at the close of business on the applicable record
date. Except for the final payment to be made with respect to a certificate, the
pass through trustee or a paying agent will make distributions by check mailed
to the addresses of the registered holders as they appear on the register
maintained by the pass through trustee. The pass through trustee or a paying
agent will make the final payment with respect to any pass through
12
certificate only upon presentation and surrender of the applicable pass through
certificate at the office or agency specified in the notice of final
distribution to certificateholders.
Physical certificates will be freely transferable and exchangeable at
the office of the pass through trustee upon compliance with the requirements set
forth in the pass through trust agreement. Neither the pass through trustee nor
any transfer or exchange agent will impose a service charge for any registration
of transfer or exchange. However, the pass through trustee or transfer or
exchange agent will require payment of a sum sufficient to cover any tax or
other governmental charge attributable to a transfer or exchange.
PAYMENTS AND DISTRIBUTIONS
Subject to the effect of any cross-subordination provisions set forth
in the prospectus supplement for a series of certificates:
- Payments of principal, premium, if any, and interest with respect
to the equipment notes held for each pass through trust will be
distributed by the pass through trustee, upon receipt, to
certificateholders of that trust on the dates and in the currency
specified in the applicable prospectus supplement, except in
certain cases when some or all of the equipment notes are in
default as described in the applicable prospectus supplement.
Payments of principal of, and interest on, the unpaid principal
amount of the equipment notes held in each pass through trust will
be scheduled to be received by the pass through trustee on the
dates specified in the applicable prospectus supplement.
- Each certificateholder of a pass through trust will be entitled to
receive a pro rata share of any distribution in respect of
scheduled payments of principal and interest made on the equipment
notes held for such pass through trust.
If we elect or are required to redeem equipment notes relating to one
or more aircraft prior to their scheduled maturity date, payments of principal,
premium (if any) and interest received by the pass through trustee as a result
of the early redemption will be distributed on a special distribution date
determined as described in the applicable prospectus supplement. Payments
received by the pass through trustee following a default under the equipment
notes held for a pass through trust will also be distributed on a special
distribution date determined in the same way. However, if following such a
default the pass through trustee receives any scheduled payments on equipment
notes on a regular distribution date or within five days thereafter, the pass
through trustee will distribute those payments on the date they are received. In
addition, if following a default under equipment notes the pass through trustee
receives payments on the equipment notes on a regular distribution date by
making a drawing under any liquidity facility, as described in the applicable
prospectus supplement, those payments will be distributed to certificateholders
on the regular distribution date. The pass through trustee will mail notice to
the certificateholders of record of the applicable pass through trust stating
the anticipated special distribution date.
13
POOL FACTORS
Unless otherwise described in the applicable prospectus supplement, the
"pool balance" for each pass through trust or for the certificates issued by any
pass through trust indicates, as of any date, the portion of the original
aggregate face amount of the certificates issued by that pass through trust that
has not been distributed to certificateholders (excluding any payments of
interest or premium). The pool balance for each pass through trust as of any
distribution date will be computed after giving effect to any distribution to
certificateholders to be made on that date.
Unless otherwise described in the applicable prospectus supplement, the
"pool factor" for a pass through trust as of any distribution date for that
trust is the quotient (rounded to the seventh decimal place) computed by
dividing (a) the pool balance by (b) the original aggregate face amount of the
certificates issued by that pass through trust. The pool factor for a pass
through trust as of any distribution date will be computed after giving effect
to the payment of principal, if any, on the equipment notes held for that pass
through trust and distribution to certificateholders of the payment of principal
to be made on that date. Each pass through trust will have a separate pool
factor.
The pool factor for a pass through trust initially will be 1.0000000.
The pool factor for a pass through trust will decline as described in this
prospectus and the related prospectus supplement to reflect reductions in the
pool balance of that pass through trust. As of any distribution date for a pass
through trust, a certificate will represent a share of the pool balance of that
pass through trust equal to the product obtained by multiplying the original
face amount of the certificate by the pool factor for the pass through trust
that issued such certificate. The pool factor and pool balance of each past
through trust will be mailed to the certificateholders of the pass through trust
on each distribution date.
The pool factor for each pass through trust will decline in proportion
to the scheduled repayments of principal on the equipment notes held by that
pass through trust, unless there is an early redemption or purchase of equipment
notes held by a pass through trust or if a default occurs in the repayment of
equipment notes held by a pass through trust. In the event of a redemption,
purchase or default, the pool factor and the pool balance of each pass through
trust affected by the redemption, purchase or default will be recomputed, and a
notice will be mailed to the certificateholders of the pass through trust.
REPORTS TO CERTIFICATEHOLDERS
The pass through trustee will include with each distribution of a
payment to certificateholders a statement setting forth the following
information:
- the amount of the distribution allocable to principal and the
amount allocable to premium, if any;
- the amount of the distribution allocable to interest; and
- the pool balance and the pool factor for the pass through trust
after giving effect to the distribution.
14
As long as the certificates are registered in the name of DTC or its
nominee, on the record date prior to each distribution date, the pass through
trustee will request from DTC a securities position listing setting forth the
names of all DTC participants reflected on DTC's books as holding interests in
the certificates on that record date. On each distribution date, the applicable
pass through trustee will mail to each DTC participant holding certificates the
statement described above and will make available additional copies as requested
by the DTC participants for forwarding to certificate owners.
After the end of each calendar year, each pass through trustee will
prepare a report for each person that was a holder of one or more of its pass
through certificates at any time during the preceding calendar year. This report
will contain the sum of the amount of distributions allocable to principal,
premium and interest with respect to that pass through trust for the preceding
calendar year or, if the person was a holder of a pass through certificate
during only a portion of the preceding calendar year, for the applicable portion
of the preceding calendar year. In addition, each pass through trustee will
prepare for each person that was a holder of one or more of its pass through
certificates at any time during the preceding calendar year any other
information that is readily available to the pass through trustee and which a
certificateholder reasonably requests as necessary for the purpose of preparing
its federal income tax returns. The reports and other items described in this
section will be prepared on the basis of information supplied to the pass
through trustee by DTC participants and will be delivered by the pass through
trustee to DTC participants to be available for forwarding by DTC participants
to certificate owners in the manner described above.
If the certificates of a pass through trust are issued in the form of
physical certificates, the pass through trustee of that pass through trust will
prepare and deliver the information described above to each record holder of a
pass through certificate issued by that pass through trust as the name and
period of ownership of the holder appears on the records of the registrar of the
certificates.
VOTING OF EQUIPMENT NOTES
A pass through trustee has the right to vote and give consents and
waivers with respect to the equipment notes held by that pass through trust.
However, the pass through trustee's right to vote and give consents or waivers
may be restricted or may be exercisable by another person in accordance with the
terms of an intercreditor agreement, as described in the applicable prospectus
supplement. The pass through trust agreement will set forth:
- the circumstances in which a pass through trustee may direct any
action or cast any vote with respect to the equipment notes held
for its pass through trust at its own discretion;
- the circumstances in which a pass through trustee will seek
instructions from its certificateholders; and
- if applicable, the percentage of certificateholders required to
direct the pass through trustee to take action.
15
If the holders of certificates are entitled to the benefits of a
liquidity facility, and the liquidity facility is used to make any payments to
certificateholders, the provider of the liquidity facility may be entitled to
exercise rights to vote or give consents and waivers with respect to the
equipment notes held for the pass through trust that issued the certificates, as
described in the applicable prospectus supplement.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
The prospectus supplement will specify the events of default that can
occur under the pass through trust agreement and under the indentures relating
to the equipment notes held for the related pass through trust. In the case of a
leased aircraft indenture, an indenture default will include events of default
under the related lease. In the case of any equipment notes that are supported
by a liquidity facility, a default may include events of default under that
liquidity facility.
Unless otherwise provided in a prospectus supplement, all of the
equipment notes issued under the same indenture will relate to a specific
aircraft and there will be no cross-collateralization or cross-default
provisions in the indentures. As a result, events resulting in a default under
any particular indenture will not necessarily result in an a default under any
other indenture. If a default occurs in fewer than all of the indentures,
payments of principal and interest on the equipment notes issued under the
indentures with respect to which a default has not occurred will continue to be
made as originally scheduled.
As described below under "-- Cross-Subordination Issues," a prospectus
supplement may describe the terms of any cross-subordination provisions among
certificateholders of separate pass through trusts. If cross-subordination is
provided, payments made pursuant to an indenture under which a default has not
occurred may be distributed first to the holders of the certificates issued
under the pass through trust which holds the most senior equipment notes issued
under all of the indentures.
The ability of the applicable owner trustee or owner participant under
a leased aircraft indenture to cure a default under the indenture, including a
default that results from the occurrence of a default under the related lease,
will be described in the prospectus supplement. Unless otherwise provided in a
prospectus supplement, with respect to any pass through certificates or
equipment notes entitled to the benefits of a liquidity facility, a drawing
under the liquidity facility for the purpose of making a payment of interest as
a result of our failure to have made a corresponding payment will not cure a
default related to our failure.
The prospectus supplement related to a series of pass through
certificates will describe the circumstances under which the pass through
trustee of the related pass through trust may vote some or all of the equipment
notes held in the pass through trust. The prospectus supplement also will set
forth the percentage of certificateholders of the pass through trust entitled to
direct the pass through trustee to take any action with respect to the equipment
notes. If the equipment notes outstanding under an indenture are held by more
than one pass through trust, then the ability of the certificateholders issued
with respect to any one pass through trust to cause the loan trustee with
respect to any equipment notes held in the pass through trust to accelerate the
equipment notes under the applicable indenture or to direct the exercise of
remedies by the loan trustee under the applicable indenture will depend, in
part, upon the proportion of the aggregate principal amount of
16
the equipment notes outstanding under that indenture and held in that pass
through trust to the aggregate principal amount of all equipment notes
outstanding under that indenture.
In addition, if cross-subordination provisions are applicable to any
series of certificates, then the ability of the certificateholders of any one
pass through trust holding equipment notes issued under an indenture to cause
the loan trustee with respect to any equipment notes held in that pass through
trust to accelerate the equipment notes under that indenture or to direct the
exercise of remedies by the loan trustee under that indenture will depend, in
part, upon the class of equipment notes held in the pass through trust. If the
equipment notes outstanding under an indenture are held by more than one pass
through trust, then each pass through trust will hold equipment notes with
different terms from the equipment notes held in the other pass through trusts
and therefore the certificateholders of each pass through trust may have
divergent or conflicting interests from those of the certificateholders of the
other pass through trusts holding equipment notes issued under the same
indenture. In addition, so long as the same institution acts as pass through
trustee of each pass through trust, in the absence of instructions from the
certificateholders of any pass through trust, the pass through trustee for the
pass through trust could for the same reason be faced with a potential conflict
of interest upon a default under an indenture. In that event, the pass through
trustee has indicated that it would resign as pass through trustee of one or all
the pass through trusts, and a successor trustee would be appointed in
accordance with the terms of the Basic Agreement.
The prospectus supplement for a series of certificates will specify
whether and under what circumstances the pass through trustee may sell for cash
to any person all or part of the equipment notes held in the related pass
through trust. Any proceeds received by the pass through trustee upon a sale
will be deposited in an account established by the pass through trustee for the
benefit of the certificateholders of the pass through trust for the deposit of
the special payments and will be distributed to the certificateholders of the
pass through trust on a special distribution date.
The market for equipment notes in default may be very limited, and we
cannot assure you that they could be sold for a reasonable price. Furthermore,
so long as the same institution acts as pass through trustee of multiple pass
through trusts, it may be faced with a conflict in deciding from which pass
through trust to sell equipment notes to available buyers. If the pass through
trustee sells any equipment notes with respect to which a default under an
indenture exists for less than their outstanding principal amount, the
certificateholders of that pass through trust will receive a smaller amount of
principal distributions than anticipated and will not have any claim for the
shortfall against us, any owner trustee, owner participant or the pass through
trustee. Furthermore, neither the pass through trustee nor the
certificateholders of that pass through trust could take any action with respect
to any remaining equipment notes held in that pass through trust so long as no
default under an indenture exists.
Any amount, other than scheduled payments received on a regular
distribution date, distributed to the pass through trustee of any pass through
trust by the loan trustee under any indenture on account of the equipment notes
held in that pass through trust following a default under such indenture will be
deposited in the special payments account for that pass through trust and will
be distributed to the certificateholders of that pass through trust on a special
distribution date. In addition, if a prospectus supplement provides that the
applicable owner trustee may, under circumstances specified in the prospectus
supplement, redeem or purchase the outstanding
17
equipment notes issued under the applicable indenture, the price paid by the
owner trustee to the pass through trustee of any pass through trust for the
equipment notes issued under that indenture and held in that pass through trust
will be deposited in the special payments account for the pass through trust and
will be distributed to the certificateholders of the pass through trust on a
special distribution date.
Any funds representing payments received with respect to any equipment
notes in default held in a pass through trust, or the proceeds from the sale by
the pass through trustee of any of those equipment notes, held by the pass
through trustee in the special payments account for that pass through trust
will, to the extent practicable, be invested and reinvested by the pass through
trustee in permitted investments pending the distribution of the funds on a
special distribution date. Permitted investments will be specified in the
related prospectus supplement.
The Basic Agreement provides that the pass through trustee of each pass
through trust will give to the certificateholders of that pass through trust
notice of all uncured or unwaived defaults known to it with respect to that pass
through trust. The Basic Agreement requires the pass through trustee to provide
the notice of default within 90 days after the occurrence of the default.
However, except in the case of default in the payment of principal, premium, if
any, or interest on any of the equipment notes held for a pass through trust,
the pass through trustee will be protected in withholding a notice of default if
it in good faith determines that withholding the notice is in the interest of
the certificateholders of such pass through trust. The term "default" as used in
this paragraph means only the occurrence of a default under an indenture with
respect to equipment notes held in a pass through trust as described above,
except that in determining whether any default under an indenture has occurred,
any related grace period or notice will be disregarded.
The Basic Agreement requires the pass through trustee to act with a
specified standard of care while a default is continuing under an indenture. In
addition, the Basic Agreement contains a provision entitling the pass through
trustee to require reasonable security or indemnification by the
certificateholders of the pass through trust before proceeding to exercise any
right or power under the Basic Agreement at the request of those
certificateholders.
The prospectus supplement for a series of certificates will specify the
percentage of certificateholders entitled to waive, or to instruct the pass
through trustee to waive, any past default with respect to the related pass
through trust and its consequences. The prospectus supplement for a series of
certificates also will specify the percentage of certificateholders entitled to
waive, or to instruct the pass through trustee or the loan trustee to waive, any
past default under an indenture.
MERGER, CONSOLIDATION AND TRANSFER OF ASSETS
We will be prohibited from consolidating with or merging into any other
entity or transferring substantially all of our assets as an entirety to any
other entity unless the surviving, successor or transferee entity:
- is validly existing under the laws of the United States or any of
its states;
- is a citizen of the United States, as defined in Title 49 of the
U.S. Code relating to aviation, referred to as the "Transportation
Code," holding an air carrier operating
18
certificate issued pursuant to Chapter 447 of Title 49, U.S. Code,
if, and so long as, that status is a condition of entitlement to
the benefits of Section 1110 of the U.S. Bankruptcy Code relating
to the rights of creditors of an airline in the event of the
airline's bankruptcy; and
- expressly assumes all of our obligations contained in the Basic
Agreement and any pass through trust supplement, the note purchase
agreements, any indentures, any participation agreements and, with
respect to aircraft leased by us, the applicable leases.
In addition, we will be required to deliver a certificate and an
opinion or opinions of counsel indicating that the transaction, in effect,
complies with these conditions.
MODIFICATIONS OF THE BASIC AGREEMENT
The Basic Agreement contains provisions permitting us and the pass
through trustee of each pass through trust to enter into a supplemental trust
agreement, without the consent of the holders of any of the certificates issued
by such pass through trust, in order to do the following, among other things:
- to provide for the formation of such pass through trust and the
issuance of a series of certificates and to set forth the terms of
the certificates;
- to evidence the succession of another corporation to us and the
assumption by that corporation of our obligations under the Basic
Agreement and the pass through trust agreements;
- to add to our covenants for the benefit of holders of such
certificates, or to surrender any right or power in the Basic
Agreement conferred upon us;
- to cure any ambiguity or correct or supplement any defective or
inconsistent provision of the Basic Agreement or any pass through
trust agreement, so long as those changes will not materially
adversely affect the interests of the holders of such
certificates, or to cure any ambiguity or correct any mistake or,
to give effect to or provide for replacement liquidity facilities,
if applicable, to such certificates;
- to comply with any requirement of the SEC, any applicable law,
rules or regulations of any exchange or quotation system on which
any certificates may be listed or of any regulatory body;
- to modify, eliminate or add to the provisions of the Basic
Agreement to the extent necessary to continue the qualification of
the pass through trust agreement under the Trust Indenture Act of
1939, and to add to the Basic Agreement other provisions as may be
expressly permitted by the Trust Indenture Act;
- to provide for a successor pass through trustee or to add to or
change any provision of the Basic Agreement as necessary to
facilitate the administration of the pass through
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trusts created under the pass through trust agreement by more than
one pass through trustee; and
- to make any other amendments or modifications to the Basic
Agreement so long as those amendments or modifications apply only
to certificates of a series issued after the date of the amendment
or modification.
No pass through trust supplement may be made that will adversely affect
the status of any pass through trust as a grantor trust for U.S. federal income
tax purposes.
The Basic Agreement also contains provisions permitting us and the pass
through trustee of each pass through trust, with the consent of a majority in
interest of the certificateholders of the pass through trust, to execute
supplemental trust agreements adding any provisions to or changing or
eliminating any of the provisions of the Basic Agreement, to the extent relating
to that pass through trust, and the applicable pass through trust supplement, or
modifying the rights of the certificateholders, except that no supplement may,
without the consent of each affected certificateholder:
- reduce in any manner the amount of, or delay the timing of, any
receipt by the pass through trustee of payments on the equipment
notes held in the pass through trust or distributions in respect
of any pass through certificate issued by the pass through trust;
- change the date or place of any payment in respect of any pass
through certificate, or make distributions payable in currency
other than that provided for in the certificates, or impair the
right of any certificateholder to institute suit for the
enforcement of any payment when due;
- permit the disposition of any equipment note held in the pass
through trust, except as provided in the pass through trust
agreement, or otherwise deprive any certificateholder of the
benefit of the ownership of the applicable equipment note;
- reduce the percentage of the aggregate fractional undivided
interests of the pass through trust that is required in order for
any supplement or waiver to be approved;
- modify any of the provisions relating to the rights of the
certificateholders in respect of the waiver of events of default
or receipt of payment;
- alter the priority of distributions described in any applicable
intercreditor agreement, in a manner materially adverse to the
interests of the certificateholders of such pass through trust; or
- adversely affect the status of any pass through trust as a grantor
trust for U.S. federal income tax purposes.
MODIFICATION OF INDENTURE AND RELATED AGREEMENTS
The prospectus supplement will specify the pass through trustee's
obligations if a pass through trustee, as the holder of any equipment notes held
for a pass through trust, receives a
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request for its consent to any amendment, modification or waiver under the
indenture under which the equipment notes were issued, under the lease relating
to the aircraft leased by us that was financed with the proceeds of the
equipment notes or under any liquidity facility.
CROSS-SUBORDINATION ISSUES
The equipment notes issued under an indenture may be held in more than
one pass through trust, and one pass through trust may hold equipment notes
issued under more than one indenture. Unless otherwise provided in a prospectus
supplement, only equipment notes having the same priority for distributions
under the applicable indenture may be held in the same pass through trust. In
that event, payments made on account of a subordinate class of certificates
issued under a prospectus supplement may be subordinated, under circumstances
described in the prospectus supplement, to the prior payment of all amounts
owing to certificateholders of a pass through trust which holds senior equipment
notes issued under the applicable indentures. The prospectus supplement related
to an issuance of certificates will describe the "cross-subordination"
provisions and any related terms, including the percentage of certificateholders
under any pass through trust which are permitted to:
- grant waivers of defaults under any applicable indenture;
- consent to the amendment or modification of any applicable
indenture; or
- direct the exercise of remedial actions under any applicable
indenture.
TERMINATION OF THE PASS THROUGH TRUSTS
Our obligations and those of the pass through trustee with respect to a
pass through trust will terminate upon the distribution to certificateholders of
the pass through trust of all amounts required to be distributed to them
pursuant to the applicable pass through trust agreement and the disposition of
all property held in the pass through trust. In no event will any pass through
trust continue beyond 110 years following the date of the execution of the
applicable pass through trust supplement, or any other final expiration date as
may be specified in the pass through trust supplement. The pass through trustee
will send to each certificateholder of record of the pass through trust notice
of the termination of the pass through trust, the amount of the proposed final
payment and the proposed date for the distribution of the final payment for the
pass through trust. The final distribution to any certificateholder of the pass
through trust will be made only upon surrender of that certificateholder's
certificates at the office or agency of the pass through trustee specified in
the notice of termination.
DELAYED PURCHASE OF EQUIPMENT NOTES
On the issuance date of any certificates, if all of the proceeds from
the sale of the certificates are not used to purchase the equipment notes
contemplated to be held in the related pass through trust, the equipment notes
may be purchased by the pass through trustee at any time on or prior to the date
specified in the applicable prospectus supplement. In that event, the proceeds
from the sale of the certificates not used to purchase equipment notes will be
held under an arrangement described in the applicable prospectus supplement
pending the purchase of equipment notes. The
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arrangements with respect to the payment of interest on funds so held will be
described in the applicable prospectus supplement. If any proceeds are not used
to purchase equipment notes by the date specified in the applicable prospectus
supplement, the proceeds will be returned to the certificateholders.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments
of interest on the certificates of one or more series will be supported by a
liquidity facility issued by an institution identified in the related prospectus
supplement. The provider of the liquidity facility may have a claim on money and
property belonging to a pass through trust that is senior to the
certificateholders' as specified in the related prospectus supplement.
THE PASS THROUGH TRUSTEE
Unless otherwise provided in the prospectus supplement for any series
of certificates, the pass through trustee for each series of certificates will
be Wells Fargo Delaware Trust Company. With certain exceptions, the pass through
trustee makes no representations as to the validity or sufficiency of the Basic
Agreement, the pass through trust supplements, the certificates, the equipment
notes, the indentures, the leases or other related documents. The pass through
trustee will not be liable with respect to any series of certificates for any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of a majority in principal amount of outstanding
certificates of that series issued under the Basic Agreement. Subject to those
provisions, the pass through trustee will be under no obligation to exercise any
of its rights or powers under the Basic Agreement at the request of any holders
of certificates issued under that agreement unless they will have offered to the
pass through trustee indemnity satisfactory to it. The Basic Agreement provides
that the pass through trustee in its individual or any other capacity may
acquire and hold certificates and, subject to certain conditions, may otherwise
deal with us and, with respect to the leased aircraft, with any owner trustee
with the same rights it would have if it were not the pass through trustee.
The pass through trustee may resign with respect to any or all of the
pass through trusts at any time, in which event we will be obligated to appoint
a successor trustee. If the pass through trustee ceases to be eligible to
continue as pass through trustee with respect to a pass through trust or becomes
incapable of acting as pass through trustee or becomes insolvent, we may remove
the pass through trustee, or any certificateholder of the pass through trust for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the pass through
trustee and the appointment of a successor trustee. Any resignation or removal
of the pass through trustee with respect to a pass through trust and appointment
of a successor trustee for the pass through trust does not become effective
until acceptance of the appointment by the successor trustee. Pursuant to the
resignation and successor trustee provisions, it is possible that a different
trustee could be appointed to act as the successor trustee with respect to each
pass through trust. All references in this prospectus to the pass through
trustee should be read to take into account the possibility that the pass
through trusts could have different successor trustees in the event of a
resignation or removal.
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The Basic Agreement provides that we will pay the pass through
trustee's fees and expenses and indemnify the pass through trustee against
certain liabilities.
DESCRIPTION OF THE EQUIPMENT NOTES
The statements made under this caption are summaries, and we refer you
to the entire prospectus and detailed information appearing in the applicable
prospectus supplement. Where no distinction is made between the leased aircraft
notes and the owned aircraft notes or between their respective indentures, those
statements refer to any equipment notes and any indenture.
To the extent that any provision in any prospectus supplement is
inconsistent with any provision in this summary, the provision of the prospectus
supplement will control.
GENERAL
The equipment notes will be issued under indentures. Equipment notes
secured by an aircraft that is leased to us will be issued under an indenture
between an owner trustee and a loan trustee. Equipment notes secured by an
aircraft that is owned by us will be issued under an indenture between a loan
trustee and us.
The leased aircraft notes will be non-recourse obligations of the
applicable owner trustee. All of the leased aircraft notes issued under the same
indenture will relate to and will be secured by one or more specific aircraft
leased to us. Unless otherwise specified in the applicable prospectus
supplement, leased aircraft notes will not be secured by any other aircraft. We
will be the issuer of owned aircraft notes. The owned aircraft notes will be our
direct recourse obligations. All of the owned aircraft notes issued under the
same indenture will relate to, and will be secured by, one or more specific
aircraft that we own. Unless otherwise specified in the applicable prospectus
supplement, the owned aircraft notes will not be secured by any other aircraft.
PRINCIPAL AND INTEREST PAYMENTS
Interest received by the pass through trustee on the equipment notes
held in a pass through trust will be passed through to the certificateholders of
that pass through trust on the dates and at the annual rate set forth in the
applicable prospectus supplement until the final distribution for that pass
through trust. Principal payments received by the pass through trustee on the
equipment notes held in a pass through trust will be passed through to the
certificateholders of that pass through trust in scheduled amounts on the dates
set forth in the applicable prospectus supplement until the final distribution
date for that pass through trust.
If any date scheduled for any payment of principal, premium, if any, or
interest with respect to the equipment notes is not a business day, the payment
will be made on the next succeeding business day without any additional
interest.
REDEMPTION
The applicable prospectus supplement will describe the circumstances,
whether voluntary or involuntary, under which the equipment notes may be
redeemed or purchased prior to their stated maturity date, in whole or in part.
The prospectus supplement will also describe the
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premium, if any, applicable upon redemptions or purchases and other terms
applying to the redemptions or purchases of the equipment notes.
SECURITY
The leased aircraft notes will be secured by:
- an assignment by the related owner trustee to the related loan
trustee of the owner trustee's rights, except for certain rights
described below, under the lease or leases with respect to the
related aircraft, including the right to receive payments of rent
under those leases; and
- a mortgage granted to the loan trustee on the aircraft, subject to
our rights under the lease or leases.
Under the terms of each lease, our obligations in respect of each
leased aircraft will be those of a lessee under a "net lease." Accordingly, we
will be obligated, among other things and at our expense, to cause each leased
aircraft to be duly registered, to pay all costs of operating the aircraft and
to maintain, service, repair and overhaul the aircraft or cause it to be
maintained, serviced, repaired and overhauled. With respect to the leased
aircraft, the assignment by the related owner trustee to the related loan
trustee of its rights under the related lease will exclude, among other things:
- rights of the owner trustee and the related owner participant
relating to indemnification by us for certain matters;
- insurance proceeds payable to the owner trustee in its individual
capacity and to the owner participant under liability insurance
maintained by us pursuant to the lease or by the owner trustee or
the owner participant;
- insurance proceeds payable to the owner trustee in its individual
capacity or to the owner participant under certain casualty
insurance maintained by the owner trustee or the owner participant
pursuant to the lease; and
- any rights of the owner participant or the owner trustee to
enforce payment of the foregoing amounts and their respective
rights to the proceeds of the foregoing.
The owned aircraft notes will be secured by a mortgage granted to the
related loan trustee of all of our right, title and interest in and to the owned
aircraft. Under the terms of each owned aircraft indenture, we will be
obligated, among other things and at our expense, to cause each owned aircraft
to be duly registered, to pay all costs of operating the aircraft and to
maintain, service, repair and overhaul the aircraft or cause it to be
maintained, serviced, repaired and overhauled.
We will be required, except under certain circumstances, to keep each
aircraft registered under the Transportation Code, and to record the indenture
and the lease, if applicable, among other documents, with respect to each
aircraft under the Transportation Code. Recordation of the indenture, the lease,
if applicable, and other documents with respect to each aircraft will give the
24
related loan trustee a perfected security interest in the related aircraft
whenever it is located in the United States or any of its territories and
possessions. The Convention on the International Recognition of Rights in
Aircraft, referred to as the "Convention," provides that this security interest
will also be recognized, with certain limited exceptions, in those jurisdictions
that have ratified or adhere to the Convention.
We will have the right, subject to certain conditions, at our own
expense to register each aircraft in countries other than the United States.
Each aircraft may also be operated by us or under lease, sublease or interchange
arrangements in countries that are not parties to the Convention. The extent to
which the related loan trustee's security interest would be recognized in an
aircraft located in a country that is not a party to the Convention, and the
extent to which the security interest would be recognized in a jurisdiction
adhering to the Convention if the aircraft is registered in a jurisdiction not a
party to the Convention, is uncertain. Moreover, in the case of a default under
an indenture, the ability of the related loan trustee to realize upon its
security interest in an aircraft could be adversely affected as a legal or
practical matter if the aircraft were registered or located outside the United
States.
Unless otherwise specified in the applicable prospectus supplement, the
equipment notes will not be cross-collateralized. Consequently, the equipment
notes issued in respect of any one aircraft will not be secured by any other
aircraft. Unless and until a default under an indenture with respect to a leased
aircraft has occurred and is continuing, the related loan trustee may exercise
only limited rights of the related owner trustee under the related lease. The
loan trustee will invest and reinvest funds, if any, held by it from time to
time under an indenture. The loan trustee will, at our direction, invest and
reinvest funds in certain investments described in the applicable indenture. We
will not be entitled to direct the loan trustee to invest and reinvest funds
with respect to a leased aircraft in the case of a default under the applicable
lease or, with respect to an owned aircraft, in the case of a default under the
applicable indenture. We will pay the net amount of any loss resulting from
these investments.
In the case of Chapter 11 bankruptcy proceedings involving a holder of
"equipment" (defined as described below), Section 1110 of the U.S. Bankruptcy
Code provides special rights to lessors, conditional vendors and holders of
security interests with respect to such equipment. Under Section 1110, the right
of such financing parties to take possession of such equipment in compliance
with the provisions of a lease, conditional sale contract or security agreement
is not affected by any provision of the U.S. Bankruptcy Code or any power of the
bankruptcy court. Ordinarily, such right would be limited by the "automatic
stay" under the Bankruptcy Code. Such right to take possession may not be
exercised for 60 days following the date of commencement of the reorganization
proceedings. Thereafter, such right to take possession may be exercised during
such proceedings unless, within the 60-day period or any longer period consented
to by the relevant parties, the debtor agrees to perform its obligations that
become due on or after that date and cures all defaults on a timely basis.
Defaults resulting solely from the financial condition, bankruptcy, insolvency
or reorganization of the debtor need not be cured.
"Equipment" is defined in Section 1110 of the U.S. Bankruptcy Code, in
part, as an aircraft, aircraft engine, propeller, appliance, or spare part (as
defined in Section 40102 of Title 49 of the U.S. Code) that is subject to a
security interest granted by, leased to, or conditionally sold to a debtor that,
at the time such transaction is entered into, holds an air carrier operating
certificate
25
issued pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable
of carrying 10 or more individuals or 6,000 pounds of more of cargo (subject to
certain limitations in the case of equipment first placed in service on or prior
to October 22, 1994).
In connection with any issuance of certificates under this prospectus
and the applicable prospectus supplement, it will be a condition to the pass
through trustee's obligation to purchase equipment notes with respect to each
aircraft that our outside counsel provide its opinion (which may assume that we
hold, at the time of the lease or mortgage, as the case may be, an air carrier
operating certificate issued pursuant to chapter 447 of title 49 of the U.S.
Code for aircraft capable of carrying 10 or more individuals or 6,000 pounds or
more of cargo) to the Pass Through Trustee that:
- if the aircraft is a leased aircraft, the owner trustee, as lessor
under the lease for the aircraft, and the loan trustee, as
assignee of the owner trustee's rights under the lease pursuant to
the applicable indenture, will be entitled to the benefits of
Section 1110 of the U.S. Bankruptcy Code with respect to the
airframe and engines comprising the aircraft; or
- if the aircraft is an owned aircraft, the loan trustee will be
entitled to the benefits of Section 1110 with respect to the
airframe and engines comprising the owned aircraft.
The opinion will not address the possible replacement of an aircraft
after an "Event of Loss," as defined in the applicable indenture, in the future.
RANKING OF EQUIPMENT NOTES
Some of the equipment notes related to one or more aircraft, as
described in the related prospectus supplement, may be subordinated and junior
in right of payment to other equipment notes related to the same aircraft. The
terms of the subordination, if any, will be described in the related prospectus
supplement.
PAYMENTS AND LIMITATION OF LIABILITY
We will lease each leased aircraft from an owner trustee for a term
commencing on the delivery date of the aircraft to the owner trustee and
expiring on a date no earlier than the latest maturity date of the related
leased aircraft notes, unless previously terminated as permitted by the terms of
the related lease. We will make basic rent and other payments under each lease
to an owner trustee, as lessor. The owner trustee will assign these payments
under the applicable indenture to the related loan trustee to provide the funds
necessary to pay principal of, premium, if any, and interest due from the owner
trustee on the leased aircraft notes issued under the indenture. Each lease will
provide that under no circumstances will our rent payments be less than the
scheduled payments on the related leased aircraft notes. The balance of any
basic rent payment under each lease, after payment of amounts due on the leased
aircraft notes issued under the indenture corresponding to the lease, will be
paid over to the applicable owner trustee. Our obligation to pay rent and to
cause other payments to be made under each lease will be our direct obligation.
Except in circumstances in which we purchase a leased aircraft and assume the
related leased aircraft notes, the leased aircraft notes will not be our direct
obligation. None of the owner
26
trustees, the owner participants or the loan trustees will be personally liable
to any holder of leased aircraft notes for amounts payable under the leased
aircraft notes. Except as provided in the indentures relating to the leased
aircraft notes, no owner trustee or loan trustee will be liable for or incur any
liability under the indentures. Except in the circumstances described above, all
amounts payable under any leased aircraft notes, other than payments made in
connection with an optional redemption or purchase by the related owner trustee
or the related owner participant, will be made only from:
- the assets subject to the lien of the applicable indenture with
respect to the aircraft or the income and proceeds received by the
related loan trustee from that aircraft, including rent payable by
us under the related lease; or
- if so provided in the related prospectus supplement, the
applicable liquidity facility.
With respect to the leased aircraft notes, except as otherwise provided
in the applicable indenture, no owner trustee will be personally liable for any
amount payable or for any statements, representations, warranties, agreements or
obligations under any indenture or under any leased aircraft notes. None of the
owner participants will have any duty or responsibility under the leased
aircraft indentures or under the leased aircraft notes to the related loan
trustee or to any holder of any leased aircraft note.
Our obligations under each owned aircraft indenture and under the owned
aircraft notes will be our direct obligations.
DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES
Unless otherwise specified in the applicable prospectus supplement, an
indenture may provide that the obligations of the related loan trustee, the
related owner trustee or us, as the case may be, under that indenture will be
deemed to have been discharged and paid in full on the 91st day after the date
that money or certain United States government securities, in an aggregate
amount sufficient to pay when due (including as a consequence of redemption in
respect of which notice is given on or prior to the date of the deposit)
principal, premium, if any, and interest on all equipment notes issued under
that indenture, are irrevocably deposited with the related loan trustee. The
discharge may occur only if, among other things, there has been published by the
IRS a ruling to the effect that holders of the equipment notes will not
recognize income, gain or loss for federal income tax purposes as a result of
the deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same time as would have
been the case if the deposit, defeasance and discharge had not occurred.
Upon defeasance of the equipment notes, or upon payment in full of the
principal of, premium, if any, and interest on all equipment notes issued under
any indenture on the applicable maturity date, or upon deposit with the
applicable loan trustee of sufficient money no earlier than one year prior to
the date of maturity, the holders of the equipment notes will have no beneficial
interest in or other rights with respect to the related aircraft or other assets
subject to the lien of the indenture and the lien will terminate.
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ASSUMPTION OF OBLIGATIONS BY SOUTHWEST
Unless otherwise specified in the applicable prospectus supplement,
upon our purchase of any leased aircraft prior to the end of the applicable
term, we may assume on a full recourse basis all of the obligations of the owner
trustee, other than its obligations in its individual capacity, under the
indenture and the leased aircraft notes relating to that lease. If we assume
leased aircraft notes, provisions relating to maintenance, possession and use of
the related aircraft, liens and insurance will be incorporated into the
indenture. If we assume leased aircraft notes in connection with our purchase of
a leased aircraft, leased aircraft notes issued under the indenture will not be
redeemed and will continue to be secured by the aircraft.
LIQUIDITY FACILITY
The related prospectus supplement may provide that one or more payments
of interest on the related equipment notes of one or more series will be
supported by a liquidity facility issued by an institution identified in the
related prospectus supplement. Unless otherwise provided in the related
prospectus supplement, the provider of the liquidity facility will have a claim
upon the assets securing the equipment notes senior to the claim of the pass
through trustee, as owner of the equipment notes.
INTERCREDITOR ISSUES
Equipment notes may be issued in different classes, which means that
the equipment notes may have different payment priorities even though they are
issued by the same borrower and relate to the same aircraft. If multiple classes
of equipment notes are issued, the related prospectus supplement will describe
the priority of distributions among the equipment notes, any liquidity
facilities, the ability of any class to exercise and/or enforce any or all
remedies with respect to the related aircraft, and, if the equipment notes are
leased aircraft notes, the related lease, and certain other intercreditor terms
and provisions.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Unless otherwise indicated in the applicable prospectus supplement, the
following summary describes all material generally applicable U.S. federal
income tax consequences to certificateholders of the purchase, ownership and
disposition of the certificates offered by this prospectus, and in the opinion
of Vinson & Elkins L.L.P., our special tax counsel, is accurate in all material
respects with respect to the matters discussed in this prospectus. Except as
otherwise specified, the summary is addressed to beneficial owners of
certificates that are citizens or residents of the United States, corporations,
partnerships or other entities created or organized in or under the laws of the
United States or any state therein, or estates the income of which is subject to
U.S. federal income taxation regardless of its source, or trusts that meet the
following two tests: (a) a U.S. court is able to exercise primary supervision
over the administration of the trust and (b) one or more U.S. fiduciaries have
the authority to control all substantial decisions of the trust that will hold
the certificates as capital assets.
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This summary does not address the tax treatment of U.S.
certificateholders that may be subject to special tax rules, such as banks,
insurance companies, dealers in securities or commodities, holders subject to
the mark-to-market rules, tax-exempt entities, holders that will hold
certificates as part of a straddle or holders that have a "functional currency"
other than the U.S. dollar, nor, except as specifically indicated, does it
address the tax treatment of U.S. certificateholders that do not acquire
certificates at the public offering price as part of the initial offering. The
summary is not a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase certificates. This summary does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than the United States, nor does it describe any
estate or gift tax consequences.
The summary is based upon the tax laws and practice of the United
States as in effect on the date of this prospectus, as well as judicial and
administrative interpretations, in final or proposed form, available on or
before that date. All of the foregoing are subject to change, which change could
apply retroactively, and could alter the tax consequences discussed below. We
have not sought any ruling from the IRS with respect to the tax consequences
discussed below, and we cannot assure you that the IRS will not take contrary
positions. The pass through trusts are not indemnified for any federal income
taxes that may be imposed upon them, and the imposition of any such taxes on a
pass through trust could result in a reduction in the amounts available for
distribution to the certificateholders of that pass through trust. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE PASS THROUGH TRUSTS
In the opinion of our special tax counsel, each pass through trust will
be classified as a grantor trust and not as an association taxable as a
corporation for U.S. federal income tax purposes.
TAXATION OF CERTIFICATEHOLDERS GENERALLY
A U.S. certificateholder will be treated as owning its pro rata
undivided interest in each of the equipment notes and any other property held by
the related pass through trust. Accordingly, each U.S. certificateholder's share
of interest paid on the equipment notes will be taxable as ordinary income, as
it is paid or accrued, in accordance with such U.S. certificateholder's method
of accounting for U.S. federal income tax purposes, and a U.S.
certificateholder's share of any premium paid on redemption of an equipment note
will be treated as capital gain. If a pass through trust is supported by a
liquidity facility, any amounts received by the pass through trust under the
liquidity facility with respect to unpaid interest will be treated for U.S.
federal income tax purposes as having the same characteristics as the payments
they replace. If we assume an owner trust's obligations under leased aircraft
notes, the assumption would be treated for federal income tax purposes as a
taxable exchange of the leased aircraft notes, resulting in recognition of gain
or loss by the U.S. certificateholder.
Each U.S. certificateholder will be entitled to deduct, consistent with
its method of accounting, its pro rata share of fees and expenses paid or
incurred by the corresponding pass through trust as provided in Section 162 or
212 of the Internal Revenue Code of 1986, as amended,
29
referred to herein as the "Code." Certain fees and expenses, including fees paid
to the pass through trustee and the provider of the liquidity facility, if
applicable, will be paid by parties other than the certificateholders. These
fees and expenses could be treated as constructively received by the pass
through trust, in which event a U.S. certificateholder will be required to
include in income and will be entitled to deduct its pro rata share of the fees
and expenses. If a U.S. certificateholder is an individual, estate or trust, the
deduction for the certificateholder's share of fees or expenses will be allowed
only to the extent that all of the certificateholder's miscellaneous itemized
deductions, including the certificateholder's share of fees and expenses, exceed
2% of the certificateholder's adjusted gross income. In addition, in the case of
U.S. certificateholders who are individuals, certain otherwise allowable
itemized deductions will be subject generally to additional limitations on
itemized deductions under applicable provisions of the Code.
EFFECT OF SUBORDINATION OF CERTIFICATEHOLDERS OF SUBORDINATED TRUSTS
If any pass through trust is subordinated in right of payment to any
other pass through trust and the subordinated trust receives less than the full
amount of the interest, principal or premium paid with respect to the equipment
notes held by it because of the subordination of such pass through trust, the
certificateholders of the subordinated trust would probably be treated for
federal income tax purposes as if they had:
- received as distributions their full share of interest, principal,
or premium;
- paid over to the preferred class of certificateholders an amount
equal to their share of the amount of the shortfall; and
- retained the right to reimbursement of the amount of the shortfall
to the extent of future amounts payable to the certificateholders
of the subordinated trust on account of the shortfall.
Under this analysis:
- subordinated certificateholders incurring a shortfall would be
required to include as current income any interest or other income
of the subordinated trust that was a component of the shortfall,
even though that amount was in fact paid to a preferred class of
certificateholders;
- a loss would only be allowed to subordinated certificateholders
when their right to receive reimbursement of the shortfall becomes
worthless; that is, when it becomes clear that funds will not be
available from any source to reimburse the shortfall; and
- reimbursement of the shortfall before a claim of worthlessness
would not be taxable income to certificateholders because the
amount reimbursed would have been previously included in income.
These results should not significantly affect the inclusion of income
for certificateholders on the accrual method of accounting, but could accelerate
inclusion of income to certificateholders on the cash method of accounting by,
in effect, placing them on the accrual method.
30
ORIGINAL ISSUE DISCOUNT
The equipment notes may be issued with original issue discount,
referred to as OID. The prospectus supplement will state whether any equipment
notes to be held by the related pass through trust will be issued with OID.
Generally, a holder of a debt instrument issued with OID that is not negligible
must include the OID in income for federal income tax purposes as it accrues, in
advance of the receipt of the cash attributable to such income, under a method
that takes into account the compounding of interest.
SALE OR OTHER DISPOSITION OF THE CERTIFICATES
Upon the sale, exchange or other disposition of a certificate, a U.S.
certificateholder generally will recognize capital gain or loss equal to the
difference between the amount realized on the disposition, other than any amount
attributable to accrued interest which will be taxable as ordinary income, and
the U.S. certificateholder's adjusted tax basis in the related equipment notes
and any other property held by the corresponding pass through trust. Any gain or
loss will be long-term capital gain or loss to the extent attributable to
property held by the pass through trust for more than one year. In the case of
individuals, estates, and trusts, the maximum rate of tax on net long-term
capital gains generally is 20%. Notwithstanding the foregoing, if the pass
through trust is classified as a partnership, gain or loss with respect to an
interest in a pass through trust will be calculated and characterized by
reference to the U.S. certificateholder's adjusted tax basis and holding period
for its interest in the pass through trust.
FOREIGN CERTIFICATEHOLDERS
Subject to the discussion of backup withholding below, payments of
principal and interest (including any OID) on the equipment notes to, or on
behalf of, any beneficial owner of a certificate that is not a U.S. person will
not be subject to U.S. federal withholding tax provided that:
- the non-U.S. certificateholder does not actually or constructively
own 10% or more of the total combined voting power of all classes
of stock of an owner participant or us;
- the non-U.S. certificateholder is not a bank receiving interest
pursuant to a loan agreement entered into in the ordinary course
of its trade or business, or a controlled foreign corporation for
U.S. tax purposes that is related to an owner participant or us;
and
- certain certification requirements (including identification of
the beneficial owner of the certificate) are complied with.
Any capital gain realized upon the sale, exchange, retirement or other
disposition of a certificate or upon receipt of premium paid on an equipment
note by a non-U.S. certificateholder will not be subject to U.S. federal income
or withholding taxes if (i) such gain is not effectively connected with a U.S.
trade or business of the non-U.S. certificateholder and (ii) in the case of an
individual, such non-U.S. certificateholder is not present in the United States
for 183 days or more in the taxable year of the sale, exchange, retirement or
other disposition or receipt.
31
BACKUP WITHHOLDING
Payments made on the certificates will not be subject to a backup
withholding tax unless, in general, the certificateholder fails to comply with
certain reporting procedures or otherwise fails to establish an exemption from
such tax under applicable provisions of the Code. Currently, the backup
withholding tax rate is 30%. Under recent amendments to the Code, this rate will
be reduced to 29% in 2004 and to 28% in 2006 and thereafter.
ERISA CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, the
certificates may, subject to certain legal restrictions, be purchased and held
by an employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, referred to as "ERISA," or an individual
retirement account or an employee benefit plan subject to section 4975 of the
Code. A fiduciary of an employee benefit plan must determine that the purchase
and holding of a certificate is consistent with its fiduciary duties under ERISA
and does not result in a non-exempt prohibited transaction as defined in section
406 of ERISA or section 4975 of the Code. Employee benefit plans which are
governmental plans, as defined in section 3(32) of ERISA, and certain church
plans, as defined in section 3(33) of ERISA, are not subject to Title I of ERISA
or section 4975 of the Code. The certificates may, subject to certain legal
restrictions, be purchased and held by such plans.
PLAN OF DISTRIBUTION
Certificates may be sold to one or more underwriters for public
offering and resale by them. Certificates may also be sold to investors or other
persons directly or through one or more dealers or agents. Any underwriter,
dealer or agent involved in the offer and sale of the certificates will be named
in an applicable prospectus supplement.
The certificates may be sold:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to prevailing market prices; or
- at negotiated prices.
Dealer trading may take place in certain of the certificates, including
certificates not listed on any securities exchange. We do not intend to apply
for listing of the certificates on a national securities exchange. From time to
time, we also may authorize underwriters acting as our agents to offer and sell
the certificates upon the terms and conditions as will be set forth in any
prospectus supplement.
In connection with the sale of certificates, underwriters may be deemed
to have received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of certificates for
whom they may act as agent. Underwriters may
32
sell certificates to or through dealers, and those dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions, which may be changed from time to time, from
the purchasers for whom they may act as agent.
If a dealer is used directly by us in the sale of certificates in
respect of which this prospectus is delivered, we will sell the certificates to
the dealer, as principal. The dealer may then resell the certificates to the
public at varying prices to be determined by the dealer at the time of resale.
The dealer will be named in, and the terms of the sale, will be set forth in the
applicable prospectus supplement.
Certificates may be offered and sold through agents designated by us
from time to time. The agent involved in the offer or sale of the certificates
will be named in, and any commissions payable by us to the agent will be set
forth in, the applicable prospectus supplement. Unless otherwise indicated in
the applicable prospectus supplement, the agent will be acting on a best efforts
basis for the period of its appointment.
We may solicit directly offers to purchase certificates, and
certificates may be sold directly to institutional investors or others who may
be deemed to be underwriters within the meaning of the Securities Act with
respect to any resale. The terms of these sales will be described in the
applicable prospectus supplement. Except as set forth in the applicable
prospectus supplement, no director, officer or employee of ours will solicit or
receive a commission in connection with direct sales by us of the certificates,
although those persons may respond to inquiries by potential purchasers and
perform ministerial and clerical work in connection with our direct sales.
Any underwriting compensation that we pay to underwriters, dealers or
agents in connection with the offering of certificates, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable prospectus supplement.
Underwriters, dealers and agents participating in the distribution of
the certificates may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
certificates may be deemed to be underwriting discounts and commissions under
the Securities Act. Underwriters, dealers and agents may be entitled under
agreements with us to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act, and to
reimbursement by us for certain expenses.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, us and our subsidiaries in the ordinary course of
business.
If so indicated in an applicable prospectus supplement and subject to
existing market conditions, we will authorize dealers acting as our agents to
solicit offers by certain institutions to purchase certificates from us at the
public offering price set forth in the applicable prospectus supplement pursuant
to delayed delivery contracts. These contracts will provide for payment and
delivery on the date or dates stated in the applicable prospectus supplement.
Each contract will be for an amount not less than, and the aggregate principal
amount of certificates sold pursuant to these contracts will not be less nor
more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with whom these contracts, when authorized, may be made
33
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions and other
institutions, but will in all cases be subject to our approval. These contracts
will not be subject to any conditions, except for the condition that the
purchase by an institution of the certificates not be prohibited at the time of
delivery under the laws of any jurisdiction in the United States to which the
institution is subject. A commission set forth in the applicable prospectus
supplement will be granted to underwriters and agents soliciting purchases of
certificates pursuant to contracts accepted by us. Agents and underwriters will
have no responsibility in respect of the delivery or performance of these
contracts.
If an underwriter or underwriters is used in the sale of any
certificates, the applicable prospectus supplement will state the intention, if
any, of the underwriters at the date of the prospectus supplement to make a
market in the certificates. We cannot assure you that there will be a market for
the certificates.
The place and time of delivery for the certificates in respect of which
this prospectus is delivered will be set forth in the applicable prospectus
supplement.
VALIDITY OF THE CERTIFICATES
Unless otherwise indicated in the applicable prospectus supplement, the
validity of the offered Certificates will be passed upon for us by Deborah
Ackerman, Vice President -- General Counsel. Ms. Ackerman will rely on the
opinion of counsel for Wells Fargo Delaware Trust Company as to certain matters
relating to the authorization, execution and delivery of the Certificates by and
the valid binding effect on the Trustee.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2001, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any documents we file at the SEC's public reference room 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also available to
the public on the SEC's web site at http://www.sec.gov and through the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, on which our common
stock is listed.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later
34
information that we file with the SEC will automatically update and supersede
this information as well as the information included in this prospectus. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we sell all the Certificates.
- Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
- Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 2002; and
- Current Reports on Form 8-K dated February 28 and July 30, 2002.
Any party to whom this prospectus is delivered, including a holder in
street name, may request a copy of these filings (other than any exhibits unless
specifically incorporated by reference into this prospectus), at no cost, by
writing or telephoning us at the following address:
Southwest Airlines Co.
Investor Relations
P.O. Box 36611, HDQ-6FC
2702 Love Field Drive
Dallas, Texas 75235
(214) 792-4000
35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Registration Fee $63,920
Trustees' Fees and Expenses 50,000
Printing and Engraving Expenses 200,000
Rating Agency Fees 200,000
Accountants' Fees and Expenses 50,000
Legal Fees and Expenses 200,000
Miscellaneous 236,080
-------
Total $1,000,000
All amounts above are estimated except for the registration fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII, Section 1 of Southwest's Bylaws provides as follows:
"Right to Indemnification: Subject to the limitations and
conditions as provided in this Article VIII, each person, who was or is made a
party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (hereinafter called a "proceeding"), or any appeal
in such a proceeding or any inquiry or investigation that could lead to such a
proceeding, by reason of the fact that he (or a person of whom he is the legal
representative) is or was a director or officer of the corporation (or while a
director or officer of the corporation is or was serving at the request of the
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, proprietorship, trust, employee benefit
plan, or other enterprise) shall be indemnified by the corporation to the
fullest extent permitted by the Texas Business Corporation Act, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment) against judgments, penalties (including excise and similar
taxes and punitive damages), fines, settlements and reasonable expenses
(including, without limitation, court costs and attorneys' fees) actually
incurred by such person in connection with such proceeding, appeal, inquiry or
investigation, and indemnification under this Article VIII shall continue as to
a person who has ceased to serve in the capacity which initially entitled such
person to indemnity hereunder; provided, however, that in no case shall the
corporation indemnify any such person (or the legal representative of any such
person) otherwise than for his reasonable expenses, in respect of any proceeding
(i) in which such person shall have been finally adjudged by a court of
competent jurisdiction (after exhaustion of all appeals therefrom) to be liable
on the basis that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in such person's official
capacity, or (ii) in which such person shall have been found
II-1
liable to the corporation; and provided, further, that the corporation shall not
indemnify any such person for his reasonable expenses actually incurred in
connection with any proceeding in which he shall have been found liable for
willful or intentional misconduct in the performance of his duty to the
corporation. The rights granted pursuant to this Article VIII shall be deemed
contract rights, and no amendment, modification or repeal of this Article VIII
shall have the effect of limiting or denying any such rights with respect to
actions taken or proceedings arising prior to any such amendment, modification
or repeal. It is expressly acknowledged that the indemnification provided in
this Article VIII could involve indemnification for negligence or under theories
of strict liability."
Article Ten of Southwest's Articles of Incorporation provides that a
director of the corporation shall not be liable to the corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, subject to certain limitations.
Article 2.02-1B. of the Texas Business Corporation Act provides that,
subject to certain limitations, "a corporation may indemnify a person who was,
is, or is threatened to be made a named defendant or respondent in a proceeding
because the person is or was a director only if it is determined in accordance
with Section F of this article that the person: (1) conducted himself in good
faith; (2) reasonably believed: (a) in the case of conduct in his official
capacity as a director of the corporation, that his conduct was in the
corporation's best interests; and (b) in all other cases, that his conduct was
at least not opposed to the corporation's best interests; and (3) in the case of
any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful."
Southwest also maintains directors' and officers' liability insurance.
The forms of Underwriting Agreement filed as Exhibits 1.1 and 1.2 to
this Registration Statement provide for indemnification of directors and
officers of Southwest against certain liabilities.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement for Debt Securities
(incorporated by reference to Exhibit 1 to
Southwest's Registration Statement on Form S-3 (File
No. 33-50930)).
1.2 Form of Underwriting Agreement for Pass Through
Certificates (incorporated by reference to Exhibit 1
to Southwest's Registration Statement on Form S-3
(File No. 33-59018)).
4.1 Form of Indenture between Southwest and Wells Fargo
Bank, N.A., relating to Debt Securities.
4.2 Form of Pass Through Trust Agreement between
Southwest and Wells Fargo Delaware Trust Company
relating to Pass Through Certificates.
5.1 Opinion of Deborah Ackerman, Vice President and
General Counsel of Southwest Airlines Co., re
legality of Pass Through Certificates being
registered.
5.2 Opinion of Deborah Ackerman, Vice President and
General Counsel of Southwest Airlines Co., re
legality of Debt Securities being registered.
II-2
5.3 Opinion of Morris James Hitchens & Williams LLP
relating to Pass Through Certificates.
8 Tax opinion of Vinson & Elkins L.L.P.
12 Statement re computation of ratios of earnings to
fixed charges
23.1 Consent of Independent Auditors.
23.2 Consent of Deborah Ackerman, Vice President and
General Counsel of Southwest Airlines Co. (contained
in the opinions filed as Exhibits 5.1 and 5.2 hereto,
respectively).
23.3 Consent of Morris James Hitchens & Williams LLP
(contained in the opinion filed as Exhibit 5.3
hereto).
23.4 Consent of Vinson & Elkins L.L.P. (contained in the
opinion filed as Exhibit 8 hereto).
24 Power of Attorney (contained on the signature page
hereof)
25.1 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Wells Fargo
Bank, N.A., as Trustee under the Debt Securities.
25.2 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Wells Fargo
Delaware Trust Company, as Trustee under the Pass
Through Trust Agreement.
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 462(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
II-3
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
POWER OF ATTORNEY
Each person whose signature appears below authorizes James F. Parker,
Gary C. Kelly, Laura Wright and Deborah Ackerman, or any of them, to execute in
the name of each such person who is then an officer or director of Southwest
Airlines Co. (the "Company") and to file a Registration Statement on Form S-3
relating to debt securities and pass through certificates, and any amendments
thereto (and any additional Registration Statement related thereto permitted by
Rule 462(b) promulgated under the Securities Act of 1933 (and all further
amendments including post-effective amendments thereto)) in each case necessary
or advisable to enable the Company to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in respect thereof, in connection with the registration of
the securities which are the subject of such Registration Statements, which
amendments may make such changes in such Registration Statements as such
attorney may deem appropriate.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Dallas, State of Texas on October 30, 2002.
SOUTHWEST AIRLINES CO.
By /s/ Gary C. Kelly
----------------------
Gary C. Kelly
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 30, 2002.
Signature Capacity
--------- --------
/s/ Herbert D. Kelleher Chairman of the Board of
------------------------------------ Directors
Herbert D. Kelleher
/s/ James F. Parker Chief Executive Officer and
------------------------------------ Director
James F. Parker
/s/ Colleen C. Barrett President, Chief Operating
------------------------------------ Officer and Director
Colleen C. Barrett
/s/ Gary C. Kelly Chief Financial Officer
------------------------------------
Gary C. Kelly
/s/ C. Webb Crockett Director
------------------------------------
C. Webb Crockett
/s/ William H. Cunningham Director
------------------------------------
William H. Cunningham, Ph.D.
------------------------------------ Director
William P. Hobby
/s/ Travis C. Johnson Director
------------------------------------
Travis C. Johnson
Director
------------------------------------
R. W. King
/s/ June M. Morris Director
------------------------------------
June M. Morris
/s/ John T. Montford Director
------------------------------------
John T. Montford
INDEX TO EXHIBITS
1.1 Form of Underwriting Agreement for Debt Securities
(incorporated by reference to Exhibit 1 to
Southwest's Registration Statement on Form S-3 (File
No. 33-50930)).
1.2 Form of Underwriting Agreement for Pass Through
Certificates (incorporated by reference to Exhibit 1
to Southwest's Registration Statement on Form S-3
(File No. 33-59018)).
4.1 Form of Indenture between Southwest and Wells Fargo
Bank, N.A. relating to Debt Securities.
4.2 Form of Pass Through Trust Agreement between
Southwest and Wells Fargo Delaware Trust Company
relating to Pass Through Certificates.
5.1 Opinion of Deborah Ackerman, Vice President and
General Counsel of Southwest Airlines Co., re
legality of Pass Through Certificates being
registered.
5.2 Opinion of Deborah Ackerman, Vice President and
General Counsel of Southwest Airlines Co., re
legality of Debt Securities being registered.
5.3 Opinion of Morris James Hitchens & Williams LLP
relating to Pass Through Certificates.
8 Tax opinion of Vinson & Elkins L.L.P.
12 Statement re computation of ratios of earnings to
fixed charges
23.1 Consent of Independent Auditors.
23.2 Consent of Deborah Ackerman, Vice President and
General Counsel of Southwest Airlines Co. (contained
in the opinions filed as Exhibits 5.1 and 5.2 hereto,
respectively).
23.3 Consent of Morris James Hitchens & Williams LLP
(contained in the opinion filed as Exhibit 5.3
hereto).
23.4 Consent of Vinson & Elkins L.L.P. (contained in the
opinion filed as Exhibit 8 hereto).
24 Power of Attorney (contained on the signature page
hereof)
25.1 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Wells Fargo
Bank, N.A., as Trustee under the Debt Securities.
25.2 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Wells Fargo
Delaware Trust Company, as Trustee under the Pass
Through Trust Agreement.