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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
Commission File No. 1-7259
SOUTHWEST AIRLINES CO.
(Exact name of registrant as specified in its charter)
TEXAS 74-1563240
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
P.O. BOX 36611
DALLAS, TEXAS 75235-1611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 792-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock ($1.00 par value) New York Stock Exchange, Inc.
Common Share Purchase Rights New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of Common Stock held by nonaffiliates as of February
28, 1997:
$3,350,000,000
Number of shares of Common Stock outstanding as of the close of business on
February 28, 1997:
145,335,143 shares
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of
Shareholders, May 15, 1997: PART III
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
Southwest Airlines Co. (Southwest) is a major domestic airline that
provides shorthaul, high frequency, point-to-point, low fare service. Southwest
was incorporated in Texas and commenced Customer Service on June 18, 1971 with
three Boeing 737 aircraft serving three Texas cities - Dallas, Houston, and San
Antonio.
At yearend 1996, Southwest operated 243 Boeing 737 aircraft and provided
service to 50 airports in 49 cities in 24 states throughout the United States.
Southwest commenced service to Jacksonville, Florida in January 1997, and has
recently announced that it will commence service to Jackson, Mississippi in
August 1997.
On December 31, 1993, Southwest acquired Morris Air Corporation (Morris)
in a stock-for-stock exchange, issuing approximately 3.6 million shares of
Southwest Common Stock in exchange for all of the outstanding shares of Morris.
During 1994, the operations of Morris were substantially integrated with those
of Southwest, and Morris ceased service as a certificated air carrier in March
1995. Unless the context requires otherwise, references in this annual report
to the "Company" include Southwest and Morris.
The business of the Company is somewhat seasonal. Quarterly operating
income and, to a lesser extent, revenues tend to be lower in the first quarter
(January 1 - March 31).
FUEL
The cost of fuel is an item having significant impact on the Company's
operating results. The Company's average cost of jet fuel per gallon for
scheduled carrier service over the past five years was as follows:
1992 $.61
1993 $.59
1994 $.54
1995 $.55
1996 $.65
The Company is unable to predict the extent of future fuel cost changes.
The Company has standard industry arrangements with major fuel suppliers.
Standard industry fuel contracts do not provide material protection against
price increases or for assured availability of supplies. The Company's
principal hedging program utilizes the purchase of crude oil call options at a
nominal premium and at volumes of up to 30% of its annual fuel requirements.
Although market conditions can significantly impact the price of jet fuel, at
present these conditions have not resulted in an inadequate supply of jet fuel.
For more discussion of current jet fuel costs and the impact of these costs on
the Company's operations, see Management's Discussion and Analysis of Financial
Condition and Results of Operations.
REGULATION
Economic. The Dallas Love Field section of the International Air
Transportation Competition Act of 1979 (Competition Act), as it affects
Southwest's scheduled service, provides that no common carrier may provide
scheduled passenger air transportation for compensation between Love Field and
one or more points outside Texas, except that an air carrier may transport
individuals by air on a flight between Love Field and one or more points within
the states of Arkansas, Louisiana, New Mexico, Oklahoma, and Texas if (a) "such
air carrier does not offer or provide any through service or ticketing with
another air carrier" and (b) "such air
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carrier does not offer for sale transportation to or from, and the flight or
aircraft does not serve, any point which is outside any such states." Southwest
does not interline or offer joint fares with any other air carrier at Love
Field. The Competition Act does not restrict Southwest's intrastate Texas
flights or its air service from points other than Love Field to points beyond
Texas and the four contiguous states.
The Department of Transportation (DOT) has significant regulatory
jurisdiction over passenger airlines. Unless exempted, no air carrier may
furnish air transportation over any route without a DOT certificate of
authorization, which does not confer either exclusive or proprietary rights.
The Company's certificates are unlimited in duration and permit the Company to
operate among any points within the United States, its territories and
possessions, except as limited by the Love Field section of the Competition
Act, as do the certificates of all other U.S. carriers. DOT may revoke such
certificates, in whole or in part, for intentional failure to comply with any
provisions of subchapter IV of the Federal Aviation Act of 1958, or any order,
rule or regulation issued thereunder or any term, condition or limitation of
such certificate; provided that, with respect to revocation, the certificate
holder has first been advised of the alleged violation and has been given a
reasonable time to effect compliance.
DOT prescribes uniform disclosure standards regarding terms and
conditions of carriage, and prescribes that terms incorporated into the
Contract of Carriage by reference are not binding upon passengers unless notice
is given in accordance with its regulations.
Several bills have been introduced in Congress with a goal of "reforming"
the Federal Aviation Administration ("FAA") by, among other things, modifying
the method of funding the FAA. For information regarding the impact of the
lapse and reinstatement of the 10% federal excise tax on operating results, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations. At the current time, Southwest is unable to predict how these
issues will be resolved and what impact, if any, resolution of these
uncertainties will have on future operating results or financial condition.
Safety. The Company is subject to the jurisdiction of the FAA with
respect to its aircraft maintenance and operations, including equipment, ground
facilities, dispatch, communications, flight training personnel, and other
matters affecting air safety. To ensure compliance with its regulations, the
FAA requires airlines to obtain operating, airworthiness and other certificates
which are subject to suspension or revocation for cause. The Company has
obtained such certificates. The FAA, acting through its own powers or through
the appropriate U. S. Attorney, also has the power to bring proceedings for the
imposition and collection of fines for violation of the Federal Air
Regulations.
Environmental. The Airport Noise and Capacity Act of 1990 (ANCA) requires
the phase out of Stage 2 airplanes (which meet less stringent noise emission
standards than later model Stage 3 airplanes) in the contiguous 48 states by
December 31, 1999. FAA rules establish a future interim compliance date for
ANCA of December 31, 1998. An operator may comply by either implementing a
reduction of the operator's base level, as defined in ANCA, of Stage 2 aircraft
by at least 75 percent at December 31, 1998, or by operating a fleet that is at
least 75 percent Stage 3 by December 31, 1998. Operation of Stage 2 aircraft
after December 31, 1999 is prohibited, subject, however, to an extension of the
final compliance date to December 31, 2003, if at least 85 percent of the
aircraft used by the operator in the contiguous United States will comply with
Stage 3 noise levels by July 1, 1999 and the operator successfully obtains a
waiver from the FAA of the December 31, 1999 final phaseout date. Statutory
requirements to obtain a waiver include a determination by the FAA that the
waiver is in the public interest or would enhance competition or benefit
service to small communities. There is no assurance that such a waiver is
obtainable.
The Company's fleet, as of December 31, 1996, consisted of 47 Stage 2
aircraft and 196 Stage 3 aircraft, yielding a Stage 3 percentage of over 80
percent. Accordingly, the Company exceeds the Stage 3 fleet percentage
requirement for the December 31, 1998 interim compliance date.
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As of December 31, 1996, of the 47 Stage 2 aircraft operated by the
Company, 26 are leased from third parties and 21 are owned by the Company.
Because the Company already complies with the December 31, 1998 interim
compliance requirement of a 75 percent Stage 3 fleet, the Company could operate
all 47 of its Stage 2 aircraft until December 31, 1999. Based upon the
Company's current schedule for delivery of new Stage 3 aircraft, including
options, and the Company's planned retirement schedule for Stage 2 aircraft,
assuming no hushkitting, the Company will achieve 85 percent compliance by July
1, 1999; however, the Company currently intends to hushkit at least 20
aircraft. This would qualify the Company to apply for a waiver from the final
compliance date, which, if obtained, could permit the Company to continue
operation of the then remaining Stage 2 aircraft until, at the latest, December
31, 2003.
ANCA also requires the FAA to establish parameters within which any new
Stage 2 and Stage 3 noise or access restrictions at individual airports must be
developed. The published rules generally provide that local noise restrictions
on Stage 3 aircraft first effective after October 1990 require FAA approval,
and establish a regulatory notice and review process for local restrictions on
Stage 2 aircraft first proposed after October 1990. Certain airports, including
Dallas Love Field, Los Angeles, San Diego, San Francisco, and Orange County,
have established airport restrictions to limit noise, including restrictions on
aircraft types to be used and limits on the number of hourly or daily
operations or the time of such operations. In some instances, these
restrictions have caused curtailments in service or increases in operating
costs and such restrictions could limit the ability of Southwest to expand its
operations at the affected airports. Local authorities at other airports are
considering adopting similar noise regulations.
Operations at John Wayne Airport, Orange County, California, are governed
by the Airport's Phase 2 Commercial Airline Access Plan and Regulation (the
"Plan"). Pursuant to the Plan, each airline is allocated total annual seat
capacity to be operated at the airport, subject to renewal/reallocation on an
annual basis. Service at this airport may be adjusted annually to meet these
requirements.
The Company is subject to various other federal, state, and local laws
and regulations relating to the protection of the environment, including the
discharge of materials into the environment.
MARKETING AND COMPETITION
Southwest focuses principally on point-to-point, rather than
hub-and-spoke, service in shorthaul markets with frequent, conveniently timed
flights, and low fares. For example, Southwest's average aircraft trip length
in 1996 was 410 miles with an average duration of approximately one hour. At
yearend, Southwest served approximately 400 one-way nonstop city pairs with an
average weekday frequency of just over 5 roundtrips per city pair.
Southwest's point-to-point route system, as compared to hub-and-spoke,
provides for more direct nonstop routings for shorthaul customers and,
therefore, minimizes connections, delays, and total trip time. Southwest
focuses on nonstop, not connecting, traffic. As a result, approximately 80
percent of the Company's customers fly nonstop. In addition, Southwest serves
many conveniently-located satellite or downtown airports such as Dallas Love
Field, Houston Hobby, Chicago Midway, Baltimore, Burbank, Oakland, San Jose,
Providence and Ft. Lauderdale airports, which are typically less congested than
other airlines' hub airports and enhance the Company's ability to sustain high
employee productivity and reliable ontime performance. This operating strategy
also permits the Company to achieve high asset utilization. Aircraft are
scheduled to minimize the amount of time the aircraft is at the gate,
approximately 20 minutes, thereby reducing the number of aircraft and gate
facilities that would otherwise be required.
Southwest does not interline with other domestic jet airlines, nor have
any commuter feeder relationships. However, in late 1996 the Company entered
into a marketing relationship with Icelandair, pursuant to which Icelandair may
offer travel to Customers going between Cleveland and various foreign
Icelandair destinations,
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via Baltimore. Southwest provides the transportation between Cleveland and
Baltimore on its regularly scheduled service.
Southwest employs a very simple fare structure, featuring low,
unrestricted, unlimited everyday coach fares. The Company operates only one
aircraft type, the Boeing 737, which simplifies scheduling, maintenance, flight
operations, and training activities.
In May 1994, the computer reservations systems (CRSs) owned by United
Airlines (Apollo) and Continental Airlines (System One) disabled automated
ticketing for Southwest travel. Rather than pay the fees associated with CRS
participation in Apollo and System One, Southwest took the following actions:
Southwest introduced a Ticketless travel option, available system-wide in
January 31, 1995, eliminating the need to print a paper ticket altogether;
provided direct access to its own reservation system and ticketing for the 50
largest travel agencies (SWAT); instituted overnight delivery of
Southwest-produced tickets for approximately 300 large travel agencies; and
improved access to Ticket By Mail for direct Customers by reducing the time
limit from seven days out from the date of travel to three days. Southwest also
entered into a new arrangement with SABRE, the CRS in which Southwest has
historically participated to a limited extent, providing for ticketing and
automated booking on Southwest in a very cost-effective manner. In 1996,
Southwest began offering ticketless travel through the Company's home page on
the Internet's World Wide Web at http://www.iflyswa.com. By December 31, 1996,
approximately 50% of Southwest's customers were choosing the ticketless travel
option.
The airline industry is highly competitive as to fares, frequent flyer
benefits, routes, and service, and some carriers competing with the Company
have greater financial resources, larger fleets, and wider name recognition.
Several of the Company's larger competitors have initiated or are studying
low-cost, shorthaul service in markets served by the Company, which represents
a more direct threat in Southwest's market niche. Profit levels in the air
transport industry are highly sensitive to changes in operating and capital
costs and the extent to which competitors match an airline's fares and
services. The profitability of a carrier in the airline industry is also
impacted by general economic trends. For more discussion on the current
competitive environment for Southwest, see Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The Company is also subject to varying degrees of competition from
surface transportation in its shorthaul markets, particularly the private
automobile. In shorthaul air services which compete with surface
transportation, price is a competitive factor, but frequency and convenience of
scheduling, facilities, transportation safety, and Customer Service may be of
equal or greater importance to many passengers.
INSURANCE
The Company carries insurance of types customary in the airline industry
and in amounts deemed adequate to protect the Company and its property and to
comply both with federal regulations and certain of the Company's credit and
lease agreements. The policies principally provide coverage for public and
passenger liability, property damage, cargo and baggage liability, loss or
damage to aircraft, engines, and spare parts, and workers' compensation.
FREQUENT FLYER AWARDS
Southwest's frequent flyer program, Rapid Rewards (formerly The Company
Club), is based on trips flown rather than mileage. Rapid Rewards offers one
free roundtrip travel award to any Southwest destination after flying eight
roundtrips (or 16 one-way trips) on Southwest within a consecutive twelve-month
period.
The trips flown as credit towards a free travel award certificate are
valid for twelve months only; the free travel award is automatically generated
when earned by the Customer rather than allowing the Customer to
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bank the trip credits indefinitely; and the free travel award is valid for one
year with an automatic expiration date. Based on the issuance of free travel
awards to qualified members, coupled with the foregoing program characteristics
and the use of "black out" dates for the free travel awards during peak holiday
periods, the financial impact of free travel awards used on the Company's
consolidated financial statements has not been material. Free travel awards
redeemed were approximately 459,000, 417,000, and 279,000 during 1996, 1995,
and 1994, respectively. The amount of free travel award usage as a percentage
of total Southwest revenue passengers carried was 1.9 percent in 1996, 1.9
percent in 1995, and 1.4 percent in 1994.
The Company accounts for free travel awards using the incremental cost
method, consistent with the other major airlines. This method recognizes an
average incremental cost to provide roundtrip transportation to one additional
passenger. The incremental cost to provide free transportation is accrued at
the time an award is earned and revenue is subsequently recognized, at the
amount accrued, when the free travel award is used. The estimated incremental
costs include passenger costs such as beverage and snack supplies, baggage
claims, baggage handling, and liability insurance; operations costs such as
security services, airport rentals, fuel, oil, and into-plane charges; and
reservations costs, such as communications and system operations fees. The
liability for free travel awards earned but not used at December 31, 1996 and
1995 was not material.
The number of free travel awards for Southwest outstanding at December
31, 1996 and 1995 was approximately 404,000 and 295,000, respectively. These
numbers do not include partially earned awards. The Company currently does not
have a system to accurately estimate partially earned awards. However, these
partially earned awards may equate to approximately 60-70 percent of the
current outstanding awards. Since the inception of Rapid Rewards in 1987,
approximately 15 percent of all award certificates have expired without being
used.
EMPLOYEES
At December 31, 1996, Southwest had 22,944 active employees, consisting
of 6,228 flight, 1,049 maintenance, 13,148 ground customer service and 2,519
management, accounting, marketing, and clerical personnel.
Southwest has ten collective bargaining agreements covering approximately
84 percent of its employees. Southwest's Customer service and reservation
employees are subject to an agreement with the International Association of
Machinists and Aerospace Workers, AFL-CIO (IAM), which becomes amendable in
November 1997. Flight attendants are subject to an agreement with the
Transportation Workers Union of America, AFL-CIO (TWU), which became amendable
May 31, 1996 and is currently in negotiations. Fleet service employees are
subject to an agreement with the TWU which becomes amendable in December 1999.
The pilots are subject to an agreement with the Southwest Airlines Pilots'
Association (SWAPA), which becomes amendable in September 1999 (described
below). Flight dispatchers are represented by the Southwest Airlines Employees
Association, pursuant to an agreement which becomes amendable in November 1997.
Aircraft cleaners and stock clerks; mechanics, flight simulator technicians and
flight crew training instructors are represented by the International
Brotherhood of Teamsters pursuant to separate agreements which become amendable
in August 2000, August 2001, October 2000 and December 2000, respectively. The
flight/ground school instructors are subject to an agreement with the Southwest
Airlines Professional Instructors Association which becomes amendable in
December 2000.
In January 1995, Southwest's pilots ratified a ten-year labor contract
that calls for no wage increases in the first five years and three percent
annual wage increases in three of the last five years of the contract.
Initially, the pilots received options to purchase approximately 14.5 million
shares of Southwest common stock at $20 per share over the term of the
contract; pilots hired subsequently receive additional grants at a five percent
premium over then current fair market value, up to a total of 18,000,000 shares
that can be issued under the stock option plan. Pilots are eligible for
profitability bonuses of up to three percent of compensation in three of the
first five years and profitability-based pay increases up to three percent in
two of the second
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five years of the contract. The pilot group may choose to reopen the contract
after five years, in which event all unexercised options will terminate on
December 1, 1999.
ITEM 2. PROPERTIES
AIRCRAFT
Southwest operated a total of 243 Boeing 737 aircraft as of December 31,
1996, of which 106 and 13 were under operating and capital leases,
respectively. The remaining 124 aircraft were owned.
In January 1994, Southwest entered into an agreement with The Boeing
Company, pursuant to which Southwest is the launch customer for the Boeing
737-700 aircraft, the newest generation of the Boeing 737 aircraft type. As the
launch customer, Southwest has agreed to purchase sixty-three Boeing 737-700
aircraft from 1997 to 2001, with options for an additional sixty-seven 737-700
aircraft from 1998 to 2004. The first four 737-700 aircraft will be delivered
to the Company in late 1997.
In total, at December 31, 1996, the Company had 78 firm orders and 67
options as follows:
<TABLE>
<CAPTION>
Type Seats 1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
737-200 122 47 -- -- -- -- -- -- -- --
737-300 137 171 15 -- -- -- -- -- -- --
737-500 122 25 -- -- -- -- -- -- -- --
737-700 137 -- 4 21 25 21 18 18 18 5
</TABLE>
The average age of the Company's fleet at December 31, 1996 was 7.9
years.
For information regarding the Company's obligations under capital leases
and noncancelable operating leases see Notes 4 and 5 to the Consolidated
Financial Statements.
For information concerning Southwest's aircraft purchase commitments, see
Note 2 to the Consolidated Financial Statements.
The Company has an agreement with CFM International, Inc. (a joint
company of SNECMA (France) and General Electric Company) dated May 28, 1981, as
amended, for the supply of spare engines for its Boeing 737-300, -500, and -700
aircraft. CFM also supplies the engines to The Boeing Company for original
installation on such aircraft. CFM is the sole manufacturer of engines for use
on the Boeing 737-300, -400, -500, and -700 aircraft.
GROUND FACILITIES AND SERVICES
Southwest leases terminal passenger service facilities at each of the
airports it serves to which it has added various leasehold improvements. The
Company leases land on a long-term basis for its maintenance centers located at
Dallas Love Field, Houston Hobby, and Phoenix Sky Harbor, its training center
near Love Field which houses three 737 simulators, and its corporate
headquarters also located near Love Field. The maintenance, training center,
and corporate headquarters buildings on these sites were built and are owned by
Southwest. At December 31, 1996, the Company operated nine reservation centers.
The reservation centers located in Little Rock, Arkansas; Chicago, Illinois;
Albuquerque, New Mexico; and Oklahoma City, Oklahoma occupy leased space. The
Company owns its Dallas, Texas; Houston, Texas; Phoenix, Arizona; Salt Lake
City, Utah; and San Antonio, Texas reservation centers.
The Company performs substantially all line maintenance on its aircraft
and provides ground support services at most of the airports it serves.
However, the Company has arrangements with certain aircraft
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maintenance firms for major component overhauls and repairs for its airframes
and engines, which comprise the majority of the annual maintenance costs.
In recent years, many airports have increased or sought to increase the
rates charged to airlines. The extent to which such charges are limited by
statute and the ability of airlines to contest such charges has been subject to
litigation and to administrative proceedings before the Department of
Transportation. To the extent the limitations on such charges are relaxed or
the ability of airlines to challenge such charges is restricted, the rates
charged by airports to airlines may increase substantially. Management cannot
predict the magnitude of any such increase.
ITEM 3. LEGAL PROCEEDINGS
Southwest has received examination reports from the Internal Revenue
Service proposing certain adjustments to Southwest's income tax returns for
1987 through 1991. The adjustments relate to certain types of aircraft
financings consummated by Southwest, as well as other members of the aviation
industry, during that time period. Southwest intends to vigorously protest the
adjustments made with which it does not agree. The industry's differences with
the IRS involve complex issues of law and fact which are likely to take a
substantial period of time to resolve. Management believes that final
resolution of such protest will not have a materially adverse effect upon the
results of operations of Southwest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to be reported.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Southwest, their positions, and their
respective ages (as of March 1, 1997) are as follows:
<TABLE>
<CAPTION>
OFFICER
CONTINUOUSLY
NAME POSITION AGE SINCE
---- -------- --- -----
<S> <C> <C> <C>
Herbert D. Kelleher Chairman of the Board, President, 65 1967
and Chief Executive Officer
Colleen C. Barrett Executive Vice President-Customers 52 1978
and Corporate Secretary
Gary A. Barron Executive Vice President, 52 1978
Chief Operations Officer
John G. Denison Executive Vice President- 52 1986
Corporate Services
Gary C. Kelly Vice President-Finance, 41 1986
Chief Financial Officer
James F. Parker Vice President-General Counsel 50 1986
Ron Ricks Vice President-Governmental Affairs 47 1986
Joyce C. Rogge Vice President - Advertising and Promotions 39 1994
James C. Wimberly Vice President-Ground Operations 44 1985
</TABLE>
Executive officers are elected annually at the first meeting of
Southwest's Board of Directors following the annual meeting of shareholders or
appointed by the President pursuant to Board authorization.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Southwest's common stock is listed on the New York Stock Exchange and is
traded under the symbol LUV. The high and low sales prices of the common stock
on the Composite Tape and the quarterly dividends per share paid on the common
stock were:
<TABLE>
<CAPTION>
PERIOD DIVIDEND HIGH LOW
- - ------ -------- ---- ---
<S> <C> <C> <C> <C>
1996
1st Quarter $.011 $33.00 $22.13
2nd Quarter .011 33.25 25.75
3rd Quarter .011 29.00 21.38
4th Quarter .011 26.00 20.63
1995
1st Quarter $.01 $20.00 $16.38
2nd Quarter .01 25.75 17.63
3rd Quarter .01 29.88 23.63
4th Quarter .01 26.13 19.75
</TABLE>
As of March 4, 1997, there were 9,457 holders of record of the
Company's common stock.
RECENT SALES OF UNREGISTERED SECURITIES
The Company re-employed Herbert D. Kelleher, effective as of January
1, 1996, as President and Chief Executive Officer under a five-year Employment
Contract. Pursuant to this Contract, Mr. Kelleher was granted nonstatutory
options to purchase, subject to his employment for four years, 144,395 shares
of the Company's Common Stock at a purchase price of $1 per share and 500,000
shares at a purchase price of $23.50 per share, representing the composite tape
closing sales price of the Common Stock on the New York Stock Exchange on
January 2, 1996. One-fifth of the options are not subject to vesting and may be
exercised at any time as to the underlying shares. Provided Mr. Kelleher
remains in the continuous, full-time employ of the Company, the balance of the
options will become exercisable in cumulative increments of one-fifth of the
underlying shares each January 1 beginning January 1, 1997; provided that in
the event of a change of control of the Company all of the options become
immediately exercisable. Each of the options will expire ten years after it
becomes exercisable. The options are not transferable by Mr. Kelleher other
than by will or the laws of descent and distribution, and are exercisable
during Mr. Kelleher's lifetime only by him. The options granted to Mr. Kelleher
in 1996 are in addition to options granted to him pursuant to earlier
employment agreements.
During 1996, Mr. Kelleher exercised unregistered options to purchase
Southwest Common Stock as follows:
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<TABLE>
<CAPTION>
Number of Shares Purchased Exercise Price Date of Exercise
- - -------------------------- -------------- ----------------
<S> <C> <C>
67,500 $1.00 07/30/96
33,750 4.889 07/30/96
22,500 4.889 01/09/96
45,000 1.00 01/09/96
</TABLE>
The issuance of the above options and shares to Mr. Kelleher were
deemed exempt from the registration provisions of the Securities Act of 1933,
as amended (the "Act"), by reason of the provision of Section 4(2) of the Act
because, among other things, of the limited number of participants in such
transactions and the agreement and representation of Mr. Kelleher that he was
acquiring such securities for investment and not with a view to distribution
thereof. The certificates representing the shares issued to Mr. Kelleher
contain a legend to the effect that such shares are not registered under the
Act and may not be transferred except pursuant to a registration statement
which has become effective under the Act or to an exemption from such
registration. The issuance of such shares was not underwritten.
ITEM 6. SELECTED FINANCIAL DATA
The following financial information for the five years ended December
31, 1996 has been derived from the Company's consolidated financial statements.
This information should be read in conjunction with the Consolidated Financial
Statements and related notes thereto included elsewhere herein.
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
(in thousands except per share amounts)
Operating revenues ............................ $ 3,406,170 $ 2,872,751 $ 2,591,933 $ 2,296,673 $ 1,802,979
Operating expenses ............................ 3,055,335 2,559,220 2,275,224 2,004,700 1,609,175
----------- ----------- ----------- ----------- -----------
Operating income .............................. 350,835 313,531 316,709 291,973 193,804
Other expenses, net ........................... 9,473 8,391 17,186 32,336 36,361
----------- ----------- ----------- ----------- -----------
Income before income taxes and cumula-
tive effect of accounting changes .......... 341,362 305,140 299,523 259,637 157,443
Provision for income taxes (1) ................ 134,025 122,514 120,192 105,353 60,058
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of
accounting changes (1) ..................... 207,337 182,626 179,331 154,284 97,385
Cumulative effect of accounting changes ....... -- -- -- 15,259(2) 12,538(3)
----------- ----------- ----------- ----------- -----------
Net income (1) ................................ $ 207,337 $ 182,626 $ 179,331 $ 169,543 $ 109,923
=========== =========== =========== =========== ===========
Net income per common and common
equivalent share before cumulative
effect of accounting changes (1) ........... $ 1.37 $ 1.23 $ 1.22 $ 1.05 $ 0.68
Cash dividends per common share ............... $ .04400 $ .04000 $ .04000 $ .03867 $ .03533
Total assets at period-end .................... $ 3,723,479 $ 3,256,122 $ 2,823,071 $ 2,576,037 $ 2,368,856
Long-term obligations at period-end ........... $ 650,226 $ 661,010 $ 583,071 $ 639,136 $ 735,754
Stockholders' equity at period-end ............ $ 1,648,312 $ 1,427,318 $ 1,238,706 $ 1,054,019 $ 879,536
OPERATING DATA:
Revenue passengers carried .................... 49,621,504 44,785,573 42,742,602(5) 36,955,221(5) 27,839,284
Revenue passenger miles (RPMs) (000s) ......... 27,083,483 23,327,804 21,611,266 18,827,228 13,787,005
Available seat miles (ASMs) (000s) ............ 40,727,495 36,180,001 32,123,974 27,511,000 21,366,642
Load factor ................................... 66.5% 64.5% 67.3% 68.4% 64.5%
Average length of passenger haul (miles) ...... 546 521 506 509 495
Trips flown ................................... 748,634 685,524 624,476 546,297 438,184
Average passenger fare ........................ $ 65.88 $ 61.64 $ 58.44 $ 59.97 $ 58.33
Passenger revenue yield per RPM ............... 12.07c. 11.83c. 11.56c. 11.77c. 11.78c.
Operating revenue yield per ASM ............... 8.36c. 7.94c. 8.07c. 8.35c. 7.89c.
Operating expenses per ASM .................... 7.50c. 7.07c. 7.08c. 7.25c.(6) 7.03c.
Fuel cost per gallon (average) ................ 65.47c. 55.22c. 53.92c. 59.15c. 60.82c.
Number of employees at period-end ............. 22,944 19,933 16,818 15,175 11,397
Size of fleet at period-end (4) ............... 243 224 199 178 141
</TABLE>
- - ------------------
(1) Proforma prior to 1993, assuming Morris, an S-Corporation prior to 1993,
was taxed at statutory rates.
(2) Includes the net cumulative effect of adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" and Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
(3) Includes one-time adjustment for the cumulative effect of a change in the
method of accounting for scheduled airframe overhaul costs from the direct
expense method to that of capitalizing and amortizing the costs over the
periods benefited.
(4) Includes leased aircraft.
(5) Includes certain estimates for Morris.
(6) Excludes merger expenses of $10.8 million.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEAR IN REVIEW
Southwest and the airline industry continued to post record profits in 1996.
Southwest's net income for the first half of 1996 benefitted from the lapse in
the ten percent federal ticket tax on December 31, 1995. Net income for the
second half of 1996 fell below year ago levels primarily due to significant
increases in jet fuel prices.
Southwest continued to maintain our advantage as the low cost leader in the
industry. Despite this advantage, we continue pursuing numerous cost reduction
efforts, which have proven to be beneficial.
We added 22 new Boeing 737-300 aircraft to our fleet in 1996 and retired three
- - -200s. Our fleet remains one of the youngest fleets in the industry with an
average age of 7.9 years. In October 1997, we will be the launch customer for
the new Boeing 737-700 aircraft. In total for 1997, we will accept delivery of
15 -300s and four -700s. We currently plan to retire four -200s in fourth
quarter 1997.
Our expansion into Florida in 1996 has been successful with strong load
factors. We added Jacksonville, Florida service beginning January 15, 1997.
Service to Providence, Rhode Island, which began October 27, 1996, also looks
promising. Our current plans for capacity growth in 1997 will be primarily
directed to cities we presently serve, either with increased frequencies or new
routes. We may begin service to one more new city later in 1997.
Proposed FAA "funding reform" continues to present uncertainty as to how or if
any changes would impact Southwest. While Congress reinstated the ten percent
ticket tax in August 1996, the tax lapsed again as of December 31, 1996. At the
current time, Southwest is unable to predict how this FAA funding issue will be
resolved and what impact, if any, resolution of this uncertainty will have on
future operating results.
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995 The Company's consolidated net income for 1996 was
$207.3 million ($1.37 per share), as compared to the corresponding 1995 amount
of $182.6 million ($1.23 per share), an increase of 13.5 percent.
OPERATING REVENUES Consolidated operating revenues increased by 18.6 percent in
1996 to $3,406.2 million, compared to $2,872.8
12
<PAGE> 14
million for 1995. This increase in 1996 operating revenues was derived
primarily from an 18.4 percent increase in passenger revenues. Revenue
passenger miles (RPMs) increased 16.1 percent in 1996, compared to a 12.6
percent increase in available seat miles (ASMs), resulting in an increase in
load factor from 64.5 percent in 1995 to 66.5 percent in 1996. The 1996 ASM
growth resulted from the net addition of 19 aircraft during the year: 22
additions and three retirements.
In December 1995, because of the impasse in the federal budget, Congress
allowed the ten percent federal ticket tax to lapse. This benefitted
Southwest's revenues until late August when Congress reimposed the tax through
December 31, 1996. The reimposition of the ticket tax negatively impacted
revenues in third and fourth quarters 1996 as compared to revenue trends in the
first half of 1996.
In celebration of the Company's 25th Anniversary, Southwest launched a fare
sale in July for travel between August 19 and October 31, 1996. The sale was
extremely popular and resulted in record advance bookings, with more than four
and a half million seats sold. Although July and early August load factors and
revenues were negatively impacted by the telephone line congestion experienced
during the sale, revenues for September and October 1996 were positively
impacted with very heavy passenger volumes.
Freight revenues in 1996 were $80.0 million, compared to $65.8 million in 1995.
The 21.5 percent increase in freight revenues exceeded the 12.6 percent
increase in ASMs for the same period primarily due to increased air freight
volumes and United States mail services primarily resulting from the
development of new markets added in 1995 and early 1996.
Other revenues increased by 23.3 percent in 1996 to $56.9 million, compared to
$46.2 million in 1995. This increase is primarily due to increased charter
revenue.
OPERATING EXPENSES Consolidated operating expenses for 1996 were $3,055.3
million, compared to $2,559.2 million in 1995, an increase of 19.4 percent,
compared to the 12.6 percent increase in capacity. Operating expenses per ASM
increased 6.1 percent in 1996 compared to 1995, primarily due to significantly
higher jet fuel prices along with the 4.3 cent per gallon federal jet fuel tax
implemented October 1, 1995. Excluding jet fuel costs and related taxes,
operating expenses per ASM were up 3.1 percent in 1996 compared to 1995.
Unit costs are expected to increase in first quarter 1997 versus first quarter
1996, due to higher jet fuel prices. (The
13
<PAGE> 15
immediately preceding sentence is a forward-looking statement which involves
uncertainties that could result in actual results differing materially from
expected results. Such uncertainties include, but may not be limited to, the
largely unpredictable levels of fuel prices.)
Operating expenses per ASM for 1996 and 1995 were as follows:
OPERATING EXPENSES PER ASM
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
PERCENT
1996 1995 INCREASE CHANGE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries, wages,
and benefits ... 2.22(cents) 2.17(cents) .05(cents) 2.3%
Employee profitsharing
and savings plans .. .23 .23 -- --
Fuel and oil ............ 1.19 1.01 .18 17.8
Maintenance materials and
repairs ........ .62 .60 .02 3.3
Agency commissions ...... .35 .34 .01 2.9
Aircraft rentals ........ .47 .47 -- --
Landing fees and
other rentals .. .46 .44 .02 4.5
Depreciation ............ .45 .43 .02 4.7
Other ................... 1.51 1.38 .13 9.4
- - --------------------------------------------------------------------------------
TOTAL ................... 7.50(cents) 7.07(cents) .43(cents) 6.1%
- - --------------------------------------------------------------------------------
</TABLE>
Salaries, wages, and benefits per ASM increased 2.3 percent in 1996. This
increase resulted primarily from a 16.2 percent increase in 1996 average
headcount, which outpaced the 1996 capacity (ASM) increase of 12.6 percent, and
offset a 0.8 percent decrease in average salary and benefits cost per Employee.
The 16.2 percent increase in average headcount was primarily the result of a
24.3 percent increase in Reservations Sales Agents in 1996. Excluding
Reservations Sales Agents, total average headcount increased 13.1 percent, in
line with capacity.
Southwest's mechanics are subject to an agreement with the International
Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (the
Teamsters), which became amendable August 16, 1995. The Company reached an
agreement with the Teamsters which was ratified by its membership in March
1996. The Company's flight attendants are subject to an agreement with the
Transport Workers Union of America, AFL-CIO (TWU), which became amendable May
31, 1996. Southwest is currently in negotiations with TWU to amend the
contract.
14
<PAGE> 16
Fuel and oil expenses per ASM increased 17.8 percent in 1996, primarily due to
an 18.6 percent increase in the average jet fuel cost per gallon from 1995. The
average price paid for jet fuel in 1996 was $.6547 compared to $.5522 in 1995.
During fourth quarter 1996, the average cost per gallon increased 25.0 percent
to $.7323 compared to $.5859 in fourth quarter 1995. In January 1997, fuel
prices have averaged approximately $.76 per gallon.
Maintenance materials and repairs per ASM increased 3.3 percent in 1996
compared to 1995 primarily as a result of increased scheduled airframe
inspections during 1996.
Agency commissions per ASM increased 2.9 percent in 1996 compared to 1995,
which was slightly slower than the 5.2 percent increase in passenger revenues
per ASM.
Landing fees and other rentals per ASM increased 4.5 percent in 1996 compared
to 1995, which included an airport credit of $4.9 million.
Depreciation expense per ASM increased 4.7 percent in 1996 compared to 1995 due
to an increase in the percentage of owned aircraft.
Other operating expenses per ASM increased 9.4 percent in 1996 compared to
1995. This increase was primarily due to increased advertising costs resulting
from the expansion into Florida and Providence, Rhode Island, as well as a new
advertising campaign; the 4.3 cents per gallon tax on commercial aviation jet
fuel purchased for use in domestic operations, which became effective October
1, 1995; and increased airport security costs. The additional fuel tax
increased 1996 and 1995 "other operating expenses" by $32.7 million and $7.4
million, respectively.
OTHER "Other expenses (income)" included interest expense, capitalized
interest, interest income, and nonoperating gains and losses. Capitalized
interest decreased $9.1 million in 1996 as a result of certain amendments to
aircraft purchase contracts during third quarter 1995 that affected the timing
of payments. Interest income for 1996 increased $5.7 million primarily due to
higher invested cash balances.
INCOME TAXES The provision for income taxes, as a percentage of income before
taxes decreased in 1996 to 39.3 percent from 40.2 percent in 1995. The decrease
was primarily the result of lower effective state tax rates.
1995 COMPARED WITH 1994 The Company's consolidated net income for 1995 was
$182.6 million ($1.23 per share), as compared to the
15
<PAGE> 17
corresponding 1994 amount of $179.3 million ($1.22 per share), an increase of
1.8 percent.
Operating Revenues Consolidated operating revenues increased by 10.8 percent in
1995 to $2,872.8 million, compared to $2,591.9 million for 1994. This increase
in 1995 operating revenues was derived from a 10.5 percent increase in
passenger revenues. RPMs increased 7.9 percent in 1995, compared to a 12.6
percent increase in ASMs, resulting in a decrease in load factor from 67.3
percent in 1994 to 64.5 percent in 1995. The 1995 ASM growth resulted from the
addition of 25 aircraft during the year.
Freight revenues in 1995 were $65.8 million, compared to $54.4 million in 1994.
The 21.0 percent increase in freight revenues exceeded the 12.6 percent
increase in ASMs for the same period primarily due to increased air freight
volumes and United States mail services primarily resulting from the
development of new markets added throughout 1994 and 1995.
Operating Expenses Consolidated operating expenses for 1995 were $2,559.2
million, compared to $2,275.2 million in 1994, an increase of 12.5 percent,
compared to the 12.6 percent increase in ASMs. For the second consecutive year,
operating expenses on a per-ASM basis decreased year-over-year, down .1 percent
in 1995.
Salaries, wages, and benefits per ASM increased 1.9 percent in 1995. This
increase resulted primarily from a 17.8 percent increase in 1995 average
headcount, which outpaced the 1995 capacity (ASM) increase of 12.6 percent, and
offset a 2.6 percent decrease in average salary and benefits cost per Employee.
The 17.8 percent increase in average headcount was primarily the result of a
44.6 percent increase in Reservations Sales Agents in 1995. Excluding
Reservations Sales Agents, total average headcount increased only 11.4 percent.
The Reservations Sales Agent increase coincided with increased demand for
reservations capacity following 1994 enhancements to Southwest's ticket
delivery systems for direct Customers.
Employee profitsharing and savings plans expense per ASM increased 4.5 percent
in 1995. The increase is primarily the result of increased matching
contributions to Employee savings plans resulting from increased Employee
participation and higher matching rates in 1995 for non-contract Employees and
certain Employee groups covered by collective bargaining agreements.
Fuel and oil expenses per ASM increased 1.0 percent in 1995, primarily due to a
2.4 percent increase in the average jet fuel cost per gallon from 1994. Jet
fuel prices remained relatively stable throughout most of 1995, with quarterly
averages through
16
<PAGE> 18
the first three quarters ranging from $.53 to $.55 per gallon. During fourth
quarter 1995, the average cost per gallon increased to $.59 and, in January
1996, averaged approximately $.62 per gallon.
Maintenance materials and repairs per ASM increased 1.7 percent in 1995
compared to 1994 primarily as a result of performing more engine overhauls
during 1995.
Agency commissions per ASM decreased 17.1 percent in 1995 compared to 1994, due
to a lower mix of travel agency sales in 1995. The lower travel agency sales
mix resulted from 1994 enhancements to Southwest's ticket delivery systems for
direct Customers, as described below.
In response to actions taken by our competitor-owned reservations systems in
1994, we reduced our operating costs and enhanced our ticket delivery systems
by developing our own Southwest Airlines Air Travel ("SWAT") system allowing
high-volume travel agents direct access to reservations; introduced overnight
ticket delivery for travel agents; reduced to three the number of advance days
reservations required for overnight delivery of tickets to consumers (Ticket By
Mail); developed our own Ticketless system, which was rolled out system-wide on
January 31, 1995; and effective March 30, 1995 subscribed to a new level of
service with SABRE that automates the booking process for SABRE travel
agencies.
Aircraft rentals per ASM increased 11.9 percent in 1995. The increase primarily
resulted from second and third quarter 1995 sale/leaseback transactions
involving ten new 737-300 aircraft and a higher percentage of the fleet
consisting of leased aircraft.
Other operating expenses per ASM decreased 2.8 percent in 1995 compared to
1994. This decrease was primarily due to operating efficiencies resulting from
the transition of Morris operating functions to Southwest commencing first
quarter 1994, and lower communications costs. Communications costs decreased
approximately 15 percent per ASM primarily due to lower negotiated rates,
increased reservations operations efficiencies, and enhancements to the
Company's ticket delivery system.
In August 1993, the Revenue Reconciliation Act of 1993 was enacted, which,
among other things, included an assessment of a 4.3 cents per gallon tax on
commercial aviation jet fuel purchased for use in domestic operations, which
became effective September 30, 1995. This additional fuel tax increased 1995
"other operating expenses" by $7.4 million.
17
<PAGE> 19
Other "Other expenses (income)" included interest expense, capitalized
interest, interest income, and nonoperating gains and losses. Interest expense
increased $5.4 million in 1995 due to the March 1995 issuance of $100 million
senior unsecured 8% Notes due 2005. Capitalized interest increased $5.0 million
in 1995 as a result of higher levels of progress payments on aircraft compared
to 1994. Interest income for 1995 increased $10.9 million primarily due to
higher invested cash balances and higher short-term interest rates.
Income Taxes The provision for income taxes as a percentage of income before
taxes was relatively unchanged year over year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations was $615.2 million in 1996, compared to $456.4
million in 1995. During 1996, additional funds of $330.0 million were generated
from the sale and leaseback of ten new 737-300 aircraft subject to long-term
operating leases (increasing total commitments for operating leases by $588.8
million).
During 1996, capital expenditures of $677.4 million primarily were for the
purchase of 22 new 737-300 aircraft, one used 737-200 aircraft previously
leased by the Company, and progress payments for future aircraft deliveries. At
December 31, 1996, capital commitments of the Company consisted primarily of
scheduled aircraft acquisitions.
The Company recently announced its intention to order 20 hushkits for our
737-200 fleet, with an option for 14 more, for delivery in 1997-1999. These
hushkits, with an approximate cost of $1.0 million per aircraft, will make the
Stage 2 -200 aircraft compliant with Stage 3 noise requirements.
As of January 1997, Southwest had 78 new 737s on firm order, including 19 to be
delivered in 1997, with options to purchase another 67. Aggregate funding
required for firm commitments approximated $1,960.1 million through the year
2001 of which $515.1 million related to 1997. See Note 2 to the Consolidated
Financial Statements for further information.
In September 1996, the Company's Board of Directors reaffirmed a 1990
authorization for the Company to purchase shares of its common stock from
time-to-time on the open market. The authorization reaffirmed the purchase of
up to 2,500,000 shares. As of February 21, 1997, no shares have been purchased
pursuant to this authority since 1990.
The Company has various options available to meet its capital and operating
commitments, including cash on hand at December 31, 1996
18
<PAGE> 20
of $581.8 million, internally generated funds, and a revolving credit line with
a group of banks of up to $460 million (none of which had been drawn at
December 31, 1996). In addition, the Company will also consider various
borrowing or leasing options to maximize earnings and supplement cash
requirements.
The Company currently has outstanding shelf registrations for the issuance of
$114.4 million of public debt securities which it currently intends to utilize
for aircraft financings in 1997.
Cash provided from operations was $456.4 million in 1995 as compared to $412.7
million in 1994. During 1995, additional funds of $321.7 million were generated
from the sale and leaseback of ten new 737-300 aircraft subject to long-term
operating leases (increasing total commitments for operating leases by $607.9
million). In addition, $98.8 million was generated from the March 1995 issuance
of $100 million in senior unsecured 8% Notes due 2005. These proceeds were
primarily used to finance aircraft-related capital expenditures and to provide
working capital.
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Southwest Airlines Co.
We have audited the accompanying consolidated balance sheets of Southwest
Airlines Co. as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Southwest
Airlines Co. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
/s/ ERNST & YOUNG LLP
Dallas, Texas
January 23, 1997
20
<PAGE> 22
SOUTHWEST AIRLINES CO.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
1996 1995
- - --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 581,841 $ 317,363
Accounts receivable .......................... 73,440 79,781
Inventories of parts and supplies,
at cost .................................... 51,094 41,032
Deferred income taxes (Note 9) ............... 11,560 10,476
Prepaid expenses and other current
assets ..................................... 33,055 24,484
---------- ----------
Total current assets ..................... 750,990 473,136
Property and equipment, at cost (Notes 2 and 5):
Flight equipment ............................. 3,435,304 3,024,702
Ground property and equipment ................ 523,958 435,822
Deposits on flight equipment
purchase contracts ......................... 198,366 323,864
---------- ----------
4,157,628 3,784,388
Less allowance for depreciation .............. 1,188,405 1,005,081
---------- ----------
2,969,223 2,779,307
Other assets ................................... 3,266 3,679
---------- ----------
$3,723,479 $3,256,122
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 214,232 $ 116,530
Accrued liabilities (Note 3) ................. 380,747 349,419
Air traffic liability ........................ 158,098 131,156
Current maturities of long-term
debt ....................................... 12,327 13,516
---------- ----------
Total current liabilities ................ 765,404 610,621
Long-term debt less current
maturities (Note 4) .......................... 650,226 661,010
Deferred income taxes (Note 9) ................. 349,987 281,650
Deferred gains from sale and
leaseback of aircraft ........................ 274,891 245,154
Other deferred liabilities ..................... 34,659 30,369
Commitments and contingencies
(Notes 2, 5, and 9)
Stockholders' equity (Notes 6 and 7):
Common stock, $1.00 par value:
680,000,000 shares authorized;
145,112,090 and 144,033,273
shares issued and
outstanding in 1996 and
1995, respectively ......................... 145,112 144,033
Capital in excess of par value ............... 181,650 162,704
Retained earnings ............................ 1,321,550 1,120,581
---------- ----------
Total stockholders' equity ................ 1,648,312 1,427,318
---------- ----------
$3,723,479 $3,256,122
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
21
<PAGE> 23
SOUTHWEST AIRLINES CO.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION> Years ended December 31,
1996 1995 1994
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger .................. $ 3,269,238 $ 2,760,756 $ 2,497,765
Freight .................... 80,005 65,825 54,419
Other ...................... 56,927 46,170 39,749
----------- ----------- -----------
Total operating revenues 3,406,170 2,872,751 2,591,933
OPERATING EXPENSES:
Salaries, wages, and
benefits (Note 8) ........ 999,719 867,984 756,023
Fuel and oil ............... 484,673 365,670 319,552
Maintenance materials and
repairs .................. 253,521 217,259 190,308
Agency commissions ......... 140,940 123,380 133,081
Aircraft rentals ........... 190,663 169,461 132,992
Landing fees and other
rentals .................. 187,600 160,322 148,107
Depreciation ............... 183,470 156,771 139,045
Other operating expenses ... 614,749 498,373 456,116
----------- ----------- -----------
Total operating expenses 3,055,335 2,559,220 2,275,224
----------- ----------- -----------
OPERATING INCOME ............. 350,835 313,531 316,709
OTHER EXPENSES (INCOME):
Interest expense ........... 59,269 58,810 53,368
Capitalized interest ....... (22,267) (31,371) (26,323)
Interest income ............ (25,797) (20,095) (9,166)
Nonoperating (gains) losses,
net ....................... (1,732) 1,047 (693)
----------- ----------- -----------
Total other expenses .... 9,473 8,391 17,186
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ... 341,362 305,140 299,523
PROVISION FOR INCOME TAXES
(NOTE 9) ................... 134,025 122,514 120,192
----------- ----------- -----------
NET INCOME ................... $ 207,337 $ 182,626 $ 179,331
=========== =========== ===========
NET INCOME PER SHARE
(NOTES 6, 7, AND 10) ....... $ 1.37 $ 1.23 $ 1.22
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
22
<PAGE> 24
SOUTHWEST AIRLINES CO.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Capital
in excess
Common of Retained
stock par value earnings Total
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 .......................................... $ 142,756 $ 141,168 $ 770,095 $ 1,054,019
Issuance of common stock upon
exercise of executive stock
options and pursuant to Employee
stock option and purchase plans
(Note 7) .......................................................... 500 8,243 -- 8,743
Tax benefit of options exercised .................................... -- 2,335 -- 2,335
Cash dividends, $.04 per share ...................................... -- -- (5,722) (5,722)
Net income - 1994 ................................................... -- -- 179,331 179,331
----------- ----------- ----------- -----------
Balance at December 31, 1994 .......................................... 143,256 151,746 943,704 1,238,706
Issuance of common stock upon
exercise of executive stock
options and pursuant to Employee
stock option and purchase plans
(Note 7) .......................................................... 777 9,907 -- 10,684
Tax benefit of options exercised .................................... -- 1,051 -- 1,051
Cash dividends, $.04 per share ...................................... -- -- (5,749) (5,749)
Net income - 1995 ................................................... -- -- 182,626 182,626
----------- ----------- ----------- -----------
Balance at December 31, 1995 .......................................... $ 144,033 $ 162,704 $ 1,120,581 $ 1,427,318
Issuance of common stock upon
exercise of executive stock
options and pursuant to Employee
stock option and purchase plans
(Note 7) .......................................................... 1,079 14,513 -- 15,592
Tax benefit of options exercised .................................... -- 4,433 -- 4,433
Cash dividends, $.044 per share ..................................... -- -- (6,368) (6,368)
Net income - 1996 ................................................... -- -- 207,337 207,337
----------- ----------- ----------- -----------
Balance at December 31, 1996 .......................................... $ 145,112 $ 181,650 $ 1,321,550 $ 1,648,312
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE> 25
SOUTHWEST AIRLINES CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................ $ 207,337 $ 182,626 $ 179,331
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation ...................... 183,470 156,771 139,045
Deferred income taxes ............. 67,253 48,147 49,887
Amortization of deferred gains
on sale and leaseback of
aircraft ..................... (18,263) (24,286) (30,341)
Amortization of scheduled
airframe overhauls ............... 20,539 17,337 14,216
Changes in certain assets and
liabilities:
Accounts receivable .......... 6,341 (4,089) (5,208)
Other current assets ......... (19,534) (11,857) 648
Accounts payable and
accrued liabilities....... 132,096 61,937 52,679
Air traffic liability ........ 26,942 25,017 9,993
Other current liabilities .... 5,334 1,050 (4,690)
Other ............................. 3,713 3,789 7,106
--------- --------- ---------
Net cash provided by
operating activities .... 615,228 456,442 412,666
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ... (677,431) (728,643) (788,649)
--------- --------- ---------
Net cash used in investing
activities .............. (677,431) (728,643) (788,649)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ............ -- 98,811 --
Proceeds from aircraft sale and
leaseback transactions ............ 330,000 321,650 315,000
Payment of long-term debt and capital
lease obligations ................. (12,695) (10,379) (63,071)
Payment of cash dividends ............. (6,216) (5,749) (5,722)
Proceeds from Employee stock plans .... 15,592 10,693 8,743
--------- --------- ---------
Net cash provided by
financing activities ... 326,681 415,026 254,950
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ........................... 264,478 142,825 (121,033)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ............................. 317,363 174,538 295,571
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ................................ $ 581,841 $ 317,363 $ 174,538
========= ========= =========
CASH PAYMENTS FOR:
Interest, net of amount capitalized ........ $ 36,640 $ 25,277 $ 26,598
Income taxes ............................... 66,447 73,928 80,461
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION Southwest Airlines Co. (Southwest) is a major domestic
airline that provides shorthaul, high frequency, point-to-point, low-fare
service. The consolidated financial statements include the accounts of
Southwest and its wholly owned subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from these estimates. Certain prior year amounts have been
reclassified for comparison purposes.
CASH AND CASH EQUIVALENTS Cash equivalents consist of certificates of deposit
and investment grade commercial paper issued by major corporations and
financial institutions that are highly liquid and have original maturity dates
of three months or less. Cash and cash equivalents are carried at cost, which
approximates market value.
INVENTORIES Inventories of flight equipment expendable parts, materials, and
supplies are carried at average cost. These items are charged to expense when
issued for use.
PROPERTY AND EQUIPMENT Depreciation is provided by the straight-line method to
residual values over periods ranging from 12 to 20 years for flight equipment
and 3 to 30 years for ground property and equipment. Property under capital
leases and related obligations are recorded at an amount equal to the present
value of future minimum lease payments computed on the basis of the Company's
incremental borrowing rate or, when known, the interest rate implicit in the
lease. Amortization of property under capital leases is on a straight-line
basis over the lease term and is included in depreciation expense. In
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows to be generated by those assets are
less than the carrying amounts of those assets.
AIRCRAFT AND ENGINE MAINTENANCE The cost of engine overhauls and routine
maintenance costs for aircraft and engine maintenance
25
<PAGE> 27
are charged to maintenance expense as incurred. Scheduled airframe overhaul
costs are capitalized and amortized over the estimated period benefited,
presently 8 years. Modifications that significantly enhance the operating
performance or extend the useful lives of aircraft or engines are capitalized
and amortized over the remaining life of the asset.
REVENUE RECOGNITION Passenger revenue is recognized when transportation is
provided. Tickets sold but not yet used are included in "Air traffic
liability", which includes estimates that are evaluated and adjusted
periodically. Any adjustments resulting therefrom are included in results of
operations for the periods in which the evaluations are completed.
FREQUENT FLYER AWARDS The Company accrues the estimated incremental cost of
providing free travel awards earned under its Rapid Rewards frequent flyer
program.
ADVERTISING The Company expenses the production costs of advertising as
incurred. Advertising expense for the years ended December 31, 1996, 1995, and
1994 was $109,136,000, $92,087,000, and $79,475,000, respectively.
STOCK-BASED EMPLOYEE COMPENSATION Pursuant to Statement of Financial Accounting
Standards No. 123 (SFAS 123) "Accounting for Stock-Based Compensation", the
Company accounts for stock-based compensation plans utilizing the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees" and related Interpretations because, as discussed in Note
7, the alternative fair value accounting provided for under SFAS 123 requires
use of option valuation models that were not developed for use in valuing
employee stock options.
2. COMMITMENTS
The Company's contractual purchase commitments consist primarily of scheduled
aircraft acquisitions. Timing of payments pursuant to contractual commitments
was affected favorably by third quarter 1995 amendments to certain aircraft
purchase contracts, which modified future progress payment schedules. Fifteen
737-300 and four 737-700 aircraft are scheduled for delivery in 1997. Sixteen
- - -700s are scheduled for delivery in 1998, 16 in 1999, 15 in 2000, and 12 in
2001. In addition, the Company has options to purchase up to sixty-seven -700s
during 1998-2004. The Company has the option, which must be exercised two years
prior to the contractual delivery date, to substitute 737-600s or 737-800s for
the -700s delivered subsequent to 1999. Aggregate funding needed for these
commitments is approximately $1,960.1 million, subject to adjustments for
inflation, due as follows: $515.1 million in 1997,
26
<PAGE> 28
$420.0 million in 1998, $502.2 million in 1999, $318.3 million in 2000, and
$204.5 million in 2001.
The Company has historically used jet fuel and heating oil fixed price swap
arrangements to hedge its exposure to price fluctuations on an insignificant
percent of its annual fuel requirements. As of December 31, 1996, the Company
had no open swap agreements, although the hedging program has not been
discontinued. As of December 31, 1995, the Company had a heating oil swap
agreement with a broker-dealer to exchange monthly payments on a notional
quantity of 1,050,000 gallons during May 1996. Under the swap agreement, the
Company paid or received the difference between the daily average heating oil
price and a fixed price of $.46 per gallon.
The Company's principal hedging program utilizes the purchase of crude oil call
options at a nominal premium and at volumes of up to 30 percent of its annual
fuel requirements.
Gains and losses on hedging transactions are recorded as adjustments to fuel
expense and have been insignificant. Any such future agreements expose the
Company to credit loss in the event of nonperformance by the other parties to
the agreements. The Company does not anticipate such nonperformance.
3. ACCRUED LIABILITIES
(in thousands)
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Aircraft rentals ___________________ $121,384 $105,534
Employee profitsharing and
savings plans (Note 8)_______ 61,286 55,253
Vacation pay _______________________ 44,763 38,777
Aircraft maintenance costs__________ 25,942 31,463
Taxes, other than income ___________ 25,574 22,478
Interest ___________________________ 21,853 22,326
Other ______________________________ 79,945 73,588
----------------------------
$380,747 $349,419
============================
</TABLE>
27
<PAGE> 29
4. LONG-TERM DEBT
(in thousands)
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
9 1/4% Notes due 1998 ____________________ $100,000 $100,000
9.4% Notes due 2001 ______________________ 100,000 100,000
8 3/4% Notes due 2003 ____________________ 100,000 100,000
7 7/8% Notes due 2007 ____________________ 100,000 100,000
8% Notes due 2005 ________________________ 100,000 100,000
Capital leases (Note 5) 165,610 177,696
Other ____________________________________ 10 430
---------------------------
665,620 678,126
Less current maturities _________________ 12,327 13,516
Less debt discount _______________________ 3,067 3,600
---------------------------
$650,226 $661,010
===========================
</TABLE>
On March 7, 1995, the Company issued $100 million of senior unsecured 8% Notes
due March 1, 2005. Interest is payable semi-annually on March 1 and September
1. The Notes are not redeemable prior to maturity.
On September 9, 1992, the Company issued $100 million of senior unsecured
7 7/8% Notes due September 1, 2007. Interest is payable semi-annually on March 1
and September 1. The Notes are not redeemable prior to maturity.
During 1991, the Company issued $100 million of senior unsecured 9 1/4% Notes,
$100 million of senior unsecured 9.4% Notes, and $100 million of senior
unsecured 8 3/4% Notes due February 15, 1998, July 1, 2001, and October 15,
2003, respectively. Interest on the Notes is payable semi-annually. The Notes
are not redeemable prior to maturity.
The fair values, based on quoted market prices, of these Notes at December 31,
1996, were as follows (in thousands):
<TABLE>
<S> <C>
9 1/4% Notes due 1998 _____________________ $103,520
9.4% Notes due 2001 ______________________ 110,670
8 3/4% Notes due 2003 _____________________ 109,820
7 7/8% Notes due 2007 _____________________ 104,800
8% Notes due 2005 _________________________ 106,190
</TABLE>
28
<PAGE> 30
In addition to the credit facilities described above, Southwest has an
unsecured Bank Credit Agreement with a group of banks that permits Southwest to
borrow through December 14, 1999 on a revolving credit basis up to $460
million. Interest rates on borrowings under the Credit Agreement can be, at the
option of Southwest, the agent bank's prime rate, 0.275% over LIBOR, or 0.50%
over domestic certificate of deposit rates. The commitment fee is 0.125% per
annum. There were no outstanding borrowings under this agreement at December
31, 1996 or 1995.
29
<PAGE> 31
5. LEASES
Total rental expense for operating leases charged to operations in 1996, 1995,
and 1994 was $280,389,000, $247,033,000, and $198,987,000, respectively. The
majority of the Company's terminal operations space, as well as 106 aircraft,
were under operating leases at December 31, 1996. The amounts applicable to
capital leases included in property and equipment were (in thousands):
1996 1995
- - -------------------------------------------------------------------------------
[S]
Flight equipment __________________ $226,677 $223,844
Less accumulated amortization _____ 111,815 101,641
---------------------------
$114,862 $122,203
===========================
Future minimum lease payments under capital leases and noncancelable operating
leases with initial or remaining terms in excess of one year at December 31,
1996 were (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
- - ---------------------------------------------------------------------------------
<S> <C> <C>
1997 _______________________ $ 25,858 $ 243,253
1998 _______________________ 32,026 223,479
1999 _______________________ 20,245 215,553
2000 _______________________ 16,871 213,798
2001 _______________________ 17,391 208,460
After 2001 _______________________ 155,360 2,342,794
-----------------------------
Total minimum lease payments _____ 267,751 $3,447,337
==========
Less amount representing
interest ______________________ 102,141
----------
Present value of minimum
lease payment _________________ 165,610
Less current portion _____________ 12,317
----------
Long-term portion ________________ $ 153,293
==========
</TABLE>
The aircraft leases can generally be renewed, at rates based on fair market
value at the end of the lease term, for one to five years. Most aircraft leases
have purchase options at or near the end of the lease term at fair market
value, but generally not to exceed a stated percentage of the lessor's defined
cost of the aircraft.
30
<PAGE> 32
6. COMMON STOCK
At December 31, 1996, the Company had common stock reserved for issuance
pursuant to Employee stock benefit plans (35,257,962 shares) and upon exercise
of rights (180,370,052 shares) pursuant to the Common Stock Rights Agreement,
as amended (Agreement).
Effective July 18, 1996, the Company amended and restated the Agreement. The
principal purpose of the amendment and restatement was to extend the Agreement
by 10 years. Pursuant to the Agreement, each outstanding share of the Company's
common stock is accompanied by one common share purchase right (Right). Each
Right entitles its holder to purchase one share of common stock at an exercise
price of $16.67 and is exercisable only in the event of a proposed takeover, as
defined by the Agreement. The Company may redeem the Rights at $.0111 per Right
prior to the time that 15 percent of the common stock has been acquired by a
person or group. If the Company is acquired, as defined in the Agreement, each
Right will entitle its holder to purchase for $16.67 that number of the
acquiring company's or the Company's common shares, as provided in the
Agreement, having a market value of two times the exercise price of the Right.
The Rights will expire no later than July 30, 2006.
7. STOCK PLANS
At December 31, 1996, the Company had six stock-based compensation plans and
other stock options outstanding, which are described below. The Company applies
APB 25 and related Interpretations in accounting for its stock-based
compensation. Accordingly, no compensation cost is recognized for its fixed
option plans because the exercise prices of the Company's Employee stock options
equal the market prices of the underlying stock on the date of the grants.
Compensation cost charged against income for other options outstanding was
$649,778, $564,251, and $451,400 for 1996, 1995, and 1994, respectively.
The Company has five fixed option plans. Under the 1991 Incentive Stock Option
Plan, the Company may grant options to key Employees for up to 9,000,000 shares
of common stock. Under the 1991 Non-Qualified Stock Option Plan, the Company
may grant options to key Employees and non-employee directors for up to 750,000
shares of common stock. All options granted under these plans have ten-year
maximum terms and vest and become fully exercisable at the end of three, five,
or ten years of continued employment, depending upon the grant type.
Under the 1995 Southwest Airlines Pilots' Association Non-Qualified Stock
Option Plan (SWAPA Plan), the Company may grant
31
<PAGE> 33
options to Pilots for up to 18,000,000 shares of common stock. An initial grant
of approximately 14,500,000 shares was made on January 12, 1995 at an option
price of $20.00 per share, which exceeded the market price of the Company's
stock on that date. Options granted under the initial grant vest in ten annual
increments of ten percent. On September 1 of each year of the agreement,
beginning September 1, 1996, additional options will be granted to Pilots that
become eligible during that year. Additional options granted on September 1,
1996 vest in eight annual increments of 12.5 percent. Options under both grants
must be exercised prior to January 31, 2007, or within a specified time upon
retirement or termination. In the event that the Southwest Airlines Pilots'
Association exercises its option to make the collective bargaining agreement
amendable on September 1, 1999, any unexercised options will be canceled on
December 1, 1999.
Under the 1996 Incentive Stock Option Plan, the Company may grant options to
key Employees for up to 6,000,000 shares of common stock. Under the 1996
Non-Qualified Stock Option Plan, the Company may grant options to key Employees
and non-employee directors for up to 575,000 shares of common stock. All
options granted under these plans have ten-year terms and vest and become fully
exercisable at the end of three, five, or ten years of continued employment,
depending upon the grant type.
Under all fixed option plans, except the SWAPA Plan, the exercise price of each
option equals the market price of the Company's stock on the date of grant.
Under the SWAPA Plan, for additional options granted each September 1, eligible
Pilots will be required to pay a purchase price equal to 105 percent of the fair
value of such stock on the date of the grant.
32
<PAGE> 34
A summary of the status of the Company's five fixed option plans as of December
31, 1996, 1995, and 1994, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
INCENTIVE PLANS NON-QUALIFIED PLANS
--------------- -------------------
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS * PRICE OPTIONS ** PRICE
--------- ----- ---------- -----
<S> <C> <C> <C> <C>
Outstanding December 31, 1993 .. 4,312,287 $ 8.83 301,277 $ 8.92
Granted - Incentive Plans ... 794,714 29.02 -- --
Granted - SWAPA Plan ........ -- -- -- --
Granted - Other Non-Qualified
Plans ................... -- -- 63,918 34.85
Exercised ................... (190,159) 8.23 (9,940) 7.85
Surrendered ................. (104,880) 14.22 -- --
--------- ----------
Outstanding December 31, 1994 .. 4,811,962 12.07 355,255 13.61
Granted - Incentive Plans .... 983,214 18.80 -- --
Granted - SWAPA Plan ......... -- -- 14,527,050 20.00
Granted - Other Non-Qualified
Plans .................... -- -- 93,315 18.77
Exercised ................... (275,058) 8.50 (60,510) 15.12
Surrendered ................. (308,239) 12.71 (61,041) 19.61
--------- ----------
Outstanding December 31, 1995 .. 5,211,879 13.47 14,854,069 19.86
Granted - Incentive Plans ... 1,670,344 25.18 -- --
Granted - SWAPA Plan ......... -- -- 466,200 23.82
Granted - Other Non-Qualified
Plans .................... -- -- 69,122 25.17
Exercised ................... (395,848) 10.27 (290,385) 17.89
Surrendered ................. (250,446) 20.16 (94,985) 20.00
--------- ----------
Outstanding December 31, 1996 .. 6,235,929 $ 16.54 15,004,021 $ 20.04
========= ==========
Exercisable December 31, 1996 .. 1,237,517 4,250,643
Available for granting in
future periods ............. 7,352,821 3,854,504
</TABLE>
33
<PAGE> 35
*Includes 1991 Incentive Stock Option Plan. No options have been
granted under the 1996 Incentive Stock Option Plan.
**Includes 1991 Non-Qualified Stock Option Plan and SWAPA Plan. No
options have been granted under the 1996 Non-Qualified Stock Option
Plan.
The following table summarizes information about fixed stock options
outstanding under the fixed option plans at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices 12/31/96 Life Price 12/31/96 Price
- - ---------------- ------------------ ---- ----- ------------------ -----
<S> <C> <C> <C> <C> <C>
$6.02 to $7.81 2,487,991 4.05 yrs. $ 6.12 682,231 $ 6.39
$11.33 to $16.87 326,591 5.09 12.02 71,291 12.07
$18.81 to $27.19 18,248,078 8.09 20.71 4,572,348 20.33
$35.69 to $37.44 177,290 7.02 37.29 162,290 37.40
------------------ ------------------
$6.02 to $37.44 21,239,950 7.56 yrs. $19.01 5,488,160 $18.99
================== ==================
</TABLE>
The Company has granted options to purchase the Company's common stock related
to employment contracts with the Company's president and chief executive
officer. These options have terms of ten years from the date of grant or ten
years from the date exercisable, depending upon the grant. The options vest and
become fully exercisable over three or four years. In 1996, the Company granted
144,395 options with an exercise price of $1.00 per share and 500,000 options
with an exercise price of $23.50 per share related to the 1996 employment
agreement. None of the 1996 options granted were exercised in 1996, however,
128,879 were exercisable as of December 31, 1996. At December 31, 1996, 1995,
and 1994, 1,897,898, 1,422,253, and 1,489,753 total options were outstanding.
Exercise prices range from $1.00 to $23.50 per share. Options for 168,750,
67,500, and 15,000 shares were exercised in 1996, 1995, and 1994, respectively.
Under the 1991 Employee Stock Purchase Plan (ESPP), the Company is authorized
to issue up to a balance of 1,183,236 shares of common stock to Employees of
the Company at a price equal to 90 percent of the market value at the end of
each purchase period. Common stock purchases are paid for through periodic
payroll deductions. Participants under the plan received 309,446 shares in
1996, 388,339 shares in 1995, and 290,054 shares in 1994 at average prices of
$23.05, $19.18, and $24.98, respectively.
34
<PAGE> 36
Pro forma information regarding net income and net income per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock-based compensation plans and other stock options under the fair
value method of that SFAS. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants under the fixed option
plans in 1996 and 1995, respectively: dividend yield of .16% and .21%; expected
volatility of 35.4% and 36.9%; risk-free interest rate of 5.9% and 7.8%; and
expected lives of 5.0 years for both periods. Assumptions for the stock options
granted in 1996 to the Company's president and chief executive officer were the
same as for the fixed option plans except for the weighted average expected
lives of 8.0 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's Employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its Employee stock options.
For purposes of pro forma disclosures the estimated fair value of stock-based
compensation plans and other options is amortized to expense primarily over the
vesting period. The Company's pro forma net income and net income per share is
as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income As reported $207,337 $182,626
Pro forma $196,478 $167,907
Net income per share As reported $1.37 $1.23
Pro forma $1.33 $1.14
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures during the
initial phase-in period may not be representative of the effects on reported
net income for future years.
The weighted-average fair value of options granted under the five fixed option
plans during 1996 and 1995 was $10.17 and $8.42, respectively, for the
incentive plans, $9.24 and $7.97, respectively, for the SWAPA Plan, and $10.17
and $8.42,
35
<PAGE> 37
respectively, for other non-qualified plans. The weighted average fair value of
options granted in 1996 to the Company's president and chief executive officer
(no options were granted in 1995) was $13.98. The weighted-average fair value
of each purchase right under the ESPP granted in 1996 and 1995, which is equal
to the ten percent discount from the market value of the common stock at the
end of each purchase period, was $2.56 and $2.15, respectively.
36
<PAGE> 38
8. EMPLOYEE PROFITSHARING AND SAVINGS PLANS
Substantially all of Southwest's Employees are members of the Southwest
Airlines Co. Profitsharing Plan (the Plan). Total profitsharing expense charged
to operations in 1996, 1995, and 1994, was $59,927,000, $54,033,000, and
$52,782,000, respectively.
The Company sponsors Employee savings plans under Section 401(k) of the
Internal Revenue Code. The plans cover substantially all full-time Employees.
The amount of matching contributions varies by Employee group. Company
contributions generally vest over five years with credit for prior years'
service granted. Company matching contributions expensed in 1996, 1995 and
1994 were $35,125,000, $28,954,000, and $19,817,000, respectively.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of
deferred tax assets and liabilities at December 31, 1996 and 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation _____________ $467,372 $400,321
Scheduled airframe overhauls _________ 30,984 27,129
Other ________________________________ 78,195 68,458
---------------------------
Total deferred tax liabilities 576,551 495,908
Deferred tax assets:
Deferred gains from sale and
leaseback of aircraft ___________ 114,514 106,119
Capital and operating leases _______ 58,252 54,472
Alternative minimum tax credit
carryforward ___________________ 6,019 11,333
Other ______________________________ 59,339 52,810
---------------------------
Total deferred tax assets _______ 238,124 224,734
---------------------------
Net deferred tax liability ______ $338,427 $271,174
===========================
</TABLE>
37
<PAGE> 39
The provision for income taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ___________ $ 59,101 $ 64,420 $ 59,603
State _____________ 7,671 9,947 10,702
-------- -------- --------
Total Current 66,772 74,367 70,305
Deferred:
Federal ___________ 60,967 44,580 46,470
State _____________ 6,286 3,567 3,417
-------- -------- --------
Total deferred 67,253 48,147 49,887
-------- -------- --------
$134,025 $122,514 $120,192
======== ======== ========
</TABLE>
Southwest has received examination reports from the Internal Revenue Service
proposing certain adjustments to Southwest's income tax returns for 1987
through 1991. The adjustments relate to certain types of aircraft financings
consummated by Southwest, as well as other members of the aviation industry
during that time period. Southwest intends to vigorously protest the
adjustments proposed with which it does not agree. The industry's difference
with the IRS involves complex issues of law and fact that are likely to take a
substantial period of time to resolve. Management believes that final
resolution of such protest will not have a materially adverse effect upon the
results of operations of Southwest.
The effective tax rate on income before income taxes differed from the federal
income tax statutory rate for the following reasons (in thousands):
1996 1995 1994
- - -------------------------------------------------------------------------------
Tax at statutory
U.S. tax rates ___ $119,477 $106,799 $104,833
Nondeductible items 5,168 4,488 3,689
State income taxes,
net of federal
benefit __________ 9,072 8,784 9,177
Other, net _________ 308 2,443 2,493
________ ________ ________
Total income tax $134,025 $122,514 $120,192
provision __________ ======== ======== ========
38
<PAGE> 40
10. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed based on the
weighted-average number of common and common equivalent shares outstanding
(151,793,477 in 1996, 148,850,512 in 1995 and 147,305,374 in 1994). Fully
diluted earnings per share have not been presented as the fully dilutive effect
of shares issuable upon the exercise of options under the Company's Stock
Option Plans is not material.
39
<PAGE> 41
QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
1996 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- - ---- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Operating revenues $772,529 $910,308 $891,492 $831,841
Operating income 57,393 142,206 102,934 48,302
Income before income taxes 54,771 139,989 100,243 46,359
Net income 33,000 85,316 60,858 28,163
Net income per common and .22 .56 .40 .19
common equivalent share
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
1996 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- - ---- -------- ------- -------- -------
<S> <C> <C> <C> <C>
Operating revenues $620,999 $738,205 $764,975 $748,572
Operating income 23,409 103,425 114,098 72,599
Income before income taxes 20,034 100,801 114,215 70,090
Net income 11,826 59,724 67,717 43,359
Net income per common and .08 .41 .45 .29
common equivalent share
</TABLE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None to be reported.
40
<PAGE> 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Election of Directors" incorporated herein by reference, from pages
1-4 of the definitive Proxy Statement for Southwest's Annual Meeting of
Shareholders to be held May 15, 1997. See "Executive Officers of the
Registrant" in Part I following Item 4 for information relating to executive
officers.
ITEM 11. EXECUTIVE COMPENSATION
See "Compensation of Executive Officers," incorporated herein by
reference, from pages 6-9 of the definitive Proxy Statement for Southwest's
Annual Meeting of Shareholders to be held May 15, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Voting Securities and Principal Shareholders," incorporated herein
by reference, from pages 4-5 of the definitive Proxy Statement for Southwest's
Annual Meeting of Shareholders to be held May 15, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Election of Directors" incorporated herein by reference, from pages
1-4 of the definitive Proxy Statement for Southwest's Annual Meeting of
Shareholders to be held May 15, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements included in Item 8 above are filed as part of
this annual report.
2. Financial Statement Schedules:
There are no financial statement schedules filed as part of this
annual report, since the required information is included in the
consolidated financial statements, including the notes thereto, or the
circumstances requiring inclusion of such schedules are not present.
3. Exhibits:
3.1 Restated Articles of Incorporation of Southwest (incorporated
by reference to Exhibit 4.1 to Southwest's Registration
Statement on Form S-3 (File No. 33-52155)); Amendment to
Restated Article of Incorporation of Southwest (incorporated
by reference to Exhibit 4.1 to Southwest's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996 (File No.
1-7259).
41
<PAGE> 43
3.2 Bylaws of Southwest, as amended through February 1994
(incorporated by reference to Exhibit 3.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-7259)).
4.1 Credit Agreement dated December 15, 1990, between Southwest
and Texas Commerce Bank - Dallas, N.A., as agent for itself
and four other banks named therein, and such banks
(incorporated by reference to Exhibit 4.1 on Southwest's
Current Report on Form 8-K dated February 14, 1991 (File No.
1-7259)); First Amendment to Credit Agreement, dated April 4,
1991 and Second Amendment to Credit Agreement, dated December
14, 1991 (incorporated by reference to Exhibit 4.1 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-7259)); Third Amendment to
Credit Agreement, dated December 14, 1992 (incorporated by
reference in Exhibit 4.1 to Southwest's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 1-7259));
Fourth Amendment to Credit Agreement, dated December 14, 1993
(incorporated by reference to Exhibit 4.1 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-7259)); Fifth and Sixth Amendments to Credit
Agreement, dated March 10, 1995 and May 18, 1995,
respectively (incorporated by reference to Exhibit 4.1 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-7259).
4.2 Specimen certificate representing Common Stock of Southwest
(incorporated by reference to Exhibit 4.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-7259)).
4.3 Indenture dated as of December 1, 1985 between Southwest and
MBank Dallas, N.A., Trustee, relating to an unlimited amount
of Debt Securities (incorporated by reference to Exhibit 4.1
of Southwest's Current Report on Form 8-K dated February 26,
1986 (File No. 1-7259)) and First Supplemental Indenture dated
as of January 21, 1988, substituting MTrust Corp, National
Association, as Trustee, thereunder (incorporated by reference
to Exhibit 4.3 on Southwest's Annual Report on Form 10-K for
the year ended December 31, 1987 (File 1-7259)).
4.4 Amended and Restated Rights Agreement dated July 18, 1996
between Southwest and Continental Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to
Exhibit 1, Southwest's Registration Statement on Form 8-A/A
dated August 12, 1996 (File No. 1-7259)).
4.5 Indenture dated as of June 20, 1991 between Southwest Airlines
Co. and Bank of New York, successor to NationsBank of Texas,
N.A. (formerly NCNB Texas National Bank), Trustee
(incorporated by reference to Exhibit 4.1 to Southwest's
Current Report on Form 8-K dated June 24, 1991 (File No.
1-7259)).
4.6 Form of 9.4 percent Note due 2001 (incorporated by reference
to Exhibit 4.2 to Southwest's Current Report on Form 8-K dated
June 24, 1991 (File No. 1-7259)).
4.7 Form of 8-3/4 percent Note due 2003 (incorporated by reference
to Exhibit 4.2 to Southwest's Current Report on Form 8-K dated
October 4, 1991 (File No. 1-7259)).
4.9 Form of 9-1/4 percent Note due 1998 (incorporated by
reference to Exhibit 4.9 to Southwest's Annual Report on Form
10-K for the year ended December 31, 1991 (File No.
1-7259)).
42
<PAGE> 44
4.10 Form of 7-7/8 percent Note due 2007 (incorporated by
reference to Exhibit 4.10 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No.
1-7259)).
4.11 Form of Global Security representing all 8% Notes due 2005
(incorporated by reference to Exhibit 4 to Southwest's
Current Report on Form 8-K dated March 6, 1995 (File No. 1-
7259)).
4.12 Indenture dated as of February 25, 1997 between the Company
and U.S. Trust Company of Texas, N.A.
4.13 Form of Global Security representing all 7 3/8% Debentures due
2027 (incorporated by reference to Exhibit 4.1 to Southwest's
Current Report on Form 8-K dated February 25, 1997 (File No.
1-7259)).
10.1 General Terms Agreement between CFM International, Inc. and
Southwest (with all amendments through March 29, 1990) dated
May 28, 1981 (incorporated by reference to Exhibit 10.2 on
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-7259)); Amendments from
November 6, 1989 through March 29, 1993 (incorporated by
reference to Exhibit 10.2 on Southwest's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No.
1-7259)); Amendments from March 29, 1993 through March 29,
1994 (incorporated by reference to Exhibit 10.2 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-7259)); Amendment No. 7 and
Letter Agreement No. 11, each dated as of January 19, 1994
(incorporated by reference to Exhibit 10.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-7259)).
10.2 Purchase Agreement No. 1405, dated July 23, 1987 between The
Boeing Company and Southwest (with all amendments through
March 29, 1990) (incorporated by reference to Exhibit 10.3 on
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1989 (File No. 1-7259)); Amendments from April
1, 1990 through March 29, 1993 (incorporated by reference to
Exhibit 10.3 on Southwest's Annual Report on Form 10-K for
the year ended December 31, 1992 (File No. 1-7259));
Amendments from March 29, 1993 through March 29, 1994
(incorporated by reference to Exhibit 10.3 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-7259)); Amendments from March 30, 1994
through March 29, 1995 (incorporated by reference to Exhibit
10.2 to Southwest's Annual Report on Form 10-K for the year
ended December 31, 1993 (File No. 1-7259)); Amendments from
March 30, 1995 through March 29, 1996(incorporated by
reference to Exhibit 10.2 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No.
1-7529)).
*10.3 Purchase Agreement No. 1810, dated January 19, 1994 between
The Boeing Company and Southwest (incorporated by reference to
Exhibit 10.4 to Southwest's Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 1-7259)); Supplemental
Agreement No. 1.
The following exhibits filed under paragraph 10 of Item 601
are the Company's compensation plans and arrangements.
10.4 Form of Executive Employment Agreement between Southwest and
certain key employees pursuant to Executive Service
Recognition Plan (incorporated by reference to Exhibit 28 to
Southwest Quarterly Report on Form 10-Q for the quarter ended
June 30, 1987 (File No. 1- 7259)).
43
<PAGE> 45
10.5 1992 stock option agreements between Southwest and Herbert D.
Kelleher (incorporated by reference to Exhibit 10.8 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-7259)).
10.6 1987 stock option agreement between Southwest and Herbert D.
Kelleher (incorporated by reference to Exhibit 10.11 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1987 (File No. 1-7259)).
10.7 1996 employment contract between Southwest and Herbert D.
Kelleher and related stock option agreements (incorporated by
reference to Exhibit 10.8 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1996 (File No.
1-7259)).
10.8 1991 Incentive Stock Option Plan (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-8 (File No.
33-40652)).
10.9 1991 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 4.2 to Registration Statement on Form S-8
(File No. 33-40652)).
10.10 1991 Employee Stock Purchase Plan as amended May 20, 1992
(incorporated by reference to Exhibit 10.13 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-7259)).
10.11 Southwest Airlines Co. Profit Sharing Plan (incorporated by
reference to Exhibit 10.13 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1991 (File No.
1-7259)).
10.12 Southwest Airlines Co. 401(k) Plan (incorporated by reference
to Exhibit 10.14 to Southwest's Annual Report on Form 10-K for
the year ended December 31, 1991 (File No. 1-7259)).
10.13 Southwest Airlines Co. 1995 SWAPA Non-Qualified Stock Option
Plan (incorporated by reference to Exhibit 10.14 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-7259)).
10.14 1996 Incentive Stock Option Plan (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-8 (File No.
333-20275)).
10.15 1996 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 4.2 to Registration Statement on Form S-8
(File No. 333-20275)).
11 Computation of earnings per share.
22 Subsidiaries of Southwest.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
- - -------------------------
* Pursuant to 17 CFR 240.24b-2, confidential information has been
omitted and has been filed separately with the Securities and Exchange
Commission.
44
<PAGE> 46
Southwest will furnish to the Commission supplementally upon request a
copy of each other instrument with respect to the long-term debt of the
Company.
A copy of each exhibit may be obtained at a price of 15 cents per
page, $10.00 minimum order, by writing to: Director of Investor Relations,
Southwest Airlines Co., P.O. Box 36611, Dallas, Texas 75235- 1611.
(b) There were no Form 8-K's filed during the fourth quarter of 1996.
45
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SOUTHWEST AIRLINES CO.
March 21, 1997
By /s/ Gary C. Kelly
-------------------------
Gary C. Kelly
Vice President-Finance,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on March 21, 1997 on
behalf of the registrant and in the capacities indicated.
Signature Capacity
--------- --------
/s/ Herbert D. Kelleher Chairman of the Board of Directors,
- - ---------------------------- President and Chief Executive Officer
Herbert D. Kelleher
/s/ Gary C. Kelly Vice President-Finance
- - ---------------------------- (Chief Financial and Accounting Officer)
Gary C. Kelly
/s/ Samuel E. Barshop Director
- - ----------------------------
Samuel E. Barshop
/s/ Gene H. Bishop Director
- - ----------------------------
Gene H. Bishop
/s/ C. Webb Crockett Director
- - ----------------------------
C. Webb Crockett
/s/ William P. Hobby, Jr. Director
- - ----------------------------
William P. Hobby, Jr.
/s/ Travis C. Johnson Director
- - ----------------------------
Travis C. Johnson
/s/ R.W. King Director
- - ----------------------------
R. W. King
/s/ Walter M. Mischer, Sr. Director
- - ----------------------------
Walter M. Mischer, Sr.
/s/ June M. Morris Director
- - ----------------------------
June M. Morris
E-1
<PAGE> 48
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of Southwest (incorporated
by reference to Exhibit 4.1 to Southwest's Registration
Statement on Form S-3 (File No. 33-52155)); Amendment to
Restated Article of Incorporation of Southwest (incorporated
by reference to Exhibit 4.1 to Southwest's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996 (File No.
1-7259).
3.2 Bylaws of Southwest, as amended through February 1994
(incorporated by reference to Exhibit 3.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-7259)).
4.1 Credit Agreement dated December 15, 1990, between Southwest
and Texas Commerce Bank - Dallas, N.A., as agent for itself
and four other banks named therein, and such banks
(incorporated by reference to Exhibit 4.1 on Southwest's
Current Report on Form 8-K dated February 14, 1991 (File No.
1-7259)); First Amendment to Credit Agreement, dated April 4,
1991 and Second Amendment to Credit Agreement, dated December
14, 1991 (incorporated by reference to Exhibit 4.1 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-7259)); Third Amendment to
Credit Agreement, dated December 14, 1992 (incorporated by
reference in Exhibit 4.1 to Southwest's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 1-7259));
Fourth Amendment to Credit Agreement, dated December 14, 1993
(incorporated by reference to Exhibit 4.1 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-7259)); Fifth and Sixth Amendments to Credit
Agreement, dated March 10, 1995 and May 18, 1995,
respectively (incorporated by reference to Exhibit 4.1 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-7259).
4.2 Specimen certificate representing Common Stock of Southwest
(incorporated by reference to Exhibit 4.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-7259)).
4.3 Indenture dated as of December 1, 1985 between Southwest
and MBank Dallas, N.A., Trustee, relating to an unlimited
amount of Debt Securities (incorporated by reference to
Exhibit 4.1 of Southwest's Current Report on Form 8-K dated
February 26, 1986 (File No. 1-7259)) and First Supplemental
Indenture dated as of January 21, 1988, substituting MTrust
Corp, National Association, as Trustee, thereunder
(incorporated by reference to Exhibit 4.3 on Southwest's
Annual Report on Form 10-K for the year ended December 31,
1987 (File 1-7259)).
4.4 Amended and Restated Rights Agreement dated July 18, 1996
between Southwest and Continental Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to
Exhibit 1, Southwest's Registration Statement on Form 8-A/A
dated August 12, 1996 (File No. 1-7259)).
4.5 Indenture dated as of June 20, 1991 between Southwest
Airlines Co. and Bank of New York, successor to NationsBank
of Texas, N.A. (formerly NCNB Texas National Bank), Trustee
(incorporated by reference to Exhibit 4.1 to Southwest's
Current Report on Form 8-K dated June 24, 1991 (File No.
1-7259)).
E-1
<PAGE> 49
4.6 Form of 9.4 percent Note due 2001 (incorporated by
reference to Exhibit 4.2 to Southwest's Current Report on
Form 8-K dated June 24, 1991 (File No. 1-7259)).
4.7 Form of 8-3/4 percent Note due 2003 (incorporated by
reference to Exhibit 4.2 to Southwest's Current Report on
Form 8-K dated October 4, 1991 (File No. 1-7259)).
4.9 Form of 9-1/4 percent Note due 1998 (incorporated by
reference to Exhibit 4.9 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1991 (File No.
1-7259)).
4.10 Form of 7-7/8 percent Note due 2007 (incorporated by
reference to Exhibit 4.10 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No.
1-7259)).
4.11 Form of Global Security representing all 8% Notes due 2005
(incorporated by reference to Exhibit 4 to Southwest's
Current Report on Form 8-K dated March 6, 1995 (File No. 1-
7259)).
4.12 Indenture dated as of February 25, 1997 between the Company
and U.S. Trust Company of Texas, N.A.
4.13 Form of Global Security representing all 7 3/8% Debentures
due 2027 (incorporated by A reference to Exhibit 4.1 to
Southwest's Current Report on Form 8-K dated February 25,
1997 (File No. 1-7259)).
10.1 General Terms Agreement between CFM International, Inc. and
Southwest (with all amendments through March 29, 1990)
dated May 28, 1981 (incorporated by reference to Exhibit
10.2 on Southwest's Annual Report on Form 10-K for the year
ended December 31, 1989 (File No. 1-7259)); Amendments from
November 6, 1989 through March 29, 1993 (incorporated by
reference to Exhibit 10.2 on Southwest's Annual Report on
Form 10-K for the year ended December 31, 1992 (File No.
1-7259)); Amendments from March 29, 1993 through March 29,
1994 (incorporated by reference to Exhibit 10.2 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-7259)); Amendment No. 7 and
Letter Agreement No. 11, each dated as of January 19, 1994
(incorporated by reference to Exhibit 10.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-7259)).
10.2 Purchase Agreement No. 1405, dated July 23, 1987 between
The Boeing Company and Southwest (with all amendments
through March 29, 1990) (incorporated by reference to
Exhibit 10.3 on Southwest's Annual Report on Form 10-K for
the year ended December 31, 1989 (File No. 1-7259));
Amendments from April 1, 1990 through March 29, 1993
(incorporated by reference to Exhibit 10.3 on Southwest's
Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-7259)); Amendments from March 29, 1993
through March 29, 1994 (incorporated by reference to
Exhibit 10.3 to Southwest's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 1-7259));
Amendments from March 30, 1994 through March 29, 1995
(incorporated by reference to Exhibit 10.2 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1993 (File No. 1-7259)); Amendments from March 30, 1995
through March 29, 1996(incorporated by reference to Exhibit
10.2 to Southwest's Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-7529)).
*10.3 Purchase Agreement No. 1810, dated January 19, 1994
between The Boeing Company and Southwest (incorporated by
reference to Exhibit 10.4 to Southwest's Annual Report on
Form
E-2
<PAGE> 50
10-K for the year ended December 31, 1993 (File No. 1-7259));
Supplemental Agreement No. 1.
The following exhibits filed under paragraph 10 of Item 601 are
the Company's compensation plans and arrangements.
10.4 Form of Executive Employment Agreement between Southwest and
certain key employees pursuant to Executive Service
Recognition Plan (incorporated by reference to Exhibit 28 to
Southwest Quarterly Report on Form 10-Q for the quarter ended
June 30, 1987 (File No. 1- 7259)).
10.5 1992 stock option agreements between Southwest and Herbert D.
Kelleher (incorporated by reference to Exhibit 10.8 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-7259)).
10.6 1987 stock option agreement between Southwest and Herbert D.
Kelleher (incorporated by reference to Exhibit 10.11 to
Southwest's Annual Report on Form 10-K for the year ended
December 31, 1987 (File No. 1-7259)).
10.7 1996 employment contract between Southwest and Herbert D.
Kelleher and related stock option agreements (incorporated by
reference to Exhibit 10.8 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1996 (File No.
1-7259)).
10.8 1991 Incentive Stock Option Plan (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-8 (File No.
33-40652)).
10.9 1991 Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 4.2 to Registration Statement on Form S-8 (File No.
33-40652)).
10.10 1991 Employee Stock Purchase Plan as amended May 20, 1992
(incorporated by reference to Exhibit 10.13 to Southwest's
Annual Report on Form 10-K for the year ended December 31,
1992 (File No. 1-7259)).
10.11 Southwest Airlines Co. Profit Sharing Plan (incorporated by
reference to Exhibit 10.13 to Southwest's Annual Report on
Form 10-K for the year ended December 31, 1991 (File No.
1-7259)).
10.12 Southwest Airlines Co. 401(k) Plan (incorporated by reference
to Exhibit 10.14 to Southwest's Annual Report on Form 10-K for
the year ended December 31, 1991 (File No. 1-7259)).
10.13 Southwest Airlines Co. 1995 SWAPA Non-Qualified Stock Option
Plan (incorporated by reference to Exhibit 10.14 to Southwest's
Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 1-7259)).
10.14 1996 Incentive Stock Option Plan (incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-8 (File No.
333-20275)).
10.15 1996 Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 4.2 to Registration Statement on Form S-8 (File No.
333-20275)).
11 Computation of earnings per share.
22 Subsidiaries of Southwest.
E-3
<PAGE> 51
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
- - -------------------------
* Pursuant to 17 CFR 240.24b-2, confidential information has been omitted
and has been filed separately with the Securities and Exchange Commission.
E-4
<PAGE> 1
EXHIBIT 4.12
SOUTHWEST AIRLINES CO.
AND
U.S. TRUST COMPANY OF TEXAS, N.A.
TRUSTEE
-----------------------
INDENTURE
Dated as of February 25, 1997
-----------------------
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS:
Purpose of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose of and Consideration for Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS
SECTION 1.01. Certain Terms Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliate: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Bankruptcy Code: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Board of Directors: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Day: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Commission: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Company: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Depository: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Event of Default: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Global Security: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Indenture: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Interest: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Officers' Certificate: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Opinion of Counsel: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Original Issue Discount Security: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Outstanding: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Paying Agent: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Responsible Officer: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Security or Securities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Securityholder; registered holder: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Subsidiary: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trustee; principal office: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Trust Indenture Act of 1939: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Yield to Maturity: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.02. References are to Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.03. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
<PAGE> 3
ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF SECURITIES
<TABLE>
<S> <C>
SECTION 2.01. Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.02. Form of Trustee's Certificate of Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.03. Amount Unlimited; Issuable in Series. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.04. Authentication and Delivery of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.05. Execution of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.06. Exchange of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.07. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.09. Cancellation of Surrendered Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.10. Securities in Global Form. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE THREE
PARTICULAR COVENANTS OF THE COMPANY
SECTION 3.01. Payment of Principal of (and Premium, if any) and Interest on Securities . . . . . . . . . . . . . . . 13
SECTION 3.02. Maintenance of Office or Agency for Registration of Transfer, Exchange and Payment of Securities . . . 13
SECTION 3.03. Appointment to Fill a Vacancy in the Office of Trustee. . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.04. Provision as to Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.05. Maintenance of Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.06. Officers' Certificate as to Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.07. Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 4
ARTICLE FOUR
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
<TABLE>
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SECTION 4.01. Company to Furnish Trustee Information as to Names and Addresses to Securityholders . . . . . . . . . . 15
SECTION 4.02. Preservation and Disclosure of Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.03. Reports by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.04. Reports by the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01 Events of Default Defined; Acceleration of Maturity; Waiver of Default . . . . . . . . . . . . . . . . 18
SECTION 5.02. Payment of Securities on Default; Suit Therefor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.03. Application of Moneys Collected by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 5.04. Limitation on Suits by Holders of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.05. Proceedings by Trustee; Remedies Cumulative and Continuing. . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.06. Rights of Holders of Majority in Principal Amount of Securities to Direct Trustee and to
Waive Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.07. Trustee to Give Notice of Defaults Known to It, But May Withhold in Certain Circumstances . . . . . . . 24
SECTION 5.08 Requirement of an Undertaking to Pay Costs in Certain Suites Under the Indenture or Against
the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE SIX
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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<TABLE>
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SECTION 6.02. Reliance on Documents, Opinions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.03. No Responsibility for Recitals, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.04. Trustee, Paying Agent or Security Registrar May Own Securities. . . . . . . . . . . . . . . . . . . . 28
SECTION 6.05. Moneys Received by Trustee to be Held in Trust Without Interest. . . . . . . . . . . . . . . . . . . . 28
SECTION 6.06. Compensation and Expenses of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 6.07. Right of Trustee to Rely on Officers' Certificate Where No Other Evidence Specifically Prescribed . . . 29
SECTION 6.08. Conflicting Interest of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.09. Requirements for Eligibility of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.10. Resignation or Removal of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.11. Acceptance by Successor to Trustee; Notice of Succession of a Trustee . . . . . . . . . . . . . . . . . 31
SECTION 6.12. Successor to Trustee by Merger, Consolidation or Succession to Business. . . . . . .. . . . . . . . . . 32
SECTION 6.13. Limitations on Rights of Trustee as a Creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Evidence of Action by Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.02. Proof of Execution of Instruments and of Holding of Securities . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.03. Who May be Deemed Owners of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.04. Securities Owned by Company or Controlled or Controlling Persons Disregarded for Certain Purposes. . . 34
SECTION 7.05. Record Date for Action by Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.06. Instruments Executed by Securityholders Bind Future Holders. . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
<PAGE> 6
ARTICLE EIGHT
SECURITYHOLDERS' MEETING
<TABLE>
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SECTION 8.01. Purposes for Which Meetings May be Called. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 8.02. Manner of Calling Meetings; Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.03. Call of Meeting by Company or Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.04. Who May Attend and Vote at Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.05. Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.06. Manner of Voting at Meetings and Record to be Kept. . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.07. Exercise of Rights of Trustee and Securityholders Not to be Hindered or Delayed. .. . . . . . . . . . 38
SECTION 8.08. Written Consent in Lieu of Meeting of Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01. Purposes for Which Supplemental Indentures May be Entered into Without Consent of Securityholders. . . .38
SECTION 9.02. Modification of Indenture with Consent of Holders of 66-2/3% in Principal Amount of Securities. . . . 40
SECTION 9.03. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.04. Securities May Bear Notation of Changes by Supplemental Indentures. . . . . . . . . . . . . . . . . . 41
SECTION 9.05. Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE TEN
CONSOLIDATION, MERGER AND SALE
SECTION 10.01. Company May Consolidate, etc., on Certain Terms. . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 10.02. Successor Corporation to be Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<PAGE> 7
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
<TABLE>
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SECTION 11.01. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 11.02. Application by Trustee of Funds Deposited for Payment of Securities. . . . . . . . . . . . . . . 44
SECTION 11.03. Repayment of Moneys Held by Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 11.04. Repayment of Moneys Held by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 11.05. Satisfaction, Discharge and Defeasance of Securities of any Series . . . . . . . . . . . . . . . 45
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS
AND DIRECTORS
SECTION 12.01. Incorporators, Shareholders, Officers and Directors of Company Exempt from
Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors and Assigns of Company Bound by Indenture . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 13.02. Acts of Board, Committee or Officer of Successor Corporation Valid . . . . . . . . . . . . . . . 48
SECTION 13.03. Required Notices or Demands May be Served by Mail; Waiver. . . . . . . . . . . . . . . . . . . . 48
SECTION 13.04. Indenture and Securities to be Construed in Accordance with the Laws of the
State of Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 13.05. Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 13.06. Payments Due on Saturdays, Sundays, and Holidays . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 13.07. Provisions Required by Trust Indenture Act of 1939 to Control . . . . . . . . . . . . . . . . . 50
SECTION 13.08. Provisions of the Indenture and Security for the Sole Benefit of the Parties and the
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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SECTION 13.09. Indenture May be Executed in Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 13.10. Article and Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 13.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE FOURTEEN
REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 14.01. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 14.02. Notice of Redemption; Partial Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 14.03. Payment of Securities Called for Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 14.04. Exclusion of Certain Securities from Eligibility for Selection for Redemption. . . . . . . . . . 53
SECTION 14.05. Mandatory and Optional Sinking Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
<PAGE> 9
THIS INDENTURE, dated as of February 25, 1997, between Southwest
Airlines Co., a corporation duly organized and existing under the laws of the
State of Texas (hereinafter sometimes referred to as the "Company"), party of
the first part, and U.S. Trust Company of Texas, N.A., a national banking
association (hereinafter sometimes referred to as the "Trustee"), party of the
second part;
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue from time to time of its debentures, notes or other
unsecured evidences of indebtedness, which are to be issued in one or more
series (the "Securities"), each such series ranking pari passu with each other
series, as unsecured obligations of the Company, up to such principal amount or
amounts as may from time to time be authorized in accordance with the terms of
this Indenture; and to provide, among other things, for the authentication,
delivery and administration thereof, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all acts and things necessary to make the Securities, when
executed by the Company and authenticated and delivered by the Trustee as in
this Indenture provided, the valid, binding and legal obligations of the
Company, and to constitute these presents a valid indenture and agreement
according to its terms, have been done and performed, and the execution of this
Indenture and the issue hereunder of the Securities have in all respects been
duly authorized, and the Company, in the exercise of the legal right and power
vested in it, executes this Indenture and proposes to make, execute, issue and
deliver the Securities;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Securities are authenticated, issued, delivered and held, and in consideration
of the premises, of the purchase and acceptance of the Securities by the
holders thereof and of the sum of one dollar to it duly paid by the Trustee at
the execution of these presents, the receipt whereof is hereby acknowledged,
the Company covenants and agrees with the Trustee, for the benefit of the
respective holders from time to time of the Securities, as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.01. Certain Terms Defined. The terms defined in this Section
1.01 (except as otherwise expressly provided or unless the context otherwise
requires), for all purposes of this Indenture and of any indenture supplemental
hereto, shall have the respective meanings specified in this Section 1.01. All
other terms used in this Indenture that are defined in the Trust Indenture Act
of 1939, as amended, or that are by reference therein defined in the Securities
Act of 1933, as amended (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings assigned to
such terms in said Trust Indenture Act
<PAGE> 10
and in said Securities Act as they were in force at the date of the execution
of this Indenture, unless said Trust Indenture Act or said Securities Act
expressly provide for application of such statutes as of another date.
Affiliate: The term "Affiliate" shall mean any person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, the Company.
Bankruptcy Code: The term "Bankruptcy Code" shall mean Title 11,
U.S. Code, or any similar federal or state law for the relief of debtors.
Board of Directors: The term "Board of Directors," when used with
reference to the Company, shall mean the Board of Directors of the Company or
the Executive Committee of the Board of Directors of the Company.
Business Day: The term "business day" shall mean, with respect to any
Security, a day other than a Saturday, a Sunday or a day that shall be in the
city (or in any of the cities, if more than one), in which amounts are payable,
as specified on the face of the form of such Security, a day on which banking
institutions are authorized or obligated by law to close.
Commission: The term "Commission" shall mean the Securities and
Exchange Commission, as from time to time constituted, created under the
Securities Exchange Act of 1934, or if at any time after the execution and
delivery of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act of 1939, then the body
performing such duties on said date.
Company: The term "Company" shall mean Southwest Airlines Co., a
Texas corporation, and, subject to the provisions of Article Ten, shall also
include its successors and assigns.
Depositary: The term "Depositary" shall mean, with respect to the
Securities of any series issuable or issued in whole or in part in the form of
one or more Global Securities, the person designated as Depositary for such
series by the Company pursuant to Section 2.03 or otherwise appointed by the
Company as a successor to such person in the event such person is unwilling or
unable to continue to serve in such capacity.
Event of Default: The term "Event of Default" shall mean any event
specified in Section 5.01, continued for the period of time, if any, and after
the giving of notice, if any, therein designated.
Global Security: The term "Global Security" shall mean a Security
issued in accordance with Section 2.10 evidencing all or part of a series of
Securities, which in each case
<PAGE> 11
is issued to the Depositary for such series, or part of a series, or its
nominee and registered in the name of such Depositary or nominee.
Indenture: The term "Indenture" shall mean this instrument as
originally executed, or, if amended or supplemented as herein provided, as so
amended or supplemented or both, and shall include the forms and terms of
particular series of Securities established as contemplated hereunder.
Interest: The term "Interest, " when used with respect to a
non-interest bearing Security, shall mean interest payable after the principal
thereof has become due and payable, whether after maturity, by declaration of
acceleration, by call for redemption pursuant to a sinking fund, or otherwise.
Officers' Certificate: The term "Officers' Certificate" shall mean
a certificate signed by the Chairman of the Board or the President or any Vice
Chairman of the Board or any Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company.
Each such certificate shall include the statements provided for in Section
13.05, if and to the extent required by the provisions thereof.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion
in writing signed by legal counsel, who may be an employee of, or of counsel
to, the Company or may be other counsel. Each such opinion shall include the
statements provided for in Section 13.05, if and to the extent required by the
provisions thereof.
Original Issue Discount Security: The term "Original Issue Discount
Security" shall mean any Security that provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to Section 5.01.
Outstanding: The term "outstanding," when used with reference to
Securities, shall, subject to the provisions of Section 7.04, mean, as of any
particular time, all Securities authenticated and delivered by the Trustee
under this Indenture except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee or with any Paying Agent (other than
the Company) or shall have been set aside and segregated in trust by the
Company for the holders of such Securities (if the Company shall act as
its own Paying Agent), provided that if such Securities are to be
redeemed prior to the maturity hereof, notice of such redemption shall
have been given as herein provided, or
- 3 -
<PAGE> 12
provision satisfactory to the Trustee shall have been made for giving
such notice, and, if all such Securities are redeemed, such deposit
shall be in accordance with Article 11; and
(c) Securities in lieu of or in substitution for which other
Securities shall have been authenticated and delivered, or which shall
have been paid, pursuant to the terms of Section 2.08, unless proof
satisfactory to the Trustee is presented that any such Securities are
held by a person in whose hands such Security is a legal, valid and
binding obligation of the Company.
In determining whether the holders of the requisite principal amount of
outstanding Securities of any or all series have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, the principal
amount of an Original Issue Discount Security that shall be deemed to be
outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a
declaration of acceleration of the maturity thereof pursuant to Section 5.01.
Paying Agent: Any person authorized by the Company to pay the principal
of, premium, if any, or interest on any securities on behalf of the Company.
Responsible Officer: The term "Responsible Officer," when used with
respect to the Trustee, shall mean any officer within the corporate trust and
agency group or department of the Trustee, including any Vice President, any
trust officer or any other officer of the Trustee performing functions similar
to those performed by any of the above-designated officers and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
Security or Securities: The term "Security" or "Securities" shall
mean any Security or Securities, as the case may be, authenticated and
delivered under this Indenture.
Securityholder; registered holder: The term "securityholder," "holder
of Securities," "registered holder," "noteholder" or other similar term, shall
mean any person who shall at the time be the registered holder of any Security
or Securities on the books of the Company kept for that purpose in accordance
with the provisions of the Indenture and shall also mean the executors,
administrators and other legal representatives of such person.
Subsidiary: The term "Subsidiary" shall mean any corporation or other
entity at least a majority of the outstanding voting shares of which is at the
time directly or indirectly owned or controlled (either alone or through
Subsidiaries or together with Subsidiaries) by the Company or another
Subsidiary.
Trustee; principal office: The term "Trustee" shall mean U.S. Trust
Company of Texas, N.A., and, subject to the provisions of Article Six, shall
also include its successors. The
- 4 -
<PAGE> 13
term "principal office" of the Trustee shall mean the principal office of the
Trustee in the City of Dallas, at which at any particular time its corporate
trust business may be administered, which office at the date of execution of
this Indenture is 2001 Ross Avenue, Suite 2700, Dallas, Texas, except that with
respect to the presentation of Securities for payment or for registration of
transfer or exchange, such term shall mean such office or agency of the Trustee
at which at any particular time its corporate trust business shall be
conducted.
Trust Indenture Act of 1939: The term "Trust Indenture Act of
1939" shall mean the Trust Indenture Act of 1939, as amended, as in effect on
the date of this Indenture, except as provided in section 9.01 or 9.02 and
except to the extent that any subsequent amendment to the Trust Indenture Act
of 1939 shall retroactively apply to this instrument.
Yield to Maturity: The term "Yield to Maturity" shall mean the yield
to maturity on a series of Securities, calculated at the time of the issuance
of such series, or, if applicable, at the most recent redetermination of
interest on such series, and calculated in accordance with accepted financial
practice.
SECTION 1.02. References are to Indenture. Unless the context otherwise
requires, all references herein to "Articles," "Sections" and other
subdivisions refer to the corresponding Articles, Sections and other
subdivisions of this Indenture, and the words "herein," "hereof," "hereby,"
"hereunder" and words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision hereof.
SECTION 1.03. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with a provision of the Trust Indenture
Act that is required under such Act to be part of and govern this Indenture,
the latter provision shall control. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture modifies or excludes
any provision of the Trust Indenture Act that may be so modified or excluded,
the latter provision shall be deemed to apply to this Indenture as so modified
or to be excluded, as the case may be.
ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF SECURITIES
SECTION 2.01. Forms Generally. The Securities of each series shall be
substantially in the form (not inconsistent with this Indenture) as shall be
established by the Board of Directors or in one or more indentures supplemental
hereto, in each case with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this Indenture, and in
case such form is not established by supplemental indenture, such form shall be
approved by the Trustee if the Trustee's rights or obligations are adversely
affected thereby and may have imprinted or otherwise reproduced thereon such
legend or legends, not inconsistent with
- 5 -
<PAGE> 14
the provisions of this Indenture, as may be required to comply with any law or
with any rules or regulations pursuant thereto, or with any rules of any
securities exchange or to conform to general usage, consistently herewith, all
as my be determined by the officer executing such Securities, as evidenced by
his execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or, with the consent of the Trustee, may be produced in
any other manner, all as determined by the officer executing such Securities,
as evidenced by his execution of such Securities.
SECTION 2.02. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication of all Securities shall be in
substantially the following form:
This is one of the Securities of the series designated herein referred
to in the within-mentioned Indenture.
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
By:
---------------------------------
Authorized Signatory
SECTION 2.03. Amount Unlimited; Issuable in Series. The aggregate
principal amount of Securities that may be authenticated and delivered under
this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established by the Board of Directors and set forth in an Officers' Certificate
or established in one or more indentures supplemental hereto, prior to the
issuance of Securities of any series, the following terms, which terms shall be
approved by the Trustee if the Trustee's rights or obligations are adversely
affected thereby, and thereafter such terms shall be deemed to be a part of
this Indenture:
(1) the title of the Securities of the series (which shall
distinguish the Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the
Securities or the series that may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the series pursuant to Sections 2.06, 2.07, 2.08, 5.03,
9.04 and Article Fourteen);
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(3) the date or dates on which the principal of the Securities
of the series is payable;
(4) the rate or rates, or method by which the rate or rates
are determined, at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall
accrue, the interest payment dates on which such interest shall be
payable and the record dates for the determination of holders to whom
interest is payable;
(5) the offices or agencies of the Company in the United
States of America where the principal of and any interest on Securities
of the series shall be payable;
(6) the price or prices at which, the period or periods within
which and the terms and conditions upon which Securities of the series
may be redeemed, in whole or in part, at the option of the Company,
pursuant to any sinking fund or otherwise;
(7) the obligation, if any, of the Company to redeem, purchase
or repay Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a holder thereof and the price
or prices at which and the period or periods within which and the terms
and conditions upon which Securities of the series shall be redeemed,
purchased or repaid, in whole or in part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any multiple
thereof, the denominations in which Securities of the series shall be
issuable;
(9) if other than the principal amount thereof, the portion of
the principal amount of Securities of the series that shall be payable
upon declaration of acceleration of the maturity thereof or provable in
bankruptcy;
(10) any trustees, authenticating or Paying Agents, warrant
agents, transfer agents or registrars with respect to the Securities of
such series;
(11) the applicability, if any, of Section 11.05 to such
series;
(12) whether the Securities of the series shall be issued in
whole or in part in the form of one or more Global Securities and, in
such case, the Depositary for such Global Security or Securities, which
Depositary shall be a clearing agency registered under the Securities
Exchange Act of 1934, as amended; and
(13) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture), including any
additional covenants with respect to such series.
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All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided by the Board of
Directors and set forth in such Officers' Certificate or as may be otherwise
provided in any such indenture supplemental hereto.
SECTION 2.04. Authentication and Delivery of Securities. At any time
and from time to time after the execution and delivery of this Indenture, the
Company may deliver Securities of any series executed by the Company to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver said Securities to or upon the written order of the Company, signed on
behalf of the Company by its Chairman of the Board or its President or a Vice
Chairman of the Board or a Vice President and attested to by its Secretary or
an Assistant Secretary or by its Treasurer or an Assistant Treasurer, without
any further action by the Company. In authenticating such Securities and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive, and (subject to
Section 6.01) shall be fully protected in relying upon:
(1) certified copies of the Articles of Incorporation and
bylaws of the Company (or an Officers' Certificate with respect to any
amendment thereto) and of any resolutions of the Board of Directors
authorizing the action taken pursuant to the resolutions delivered
pursuant to clause (2) below;
(2) a copy of any resolutions of the Board of Directors
relating to such Securities, in each case certified by the Secretary or
an Assistant Secretary of the Company;
(3) an executed supplemental indenture, if any;
(4) an Officers' Certificate setting forth the form or forms
and terms of the Securities under Sections 2.01 and 2.03, respectively,
and stating that no Event of Default then exists and, in the case of a
series of Original Issue Discount Securities, the Yield to Maturity of
such series; and
(5) an Opinion of Counsel, which shall state
(a) that the form or forms and terms of such Securities
have been established by the Board of Directors or by a
supplemental indenture as permitted by, and in conformity with,
the provisions of this Indenture;
(b) that such Securities, when authenticated and
delivered by the Trustee and issued by the Company in the manner
and subject to any conditions specified in such Opinion of
Counsel, will constitute valid, binding and enforceable
obligations of the Company;
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(c) that all laws and requirements in respect of
the execution and delivery by the Company of the Securities have
been complied with; and
(d) such other matters as the Trustee may reasonably
request.
The Trustee shall have the right to decline to authenticate and deliver
any Securities under this Section if the Trustee, being advised by counsel,
determines that such action may not lawfully be taken by the Company or if the
Trustee in good faith shall determine that such action would expose the Trustee
to personal liability to existing Securityholders.
SECTION 2.05. Execution of Securities. The Securities shall be signed
on behalf of the Company, manually or in facsimile, by its Chairman of the
Board or its President or a Vice Chairman of the Board or a Vice President
under its corporate seal (which may be in facsimile) reproduced thereon and
attested, annually or in facsimile, by its Secretary or an Assistant Secretary
or its Treasurer or an Assistant Treasurer. Typographical and other minor
errors or defects in any such reproduction of the seal or any such signature
shall not affect the validity or enforceability of any Security that has been
duly authorized and delivered by the Trustee.
In case any officer of the Company whose signature appears on any of the
Securities, annually or in facsimile, shall cease to be such officer before
such Securities so signed shall have been authenticated and delivered by the
Trustee, or disposed of by the Company, such Securities nevertheless may be
authenticated and delivered by the Trustee, or disposed of by the Company, such
Securities nevertheless may be authenticated and delivered or disposed of as
though the person whose signature appears on such Securities had not ceased to
be such officer of the Company; and any Security may be signed and the
corporate seal reproduced thereon may be attested, on behalf of the Company,
annually or in facsimile, by such persons as, at the actual date of the
execution of such Security, shall be the proper officers of the Company,
although at the date of the execution of this Indenture any such person was not
such officer.
Only such Securities as shall bear thereon a certificate of
authentication substantially in the form hereinbefore receipted, signed
manually by an authorized signatory of the Trustee, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any purpose. Such
certificate by the Trustee upon any Security executed by the Company shall be
conclusive evidence that the Security so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
SECTION 2.06. Exchange of Securities. Securities of any series may be
exchanged for a like aggregate principal amount of Securities of the same
series in other authorized denominations. The Securities of any series to be
exchanged shall be surrendered at the offices or agencies to be maintained by
the Company in accordance with the provisions of Section 3.02, and the Company
shall execute and the Trustee shall authenticate and deliver in
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<PAGE> 18
exchange therefor the Security or Securities that the Securityholder making the
exchange shall be entitled to receive.
The Company shall keep, at one of the offices or agencies to be
maintained by the Company in accordance with the provisions of Section 3.02, a
register or registers in which, subject to such reasonable regulations as it or
the Securities registrar may prescribe, the Company shall register Securities
and shall register the transfer of Securities as in this Article Two provided.
Upon surrender for registration of transfer of any Security at such office or
agency, the Company shall execute and the Trustee shall authenticate and
deliver in the name of the transferee or transferees a new Security or
Securities of the same series that the Securityholder making the exchange shall
be entitled to receive, for a like aggregate principal amount.
All Securities presented or surrendered for exchange, registration of
transfer, redemption or payment shall, if so required by the Company or the
Trustee, be duly endorsed by, or accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Trustee,
duly executed by the registered holder or by his attorney who shall be so duly
authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Securities, but the Company or the Securities registrar may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto.
The Company shall not be required to exchange or register a transfer of
(i) any Securities of any series for a period of 15 days next preceding the
first mailing of notice of redemption of Securities of such series to be
redeemed, or (ii) any Securities selected, called or being called for
redemption except, in the case of any Security where public notice has been
given that such Security is to be redeemed in part, the portion thereof not so
to be redeemed.
Notwithstanding the foregoing, any Global Security shall be exchangeable
pursuant to this Section 2.06 for Securities registered in the names of persons
other than the Depositary for such Security or its nominee only if (i) such
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time such Depositary ceases to
be a clearing agency registered under the Securities Exchange Act of 1934, as
amended, and the Company fails to appoint a successor Depositary for such
Global Security within 90 days after the Company receives such notice or
becomes aware of such event, (ii) the Company executes and delivers to the
Trustee written instructions that such Global Security shall be so
exchangeable, or (iii) there shall have occurred and be continuing an Event of
Default or an event which, with the giving of notice or lapse of time, or both,
would constitute an event of Default with respect to the Securities. Any
Global Security that is exchangeable pursuant to the preceding sentence shall
be exchangeable for Securities registered in such names as the Depositary shall
direct.
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<PAGE> 19
Except as provided in the immediately preceding paragraph, a Global
Security may not be transferred except as a whole by the Depositary with
respect to such Global Security to a nominee of such Depositary or by a nominee
of such Depositary to such Depositary or another nominee of such Depositary or
by such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 2.07. Temporary Securities. Pending the preparation of
definitive Securities of any series, the Company may execute and the Trustee
authenticate and deliver temporary Securities of such series (printed,
typewritten or otherwise reproduced) of any authorized denomination and
substantially in the form of the definitive Securities of such series, but with
such omission, insertions and variations as may be appropriate for temporary
Securities of such series, all as may be determined by the Company. Temporary
Securities of any series may contain reference to any provisions of the
Indenture as may be appropriate. Every such temporary Security shall be
authenticated by the Trustee upon the conditions and in substantially the same
manner, and with the same effect, as the definitive Securities of such series.
Without unnecessary delay, the Company will execute and deliver to the Trustee
definitive Securities of such series and thereupon any or all temporary
Securities of such series may be surrendered in exchange therefor, at the
offices or agencies to be maintained by the Company in accordance with the
provisions of Section 3.02, and the Trustee shall authenticate and deliver in
exchange for such temporary Securities of such series an equal aggregate
principal amount of definitive Securities of such series. Until so exchanged,
the temporary Securities of such series shall in all respects be entitled to
the same benefits under this Indenture as definitive Securities of such series
authenticated and delivered hereunder.
SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities. In case
any temporary or definitive Security of any series shall become mutilated or be
destroyed, lost or stolen, the Company, in the case of any mutilated Security
of any series shall, and in the case of any destroyed, lost or stolen Security
of any series in its discretion may, execute and upon its request the Trustee
shall authenticate and deliver, a new Security of the same series bearing a
number not contemporaneously outstanding in exchange and substitution for the
mutilated Security, or in lieu of and substitution for the Security so
destroyed, lost or stolen, or, if any such Security shall have matured or shall
be about to mature, instead of issuing a substituted Security, the Company may
pay the same without surrender thereof except in the case of a mutilated
Security.
In every case the applicant for a substituted Security or for such
payment shall furnish to the Company and to the Trustee such security or
indemnity as may be required by them to save
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each of them harmless from all risk, however remote, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company and
to the Trustee evidence to their satisfaction of the destruction, loss or theft
of such Security and of the ownership thereof. the Trustee may authenticate
any such substituted Security and deliver the same, or the Trustee or any
Paying Agent of the Company may make any such payment, upon the written request
or authorization of any officer of the Company, and shall incur no liability to
anyone by reason of anything done or omitted to be done by it in good faith
under the provisions of this Section 2.08. Upon the issue of any substituted
Security, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any expenses connected therewith (including the fees and expenses of the
Trustee).
Every substituted Security issued pursuant to the provisions of this
Section 2.08 in substitution for any destroyed, lost or stolen Securities shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Security shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations of
rights set forth in) this Indenture equally and proportionately with any and
all other Securities duly issued hereunder.
All Securities shall be held and owned upon the express condition that
the foregoing provisions are exclusive with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities, and shall preclude
(to the extent lawful) any and all other rights or remedies, notwithstanding
any law or statute existing or hereafter enacted to the contrary with respect
to the replacement or payment of negotiable instruments or other securities
without their surrender.
SECTION 2.09. Cancellation of Surrendered Securities. All Securities
surrendered for the purpose of payment, redemption, exchange, substitution or
registration of transfer, shall, if surrendered to the Company or any Paying
Agent or registrar, be delivered to the Trustee and the same, together with
securities surrendered to the Trustee for cancellation, shall be promptly
canceled by it, and no Securities shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee
shall destroy canceled Securities and shall deliver certificates of destruction
thereof to the Company from time to time. If the Company shall purchase or
otherwise acquire any of the Securities, however, such purchase or acquisition
shall not operate as a payment, redemption or satisfaction of the indebtedness
represented by such Securities unless and until the Company, at its option,
shall deliver or surrender the same to the Trustee for cancellation.
SECTION 2.10. Securities in Global Form. If Securities of or within a
series are issuable in whole or in part in temporary or permanent global form,
as specified as contemplated by Section 2.03, then, notwithstanding clause (8)
of Section 2.03, any such Security shall represent such of the outstanding
Securities of such series as shall be specified therein and may provide that it
shall represent the aggregate amount of outstanding Securities from time to
time endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may
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<PAGE> 21
from time to time be reduced to reflect exchanges. Any endorsement of a
Security in global form to reflect the amount, or any increase or decrease in
the amount, or changes in the rights of holders, of outstanding Securities
represented thereby, shall be made by the Trustee in such manner and upon
instructions given by such person or persons as shall be specified therein or
in the instructions by the Company to be delivered to the Trustee pursuant to
Section 2.04 or 2.07. Subject to the provisions of Section 2.04 and, if
applicable, Section 2.07, the Trustee shall deliver and redeliver any Security
in global form in the manner and upon instructions given by the person or
persons specified therein or in the applicable Company instructions. Any
instructions by the Company with respect to endorsement or delivery or
redelivery of a Security in global form shall be in writing but need not comply
with Section 13.05 hereof and need not be accompanied by an Opinion of Counsel.
ARTICLE THREE
PARTICULAR COVENANTS OF THE COMPANY
The Company covenants as follows:
SECTION 3.01. Payment of Principal of (and Premium, if Any) and Interest
on Securities. The Company will duly and punctually pay or cause to be paid
the principal of (and premium, if any) and interest on each series of the
Securities at the respective times and places and in the manner provided in
such Securities and this Indenture. Each payment from the Company to the
Trustee or to the Paying Agent shall be accompanied by a written notice that
designates the series to which such payment relates. As a condition precedent
to the payment of any interest on a Security, the Company or the Paying Agent
may require the holder of such Security to furnish such evidence as will enable
the Company to determine whether it is required by law to deduct or to retain
any tax or taxes from the interest so payable. An installment of principal or
interest shall be considered paid on the date it is due if the trustee or
Paying Agent holds on that date money designated for and sufficient to pay the
installment.
SECTION 3.02. Maintenance of Office or Agency for Registration of
Transfer, Exchange and Payment of Securities. So long as any of the Securities
shall remain outstanding, the Company will maintain an office or agency in the
City of Dallas, Texas, where the Securities may be surrendered for exchange or
registration of transfer as in this Indenture provided, and where notices and
demands to or upon the Company in respect of the Securities or of this
Indenture may be served, and where the Securities may be presented or
surrendered for payment. The Company will give to the Trustee prompt written
notice of the location of any such office or agency and of any change of
location thereof. In case the Company shall fail to maintain any such required
office or agency or shall fail to give such notice of the location or of any
change in the location thereof, such surrenders, presentations and demands may
be made and notices may be served at the principal office of the Trustee, and
the Company hereby appoints the Trustee its agent to receive at the aforesaid
office all such surrenders, presentations, notices and demands.
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The Company may from time to time designate one or more other offices or
agencies (in or outside of the City of Dallas) where the Securities may be
presented or surrendered for any or all such purposes, and may from time to
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the City of Dallas, for such purposes as stated
in this Section. The Company will give prompt written notice to the Trustee of
any such designation or rescission and any change in the location of any such
office or agency.
SECTION 3.03. Appointment to Fill a Vacancy in the Office of Trustee.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 6.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 3.04. Provision as to Paying Agent. (a) If the Company shall
appoint a Paying Agent other than the Trustee, it will cause such Paying Agent
to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provisions of this Section 3.04,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of (and premium, if any) or interest on any
series of Securities (whether such sums have been paid to it by the
Company or by any other obligor on such series of Securities) in trust
for the benefit of the persons entitled thereto until such sums shall be
paid to such persons or otherwise disposed of as herein provided, and
(2) that it will give the Trustee written notice of any failure
by the Company (or by any other obligor on any series of Securities) to
make any payment of the principal of (and premium, if any) or interest
on such series of Securities when the same shall be due and payable; and
(3) at any time during the continuance of an Event of Default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
(b) The Company will, prior to each due date of the principal of (and
premium, if any) or interest on any series of Securities, deposit with the
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
holders of such series of Securities entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee in writing of its failure so to act.
(c) If the Company shall act as its own Paying Agent, it will, on or
before each due date of the principal of (and premium, if any) or interest on
any series of Securities, set aside,
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<PAGE> 23
segregate and hold in trust for the benefit of the persons entitled thereto, a
sum sufficient to pay such principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such persons or otherwise
disposed of as herein provided and will promptly notify the Trustee in writing
of any such action or failure to take such action.
(d) Anything in this Section 3.04 to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a satisfaction and
discharge with respect to one or more or all series of Securities hereunder, or
for any other reason, but only in accordance with Article 11, pay or cause to
be paid to the Trustee or any Paying Agent all sums held in trust for any such
series by it, or any Paying Agent hereunder, as required by this Section 3.04,
such sums to be held by the Trustee or such Paying Agent upon the trusts herein
contained. Upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
(e) Anything in this Section 3.04 to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section 3.04 is subject
to the provisions of Sections 11.03 and 11.04.
SECTION 3.05. Maintenance of Corporate Existence. Subject to Article
10, the Company will at all times do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence and its
franchise to be a corporation.
SECTION 3.06. Officers' Certificate as to Default. The Company will, so
long as any series of Securities is outstanding, deliver to the Trustee,
forthwith upon becoming aware of any default or defaults in the performance of
any covenant, agreement or condition contained in this Indenture, an Officers'
Certificate specifying such default or defaults.
SECTION 3.07. Further Assurance. From time to time whenever reasonably
demanded by the Trustee, the Company will make, execute and deliver or cause to
be made, executed and delivered any and all such further and other instruments
and assurances as may be reasonably necessary or proper to carry out the
intention of or to facilitate the performance of the terms of this Indenture or
to secure the rights and remedies hereunder of the holders of any series of
Securities.
ARTICLE FOUR
SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
SECTION 4.01. Company to Furnish Trustee Information as to Names and
Addresses to Securityholders. The Company will furnish or cause to be
furnished to the Trustee a list in such form as the Trustee may reasonably
require containing all information in the possession or
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control of the Company, or any of its Paying Agents other than the Trustee, as
to the names and addresses of the holders of the Securities of each series
obtained since the date as of which the next previous list if any, was
furnished:
(a) semi-annually, not more than 15 days after each record
date for the payment of semi-annual interest on such Securities, as
hereinabove specified, as of such record date and not less than once
every six months for non-interest bearing Securities in each year, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished; provided, that such list need
not include information received after such date, provided, however,
that so long as the Trustee is the Security registrar, no such list
shall be required to be furnished.
SECTION 4.02. Preservation and Disclosure of Lists. (a) The Trustee
shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the holders of Securities (1)
contained in the most recent list furnished to it as provided in Section 4.01
and (2) received by it in the capacity of Paying Agent (if so acting) and
Security registrar (if so acting).
The Trustee may destroy any list furnished to it as provided in Section
4.01 upon receipt of a new list so furnished.
(b) Securityholders may communicate pursuant to Section 312(b) of the
Trust Indenture Act of 1939 with other Securityholders with respect to their
rights under this Indenture or any or all series of the Securities.
(c) Each and every holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any Paying Agent nor the Security registrar shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the holders of Securities in accordance with the provisions of
subsection (b) of this Section 4.02, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under said subsection
(b).
SECTION 4.03. Reports by the Company. (a) The Company covenants and
agrees to file with the Trustee, within 30 days after the Company is required
to file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) that the Company may be required to file with the Commission
pursuant
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<PAGE> 25
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended; or, if the Company is not required to file information, documents or
reports pursuant to either of such sections, then to file with the Trustee and
the Commission, in accordance with rules and regulations prescribed from time
to time by the Commission, such of the supplementary and periodic information,
documents and reports that may be required pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended, in respect of a security listed
and registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Securities and Exchange Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such additional
information, documents, and reports with respect to compliance by the Company
with the conditions and covenants provided for in this Indenture as may be
required from time to time by such rules and regulations.
(c) The Company covenants and agrees to transmit to the holders of
Securities within 30 days after the filing thereof with the Trustee, in the
manner and to the extent provided in subsection (c) of Section 4.04 with
respect to reports pursuant to subsection (a) of said Section 4.04, such
summaries of any information, documents and reports required to be filed by the
Company pursuant to subsections (a) and (b) of this Section 4.03 as may be
required by rules and regulations prescribed from time to time by the
Commission.
(d) The Company covenants and agrees to furnish to the trustee, not
less often than annually, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture; provided, for purposes of this paragraph, such compliance
shall be determined without regard to any period of grace or requirement of
notice provided under this Indenture.
SECTION 4.04. Reports by the Trustee. (a) On or before July 14, 1997,
and on or before July 14th in every year thereafter, so long as any Securities
are outstanding hereunder, if such report is required by the Trust Indenture
Act of 1939, the Trustee shall transmit to the Securityholders of each series,
as hereinafter in this Section 4.04 provided, a brief report dated as of May
15th of the year in which such report is made that complies with Section 313(a)
of the Trust Indenture Act of 1939.
(b) The Trustee shall also comply with Section 313(b)(2) of the Trust
Indenture Act of 1939.
(c) Reports pursuant to this Section 4.04 shall be transmitted by
mail to all Securityholders, as the names and addresses of such holders appear
upon the registry books of the Company and to all other person to whom such
reports are required to be transmitted pursuant to Section 313(c) of the Trust
Indenture Act of 1939.
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<PAGE> 26
(d) A copy of each such report shall, at the time of such
transmission to holders of Securities, be filed by the Trustee with each stock
exchange upon which the Securities of any applicable series are listed and also
with the Commission. The Company will notify the Trustee when and as the
Securities of such series become listed on any stock exchange.
ARTICLE FIVE
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.01 Events of Default Defined; Acceleration of Maturity;
Waiver of Default. In case one or more of the following Events of Default with
respect to Securities of any series shall have occurred and be continuing, that
is to say:
(a) default in the payment of any installment of interest upon
any of the Securities of such series as and when the same shall become
due and payable, and continuance of such default for a period of 30
days;
(b) default in the payment of the principal of (and premium,
if any, on) any of the Securities of such series as and when the same
shall become due and payable either at maturity, by declaration or
otherwise;
(c) failure on the part of the Company duly to observe or
perform in any material respect any other of the covenants or agreements
on the part of the Company in the Securities of such series or contained
in this Indenture for a period of 90 days after the date on which
written notice specifying such failure, stating that such notice is a
"Notice of Default" hereunder and, requiring the same to be remedied,
shall have been given to the Company by the Trustee, or to the Company
and the Trustee by the holders of at least 25% in aggregate principal
amount of the Securities of such series at the time outstanding;
(d) default under the terms of any agreement or instrument
evidencing, or under which the Company has at the date of this Indenture
or hereafter outstanding, any indebtedness for borrowed money and such
indebtedness shall be accelerated so that the same shall be or become
due and payable prior to the date on which the same would otherwise
become due and payable and the aggregate principal amount thereof so
accelerated exceeds $50,000,000 and such acceleration is not rescinded
or annulled within ten days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount of
the outstanding securities of that series a written notice specifying
such default and stating that such notice is a "Notice of Default"
hereunder; (it being understood however, that, subject to the provisions
of Section 6.01, the Trustee shall not be deemed to have knowledge of
such default under such agreement or instrument unless either (A)
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a Responsible Officer of the Trustee shall have actual knowledge of such
default or (B) a Responsible Officer of the Trustee shall have received
written notice thereof from the Company, from any Holder, from the
holder of any such indebtedness or from the trustee under any such
agreement or other instrument); provided, however, that if such default
under such agreement or instrument is remedied or cured by the Company
or waived by the holders of such indebtedness, then the Event of Default
hereunder by reason thereof shall be deemed likewise to have been
thereupon remedied, cured or waived without further action upon the part
of either the Trustee or any of such Holders;
(e) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the
Company or for any substantial part of its property, or ordering the
winding-up or liquidation of its affairs, and such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
(f) the Company shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment
of, or taking possession by, a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) of the Company or for all
or substantially all of its property, or shall make any general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due or shall take any corporate action in
furtherance of any of the foregoing, then and in each and every such
case, unless the principal of all the Securities of such series shall
have already become due and payable, either the Trustee or the holders
of not less than 25% in aggregate principal amount of the Securities of
such series then outstanding hereunder, by notice in writing to the
Company (and to the Trustee if given by Securityholders), may declare
the principal of all the Securities of such series (or, if the
Securities of such series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that
series) of all Securities of such series and the interest accrued
thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and
payable, anything in this Indenture or in the Securities contained to
the contrary notwithstanding. This provision, however, is subject to the
condition that if, at any time after the principal (or, if the
Securities are Original Issue Discount Securities, such portion of the
principal as may be specified in the terms thereof) of the Securities of
any series (or, if the Securities are Original Issue Discount
Securities, such portion of the principal as may be specified in the
terms thereof) of the Securities of any series (or of all the
Securities, as the case may be) shall have been so declared due and
payable, and before any judgment or decree for the payment of the moneys
due shall have been obtained or entered as hereinafter provided, the
Company shall pay or shall deposit
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with the Trustee a sum sufficient to pay all matured installments of
interest upon all the Securities of such series (or of all the
Securities, as the case may be) and the principal of (and premium, if
any, on) all Securities of such series (or of all the Securities, as the
case may be) that shall have become due otherwise than by declaration
(with interest on overdue installments of interest to the extent
permitted by law, and on such principal and premium, if any, at the rate
of interest borne by the Securities or Yield to Maturity (in the case of
Original Issue Discount Securities) applicable to the Securities of such
series (or at the respective rates of interest or Yields to maturity of
all the Securities, as the case may be) to the date of such payment or
deposit) and the expenses of the Trustee, and any and all defaults
under the Indenture, other than the nonpayment of principal of and
accrued interest on Securities that shall have become due by
declaration, shall have been remedied--then and in every such case the
Securityholders of a majority in aggregate principal amount of the
Securities of such series (or of all the Securities, as the case may be)
then outstanding, by written notice to the Company and to the Trustee,
may waive all defaults with respect to that series, each such series
voting as a separate class (or with respect to all Securities, as the
case may be, in such case treated as a single class) and rescind and
annul such declaration and its consequences; but no such waiver of
rescission and annulment shall extend to or shall affect any subsequent
default, or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Securities of such series shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company and the Trustee shall continue as
though no such proceedings had been taken.
SECTION 5.02. Payment of Securities on Default; Suit Therefor. The
Company covenants that (1) in case default shall be made in the payment of any
installment of interest on any of the Securities of any series, as and when the
same shall become due and payable, and such default shall have continued for a
period of 30 days or (2) in case default shall be made in the payment of the
principal of any of the Securities of any series when the same shall have
become due and payable, whether upon maturity of the Securities for such series
or otherwise, including any sinking fund payment--then, upon demand of the
Trustee, the Company will pay to the Trustee for the benefit of the holders of
the Securities of such series (and shall designate which series) the whole
amount that then shall have become due and payable on all Securities of such
series for principal (and premium, if any) or interest, or both, as the case
may be, with interest on the overdue principal (and premium, if any) and
installments of interest (to the extent permitted by law) at the rate of
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) borne by such series of Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including a reasonable
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<PAGE> 29
compensation to the Trustee, its agents, attorneys and counsel, and any
expenses or liabilities incurred by the Trustee hereunder other than through
its negligence or bad faith.
Until such demand is made by the Trustee, the Company may pay the
principal of and interest on the Securities of any series to the holders
thereof, whether or not the Securities of such series be overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor upon such
Securities, and collect in the manner provided by law out of the property of
the Company or any other obligor upon such Securities wherever situated the
moneys adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for the
reorganization of the Company or any other obligor upon the Securities of any
series under the Bankruptcy Code or any other applicable law or in connection
with the insolvency of the Company or any other obligor upon any Securities or
in the case a receiver or trustee shall have been appointed for its property,
or in case of any other judicial proceedings relative to the Company or any
other obligor upon such series of Securities or to creditors or property of the
Company or such other obligor, the Trustee, irrespective of whether the
principal of such series of Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand pursuant to the provisions of this Section
5.02, shall be entitled and empowered by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest (or if the Securities of any series
are Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms of that series) owing and unpaid in respect of
the Securities of any series, and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trust and of the
Securityholders allowed in any judicial proceedings relative to the Company or
any other obligor upon the Securities of any series, its creditors, or its
property, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute the same after the deduction
of its charges and expenses; and any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized by each of such holders to
make such payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such payments directly to the holders, to pay to the
Trustee any amount due it for compensation and expenses, including counsel fees
incurred by it up to the date of such distribution. To the extent that such
payment of reasonable compensation, expenses, liabilities and counsel fees out
of the estate in any such proceedings shall be denied for any reason (except as
a result of negligence or bad faith), payment of the same shall be secured by a
lien on, and shall be paid out of, any and all distributions, dividends,
moneys, securities and
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<PAGE> 30
other property that the holders of the Securities of any series may be entitled
to receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.
All rights of action and of asserting claims under this Indenture, or
under any of the Securities of any series, may be enforced by the Trustee
without the possession of any of the Securities, or the production thereof at
any trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name and as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit of
the holders of the Securities and the Trustee.
SECTION 5.03. Application of Moneys Collected by Trustee. Any moneys
collected by the Trustee pursuant to Section 5.02 with respect to any one or
more series shall be applied in the order following, at the date or dates fixed
by the Trustee for the distribution of such moneys, and, in the case of the
distribution of such moneys on account of principal or interest, upon
presentation of the several Securities of a series in respect of which moneys
have been collected, and stamping (or otherwise noting) thereon the payment, or
issuing Securities of such series in reduced principal amounts in exchange for
the presented Securities of such series if only partially paid, and upon
surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection
applicable to such series, and reasonable compensation to the Trustee,
its agents, attorneys and counsel, and of all other expenses and
liabilities incurred, and all advances made, by the Trustee with respect
to such series, except as a result of its negligence or bad faith;
SECOND: In case no principal of the outstanding Securities
of such series shall have become due and be unpaid, to the payment of
interest on the Securities of such series in default, in the order of
the maturity of the installments of such interest, with interest upon
the overdue installments of interest (so far as permitted by law and to
the extent that such interest has been collected by the Trustee) as the
rate of interest or Yield to Maturity (in the case of Original Issue
Discount Securities) borne by the Securities of such series; and in case
such moneys shall be insufficient to pay in full the whole amount so due
and unpaid upon the Securities of such series, then to the payment of
such principal (and premium, if any) and interest, without preference or
priority of principal (and premium, if any) over interest, or of
interest over principal (and premium, if any), or of any installment of
interest over any other installment of interest or of any Security of
such series over any other Security of such series, ratably to the
aggregate of such principal (and premium, if any) and accrued and unpaid
interest; and
FOURTH: To the payment of the remainder, if any, to the
Company, its successors or assigns, or to whosoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may
direct.
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<PAGE> 31
SECTION 5.04. Limitation on Suits by Holders of Securities. No holder
of a Security of any series shall have any right by virtue or by availing of
any provision of this Indenture to institute any suit, action or proceeding in
equity or at law or in bankruptcy or otherwise, upon or under or with respect
to this Indenture or for the appointment of a receiver, liquidating custodian,
trustee or similar official, or for any other remedy hereunder, unless such
holder previously shall have given to the Trustee written notice of default and
of the continuance thereof, as hereinabove provided, and unless also the
holders of not less than 25% in aggregate principal amount of such series of
Securities then outstanding shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after its receipt of such notice, request
and offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding and no direction inconsistent with such written
request shall have been given to the Trustee pursuant to Section 5.06; it being
understood and intended, and being expressly covenanted by the holder of every
Security of a series with every other Securityholder and the Trustee, that no
one or more holders of such series of Securities shall have any right in any
manner whatsoever by virtue or by availing of any provision of this Indenture
to affect, disturb or prejudice the rights of the holders of any other series
of Securities, or to obtain or seek to obtain priority over or preference to
any other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of all
holders of Securities. For the protection and enforcement of the provisions of
this Section 5.04, each and every Securityholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Notwithstanding any other provisions in this Indenture, the right of any
holder of any Security to receive payment of the principal of (and premium, if
any) and interest on such Security, on or after the respective due dates
expressed in such Security, or to institute suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of such holder.
SECTION 5.05. Proceedings by Trustee; Remedies Cumulative and
Continuing. In case an Event of Default has occurred, has not been waived, and
is continuing, the Trustee may in its discretion proceed to protect and enforce
the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either by suit in equity or by action at law or by proceeding
in bankruptcy or otherwise, whether for the specific enforcement of any
covenant or agreement contained in this Indenture or in aid of the exercise of
any power granted in this Indenture, or to enforce any other legal or equitable
right vested in the Trustee by this Indenture or by law. All powers and
remedies given by this Article Five to the Trustee or to the Securityholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive
of any thereof or any other powers and remedies available to the Trustee or to
the holders of the Securities, by judicial proceedings or otherwise, to enforce
the performance or observance of the covenants and
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<PAGE> 32
agreements contained in this Indenture, and no delay or omission of the Trustee
or of any holder of any of the Securities to exercise any right or power
accruing upon any default occurring and continuing as aforesaid shall impair
any such right or power, or shall be construed to be a waiver of any such
default or any acquiescence therein; and, subject to the provisions of Section
5.04, every power and remedy given by this Article Five or by law to the
Trustee or to the Securityholders may be exercised from time to time, and as
often as shall be deemed expedient, by the Trustee or by the Securityholders.
SECTION 5.06. Rights of Holders of Majority in Principal Amount of
Securities to Direct Trustee and to Waive Defaults. The holders of a majority
in aggregate principal amount of the Securities of all series affected (voting
as one class) at the time outstanding (determined as provided in Section 7.04),
or, if a record date is set in accordance with Section 7.05, as of such record
date, shall have the right to direct the time, method, and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee by the Indenture with respect to the
Securities of such series; provided, however, that subject to the provisions
of Section 6.01, the Trustee shall have the right to decline to follow any such
direction if the Trustee being advised by counsel shall determine that the
action so directed may not lawfully be taken, or if the Trustee in good faith
shall, by a responsible officer or officers of the Trustee, determine that the
proceedings so directed would be illegal or involve it in personal liability or
be unjustly prejudicial to the Securityholders not consenting, and provided
further that nothing in this Indenture shall impair the right of the Trustee in
its discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction by the Securityholders. Prior to the
declaration of the maturity of the Securities of any series as provided in
Section 5.01, the holders of a majority in aggregate principal amount of the
Securities of such series at the time outstanding (each such series voting as a
separate class) (determined as provided in Sections 7.04 and 7.05) may on
behalf of the holders of all of the Securities of such series waive any past
default hereunder and its consequences, except a default in the payment of
interest or premium on, or the principal of, any of the Securities. In the
case of any such waiver the Company, the Trustee and the holders of the
Securities of such series shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or impair any right consequent hereon.
SECTION 5.07. Trustee to Give Notice of Defaults Known to It, But May
Withhold in Certain Circumstances. The Trustee shall, within 90 days after the
occurrence of a default hereunder, give to the Securityholders, in the manner
and to the extent provided in subsection (c) of Section 4.04 with respect to
reports pursuant to subsection (a) of Section 4.04, notice of such defaults
known to the Trustee unless such default shall have been cured or waived before
the giving of such notice (the term "defaults" for the purposes of this Section
5.07 being hereby defined to be the events specified in clauses (a), (b), (c),
(d), (e) and (f) of Section 5.01, not including any periods of grace provided
for therein, and irrespective of the giving of any required notice); provided
that, except in the case of default in the payment of the principal of (and
premium, if any) or interest on any of the Securities of such series, the
Trustee shall be protected
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<PAGE> 33
in withholding such notice if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determined that the withholding of such
notice is in the interest of the Securityholders of such series.
SECTION 5.08. Requirement of an Undertaking to Pay Costs in Certain
Suits Under the Indenture or Against the Trustee. All parties to this
Indenture agree, and each holder of any Security by his acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require,
in any suit for the enforcement or any right or remedy under this Indenture, or
in any suit against the Trustee for any action taken or omitted by it as
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorney's fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section 5.08 shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Securityholder, or group of Securityholders of any series,
holding in the aggregate more than ten percent in aggregate principal amount of
the Securities of such series outstanding, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of (and
premium, if any) or interest on any Security, on or after the due date
expressed in such Security.
ARTICLE SIX
CONCERNING THE TRUSTEE
SECTION 6.01. Duties and Responsibilities of Trustee. The Trustee,
prior to the occurrence of an Event of Default and after the curing or waiving
of all Events of Default that may have occurred with respect to the Securities
of a series, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default has
occurred of which a Responsible Officer of the Trustee has actual knowledge
(which has not been cured or waived) the Trustee shall exercise such of the
rights and powers vested in it by this Indenture with respect to the Securities
of a series, and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, provided, however, that:
(a) prior to the occurrence of an Event of Default with
respect to the Securities of any series and after the curing or waiving
of all Events of default with respect to such series that may have
occurred
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(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture,
and the Trustee shall only be liable for the performance of such
duties and obligations as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(2) in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but
in the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in principal amount
of the Securities of all series affected (voting as a class) at the time
outstanding (determined as provided in Sections 7.04 and 7.05) relating
to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties hereunder or in the exercise
of any of its rights or powers, if there is reasonable grounds for believing
that the repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
SECTION 6.02. Reliance on Documents, Opinions, etc. Subject to the
provisions of Section 6.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond, note or other paper or document believed by it to be genuine and
to have been signed or presented by the proper party or parties;
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<PAGE> 35
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and the Trustee by a copy thereof certified by
the Secretary or any Assistant Secretary of the Company;
(c) The Trustee may consult with counsel and the advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice
or Opinion of Counsel;
(d) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders, pursuant to the
provisions of this Indenture, unless such Securityholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that may be incurred therein or thereby;
but nothing herein contained shall, however, relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (which has not
been cured or waived), to exercise such of the rights and powers vested
in it by this Indenture, and to use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(e) The Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture;
(f) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order
approval, bond, note or other paper or document, unless requested in
writing so to do by the holders of not less than a majority in aggregate
principal amount of the Securities of all series affected then
outstanding voting as one class (determined as provided in Sections 7.04
and 7.05); provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expense or liability as a condition to
so proceeding. The reasonable expense of every such examination shall
be paid by the Company or, if paid by the Trustee, shall be repaid by
the Company upon demand; and
(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys. The Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
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SECTION 6.03. No Responsibility for Recitals, etc. The statements and
recitals contained herein and in the Securities and in any other document in
connection with the sale of the Securities (other than the certificate of
authentication of the Securities) shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for the correctness of the
same. The Trustee makes no representation as to the validity or sufficiency of
this Indenture or of the Securities. The Trustee shall not be accountable for
the use or application by the Company of any of the Securities or of the
proceeds of such Securities, or for the use or application of any moneys paid
over by the Trustee in accordance with any provision of this Indenture, or for
the use or application of any moneys received by any Paying Agent other than
the Trustee.
SECTION 6.04. Trustee, Paying Agent or Security Registrar May Own
Securities. The Trustee or any Paying Agent or Security registrar, in its
individual or any other capacity, may become the owner or pledgee of Securities
and may otherwise deal with the Company or any Affiliate of the Company with
the same rights it would have if it were not Trustee, Paying Agent or Security
registrar.
SECTION 6.05. Moneys Received by Trustee to be Held in Trust Without
Interest. Subject to the provisions of Section 11.04, all moneys received by
the Trustee shall, until used or applied as herein provided, be held in trust
for the purposes for which they were received, but need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on moneys received by it hereunder except such as it
may agree with the Company to pay thereon. So long as no Event of Default
shall have occurred and be continuing, all interest allowed on any such moneys
shall be paid from time to time upon the written order of the Company, signed
by its Chairman of the Board, any Vice Chairman of the Board, its President or
any Vice President or its Treasurer or any Assistant Treasurer.
SECTION 6.06. Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation (which shall not be limited by
any provision of law in regard to the compensation of a Trustee of an express
trust), and the Company will promptly pay or reimburse the Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or
made by the Trustee in connection with the acceptance or administration of its
trust under this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Company also covenants to indemnify the
Trustee for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on the part of the Trustee and arising
(a) out of or in connection with the acceptance or administration of this
trust, or (b) from any action or failure to act as authorized or within the
discretion or rights or powers conferred upon the Trustee hereunder, including
the costs and expenses of defending itself against any claim of liability in
the premises. The obligations of the Company under this Section 6.06 to
compensate the Trustee and to pay or reimburse the Trustee
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for expenses, disbursements, losses, liabilities and advances shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. Such additional indebtedness shall be secured by
a lien prior to that of the Securities upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Securities.
SECTION 6.07. Right of Trustee to Rely on Officers' Certificate Where No
Other Evidence Specifically Prescribed. Subject to the provisions of Section
6.01, whenever in the administration of the provisions of this Indenture the
Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee, be deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such Certificate, in the absence of
negligence or bad faith on the part of the Trustee, shall be full warrant to
the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 6.08. Conflicting Interest of Trustee. (a) If the Trustee has
or shall acquire any conflicting interest, as defined in this Section 6.08, it
shall, within 90 days after ascertaining that it has such conflicting interest,
either eliminate such conflicting interest or, unless the Trustee's duty to
resign is stayed as provided in Section 310(b) of the Trust Indenture Act of
1939, resign in the manner and with the effect specified in Section 6.10, such
resignation to become effective upon the appointment of a successor trustee and
such successor's acceptance of such appointment, and the Company shall take
prompt steps to have a successor appointed in the manner provided in Section
6.10.
(b) In the event that the Trustee shall fail to comply with the
provisions of subsection (a) of this Section 6.08, the Trustee shall, within 10
days after the expiration of such 90-day period, or, if the Trustee's duty to
resign is stayed, after the end of such stay, transmit notice of such failure
to the Securityholders in the manner and to the extent provided in subsection
(c) of Section 4.04 with respect to reports pursuant to subsection (a) of
Section 4.04.
(c) For the purposes of this Section 6.08, the Trustee shall be
deemed to have a conflicting interest if the Trustee has a conflict within the
provisions of Section 310(b) of the Trust Indenture Act of 1939.
SECTION 6.09. Requirements for Eligibility of Trustee. The Trustee
hereunder shall at all times be a corporation organized and doing business
under the laws of the United States or any State or territory thereof or of the
District of Columbia authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least five million dollars,
subject to supervision or examination by Federal, State, Territorial, or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant
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to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 6.09, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 6.09, the Trustee shall resign immediately in the
manner and with the effect specified in Section 6.10. Neither the Company nor
any persons directly or indirectly controlling, controlled by, or under common
control with the Company shall serve as Trustee.
SECTION 6.10. Resignation or Removal of Trustee. (a) The Trustee, or
any Trustee hereafter appointed, may at any time resign with respect to one or
more series of Securities by giving written notice of such resignation to the
Company or to the Securityholders, such notice to the Securityholders of
applicable series of Securities to be given by mailing (by first class mail)
the same. Upon receiving such notice of resignation, the Company shall
promptly appoint a successor Trustee with respect to the applicable series by
written instrument, in duplicate, executed by order of the Board of Directors
of the Company, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor
trustee shall have been so appointed and have accepted appointment within 60
days after the mailing of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide holder of a Security or
Securities for at least six months may, subject to the provisions of Section
5.08, on behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with the provisions of
subsection (a) of Section 6.08 with respect to any series of Securities
after written request therefor by the Company or by any Securityholder
who has been a bona fide holder of a Security or Securities of such
series for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.09 and shall fail to resign after written
request therefor by the Company or by any such Securityholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of a
substantial portion of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of a substantial
portion of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case, the Company may
remove the Trustee with respect to the applicable series and appoint a
successor trustee for such series by written instrument, in duplicate,
executed by order of the Board of Directors
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of the Company, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to
the provisions of Section 5.08, any Securityholder who has been a bona
fide holder of a Security or Securities of such series 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
Trustee and the appointment of a successor trustee with respect to such
series. Such court may thereupon, after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities of all series at the time outstanding voting as one class
(determined as provided in Section 7.04) may at any time remove the Trustee
with respect to Securities of all series and appoint a successor trustee with
respect to securities of all series by written instrument or instruments signed
by such holders or their attorneys-in-fact duly authorized, or by the
affidavits of the permanent chairman and secretary of a meeting of the
Securityholders evidencing the vote upon a resolution or resolutions submitted
thereto with respect to such removal and appointment (as provided in Article
Eight), and by delivery thereof to the Trustee so removed, to the successor
trustee and to the Company.
(d) Any resignation or removal of the Trustee and appointment of any
successor trustee pursuant to any of the provisions of this Section 6.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 6.11.
SECTION 6.11. Acceptance by Successor to Trustee; Notice of Succession
of a Trustee. Any successor trustee appointed as provided in Section 6.10
shall execute, acknowledge and deliver to the Company and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee with respect to all or any
particular series shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations with respect to such series of its predecessor
hereunder, with like effect as if originally named as Trustee herein; but,
nevertheless, on the written request of the Company or of the successor
trustee, the Trustee ceasing to act shall, upon payment of any amounts then due
it pursuant to the provisions of Section 6.06, pay over to the successor
trustee, subject to Section 11.04, all monies at the time held by it hereunder
with respect to such series, and execute and deliver an instrument transferring
to such successor trustee all the rights and powers of the trustee so ceasing
to act. Upon request of any such successor trustee, the Company shall execute
any and all instruments in writing for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers. Any trustee
ceasing to act shall, nevertheless, retain a lien upon all property or funds
held or collected by such trustee to secure any amounts then due it pursuant to
the provisions of Section 6.06.
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If a successor trustee is appointed with respect to the Securities of
one or more (but not all) series, the Company, the predecessor Trustee and each
successor trustee with respect to the Securities of any applicable series shall
execute and deliver an indenture supplemental hereto that shall contain such
provisions as shall be deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the predecessor Trustee with respect to
the Securities of any series as to which the predecessor Trustee is not
retiring shall continue to be vested in the predecessor Trustee, and shall add
to or change any of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such Trustees as co-trustees of the
same trust and that each such Trustee shall be Trustee of a trust or trusts
under separate indentures.
No successor trustee with respect to any series of Securities shall
accept appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor trustee shall be qualified under the provisions of
Section 6.08 and eligible under the provisions of Section 6.09.
Upon acceptance of appointment by a successor trustee as provided in
this Section 6.11, the Company shall mail to the holders of Securities of any
series by first-class mail notice thereof. If the Company fails to mail such
notice within 30 days after acceptance of appointment by the successor trustee,
the successor trustee shall, in its discretion, cause such notice to be mailed
at the expense of the Company.
SECTION 6.12. Successor to Trustee by Merger, Consolidation or
Succession to Business. Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger or conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be qualified under the provisions of Section 6.08 and
eligible under the provisions of Section 6.09, without the execution or filing
of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture and the Securities of any series shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor Trustee, and deliver
such Securities so authenticated; and in case at that time the Securities of
any series shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder or
in the name of the successor Trustee; and in all such cases such certificates
shall have the full force that it is anywhere in the Securities of such series
or in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or authenticate Securities of any series in the name of
any predecessor Trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
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SECTION 6.13. Limitations on Rights of Trustee as a Creditor. The
Trustee shall comply with Section 311 of the Trust Indenture Act of 1939.
ARTICLE SEVEN
CONCERNING THE SECURITYHOLDERS
SECTION 7.01. Evidence of Action by Securityholders. Whenever in this
Indenture it is provided that the holders of a specified percentage in
aggregate principal amount of the Securities of any or all series may take any
action (including the making of any demand or request, the giving of any
notice, consent, or waiver or the taking of any other action) the fact that the
holders of such specified percentage, determined as of the time such action was
taken or, if a record date was set with respect thereto pursuant to Section
7.05, as of such record date, have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Securityholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Securities voting in favor thereof at any meeting
of Securityholders duly called and held in accordance with the provisions of
Article Eight, or (c) by a combination of such instrument or instruments and
any such record of such a meeting of Securityholders.
SECTION 7.02. Proof of Execution of Instruments and of Holding of
Securities. Subject to the provisions of Sections 6.01, 6.02 and 8.05, proof
of the execution of any instrument by a Securityholder or his agent or proxy
shall be sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee.
The ownership of Securities shall be proved by the register of such
Securities, or by a certificate of the registrar thereof.
The Trustee may accept such other proof or require such additional proof
of any matter referred to in this Section 7.02 as it shall deem reasonable.
The record of any Securityholders' meeting shall be proved in the manner
provided in Section 8.06.
SECTION 7.03. Who May be Deemed Owners of Securities. The Company, the
Trustee, any Paying Agent and any Security registrar may deem and treat the
person in whose name any Security shall be registered upon the books of the
Company for such series on the applicable record date as the absolute owner of
such Security (whether or not such Security shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of, premium, if
any, and interest on such Security and for all other purposes; and neither the
Company nor the Trustee nor any Paying Agent nor any Security registrar shall
be affected by any notice to the contrary. All such
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payments so made to, or upon the order of, any such holder shall be valid, and,
to the extent of the sum or sums so paid, effectual to satisfy and discharge
the liability for moneys payable upon any such Security.
SECTION 7.04. Securities Owned by Company or Controlled or Controlling
Persons Disregarded for Certain Purposes. In determining whether the holders
of the requisite aggregate principal amount of Securities have concurred in any
demand, direction, request, notice, consent, waiver or other action under this
Indenture, Securities that are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other
obligor on the Securities shall be disregarded and deemed not to be outstanding
for the purpose of any such determination, provided that for the purposes of
determining whether the Trustee shall be protected in relying on any such
demand, direction, request, notice, consent or waiver, only Securities that the
Trustee knows are so owned shall be so disregarded. Securities so owned that
have been pledged in good faith may be regarded as outstanding for the purposes
of this Section 7.04, if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right to vote such Securities and that the pledgee is not
a person directly or indirectly controlling or controlled by or under direct or
common control with the Company or any such obligor. In case of a dispute as
to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee.
SECTION 7.05. Record Date for Action by Securityholders. Whenever in
this Indenture it is provided that holders of a specified percentage in
aggregate principal amount of the Securities of a series may take any action
(including the making of any demand or request, the giving of any direction,
notice, consent or waiver or the taking of any action), other than any action
taken at a meeting of Securityholders called pursuant to Article Eight, the
Company, pursuant to a resolution of its Board of Directors, or the holders of
at least ten percent in aggregate principal amount of the Securities of such
series then outstanding, may request the Trustee to fix a record date for
determining Securityholders entitled to notice of and to take any such action.
In case the Company or the holders of Securities of such series in the amount
above specified shall desire to request Securityholders of such series to take
any such action and shall request the Trustee to fix a record date with respect
thereto by written notice setting forth in reasonable detail the Securityholder
action to be requested, the Trustee shall promptly (but in any event within
five days of receipt of such request) fix a record date that shall be a
Business Day not less than 15 nor more than 20 days after the date on which the
Trustee receives such request. If the Trustee shall fail to fix a record date
as hereinabove provided, then the Company or the holders of Securities of such
series in the amount above specified may fix the same by mailing written notice
thereof (the record date so fixed to be a business day not less than 15 nor
more than 20 days after the date on which such written notice shall be given)
to the Trustee. If a record date is fixed according to this Section 7.05, only
persons shown as Securityholders of such series on the registration books for
the Company at the close of business on the record date so fixed shall be
entitled to take the requested action and the taking of any such action by the
holders on the
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record date of the required percentage of the aggregate principal amount of the
Securities of such series shall be binding on all Securityholders of such
series, provided that the taking of the requested action by the holders on the
record date of the percentage in aggregate principal amount of the Securities
of such series in connection with such action shall have been evidenced to the
Trustee, as provided in Section 7.01, not later than 180 days after such record
date.
SECTION 7.06. Instruments Executed by Securityholders Bind Future
Holders. At any time prior to (but not after) the evidencing to the Trustee,
as provided in Section 7.01, of the taking of any action by the holders of the
percentage in aggregate principal amount of the Securities of any or all series
in connection with such action, any holder of a Security of such series the
serial number of which is shown by the evidence to be included in the
Securities of such series the holders of which have consented to such action
may, by filing written notice with the Trustee at its principal office and upon
proof of holding as provided in Section 7.02, revoke such action so far as
concerns such Security. Except as aforesaid any such action taken by the
holder of any Security of such series and any direction, demand, request,
waiver, consent, vote or other action of the holder of any Security of such
series that by any provisions of this Indenture is required or permitted to be
given shall be conclusive and binding upon such holder and upon all future
holders and owners of such Security, and of any Security issued in lieu
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Security. Any action taken by the holders of the percentage in
aggregate principal amount of the Securities of such series in connection with
such action shall be conclusively binding as the act of such holders upon the
Company, the Trustee and the holders of the Securities of such series.
ARTICLE EIGHT
SECURITYHOLDERS' MEETING
SECTION 8.01. Purposes for Which Meetings May be Called. A meeting of
holders of Securities of any or all series, as the case may be, may be called
at any time and from time to time pursuant to the provisions of this Article
Eight for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default or Event of Default hereunder and its consequences, or to take
any other action authorized to be taken by Securityholders of any or all
series pursuant to any of the provisions of Article Five;
(2) to remove the Trustee and appoint a successor Trustee
pursuant to the provisions of Article Six;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.02; or
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(4) to take any other action authorized to be taken by or on
behalf of the holders of the percentage in aggregate principal amount of
the Securities of any or all series under any other provisions of this
Indenture or under applicable law.
SECTION 8.02. Manner of Calling Meetings; Record Date. The Trustee may
at any time call a meeting of Securityholders of any or all series to take any
action specified in Section 8.01, to be held at such time and at such place in
the City of Dallas, Texas, as the Trustee shall determine. Notice of every
meeting of the Securityholders of any or all series, setting forth the time and
the place of such meeting and in general terms the action proposed to be taken
at such meeting, shall be mailed nor less than thirty nor more than sixty days
prior to the date fixed for the meeting to such Securityholders at their
registered addresses. For the purpose of determining Securityholders entitled
to notice of any meeting of Securityholders, the Trustee shall fix in advance a
date as the record date for such determination, such date to be a business day
not more than ten days prior to the date of the mailing of such notice as
hereinabove provided. Only persons in whose name any Security shall be
registered upon the books of the Company on a Record Date fixed by the Trustee
as aforesaid, or by the Company or the Securityholders as in Section 8.03
provided, shall be entitled to notice of the meeting of Securityholders with
respect to which such record date was so fixed.
SECTION 8.03. Call of Meeting by Company or Securityholders. In case at
any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least ten percent in aggregate principal amount of the
Securities then outstanding of any or all series, as the case may be, shall
have requested the Trustee to call a meeting of such Securityholders to take
any action authorized in Section 8.01 by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed notice of such meeting within twenty days after
receipt of such request, then the Company or the holders of such Securities in
the amount above specified, as the case may be, may fix the record date with
respect to, and determine the time and the place in said City of Dallas, Texas
for, such meeting and may call such meeting to take any action authorized in
Section 8.01, by mailing notice thereof as provided in Section 8.02. The
record date fixed as provided in the preceding sentence shall be set forth in a
written notice to the Trustee and shall be a business day not less than 15 nor
more than 20 days after the date on which such notice is sent to the Trustee.
SECTION 8.04. Who May Attend and Vote at Meetings. To be entitled to
vote at any meeting of Securityholders a person shall (i) be a holder of one or
more Securities of the series with respect to which the meeting is called or,
should the meeting be called with respect to the Securities of all series, a
holder of one or more of such series, or (ii) a person appointed by an
instrument in writing as proxy by a holder of one or more securities of the
series. The only persons who shall be entitled to be present or to speak at
any meeting of Securityholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel. When a
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determination of Securityholders entitled to vote at any meeting of
Securityholders has been made as provided in this Section 8.04, such
determination shall apply to any adjournment thereof.
SECTION 8.05. Regulations. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Securityholders, in regard to proof of the holding
of Securities of the series with respect to which the meeting is called and of
the appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit. Except as otherwise permitted or
required by any such regulations, the holding of such Securities and the
appointment of any proxy shall be proved in the manner specified in Section
7.02.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 8.03, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by a vote of the holders of
a majority in principal amount of the Securities represented at the meeting and
entitled to vote.
Subject to the provisions of Section 7.04, at any meeting each
Securityholder or proxy entitled to vote thereat shall be entitled to one vote
for each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not outstanding and ruled by the chairman
of the meeting to be not outstanding. The chairman of the meeting shall have
no right to vote other than by virtue of Securities held by him or instruments
in writing as aforesaid duly designating him as the person to vote on behalf of
other Securityholders. Any meeting of Securityholders duly called pursuant to
the provisions of Section 8.02 or 8.03 may be adjourned from time to time, and
the meeting may be held as so adjourned without further notice.
At any meeting of Securityholders, the presence of persons who held, or
who are acting as proxy for persons who held, an aggregate principal amount of
Securities of the series with respect to which the meeting is called on the
record date for such meeting sufficient to take action on the business for the
transaction of which such meeting was called shall constitute a quorum, but, if
less than a quorum is present, the persons holding or representing a majority
in aggregate principal amount of the Securities of the series with respect to
which the meeting is called represented at the meeting may adjourn such meeting
with the same effect, for all intents and purposes, as though a quorum had been
present.
SECTION 8.06. Manner of Voting at Meetings and Record to be Kept. The
vote upon any resolution submitted to any meeting of Securityholders shall be
by written ballots on each of which shall be subscribed the signature of the
Securityholder or proxy casting such ballot
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and the identifying number or numbers of the Securities held or represented in
respect of which such ballot is cast. The permanent chairman of the meeting
shall appoint two inspectors of votes who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Securityholders shall be prepared by the secretary of the meeting
and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 8.02. The record shall show the identifying numbers of the Securities
voting in favor of or against any resolution. Each counterpart of such record
shall be signed and verified by the affidavits of the permanent chairman and
secretary of the meeting and one of the counterparts shall be delivered to the
Company and the other to the Trustee to be preserved by the Trustee.
Any counterpart record so signed and verified shall be conclusive
evidence of the matters therein stated and shall be the record referred to in
clause (b) of Section 7.01.
SECTION 8.07. Exercise of Rights of Trustee and Securityholders
Not to be Hindered or Delayed. Nothing in this Article Eight contained shall
be deemed or construed to authorize or permit, by reason of any call of a
meeting of Securityholders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any
right or rights conferred upon or reserved to the Trustee or to the
Securityholders under any of the provisions of this Indenture or of the
Securities of any or all series.
SECTION 8.08. Written Consent in Lieu of Meeting of Securityholders.
The written authorization or consent of the requisite percentage of
Securityholders herein provided, entitled to vote at any such meeting,
evidenced as provided in Article Seven and filed with the Trustee, shall be
effective in lieu of a meeting of Securityholders, with respect to any matter
provided for in this Article Eight.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01. Purposes for Which Supplemental Indentures May be Entered
into Without Consent of Securityholders. The Company, when authorized by a
resolution of its Board of Directors, and the Trustee may from time to time and
at any time enter into an indenture or indentures supplemental hereto (which
shall comply with the provisions of the Trust Indenture Act of 1939 as then in
effect) for one or more of the following purposes:
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(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article Ten;
(b) to add to the covenants of the Company such further
covenants, restrictions or conditions as its Board of Directors and the
Trustee shall consider to be for the protection of the holders of all or
any series of the Securities (and, if such covenants are to be for the
benefit of less than all series of Securities stating that such
covenants are expressly being included for the benefit of such series),
and to make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions or conditions
an Event of Default permitting the enforcement of all or any of the
several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide
for an immediate enforcement upon such Event of Default or may limit the
remedies available to the Trustee upon such Event of Default or may
limit the right of the holders of a majority in aggregate principal
amount of the Securities of such series to waive such an Event of
Default;
(c) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture that may be
defective or inconsistent with any other provision contained herein or
in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture or any
supplemental indenture as shall not adversely affect the interests of
the holders of the Securities;
(d) to provide for the issuance under this Indenture of
Securities, whether or not then outstanding, in coupon form (including
Securities registrable as to principal only) and to provide for
exchangeability of such Securities with Securities issued hereunder in
fully registered form and to make all appropriate changes for such
purpose;
(e) to establish the form or terms and to provide for the
issuance of Securities of any series as permitted by Sections 2.01 and
2.03; and
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities of one
or more series and to add to or change any of the provisions of the
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one trustee.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations that may be therein contained and to accept the
conveyance, transfer or assignment of any property thereunder,
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provided that if any such supplemental indenture affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, the Trustee may
in its discretion, but shall not be obligated to, enter into such supplemental
indenture.
Any supplemental indenture authorized by the provisions of this Section
9.01 may be executed by the Company and the Trustee without the consent of the
holders of any of the Securities at the time outstanding, notwithstanding any
of the provisions of Section 9.02.
SECTION 9.02. Modification of Indenture with Consent of Holders of
66-2/3% in Principal Amount of Securities. With the consent (evidenced as
provided in Section 7.01) of the holders of not less than 66-2/3% in aggregate
principal amount of the Securities at the time outstanding of all Securities
affected by such supplement (voting as one class) (determined as provided in
Section 7.04), or, if a record date is set with respect to such consent in
accordance with Section 7.05, as of such record date, the Company, when
authorized by a resolution of its Board of Directors, and the Trustee may from
time to time and at any time enter into an indenture or indentures supplemental
hereto (which shall comply with the provisions of the Trust Indenture Act of
1939 as then in effect) for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights of the holders
of the Securities of each such series; provided, however, that no such
supplemental indenture shall (i) extend the stated maturity of any Security, or
reduce the rate or extend the time of payment of interest thereon or reduce any
amount payable on redemption thereof or reduce the amount of the principal of
an Original Issue Discount Security that would be due and payable upon an
acceleration of the maturity thereto pursuant to Section 5.01, or impair or
affect the right of any Securityholder to institute suit for the payment
thereof or the right of repayment if any, at the option of the Securityholder,
without the consent of the holder of each Security so affected or (ii) reduce
the aforesaid percentage of Securities of any series or of all series (voting
as one class), as the case may be, the consent of the holders of which is
required for any such supplemental indenture, without the consent of the
holders of all Securities of each such series so affected.
A supplemental indenture that changes or eliminates any covenant or
other provision of this Indenture that has expressly been included solely for
the benefit of one or more particular series of Securities, or that modified
the rights of holders of such series with respect to such covenant or
provision, shall be deemed not to affect the rights under this Indenture of the
holders of any other series.
Upon the request of the Company, accompanied by a copy of a resolution
of its Board of Directors certified by the Secretary or an Assistant Secretary
of the Company authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of
Securityholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture, provided that if such supplemental
indenture affects the
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Trustee's own rights, duties or immunities under this Indenture or otherwise,
the Trustee may in its discretion, but shall not be obligated to, enter into
such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under
this Section 9.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 9.02, the
Company shall mail a notice to the Securityholders of each series affected
thereby, setting forth in general terms the substance of such supplemental
indenture. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture pursuant to the provisions of this Article Nine,
this Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitation of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Securities of each series affected thereby shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 9.04. Securities May Bear Notation of Changes by Supplemental
Indentures. Securities of any series authenticated and delivered after the
execution of any supplemental indenture affecting such series pursuant to the
provisions of this Article Nine, or after any action taken at a
Securityholders' meeting pursuant to Article Eight, may bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture or as to any action taken at any such meeting. If the Company or the
Trustee shall so determine, new Securities of any series so modified as to
conform, in the opinion of the Trustee and the Board of Directors of the
Company, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company, authenticated by the
Trustee and delivered in exchange for the Securities of such series then
outstanding.
SECTION 9.05. Opinion of Counsel. The Trustee, subject to the
provisions of Sections 6.01 and 6.02, may rely upon, and shall be entitled to
receive, an Opinion of Counsel as conclusive evidence that any such
supplemental indenture complies with the provisions of this Article Nine.
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ARTICLE TEN
CONSOLIDATION, MERGER AND SALE
SECTION 10.01. Company May Consolidate, etc., on Certain Terms.
Nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of the Company with or into any other corporation
or corporations (whether or not affiliated with the Company) or successive
consolidations or mergers in which the Company or its successor or successors
shall be a party or parties, or shall prevent any sale or conveyance of the
property of the Company as an entirety, or substantially as an entirety, to any
other corporation (whether or not affiliated with the Company) authorized to
acquire and operate the same; provided, however, and the Company hereby
covenants and agrees, that any such consolidation, merger, sale or conveyance
shall be upon the condition that (a) immediately after such consolidation,
merger, sale or conveyance no Event of Default, and no event that upon notice
or lapse of time, or both, would become an Event of Default, shall have
occurred and be continuing with respect to the corporation (whether the Company
or such other corporation) formed by or surviving any such consolidation or
merger, or to which such sale or conveyance shall have been made; (b) the
corporation (if other than the Company) formed by or surviving any such
consolidation or merger, or to which such sale or conveyance shall have been
made, shall be a corporation organized under the laws of the United States of
America or any State thereof; and (c) the due and punctual payment of the
principal of, premium, if any, and interest on all of the Securities, according
to their tenor, and the due and punctual performance and observance of all the
covenants and conditions of this Indenture to be performed or observed by the
Company, shall be expressly assumed, by supplemental indenture complying with
the requirements of Article Nine, satisfactory in form to the Trustee, executed
and delivered to the Trustee by the corporation formed by such consolidation,
or into which the Company shall have been merged, or by the corporation that
shall have acquired such property. If at any time there shall be any
consolidation or merger or sale or conveyance or lease of property to which the
covenant of this Section 10.01 is applicable, then in any such event the
successor corporation will promptly deliver to the Trustee:
(1) an Officers' Certificate stating that as of the time
immediately after the effective date of any such transaction the
covenants of the Company and conditions contained in this Section 10.01
have been complied with and the successor corporation is not in default
under the provisions of the Indenture; and
(2) an Opinion of Counsel stating that in the opinion of such
counsel such covenants have been complied with and that any instrument
or instruments executed in the performance of such covenants comply with
the requirements thereof.
SECTION 10.02. Successor Corporation to be Substituted. In case
of any such consolidation, merger, sale or conveyance and upon the assumption
by the successor corporation,
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in the manner hereinabove provided, of the due and punctual payment of the
principal or premium, if any, and interest on all of the Securities and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed or observed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of Southwest Airlines Co., any or all of the
Securities issuable hereunder that theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such successor
corporation (instead of the Company) and subject to all the terms, conditions
and limitations in this Indenture prescribed, the Trustee shall authenticate
and shall deliver any Securities that previously shall have been signed and
delivered by the officers of the Company to the Trustee of authentication, and
any Securities that such successor corporation thereafter shall cause to be
signed and delivered to the Trustee for that purpose. All the Securities so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Securities theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Securities had been issued at
the date of the execution hereof. In the event of any such sale or conveyance
and upon any such assumption, the Company or any successor corporation which
shall theretofore have become such in the manner described in this Article Ten
shall be discharged from all obligations and covenants under this Indenture and
the Securities so assumed and may be liquidated and dissolved.
In case of any such consolidation, merger, sale or conveyance such
changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
SECTION 11.01. Satisfaction and Discharge of Indenture. If at any
time (a) the Company shall have paid or caused to be paid the principal of and
interest on all the Securities of each series outstanding hereunder, as and
when the same shall have become due and payable, or (b) the Company shall have
delivered to the Trustee for cancellation (i) all securities of any series
theretofore authenticated (other than any Securities of any series that shall
have been destroyed, lost or stolen and that shall have been replaced or paid
as provided in Section 2.08) and (ii) Securities for whose payment moneys have
theretofore been deposited in trust and segregated and held in trust by the
Company and thereafter returned to the Company or discharged from such trust,
as provided in Section 11.04 or (c)(i) all such Securities not theretofore
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be
called for redemption under arrangements satisfactory to the Trustee for the
giving of notice of redemption, and (ii) the Company shall have irrevocably
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deposited or caused to be deposited with the Trustee as trust funds an amount
(other than moneys returned by the Trustee or any Paying Agent to the Company
in accordance with Section 11.04) sufficient to pay at maturity or upon
redemption all such Securities not theretofore delivered to the Trustee for
cancellation, including principal and interest due or to become due to such
date of maturity or date of redemption, as the case may be, and if, in any such
case, the Company shall also pay or cause to be paid all other sums payable
hereunder by the Company with respect to Securities of such series, then this
Indenture shall cease to be of further effect with respect to Securities of
such series (except as to (i) rights of registration of transfer and exchange,
(ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen
Securities, (iii) the rights, obligations and immunities of the Trustee
hereunder and (iv) the rights of the Securityholders of such series as
beneficiaries hereof with respect to the property so deposited with the Trustee
payable to all or any of them), and the Trustee, on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel (each stating
that all conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with) and at the cost and
expense of the Company, shall execute proper instruments acknowledging such
satisfaction of and discharging this Indenture with respect to such series;
provided that the rights of holders of the Securities of such series to receive
amounts in respect of principal of and interest on the Securities held by them
shall not be delayed longer than required by then-applicable mandatory rules or
polices of any securities exchange upon which the Securities of such series are
listed and provided further that the Company shall not be discharged from any
payment obligations in respect of any Securities, and such obligations shall be
reinstated, if the Trustee is unable to apply any money in accordance with this
Section by reason of any legal proceeding or any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application until such time as the Trustee is able to apply such money or the
obligations are otherwise satisfied. The Company agrees to reimburse the
Trustee of any costs or expenses thereafter reasonably and properly incurred
and to compensate the Trustee for any services thereafter reasonably and
properly rendered by the Trustee in connection with this Indenture or the
Securities of such series.
SECTION 11.02. Application by Trustee of Funds Deposited for Payment
of Securities. Subject to Section 11.04, all moneys deposited with the Trustee
pursuant to Section 11.01 shall be held in trust and applied by it to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent), to the holders of the particular Securities of
such series, for the payment or redemption of which such moneys have been
deposited with the Trustee, of all sums due and to become due thereon for
principal, interest and premium, if any.
SECTION 11.03. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect
to such series of Securities, all moneys then held by any Paying Agent under
the provisions of this Indenture with respect to any such series of Securities
shall, upon demand of the Company or the Trustee, be paid to the Trustee
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and thereupon such Paying Agent shall be released from all further liability
with respect to such moneys.
SECTION 11.04. Repayment of Moneys Held by Trustee. Any moneys
deposited with the Trustee or any Paying Agent, or then held by the Company,
for the payment of the principal of, premium, if any, or interest on any
Securities of any series and not applied but remaining unclaimed by the holders
of Securities for two years after the date upon which such payment shall have
become due, shall be repaid to the Company by the Trustee or by such Paying
Agent on demand; or, if then held by the Company, shall be discharged from such
trust; and thereupon the Trustee and such Paying Agent or the Company as
trustee shall be released from all further liability with respect to such
moneys, and the holder of any for the Securities of such series entitled to
receive such payment shall thereafter look only to the Company for the payment
thereof; provided however, that the Trustee or Paying Agent, before being
required to make any such payment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in
Dallas, Texas, or cause to be mailed to each Securityholder of such series,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 11.05. Satisfaction, Discharge and Defeasance of
Securities of any Series. If this Section 11.05 is specified, as contemplated
by Section 2.03, to be applicable to Securities of any series, the Company
shall be deemed to have paid and discharged the entire indebtedness on all the
Securities of any such series at the time outstanding, and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction, discharge and defeasance of such indebtedness, when
(1) either
(A) with respect to all Securities of such series at the time
outstanding,
(i) the Company has deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness on
all such Securities for principal and interest, on the days on
which such principal or interest, as the case may be, is due and
payable in accordance with the terms of this Indenture and such
Securities, to the date of maturity or date of redemption thereof
as contemplated by the penultimate paragraph of this Section
11.05, as the case may be; or
(ii) the Company has deposited or caused to be deposited
with the Trustee as obligations in trust for the purpose such
amount of non-callable direct obligations of, or obligations the
principal of and interest on which are fully
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guaranteed by, the United States of America as will, together
with the income to accrue thereon without consideration of any
reinvestment thereof, be sufficient to pay and discharge the
entire indebtedness on all such Securities for principal and
interest, on the days on which such principal or interest, as the
case may be, is due and payable in accordance with the terms of
this Indenture and such Securities, to the date of maturity or
date of redemption thereof as contemplated by the penultimate
paragraph of this Section 11.05, as the case may be; or
(B) the Company has properly fulfilled such other means of
satisfaction and discharge as is specified, as contemplated by Section
2.03, to be applicable to the Securities of such series;
(2) the Company has paid or caused to be paid all other sums payable
with respect to the Securities of such series at the time outstanding and all
other amounts due under the Indenture with respect to such series;
(3) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound;
(4) no Event of Default or event that, after notice or lapse of time
or both, would become an Event of Default shall have occurred and be continuing
on the date of such deposit;
(5) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel to the effect that (i) the Company has received from,
or that there has been published by, the Internal Revenue Service a ruling, or
(ii) since the date of this Indenture there has been a change in applicable
federal income tax law, in either case to the effect that holders of the
Securities of such series will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit, satisfaction, discharge and
defeasance and will be subject to federal income tax on the same amounts and in
the same manner and at the same times, as would have been the case if such
deposit, satisfaction, discharge and defeasance had not occurred; and
(6) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction, discharge and defeasance of the
entire indebtedness on all Securities of any such series at the time
outstanding have been complied with.
Any deposits with the Trustee referred to in Section 11.05(1)(A) above
shall be irrevocable and shall be made under the terms of an escrow trust
agreement in form and substance satisfactory to the Trustee. If any Securities
of such series at the time outstanding are to be redeemed prior to their stated
maturity, whether pursuant to any optional redemption provisions or in
accordance with any mandatory sinking fund requirement, the Company shall make
such arrangements as are
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satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
Upon the satisfaction of the conditions set forth in this Section 11.05
with respect to all the Securities of any series at the time outstanding, the
terms and conditions of such series, including the terms and conditions with
respect thereto set forth in this Indenture, shall no longer be binding upon,
or applicable to, the Company, provided that the Company shall not be
discharged from any payment obligations in respect of Securities of such series
that are deemed not to be outstanding under clause (c) of the definition
thereof if such obligations continue to be valid obligations in accordance with
this Section by reason of any legal proceeding or any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application.
ARTICLE TWELVE
IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS
AND DIRECTORS
SECTION 12.01. Incorporators, Shareholders, Officers and Directors
of Company Exempt from Individual Liability. No records under or upon any
obligation, covenant or agreement of this Indenture, or of any Security, or for
any claim based thereon or otherwise in respect thereof shall be had against
any incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or such successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that this Indenture and
the obligations issued hereunder are solely corporate obligations, and that no
such personal liability whatever shall attach to, or is or shall be incurred
by, the incorporators, shareholders, officers or directors, as such, past,
present or future, of the Company or of any successor corporation, or any of
them, because of the reason of the indebtedness hereby authorized, or under or
by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom; and that any and
all such personal liability of every name and nature, either at common law or
in equity or by constitution or statute, of and any and all such rights and
claims against, every such incorporator, shareholder, officer or director, as
such, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom are hereby expressly
waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of such Securities.
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ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
SECTION 13.01. Successors and Assigns of Company Bound by Indenture.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 13.02. Acts of Board, Committee or Officer of Successor
Corporation Valid. Any act or proceeding by any provision of this Indenture
authorized or required to be done or performed by any board, committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
SECTION 13.03. Required Notices or Demands May be Served by Mail;
Waiver. Any notice, direction, request or demand that by any provisions of
this Indenture is required or permitted to be given or served by the Trustee or
by the holders of Securities to or on the Company may be given or served by
being deposited, postage prepaid, certified or registered mail, addressed
(until another address is filed by the Company with the Trustee for such
purpose), as follows: Southwest Airlines Co., P.O. Box 36611, Dallas, Texas
75235, Attention: Treasurer. Any notice, direction, request or demand by any
Securityholder to or upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made at the principal office of
the Trustee.
Where this Indenture provides for notice to Securityholders, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first class, postage prepaid, to each holder entitled
thereto, at his last address as it appears in the Security register or
registers. In any case where notice to holders if given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular holder shall affect the sufficiency of such notice with respect to
other holders.
In case, by reason of the suspension of or irregularities in regular
mail service, it shall be impracticable to mail notice to the Company or
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the person entitled to receive such notice, either
before or after the event or action relating thereto, and such waiver shall be
the equivalent of such notice. Waivers of notice by Securityholders shall be
filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
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SECTION 13.04. Indenture and Securities to be Construed in
Accordance with the Laws of the State of Texas. This Indenture and each
Security shall be deemed to be a contract made under the laws of the State of
Texas, and for all purposes shall be construed in accordance with the laws of
said State, except as otherwise required by mandatory provisions of law.
SECTION 13.05. Evidence of Compliance with Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under any of the provisions as of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered
to the Trustee with respect to compliance with a condition or covenant provided
for in this Indenture shall include (1) a statement that the person making such
certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the
certificate or opinion or representations with respect to the matters upon
which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous. Any certificate, statement or opinion of counsel may be based,
insofar as it relates to factual matters, on information that is in the
possession of the Company, upon the certificate, statement or opinion of or
representations by an officer or officers of the Company, unless such counsel
knows that the certificate, statement or opinion or representations with
respect to the matters upon which his certificate, statement or opinion may be
based as aforesaid are erroneous, or in the exercise of reasonable care should
know that the same are erroneous.
Any certificate, statement or opinion of an officer of the Company or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants unless such officer or counsel, as the case may be, knows that the
certificate or opinion or representations with respect to the accounting
matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise
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of reasonable car should know that the same are erroneous. Any certificate or
opinion of any independent firm of public accountants filed with the Trustee
shall contain a statement that such firm is independent.
SECTION 13.06. Payments Due on Saturdays, Sundays, and Holidays.
In any case where the date of payment of interest on or principal of the
Securities of any series, or the date fixed for redemption or repayment of any
such Security, shall not be a Business Day, then payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made
on the date of payment or the date fixed for redemption, and no interest shall
accrue for the period after such date.
SECTION 13.07. Provisions Required by Trust Indenture Act of 1939
to Control. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by operation of subsection (c)
of Section 318 of the Trust Indenture Act of 1939, the imposed duties shall
control.
SECTION 13.08. Provisions of the Indenture and Security for the
Sole Benefit of the Parties and the Securityholders. Nothing in this Indenture
or in the Securities, expressed or implied, shall give or be construed to give
any person, firm or corporation, other than the parties hereto and their
successors and the holders of the Securities, any legal or equitable right,
remedy or claim under or in respect of this Indenture, or under any covenant,
condition or provision herein contained; all its covenants, conditions and
provisions being for the sole benefit of the parties hereto and their
successors and the holders of the Securities.
SECTION 13.09. Indenture May be Executed in Counterparts. This
Indenture may be executed in any number of counterparts, each of which shall be
an original; but such counterparts shall together constitute but one and the
same instrument.
SECTION 13.10. Article and Section Headings. The Article and
Section heading references herein and in the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 13.11. Severability. If any provision hereof shall be
held to be invalid, illegal or unenforceable under applicable law, then the
remaining provisions hereof shall be construed as though such invalid, illegal
or unenforceable provision were not contained herein.
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ARTICLE FOURTEEN
REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 14.01. Applicability of Article. The provisions of this
Article shall be applicable to the Securities of any series that are redeemable
before their maturity or to any sinking fund for the retirement of Securities
of a series, in either case as specified as contemplated by Section 2.03 for
Securities of such series.
SECTION 14.02. Notice of Redemption; Partial Redemptions. Notice
of redemption to the holders of Securities of any series to be redeemed as a
whole or in part shall be given by mailing notice of such redemption by first
class mail, postage prepaid, at least 30 days and not more than 60 days prior
to the date fixed for redemption to such holders of Securities of such series
at their last addresses as they shall appear upon the Security register or
registers. Any notice that is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the holder
receives the notice. Failure to give notice by mail, or any defect in the
notice to the holder of any Security of a series designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security of such series.
The notice of redemption to each such holder shall specify the principal
amount of each Security of such series held by such holder to be redeemed, the
date fixed for redemption, the redemption price, the place or places of
payment, that payment will be made upon presentation and surrender of such
Securities, that such redemption is pursuant to the mandatory or optional
sinking fund, or both, if such be the case, that interest accrued to the date
fixed for redemption will be paid as specified in said notice and that on and
after said date interest thereon or on the portions thereof to be redeemed will
cease to accrue. In case any Security of a series is to be redeemed in part
only the notice of redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that on and after the date fixed for
redemption, upon surrender of such Security, a new Security or Securities of
such series in principal amount equal to the unredeemed portion thereof will be
issued.
The notice of redemption of Securities of any series to be redeemed at
the option of the Company shall be given by the Company or, at the Company's
request, by the Trustee for such series in the name and at the expense of the
Company.
No later than the redemption date specified in the notice of redemption
given as provided in this Section, the Company will deposit with the Trustee or
with one or more Paying Agents (or, if the Company is acting as its own Paying
Agent, set aside, segregate and hold in trust as provided in Section 3.04) an
amount of money sufficient to redeem on the redemption date all the Securities
of such series so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. If less than
all the outstanding Securities
- 51 -
<PAGE> 60
of a series are to be redeemed, the Company will deliver to the Trustee at
least 70 days (or such shorter period acceptable to the Trustee) prior to the
date fixed for redemption an Officers' Certificate stating the aggregate
principal amount of Securities to be redeemed.
If less than all the Securities of a series are to be redeemed, the
Trustee shall select, in such manner as it shall deem appropriate and fair,
Securities of such series to be redeemed in whole or in part. Securities may
be redeemed in part in multiples equal to the minimum authorized denomination
for Securities of such series or any integral multiple thereof. The Trustee
shall promptly notify the Company in writing of the Securities of such series
selected for redemption and, in the case of any Securities of such series
selected for partial redemption, the principal amount of each such Security to
be redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of the Securities of any
series shall relate, in the case of any Security redeemed or to be redeemed
only in part, to the portion of the principal amount of such Security which has
been or is to be redeemed.
SECTION 14.03. Payment of Securities Called for Redemption. If
notice of redemption has been given as above provided, the Securities or
portions of Securities specified in such notice shall become due and payable on
the date and at the place or places stated in such notice at the applicable
redemption price, together with interest accrued to the date fixed for
redemption, and on and after said date (unless the Company shall default in the
payment of such Securities at the redemption price, together with interest
accrued to said date) interest on the Securities or portions of Securities so
called for redemption shall cease to accrue and, except as provided in Sections
6.05 and 11.04, such Securities shall cease from and after the date fixed for
redemption to be entitled to any benefit or security under this Indenture, and
the holders thereof shall have no right in respect of such Securities except
the right to receive the redemption price thereof and unpaid interest to the
date fixed for redemption. On presentation and surrender of such Securities at
a place of payment specified in said notice, said Securities or the specified
portions thereof shall be paid and redeemed by the company at the applicable
redemption price, together with interest accrued thereon to the date fixed for
redemption; provided that any semiannual payment of interest becoming due on
the date fixed for redemption shall be payable to the holders of such
Securities registered as such on the relevant record date subject to the terms
and provisions of Section 2.04 hereof.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate of
interest or Yield to Maturity (in the case of an Original Issue Discount
Security) borne by the Security.
Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to or on the order
of the holder thereof, at the expense of the Company, a new Security or
Securities of such series, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so presented.
- 52 -
<PAGE> 61
SECTION 14.04. Exclusion of Certain Securities from Eligibility
for Selection for Redemption. Securities shall be excluded from eligibility
for selection for redemption if they are identified by registration and
certificate number in a written statement signed by an authorized officer of
the Company and delivered to the Trustee at least 45 (or such lesser number,
not less than 30, as the Trustee may permit) days prior to the last date on
which notice of redemption may be given as being owned by, and not pledged or
hypothecated by, either (i) the Company or (ii) an Affiliate specifically
identified in such written statement.
SECTION 14.05. Mandatory and Optional Sinking Funds. The minimum
amount of any sinking fund payment provided for by the terms of Securities of
any series is herein referred to as a "mandatory sinking fund payment," and any
payment in excess of such minimum amount provided for by the terms of
Securities of any series is herein referred to as an "optional sinking fund
payment." The last date on which a sinking fund payment may be made in each
year is herein referred to as the "sinking fund payment date."
In lieu of making all or any part of any mandatory sinking fund payment
with respect to any series of Securities in cash, the Company may at its option
(i) deliver to the Trustee Securities of such series theretofore purchased or
otherwise acquired (except upon redemption pursuant to the mandatory sinking
fund) by the Company or receive credit for Securities of such series (not
previously so credited) theretofore purchased or otherwise acquired (except as
aforesaid) by the Company and delivered to the Trustee for cancellation
pursuant to Section 2.09, (ii) receive credit for optional sinking fund
payments (not previously so credited) made pursuant to this Section, or (iii)
receive credit for Securities of such series (not previously so credited)
redeemed by the Company through any optional redemption provisions contained in
the terms of such Securities. Securities so delivered or credited shall be
received or credited by the Trustee at the sinking fund redemption price
specified in such Securities.
On or before the sixtieth day (or such later day, no later than the
thirtieth, as the Trustee may permit) next preceding each sinking fund payment
date for any series, the Company will deliver to the Trustee a written
statement (which need not contain the statements required by Section 13.05)
signed by an authorized officer of the Company (i) specifying the portion of
the mandatory sinking fund payment to be satisfied by payment of cash and the
portion to be satisfied by credit of Securities of such series, (ii) stating
that none of the securities of such series has theretofore been so credited,
(iii) stating that no defaults in the payment of interest or Events of Default
with respect to such series have occurred (which have not been waived or cured)
and are continuing and (iv) stating whether or not the Company intends to
exercise its right to make an optional sinking fund payment with respect to
such series, and, if so, specifying the amount of such optional sinking fund
payment that the Company intends to pay on or before the next succeeding
sinking fund payment date. Any Securities of such series to be credited and
required to be delivered to the Trustee in order for the Company to be entitled
to credit therefor as aforesaid that have not theretofore been delivered to the
Trustee shall be delivered for cancellation pursuant to Section 2.09 to the
Trustee with such written statement (or reasonably promptly
- 53 -
<PAGE> 62
thereafter if acceptable to the Trustee). Such written statement shall be
irrevocable and upon its receipt by the Trustee the Company shall become
unconditionally obligated to make all the cash payments therein referred to, if
any, on or before the next succeeding sinking fund payment date. Failure of
the Company, on or before any such sixtieth day (or such later day as the
Trustee may have permitted), to deliver such written statement and Securities
specified in this paragraph, if any, shall not constitute a default but shall
constitute, on and as of such date, the irrevocable election of the Company (i)
that the mandatory sinking fund payment for such series due on the next
succeeding sinking fund payment date shall be paid entirely in cash without the
option to deliver or credit Securities of such series in respect thereof and
(ii) that the Company will make no optional sinking fund payment with respect
to such series as provided in this Section.
If the sinking fund payment or payments (mandatory or optional or both)
made in cash plus any unused balance of any preceding sinking fund payments
made in cash shall exceed $50,000 (or a lesser sum if the Company shall so
request) with respect to the Securities of any particular series, such cash
shall be applied on the next succeeding sinking fund payment date to the
redemption of Securities of such series at the sinking fund redemption price
together with accrued interest to the date fixed for redemption. If such
amount shall be $50,000 or less and the Company makes no such request then it
shall be carried over until a sum in excess of $50,000 is available. The
Trustee shall select, in the manner provided in Section 14.02, for redemption
on such sinking fund payment date a sufficient principal amount of Securities
of such series to absorb said cash, as nearly as may be, and shall (if
requested in writing by the Company) inform the Company or an entity known by
the Trustee to be an Affiliate, as shown by the Security register or registers,
and not known to the Trustee to have been pledged or hypothecated by the
Company or any such entity or (ii) identified in a written statement delivered
to the Trustee pursuant to Section 14.04 as being owned by, and not pledged or
hypothecated by, the Company or an Affiliate shall be excluded from Securities
of such series eligible for selection for redemption. The Trustee, in the name
and at the expense of the Company (or the Company, if it shall so request the
Trustee in writing) shall cause notice of redemption of the Securities of such
series to be given in substantially the manner provided in Section 14.02 (and
with the effect provided in Section 14.03) for the redemption of Securities of
such series in part at the option of the Company. The amount of any sinking
fund payments not so applied or allocated to the redemption of Securities of
such series shall be added to the next cash sinking fund payment and, together
with such payment, shall be applied in accordance with the provisions of this
Section 13.04. Any and all sinking fund moneys held on the stated maturity
date of the Securities of any particular series (or earlier, if such maturity
is accelerated), that are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.
The Trustee shall not redeem or cause to be redeemed any Securities of a
series with sinking fund moneys or mail any notice of redemption of Securities
for such series by operation of the sinking funds during the continuance of a
default in payment of interest on such Securities
- 54 -
<PAGE> 63
or of any Event of Default except that, where the mailing of notice of
redemption of any securities shall theretofore have been made, the Trustee
shall redeem or cause to be redeemed such Securities, provided that it shall
have received from the Company a sum sufficient for such redemption. Except as
aforesaid, any moneys in the sinking fund for such series at the time when any
such default or Event of Default shall occur, and any moneys thereafter paid
into the sinking fund, shall, during the continuance of such default or Event
of Default, be deemed to have been collected under Article Five and held for
the payment of all such Securities. In case such Event of Default shall have
been waived as provided in Article Five or the default cured on or before the
sixtieth day preceding the sinking fund payment date in any year, such moneys
shall thereafter be applied on the next succeeding sinking fund payment date in
accordance with this Section to the redemption of such Securities.
U.S. Trust Company of Texas, N.A., the party of the second part, hereby
accepts the trust in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.
- 55 -
<PAGE> 64
IN WITNESS WHEREOF, SOUTHWEST AIRLINES CO. the party of the first part,
has caused this Indenture to be signed and acknowledged by its Chairman of the
Board, a Vice Chairman of the Board, its President or one of its Vice
Presidents, and the same to be attested by its Secretary or an Assistant
Secretary; and U.S. Trust Company of Texas, N.A., the party of the second part,
has caused this Indenture to be signed and acknowledged by one of its Vice
Presidents, has caused its corporate seal to be affixed hereunto, and the same
to be attested by Bill Barber, all as of the day and year first written above.
SOUTHWEST AIRLINES CO.
By /s/ Gary C. Kelly
-------------------------------------
(Title) Chief Financial Officer
------------------------------
ATTEST:
/s/ Deborah Ackerman
- - -------------------------------------
(Title) Assistant Secretary
------------------------------
U.S. TRUST COMPANY OF TEXAS, N.A.
By /s/ John Stohlmann
-------------------------------------
(Title) Vice President
------------------------------
ATTEST:
/s/ Bill Barber
- - --------------------------------------
(Title) Vice President
-------------------------------
<PAGE> 65
ACKNOWLEDGMENTS
STATE OF TEXAS )
) ss.:
COUNTY OF DALLAS )
BEFORE ME, P.J. Woodall a Notary Public, on this day personally appeared
Gary C. Kelly, known to me to be the person whose name is subscribed to the
foregoing instrument, and known to me to be Vice President - Chief Financial
Officer of SOUTHWEST AIRLINES CO., a Texas corporation, and acknowledged to me
that he/she executed the same for the purposes and consideration therein
expressed, in the capacity therein stated, and as the act and deed of said
corporation.
GIVEN under my hand and seal of office this 25 day of February, 1997.
/s/ P.J. Woodall
----------------------------------
NOTARY PUBLIC - STATE OF TEXAS
STATE OF ______________ )
) ss.:
COUNTY OF ____________ )
BEFORE ME, Brandy Leah McCuistion a Notary Public, on this day
personally appeared John C. Stohlmann, known to me to be the person whose name
is subscribed to the foregoing instrument, and known to me to be Vice President
of U.S. Trust Company of Texas, N.A., and acknowledged to me that he/she
executed the same for the purposes and consideration therein expressed, in the
capacity therein stated, and as the act and deed of said corporation.
GIVEN under my hand and seal of office this 26 day of February, 1997.
/s/ Brandy Leah McCuistion
-------------------------------------
NOTARY PUBLIC - STATE OF TEXAS
<PAGE> 1
Exhibit 10.3
Supplemental Agreement No. 1
to
Purchase Agreement No. 1810
between
The Boeing Company
and
SOUTHWEST AIRLINES CO.
Relating to Boeing Model 737-7H4 Aircraft
THIS SUPPLEMENTAL AGREEMENT, entered into as of February 26, 1997,
by and between THE BOEING COMPANY, a Delaware corporation with its principal
offices in Seattle, Washington, (Boeing) and SOUTHWEST AIRLINES CO., a Texas
corporation with its principal offices in City of Dallas, State of Texas
(Buyer);
WHEREAS, the parties hereto entered into Purchase Agreement No.
1810 dated January 19, 1994, relating to Boeing Model 737-7H4 aircraft (the
Agreement) and;
WHEREAS, the parties desire to supplement the Agreement as
hereinafter set forth to update the description of the Aircraft, revise the
price for Special Features, Aircraft Basic Price and Advance Payment Base
Price, delete any reference to Program Changes, update Exhibit A, change the
warranty period in Exhibit B Part A, revise the Option Aircraft letter
agreement, update the performance guarantees, revise the number of flight test
hours, revise the training letter agreement, revise program changes in the
Other Matters letter agreement, add new letter agreements for additional
considerations, galley interchangeability, service ready validation program
field test, escalation sharing, amortization of costs for customer unique
changes, maintenance training and a price reconciliation for the Aircraft Basic
Price .
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree to amend the Agreement as follows:
SA-1-1
<PAGE> 2
1. The Table of Contents of the Agreement is deleted in its entirety and a
new Table of Contents is attached hereto and incorporated into the Agreement by
this reference.
2. Article 1, entitled "Subject Matter of Sale," paragraph 1.1 entitled "The
Aircraft" is deleted in its entirety and replaced by a new paragraph 1.1. Such
new paragraph 1.1 provides a new date of October 30, 1996 for the Boeing Detail
Specification. Such new page 1-1 is attached hereto and incorporated into the
Agreement by this reference.
3. Article 3, entitled "Price of Aircraft", paragraph 3.2 entitled "Aircraft
Basic Price" is revised by ***. Paragraph 3.3 entitled "Aircraft Price,"
subparagraph 3.3.1 is revised ***. Such new paragraph 3.2 and subparagraph
3.3.1 provide the new Aircraft Basic Price for the Aircraft. Paragraph 3.4
entitled "Advance Payment Base Price," subparagraph 3.4.1 entitled "Advance
Payment Base Price" is revised by updating the Advance Payment Base Prices
because of the new Aircraft Basic Price and by using current escalation factors
as of the date of this Supplemental Agreement. Such new pages 3-1 and 3-2 are
attached hereto and incorporated into the Agreement by this reference.
4. Article 7, entitled "Changes to the Detail Specification," paragraph 7.2
"Program Changes" is deleted in its entirety because Program Changes are not a
part of the Agreement. Paragraph 7.3 entitled "Change Orders" becomes paragraph
7.2 and page 7-2 is deleted in its entirety. Such new page 7-1 is attached
hereto and incorporated into the Agreement by this reference.
5. Exhibit A, entitled "Aircraft Configuration" is deleted in its entirety and
replaced by a new Exhibit A reflecting the configuration reached between Buyer
and Boeing. Such new Exhibit A is attached hereto and incorporated into the
Agreement by this reference.
6. Exhibit B, entitled "Product Assurance Document," Part A entitled "Boeing
Warranty," paragraph 4 entitled "Warranty Periods and Claims," subparagraphs
4.1.1 and 4.1.2 and Paragraph 8 entitled "Reimbursement for Certain Inspection
Labor Costs," subparagraph 8.1.1 is revised by deleting 36 months and inserting
48 months. A new revised Part A is attached hereto and incorporated into the
Agreement by this reference.
7. Letter Agreement No. 6-1162-RLL-933 entitled "Option Aircraft" is deleted in
its entirety and replaced with
SA-1-2
<PAGE> 3
Letter Agreement No. 6-1162-RLL-933R1 attached hereto and incorporated herein
by this reference. The letter agreement was revised by adding four (4) Option
Aircraft in the preamble for a total of sixty-seven (67) Option Aircraft.
Article 1, entitled "Delivery of Option Aircraft" is revised by adding two (2)
each 737-7H4 Option Aircraft to the Block G delivery stream in the months
August and October 1999. Article 2 entitled "Delivery of Rollover Option
Aircraft," subparagraph 2.2.1 is revised by changing the quantity of Option
Aircraft from sixty-three (63) to sixty-seven (67). *** August and October
1999. Paragraph 5 entitled "Option Exercise," subparagraph 5.2 is revised by
deleting in the last sentence of the paragraph the words advance payment and
inserting the words option deposit. A new paragraph 8 entitled "Confidential
Treatment" is added to the body of the letter agreement. Attachment A,
Paragraph 1 entitled "Option Aircraft Description and Changes", subparagraph
1.1 entitled "Aircraft Description" is revised by inserting a new date for the
Detail Specification and deleting reference to items 1, 2, and subparagraphs a,
b, c, and d. The configuration items listed in paragraphs 1, 2, and
subparagraphs a, b, c, and d are now included in the Detail Specification with
the new date. Paragraph 1.3 entitled "Program Changes" is deleted in its
entirety because Program Changes are no longer a part of the Agreement.
Paragraph 1.4 entitled "Effect of Changes" becomes paragraph 1.3. Paragraph 2
entitled "Price Description," subparagraph 2.1 entitled "Price Elements Per
Aircraft" is revised by adding the August and October 1999 Option Aircraft to
the Aircraft Delivery Mo. and Yr. column and by deleting the Aircraft and
Estimated Special Features Price, Estimated Escalation and Advance Payment Base
Price Columns and replacing the columns with the respective new pricing
elements. Paragraph 2 entitled "Price Description," paragraph 2.3 entitled
"Price Adjustments for Option Aircraft Delivering from January 2002 through
December 2006," subparagraph 2.3.5 entitled "Base Price Adjustments," is
revised by ***.
8. Letter Agreement No. 6-1162-RLL-934 entitled "Disclosure of Confidential
Information" is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL- 934R1 which is attached hereto and incorporated herein by this
reference. The letter agreement was revised to update the list of confidential
letter agreements.
9. Letter Agreement No. 6-1162-RLL-935 entitled *** is deleted in its entirety
and replaced with Letter Agreement No. 6-1162-RLL-935R1 which is attached
hereto and incorporated herein by this reference. The letter agreement was
revised to ***.
SA-1-3
<PAGE> 4
10. Letter Agreement No. 6-1162-RLL-936 entitled "Certain Contractual Matters,"
is deleted in its entirety and replaced with Letter Agreement No.
6-1162-RLL-936R1 which is attached hereto and incorporated herein by this
reference. ***
11. Letter Agreement No. 6-1162-RLL-939 entitled *** is deleted in its entirety
and replaced with Letter Agreement No. 6-1162-RLL-939R1 which is attached
hereto and incorporated herein by this reference. ***
12. Letter Agreement No. 6-1162-RLL-940 entitled *** is deleted in its entirety
and replaced with Letter Agreement No. 6-1162-RLL-940R1 which is attached
hereto and incorporated herein by this reference. The letter agreement was
revised to incorporate our mutual agreement based upon ***.
13. Letter Agreement No. 6-1162-RLL-941 entitled "Other Matters," is deleted in
its entirety and replaced with Letter Agreement No. 6-1162-RLL-941R1 which is
attached heroto and incorporated herein by this reference. The letter agreement
was revised by deleting paragraph 4 entitled "Program Changes" because Article
7.2 of the Agreement and Article 1.3 of Attachment A to Letter Agreement No
6-1162-RLL-933, both entitled "Program Changes" have been deleted from the
Agreement.
14. Letter Agreement No. 6-1162-RLL-1855 entitled "Additional Contractual
Matters" is incorporated into the Agreement by this reference.
15. Letter Agreement No. 6-1162-RLL-1856 entitled *** is incorporated into the
Agreement by this reference.
16. Letter Agreement No. 6-1162-RLL-1857 entitled *** is incorporated into the
Agreement by this reference.
17. Letter Agreement No. 6-1162-RLL-1858 entitled *** is incorporated into the
Agreement by this reference.
18. Letter Agreement No. 6-1162-RLL-2036 entitled *** is incorporated into the
Agreement by this reference.
19. Letter Agreement No. 6-1162-RLL-2037 entitled "Reconciliation of the
Aircraft Basic Price" is incorporated into the Purchase Agreement by this
reference.
20. Letter Agreement No. 6-1162-RLL-2073 entitled *** is incorporated into the
Purchase Agreement by this reference.
SA-1-4
<PAGE> 5
21. This Supplemental Agreement will become effective upon its execution and
the execution of Supplemental Agreement No. 22 to Purchase Agreement No. 1405.
22. Within three business days of execution of this Supplemental Agreement,
Boeing will return ***.
The Agreement will be deemed to be supplemented to the extent herein provided
and as so supplemented will continue in full force and effect.
EXECUTED IN DUPLICATE as of the day and year first above written.
THE BOEING COMPANY SOUTHWEST AIRLINES CO.
By: /s/ R. Leo Lyons By: /s/ Gary A. Barron
----------------------------- ------------------------
Its: Attorney-In-Fact Its: EVP-COO
----------------------------- ------------------------
SA-1-5
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page SA
Number Number
------ ------
ARTICLES
- - --------
<C> <C> <C>
1. Subject Matter of Sale.................................... 1-1 SA-1
2. Delivery, Title and Risk
of Loss................................................... 2-1
3. Price of Aircraft......................................... 3-1 SA-1
4. Taxes..................................................... 4-1
5. Payment................................................... 5-1
6. Excusable Delay........................................... 6-1
7. Changes to the Detail
Specification............................................. 7-1 SA-1
8. Federal Aviation Requirements and
Certificates and Export License........................... 8-1
9. Representatives, Inspection,
Flights and Test Data..................................... 9-1
10. Assignment, Resale or Lease............................... 10-1
11. Termination for Certain Events............................ 11-1
12. Product Assurance; Disclaimer and
Release; Exclusion of Liabilities;
Customer Support; Indemnification
and Insurance............................................. 12-1
13. Buyer Furnished Equipment and
Spare Parts............................................... 13-1
14. Contractual Notices and Requests.......................... 14-1
15. Miscellaneous............................................. 15-1
</TABLE>
SA-1-6
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SA
Number
------
EXHIBITS
- - --------
<S> <C> <C>
A Aircraft Configuration SA-1
B Product Assurance Document SA-1
C Customer Support Document
D Price Adjustments Due to
Economic Fluctuations - Aircraft
E Buyer Furnished Equipment
Provisions Document
F Defined Terms Document
LETTER AGREEMENTS
1810-1 Waiver of Aircraft Demonstration Flight
</TABLE>
SA-1-7
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SA
Number
------
RESTRICTED LETTER AGREEMENTS
- - ----------------------------
<S> <C> <C>
6-1162-RLL-932 Promotional Support
6-1162-RLL-933R1 Option Aircraft SA-1
6-1162-RLL-934R1 Disclosure of Confidential SA-1
Information
6-1162-RLL-935R1 *** SA-1
6-1162-RLL-936R1 Certain Contractual Matters SA-1
6-1162-RLL-937 Alternate Advance Payment Schedule
6-1162-RLL-938 ***
6-1162-RLL-939R1 *** SA-1
6-1162-RLL-940R1 *** SA-1
6-1162-RLL-941R1 Other Matters SA-1
6-1162-RLL-942 Open Configuration Matters
6-1162-RLL-943 Substitution Rights
6-1162-RLL-944 Airframe Maintenance Material Cost
Protection Program
6-1162-RLL-945 Comparison of 737-7H4 and 737-3H4
Block Fuel Burn
6-1162-RLL-1855 Additional Contractual Matters SA-1
6-1162-RLL-1856 *** SA-1
6-1162-RLL-1857 *** SA-1
6-1162-RLL-1858 *** SA-1
</TABLE>
SA-1-8
<PAGE> 9
TABLE OF CONTENTS CON'T
<TABLE>
<CAPTION>
SA
Number
------
<S> <C> <C>
RESTRICTED LETTER AGREEMENTS
6-1162-RLL-2036 *** SA-1
6-1162-RLL-2037 Reconciliation of the Aircraft
Basic Price SA-1
6-1162-RLL-2073 *** SA-1
</TABLE>
SA-1-9
<PAGE> 10
ARTICLE 1. Subject Matter of Sale.
1.1 The Aircraft. Subject to the terms and conditions of this
Agreement, Boeing will manufacture and deliver to Buyer and Buyer will purchase
and accept delivery from Boeing of sixty-three (63) Boeing Model 737-7H4
aircraft (the Aircraft) manufactured in accordance with Boeing Detail
Specification D6-38808-1, dated October 30, 1996, as described in Exhibit A, as
modified from time to time in accordance with this Agreement (Detail
Specification).
1.2 Additional Goods and Services. In connection with the sale of
the Aircraft, Boeing will also provide to Buyer certain other things under this
Agreement, including data, documents, training and services, all as described
in this Agreement.
1.3 Performance Guarantees. Any performance guarantees applicable
to the Aircraft will be expressly included in this Agreement. Where performance
guarantees are included in this Agreement other than within the Detail
Specification, such guarantees will be treated as being incorporated in the
Detail Specification by this reference.
1.4 Defined Terms. For ease of use, certain terms are treated as
defined terms in this Agreement. Such terms are identified with a capital
letter and set forth and/or defined in Exhibit F.
1-1
<PAGE> 11
ARTICLE 3. Price of Aircraft.
3.1 Definitions.
3.1.1 Special Features are the features incorporated in
Exhibit A which have been selected by Buyer.
3.1.2 Base Aircraft Price is the Aircraft Basic Price
excluding the price of Special Features.
3.1.3 Aircraft Basic Price is comprised of the Base Aircraft
Price and the price of the Special Features.
3.1.4 Economic Price Adjustment is the adjustment to the
Aircraft Basic Price (Base Aircraft and Special Features) as calculated
pursuant to Exhibit D.
3.1.5 Aircraft Price is the total amount Buyer is to pay for
the Aircraft at the time of delivery.
3.2 Aircraft Basic Price.
The Aircraft Basic Price, expressed in July 1992 dollars, is
set forth below:
Base Aircraft Price: $***
Special Features $***
Aircraft Basic Price $***
3.3 Aircraft Price. The Aircraft Price will be established at
the time of delivery of such Aircraft to Buyer and will be the sum of:
3.3.1 the Aircraft Basic Price, which is ***; plus
3.3.2 the Economic Price Adjustments for the Aircraft Basic
Price, as calculated pursuant to the formulas set forth in Exhibit D (Price
Adjustments Due to Economic Fluctuations - Aircraft); plus
3.3.3 other price adjustments made pursuant to this Agreement
or other written agreements executed by Boeing and Buyer.
3-1
<PAGE> 12
3.4 Advance Payment Base Price.
3.4.1 Advance Payment Base Price. For advance payment
purposes, the following estimated delivery prices of the Aircraft (Advance
Payment Base Price) have been established, using currently available forecasts
of the escalation factors used by Boeing as of the date of signing this
Agreement. The Advance Payment Base Price of each Aircraft is set forth below:
<TABLE>
<CAPTION>
Month and Year of Advance Payment Base
Scheduled Delivery Price per Aircraft
------------------ ------------------
<S> <C> <C>
Block A Aircraft ***
October 1997 $
November 1997 $
Block B Aircraft ***
January 1998 $
February 1998 $
March 1998 $
April 1998 $
May 1998 $
June 1998 $
July 1998 $
September 1998 $
Block C Aircraft ***
February 1999 $
May 1999 $
July 1999 $
September 1999 $
Block D Aircraft ***
January 2000 $
March 2000 $
July 2000 $
September 2000 $
</TABLE>
3-2
<PAGE> 13
<TABLE>
<C> <C> <C>
Block E Aircraft ***
January 2001 $
March 2001 $
July 2001 $
September 2001 $
</TABLE>
ARTICLE 7. Changes to the Detail Specification.
7.1 Development Changes. Boeing may, at its own expense and without
Buyer's consent, incorporate Development Changes in the Detail Specification
and the Aircraft prior to delivery to Buyer. Development Changes are defined as
changes to the basic specification for Model 737-700 aircraft that do not
affect the Aircraft Purchase Price or adversely affect Aircraft delivery,
guaranteed weight, guaranteed performance or compliance with the
interchangeability or replaceability requirements set forth in the Detail
Specification. If Boeing makes changes pursuant to this paragraph, Boeing will
promptly notify Buyer of such changes.
7.2 Change Orders. The Detail Specification and associated provisions of
this Agreement may be amended by Change Order or other written agreement, which
will state the particular changes to be made and any effect on design,
performance, weight, balance, time of delivery, Aircraft Basic Price and
Advance Payment Base Price.
15-1
<PAGE> 14
AIRCRAFT CONFIGURATION
between
THE BOEING COMPANY
and
SOUTHWEST AIRLINES CO.
Exhibit A to Purchase Agreement Number 1810
<PAGE> 15
AIRCRAFT CONFIGURATION
Dated February 26, 1997
relating to
BOEING MODEL 737-7H4 AIRCRAFT
The Detail Specification is Boeing Detail Specification D6-38808-1,
dated October 30, 1996. Such Detail Specification will be comprised of Boeing
Configuration Specification DC-38808, dated September 7, 1993, as amended to
incorporate the applicable specification language to reflect the effect of the
changes set forth in the Change Requests listed below, including the effects of
such changes on Manufacturer's Empty Weight (MEW) and Operating Empty Weight
(OEW). Such Change Requests are set forth in Boeing Document D6-38808-1. As
soon as practicable, Boeing will furnish to Buyer copies of the Detail
Specification, which copies will reflect the effect of such changes. The
Aircraft Basic Price reflects and includes all effects of such changes of
price, except such Aircraft Basic Price does not include the price effects of
Change Requests changing Buyer Furnished Equipment to Seller Purchased
Equipment.
<PAGE> 16
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
0000DC3182 NC
MISCELLANEOUS DEVELOPEMENT CHANGES
STATUS: ACCEPT
0110CG3018 IB
737-700 CONFIGURATION
STATUS: ACCEPT
0160MS3171 NC
AIRPLANE IDENTIFICATION NUMBERS - SERIAL,
REGISTRY, MODE S, FLIGHT RECORDER ID
STATUS: ACCEPT
0310CH3332 ***
INCREASE CERTIFIED MAXIMUM TAKEOFF WEIGHT -
138,500 IN LIEU OF 133,000
STATUS: ACCEPT
0352CG3023 NC
AIRPLANE LOADING SYSTEM FOR WEIGHT AND
BALANCE CONTROL
STATUS: ACCEPT
0370CH3014 ***
AIR CONDITIONING TRANSITION DUCT UNDER
FLOOR - ADD 17 MIL DAMPING TAPE FOR NOISE
REDUCTION
STATUS: ACCEPT
0370CH3019 ***
INSTALLATION OF STRINGER DAMPING FROM
STATION 540-727
STATUS: ACCEPT
</TABLE>
A-1
<PAGE> 17
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
1110CH3003 NC
CROWN METRO EXTERIOR PAINT - BMS 10-72 TYPE
VI SYSTEM
STATUS: ACCEPT
1110MP3290 NC
EXTERIOR DECORATIVE FINISH - DESOTO SERIES
420 HIGH SOLID TOPCOAT IN LIEU OF EXISTING
TOPCOAT
STATUS: ACCEPT
2123CH3042 ***
AIR CONDITIONING SYSTEM REVISION - 737-200
TYPE GASPER SYSTEM
STATUS: ACCEPT
2160CG3011 NC
CABIN TEMPERATURE INDICATOR - DEGREES
FAHRENHEIT IN LIEU OF CELSIUS
STATUS: ACCEPT
2210CG3204 ***
DIGITAL FLIGHT CONTROL SYSTEM (DFCS) -
PADDLE AUTOPILOT ENGAGE MODE CONTROL PANEL
STATUS: ACCEPT
2210MP3227 NC
DIGITAL FLIGHT CONTROL SYSTEM (DFCS) -
PUSH-BUTTON AUTOPILOT ENGAGE IN LIEU OF
PADDLE
STATUS: ACCEPT
2230CH3028 NC
AUTOTHROTTLE DEACTIVATION - UNIT TO REMAIN
INSTALLED AND BITE FEATURES OPERATIONAL
STATUS: ACCEPT
</TABLE>
A-2
<PAGE> 18
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2312CH3284 NC
DUAL VHF COMMUNICATIONS - INSTALLATION -
BFE ALLIEDSIGNAL/GABLES ENGINEERING INC
STATUS: ACCEPT
2319CH3020 ***
CLAIRCOM AIR TO GROUND PASSENGER
COMMUNICATION SYSTEM - COMPLETE BFE
INSTALLATION PROVISIONS
STATUS: ACCEPT
2319MP3021 ***
CLAIRCOM PHONES - CANCEL INSTALLATION
INTENDED FROM 2319CH3020
STATUS: ACCEPT
2320CH3020 ***
ATSCALL INSTALLATION - PARTIAL PROVISIONS -
AFT ELECTRONICS PANEL
STATUS: ACCEPT
2321CH3498 ***
SELECTIVE CALLING EQUIPMENT - SELCAL -
DELETE PARTIAL PROVISIONS
STATUS: ACCEPT
2331CH3158 NC
DELETION OF BFE MATSUSHITA PASSENGER
ADDRESS TAPE REPRODUCER
STATUS: ACCEPT
2331CH3159 NC
PASSENGER ADDRESS SYSTEM - COLLINS ARINC
700 IN LIEU OF COLLINS ARINC 560
STATUS: ACCEPT
</TABLE>
A-3
<PAGE> 19
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2334SP3210 NC
PASSENGER ENTERTAINMENT SYSTEM (AUDIO) -
DELETE SPACE PROVISIONS
STATUS: ACCEPT
2340MP3095 NC
BFE BOOM MICROPHONE/HEADSET REVISION
STATUS: ACCEPT
2342MP3011 NC
FLIGHT ATTENDANT HANDSET - REVISION TO
FUNCTION AND FACEPLATE
STATUS: ACCEPT
2350CH3139 NC
PA MICROPHONE - ADD ELECTROVOICE P/N
602-4183
STATUS: ACCEPT
2350CH3162 NC
DTMF MICROPHONE INSTALLATION - FIRST
OBSERVER
STATUS: ACCEPT
2350CH3163 NC
DIGITAL AUDIO REMOTE ELECTRONICS UNIT
REVISION TO DELETE HEADSET AURAL ALERTS
STATUS: ACCEPT
2350MP3220 NC
DIGITAL AUDIO REMOTE ELECTRONICS UNIT
REVISION - ADD PREDICTIVE WINDSHEAR WITHOUT
HEADSET AURAL ALERTS - 737-700
STATUS: ACCEPT
</TABLE>
A-4
<PAGE> 20
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2370CG3166 NC
SOLID STATE VOICE RECORDER - INSTALLATION -
BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
2500CH3453 NC
DOOR WARNING STRAP - SHOCK CORD
STATUS: ACCEPT
2501CH3076 NC
FORWARD MODULE WITH GALLEY G1 AND LAVATORY
LA
STATUS: ACCEPT
2501MP3080 NC
REVISE FORWARD MODULE WITH GALLEY G1 AND
LAVATORY LA FROM SEAT TRACK MOUNT TO
HARDPOINT
STATUS: ACCEPT
2502CH3066 NC
AFT MODULE WITH GALLEY G3, G4 AND LAVATORY
LB
STATUS: ACCEPT
2502MP3069 NC
REVISE MODULE WITH GALLEY G3, G4 AND
LAVATORY LB TO HARPOINT IN LIEU OF SEAT
TRACK MOUNT
STATUS: ACCEPT
2510CH3058 NC
FLIGHT COMPARTMENT - MISCELLANEOUS
REVISIONS
STATUS: ACCEPT
</TABLE>
A-5
<PAGE> 21
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2510CH3059 NC
TRIP COUNTER REVISION - SFE - DEXTER WILSON
STATUS: ACCEPT
2510CH3060 NC
CONTROL COLUMN CHECKLIST DELETION
STATUS: ACCEPT
2511CG3057 ***
SECOND OBSERVER'S STATION
STATUS: ACCEPT
2511CH3059 NC
LOG BOOK POCKET INSTALLATION - ON SECOND
OBSERVERS SEAT LEGS
STATUS: ACCEPT
2520CH3538 ***
INTERIOR ARRANGEMENT - 137 TOURIST CLASS AT
33/32" PITCH WITH LAVS LA AND LB AND
GALLEYS G1, G3 AND G4
STATUS: ACCEPT
2520MP3667 NC
STOWAGE BIN REVISION - ADD BULLNOSE ON
INBOARD LOWER SURFACE
STATUS: ACCEPT
2523CH3109 NC
PSU REVISION - ADD PLACARD TO PASSENGER
VIEWING SURFACE IN LOUNGE AREAS ONLY
STATUS: ACCEPT
</TABLE>
A-6
<PAGE> 22
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2523CH3112 NC
INSTALL NON STANDARD COLOR PSU
STATUS: ACCEPT
2523MP3119 NC
INTERIOR REVISION - PSU AND PARTITION
RELOCATION TO SUPPORT SEAT RE-PITCH
REQUIRED FOR 16G COMPLIANCE
STATUS: ACCEPT
2524CH3431 ***
BFE FWD RIGHT HAND WINDSCREEN/STOWAGE UNIT
IN LIEU OF SFE
STATUS: ACCEPT
2524MP3488 NC
FULL HEIGHT BFE STOWAGE UNIT REVISION - ADD
BFE FLASHLIGHTS AND BFE LITERATURE POCKETS
STATUS: ACCEPT
2524MP3500 NC
PARTITION DECORATIVE COVERING REVISION -
ULTRALEATHER IN LIEU OF LEATHER
STATUS: ACCEPT
2524MP3513 NC
EMERGENCY EQUIPMENT BRACKET COMMONALITY -
SFE
STATUS: ACCEPT
2525MP3159 NC
PASSENGER SEAT REVISION - ALL FORWARD
FACING SEATS WITH 137 PAX
STATUS: ACCEPT
</TABLE>
A-7
<PAGE> 23
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2528CH3189 ***
SFE HALF HEIGHT STOWAGE UNIT/WINDSCREEN -
AFT LH CABIN WITH THE AFT FACE AT STATION
955 - WITH MEGAPHONE
STATUS: ACCEPT
2528CH3191 ***
SFE FULL HEIGHT STOWAGE UNIT/WINDSCREEN -
FWD LH CABIN WITH THE AFT FACE AT STATION
355
STATUS: ACCEPT
2528CH3194 ***
BFE HALF HEIGHT STOWAGE UNIT/WINDSCREEN -
AFT LH CABIN WITH THE AFT FACE AT STATION
955 - WITH MEGAPHONE
STATUS: ACCEPT
2528CH3195 ***
BFE FULL HEIGHT STOWAGE UNIT/WINDSCREEN IN
LIEU OF SFE - FWD LH CABIN WITH THE AFT
FACE AT STATION 355
STATUS: ACCEPT
2528MP3217 NC
CREW LUGGAGE SECURITY DEVICE
STATUS: ACCEPT
2530MP3613 NC
G3 EXTERIOR DECORATIVE COVERING REVISION -
ULTRASUEDE IN LIEU OF LEATHER
STATUS: ACCEPT
2541CH3034 NC
LIQUID SOAP DISPENSER INSTALLATION
STATUS: ACCEPT
</TABLE>
A-8
<PAGE> 24
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2550CH3153 NC
CARGO COMPARTMENT LINING REVISION
STATUS: ACCEPT
2550CH3233 NC
FWD AND AFT CARGO COMPARTMENT FLOOR PANEL
REVISION - ALUMINUM PANELS IN LIEU OF
CONOLITE AT ENTRYWAY
STATUS: ACCEPT
2550MP3259 NC
TRANSVERSE CARGO NET INSTALLATION - FORWARD
AND AFT CARGO COMPARTMENTS
STATUS: ACCEPT
2550MP3267 NC
FORWARD AND AFT CARGO COMPARTMENT CARGO
RESTRAINT SYSTEM
STATUS: ACCEPT
2622CH3013 NC
APU FIRE BOTTLE REVISION - INTERCHANGEABLE
WITH ENGINE BOTTLE
STATUS: ACCEPT
2841CG3095 NC
FUEL QUANTITY INDICATORS ON RIGHT WING
FUELING PANEL
STATUS: ACCEPT
2844CG3038 NC
MEASURING STICK CONVERSION TABLES TO U.S.
GALLONS
STATUS: ACCEPT
</TABLE>
A-9
<PAGE> 25
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
2910CH3082 NC
HYDRAULIC PUMPS - AC ELECTRIC MOTOR DRIVEN
- VICKERS IN LIEU OF ABEX
STATUS: ACCEPT
2910CG3087 ***
ENGINE DRIVEN HYDRAULIC PUMP WITH VESPEL
SPLINE - VICKERS 10-62167-3 IN LIEU OF ABEX
10-62167-2
STATUS: ACCEPT
3040CH3041 NC
INSTALL A TWO LRU WINDOW HEAT CONTROL
SYSTEM - PED 1231-1 IN LIEU OF TBD
STATUS: ACCEPT
3040MP3049 NC
INSTALL A 4 UNIT WINDOW HEAT CONTROL SYSTEM
- OLIN 231-2 IN LIEU OF 1231-1
STATUS: ACCEPT
3040MP3053 ***
INSTALL A BFE WINDOW HEAT CONTROL SYSTEM
WHICH CONTAINS BITE - OLIN 231-3 IN LIEU OF
231-2
STATUS: ACCEPT
3043MP3022 NC
WINDSHIELD WIPER SWITCH REVISION - SINGLE
SWITCH FOR BOTH WIPERS IN LIEU OF TWO
SWITCHES
STATUS: ACCEPT
</TABLE>
A-10
<PAGE> 26
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3120CH3016 NC
CLOCK WIRING REVISION - FMC, DFDAU AND
VOICE RECORDER INPUT FROM FIRST OFFICER'S
CLOCK IN LIEU OF CAPTAIN'S CLOCK
STATUS: ACCEPT
3131CG3673 NC
ACCELEROMETER - INSTALLATION - BFE
ALLIEDSIGNAL INC
STATUS: ACCEPT
3131CG3692 NC
SOLID STATE DIGITAL FLIGHT DATA RECORDER -
INSTALLATION - BFE ALLIEDSIGNAL INC - 128
WPS
STATUS: ACCEPT
3131CH3721 NC
DIGITAL FLIGHT DATA ACQUISITION UNIT
(DFDAU) - INSTALLATION - BFE ALLIEDSIGNAL
STATUS: ACCEPT
3162CG3013 NC
EFIS/MAP DISPLAY FORMAT
STATUS: ACCEPT
3162CG3016 NC
FLIGHT DIRECTOR COMMAND DISPLAY - FILLED
INTEGRATED CUE
STATUS: ACCEPT
3162CG3017 NC
MACH AIRSPEED DISPLAY
STATUS: ACCEPT
</TABLE>
A-11
<PAGE> 27
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3162CG3019 NC
RADIO ALTITUDE DISPLAY - ROUND DIAL
STATUS: ACCEPT
3162CG3020 NC
RADIO ALTITUDE - ABOVE ADI
STATUS: ACCEPT
3162CG3022 NC
RISING RUNWAY DISPLAY
STATUS: ACCEPT
3162CG3025 NC
RADIO ALTITUDE HEIGHT ALERT DISPLAY - 2500
FEET
STATUS: ACCEPT
3162CG3026 NC
ATTITUDE COMPARATOR - STEADY
STATUS: ACCEPT
3162CG3029 NC
LOCALIZER BACKCOURSE POLARITY - REVERSAL
STATUS: ACCEPT
3162CG3032 NC
MAP MODE ORIENTATION - TRACK UP
STATUS: ACCEPT
3162CG3038 NC
MANUALLY TUNED VOR SELECTED COURSE LINES -
DISPLAYED
STATUS: ACCEPT
3162CG3041 NC
ADF POINTER(S) IN MAP MODE - SUPPRESSED
STATUS: ACCEPT
</TABLE>
A-12
<PAGE> 28
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3162CG3042 NC
POSITION DIFFERENCE - AUTOMATIC DISPLAY
STATUS: ACCEPT
3162CG3046 NC
WEATHER RADAR MODE/GAIN/TILT ANGLE -
DISPLAYED
STATUS: ACCEPT
3162CG3050 NC
TCAS TRAFFIC ON MAP
STATUS: ACCEPT
3162CG3052 NC
TCAS RESOLUTION ADVISORY ON ADI
STATUS: ACCEPT
3162CG3053 NC
TCAS RESOLUTION ADVISORY ON IVSI
STATUS: ACCEPT
3162CG3057 NC
ANALOG FAILURE FLAGS - DISPLAYED
STATUS: ACCEPT
3162CH3066 NC
MACH AIRSPEED INDICATOR BUG #5 - 80 KNOTS
STATUS: ACCEPT
3162CH3068 NC
SUPPLEMENTAL METRIC DATA INDICATIONS -
DEACTIVATION
STATUS: ACCEPT
</TABLE>
A-13
<PAGE> 29
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3162CH3075 NC
EFIS CONTROL PANEL - EFIS/MAP DISPLAY
FORMAT
STATUS: ACCEPT
3162MP3128 NC
ANALOG FAILURE FLAG - DELETE
STATUS: ACCEPT
3162MP3129 NC
SUPPLEMENTAL METRIC DATA INDICATIONS -
ACTIVATION
STATUS: ACCEPT
3162MP3131 NC
ENHANCED MACH AIRSPEED DISPLAY
STATUS: ACCEPT
3162MP3132 NC
WEATHER RADAR RANGE INDICATORS - RANGE
MARKS
STATUS: ACCEPT
3240CH3220 NC
NOSE LANDING GEAR WHEELS - BENDIX
STATUS: ACCEPT
3240CH3221 NC
MAIN LANDING GEAR WHEELS AND BRAKES -
BENDIX
STATUS: ACCEPT
3240MP3258 NC
NOSE LANDING GEAR - INSTALL 737-300
ALLIEDSIGNAL WHEEL IN LIEU OF EXISTING
STATUS: ACCEPT
</TABLE>
A-14
<PAGE> 30
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3245CH3029 NC
TIRES - INSTALLATION OF SFE GOODYEAR TIRES
STATUS: ACCEPT
3324CH3010 NC
CEILING MOUNTED LIGHTED EXIT SIGN -
RELOCATION
STATUS: ACCEPT
3343CH3034 NC
ANTI-COLLISION LIGHT - SWITCH NOMENCLATURE
REVISION
STATUS: ACCEPT
3345CH3020 NC
LOGO LIGHTS - SYSTEM DEACTIVATION
STATUS: ACCEPT
3345MP3029 NC
REACTIVATION OF LOGO LIGHT SYSTEM
STATUS: ACCEPT
3350MP3079 NC
EGRESS LIGHTING REVISION TO ACCOMMODATE ALL
FORWARD FACING SEAT CONFIGURATION
STATUS: ACCEPT
3423CH3021 NC
INSTALL BFE STANDBY ATTITUDE INDICATOR
WITHOUT ILS DEVIATION DISPLAY IN LIEU OF
SFE INDICATOR
STATUS: ACCEPT
3423CH3026 NC
STANDBY INDICATOR - SFE SEXTANT IN LIEU OF
BFE JET
STATUS: ACCEPT
</TABLE>
A-15
<PAGE> 31
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3431CG3051 NC
ILS - INSTALLATION - BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
3433CG3058 NC
LOW RANGE RADIO ALTIMETER (LRRA) -
INSTALLATION - BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
3435CH3028 ***
FLIGHT DYNAMICS CAPTAIN ONLY HEAD UP
GUIDANCE SYSTEM - PARTIAL PROVISIONS
STATUS: ACCEPT
3443CH3118 ***
WEATHER RADAR SYSTEM - ARINC 708A SINGLE
WEATHER RADAR SYSTEM WITH PREDICTIVE
WINDSHEAR - PARTIAL PROVISIONS
STATUS: ACCEPT
3443CH3154 NC
ARINC 708 WEATHER RADAR SYSTEM -
INSTALLATION - BFE ALLIEDSIGNAL INC (WITH
DEACTIVATED PREDICTIVE WINDSHEAR FEATURE
R/T RDR-4B)
STATUS: ACCEPT
3445CH3197 NC
TCAS II - INSTALLATION - BFE ALLIEDSIGNAL
INC
STATUS: ACCEPT
</TABLE>
A-16
<PAGE> 32
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3451CG3005 NC
VOR/MARKER BEACON - INSTALLATION - BFE
ALLIEDSIGNAL INC
STATUS: ACCEPT
3455CG3120 NC
DISTANCE MEASURING EQUIPMENT (DME) -
INSTALLATION - BFE ALLIEDSIGNAL INC
(SCANNING)
STATUS: ACCEPT
3457CG3088 NC
AUTOMATIC DIRECTION FINDER (ADF) -
INSTALLATION - BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
3457CG3092 NC
AUTOMATIC DIRECTION FINDER (ADF) CONTROL
PANEL - INSTALLATION - BFE GABLES
ENGINEERING INC
STATUS: ACCEPT
3457MP3132 NC
ADF CONTROL PANEL REVISION - ADD GABLES
G7402-05 IN LIEU OF EXISTING
STATUS: ACCEPT
3457MP3133 NC
ADF ANTENNA REVISION - ADD ALLIEDSIGNAL
2041683-7507 IN LIEU OF EXISTING
STATUS: ACCEPT
</TABLE>
A-17
<PAGE> 33
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3458CH3091 NC
GPS PROVISIONS - ADD COMPONENTS REQUIRED TO
PROVIDE COMPLETE PROVISIONS
STATUS: ACCEPT
3458CH3092 ***
GLOBAL POSITIONING SYSTEM (GPS) -
INSTALLATION - HONEYWELL INC (SUPPLEMENTAL
NAVIGATION CERTIFICATION)
STATUS: ACCEPT
3461CG3403 NC
BUYER FURNISHED NAVIGATION DATA BASE
STATUS: ACCEPT
3461CH3485 NC
VERTICAL NAVIGATION (VNAV)
ACTIVATE/DEACTIVATE SERVICE BULLETIN
STATUS: ACCEPT
3461CH3489 ***
FLIGHT MANAGEMENT COMPUTER SYSTEM REVISION
- CERTIFICATION FOR SINGLE COMPUTER
OPERATION ONLY
STATUS: ACCEPT
3510CG3089 NC
CREW OXYGEN - 114 CU. FT. IN LIEU OF 76 CU.
FT. CYLINDER
STATUS: ACCEPT
3830MP3025 NC
INSTALLATION OF PNEUDRAULICS INC. 4"
SERVICE PANEL LAVATORY DRAIN VALVE P/N 9569
IN LIEU OF CURRENT SHAW VALVE
STATUS: ACCEPT
</TABLE>
A-18
<PAGE> 34
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
3831MP3019 ***
GRAY WATER DRAIN ROUTING REVISION - LEVEL
LINE IN LIEU OF SLANTED LINE
STATUS: ACCEPT
3832CH3071 NC
VACUUM LAVATORY SYSTEM IN LIEU OF
RECIRCULATING LAVATORY - LAVS A AND B
STATUS: ACCEPT
3910CH3113 NC
RELOCATE ATC CONTROL PANEL
STATUS: ACCEPT
3910CH3122 NC
AFT ELECTRONICS PANEL ARRANGEMENT
STATUS: ACCEPT
5100CH3026 NC
ADDITIONAL CORROSION PROTECTION BENEATH
GALLEYS AND LAVS
STATUS: ACCEPT
5100CH3027 NC
FWD AND AFT CARGO DOOR REVISION - INSTALL
HEAVY DUTY SKIN
STATUS: ACCEPT
5100MP3030 NC
REMOVE ADDITIONAL CORROSION PROTECTION
ADDED BY CR 5100CH3026
STATUS: ACCEPT
</TABLE>
A-19
<PAGE> 35
<TABLE>
<CAPTION>
PRICE
PER A/P
SWA3701
CR / TITLE 92 $
========================================================== ===========
<S> <C>
5220MP3012 NC
OVERWING HATCH ASSIST HANDLE REVISION -
INSTALL RECESSED HANDLE IN LIEU OF
PROTRUDING HANDLE
STATUS: ACCEPT
7200CG3244 IB
AIRPLANE PERFORMANCE: CFM56-7 ENGINES WITH
OPERATIONAL THRUST OF 22,000 LBS. FOR
737-600,-700
STATUS: ACCEPT
7900CG3026 NC
LUBRICATING OIL - ESSO/EXXON TURBO OIL 2380
STATUS: ACCEPT
CR'S 138 TOTAL ***
</TABLE>
A-20
<PAGE> 36
PART A
BOEING WARRANTY
1. Warranties.
Subject to the exceptions set forth in paragraph 2, Boeing
warrants that, at the time of delivery, each Aircraft, including all installed
systems, accessories, equipment and parts, will:
1.1 conform to the Detail Specification, as it may be
changed pursuant to this Agreement, except such portions stated to be
estimates, approximations, design objectives, or design criteria, or described
as not guaranteed;
1.2 be free from defects in material and workmanship,
including process of manufacture; and
1.3 be free from defects in design, including selection of
(i) materials and (ii) process of manufacture, in view of the state of the art
at the time of design.
For purposes of this Boeing Warranty, nonconformance with the
Detail Specification, defects in material or workmanship and defects in design
may hereinafter be called "defects" or a "defect", and the term "system",
"accessory", "equipment" or "part" may hereinafter be called "item" or "items."
2. Exceptions.
The warranties above will not apply to BFE. The warranty above
covering material and workmanship and the warranty above covering design will
not apply to Engines or to any other item purchased by Boeing but not
manufactured to Boeing's detailed design. However, any defect in the Boeing
workmanship installing such BFE, Engines or other items in an Aircraft will,
including any failure by Boeing to conform to the installation instructions of
the manufacturer of such items that invalidates any applicable warranty from
such manufacturer, constitute a defect in workmanship and be covered by the
warranty set forth in paragraph 1.
3. Survival of Warranties.
Neither the warranty of conformance to the Detail Specification
applicable to Engines and other items purchased by Boeing but not manufactured
to Boeing's detailed design, nor any Performance Guarantees, will survive
delivery of the Aircraft. The remaining warranties
A-1
<PAGE> 37
set forth herein will survive delivery of the Aircraft, subject to the
limitations and conditions set forth herein.
4. Warranty Periods and Claims.
4.1 The warranty periods are:
4.1.1 As to a defect in conformance to the
Detail Specification, 48 months after delivery of such
Aircraft, and
4.1.2 As to a defect in material,
workmanship or design in any item, 48 months after delivery of each Aircraft in
which such item was initially installed.
4.2 Boeing must receive the warranty claim in writing at the
earliest practicable time after the defect becomes apparent to Buyer but in no
event later than 90 days after expiration of the applicable warranty period.
4.3 Such warranty claim must include the data set forth
below and, if requested by Boeing, reasonable evidence that the claimed defect
did not result from any act or omission of Buyer.
4.3.1 Identity of the item or Aircraft
involved, including Boeing part number, serial number if applicable,
nomenclature and the quantity claimed to be defective;
4.3.2 Identity of the Aircraft on which the
claimed item was installed as original equipment;
4.3.3 Date the claimed defect became apparent to
Buyer; and
4.3.4 Description of the claimed defect and
circumstances, including Boeing service bulletin or Boeing service letter
number if claim involves a service bulletin or letter.
4.4 Upon completion of Boeing's warranty claim
investigation, including examination of any item or Aircraft returned to
Boeing, Boeing will provide a written disposition of its warranty claim
findings to Buyer. In the event Boeing must reject Buyer's warranty claim,
Boeing will provide reasonable substantiation of such rejection in its
disposition.
A-2
<PAGE> 38
5. Remedies.
Buyer's remedies under this Boeing Warranty are as follows:
5.1 As to a defect in conformance to the Detail
Specification, the correction at Boeing's expense of such defect; provided,
however, that Boeing will not be obligated to correct any defect that Boeing
and Buyer agree has no material adverse effect on the maintenance, use or
operation of the Aircraft. The warranty period for the corrected item will be
the unexpired warranty period for the defective item.
5.2 As to a defect in material or workmanship, (i) the
repair at Boeing's expense of such defect or, (ii) at Boeing's option, the
replacement of such item with a similar item free from defect or the issuance
of a credit memorandum to Buyer for a spare part previously purchased from
Boeing as the replacement for such defective item. The warranty period for
either correction will be the unexpired warranty period for the defective item.
5.3 As to a defect in design, the correction at Boeing's
expense of such defect. The warranty period for such correction is 18 months
from receipt by Buyer of corrective material or the end of the original design
warranty period for the defective item, whichever is later.
5.4 Boeing will reimburse Buyer at the Warranty Labor Rate
for the direct labor hours required for removal from the Aircraft of a
defective item and the reinstallation in the Aircraft of the corrected item.
6. Returned Items.
Unless otherwise provided in this Agreement, the Aircraft or item
claimed to be defective must be returned to Boeing as soon as practicable.
Buyer may also provide specific technical repair or correction instructions
with such return. The absence of such instructions will evidence Buyer's
authorization for Boeing to proceed using Boeing information and data. The
following criteria will apply with respect to return of Aircraft or items to
Boeing:
6.1 As to Aircraft:
6.1.1 An Aircraft may be returned only if
6.1.1.1 substantially all the work to
be performed by Boeing is covered by this Boeing Warranty and
6.1.1.2 Buyer does not have the
capability to perform, nor is it practical for Boeing
A-3
<PAGE> 39
personnel to perform, the warranty work away from Boeing's facilities.
6.1.2 All warranty work will be performed at
Boeing's expense, with reasonable efforts to minimize Aircraft out-of-service
time. In addition, Boeing will reimburse Buyer for the cost of fuel, oil and
landing fees incurred in ferrying the Aircraft to Boeing's facilities and in
ferrying the Aircraft back to Buyer's facilities. Buyer will use its best
efforts to minimize the length of both ferry flights.
6.1.3 Any nonwarranty work performed by
Boeing will be paid for by Buyer at Boeing's then-standard rates and shall in
no event exceed the rates charged other commercial carriers of Boeing during
substantially the same time period.
6.1.4 A separate agreement containing the
above provisions and their mutually agreeable terms and conditions based on
Boeing's then-standard form will be entered into to cover the return of and
work on such Aircraft.
6.2 As to any system, accessory, equipment or part:
6.2.1 All warranty work will be performed at
Boeing's expense, with reasonable efforts to minimize item out-of-service time
for items returned.
6.2.2 Boeing's turnaround-time objectives
for repair or replacement are: 10 working days for avionic and electronic items
and 30 working days for other items when corrected at Boeing's facilities, or
40 working days when corrected at the facilities of a Boeing subcontractor.
Turnaround time starts the date Boeing receives the returned item, together
with Buyer's warranty claim describing the work, and ends the date of shipment
by Boeing of such item. If a turnaround-time objective is not achieved and a
resultant critical parts shortage is experienced by Buyer, and Buyer has
procured spare parts for such item substantially in accordance with the Boeing
Recommended Spare Parts List, Boeing will, upon request from Buyer, either:
6.2.2.1 expedite repair or replacement of
the item or
6.2.2.2 provide a similar item on a
no-charge loan or no-charge lease basis until the repaired or replaced item is
provided to Buyer.
6.2.3 The freight charge for shipment to
Boeing of any item will be paid by Buyer; however, Boeing
A-4
<PAGE> 40
will reimburse Buyer for such charge for any item determined to be defective
under this Boeing Warranty. The freight charge for the return shipment to Buyer
of any such defective item which has been repaired, replaced or corrected
pursuant to this Boeing Warranty will be paid by Boeing.
6.3 Title to and risk of loss of any Aircraft or item
returned to Boeing will at all times remain with Buyer and/or any other owner
of such Aircraft or item, except that at the time Boeing ships a replacement
item to Buyer, title to and risk of loss (i) for the returned item will pass to
Boeing and (ii) for the replacement item will pass to Buyer. While Boeing has
care, custody and control of an Aircraft or item, Boeing will have only such
liabilities as a bailee for mutual benefit would have, but will not be liable
for loss of use.
7. Nonrepairable Items.
Buyer may scrap any defective nonrepairable item having a
then-current Boeing spare part selling price of $2,000 or less and make a claim
for a replacement item. For a defective nonrepairable item having a
then-current Boeing spare part selling price greater than $2,000, an authorized
Boeing representative must confirm the nonrepairability of any such item.
Buyer's claim for an item with a spare part selling price exceeding $2,000 must
include such confirmation.
8. Reimbursement for Certain Inspection Labor Costs.
8.1 In addition to the remedies set forth in this Boeing
Warranty, Boeing will reimburse Buyer at the Warranty Labor Rate for the direct
labor hours expended by Buyer in performing inspections of the Aircraft to
determine whether or not a covered defect exists in any system, accessory,
equipment or part manufactured to Boeing's detailed design, provided that:
8.1.1 such inspections are recommended by a
Boeing service bulletin or service letter issued by Boeing within 48 months
after delivery of such Aircraft, and
8.1.2 such reimbursement will not apply to
any inspections performed as an alternative to accomplishing corrective action
when such corrective action is available to Buyer at the time such inspections
are performed.
9. Wear and Tear.
Normal wear and tear and the need for regular maintenance and
overhaul will not constitute a defect.
A-5
<PAGE> 41
10. Disclaimer and Release; Exclusion of Liabilities.
This Part A and the rights and remedies of Buyer and obligations
of Boeing herein are subject to the Disclaimer and Release and Exclusion of
Consequential and Other Damages provisions of Article 12 of this Agreement.
11. Buyer's Indemnification of Boeing.
The provisions of Part E, "Buyer's Indemnification of Boeing and
Insurance" of Exhibit C, will apply to all warranty work performed by Boeing
hereunder in accordance with Buyer's specific technical repair or correction
instructions, to the extent any legal liability of Boeing is based upon the
content of such instructions.
A-6
<PAGE> 42
6-1162-RLL-933R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-933R1 to
Purchase Agreement No. 1810 -
Option Aircraft
This Letter Agreement amends Purchase Agreement No. 1810 dated as of January
19, 1994 (the Agreement) between The Boeing Company (Boeing) and Southwest
Airlines Co. (Buyer) relating to Model 737-7H4 aircraft (Aircraft).
All terms used and not defined herein will have the same meaning as in the
Agreement.
In consideration of the purchase by Buyer of the Aircraft, Boeing hereby agrees
to manufacture and sell to Buyer sixty-seven (67) additional Model 737-7H4
aircraft as described in paragraph 1 of Attachment A hereto (Option Aircraft)
and forty-nine (49) Model 737-7H4 Rollover Option Aircraft (Rollover Option
Aircraft), subject to the terms and conditions set forth below.
1. Delivery of Option Aircraft.
The Option Aircraft will be delivered to Buyer during or before the
months set forth in the following schedule:
<TABLE>
<CAPTION>
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
- - -------------- -------- --------
<S> <C> <C>
October 1998 One (1) F
November 1998 Two (2) F
December 1998 Two (2) F
March 1999 Two (2) G
June 1999 Two (2) G
August 1999 Two (2) G
September 1999 One (1) G
October 1999 Two (2) G
April 2000 Three (3) H
October 2000 Three (3) H
</TABLE>
<PAGE> 43
Southwest Airlines Co.
6-1162-RLL-933R1 Page 2
<TABLE>
<CAPTION>
Number of Option
Month and Year Option Aircraft
of Delivery Aircraft Block
- - ----------- -------- -----
(continued)
<S> <C> <C>
April 2001 Three (3) I
October 2001 Three (3) I
January 2002 Four (4) J
March 2002 Four (4) J
April 2002 Two (2) J
July 2002 Four (4) J
October 2002 Four (4) J
January 2003 Four (4) K
March 2003 Four (4) K
April 2003 Two (2) K
July 2003 Four (4) K
October 2003 Four (4) K
April 2004 Two (2) L
July 2004 Three (3) L
</TABLE>
2. Delivery of Rollover Option Aircraft.
2.1 The Rollover Option Aircraft will be delivered to Buyer during
or before the years set forth in the following schedule:
<TABLE>
<CAPTION>
Option
Year of Number of Aircraft
Delivery Option Aircraft Block
<S> <C> <C>
2004 Thirteen (13) M
2005 Eighteen (18) N
2006 Eighteen (18) O
</TABLE>
2.2 The forty-nine (49) Rollover Option Aircraft are
offered to Buyer subject to the following conditions:
2.2.1 Buyer can exercise any forty-nine
(49) of the sixty-seven (67) Option Aircraft, and will be offered a Rollover
Option Aircraft for each option aircraft exercised up to and including
forty-nine (49).
2.2.2 Conversely to Article 2.2.1 above,
if Buyer does not exercise a minimum of forty-nine (49) Option Aircraft, one
Rollover Option Aircraft will be deleted for each Option Aircraft not exercised
by Buyer.
<PAGE> 44
Southwest Airlines Co.
6-1162-RLL-933R1 Page 3
2.2.3 When Buyer exercises one or more
Option Aircraft, Boeing will offer the same quantity of Rollover Option
Aircraft to Buyer in the years identified in Article 2.1 above.
2.2.4 The Rollover Option Aircraft
delivery month offered by Boeing to Buyer will be at least 24 months from the
Option exercise date of the corresponding option.
2.2.5 When Boeing offers the Rollover
Option Aircraft to Buyer, Buyer will accept such Rollover Option Aircraft by
wire transferring $100,000 to Boeing. In the event Buyer exercises its option
to purchase the Rollover Option Aircraft, such application will be in
accordance with Article 4.1 herein.
3. Price.
3.1 The advance payment base prices of the Option Aircraft set
forth below and in paragraph 2.1 of Attachment A represent the estimated
delivery prices of the Option Aircraft. The Option Aircraft pricing elements
and associated pricing terms and conditions are given in Attachment A.
3.2 Price and escalation provisions for Model 737-7H4 aircraft
delivering after 2001, are not currently available. The estimated Advance
Payment Base Prices shown in paragraph 3.3 below and in paragraph 2.1 of
Attachment A are based on currently available price and escalation provisions.
As price and escalation provisions become available for Model 737-7H4 aircraft
delivering after 2001, such price and escalation provisions will be
appropriately applied to the applicable Option Aircraft.
For additional information relating to price and escalation provisions
applicable to Option Aircraft delivering after 2001 refer to paragraphs 2.3 and
3.2 of Attachment A.
3.3 The Advance Payment Base Prices of the Option Aircraft
indicated below do include an amount for special features in addition to those
specifically described in Attachment A but do not include any amount for items
of Buyer Furnished Equipment (BFE). An estimate for typical special features is
$*** per Aircraft (expressed in 1992 STE dollars) and for BFE is $*** per
Aircraft (expressed in delivery year dollars).
<PAGE> 45
Southwest Airlines Co.
6-1162-RLL-933R1 Page 4
<TABLE>
<CAPTION>
Month and Year Advance Payment Base
of Delivery Price per Option Aircraft
- - ----------- -------------------------
<S> <C>
Block F Aircraft ***
October 1998 $
November 1998 $
December 1998 $
Block G Aircraft ***
March 1999 $
June 1999 $
August 1999 $
September 1999 $
October 1999 $
Block H Aircraft ***
April 2000 $
October 2000 $
Block I Aircraft ***
April 2001 $
October 2001 $
Block J Aircraft ***
January 2002 $
March 2002 $
April 2002 $
July 2002 $
October 2002 $
Block K Aircraft ***
January 2003 $
March 2003 $
April 2003 $
July 2003 $
October 2003 $
Block L Aircraft ***
April 2004 $
July 2004 $
</TABLE>
3.4 The Option Aircraft purchase price will be the applicable basic
price thereof at the time of Option Aircraft delivery adjusted in accordance
with Boeing's
<PAGE> 46
Southwest Airlines Co.
6-1162-RLL-933R1 Page 5
Aircraft escalation provisions contained in the definitive agreement to
purchase the Option Aircraft. The purchase price will include the price for
Seller Purchased Equipment (SPE) if Buyer has elected to change Buyer Furnished
Equipment (BFE) to SPE.
4. Option Aircraft Payment.
4.1 In consideration of the granting of the option as set forth
herein, on or before the date Boeing and Buyer enter into a definitive
agreement to purchase the Aircraft, Buyer will pay a deposit to Boeing of $***
for each Option Aircraft (Deposit). In the event Buyer exercises its option
herein, the amount of the Deposit will be credited against the first advance
payment due for such Option Aircraft pursuant to the advance payment schedule
set forth in paragraph 3 of Attachment A. The Deposits for the Option Aircraft
will be refunded to Buyer, without interest, if the parties do not enter into a
definitive Agreement for the Aircraft.
In the event that, after the parties enter into a definitive agreement to
purchase the Aircraft, Buyer does not exercise its option to purchase the
Option Aircraft pursuant to the terms and conditions set forth herein, Boeing
will be entitled to retain the Deposits for the Option Aircraft except as
provided in paragraphs 6 herein.
4.2 Advance payments in the amount of 30% of the advance payment
base price will be payable on the Option Aircraft in accordance with paragraph
3 of Attachment A. The remainder of the Option Aircraft purchase price is due
at the time of delivery of the Option Aircraft.
5. Option Exercise.
5.1 To exercise its Option, Buyer will give written or
telegraphic notice thereof to Boeing on or before eighteen (18) months prior to
the first day of the delivery month of each Option Aircraft.
In such notice Buyer will select the Option Model type, and the applicable
delivery positions.
5.2 It is understood and agreed that Boeing may accelerate the
option exercise dates specified above if Boeing must make production decisions
which are dependent on Buyer's decision to buy the Option Aircraft. If Boeing
elects to accelerate the option exercise dates, Boeing will do so by giving
written or telegraphic notice thereof to Buyer. Such notice will specify the
revised option exercise dates, which will not be earlier than 30 days after the
date
<PAGE> 47
Southwest Airlines Co.
6-1162-RLL-933R1 Page 6
of transmittal of such notice, and the Option Aircraft delivery positions
affected by such revision. If Buyer fails to exercise its option for any Option
Aircraft affected by such revised dates, the Deposit applicable to such Option
Aircraft will be promptly refunded, with interest, to Buyer. The interest rate
for calculation of the interest associated with such refund is the rate of two
percent (2%) below the Citibank base rate in effect from time to time during
the period the option deposit is held by Boeing.
6. Contract Terms.
It is understood that Boeing and Buyer will use their best efforts
to enter into a definitive agreement for the Option Aircraft within thirty (30)
days after Buyer exercises an option to purchase Option Aircraft pursuant to
paragraph 5 covering the detailed terms and conditions for the sale of such
Option Aircraft.
Such definitive agreement will include the terms and conditions contained
herein together with the terms and conditions, not inconsistent herewith,
contained in Boeing's then-current standard form of purchase agreement for the
sale of Model 737-700 aircraft in effect as of the date of option exercise and
such additional terms and conditions as may be mutually agreed upon. In the
event the parties have not entered into such an agreement within the time
period contemplated herein, either party may, exercisable by written or
telegraphic notice given to the other within thirty (30) days after such
period, terminate the purchase of such Option Aircraft.
<PAGE> 48
Southwest Airlines Co.
6-1162-RLL-933R1 Page 7
7. Termination of Option to Purchase.
Either Boeing or Buyer may terminate the option to purchase an
Option Aircraft if any of the following events are not accomplished by the
respective dates contemplated in this letter agreement, or in the Agreement, as
the case may be:
(i) termination of the purchase of the Aircraft
under the Agreement for any reason;
(ii) payment by Buyer of the Deposit with
respect to an Option Aircraft pursuant to paragraph 4.1
herein;
(iii) exercise of an option to purchase an Option Aircraft pursuant
to the terms hereof. Any termination of an option to purchase by Boeing which
is based on the termination of the purchase of Aircraft under the Agreement
will be on a one-for-one basis, for each Aircraft so terminated.
Any cancellation of an option to purchase which is based on failure to make the
required Deposit or to exercise the option to purchase shall only apply to the
Option Aircraft so canceled.
Termination of an option to purchase provided by this letter agreement will be
caused by either party giving written notice to the other within 10 days after
the applicable date. Upon receipt of such notice, all rights and obligations of
the parties with respect to an Option Aircraft for which the option to purchase
has been terminate will thereupon terminate.
If termination is result of a revision of an option exercise date by Boeing
pursuant to paragraph 5.2, Boeing will promptly refund to Buyer, without
interest, any payments received from Buyer, including the Deposit, with respect
to the Option Aircraft for which the option is terminated. If termination is
for any other reason, Boeing will promptly refund to Buyer, without interest,
any payments received from Buyer with respect to the affected Option Aircraft,
except the Deposit, which Buyer may apply to any model Boeing aircraft
purchased by Buyer from Boeing at a future date.
<PAGE> 49
Southwest Airlines Co.
6-1162-RLL-933R1 Page 8
8. Confidential Treatment. Buyer understands that certain commercial and
financial information contained in this Letter Agreement including any
attachments hereto is considered by Boeing as confidential. Buyer agrees that
it will treat this Letter Agreement and the information contained herein as
confidential and will not, without the prior written consent of Boeing,
disclose this Letter Agreement or any information contained herein to any other
person or entity except as provided in Letter Agreement No. 6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-----------------------------
Its Attorney-in-Fact
-----------------------------
ACCEPTED AND AGREED TO this
date: February 26, 1997
-----------------
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-----------------------------
Its EVP-COO
-----------------------------
Attachments
<PAGE> 50
Attachment A to
6-1162-RLL-933R1
Page 1
Model 737-7H4 Aircraft
1. Option Aircraft Description and Changes.
1.1 Aircraft Description. The Option Aircraft is described by
Boeing Detail Specification D6-38808-1, Dated October 30 ,1996.
1.2 Changes. The Detail Specification will be revised to include:
(1) Changes applicable to the basic Model 737-700 aircraft
which are developed by Boeing between the date of the Detail Specification and
the signing of a definitive agreement to purchase the Option Aircraft.
(2) Changes mutually agreed upon.
(3) Changes required to obtain a Standard Certificate of
Airworthiness.
(4) To provide sufficient Option Aircraft manufacturing and
procurement lead time it is necessary for Boeing and Buyer to reach final
agreement on the Option Aircraft configuration, including BFE/SPE vendor
selection fifteen (15) months prior to delivery of each Option Aircraft. If
such items are not resolved by the indicated dates, Boeing reserves the right
to amend this letter agreement:
(i) to adjust the scheduled delivery of the Option
Aircraft to a later time period and,
(ii) to make such other changes as are appropriate and
consistent with the revised Option Aircraft deliveries.
1.3 Effect of Changes. Changes to the Detail Specification
incorporated pursuant to the provisions of the clauses above will include the
effects of such changes upon Option Aircraft weight, balance, design and
performance. Performance guarantees for the Option Aircraft which are mutually
acceptable to the parties will be included in the definitive agreement for the
Option Aircraft.
<PAGE> 51
Attachment A to
6-1162-RLL-933R1
Page 2
2. Price Description
2.1 Price Elements Per Aircraft
<TABLE>
<CAPTION>
1 2 3
AIRCRAFT & ADV. PMT.
AIRCRAFT ESTIMATED SPECIAL BASE PRICE
DELIVERY FEATURES PRICE ESTIMATED (ELEMENTS)
MO. & YR. (JULY 1992$) ESCALATION 1 + 2 + 3
- - --------- ------------ ---------- ---------
<S> <C> <C> <C>
October 1998 *** *** ***
November 1998
December 1998
March 1999
June 1999
August 1999
September 1999
October 1999
April 2000
October 2000
April 2001
October 2001
January 2002
March 2002
April 2002
July 2002
October 2002
January 2003
March 2003
April 2003
July 2003
October 2003
April 2004
July 2004
</TABLE>
<PAGE> 52
Attachment A to
6-1162-RLL-933R1
Page 3
2. Price Description. (Continued)
2.2 Price Adjustments For Option Aircraft
Delivering From October 1998 to October 2001.
2.2.1 Special Features. The price for Special Features
incorporated in the Option Aircraft Detail Specification will be adjusted to
Boeing's then-current prices for such features as of the date of execution of
the definitive agreement for the Option Aircraft.
2.2.2 Escalation Adjustments. For Option Aircraft delivering
from October 1998 to October 2001, the Aircraft Basic Price and Special
Features price will be escalated according to the provisions of Attachment B to
this letter agreement.
2.2.3 Price Adjustments for Changes. Boeing may adjust the
Aircraft Basic Price and the Advance Payment Base Price for any changes mutually
agreed upon subsequent to the date that Buyer and Boeing enter into a definitive
agreement for the Option Aircraft.
2.2.4 Base Price Adjustments. The Aircraft Basic Price of the
Option Aircraft will be adjusted for any FAA mandated changes incorporated into
the Option Aircraft.
2.3 Price Adjustments For Option Aircraft Delivering From January 2002
through December 2006.
2.3.1 Special Features. The price for Special Features
incorporated in the Option Aircraft Detail Specification will be adjusted to
Boeing's then-current prices for such features as of the date of execution of
the definitive agreement for the Option Aircraft.
2.3.2 Escalation Adjustments. For escalation provisions
applicable to Option Aircraft delivering after 2001, see paragraph 2.3.6 below.
2.3.3 Base Price Adjustments for FAA Changes. The Aircraft
Basic Price of the Option Aircraft will be adjusted for any FAA mandated changes
incorporated into the Aircraft.
2.3.4 Price Adjustments for Changes. Boeing may adjust the
Aircraft Basic Price and the Advance Payment Base Price for any changes mutually
agreed upon subsequent
<PAGE> 53
Attachment A to
6-1162-RLL-933R1
Page 4
to the date that Buyer and Boeing enter into a definitive agreement for the
Option Aircraft.
2.3.5 Base Price Adjustments. The Aircraft Basic Price of the
Option Aircraft will be adjusted to Boeing's then-current prices as of the date
of execution of the definitive agreement for the Option Aircraft in accordance
with the agreement reached below. The Aircraft Basic Price starting point for
options delivering from January 2002 through December 2006 is $*** (July 1992
STE). Such Aircraft Basic Price may increase in accordance with paragraphs
2.3.1, 2.3.2, 2.3.3 and 2.3.4. For any other changes to the Aircraft Basic
Price, Boeing may increase the Aircraft Basic Price by a maximum of $*** (July
1992 STE) per year or portion thereof starting in January 2002.
2.3.6 Prices for Long Lead Time Aircraft. Boeing has not
established escalation provisions for Model 737-700 aircraft for delivery 2002
and after. Such escalation provisions (i) will be incorporated into the Option
Aircraft definitive agreement when such information is available and (ii) will
be the then-current escalation provisions applicable to the same model aircraft
and engines delivering in the same time period as the Option Aircraft. The
resulting revisions to the definitive agreement will include but not be limited
to, adjustment of the Aircraft Basic Price of the Option Aircraft, the Advance
Payment Base Price, the Aircraft escalation provisions and the advance payment
amounts due on the Option Aircraft.
2.3.7 BFE to SPE. An estimate of the total price for items of
Buyer Furnished Equipment (BFE) changed to Seller Purchased Equipment (SPE)
pursuant to the Configuration Specification is included in the Option Aircraft
price build-up. The purchase price of the Option Aircraft will be adjusted by
the price charged to Boeing for such items plus 10% of such price. If all BFE
except developmental avionics is converted to SPE, Boeing will waive the 10%
fee.
3. Advance Payment Schedules, Prices and Adjustments.
3.1 Buyer will pay to Boeing advance payments for the Option Aircraft
on the dates and in the amounts determined below.
<PAGE> 54
Attachment A to
6-1162-RLL-933R1
Page 5
Amount Due per Aircraft
(Percentage times
Due Date of Payment Advance Payment Base Price)
Deposit $100,000 (if applicable)
18 months prior to the first 15% (less the
day of the scheduled delivery Deposit if any)
month of the Aircraft
12 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
9 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
6 months prior to the first 5%
day of the scheduled delivery
month of the Aircraft
Total 30%
Any advance payments that would be past due as of the date of signing the
definitive purchase agreement for the Option Aircraft in accordance with the
above schedule are due and payable on such date.
3.2 Option Aircraft advance payment base prices will be increased
or decreased, as appropriate, at the time of signing of the definitive purchase
agreement for the Option Aircraft, using the then-current forecasted aircraft
escalation factors used by Boeing, to determine the amount of the advance
payments to be made by Buyer on the Option Aircraft.
<PAGE> 55
Attachment B to
6-1162-RLL-933R1
Page 1
PRICE ADJUSTMENT DUE TO
ECONOMIC FLUCTUATIONS
AIRCRAFT PRICE ADJUSTMENT
(July 1992 Base Price)
1. Formula.
The Aircraft Price Adjustment will be determined at the time of
Aircraft delivery in accordance with the following formula:
Pa = (P)(L + M - 1)
Where:
Pa = Aircraft Price Adjustment.
L = .65 x ECI
116.2
M = .35 x ICI
115.9
P = Aircraft Basic Price (as set forth in
Article 3.2 of this Agreement).
ECI = A value using the "Employment Cost Index for
workers in aerospace manufacturing" (aircraft
manufacturing, standard industrial classification code
3721, compensation, base month and year June 1989 = 100),
as released by the Bureau of Labor Statistics, U.S.
Department of Labor on a quarterly basis for the months
of March, June, September and December, calculated as
follows: A three-month arithmetic average value
(expressed as a decimal and rounded to the nearest tenth)
will be determined using the months set forth in the
table below for the applicable Aircraft, with the
released Employment Cost Index value described above for
the month of March also being used for the months of
January and February; the value for June also used for
April and May; the value for September also used for July
and August; and the value for December also used for
October and November.
<PAGE> 56
Attachment B to
6-1162-RLL-933R1
Page 2
ICI = The three-month arithmetic average of the released monthly
values for the Industrial Commodities Index as set forth in the
"Producer Prices and Price Index" (Base Year 1982 = 100) as
released by the Bureau of Labor Statistics, U.S. Department of
Labor values (expressed as a decimal and rounded to the nearest
tenth) for the months set forth in the table below for the
applicable Aircraft.
In determining the value of L, the ratio of ECI divided by 116.2
will be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .65 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
In determining the value of M, the ratio of ICI divided by 115.9
will be expressed as a decimal rounded to the nearest ten-thousandth and then
multiplied by .35 with the resulting value also expressed as a decimal and
rounded to the nearest ten-thousandth.
<TABLE>
<CAPTION>
Months to be Utilized
Month of Scheduled in Determining the
Aircraft Delivery Value of ECI and ICI
- - ----------------- --------------------
<S> <C>
January June B, July B, Aug. B
February July B, Aug. B, Sept. B
March Aug. B, Sept. B, Oct. B
April Sept. B, Oct. B, Nov. B
May Oct. B, Nov. B, Dec. B
June Nov. B, Dec. B, Jan. D
July Dec. B, Jan. D, Feb. D
August Jan. D, Feb. D, Mar. D
September Feb. D, Mar. D, Apr. D
October Mar. D, Apr. D, May D
November Apr. D, May D, June D
December May D, June D, July D
</TABLE>
The following definitions of B and D will apply:
B = The calendar year before the year in which the scheduled month
of delivery as set forth in Paragraph 1 occurs.
D = The calendar year during which the scheduled month of delivery
as set forth in Paragraph 1 occurs.
<PAGE> 57
Attachment B to
6-1162-RLL-933R1
Page 3
2. If at the time of delivery of an Aircraft Boeing is unable to determine
the Aircraft Price Adjustment because the applicable values to be used to
determine the ECI and ICI have not been released by the Bureau of Labor
Statistics, then:
2.1 The Aircraft Price Adjustment, to be used at the time of
delivery of each of the Aircraft, will be determined by utilizing the
escalation provisions set forth above. The values released by the Bureau of
Labor Statistics and available to Boeing 30 days prior to scheduled Aircraft
delivery will be used to determine the ECI and ICI values for the applicable
months (including those noted as preliminary by the Bureau of Labor Statistics)
to calculate the Aircraft Price Adjustment. If no values have been released for
an applicable month, the provisions set forth in Paragraph 2.2 below will
apply. If prior to delivery of an Aircraft the U.S. Department of Labor changes
the base year for determination of the ECI or ICI values as defined above, such
rebased values will be incorporated in the Aircraft Price Adjustment
calculation. The payment by Buyer to Boeing of the amount of the Purchase Price
for such Aircraft, as determined at the time of Aircraft delivery, will be
deemed to be the payment for such Aircraft required at the delivery thereof.
2.2 If prior to delivery of an Aircraft the U.S. Department of
Labor substantially revises the methodology used for the determination of the
values to be used to determine the ECI and ICI values (in contrast to benchmark
adjustments or other corrections of previously released values), or for any
reason has not released values needed to determine the applicable Aircraft
Price Adjustment, the parties will, prior to delivery of any such Aircraft,
select a substitute for such values from data published by the Bureau of Labor
Statistics or other similar data reported by non-governmental United States
organizations, such substitute to lead in application to the same adjustment
result, insofar as possible, as would have been achieved by continuing the use
of the original values as they may have fluctuated during the applicable time
period. Appropriate revision of the formula will be made as required to reflect
any substitute values. However, if within 24 months from delivery of the
Aircraft the Bureau of Labor Statistics should resume releasing values for the
months needed to determine the Aircraft Price Adjustment, such values will be
used to determine any increase or decrease in the Aircraft
<PAGE> 58
Attachment B to
6-1162-RLL-933R1
Page 4
Price Adjustment for the Aircraft from that determined at the time of delivery
of such Aircraft.
2.3 In the event escalation provisions are made non-enforceable
or otherwise rendered null and void by any agency of the United States
Government, the parties agree, to the extent they may lawfully do so, to
equitably adjust the Purchase Price of any affected Aircraft to reflect an
allowance for increases or decreases in labor compensation and material costs
occurring since February, 1992, which is consistent with the applicable
provisions of paragraph 1 of this Exhibit D.
3. For the calculations herein, the values released by the Bureau of
Labor Statistics and available to Boeing 30 days prior to scheduled Aircraft
delivery will be used to determine the ECI and ICI values for the applicable
months (including those noted as preliminary by the Bureau of Labor Statistics)
to calculate the Aircraft Price Adjustment.
Note: Any rounding of a number, as required under this Exhibit D with respect
to escalation of the airframe price, will be accomplished as follows: if
the first digit of the portion to be dropped from the number to be
rounded is five or greater, the preceding digit will be raised to the
next higher number.
<PAGE> 59
6-1162-RLL-934R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-934R1 to
Purchase Agreement No. 1810 -
Disclosure of Confidential Information
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 aircraft (the Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Buyer understands that certain commercial and financial information
contained in the documents listed below (Confidential Documents) is considered
by Boeing as confidential.
2. Buyer agrees that it will treat the Confidential Documents and the
information contained therein as confidential and will not, without the prior
written consent of Boeing, disclose such Confidential Documents or any
information contained therein to any other person or entity except as may be
required by (i) applicable law or governmental regulations, or (ii) for
financing the Aircraft in accordance with the provisions of Article 10 of the
Agreement.
3. In connection with any such disclosure or filing of the Confidential
Documents, or the information contained therein pursuant to any such applicable
law or governmental regulation, Buyer will request and use its best reasonable
efforts to obtain confidential treatment of such Confidential Documents and the
information contained therein. Boeing agrees to cooperate with Buyer in making
and supporting its request for confidential treatment.
Schedule of Confidential Documents
----------------------------------
1. Letter Agreement No. 6-1162-RLL-932
2. Letter Agreement No. 6-1162-RLL-933R1
3. Letter Agreement No. 6-1162-RLL-934R1
4. Letter Agreement No. 6-1162-RLL-935R1
5. Letter Agreement No. 6-1162-RLL-936R1
6. Letter Agreement No. 6-1162-RLL-937
7. Letter Agreement No. 6-1162-RLL-938
<PAGE> 60
Southwest Airlines Co.
6-1162-RLL-934R1 Page 2
8. Letter Agreement No. 6-1162-RLL-939R1
9. Letter Agreement No. 6-1162-RLL-940R1
10. Letter Agreement No. 6-1162-RLL-941R1
11. Letter Agreement No. 6-1162-RLL-942
12. Letter Agreement No. 6-1162-RLL-943
13. Letter Agreement No. 6-1162-RLL-944
14. Letter Agreement No. 6-1162-RLL-945
15. Letter Agreement No. 6-1162-RLL-1855
16. Letter Agreement No. 6-1162-RLL-1856
17. Letter Agreement No. 6-1162-RLL-1857
18. Letter Agreement No. 6-1162-RLL-1858
19. Letter Agreement No. 6-1162-RLL-2036
20. Letter Agreement No. 6-1162-RLL-2037
21. Letter Agreement No. 6-1162-RLL-2073
4. Confidential Treatment.
Buyer understands that certain commercial and financial
information contained in this Letter Agreement is considered by Boeing as
confidential. Buyer agrees that it will treat this Letter Agreement and the
information contained herein as confidential and will not, without the prior
written consent of Boeing, disclose this Letter Agreement.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
---------------------------
Its Attorney-in-Fact
--------------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
---------------------------
Its EVP-COO
--------------------------
<PAGE> 61
6-1162-RLL-935R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-935R1 to
Purchase Agreement No. 1810 -0
***
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to the Model 737-7H4 aircraft (the Aircraft).
All terms used herein and in the Agreement, and not defined herein will have
the same meaning as in the Agreement.
***
3. Confidential Treatment. Buyer understands that certain commercial and
financial information contained in this Letter Agreement including any
attachments hereto is considered by Boeing as confidential. Buyer agrees that
it will treat this Letter Agreement and the information contained herein as
confidential and will not, without the prior written consent of Boeing,
disclose this Letter Agreement or any information contained herein to any other
person or entity except as provided in Letter Agreement No. 6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
-------------------------
<PAGE> 62
Southwest Airlines Co.
6-1162-RLL-935R1 Page 2
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
-------------------------
Attachment
***
<PAGE> 63
6-1162-RLL-936R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-936R1 to
Purchase Agreement No. 1810 -
Certain Contractual Matters
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 aircraft (the Aircraft) and Letter Agreement
6-1162-RLL-933R1, dated even date herewith, entitled "Option Aircraft",
relating to the sale by Boeing and the purchase by Buyer of sixty-seven (67)
additional Model 737-7H4 aircraft (the Option Aircraft) and forty-nine (49)
Model 737-7H4 Rollover Option Aircraft (Rollover Option Aircraft).
The commitments made herein to Buyer are provided from
Boeing and CFM International Inc. (CFM).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Credit Memorandum - Aircraft - Firm Aircraft.
In consideration of Buyer's purchase of the Aircraft, Boeing will
issue to Buyer at the time of delivery of each Aircraft a credit memorandum
which may be used by Buyer for the purchase of Boeing goods and services or
applied to the final delivery payment for the Aircraft for which the credit was
issued. The amount of this credit memorandum applicable to each Aircraft will
be *** of the Aircraft Basic Price (July 1992 STE $) ***.
2. Credit Memorandum - Aircraft - Option Aircraft and
Rollover Option Aircraft.
In consideration of Buyer's purchase of the Option Aircraft and
Rollover Option Aircraft, Boeing will issue to Buyer at the time of delivery of
each Option Aircraft and Rollover Option Aircraft a credit memorandum which may
be used by Buyer for the purchase of Boeing goods and services or applied to
the final delivery payment for the Option Aircraft or Rollover Option Aircraft
for which the credit was issued. The amount of the credit memorandum applicable
to each Aircraft will be *** of the Aircraft Basic Price (July 1992 STE $) ***.
<PAGE> 64
Southwest Airlines Co.
6-1162-RLL-935R1 Page 2
3. Simulation Data Credits.
If Buyer purchases one subsequent simulator data package for a price
of $*** dollars (July 1992 STE $), Boeing will issue offsetting credit
memoranda in amounts equal to Boeing's invoice price of such simulator data
concurrent with the issuance of such invoice. If Buyer purchases one concurrent
simulator data package for a price of $***, Boeing will issue an offsetting
credit memorandum in an amount equel to Boeing's invoice price of such
simulator data package concurrent with the issuance of such invoice. Buyer
understands that the concurrent data package price of $*** (July 1992 STE $) is
valid only if the second simulator is manufactured by the same simulator
manufacturer as the subsequent simulator and the concurrent simulator is
ordered within eight years of the signing of the Agreement.
4. Credits.
The Aircraft Basic Price for Buyer's 737-7H4 Aircraft does not include
a price for Dual Flight Management Computer and Five Channel SELCAL. These two
features will be installed in the Aircraft but deactivated. If Buyer decides at
anytime (whether before or after delivery) to activate this capability, Buyer
will pay Boeing an amount equal to *** (July 1992 STE $) escalated to the month
and year of delivery of that Aircraft in accordance with the aircraft
escalation formula (Exhibit D - Aircraft Price Adjustment) for this installed
capability. If Buyer sells or leases the Aircraft for operation by a third
party and the features are subsequently activated, Buyer will pay or cause the
subsequent buyer or lessee to pay the above described activation charge to
Boeing.
5. Maximum Takeoff Weight Credit Memoranda.
Buyer has purchased a Maximum Takeoff Weight of 138,500 pounds for the
Aircraft. Boeing will, at the time of Aircraft delivery, issue to Buyer a
credit memoranda in the amount of $*** (July 1992 STE $), *** to offset the
price for 500 pounds of Maximum Takeoff Weight.
6. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any
<PAGE> 65
Southwest Airlines Co.
6-1162-RLL-936R1 Page 3
information contained herein to any other person or entity, except as provided
in Letter Agreement 6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
-----------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 66
6-1162-RLL-939R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-939R1 to
Purchase Agreement No. 1810 -
***
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 Aircraft (the Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
***
11. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
------------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 67
6-1162-RLL-940R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-940R1 to
Purchase Agreement No. 1810 -
***
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 aircraft (the Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
***
7. Flight Crew Computer Based Training.
7.1 See Exhibit C, Part C, Paragraph 4.1 of the Purchase Agreement,
Computer Based Training.
7.2 Recognizing that CBT authoring technologies will continue to
change, Boeing agrees to hold discussions with Buyer to develop a mutually
agreeable solution by January 1, 1996. The CBT program will contain 100 percent
CBT coverage and support on airline Advanced Qualification Program Applicable.
***
10. Delivery of Flight Manual and Operations Manual.
Buyer has a requirement to receive its initial flight and operations
manual earlier than on the actual delivery day of Buyer's first Aircraft.
Boeing will provide an advanced representative copy of the flight and
operations manual on or before August 15, 1997. Boeing will provide the FAA
approved flight manual and operations manual to Buyer immediately after the FAA
approves the flight manual.
<PAGE> 68
Southwest Airlines Co.
6-1162-RLL-940R1 Page 2
11. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
------------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 69
6-1162-RLL-941R1
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-941R1 to
Purchase Agreement No. 1810 -
Other Matters
This Letter Agreement amends Purchase Agreement No. 1810 dated January 19, 1994
(the Agreement) between The Boeing Company (Boeing) and Southwest Airlines Co.
(Buyer) relating to Model 737-7H4 Aircraft (the Aircraft) and to Letter
Agreement No. 6-1162-RLL-933 dated even date herewith, entitled "Option
Aircraft," relating to the sale by Boeing and purchase by Buyer of sixty-seven
(67) additional Model 737-7H4 aircraft (the Option Aircraft) and forty-nine
(49) Model 737-7H4 Rollover Option Aircraft (Rollover Option Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Delivery Delay.
Notwithstanding the language set forth in Article 2.3 "Notice of
Delivery Date," if Buyer requests a delivery delay for any Aircraft within the
contract delivery month, Buyer shall not be charged for costs of the first ten
(10) days of such delay.
2. Purchase Price - Excusable Delay/Destroyed Aircraft.
2.1. If the Article 2.1 delivery month for any Aircraft is delayed
because of an excusable delay under Article 6.1, Boeing agrees that the
Aircraft Price shall be determined as if the delayed Aircraft had been
delivered during the original Article 2.1 delivery month.
2.2. In the event any Aircraft is destroyed and Boeing offers Buyer a
replacement Aircraft under Article 6.3, Boeing agrees that the Aircraft Price
shall be determined as if the replacement aircraft had been delivered during
the original Article 2.1 delivery month of the destroyed Aircraft.
<PAGE> 70
Southwest Airlines Co.
6-1162-RLL-941R1 Page 2
3. Advance Payment - Repayment.
***
4. Confidential Treatment.
Buyer understands that certain commercial and financial information
contained in this Letter Agreement is considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
-----------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
-----------------------
<PAGE> 71
6-1162-RLL-1855
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-1855 to
Purchase Agreement No. 1810
Additional Contractual Matters
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the sale by Boeing and the purchase by Buyer of sixty-three (63) Model
737-7H4 aircraft (the Aircraft) and Letter Agreement 6-1162-RLL-933R1, dated
even date herewith, entitled "Option Aircraft", relating to the sale by Boeing
and the purchase by Buyer of sixty-seven (67) additional Model 737- 7H4
aircraft (the Option Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
***
3. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
<PAGE> 72
Southwest Airlines Co.
6-1162-RLL-1855 Page 2
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
------------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 73
6-1162-RLL-1856
Southwest Airlines Co.
P.O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-1856 to
Purchase Agreement No. 1810 -
***
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the Model 737-7H4 aircraft (the Aircraft).
All terms used herein and in the Agreement, and not defined herein will have
the same meaning as in the Agreement.
***
2. Confidential Treatment.
Buyer understands that certain commercial and financial information contained
in this Letter Agreement and attachment(s) hereto are considered by Boeing as
confidential. Buyer agrees that it will treat this Letter Agreement and the
information contained herein as confidential and will not, without the prior
written consent of Boeing, disclose this Letter Agreement or any information
contained herein to any other person or entity, except as provided in Letter
Agreement No. 6-1162-RLL- 934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
------------------------
<PAGE> 74
Southwest Airlines Co.
6-1162-RLL-1856
Page 2
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 75
6-1162-RLL-1857
Southwest Airlines Co.
P. O. Box 36611 - Love Field
Dallas, Texas 75235
Subject: Letter Agreement No. 6-1162-RLL-1857 to
Purchase Agreement No. 1810 -
***
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the sale by Boeing and the purchase by Buyer of sixty-three (63) Model
737-7H4 aircraft (the Aircraft).
All terms used herein and in the Purchase Agreement, and not defined herein,
shall have the same meanings as in the Purchase Agreement.
12. Confidentiality
12.1 In accordance with Letter Agreement No. 6-1162- RLL-934R1, the
terms and conditions of this Letter Agreement are and will remain strictly
confidential between Boeing and Buyer and will not under any circumstances be
disclosed by either party to any third party (except, as reasonably necessary,
to its respective employees and professional advisers, and to Boeing's insurers
in connection with the insurance described in paragraph 11.3 above and to the
Federal Aviation Administration) without the prior written consent of the other
party, such consent not to be unreasonably withheld.
If the foregoing correctly sets forth your understanding of our agreement with
respect to the matters treated above, please indicate your acceptance and
approval below.
<PAGE> 76
Southwest Airlines Co.
6-1162-RLL-1857 Page 2
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
-----------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 77
6-1162-RLL-1858
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-1858 to
Purchase Agreement No. 1810
***
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the sale by Boeing and the purchase by Buyer of Model 737-7H4 aircraft (the
Aircraft) and Letter Agreement 6-1162-RLL-933R1, dated even date herewith,
entitled "Option Aircraft", relating to the sale by Boeing and the purchase by
Buyer of sixty-seven (67) additional Model 737-7H4 aircraft (the Option
Aircraft) and forty-nine (49) Model 737-7H4 Rollover Option Aircraft (Rollover
Option Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
***
5. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
------------------------
<PAGE> 78
Southwest Airlines Co.
6-1162-RLL-1858 Page 2
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
------------------------
<PAGE> 79
6-1162-RLL-2036
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-2036 to
Purchase Agreement No. 1810 ***
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the sale by Boeing and the purchase by Buyer of Model 737-7H4 aircraft (the
Aircraft) and Letter Agreement 6-1162-RLL-933R1, dated even date herewith,
entitled "Option Aircraft", relating to the sale by Boeing and the purchase by
Buyer of sixty-seven (67) additional Model 737-7H4 aircraft (the Option
Aircraft) and forty-nine (49) Model 737-7H4 Rollover Option Aircraft (Rollover
Option Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
***
2. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
-------------------------
Its Attorney-in-Fact
------------------------
<PAGE> 80
Southwest Airlines Co.
6-1162-RLL-2036 Page 4
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
-------------------------
Its EVP-COO
-----------------------
Attachment
<PAGE> 81
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 1
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
0000DC3182 NC NC
MISCELLANEOUS DEVELOPEMENT CHANGES
STATUS: ACCEPT
0110CG3018 IB IB
737-700 CONFIGURATION
STATUS: ACCEPT
0160MS3171 NC NC
AIRPLANE IDENTIFICATION NUMBERS - SERIAL,
REGISTRY, MODE S, FLIGHT RECORDER ID
STATUS: ACCEPT
0310CH3332 $*** $***
INCREASE CERTIFIED MAXIMUM TAKEOFF WEIGHT -
138,500 IN LIEU OF 133,000
STATUS: ACCEPT
0352CG3023 NC NC
AIRPLANE LOADING SYSTEM FOR WEIGHT AND
BALANCE CONTROL
STATUS: ACCEPT
0370CH3014 $*** NC
AIR CONDITIONING TRANSITION DUCT UNDER
FLOOR - ADD 17 MIL DAMPING TAPE FOR NOISE
REDUCTION
STATUS: ACCEPT
0370CH3019 $*** $***
INSTALLATION OF STRINGER DAMPING FROM
STATION 540-727
STATUS: ACCEPT
1110CH3003 NC NC
CROWN METRO EXTERIOR PAINT - BMS 10-72 TYPE
VI SYSTEM
STATUS: ACCEPT
1110MP3290 NC NC
EXTERIOR DECORATIVE FINISH - DESOTO SERIES
420 HIGH SOLID TOPCOAT IN LIEU OF EXISTING
TOPCOAT
STATUS: ACCEPT
2123CH3042 $*** $***
AIR CONDITIONING SYSTEM REVISION - 737-200
TYPE GASPER SYSTEM
STATUS: ACCEPT
2160CG3011 NC NC
CABIN TEMPERATURE INDICATOR - DEGREES
FAHRENHEIT IN LIEU OF CELSIUS
STATUS: ACCEPT
</TABLE>
<PAGE> 82
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 2
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
2210CG3204 $*** $***
DIGITAL FLIGHT CONTROL SYSTEM (DFCS) -
PADDLE AUTOPILOT ENGAGE MODE CONTROL PANEL
STATUS: ACCEPT
2210MP3227 NC NC
DIGITAL FLIGHT CONTROL SYSTEM (DFCS) -
PUSH-BUTTON AUTOPILOT ENGAGE IN LIEU OF
PADDLE
STATUS: ACCEPT
2230CH3028 NC NC
AUTOTHROTTLE DEACTIVATION - UNIT TO REMAIN
INSTALLED AND BITE FEATURES OPERATIONAL
STATUS: ACCEPT
2312CH3284 NC NC
DUAL VHF COMMUNICATIONS - INSTALLATION -
BFE ALLIEDSIGNAL/GABLES ENGINEERING INC
STATUS: ACCEPT
2319CH3020 $*** $***
CLAIRCOM AIR TO GROUND PASSENGER
COMMUNICATION SYSTEM - COMPLETE BFE
INSTALLATION PROVISIONS
STATUS: ACCEPT
2319MP3021 $*** $***
CLAIRCOM PHONES - CANCEL INSTALLATION
INTENDED FROM 2319CH3020
STATUS: ACCEPT
2320CH3020 $*** $***
ATSCALL INSTALLATION - PARTIAL PROVISIONS -
AFT ELECTRONICS PANEL
STATUS: ACCEPT
2321CH3498 $*** $***
SELECTIVE CALLING EQUIPMENT - SELCAL -
DELETE PARTIAL PROVISIONS
STATUS: ACCEPT
2331CH3158 NC NC
DELETION OF BFE MATSUSHITA PASSENGER
ADDRESS TAPE REPRODUCER
STATUS: ACCEPT
2331CH3159 NC NC
PASSENGER ADDRESS SYSTEM - COLLINS ARINC
700 IN LIEU OF COLLINS ARINC 560
STATUS: ACCEPT
</TABLE>
<PAGE> 83
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 3
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
2334SP3210 NC NC
PASSENGER ENTERTAINMENT SYSTEM (AUDIO) -
DELETE SPACE PROVISIONS
STATUS: ACCEPT
2340MP3095 NC NC
BFE BOOM MICROPHONE/HEADSET REVISION
STATUS: ACCEPT
2342MP3011 NC NC
FLIGHT ATTENDANT HANDSET - REVISION TO
FUNCTION AND FACEPLATE
STATUS: ACCEPT
2350CH3139 NC NC
PA MICROPHONE - ADD ELECTROVOICE P/N
602-4183
STATUS: ACCEPT
2350CH3162 NC NC
DTMF MICROPHONE INSTALLATION - FIRST
OBSERVER
STATUS: ACCEPT
2350CH3163 NC NC
DIGITAL AUDIO REMOTE ELECTRONICS UNIT
REVISION TO DELETE HEADSET AURAL ALERTS
STATUS: ACCEPT
2350MP3220 NC NC
DIGITAL AUDIO REMOTE ELECTRONICS UNIT
REVISION - ADD PREDICTIVE WINDSHEAR WITHOUT
HEADSET AURAL ALERTS - 737-700
STATUS: ACCEPT
2370CG3166 NC NC
SOLID STATE VOICE RECORDER - INSTALLATION -
BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
2500CH3453 NC NC
DOOR WARNING STRAP - SHOCK CORD
STATUS: ACCEPT
2501CH3076 NC NC
FORWARD MODULE WITH GALLEY G1 AND LAVATORY
LA
STATUS: ACCEPT
2501MP3080 NC NC
REVISE FORWARD MODULE WITH GALLEY G1 AND
LAVATORY LA FROM SEAT TRACK MOUNT TO
HARDPOINT
STATUS: ACCEPT
</TABLE>
<PAGE> 84
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 4
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
2502CH3066 NC NC
AFT MODULE WITH GALLEY G3, G4 AND LAVATORY
LB
STATUS: ACCEPT
2502MP3069 NC NC
REVISE MODULE WITH GALLEY G3, G4 AND
LAVATORY LB TO HARPOINT IN LIEU OF SEAT
TRACK MOUNT
STATUS: ACCEPT
2510CH3058 NC NC
FLIGHT COMPARTMENT - MISCELLANEOUS
REVISIONS
STATUS: ACCEPT
2510CH3059 NC NC
TRIP COUNTER REVISION - SFE - DEXTER WILSON
STATUS: ACCEPT
2510CH3060 NC NC
CONTROL COLUMN CHECKLIST DELETION
STATUS: ACCEPT
2511CG3057 $*** $***
SECOND OBSERVER'S STATION
STATUS: ACCEPT
2511CH3059 NC NC
LOG BOOK POCKET INSTALLATION - ON SECOND
OBSERVERS SEAT LEGS
STATUS: ACCEPT
2520CH3538 $*** $****
INTERIOR ARRANGEMENT - 137 TOURIST CLASS AT
33/32" PITCH WITH LAVS LA AND LB AND
GALLEYS G1, G3 AND G4
STATUS: ACCEPT
2520MP3667 NC NC
STOWAGE BIN REVISION - ADD BULLNOSE ON
INBOARD LOWER SURFACE
STATUS: ACCEPT
2523CH3109 NC NC
PSU REVISION - ADD PLACARD TO PASSENGER
VIEWING SURFACE IN LOUNGE AREAS ONLY
STATUS: ACCEPT
2523CH3112 NC NC
INSTALL NON STANDARD COLOR PSU
STATUS: ACCEPT
</TABLE>
<PAGE> 85
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 5
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
2523MP3119 NC NC
INTERIOR REVISION - PSU AND PARTITION
RELOCATION TO SUPPORT SEAT RE-PITCH
REQUIRED FOR 16G COMPLIANCE
STATUS: ACCEPT
2524CH3431 $*** $***
BFE FWD RIGHT HAND WINDSCREEN/STOWAGE UNIT
IN LIEU OF SFE
STATUS: ACCEPT
2524MP3488 NC NC
FULL HEIGHT BFE STOWAGE UNIT REVISION - ADD
BFE FLASHLIGHTS AND BFE LITERATURE POCKETS
STATUS: ACCEPT
2524MP3500 NC NC
PARTITION DECORATIVE COVERING REVISION -
ULTRALEATHER IN LIEU OF LEATHER
STATUS: ACCEPT
2524MP3513 NC NC
EMERGENCY EQUIPMENT BRACKET COMMONALITY -
SFE
STATUS: ACCEPT
2525MP3159 NC NC
PASSENGER SEAT REVISION - ALL FORWARD
FACING SEATS WITH 137 PAX
STATUS: ACCEPT
2528CH3189 $*** $***
SFE HALF HEIGHT STOWAGE UNIT/WINDSCREEN -
AFT LH CABIN WITH THE AFT FACE AT STATION
955 - WITH MEGAPHONE
STATUS: ACCEPT
2528CH3191 $*** $***
SFE FULL HEIGHT STOWAGE UNIT/WINDSCREEN -
FWD LH CABIN WITH THE AFT FACE AT STATION
355
STATUS: ACCEPT
2528CH3194 $*** $***
BFE HALF HEIGHT STOWAGE UNIT/WINDSCREEN -
AFT LH CABIN WITH THE AFT FACE AT STATION
955 - WITH MEGAPHONE
STATUS: ACCEPT
2528CH3195 $*** $***
BFE FULL HEIGHT STOWAGE UNIT/WINDSCREEN IN
LIEU OF SFE - FWD LH CABIN WITH THE AFT
FACE AT STATION 355
STATUS: ACCEPT
</TABLE>
<PAGE> 86
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 6
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
2528MP3217 NC NC
CREW LUGGAGE SECURITY DEVICE
STATUS: ACCEPT
2530MP3613 NC NC
G3 EXTERIOR DECORATIVE COVERING REVISION -
ULTRASUEDE IN LIEU OF LEATHER
STATUS: ACCEPT
2541CH3034 NC NC
LIQUID SOAP DISPENSER INSTALLATION
STATUS: ACCEPT
2550CH3153 NC NC
CARGO COMPARTMENT LINING REVISION
STATUS: ACCEPT
2550CH3233 NC NC
FWD AND AFT CARGO COMPARTMENT FLOOR PANEL
REVISION - ALUMINUM PANELS IN LIEU OF
CONOLITE AT ENTRYWAY
STATUS: ACCEPT
2550MP3259 NC NC
TRANSVERSE CARGO NET INSTALLATION - FORWARD
AND AFT CARGO COMPARTMENTS
STATUS: ACCEPT
2550MP3267 NC NC
FORWARD AND AFT CARGO COMPARTMENT CARGO
RESTRAINT SYSTEM
STATUS: ACCEPT
2622CH3013 NC NC
APU FIRE BOTTLE REVISION - INTERCHANGEABLE
WITH ENGINE BOTTLE
STATUS: ACCEPT
2841CG3095 NC NC
FUEL QUANTITY INDICATORS ON RIGHT WING
FUELING PANEL
STATUS: ACCEPT
2844CG3038 NC NC
MEASURING STICK CONVERSION TABLES TO U.S.
GALLONS
STATUS: ACCEPT
2910CH3082 NC NC
HYDRAULIC PUMPS - AC ELECTRIC MOTOR DRIVEN
- VICKERS IN LIEU OF ABEX
STATUS: ACCEPT
</TABLE>
<PAGE> 87
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 7
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
2910CG3087 $*** $***
ENGINE DRIVEN HYDRAULIC PUMP WITH VESPEL
SPLINE - VICKERS 10-62167-3 IN LIEU OF ABEX
10-62167-2
STATUS: ACCEPT
3040CH3041 NC NC
INSTALL A TWO LRU WINDOW HEAT CONTROL
SYSTEM - PED 1231-1 IN LIEU OF TBD
STATUS: ACCEPT
3040MP3049 NC NC
INSTALL A 4 UNIT WINDOW HEAT CONTROL SYSTEM
- OLIN 231-2 IN LIEU OF 1231-1
STATUS: ACCEPT
3040MP3053 $*** $***
INSTALL A BFE WINDOW HEAT CONTROL SYSTEM
WHICH CONTAINS BITE - OLIN 231-3 IN LIEU OF
231-2
STATUS: ACCEPT
3043MP3022 NC NC
WINDSHIELD WIPER SWITCH REVISION - SINGLE
SWITCH FOR BOTH WIPERS IN LIEU OF TWO
SWITCHES
STATUS: ACCEPT
3120CH3016 NC NC
CLOCK WIRING REVISION - FMC, DFDAU AND
VOICE RECORDER INPUT FROM FIRST OFFICER'S
CLOCK IN LIEU OF CAPTAIN'S CLOCK
STATUS: ACCEPT
3131CG3673 NC NC
ACCELEROMETER - INSTALLATION - BFE
ALLIEDSIGNAL INC
STATUS: ACCEPT
3131CG3692 NC NC
SOLID STATE DIGITAL FLIGHT DATA RECORDER -
INSTALLATION - BFE ALLIEDSIGNAL INC - 128
WPS
STATUS: ACCEPT
3131CH3721 NC NC
DIGITAL FLIGHT DATA ACQUISITION UNIT
(DFDAU) - INSTALLATION - BFE ALLIEDSIGNAL
STATUS: ACCEPT
3162CG3013 NC NC
EFIS/MAP DISPLAY FORMAT
STATUS: ACCEPT
</TABLE>
<PAGE> 88
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 8
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
3162CG3016 NC NC
FLIGHT DIRECTOR COMMAND DISPLAY - FILLED
INTEGRATED CUE
STATUS: ACCEPT
3162CG3017 NC NC
MACH AIRSPEED DISPLAY
STATUS: ACCEPT
3162CG3019 NC NC
RADIO ALTITUDE DISPLAY - ROUND DIAL
STATUS: ACCEPT
3162CG3020 NC NC
RADIO ALTITUDE - ABOVE ADI
STATUS: ACCEPT
3162CG3022 NC NC
RISING RUNWAY DISPLAY
STATUS: ACCEPT
3162CG3025 NC NC
RADIO ALTITUDE HEIGHT ALERT DISPLAY - 2500
FEET
STATUS: ACCEPT
3162CG3026 NC NC
ATTITUDE COMPARATOR - STEADY
STATUS: ACCEPT
3162CG3029 NC NC
LOCALIZER BACKCOURSE POLARITY - REVERSAL
STATUS: ACCEPT
3162CG3032 NC NC
MAP MODE ORIENTATION - TRACK UP
STATUS: ACCEPT
3162CG3038 NC NC
MANUALLY TUNED VOR SELECTED COURSE LINES -
DISPLAYED
STATUS: ACCEPT
3162CG3041 NC NC
ADF POINTER(S) IN MAP MODE - SUPPRESSED
STATUS: ACCEPT
3162CG3042 NC NC
POSITION DIFFERENCE - AUTOMATIC DISPLAY
STATUS: ACCEPT
3162CG3046 NC NC
WEATHER RADAR MODE/GAIN/TILT ANGLE -
DISPLAYED
STATUS: ACCEPT
</TABLE>
<PAGE> 89
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 9
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
3162CG3050 NC NC
TCAS TRAFFIC ON MAP
STATUS: ACCEPT
3162CG3052 NC NC
TCAS RESOLUTION ADVISORY ON ADI
STATUS: ACCEPT
3162CG3053 NC NC
TCAS RESOLUTION ADVISORY ON IVSI
STATUS: ACCEPT
3162CG3057 NC NC
ANALOG FAILURE FLAGS - DISPLAYED
STATUS: ACCEPT
3162CH3066 NC NC
MACH AIRSPEED INDICATOR BUG #5 - 80 KNOTS
STATUS: ACCEPT
3162CH3068 NC NC
SUPPLEMENTAL METRIC DATA INDICATIONS -
DEACTIVATION
STATUS: ACCEPT
3162CH3075 NC NC
EFIS CONTROL PANEL - EFIS/MAP DISPLAY
FORMAT
STATUS: ACCEPT
3162MP3128 NC NC
ANALOG FAILURE FLAG - DELETE
STATUS: ACCEPT
3162MP3129 NC NC
SUPPLEMENTAL METRIC DATA INDICATIONS -
ACTIVATION
STATUS: ACCEPT
3162MP3131 NC NC
ENHANCED MACH AIRSPEED DISPLAY
STATUS: ACCEPT
3162MP3132 NC NC
WEATHER RADAR RANGE INDICATORS - RANGE
MARKS
STATUS: ACCEPT
3240CH3220 NC NC
NOSE LANDING GEAR WHEELS - BENDIX
STATUS: ACCEPT
</TABLE>
<PAGE> 90
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 10
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
3240CH3221 NC NC
MAIN LANDING GEAR WHEELS AND BRAKES -
BENDIX
STATUS: ACCEPT
3240MP3258 NC NC
NOSE LANDING GEAR - INSTALL 737-300
ALLIEDSIGNAL WHEEL IN LIEU OF EXISTING
STATUS: ACCEPT
3245CH3029 NC NC
TIRES - INSTALLATION OF SFE GOODYEAR TIRES
STATUS: ACCEPT
3324CH3010 NC NC
CEILING MOUNTED LIGHTED EXIT SIGN -
RELOCATION
STATUS: ACCEPT
3343CH3034 NC NC
ANTI-COLLISION LIGHT - SWITCH NOMENCLATURE
REVISION
STATUS: ACCEPT
3345CH3020 NC NC
LOGO LIGHTS - SYSTEM DEACTIVATION
STATUS: ACCEPT
3345MP3029 NC NC
REACTIVATION OF LOGO LIGHT SYSTEM
STATUS: ACCEPT
3350MP3079 NC NC
EGRESS LIGHTING REVISION TO ACCOMMODATE ALL
FORWARD FACING SEAT CONFIGURATION
STATUS: ACCEPT
3423CH3021 NC NC
INSTALL BFE STANDBY ATTITUDE INDICATOR
WITHOUT ILS DEVIATION DISPLAY IN LIEU OF
SFE INDICATOR
STATUS: ACCEPT
3423CH3026 NC NC
STANDBY INDICATOR - SFE SEXTANT IN LIEU OF
BFE JET
STATUS: ACCEPT
3431CG3051 NC NC
ILS - INSTALLATION - BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
</TABLE>
<PAGE> 91
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 11
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
3433CG3058 NC NC
LOW RANGE RADIO ALTIMETER (LRRA) -
INSTALLATION - BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
3435CH3028 $*** $***
FLIGHT DYNAMICS CAPTAIN ONLY HEAD UP
GUIDANCE SYSTEM - PARTIAL PROVISIONS
STATUS: ACCEPT
3443CH3118 $*** $***
WEATHER RADAR SYSTEM - ARINC 708A SINGLE
WEATHER RADAR SYSTEM WITH PREDICTIVE
WINDSHEAR - PARTIAL PROVISIONS
STATUS: ACCEPT
3443CH3154 NC NC
ARINC 708 WEATHER RADAR SYSTEM -
INSTALLATION - BFE ALLIEDSIGNAL INC (WITH
DEACTIVATED PREDICTIVE WINDSHEAR FEATURE
R/T RDR-4B)
STATUS: ACCEPT
3445CH3197 NC NC
TCAS II - INSTALLATION - BFE ALLIEDSIGNAL
INC
STATUS: ACCEPT
3451CG3005 NC NC
VOR/MARKER BEACON - INSTALLATION - BFE
ALLIEDSIGNAL INC
STATUS: ACCEPT
3455CG3120 NC NC
DISTANCE MEASURING EQUIPMENT (DME) -
INSTALLATION - BFE ALLIEDSIGNAL INC
(SCANNING)
STATUS: ACCEPT
3457CG3088 NC NC
AUTOMATIC DIRECTION FINDER (ADF) -
INSTALLATION - BFE ALLIEDSIGNAL INC
STATUS: ACCEPT
3457CG3092 NC NC
AUTOMATIC DIRECTION FINDER (ADF) CONTROL
PANEL - INSTALLATION - BFE GABLES
ENGINEERING INC
STATUS: ACCEPT
3457MP3132 NC NC
ADF CONTROL PANEL REVISION - ADD GABLES
G7402-05 IN LIEU OF EXISTING
STATUS: ACCEPT
</TABLE>
<PAGE> 92
Attachment to
Southwest Airlines Co.
6-1162-RLL-2036 Page 12
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
3457MP3133 NC NC
ADF ANTENNA REVISION - ADD ALLIEDSIGNAL
2041683-7507 IN LIEU OF EXISTING
STATUS: ACCEPT
3458CH3091 NC NC
GPS PROVISIONS - ADD COMPONENTS REQUIRED TO
PROVIDE COMPLETE PROVISIONS
STATUS: ACCEPT
3458CH3092 $*** $***
GLOBAL POSITIONING SYSTEM (GPS) -
INSTALLATION - HONEYWELL INC (SUPPLEMENTAL
NAVIGATION CERTIFICATION)
STATUS: ACCEPT
3461CG3403 NC NC
BUYER FURNISHED NAVIGATION DATA BASE
STATUS: ACCEPT
3461CH3485 NC NC
VERTICAL NAVIGATION (VNAV)
ACTIVATE/DEACTIVATE SERVICE BULLETIN
STATUS: ACCEPT
3461CH3489 $*** $***
FLIGHT MANAGEMENT COMPUTER SYSTEM REVISION
- CERTIFICATION FOR SINGLE COMPUTER
OPERATION ONLY
STATUS: ACCEPT
3510CG3089 NC NC
CREW OXYGEN - 114 CU. FT. IN LIEU OF 76 CU.
FT. CYLINDER
STATUS: ACCEPT
3830MP3025 NC NC
INSTALLATION OF PNEUDRAULICS INC. 4"
SERVICE PANEL LAVATORY DRAIN VALVE P/N 9569
IN LIEU OF CURRENT SHAW VALVE
STATUS: ACCEPT
3831MP3019 $*** $***
GRAY WATER DRAIN ROUTING REVISION - LEVEL
LINE IN LIEU OF SLANTED LINE
STATUS: ACCEPT
3832CH3071 NC NC
VACUUM LAVATORY SYSTEM IN LIEU OF
RECIRCULATING LAVATORY - LAVS A AND B
STATUS: ACCEPT
3910CH3113 NC NC
RELOCATE ATC CONTROL PANEL
STATUS: ACCEPT
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
PRICE F/O
PER A/P PRICE
SWA3701 SWA3701 F/O
CR / TITLE 92 $ 92$
======================================================= =========== ===========
<S> <C> <C>
3910CH3122 NC NC
AFT ELECTRONICS PANEL ARRANGEMENT
STATUS: ACCEPT
5100CH3026 NC NC
ADDITIONAL CORROSION PROTECTION BENEATH
GALLEYS AND LAVS
STATUS: ACCEPT
5100CH3027 NC NC
FWD AND AFT CARGO DOOR REVISION - INSTALL
HEAVY DUTY SKIN
STATUS: ACCEPT
5100MP3030 NC NC
REMOVE ADDITIONAL CORROSION PROTECTION
ADDED BY CR 5100CH3026
STATUS: ACCEPT
5220MP3012 NC NC
OVERWING HATCH ASSIST HANDLE REVISION -
INSTALL RECESSED HANDLE IN LIEU OF
PROTRUDING HANDLE
STATUS: ACCEPT
7200CG3244 IB IB
AIRPLANE PERFORMANCE: CFM56-7 ENGINES WITH
OPERATIONAL THRUST OF 22,000 LBS. FOR
737-600,-700
STATUS: ACCEPT
7900CG3026 NC NC
LUBRICATING OIL - ESSO/EXXON TURBO OIL 2380
STATUS: ACCEPT
CR'S 138 TOTAL $*** $***
</TABLE>
<PAGE> 94
6-1162-RLL-2037
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-2037 to
Purchase Agreement No. 1810 - Reconciliation of the
Aircraft Basic Price
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the sale by Boeing and the purchase by Buyer of Model 737-7H4 aircraft (the
Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Reconciliation of the Aircraft Basic Price
During the course of recent negotiations, Boeing and Buyer reviewed and
mutually agreed to the pricing for the Aircraft. The price elements for the
prices set forth in Article 3.2 of the Agreement are documented in the
Attachment to this Letter Agreement.
<PAGE> 95
2. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
------------------------
Its Attorney-in-Fact
-----------------------
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
------------------------
Its EVP-COO
-----------------------
Attachment ***
<PAGE> 96
6-1162-RLL-2073
Southwest Airlines Co.
P.O. Box 36611
Dallas, Texas 75235-1611
Subject: Letter Agreement No. 6-1162-RLL-2073 to
Purchase Agreement No. 1810 - ***
Gentlemen:
This Letter Agreement amends Purchase Agreement No. 1810 (the Agreement)
between The Boeing Company (Boeing) and Southwest Airlines Co. (Buyer) relating
to the sale by Boeing and the purchase by Buyer of Model 737-7H4 aircraft (the
Aircraft).
All terms used herein and in the Agreement, and not defined herein, will have
the same meaning as in the Agreement.
1. Customized Maintenance Training for Buyer
Buyer and Boeing agree that the maintenance training, as described
below, will be provided to Buyer in lieu of the maintenance training as
described in Exhibit C, Part A, Paragraphs 3.1, 3.2, 3.3 and 3.4 of the
Agreement.
***
5. Confidential Treatment
Buyer understands that certain commercial and financial information
contained in this Letter Agreement are considered by Boeing as confidential.
Buyer agrees that it will treat this Letter Agreement and the information
contained herein as confidential and will not, without the prior written
consent of Boeing, disclose this Letter Agreement or any information contained
herein to any other person or entity, except as provided in Letter Agreement
6-1162-RLL-934R1.
Very truly yours,
THE BOEING COMPANY
By /s/ R. Leo Lyons
------------------------
Its Attorney-in-Fact
----------------------
<PAGE> 97
Southwest Airlines Co.
6-1162-RLL-2073 Page 2
ACCEPTED AND AGREED TO as of this
date: February 26, 1997
SOUTHWEST AIRLINES CO.
By /s/ Gary A. Barron
------------------------
Its EVP-COO
----------------------
<PAGE> 1
EXHIBIT 11
Southwest Airlines Co.
Computation of Earnings Per Share
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fully
Primary Diluted
-------------- --------------
<S> <C> <C>
Weighted average shares outstanding 144,745,071 144,745,071
Shares issuable upon exercise of outstanding
stock options (treasury stock method) 7,048,406 7,054,306
-------------- --------------
Weighted average common and common
equivalent shares 151,793,477 151,799,377
============== ==============
Earnings for per share computations $207,337,000 $207,337,000
============== ==============
Earnings per common and common equivalent share $1.37 $1.37
============== ==============
</TABLE>
<PAGE> 2
Exhibit 11
Page 2 of 3
Southwest Airlines Co.
Computation of Earnings Per Share
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Fully
Primary Diluted
------------ ------------
<S> <C> <C>
Weighted average shares outstanding 143,678,223 143,678,223
Shares issuable upon exercise of outstanding
stock options (treasury stock method) 5,172,289 5,202,614
------------ ------------
Weighted average common and common
equivalent shares 148,850,512 148,880,837
============ ============
Earnings for per share computations $182,626,000 $182,626,000
============ ============
Earnings per common and common equivalent share $ 1.23 $ 1.23
============ ============
</TABLE>
<PAGE> 3
Exhibit 11
Page 3 of 3
Southwest Airlines Co.
Computation of Earnings Per Share
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Fully
Primary Diluted
------------ ------------
<S> <C> <C>
Weighted average shares outstanding 143,046,509 143,046,509
Shares issuable upon exercise of outstanding
stock options (treasury stock method) 4,258,865 4,259,233
------------ ------------
Weighted average common and common
equivalent shares 147,305,374 147,305,742
============ ============
Earnings for per share computations $179,331,000 $179,331,000
============ ============
Earnings per common and common equivalent share $ 1.22 $ 1.22
============ ============
</TABLE>
<PAGE> 1
EXHIBIT 22
SOUTHWEST AIRLINES CO.
SUBSIDIARIES OF THE COMPANY
Southwest Airlines Co. has five wholly owned subsidiaries:
TranStar Airlines Corporation, Southwest Jet Fuel Co., and Southwest ABQ
RES Center, Inc., which are incorporated under the laws of Texas.
<PAGE> 1
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-20275, 33-48178, 33-57327, 33-40652 and 33-40653 and Form S-
3 Nos. 33-52115 and 33-59113) and in the related Prospectuses of our report
dated January 23, 1997 with respect to the consolidated financial statements of
Southwest Airlines Co. for the year ended December 31, 1996 included in its
Annual Report on Form 10-K to be filed with the Securities and Exchange
Commission on or about March 21, 1997.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, TX
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 581,841
<SECURITIES> 0
<RECEIVABLES> 73,440
<ALLOWANCES> 0
<INVENTORY> 51,094
<CURRENT-ASSETS> 750,990
<PP&E> 4,157,628
<DEPRECIATION> 1,188,405
<TOTAL-ASSETS> 3,723,479
<CURRENT-LIABILITIES> 765,404
<BONDS> 0
0
0
<COMMON> 145,112
<OTHER-SE> 1,503,200
<TOTAL-LIABILITY-AND-EQUITY> 3,723,479
<SALES> 0
<TOTAL-REVENUES> 3,406,170
<CGS> 0
<TOTAL-COSTS> 3,055,335
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,269
<INCOME-PRETAX> 341,362
<INCOME-TAX> 134,025
<INCOME-CONTINUING> 207,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207,337
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
