EMPLOYMENT CONTRACT
Exhibit
10.5
THIS
EMPLOYMENT CONTRACT (hereinafter referred to as this “Agreement”),
dated as of July 15, 2007, by and between XXXXXXX X. XXXXXXX
(hereinafter referred to as the “Employee”), a resident of Dallas,
Texas, and SOUTHWEST AIRLINES CO. (hereinafter referred to as
“Southwest”, which term shall include its subsidiary companies where
the context
so admits), a Texas corporation,
W
I T N E S S E T H:
WHEREAS
the Employee has served Southwest since March 1978 in various executive
capacities, most recently as President and Secretary pursuant to Employment
Contracts dated as of June 19, 2001 and July 15, 2004 (such Employment Contracts
being referred to collectively as the “Old Contracts”); and
WHEREAS
the Employee and Southwest desire to enter into a successor agreement for the
continuing services of the Employee and to amend and restate certain provisions
of the Old Contracts;
NOW,
THEREFORE, for and in consideration of the premises and the mutual
covenants and promises contained herein, Southwest and the Employee agree as
follows:
I. POSITION,
DUTIES AND AUTHORITY
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A.
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POSITIONS;
RETIREMENT FROM OFFICE; AND CONTINUED EMPLOYMENT. The
Employee shall serve as President of Southwest and, for so long as
she
shall be a member of the Board of Directors of Southwest, she shall
serve
in such capacity and as Corporate Secretary to the Board without
additional compensation hereunder. Effective at the Annual
Meeting of Shareholders of Southwest to be held in May 2008, the
Employee
shall retire from the Board of Directors of Southwest, and from her
position as Corporate Secretary; effective as of July 15, 2008, the
Employee shall resign her position as President of the Company.
Notwithstanding such retirements and resignations, Employee shall
remain
an employee of Southwest through July 14, 2013, and during the period
of
such employment the Employee shall discharge the obligations set
forth in
Paragraph I-B of this Agreement. The Employee may elect to
terminate her employment at any time prior to July 15, 2013, as provided
in Paragraph V-E of this Agreement; provided, however, that in such
event
Southwest shall be relieved of any obligation to make further payments
to
the Employee under Paragraph IV-A
hereunder
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B.
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DUTIES. For
so long as Employee remains President hereunder, the Employee’s duties
shall include managing the Customer and Employee relations functions
of
Southwest; achieving excellent Customer and Employee service quality;
preserving the Southwest servant leader culture; and assisting the
Chief
Executive Officer in implementing Southwest’s current and long range
business policies and programs; and in general, maintaining Employee
morale and esprit de corps. In addition, she shall perform such
other corporate duties and discharge such other corporate responsibilities
as are specified in the bylaws of Southwest or as designated from
time to
time by any of the Chairman of the Board of Directors of Southwest,
the
Chief Executive Officer or the full Board of
Directors. Thereafter, the Employee agrees that she shall make
herself generally available at the offices of Southwest in order
to
consult with the Chief Executive Officer of Southwest, or his designees,
as to the business, properties or operations of Southwest. At
all times during her employment the Employee shall generally conform
to
all policies of Southwest as they may apply to an employee of her
level of
duties and obligations.
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C.
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AUTHORITY. The
Employee shall be vested with all authority reasonably necessary
to carry
out her duties and responsibilities as set forth in this Article
I.
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D.
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NECESSARY
SUPPORT AND ENVIRONMENT. Throughout the term of this
Agreement, the Employee shall be provided with the office suite and
appurtenances thereto that she occupied, and utilized, on July 15,
2007
and with the staff support that she received as of such
date.
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II. EMPLOYEE’S
OBLIGATIONS
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A.
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TIME
AND EFFORTS. During the term of her employment
hereunder, the Employee shall devote such time and effort as is required
to discharge her duties hereunder.
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B.
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NON-COMPETITION. The
Employee recognizes and understands that in performing the duties
and
responsibilities of her employment as outlined in this Agreement
and
pursuant to her employment at Southwest prior to the execution of
this
Agreement, the Employee has occupied and will occupy a position of
trust
and confidence, pursuant to which the Employee has developed and
acquired
and will develop and acquire experience and knowledge with respect
to
various aspects of the business of Southwest and the manner in which
such
business is conducted. It is the expressed intent and agreement
of the Employee and Southwest that such knowledge and experience
shall be
used in the furtherance of the business interests of Southwest and
not in
any manner which would be detrimental to such business interests
of
Southwest. The Employee therefore agrees that, so long as the
Employee is employed pursuant to this Agreement, unless she first
secures
the consent of the Board of Directors of Southwest, the Employee
will not
invest, engage or participate in any manner whatsoever, either personally
or in any status or capacity (other than as a shareholder of less
than one
percent [1%] of the capital stock of a publicly owned corporation),
in any
business or other entity organized for profit engaged in significant
competition with Southwest in the conduct of its air carrier operations
anywhere in the States of Texas, Louisiana, Oklahoma, New Mexico,
Missouri, Arizona, Nevada, California, Arkansas, Alabama, Tennessee,
Kentucky, Michigan, Indiana, Ohio, Maryland, Illinois, Utah, Washington,
Oregon, Nebraska, Florida, Idaho, Mississippi, New Hampshire, New
York,
Rhode Island, Connecticut, North Carolina, Virginia, Pennsylvania,
and
Colorado. Although the Employee and Southwest regard such
restrictions as reasonable for the purpose of preserving Southwest
and its
proprietary rights, in the event that the provisions of this Paragraph
II-B should ever be deemed to exceed the time or geographic limitations
permitted by applicable laws, then such provisions shall be reformed
to
the maximum time or geographic limitations permitted by applicable
laws.
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III. TERM
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A.
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TERM. This
Agreement and the Employee’s employment hereunder shall commence and
become effective on and as of July 15, 2007. The term of such
employment shall expire on July 15, 2013, unless extended by consent
of
the parties hereto or earlier terminated pursuant to the provisions
of
Article V.
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IV. EMPLOYEE’S
COMPENSATION
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A.
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BASE
SALARY. The Employee’s annual Base Salary shall be
$368,752 for the year ended July 15, 2008; thereafter the Employee’s
annual Base Salary for the balance of the term of this Agreement
shall be
$400,000. The Employee’s Base Salary shall be payable to the
Employee in equal semi-monthly installments and shall be subject
to such
payroll and withholding deductions as may be required by
law.
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B.
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PERFORMANCE
BONUS. The Board of Directors of Southwest (or the
Compensation Committee thereof) may grant a Performance Bonus to
the
Employee, in addition to her Base Salary, at such times and in such
amounts as such Board (or Committee) may
determine.
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C.
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DEFERRED
COMPENSATION. In addition to the Base Salary provided
for in Paragraph IV-A above, Southwest shall continue to set aside on
its books, as provided in Paragraph IV-C of each of the Old Contracts,
a
special ledger Deferred Compensation Account (the “Account”) for the
Employee, and shall credit thereto Deferred Compensation determined
as
hereinafter provided. (Southwest at its election may fund the
payment of Deferred Compensation by setting aside and investing such
funds
as Southwest may from time to time determine. Neither the
establishment of the Account, the crediting of Deferred Compensation
thereto, nor the setting aside of any funds shall be deemed to create
a
trust. Legal and equitable title to any funds set aside shall
remain in Southwest, and the Employee shall have no security or other
interest in such funds. Any funds so set aside or invested
shall remain subject to the claims of the creditors of Southwest,
present
and future.) For each full or partial calendar year as the
Employee shall remain in the employment of Southwest under this Agreement,
Deferred Compensation shall accumulate in an amountequal to any
contributions (including forfeitures but excluding any elective deferrals
actually returned to the Employee) which would otherwise have been
made by
Southwest on behalf of the Employee to the Southwest Airlines Co.
Profitsharing Plan and Southwest Airlines Co. 401(k) Plan but which
exceed
the amount permitted to be so contributed due to the limitations
under
Sections 415(c) (the “415(c) Excess Amount”) and 401(a)(17) of the
Internal Revenue Code.. If such employment shall terminate
prior to December 31 in any calendar year, then Deferred Compensation
shall accumulate and be calculated as provided under the terms of
Southwest’s Profitsharing Plan. Employee hereby elects not to
invest the 415(c) Excess Amount in Southwest’s 2005 Excess Benefit Plan
(or any successor plan).
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The
Deferred Compensation credited to the Account (including the Interest
hereinafter provided) shall be paid to the Employee (or to the executors or
administrators of her estate) at the rate of $200,000 per calendar year (subject
to such payroll and withholding deductions as may be required by law),
commencing with the calendar year following the year in which (i) the Employee
shall attain the age of sixty-eight (68) or (ii) the Employee’s employment with
Southwest shall terminate (whether such termination is under this Agreement
or
otherwise and whether it is before, on or after the expiration of the initial
term set forth in Paragraph III-A above, and irrespective of the cause thereof),
whichever shall occur later, and continuing until the entire amount of Deferred
Compensation and Interest credited to the Account shall have been
paid. Although the total amount of Deferred Compensation ultimately
payable to the Employee hereunder shall be computed in accordance with the
provisions set forth above, there shall be accrued and credited to the Account,
beginning on January 1, 2007 (if not so accrued and credited pursuant to the
Old
Contracts, and if so accrued and credited, then beginning on January 1, 2008)
and continuing annually thereafter until the entire balance of the account
has
been distributed (whether such distribution takes place during the term of
this
Agreement or thereafter), amounts equal to simple interest at the rate of ten
percent (10%) per annum, compounded annually (“Interest”), on the accrued and
unpaid balance of the Deferred Compensation credited to the Account as of the
preceding December 31. The Deferred Compensation and Interest to be
paid in any one calendar year shall be paid on the first business day of such
calendar year; provided, however, that if the event triggering commencement
of
payment of Deferred Compensation and Interest is Employee’s termination of
employment with Southwest, payment of the first of such annual Deferred
Compensation and Interest payments shall be deferred to the extent necessary
to
cause such payment to comply with the six month deferral rule described in
Section 409A(a)(2)(B) of the Internal Revenue Code if Employee at her
termination of employment with Southwest is a “specified employee” within the
meaning of such section. No right, title, interest or benefit under t
this Paragraph IV-C shall ever be liable for or charged with any of the torts
or
obligations of the Employee or any person claiming under her, or be subject
to
seizure by any creditor of the Employee or any person claiming under
her. Neither the Employee nor any person claiming under her shall
have the power to anticipate or dispose of any right, title, interest or benefit
under this Paragraph IV-C in any manner until the same shall have been actually
distributed by Southwest.
Except
with respect to the 415(c) Excess Amount elections, Paragraph IV-C of each
of
the Old Contracts is hereby amended and restated to conform to the provisions
set forth herein.
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D.
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DISABILITY
INSURANCE. During the term of this Agreement,
Southwest shall provide long term disability insurance providing
for
payment, in the event of disability of the Employee, of $10,000 per
month
to age seventy (70). Except as to amounts payable, the terms
and conditions of such policy shall be identical, or substantially
similar, to the disability insurance provided by Southwest for its
other
officers as of the date of this
Agreement.
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E.
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MEDICAL
AND DENTAL EXPENSES. During the term of this
Agreement, the Employee shall remain eligible to participate in any
medical benefit plan or program that Southwest makes available to
its
employees generally. Upon termination of her employment with Southwest,
the Employee shall be eligible to participate in any non-contract
retiree
medical benefit plan or program that Southwest may then make available
to
its retirees generally. Southwest shall reimburse the Employee for
all her
out-of-pocket expenses (including specifically all premiums and
deductibles) that the Employee may incur under any such Southwest
plan or
program during the term of this
Agreement.
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F.
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STOCK
OPTION GRANT. In connection with its approval of the
terms of this Agreement on July 19, 2007, the Compensation Committee
of
the Board of Directors granted to the Employee ten-year options to
purchase 75,000 shares of its common stock. Such options were granted
pursuant to the Company’s 2007 Equity Incentive Plan and became
exercisable with respect to 100% of the shares of Common Stock covered
thereby on the date of grant. Such options shall be incentive
stock options to the maximum extent permissible under the terms of
the
2007 Equity Incentive Plan. The exercise price of such options
shall be the fair market value of Southwest’s common stock on July 19,
2007 or the date of approval of the form of this Agreement by the
Compensation Committee, whichever is
higher.
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G.
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OTHER
BENEFITS. The Employee shall be eligible to continue
to participate in all employee pension, profit-sharing, stock purchase,
group insurance and other benefit plans or programs in effect for
Southwest managerial employees generally to the extent of and in
accordance with the rules and agreements governing such plans or
programs,
so long as same shall be in effect, with full service credit where
relevant for the Employee’s prior employment by
Southwest. Southwest shall reimburse the Employee for
reasonable expenses incurred by her in the performance of her duties
and
responsibilities hereunder. The Employee shall be entitled to
vacation of three (3) weeks per year or such longer period as may
be
established from time to time by Southwest for its managerial employees
generally.
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V. TERMINATION
PROVISIONS
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A.
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EXPIRATION
OR DEATH. The Employee’s employment hereunder shall
terminate on July 15, 2013 (or such later date to which the term
of this
Agreement may be extended by consent of the parties hereto, in either
case
without prejudice to the Employee’s privilege to remain an employee of
Southwest thereafter), or upon the Employee’s death, whichever shall first
occur, without further obligation or liability of either party hereunder,
except for Southwest’s obligation to pay Deferred Compensation as provided
in Paragraph IV-C of this
Agreement.
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B.
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TERMINATION
FOR CAUSE. Southwest may terminate the Employee’s
employment hereunder upon the determination by a majority of its
whole
Board of Directors that the Employee has willfully failed and refused
to
perform her duties and to discharge her responsibilities
hereunder. Such determination shall be final and
conclusive. If the Board of Directors of Southwest makes such
determination, Southwest may (a) terminate the Employee’s employment,
effective immediately or at a subsequent date, or (b) condition her
continued employment upon the circumstances and place a reasonable
limitation upon the time within which the Employee shall comply with
such
considerations or requirements. If termination is so effected,
Southwest shall have no further liability to the Employee hereunder
except
for the obligation to pay Deferred Compensation as provided in
Paragraph IV-C hereof.
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C.
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TERMINATION
FOR DISABILITY. Southwest may terminate the Employee’s
employment hereunder on account of any disabling illness, hereby
defined
to include any emotional or mental disorders, physical diseases or
injuries as a result of which the Employee is, for a continuous period
of
ninety (90) days, unable to perform her duties
hereunder. Southwest shall give to the Employee ninety (90)
days’ notice of its intention to effect such termination pursuant to this
Paragraph V-C. If, within such notice period, the Employee
shall have recovered from her disability sufficiently well to resume
performance of her duties (although still undergoing treatment or
rehabilitation), Southwest shall not have the right to effect such
termination. If such disabling illness occurs as a result of a
job-related cause, Southwest shall continue to pay the Employee regular
installments of her Base Salary in effect at the time of such termination
for the remainder of the term of this Agreement in accordance with
Southwest’s regular payroll practices; provided that, payment shall be
deferred to the extent necessary to cause such payment to comply
with the
six month deferral rule described in Section 409A(a)(2)(B) of the
Internal
Revenue Code if Employee at her termination of employment with Southwest
is a “specified employee” as defined in such section. It is expressly
understood and agreed, however, that any obligation of Southwest
to
continue to pay the Employee her Base Salary pursuant to this
Paragraph V-C shall be reduced by the amount of any proceeds of
long-term disability insurance provided for the Employee pursuant
to
Paragraph IV-D above, and shall also be reduced by the amount of the
proceeds of any worker’s compensation or other benefits which the Employee
receives as a result of or growing out of her disabling
illness.
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D.
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CHANGE
OF CONTROL TERMINATION. In the event of any change of
control of Southwest, the Employee may, at her option, terminate
her
employment hereunder by giving to Southwest notice thereof no later
than
sixty (60) days after the Employee shall have determined or ascertained
that such change has occurred, irrespective whether Southwest shall
have
purported to terminate this Agreement after such event but prior
to
receipt of such notice. If termination is so effected, no later
than the date of such termination Southwest shall pay the Employee
as
“severance pay” a lump sum equal to (i) $750,000 plus (ii) an
amount equal to the unpaid installments of her Base Salary in effect
at
the time of such termination for the remaining term of this Agreement;
provided, however, that if Employee is, at her termination of employment
with Southwest, a “specified employee” within the meaning of Section
409A(a)(2)(B) of the Internal Revenue Code, payment of the “severance pay”
shall be deferred to the extent necessary to cause such payment to
comply
with the six month deferral rule described in such section. If
termination is so effected, Southwest shall have no other further
liability to the Employee hereunder except for its obligation to
pay
Deferred Compensation as provided in Paragraph IV-C
above. For purposes of this Paragraph V-D, a “change of
control of Southwest” shall be deemed to occur if (i) a third person,
including a “group” as determined in accordance with Section 13(d)(3) of
the Securities Exchange Act of 1934, becomes the beneficial owner
of
shares of Southwest having twenty percent (20%) or more of the total
number of votes that may be cast for the election of directors of
Southwest, or (ii) as a result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale
of
assets or contested election, or any combination of the foregoing
transactions (herein called a “Transaction”), the persons who were
directors of Southwest before the Transaction shall cease to constitute
a
majority of the Board of Directors of Southwest or any successor
to
Southwest.
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E.
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VOLUNTARY
TERMINATION. The Employee’s employment hereunder shall
terminate forthwith upon her resignation and its acceptance by Southwest,
without further obligation or liability of either party hereunder,
except
for Southwest’s obligation to pay Deferred Compensation as provided in
Paragraph IV-C above.
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VI. MISCELLANEOUS
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A.
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ASSIGNABILITY,
ETC. The rights and obligations of Southwest hereunder
shall inure to the benefit of and shall be binding upon the successors
and
assigns of Southwest; provided, however, Southwest’s obligations hereunder
may not be assigned without the prior approval of the
Employee. This Agreement is personal to the Employee and may
not be assigned by her.
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B.
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NO
WAIVERS. Failure to insist upon strict compliance with
any provision hereof shall not be deemed a waiver of such provision
or any
other provision hereof.
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C.
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AMENDMENTS. This
Agreement may not be modified except by an agreement in writing executed
by the parties hereto.
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D.
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NOTICES. Any
notice required or permitted to be given under this Agreement shall
be in
writing and shall be deemed to have been given to the person affected
by
such notice when personally delivered or when deposited in the United
States mail, certified mail, return receipt requested and postage
prepaid,
and addressed to the party affected by such notice at the address
indicated on the signature page
hereof.
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E.
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SEVERABILITY. The
invalidity or unenforceability of any provision hereof shall not
affect
the validity or enforceability of any other provision
hereof.
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F.
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COUNTERPARTS. This
Agreement may be executed in multiple counterparts, each of which
shall be
deemed an original but all of which taken together shall constitute
a
single instrument.
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G.
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ENTIRE
AGREEMENT. This Agreement contains all of the terms
and conditions agreed upon by the parties hereto respecting the subject
matter hereof, and all other prior agreements, oral or otherwise,
regarding the subject matter of this Agreement shall be deemed to
be
superseded as of the date of this Agreement and not to bind either
of the
parties hereto.
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H.
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GOVERNING
LAW. This Agreement shall be subject to and governed
by the laws of the State of
Texas.
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IN
WITNESS WHEREOF, the Employee has set her hand hereto and Southwest has
caused this Agreement to be signed in its corporate name and behalf by the
Chairman of the Compensation Committee of the Board of Directors who is
thereunto duly authorized all as of the day and year first above
written.
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By
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/s/ Xxxxx
Xxxxxxx
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Xxxxx
Xxxxxxx
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Chairman,
Compensation Committee of the
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Board
of Directors
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THE EMPLOYEE
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By
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/s/ Xxxxxxx
X. Xxxxxxx
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Xxxxxxx
X. Xxxxxxx
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Address: X.X.
Xxx 00000
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Xxxxxx,
Xxxxx 00000-0000
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