Exhibit 10
EMPLOYMENT CONTRACT
THIS EMPLOYMENT CONTRACT (hereinafter referred to as this
"Agreement"), dated as of January 1, 2001, by and between XXXXXXX X.
XXXXXXXX (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 as permanent President and
Chief Executive Officer of Southwest since February 1, 1982,
initially pursuant to an Employment Contract dated as of February 1,
1982, later pursuant to Employment Contracts dated as of January 1,
1985, as amended, January 1, 1988 and January 1, 1992 and most
recently pursuant to an Employment Contract dated as of January 1,
1996 (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;
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
A. POSITIONS. The Employee shall perform such corporate duties and
discharge such corporate responsibilities as are designated by the
Board of Directors and, for so long as he shall be elected to the Board
of Directors of Southwest, he shall serve as both Chairman of the Board
and Chairman of the Executive Committee of the Board without additional
compensation hereunder.
B. DUTIES. The Employee's duties shall include responsibility for
overseeing the implementation of Southwest's current and long range
business policies and programs and handling such other functions or
segments of Southwest's business as may be directed from time to time
by the Board of Directors.
C. AUTHORITY. The Employee shall be vested with all authority
reasonably necessary to carry out his duties and responsibilities as set
forth in this Article I.
D. NECESSARY SUPPORT AND ENVIRONMENT. The Employee shall be provided
with the secretarial and other support personnel (including a full-time
administrative assistant) and general working environment (including a
private, furnished office) reasonably necessary for him to carry out his
duties and responsibilities as set forth in this Article I.
II. EMPLOYEE'S OBLIGATIONS
A. TIME AND EFFORTS. During the term of his employment hereunder, the
Employee shall devote such time and effort as is required to discharge
his duties hereunder.
B. NON-COMPETITION. The Employee recognizes and understands that in
performing the duties and responsibilities of his employment as outlined
in this Agreement and pursuant to his 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 he 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 and North Carolina. 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.
III. TERM
A. TERM. This Agreement and the Employee's employment hereunder shall
commence and become effective on and as of January 1, 2001. The term of
such employment shall expire on December 31, 2003, unless extended by
consent of the parties hereto or earlier terminated pursuant to the
provisions of Article V.
IV. EMPLOYEE'S COMPENSATION
A. BASE SALARY. The Employee's annual Base Salary for the years ending
December 31, 2001, 2002 and 2003 shall be $450,000 or such greater amount
as shall be determined by the Board of Director of Southwest. 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.
B. PERFORMANCE BONUS. The Board of Directors of Southwest (or the
Compensation Committee thereof) may grant a Performance Bonus to the
Employee, in addition to his Base Salary, at such times and in such
amounts as such Board (or Committee) may determine.
C. 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 amount
equal 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. Money Purchase Plan but which exceed maximum
annual additions under such Plan on his behalf under federal tax law.
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 Money Purchase Plan. 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 his estate) at the rate of $100,000 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 become seventy-two (72) 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, 2001 and continuing annually 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.
Notwithstanding the foregoing, in the event of the Employee's death,
Southwest, in its sole discretion, shall have the right to pay the unpaid
balance of the Deferred Compensation (together with any accrued Interest
thereon) to the executors or administrators of the Employee's estate in
cash in one lump sum on the first business day of the calendar year next
following the calendar year in which the Employee shall have died. No
right, title, interest or benefit under 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 him, or be subject to seizure by
any creditor of the Employee or any person claiming under him. Neither
the Employee nor any person claiming under him 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.
D. DISABILITY INSURANCE. Southwest shall provide long term disability
insurance providing for payment, in the event of disability of the
Employee, of $8,000 per month to age seventy-three (73). 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.
E. MEDICAL AND DENTAL EXPENSES. During the term of this Agreement,
Southwest shall reimburse the Employee (i) for all medical and dental
expenses incurred by the Employee and his spouse and (ii) for all
medical and dental expenses paid by the Employee in excess of $10,000
per calendar year and incurred by his children, their spouses and the
Employee's grandchildren. Expenses for medical care shall be deemed
to include all amounts paid with respect to hospital bills, doctor and
dental bills and drugs which are not compensated by insurance or
otherwise.
F. STOCK OPTION GRANT AND AMENDMENTS. Southwest shall grant to the
Employee, effective as of the date hereof but subject to shareholder
approval, ten-year options to purchase 300,000 shares of its common
stock at $33.53 per share in accordance with the Stock Option Plan and
Agreement of even date herewith, a form of which is attached as Exhibit
A hereto, and ten-year options to purchase 70,563 such shares at $1 per
share in accordance with the Stock Option Plan and Agreement of even
date herewith, a form of which is attached as Exhibit B hereto.
Failing shareholder approval of each such Stock Option Plan and
Agreement at the 2001 Annual Meeting of Shareholders (including any
adjournment thereof), such grant shall be null and void ab initio, and
thereupon Southwest and the Employee shall negotiate alternative
compensation of equivalent value to the Employee.
G. 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 him in the performance of his 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.
V. TERMINATION PROVISIONS
A. EXPIRATION OR DEATH. The Employee's employment hereunder shall
terminate on December 31, 2003 (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.
B. 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 his duties and to discharge his 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 his 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.
C. 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 his duties hereunder. Southwest
shall give to the Employee thirty (30) 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 his disability
sufficiently well to resume performance of his 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 his Base Salary in effect at the time
of such termination for the remainder of the term of this Agreement. It
is expressly understood and agreed, however, that any obligation of
Southwest to continue to pay the Employee his 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 his disabling illness.
D. CHANGE OF CONTROL TERMINATION. In the event of any change of
control of Southwest, the Employee may, at his option, terminate his
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 his Base Salary in effect at the time of such
termination for the remaining term of this Agreement. 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.
E. VOLUNTARY TERMINATION. The Employee's employment hereunder shall
terminate forthwith upon his 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.
VI. MISCELLANEOUS
A. 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 him.
B. 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.
C. AMENDMENTS. This Agreement may not be modified except by an
agreement in writing executed by the parties hereto.
D. 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.
E. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any other
provision hereof.
F. 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.
G. 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.
H. GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of Texas.
IN WITNESS WHEREOF, the Employee has set his hand hereto and
Southwest has caused this Agreement to be signed in its corporate name
and behalf by one of its officers thereunto duly authorized, and its
corporate seal to be affixed hereunto, all as of the day and year first
above written.
SOUTHWEST AIRLINES CO.
By: __/s/ Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx
Vice President and General Counsel
ATTEST:
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
Secretary
THE EMPLOYEE
______/s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx
Address: X.X. Xxx 00000
Xxxxxx, Xxxxx 00000-0000
STOCK OPTION PLAN AND AGREEMENT
THIS STOCK OPTION PLAN AND AGREEMENT ("Agreement"), made as of the
1st day of January 2001, between SOUTHWEST AIRLINES CO., a Texas
corporation (the "Company"), and XXXXXXX X. XXXXXXXX ("Employee"),
W I T N E S S E T H:
To carry out the purpose of Paragraph IV-F of the Employment
Contract (herein so called) of even date herewith between the Company
and Employee by affording Employee the opportunity to purchase shares
of the $1.00 par value common stock of the Company ("Stock"), the
Company Employee hereby agrees as follows:
1. Grant of Option. Subject to shareholder approval as provided
in Paragraph IV-F of the Employment Contract, the Company hereby
irrevocably grants to Employee the right and option ("Option") to
purchase all or part of an aggregate of 300,000 shares of Stock, on the
terms and conditions set forth herein. This Option is not intended to
constitute an incentive stock option within the meaning of section
422A(b) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of Stock purchased pursuant
to the exercise of this Option shall be $33.53 per share, which
represents the New York Stock Exchange-Composite Tape closing sales
price of the Stock on December 29, 2000, the last trading day prior to
the date of grant of this Option.
3. Exercise of Option. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written
notice to the Company (addressed to its principal executive offices), at
any time and from time to time after the date of grant hereof, in equal
annual increments of 100,000 shares each beginning January 1, 2001, with
all of such options being exercisable on and after January 1, 2003.
Notwithstanding the foregoing, in the event of any change of control
of the Company (as defined in Paragraph V-D of the Employment Contract),
then this Option shall become exercisable in full. This Option is not
transferable by Employee otherwise than by will or the laws of descent
and distribution, and may be exercised only by Employee during his
lifetime and while he remains an employee of the Company, except that:
(a) If Employee's employment with the Company terminates other
than by death (whether by resignation, retirement, dismissal or otherwise),
Employee may exercise this Option at any time during the period of five
years following the date of such termination, but only as to the number of
shares Employee was entitled to purchase hereunder as of the date his
employment so terminates.
(b) If Employee dies while in the employ of the Company or
within the five-year period specified in (a) above, his estate, or the
person who acquires this option by bequest or inheritance or by reason of
the death of Employee, may exercise this Option at any time during the
period of three years following the date of Employee's death, but only as
to the number of shares Employee was entitled to purchase hereunder as of
the date of his death.
(c) Employee may transfer this Option or a part thereof to a
Family Member of Employee. For purposes of this Agreement, "Family
Member" includes any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of the Employee, any
person sharing the Employee's household (other than a tenant or
employee), a trust of which the Employee is a trustee or in which these
persons have a beneficial interest, a foundation in which these persons
(or the Employee) control the management of assets, and any other entity
in which these persons (or the Employee) own more than fifty percent of
the voting interests. Such Family Member may exercise the transferred
Option, or part thereof, at any time during the three-year period
following the date of transfer, but only as to the number of shares
Employee was entitled to purchase hereunder as of the date of the
transfer.
In any event, this Option shall not be exercisable as to any
shares of Stock offered hereby after the expiration of ten years from
the date this Option shall first become exercisable with respect to such
shares. The purchase price of shares of Stock as to which this Option
is exercised shall be paid in full at the time of exercise (a) in cash
(including check, bank draft or money order payable to the order of the
Company), or (b) by delivery to the Company of shares of Stock having a
fair market value equal to the purchase price, or (c) by a combination of
cash and Stock; provided that the fair market value of Stock so delivered
shall be the mean of the reported high and low sales price of Stock on
the New York Stock Exchange - Composite Tape on the date on which this
Option is exercised or, if no prices are so reported on such day, on the
next preceding day on which such prices of Stock are so reported. All
references in this Agreement to "Employee" shall be deemed to include,
unless the context otherwise requires, any Family Member to whom Employee
has transferred this Option, or any part thereof, and any person permitted
to exercise this Option in the event of Employee's death. Unless and
until a certificate for such shares shall have been issued by the Company
to him, Employee shall not be or have any of the rights or privileges of
a shareholder of the Company with respect to shares acquirable upon an
exercise of this Option.
4. Shares Subject to the Option. The aggregate number of shares of
Stock which may be issued under this Option is 300,000. Such shares may
consist of authorized but unissued shares of Stock or previously issued
shares reacquired by the Company. Any of such shares which remains
unissued at the termination of this Option shall cease to be subject
thereto, but until termination of this Option the Company shall at all
times make available a sufficient number of shares to meet the requirements
of this Option. The aggregate number of shares issuable under this Option
shall be adjusted to reflect a change in capitalization of the Company,
such as a stock dividend or stock split, as provided in Paragraph 5 of
this Agreement.
5. Recapitalization or Reorganization.
(a) The existence of this Option shall not affect in any way
the right or power of the Board of Directors or the shareholders of the
Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of bonds,
debentures, warrants, preferred or prior preference stocks ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of
the Company or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding.
(b) The shares offered by this Option are shares of Stock as
presently constituted, but if, and whenever, prior to the expiration of
this Option, the Company shall effect a subdivision or consolidation of
shares of Stock or the payment of a stock dividend on Stock without
receipt of consideration by the Company, the number of shares of Stock
with respect to which this Option may thereafter be exercised (i) in the
event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced (but in no event to less than the par value of
the Stock), and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase
price per share shall be proportionately increased.
(c) If the Company recapitalizes or merges or engages in a
compulsory share exchange with one or more other entities and the Company
shall be the surviving or acquiring corporation, thereafter upon any
exercise of this Option, Employee shall be entitled to purchase under
this Option, in lieu of the number of shares of Stock as to which this
Option shall then be exercisable, the number and class of shares of stock
and other securities or other property to which Employee would have been
entitled pursuant to the terms of the recapitalization or plan of merger
or exchange if, immediately prior to the effective time of such
recapitalization or merger or share exchange, Employee had been the
holder of record of the number of shares of Stock as to which such Option
is then exercisable. If the Company shall not be the surviving or
acquiring corporation in any merger or share exchange, or if the Company
is to be dissolved or liquidated, then unless a surviving or acquiring
entity assumes or substitutes new options for this Option, (i) the time
at which this Option may be exercised shall be accelerated and this
Option shall become exercisable in full on or before a date fixed by the
Company prior to the effective date of such merger or share exchange or
such dissolution or liquidation, and (ii) upon such effective date this
Option shall expire.
(d) Except as hereinbefore expressly provided, the issuance
by the Company of shares of stock of any class or securities convertible
into shares of stock of any class, for cash, property, labor or services,
upon direct sale, upon the exercise of rights or warrants to subscribe
therefore, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, in any case whether or
not for fair value, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number of shares of Stock subject to
this Option or the purchase price per share.
6. Administration. To the extent necessary for the administration
of elections made pursuant to Paragraph 7 hereof, this Option shall be
administered by the Stock Option Committee which administers the 1996
Incentive Stock Option Plan of the Company; or, at the direction of the
Board of Directors of the Company, such other committee (together with
such Stock Option Committee, the "Committee") of two or more directors
of the Company, each of whom is a Non-Employee Director, appointed by
the Board of Directors of the Company. The Committee is authorized to
interpret this Option and may from time to time adopt such rules and
regulations, consistent with the provisions of this Option, as it may
deem advisable to carry out this Option. For purposes of this Option,
the term "Non-Employee Director" shall have the meaning provided for by
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
7. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of
this Option results in compensation income to Employee for federal or
state income tax purposes, except as hereinafter provided, Employee
shall deliver to the Company at the time of such exercise or
disposition such amount of money as the Company may require to meet its
obligation under applicable tax laws or regulations. Employee may
elect with respect to this Option to surrender or authorize the
Company to withhold shares of Stock (valued at their fair market value
on the date of surrender or withholding of such shares) in satisfaction
of any such withholding obligation (a "Stock Surrender Withholding
Election"); provided, however, that any Stock Surrender Withholding
Election shall be made in accordance with the rules and regulations
adopted by the Committee for implementation of the tax withholding
provisions of this Paragraph 7. If Employee fails to deliver such money
or make a Stock Surrender Withholding Election pursuant to this
Paragraph 7, the Company is authorized to withhold from any cash or
Stock remuneration then or thereafter payable to Employee any tax
required to be withheld.
8. Status of Stock. The Company does not presently intend to
register for issue under the Securities Act of 1933, as amended (the
"Act"), the shares of Stock acquirable upon exercise of this Option,
and instead proposes to rely on the private offering exemption from
the registration requirements of the Act afforded by Section 4(2)
thereof. In order to assure that exemption from registration under
the Act is available upon an exercise of this Option, Employee, if
requested by the Company to do so, will execute and deliver to the
Company in writing an agreement containing such provisions as the
Company may reasonably require to assure compliance with applicable
securities laws. No sale or disposition of shares of Stock acquired
upon exercise of this Option shall be made in the absence of a
registration statement being on file with respect to such shares
under the Act unless an opinion of counsel satisfactory to the
Company that such sale or disposition will not constitute a
violation of the Act or any other applicable securities laws is
first obtained. The certificates representing shares of Stock
acquired under this Option may bear such legend as the Company deems
appropriate, referring to the provisions of this Paragraph 8.
9. Registration Rights. With respect to any shares of Stock
which are issued and delivered upon exercise of (i) this Option or (ii)
any options granted to Employee pursuant to any of his prior Employment
Contracts (the "Shares"):
(a) Upon written request made by Employee at any time before
January 1, 2014, the Company shall take such steps as may be necessary
promptly to register (but not more than once), at the Company's sole
expense (save for any underwriting commissions or discounts applicable
to any Shares and Employee's counsel fees), such of the Shares under
the Act (and under regulations of the Securities and Exchange
Commission under the Act or under any similar federal act or acts then
in effect and under the so-called "Blue Sky" laws of the several states
and regulations thereunder then in effect), as Employee may by written
request given to the Company within 15 days following such initial
request, desire to have so registered. The Company will cause such a
registration statement to be filed within 90 days after the initial
request is made. The Company will use its best efforts to cause any
such registration statement to become and to remain effective and
current for such period (not to exceed 120 days) as Employee may
request.
(b) In connection with any registration under this
Paragraph 9, the parties agree to indemnify each other in the
customary manner, and, in the case of an organized secondary or
primary underwritten offering, the Company agrees to indemnify
Employee and the underwriters and Employee agrees to indemnify the
Company, in the manner and to the extent as is customary in
secondary or primary underwritten offerings.
(c) The Company shall have the sole right to designate
the underwriters to be employed in any organized secondary or primary
underwritten offering under this Section 9.
(d) In connection with any registration under this Section
9, Employee shall furnish to the Company such information regarding the
Shares and such other information as the Company may reasonably request.
10. Employment Relationship. Employee shall be considered to be
in the employment of the Company as long as he remains an employee of
either the Company, a parent or subsidiary corporation (as defined in
Section 424 of the Code), or a corporation or a parent or subsidiary of
such corporation assuming or substituting a new option for this Option.
Any questions as to whether or when there has been a termination of
such employment, and the cause of such termination, shall be determined
by the Board of Directors of the employing corporation, and its
determination shall be final. No obligation as to length of Employee's
employment with any such corporation shall be implied from the terms of
this Agreement, and this Agreement in no way modifies, alters, amends
or impairs the provisions of the Employment Contract.
11. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons
lawfully claiming under Employee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its officer thereunto duly authorized and its
corporate seal to be affixed hereunto, and Employee has executed this
Agreement, all as of the day and year first above written.
ATTEST: SOUTHWEST AIRLINES CO.
Xxxxxxx X. Xxxxxxx By: Xxxxx X. Xxxxxx
Secretary Vice President and General Counsel
EMPLOYEE
Xxxxxxx X. Xxxxxxxx
STOCK OPTION PLAN AND AGREEMENT
THIS STOCK OPTION PLAN AND AGREEMENT ("Agreement"), made as of
the 1st day of January 2001, between SOUTHWEST AIRLINES CO., a Texas
corporation (the "Company"), and XXXXXXX X. XXXXXXXX ("Employee"),
W I T N E S S E T H:
To carry out the purpose of Paragraph IV-F of the Employment
Contract (herein so called) of even date herewith between the Company
and Employee by affording Employee the opportunity to purchase shares
of the $1.00 par value common stock of the Company ("Stock"), the
Company and Employee hereby agree as follows:
1. Grant of Option. Subject to shareholder approval as provided
in Paragraph IV-F of the Employment Contract, the Company hereby
irrevocably grants to Employee the right and Option ("Option") to
purchase all or part of an aggregate of 70,563 shares of Stock, on the
terms and conditions set forth herein.
2. Purchase Price. The purchase price of Stock purchased pursuant
to the exercise of this Option shall be $1 per share.
3. Exercise of Option. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written
notice to the Company (addressed to its principal executive offices), at
any time and from time to time after the date of grant hereof, in equal
annual increments of 23,521 shares each, beginning January 1, 2001, with
all of such options being exercisable on and after January 1, 2003.
Notwithstanding the foregoing, in the event of any change of control of
the Company (as defined in Paragraph V-D of the Employment Contract),
then this Option shall become exercisable in full. This Option is not
transferable by Employee otherwise than by will or the laws of descent
and distribution, and may be exercised only by Employee during his
lifetime and while he remains an employee of the Company, except that:
(a) If Employee's employment with the Company terminates
other than by death (whether by resignation, retirement, dismissal or
otherwise), Employee may exercise this Option at any time during the
period of five years following the date of such termination, but only
as to the number of shares Employee was entitled to purchase hereunder
as of the date his employment so terminates.
(b) If Employee dies while in the employ of the Company or
within the five-year period specified in (a) above, his estate, or the
person who acquires this Option by bequest or inheritance or by reason
of the death of Employee, may exercise this Option at any time during
the period of three years following the date of Employee's death, but
only as to the number of shares Employee was entitled to purchase
hereunder as of the date of his death.
(c) Employee may transfer this Option or any part thereof to
a Family Member of Employee. For purposes of this Agreement, "Family
Member" includes any child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of the Employee, any
person sharing the Employee's household (other than a tenant or
employee), a trust of which the Employee is a trustee or in which these
persons have a beneficial interest, a foundation in which these persons
(or the Employee) control the management of assets, and any other entity
in which these persons (or the Employee) own more than fifty percent of
the voting interests. Such Family Member may exercise the transferred
Option, or part thereof, at any time during the three-year period
following the date of transfer, but only as to the number of shares
Employee was entitled to purchase hereunder as of the date of the
transfer.
In any event, this Option shall not be exercisable as to any shares
of Stock offered hereby after the expiration of ten years from the date
this Option shall first become exercisable with respect to such shares.
The purchase price of shares of Stock as to which this Option is
exercised shall be paid in full at the time of exercise (a) in cash
(including check, bank draft or money order payable to the order of the
Company), or (b) by delivery to the Company of shares of Stock having a
fair market value equal to the purchase price, or (c) by a combination
of cash and Stock; provided that the fair market value of Stock so
delivered shall be the mean of the reported high and low sales price of
Stock on the New York Stock Exchange - Composite Tape on the date on which
this Option is exercised or, if no prices are so reported on such day,
on the next preceding day on which such prices of Stock are so reported.
All references in this Agreement to "Employee" shall be deemed to include,
unless the context otherwise requires, any Family Member to whom Employee
has transferred this Option, or any part thereof, and any person permitted
to exercise this Option in the event of Employee's death. Unless and until
a certificate for such shares shall have been issued by the Company to him,
Employee shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an
exercise of this Option.
4. Shares Subject to the Option. The aggregate number of shares of
Stock which may be issued under this Option is 70,563. Such shares may
consist of authorized but unissued shares of Stock or previously issued
shares reacquired by the Company. Any of such shares which remains
unissued at the termination of this Option shall cease to be subject
thereto, but until termination of this Option the Company shall at all
times make available a sufficient number of shares to meet the
requirements, of this Option. The aggregate number of shares issuable
under this Option shall be adjusted to reflect a change in capitalization
of the Company, such as a stock dividend or stock split, as provided in
Paragraph 5 of this Agreement.
5. Recapitalization or Reorganization.
(a) The existence of this Option shall not affect in any way
the right or power of the Board of Directors or the shareholders of the
Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or
its business, any merger or consolidation of the Company, any issue of
bonds, debentures, warrants, preferred or prior preference stocks ahead
of or affecting Stock or the rights thereof, the dissolution or
liquidation of the Company or any sale or transfer of all or any part
of its assets or business, or any other corporate act or proceeding.
(b) The shares offered by this Option are shares of Stock as
presently constituted, but if, and whenever, prior to the expiration of
this Option, the Company shall effect a subdivision or consolidation of
shares of Stock or the payment of a stock dividend on Stock without receipt
of consideration by the Company, the number of shares of Stock with respect
to which this Option may thereafter be exercised (i) in the even of an
increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately
reduced (but in no event to less than the par value of the Stock), and (ii)
in the event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
proportionately increased.
(c) If the Company recapitalizes or merges or engages in a
compulsory share exchange with one or more other entities and the Company
shall be the surviving or acquiring corporation, thereafter upon any
exercise of this Option, Employee shall be entitled to purchase under this
Option, in lieu of the number of shares of Stock as to which this Option
shall then be exercisable, the number and class of shares of stock and
other securities or other property to which Employee would have been
entitled pursuant to the terms of the recapitalization or plan of merger
or exchange if, immediately prior to the effective time of such
recapitalization or merger or share exchange, Employee had been the holder
of record of the number of shares of Stock as to which such Option is then
exercisable. If the Company shall not be the surviving or acquiring
corporation in any merger or share exchange, or if the Company is to be
dissolved or liquidated, then unless a surviving or acquiring entity assumes
or substitutes new options for this Option, (i) the time at which this
Option may be exercised shall be accelerated and this Option shall become
exercisable in full on or before a date fixed by the Company prior to the
effective date of such merger or share exchange or such dissolution or
liquidation, and (ii) upon such effective date this Option shall expire.
(d) Except as hereinbefore expressly provided, the issuance by
the Company of shares of stock of any class or securities convertible into
shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into
such shares or other securities, and in any case whether or not for fair
value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Stock subject to this Option or
the purchase price per share.
6. Administration. To the extent necessary for the administration
of elections made pursuant to Paragraph 7 hereof, this Option shall be
administered by the Stock Option Committee which administers the 1996
Incentive Stock Option Plan of the Company; or, at the direction of the
Board of Directors of the Company, such other committee (together with
such Stock Option Committee, the "Committee") of two or more directors
of the Company, each of whom is a Non-Employee Director, appointed by the
Board of Directors of the Company. The Committee is further authorized
to interpret this Option and may from time to time adopt such rules and
regulations, consistent with the provisions of this Option, as it may
deem advisable to carry out this Option. For purposes of this Option,
the term "Non-Employee Director" shall have the meaning provided for by
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
7. Withholding of Tax. To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income to Employee for federal or state
income tax purposes, except as hereinafter provided, Employee shall
deliver to the Company at the time of such exercise or disposition such
amount of money as the Company may require to meet its obligation under
applicable tax laws or regulations. Employee may elect with respect to
this Option to surrender or authorize the Company to withhold shares of
Stock (valued at their fair market value on the date of surrender or
withholding of such shares) in satisfaction of any such withholding
obligation (a "Stock Surrender Withholding Election"); provided, however,
that any Stock Surrender Withholding Election shall be made in accordance
with the rules and regulations adopted by the Committee for implementation
of the tax withholding provisions of this Paragraph 7. If Employee fails
to deliver such money or make a Stock Surrender Withholding Election
pursuant to this Paragraph 7, the Company is authorized to withhold from
any cash or Stock remuneration then or thereafter payable to Employee any
tax required to be withheld.
8. Status of Stock. The Company does not presently intend to
register for issue under the Securities Act of 1933, as amended (the
"Act"), the shares of Stock acquirable upon exercise of this Option, and
instead proposes to rely on the private offering exemption from the
registration requirements of the Act afforded by Section 4(2) thereof.
In order to assure that exemption from registration under the Act is
available upon an exercise of this Option, Employee, if requested by
the Company to do so, will execute and deliver to the Company in writing
an agreement containing such provisions as the Company may reasonably
require to assure compliance with applicable securities laws. No sale or
disposition of shares of Stock acquired upon exercise of this Option
shall be made in the absence of a registration statement being on file
with respect to such shares under the Act unless an opinion of counsel
satisfactory to the Company that such sale or disposition will not
constitute a violation of the Act or any other applicable securities
laws is first obtained. The certificates representing shares of Stock
acquired under this Option may bear such legend as the Company deems
appropriate, referring to the provisions of this Paragraph 8.
9. Registration Rights. With respect to any shares of Stock which
are issued and delivered upon exercise of (i) this Option and (ii) any
options granted to Employee pursuant to any of his prior Employment
Contracts (the "Shares"):
(a) Upon written request made by Employee at any time before
January 1, 2014, the Company shall take such steps as may be necessary
promptly to register (but not more than once), at the Company's sole
expense (save for any underwriting commissions or discounts applicable
to any Shares and Employee's counsel fees), such of the Shares under the
Act (and under regulations of the Securities and Exchange Commission under
the Act or under any similar federal act or acts then in effect and under
the so-called "Blue Sky" laws of the several states and regulations
thereunder then in effect), as Employee may by written request give to
the Company within 15 days following such initial request, desire to have
so registered. The Company will cause such a registration statement to be
filed within 90 days after the initial request is made. The Company will
use its best efforts to cause any such registration statement to become
and to remain effective and current for such period (not to exceed 120
days) as Employee may request.
(b) In connection with any registration under this Paragraph 9,
the parties agree to indemnify each other in the customary manner, and, in
the case of an organized secondary or primary underwritten offering, the
Company agrees to indemnify Employee and the underwriters and Employee
agrees to indemnify the Company, in the manner and to the extent as is
customary in secondary or primary underwritten offerings.
(c) The Company shall have the sole right to designate the
underwriters to be employed in any organized secondary or primary
underwritten offering under this Section 9.
(d) In connection with any registration under this Section 9,
Employee shall furnish to the Company such information regarding the
Shares and such other information as the Company may reasonably request.
10. Employment Relationship. Employee shall be considered to be
in the employment of the Company as long as he remains an employee of
either the Company, a parent or subsidiary corporation (as defined in
Section 424 of the Internal Revenue Code of 1986, as amended), or a
corporation or a parent or subsidiary of such corporation assuming or
substituting a new option for this Option. Any questions as to whether
and when there has been a termination of such employment, and the cause
of such termination, shall be determined by the Board of Directors of
the employing corporation, and its determination shall be final. No
obligation as to the length of the Employee's employment with any such
corporation shall be implied from the terms of this Agreement, and this
Agreement in no way modifies, alters, amends or impairs the provisions
of the Employment Contract.
11. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its officer thereunto duly authorized and its corporate
seal to be affixed hereunto, and Employee has executed this Agreement, all
as of the day and year first above written.
ATTEST: SOUTHWEST AIRLINES CO.
Xxxxxxx X. Xxxxxxx By: Xxxxx X. Xxxxxx
Secretary Vice President and General Counsel
EMPLOYEE
Xxxxxxx X. Xxxxxxxx
Exhibit 10.DOC
