EMPLOYMENT CONTRACT
Exhibit
10.4
THIS
EMPLOYMENT CONTRACT (hereinafter referred to as this “Agreement”),
dated as of July 15, 2007, by and between XXXX X. XXXXX
(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 Chief Executive Officer of Southwest since
July 15, 2004, pursuant to an Employment Contract dated as of such date (the
“Old Contract”); and
WHEREAS
the Employee and Southwest desire to enter into a successor agreement for the
continuing full-time services of the Employee, and to amend and restate certain
provisions of the Old Contract;
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,
DUTIES AND RESPONSIBILITIES. The Employee shall serve
as Chief Executive Officer of Southwest, and, for so long as he shall
be
elected to the Board of Directors of Southwest and so designated
by the
Board, he shall serve as Vice Chairman of the Board without additional
compensation hereunder. The Employee’s duties and
responsibilities as Chief Executive Officer shall include general
oversight of the operational performance of Southwest; managing costs
and
generating revenues in order to achieve excellent financial performance;
representing Southwest to its multitude of exterior constituencies;
implementing Southwest’s current and long range business policies and
programs; handling, or overseeing, major contract negotiations; and,
in
general, maintaining employee morale and esprit de
corps. In addition, he shall perform such other corporate
duties and discharge such other corporate responsibilities as are
specified in the bylaws of Southwest or are designated from time
to time
by either the Chairman of the Board of Directors of Southwest or
the full
Board of Directors.
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B.
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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.
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C.
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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.
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II. EMPLOYEE’S
OBLIGATIONS
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A.
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TIME
AND EFFORT. During the term of his employment
hereunder, the Employee shall devote such time and effort as is required
to perform his duties and to discharge his responsibilities
hereunder. The Employee shall generally conform with all
policies of Southwest as they apply to a person of his level of duties
and
responsibilities.
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B.
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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,
Pennsylvania, Rhode Island, Connecticut, North Carolina, Virginia,
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 February 1, 2011, 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
$424,065. The Board of Directors of Southwest (or the
Compensation Committee thereof) may grant a raise to the Employee
at such
times and in such amounts as such Board (or Committee) may determine.
The
Employee’s Base Salary shall be payable to the Employee in equal
semi-monthly installments. The Employee’s Base Salary
installment payments 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 his 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 the Old Contract, 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. 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).
The
Deferred Compensation credited to the Account (including the Interest
hereinafter provided) shall be paid to the Employee 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 become sixty-five
(65)
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 Contract, 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 his termination of employment with Southwest
is a “specified employee” within the meaning of such
section. Notwithstanding the foregoing, in the event of the
Employee’s death, then the unpaid balance of the Deferred Compensation
(together with any accrued Interest thereon) shall be paid 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.
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Except
with respect to the 415(c) Excess Amount elections, Paragraph IV-C of the Old
Contract 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 his 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 his
out-of-pocket expenses (including specifically all premiums and
deductibles) that the Employee may incur for himself, his spouse
and his
children under any such Southwest plan or program during the term
of this
Agreement. In addition, Southwest shall pay Employee the sum of
$10,000 per year to be applied to any supplemental insurance needs
he may
have, such amount to be payable on August 1 of each year during the
term
of this Agreement, beginning August 1,
2007.
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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 150,000 shares of its common stock. Such options were granted
pursuant to the Company’s 2007 Equity Incentive Plan and one-third of such
options were exercisable immediately and one-third will become exercisable
on each of July 15, 2008 and July 15, 2009. 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 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.
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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 February 1, 2011 (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 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.
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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 his 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 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 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 his 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 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.
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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 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;
provided, however, that if Employee is at his 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 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.
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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 him.
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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 in the English language 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 his 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/ Xxxx
X. Xxxxx
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Xxxx
X. Xxxxx
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Address: X.X.
Xxx 00000
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Xxxxxx,
Xxxxx 00000-0000
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