Exhibit 10.3
SOUTHWEST AIRLINES CO.
2003 NON-QUALIFIED STOCK OPTION PLAN
SOUTHWEST AIRLINES CO., a Texas corporation (the "Company"), hereby
formulates and adopts the following 2003 Non-Qualified Stock Option Plan.
1. Purpose. This Plan is to secure for the Company the benefits of
the additional incentive inherent in the ownership of its Common Stock by
employees of the Company and its subsidiaries who are important to the
success and the growth of the Company and its subsidiaries, and to help the
Company and its subsidiaries secure and retain the services of such
employees.
2. Administration. This Plan shall be administered by an
Administrative Committee (the "Committee") consisting of not more than five
(5) persons designated from time to time by the Chief Executive Officer of
the Company. Members of the Committee may be removed or replaced at any time
by the Chief Executive Officer of the Company. The Administrative Committee
shall select one of its members as Chairman and shall adopt such rules and
regulations as it shall deem appropriate concerning the holding of its
meetings, the transaction of its business and the administration of this
Plan. A majority of the whole Committee shall constitute a quorum, and the
act of a majority of the members of the Committee present at a meeting at
which a quorum is present shall be the act of the Committee; any decision or
determination reduced to writing and signed by a majority of the members of
the Administrative Committee shall be fully as effective as if made by a
majority vote at a meeting duly called and held.
3. Grant of Options; Persons Eligible.
(a) Persons Eligible. The Compensation Committee of the Board of
Directors of the Company, or such other committee as may be appointed by the
Board, shall have the authority and responsibility, within the limitations of
this Plan, to grant options from time to time to Employees of the Company.
Only Employees of the Company may be granted options under this Plan;
provided that under no circumstances shall Officers or Directors of the
Company be eligible to receive options hereunder.
(b) Grant Price. Options shall be granted at an exercise price equal
to the fair market value of the Common Stock of the Company on the date of
the grant of the option.
4. Definitions. An Employee receiving any option under this Plan is
referred to herein as an "Optionee." Any reference herein to the employment
of an Optionee with the Company shall include only employment with the
Company. The fair market value of the Common Stock on any day shall be the
mean between the highest and lowest quoted selling prices of the Common Stock
on such day as reported by the primary national stock exchange on which such
stock is listed. If no sale shall have been made on that day, or if the
Common Stock is not listed on a national exchange at that time, fair market
value will be determined by the Committee. If the date of grant is not a
business day, the grant price will be calculated using the immediately
preceding business day.
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5. Stock Subject to Options. Subject to the provisions of paragraph
12, the number of shares of the Company's Common Stock subject at any one
time to options, plus the number of such shares then outstanding pursuant to
exercises of options, granted under this Plan, shall not exceed 15,000,000
shares. If, and to the extent the options granted under this Plan terminate
or expire without having been exercised, new options may be granted with
respect to the shares covered by such terminated or expired options; provided
that the granting and terms of such new options shall in all respects comply
with the provisions of this Plan.
Shares sold or distributed upon the exercise of any option granted
under this Plan may be shares of the Company's authorized and unissued Common
Stock, shares of the Company's issued Common Stock held in the Company's
treasury, or both.
There shall be reserved at all times for sale or distribution under
this Plan a number of shares of Common Stock (either authorized and unissued
shares or shares held in the Company's treasury, or both) equal to the
maximum number of shares which may be purchased or distributed upon the
exercise of options granted under this Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of shares of Common Stock which may thereafter be available, both for
purposes of this Plan and for sale to any one individual, by the number of
shares as to which the Option is exercised.
6. Expiration and Termination of the Plan. This Plan will expire
ten years from the date this Plan was approved by the Board of Directors of
the Company, except as to any options then outstanding under this Plan, which
shall remain in effect until they have been exercised or expired.
No modification, extension, renewal or other change in any option
granted under this Plan shall be made after the grant of such option unless
the same is consistent with the provisions of this Plan.
7. Exercisability and Duration of Options.
(a) Exercisability. Options granted under this Plan shall become
exercisable at such times and in such amounts as may be determined by the
Compensation Committee of the Board of Directors of the Company at the time
of grant, or such other committee as may be appointed by the Board.
(b) Duration. The unexercised portion of any option granted under
this Plan shall automatically and without notice terminate and become null
and void at the time of the earliest to occur of the following:
(1) The expiration date of this Plan as determined in Paragraph
6 above;
(2) The expiration of three months from the date of termination
of the Optionee's employment with the Company (unless such termination was as
a result of the circumstances set forth in subparagraph (3) below); provided
that if the Optionee shall die during such 3-month period the provisions of
subparagraph (3) below shall apply;
(3) The expiration of 12 months from the Optionee's death, if
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the Optionee's death occurs either during his employment with the Company or
during the three-month period following the date of termination of such
employment; or
(4) Such other date as may be determined the Compensation
Committee of the Board of Directors of the Company at the time of grant, or
such other committee as may be appointed by the Board, but not later than the
expiration date of this Plan as determined in Paragraph 6 above .
In the case of subparagraphs (2) and (3) above, the Optionee
shall have the right to exercise any Option prior to such expiration to the
extent it was exercisable at the date of such termination of employment and
shall not have been exercised.
8. Exercise of Options.
(a) Procedure. The option granted herein shall be exercised by the
Optionee (or by the person who acquires such options by will or the laws of
descent and distribution or otherwise by reason of the death of the Optionee)
as to all or part of the shares covered by the option by giving notice of the
exercise thereof (the "Notice") to the Company. From time to time the
Committee may establish procedures relating to effecting such exercises. No
fractional shares shall be issued as a result of exercising an Option.
(b) Payment. In the Notice, the Optionee shall elect whether he or
she is to pay for his or her shares in cash or in Common Stock of the
Company, or both. If payment is to be made in cash, the Optionee shall
deliver to the Company funds in the amount of the exercise price on or before
the exercise date. If payment is to be made in Common Stock, (a) it shall be
valued at its fair market value on the date of such notice, as determined
pursuant to Paragraph 4 hereof; (b) such Common Stock must have been owned by
the Optionee for at least six months prior to the exercise date; and (c) the
Notice shall be accompanied by documentation as proof of ownership for the
number of shares of Common Stock to be used as payment.
(c) Irrevocable Election. The giving of such notice to the Company
shall constitute an irrevocable election to purchase the number of shares
specified in the notice on the date specified in the notice.
(d) Withholding Taxes. To the extent that the exercise of any Option
granted pursuant to this Plan or the disposition of shares of Common Stock
acquired by exercise of an Option results in compensation income to the
Optionee for federal or state income tax purposes, the Optionee 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, and, if the Optionee fails to do so, the Company is
authorized to (a) withhold delivery of certificates upon exercise and (b)
withhold from remuneration then or thereafter payable to Optionee any tax
required to be withheld by reason of such resulting compensation income.
(e) Delivery of Shares. The Company shall cause shares to be
delivered to the Optionee (or the person exercising the Optionee's options in
the event of death) as soon as practicable after the exercise date.
9. Nontransferability of Options. No option granted under this Plan
or any right evidenced thereby shall be transferable by the Optionee other
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than by will or the laws of descent and distribution. During the lifetime of
an Optionee, only the Optionee (or his or her guardian or legal
representative) may exercise his or her options.
In the event of the Optionee's death during his or her employment with
the Company, or during the three-month period following the date of
termination of such employment, the Optionee's options shall thereafter be
exercisable by his or her executor or administrator, or by the person who
acquires such options by will or the laws of descent and distribution or
otherwise by reason of the death of the Optionee.
10. Rights of Optionee. Neither the Optionee nor his or her
executors, administrators, or legal representatives shall have any of the
rights of a Shareholder of the Company with respect to the shares subject to
an option granted under this Plan until certificates for such shares shall
have been issued upon the exercise of such option.
11. Right to Terminate Employment. Nothing in this Plan or in any
option granted under this Plan shall confer upon any Optionee the right to
continue in the employment of the Company or affect the right of the Company
or any of its subsidiaries to terminate the Optionee's employment at any
time.
12. Adjustment Upon Changes in Capitalization, Etc.
(a) The existence of the Plan and the options granted hereunder 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 debt or equity securities ahead of or affecting Common Stock or the
rights thereof, the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of its assets or
business or any other corporate act or proceeding.
(b) The shares with respect to which options may be granted are shares
of Common Stock as presently constituted, but if, and whenever, prior to the
expiration of an option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the
Company, the number of shares of Common Stock with respect to which such
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, 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. In the event of any such change in the
outstanding Common Stock, the aggregate number of shares available under the
Plan shall be appropriately adjusted by the Board of Directors of the
Company, whose determination shall be conclusive.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an option theretofore granted the
Optionee shall be entitled to purchase under such option, in lieu of the number
of shares of Common Stock as to which such option shall then be exercisable, the
number and class of shares of stock and securities to which the Optionee would
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have been entitled pursuant to the terms of the recapitalization if,
immediately prior to such recapitalization, the Optionee had been the holder of
record of the number of shares of Common Stock as to which such option is then
exercisable. If the Company shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of an entity other than a
previously wholly-owned subsidiary of the Company) or if the Company is to be
dissolved or liquidated, then unless a surviving corporation assumes or
substitutes new options for Options then outstanding hereunder (i) the time at
which such Options may be exercised shall be accelerated and such Options shall
become exercisable in full on or before a date fixed by the Company prior to the
effective date of such merger or consolidation or such dissolution or
liquidation, and (ii) upon such effective date Options 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, 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 Common Stock subject to options theretofore granted or to be granted
or the purchase price per share.
13. Purchase for Investment and Legality. The Optionee, by acceptance of
any option granted under this Plan, shall represent and warrant to the Company
that the purchase or receipt of shares of Common Stock upon the exercise thereof
shall be for investment and not with a view to distribution, provided that such
representation and warranty shall be inoperative if, in the opinion of counsel
to the Company, a proposed sale or distribution of such shares is pursuant to
an applicable effective registration statement under the Securities Act of 1933
or is, without such representation and warranty, exempt from registration under
such Act. The Company shall file a Registration Statement on Form S-8 pursuant
to the Securities Act of 1933, as amended, covering the shares to be offered
pursuant to the Plan and will use its best efforts to maintain such registration
at all times necessary to permit holders of options to exercise them.
The obligation of the Company to issue shares upon the exercise of an
option shall also be subject as conditions precedent to compliance with
applicable provisions of the Securities Act of 1933, the Securities Exchange Act
of 1934, state securities laws, rules and regulations under any of the foregoing
and applicable requirements of any securities exchange upon which the Company's
securities shall be listed.
The Company may endorse an appropriate legend referring to the foregoing
restrictions upon the certificate or certificates representing any shares issued
or transferred to the Optionee upon the exercise of any option granted under
this Plan.
14. Effective Date of Plan; Amendments. This Plan shall become effective
upon its adoption by the Board of Directors of the Company.