EXHIBIT 4.2
SOUTHWEST AIRLINES CO.
2002 BONUS SWAPA NON-QUALIFIED
STOCK OPTION PLAN
SOUTHWEST AIRLINES CO., a Texas corporation (the "Company"), hereby
formulates and adopts the following 2002 Bonus SWAPA Non-Qualified Stock Option
Plan.
1. PURPOSE. This Plan is adopted pursuant to proposed Letter of
Agreement No. 26, to the Collective Bargaining Agreement (the "Agreement")
between the Company and the Southwest Airlines Pilots Association ("SWAPA")
ratified on January 12, 1995.
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,
including as one of its members the President of SWAPA or his or her designee.
Members of the Committee (except the President of SWAPA or his designee) 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. The Stock Option 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 persons employed
as Pilots (including Pilots in management positions retaining seniority numbers
("Management Pilots") by the Company pursuant to the Agreement and as set forth
in the schedule attached as Exhibit A and made a part hereof. 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 with initial grants on the
date of ratification of Letter of Agreement No.
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2002 SWAPA NON-QUALIFIED STOCK OPTION PLAN Page 1
26. Only persons who are employed as Pilots of the Company, including Management
Pilots on the date of the grant may be granted options under this Plan; under no
circumstances shall officers of the Company be eligible to receive options
hereunder.
4. DEFINITIONS. An employee receiving any option under this Plan is
hereinafter referred to 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.
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 7,200,000 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 on
December 31, 2006, except as to any options then outstanding under this Plan,
which shall remain in effect until they have been exercised or expired.
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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 pursuant to the vesting schedule and requirements set forth in
Exhibit A attached hereto.
(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 of twelve years from the date of grant;
(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 subparagraphs (3)
or (4) 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
the Optionee's death occurs either during his employment with the Company,
during the three-month period following the date of termination of such
employment, or during the 24-month period following retirement as a result of
FAA-imposed mandatory retirement age; or
(4) The expiration of 24 months following the retirement of
the Optionee as a result of FAA-imposed mandatory retirement age; provided that
if the Optionee shall die during such 24-month period, the provisions of
subparagraph (3) above shall apply.
In the case of subparagraphs (2), (3) and (4) 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
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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 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, during the three-month period following the date of termination of
such employment, or during the 24-month period following FAA-mandated
retirement, 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
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2002 SWAPA NON-QUALIFIED STOCK OPTION PLAN Page 4
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;
subject, however, to the provisions of the Agreement.
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; likewise, the
number of shares to be granted pursuant to the schedule set forth in Exhibit A
shall be appropriately adjusted. 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
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
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2002 SWAPA NON-QUALIFIED STOCK OPTION PLAN Page 5
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. This Plan shall become effective upon its
adoption by the Board of Directors of the Company; provided, however, if the
Agreement is not ratified by SWAPA on or before August 20, 2002, this Plan shall
be null and void.
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EXHIBIT A
STOCK OPTION GRANTS
On the Date of Ratification of Letter Agreement No. 26 to the
Agreement, options will be granted to persons employed as Pilots by the Company
(including Management Pilots) according to the following schedule.
OPTION AMOUNTS PER MONTH OF HIRE
<Table>
<Caption>
MONTH OF HIRE
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR OF HIRE Sep Oct Nov Dec Jan Feb Mar Apr
- ----------------------------------------------------------------------------------------------------------------------------------
Before Sep 1983 -- -- -- -- -- -- -- --
Sep 1983 - Aug 1984 40 40 40 40 39 39 39 39
Sep 1984 - Aug 1985 118 118 117 117 116 115 115 114
Sep 1985 - Aug 1986 272 271 270 268 267 266 265 263
Sep 1986 - Aug 1987 499 497 495 493 491 489 487 485
Sep 1987 - Aug 1988 798 795 792 789 786 783 780 777
Sep 1988 - Aug 1989 1,166 1,162 1,158 1,154 1,151 1,147 1,143 1,139
Sep 1989 - Aug 1990 1,604 1,593 1,581 1,570 1,558 1,547 1,536 1,524
Sep 1990 - Aug 1991 2,032 2,013 1,994 1,974 1,955 1,936 1,917 1,897
Sep 1991 - Aug 1992 2,447 2,420 2,393 2,365 2,338 2,311 2,284 2,256
Sep 1992 - Aug 1993 2,847 2,811 2,776 2,740 2,705 2,669 2,634 2,598
Sep 1993 - Aug 1994 3,188 3,143 3,097 3,051 3,005 2,960 2,914 2,868
Sep 1994 - Aug 1995 2,640 2,585 2,529 2,474 2,419 3,090 3,035 2,980
Sep 1995 - Aug 1996 3,349 3,286 3,223 3,160 3,097 3,034 2,971 2,908
Sep 1996 - Aug 1997 3,157 3,088 3,019 2,950 2,880 2,811 2,742 2,672
Sep 1997 - Aug 1998 2,810 2,736 2,662 2,588 2,514 2,440 2,365 2,291
Sep 1998 - Aug 1999 2,325 2,249 2,173 2,098 2,022 1,947 1,871 1,796
Sep 1999 - Aug 2000 1,741 1,692 1,643 1,594 1,545 1,496 1,447 1,398
Sep 2000 - Aug 2001 1,395 1,351 1,308 1,264 1,220 1,176 1,132 1,089
Sep 2001 - Aug 2002 1,031 992 954 915 876 837 798 759
Sep 2002 - Aug 2003 646 612 578 544 510 476 442 408
Sep 2003 - Aug 2004 238 218 198 178 159 139 119 99
<Caption>
MONTH OF HIRE
- ------------------------------------------------------------------------------------
YEAR OF HIRE May Jun Jul Aug
- ------------------------------------------------------------------------------------
Before Sep 1983 -- -- -- --
Sep 1983 - Aug 1984 39 38 38 38
Sep 1984 - Aug 1985 113 113 112 111
Sep 1985 - Aug 1986 262 261 260 258
Sep 1986 - Aug 1987 483 481 479 477
Sep 1987 - Aug 1988 774 771 768 765
Sep 1988 - Aug 1989 1,135 1,131 1,127 1,123
Sep 1989 - Aug 1990 1,513 1,501 1,490 1,478
Sep 1990 - Aug 1991 1,878 1,859 1,840 1,821
Sep 1991 - Aug 1992 2,229 2,202 2,175 2,147
Sep 1992 - Aug 1993 2,563 2,528 2,492 2,457
Sep 1993 - Aug 1994 2,823 2,777 2,731 2,686
Sep 1994 - Aug 1995 2,924 2,869 2,814 2,759
Sep 1995 - Aug 1996 2,845 2,782 2,718 2,655
Sep 1996 - Aug 1997 2,603 2,534 2,464 2,395
Sep 1997 - Aug 1998 2,217 2,143 2,069 1,995
Sep 1998 - Aug 1999 1,720 1,645 1,569 1,494
Sep 1999 - Aug 2000 1,349 1,300 1,251 1,202
Sep 2000 - Aug 2001 1,045 1,001 957 913
Sep 2001 - Aug 2002 721 682 643 604
Sep 2002 - Aug 2003 374 340 306 272
Sep 2003 - Aug 2004 79 59 40 20
</Table>
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2002 SWAPA BONUS NON-QUALIFIED STOCK OPTION PLAN Page 1
Vesting Requirements
Options will vest immediately for all Pilots on paid status; Pilots on
unpaid status on the grant date will vest upon returning to paid status by
September 1, 2004.
New Hire Grants and Vesting
Pilots hired after Date of Ratification will receive options according
to Exhibit A. Options will be granted on the Date of Hire and will vest upon
successfully completing probation.
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