ex10_2.htm


    
      

      

    

    
                                                                                                                                                                                                                                    Exhibit
      10.2

    
 

    SOUTHWEST
      AIRLINES CO.

    OUTSIDE
      DIRECTOR INCENTIVE PLAN

    (as
      amended and restated effective May 16, 2007)

    


    1.           Purpose.  The
      purpose of this Plan is to align more closely the interests of the Outside
      Directors of Southwest Airlines Co. (the “Company”) with those of the Company’s
      Shareholders and to provide the Outside Directors with retirement
      income.  To accomplish this purpose, the Plan compensates each Outside
      Director based on the performance of the Company’s Common Stock and defers the
      receipt of such compensation until after the Outside Director ceases to be
      a
      director of the Company.

     

    2.           Definitions.  As
      used in this Plan, the following words and phrases wherever capitalized shall
      have the following meanings unless the context clearly indicates that a
      different meaning is intended:

     

    (a)           “Board”
      shall mean the Board of Directors of the Company.

     

    (b)           “Committee”
      shall mean the Compensation Committee of the Board.

     

    (c)           “Common
      Stock” shall mean Common Stock, par value one dollar ($1.00) per share, of the
      Company.

     

    (d)           “Company”
      shall mean Southwest Airlines Co.

     

    (e)           
      “Fair Market Value” shall mean, with respect to Common Stock, the average
      closing sale price of Common Stock as reported on the New York Stock
      Exchange

            
      for the trading days that occur during a specified period.

     

    (f)            
      “Outside Director” shall mean a non-employee director of the
      Company.

     

    (g)           
      “Performance Bonus” shall, with respect to an Outside Director, have the meaning
      assigned to such term in Section 4.

     

    (h)           
      “Performance Share” shall mean a unit of value equal to the Fair Market Value of
      a share of Common Stock.

     

    (i)            
      “Plan” shall mean the Southwest Airlines Co. Outside Director Incentive Plan, as
      amended.

     

    (j)            
      “Service Ending Date” shall, with respect to any Outside Director, have the
      meaning assigned to such term in Section 4.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3.           Performance
      Shares.

     

    (a)           On
      the date of the 2002 Annual Meeting of Shareholders of the Company, the Company
      shall grant 750 Performance Shares to each Outside Director who has served
      as a
      director of the Company since at least May 2001.  Thereafter, (i) on
      the date of each Annual Meeting of Shareholders beginning in 2003, the Company
      shall grant 750 Performance Shares to each Outside Director who has served
      since
      the previous Annual Meeting; and (ii) on the date of each Annual Meeting of
      Shareholders beginning in 2007, the Company shall grant 1,000 Performance Shares
      to each Outside Director who has served since the previous Annual
      Meeting.  No pro-rated grants shall be made.  If a Director
      retires as of an Annual Meeting date, such Director shall be awarded Performance
      Shares for the preceding year if he or she has so served.

     

    (b)           The
      Company shall appropriately record each grant of Performance Shares on its
      books
      and shall notify each Outside Director of the number of Performance Shares
      granted and such other terms and conditions consistent with the Plan as the
      Committee shall determine.

     

    4.           Distribution.  On
      the 30th
      calendar day following such date (the “Service Ending Date”) as an Outside
      Director shall cease serving as a director of the Company, the Company shall
      pay
      to such Outside Director an amount (the “Performance Bonus”) equal to the Fair
      Market Value of Common Stock during the 30 days preceding such Outside
      Director’s Service Ending Date multiplied by the number of Performance Shares
      then held by such Outside Director.  An Outside Director’s Performance
      Bonus shall be paid to him or her in a lump sum. Distribution with respect
      to an
      Outside Director shall not be made or commence before the Outside Director
      ceases serving as a director of the Company. Upon the death of an Outside
      Director while serving on the Board, such Outside Director’s Performance Bonus
      at the time of his or her death shall be paid to the person who acquires such
      right by will or the laws of descent and distribution or otherwise by reason
      of
      the death of the Outside Director.

     

    5.           Administration.  The
      Plan shall be administered by the Committee. The Committee may, by a writing
      signed by a majority of its members, delegate to any member or members of the
      Committee or to any Employee or Employees of the Company the authority to
      perform any ministerial act in connection with the administration of the
      Plan.

     

    The
      Committee shall have the authority
      to control and manage the operation and administration of the Plan and the
      discretion to construe Plan provisions.  Subject to the provisions of
      the Plan, the Committee may from time to time establish rules for the
      administration and interpretation of the Plan.  The final
      determination of the Committee as to any disputed questions shall be
      conclusive.

     

    6.           Adjustment
      on Changes in Capitalization.  In the event of any merger,
      reorganization, consolidation, recapitalization, separation, spin-off,
      liquidation, stock dividend, split-up, share combination, or other change in
      the
      corporate or capital structure of the Company affecting the Common Stock and
      occurring during the term of an Outside Director’s service as a director of the
      Company, the number of Performance Shares previously granted to such Outside
      Director pursuant to this Plan shall be equitably adjusted to prevent dilution
      or enlargement of such Outside Director’s rights hereunder and, if necessary,
      provision shall be made for the substitution for the Performance Shares of
      new
      performance shares related to the securities of a successor corporation or
      an
      affiliate thereof, with appropriate adjustments as to the number and kind of
      securities; provided that the total number of Performance Shares granted
      hereunder shall always be a whole number.

     

    The
      existence of the Plan and the
      Performance Shares granted hereunder shall not affect in any way the right
      or
      power of the Board 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.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    7.           Miscellaneous.

     

    (a)           Unsecured
      Creditor Status.  This Plan, the Performance Shares to be granted
      pursuant hereto, and the payment of Performance Bonuses as contemplated herein
      are intended to constitute an “unfunded” compensation arrangement for tax
      purposes and for purposes of Title I of ERISA.  The Plan shall not be
      construed to create or require the Company to create a trust of any kind to
      fund
      the amounts payable hereunder.  To the extent an Outside Director or
      other person acquires a right to receive payments from the Company in accordance
      with the Plan, such right shall be no greater than the right of any general
      unsecured creditor of the Company.

     

    (b)           No
      Shareholder or Director Rights.  The Performance Shares are not
      shares of Common Stock of the Company.  Neither this Plan nor the
      grant of any Performance Shares shall confer on any Outside Director any right
      to continue serving as a director of the Company.  Neither any Outside
      Director nor any beneficiary of an Outside Director shall have any of the rights
      of a Shareholder of the Company with respect to the Performance Shares
      including, without limitation, any right to receive dividends or dividend
      equivalents declared or paid on the Common Stock.

     

    (c)           Nontransferability.  Performance
      Shares may not be sold, transferred, or otherwise disposed of and may not be
      pledged, hypothecated, or otherwise encumbered, except by will or the laws
      of
      descent and distribution.  The right of any Outside Director or any
      beneficiary to payments under the Plan shall not be subject to alienation,
      assignment, garnishment, attachment, execution, or levy of any kind, and any
      attempt to cause such amounts to be so subjected shall not be recognized by
      the
      Company.

     

    (d)           Amendment
      and Termination.  The Board reserves the right to amend the Plan
      from time to time or terminate the Plan; provided, however, that no such
      amendment or termination shall adversely affect the rights of any Outside
      Director or beneficiary, without such person’s prior written consent, with
      respect to Performance Shares granted prior to such amendment or
      termination.  Performance Shares granted prior to an amendment or
      termination of the Plan shall remain in full force and effect as if the Plan
      had
      not been amended or terminated.

     

    IN
      WITNESS WHEREOF, the undersigned certifies that the Board adopted the foregoing
      Plan on the 16th day of May 2007.

     

    
      	
              /s/
                Herbert D. Kelleher

            
	
              Herbert
                D. Kelleher, Chairman of the Board of Directors of

            
	
              Southwest
                Airlines Co.