Southwest Airlines 1996 Annual Report Download - page 41

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41
Rights at $.0111 per Right prior to the time that 15 percent of the common stock has been
acquired by a person or group. If the Company is acquired, as defined in the Agreement, each
Right will entitle its holder to purchase for $16.67 that number of the acquiring company’s or the
Company’s common shares, as provided in the Agreement, having a market value of two times
the exercise price of the Right. The Rights will expire no later than July 30, 2006.
7. STOCK PLANS
At December 31, 1996, the Company had six stock-based compensation plans and other
stock options outstanding, which are described below. The Company applies APB 25 and related
Interpretations in accounting for its stock-based compensation. Accordingly, no compensation
cost is recognized for its fixed option plans because the exercise prices of the Company’s
Employee stock options equal the market prices of the underlying stock on the date of the grants.
Compensation cost charged against income for other options outstanding was $649,778,
$564,251, and $451,400 for 1996, 1995, and 1994, respectively.
The Company has five fixed option plans. Under the 1991 Incentive Stock Option Plan,
the Company may grant options to key Employees for up to 9,000,000 shares of common stock.
Under the 1991 Non-Qualified Stock Option Plan, the Company may grant options to key
Employees and non-employee directors for up to 750,000 shares of common stock. All options
granted under these plans have ten-year maximum terms and vest and become fully exercisable at
the end of three, five, or ten years of continued employment, depending upon the grant type.
Under the 1995 Southwest Airlines Pilots’ Association Non-Qualified Stock Option Plan
(SWAPA Plan), the Company may grant options to Pilots for up to 18,000,000 shares of
common stock. An initial grant of approximately 14,500,000 shares was made on January 12,
1995 at an option price of $20.00 per share, which exceeded the market price of the Company’s
stock on that date. Options granted under the initial grant vest in ten annual increments of ten
percent. On September 1 of each year of the agreement, beginning September 1, 1996, additional
options will be granted to Pilots that become eligible during that year. Additional options granted
on September 1, 1996 vest in eight annual increments of 12.5 percent. Options under both grants
must be exercised prior to January 31, 2007, or within a specified time upon retirement or
termination. In the event that the Southwest Airlines Pilots’ Association exercises its option to
make the collective bargaining agreement amendable on September 1, 1999, any unexercised
options will be canceled on December 1, 1999.