SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Confidential, for Use of the
[_]Preliminary Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
US AIRWAYS GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_]$500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
US Airways Group, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
September 19, 2001
Washington, D.C.
----------------
August 17, 2001
To the Stockholders of
US Airways Group, Inc.
The 2001 annual meeting of stockholders of US Airways Group, Inc. (the
"Company") will be held at the Capital Hilton Hotel, 16th & K Streets, N.W.,
Washington, D.C. on September 19, 2001 at 9:30 a.m. local time, to consider
and act on the following matters:
1. The election of 12 directors to hold office for one year or until
their successors are elected and qualified (Item No. 1).
2. Ratification of the selection of auditors of the Company for fiscal
year 2001 (Item No. 2).
3. Approval of an amendment of the Nonemployee Director Stock Incentive
Plan of the Company to make available for grant an additional 90,000
shares of Common Stock and extend the term of the plan. (Item No.
3).
4. Consideration of one stockholder proposal as described in the
accompanying Proxy Statement (Item No. 4).
5. The transaction of such other business as may properly come before
the meeting.
Eligible stockholders of record at the close of business on July 31, 2001
will be entitled to vote at the meeting. A list of stockholders entitled to
vote at the meeting may be examined at the executive offices of the Company at
2345 Crystal Drive, Arlington, Virginia.
By Order of the Board of Directors
Jennifer C. McGarey
Secretary
If you do not expect to attend the meeting in person, please sign and date
the accompanying proxy and return it promptly in the enclosed envelope, which
requires no postage if mailed in the United States.
US Airways Group, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 19, 2001
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INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board of Directors") of US Airways Group, Inc. (the
"Company") of proxies to be voted at the annual meeting of stockholders in
Washington, D.C. on September 19, 2001. Enclosed with this Proxy Statement is
a notice of the meeting, together with a proxy for your signature if you are
unable to attend. Stockholders who execute proxies may revoke them at any time
before they are voted. Any proxy may be revoked by the person giving it any
time before it is voted by delivering to the Secretary of the Company at 2345
Crystal Drive, Arlington, Virginia 22227, on or before the business day prior
to the meeting or at the meeting itself, a subsequent written notice of
revocation or a subsequent proxy relating to the same shares or by attending
the meeting and voting in person. The approximate date on which this Proxy
Statement and the accompanying form of proxy will first be sent to the
Company's stockholders is August 17, 2001.
Shares of the Company's common stock, par value $1.00 per share ("Common
Stock"), represented by properly executed proxies received prior to or at the
meeting, unless such proxies have been revoked, will be voted in accordance
with the instructions indicated in the proxies. If no instructions are
indicated on a properly executed proxy of the Company, the shares will be
voted in accordance with the recommendations of the Board of Directors.
Stockholders of record at the close of business on July 31, 2001 (the
"Record Date") are entitled to vote at the meeting. On July 31, 2001 the
Company had outstanding 67,070,353 shares of Common Stock. Each share of
Common Stock is entitled to one vote, except as set forth below. From time to
time, the voting power of the Common Stock may be limited by then applicable
U.S. statutory and U.S. Department of Transportation regulatory foreign
ownership restrictions ("Foreign Ownership Restrictions") the breach of which
could result in the loss of any operating certificate or authority of the
Company or certain of its subsidiaries. As of the date hereof, the Company
does not believe that Foreign Ownership Restrictions limit the voting power of
any Common Stock and the Company expects that the holders thereof will be
entitled to their full voting power at the annual meeting.
Required Votes
The vote of the holders of a plurality of the votes cast by holders of
shares of Common Stock will elect candidates for director (Item No. 1 on your
proxy). Abstentions or broker non-votes as to the election of directors will
not affect the election of the candidates receiving the plurality of votes.
The vote of the holders of at least a majority of the shares of Common Stock
present in person or represented by proxy at the meeting and entitled to vote
is required (i) to ratify the Board of Directors' appointment of KPMG LLP as
the Company's independent public accountants for 2001 (Item No. 2), (ii) to
approve an increase in the number of shares of Common Stock available under
the Nonemployee Director Stock Incentive Plan of the Company and to extend the
term of the plan (Item No. 3), and (iii) to approve the stockholder proposal
regarding cumulative voting (Item No. 4).
Therefore, abstentions as to these particular proposals will have the same
effect as votes against such proposals. With respect to Items No. 2 and No. 3,
broker non-votes will be treated as votes against the proposal. With respect
to Item No. 4, however, broker non-votes will be deemed shares of stock not
entitled to vote on such proposal and will not be counted as votes for or
against such proposal, and will not be included in calculating the number of
votes necessary for approval of such proposal.
BENEFICIAL SECURITY OWNERSHIP
The following information pertains to Common Stock beneficially owned by all
directors, nominees for director and executive officers of the Company (or its
principal operating subsidiary, US Airways, Inc. ("US Airways")) as of July
31, 2001. Information with respect to beneficial ownership is based upon
information furnished by each director, nominee for director and executive
officer of the Company. Unless indicated otherwise by footnote, the owner
exercises sole voting and investment power over the securities (other than
unissued securities, the ownership of which has been imputed to such owner).
Number of Percent of
Owner Shares Class(1)
----- --------- ----------
Directors and Nominees for Director
Mathias J. DeVito............................ 9,500(2)
Rakesh Gangwal............................... 2,089,462(3) 3.1%
Peter M. George.............................. 4,370(4)
Robert L. Johnson............................ 7,133(5)
Robert LeBuhn................................ 28,788(2)(6)
John G. Medlin, Jr........................... 12,500(2)
Hanne M. Merriman............................ 9,000(2)
Thomas H. O'Brien............................ 5,375(4)
Hilda Ochoa-Brillembourg..................... 19,132(4)(7)
Richard B. Priory............................ 4,171(4)
Raymond W. Smith............................. 12,465(2)
Stephen M. Wolf.............................. 2,523,141(8) 3.8%
Executive Officers
Lawrence M. Nagin............................ 384,822(9)
B. Ben Baldanza.............................. 126,480(10)
Thomas A. Mutryn............................. 152,026(11)
20 directors and executive officers of the
Company as a group............................ 5,823,863(12) 8.7%
- --------
(1) Percentages are shown only where they exceed one percent of the number of
shares outstanding and are based on shares of Common Stock outstanding on
July 31, 2001.
(2) These holdings include 7,500 shares of Common Stock issuable within 60
days of July 31, 2001 upon exercise of stock options.
(3) Mr. Gangwal's holdings include 93,750 shares of Common Stock which are
subject to certain restrictions ("Restricted Stock") and 1,475,000 shares
of Common Stock issuable within 60 days of July 31, 2001 upon exercise of
stock options.
(4) These holdings include 3,000 shares of Common Stock issuable within 60
days of July 31, 2001 upon exercise of stock options.
(5) These holdings include 4,500 shares of Common Stock issuable within 60
days of July 31, 2001 upon exercise of stock options.
(6) These holdings include 10,000 shares of Common Stock held in trust.
(7) These holdings include 14,000 shares of Common Stock held jointly by Ms.
Ochoa-Brillembourg and her spouse.
(8) Mr. Wolf's holdings include 75,000 shares of Restricted Stock and
1,825,000 shares of Common Stock issuable within 60 days of July 31, 2001
upon exercise of stock options.
(9) Mr. Nagin's holdings include 20,625 shares of Restricted Stock and
300,000 shares of Common Stock issuable within 60 days of July 31, 2001
upon exercise of stock options.
(10) Mr. Baldanza's holdings include 30,000 shares of Restricted Stock and
90,000 shares of Common Stock issuable within 60 days of July 31, 2001
upon exercise of stock options.
(11) Mr. Mutryn's holdings include 38,749 shares of Restricted Stock and
100,000 shares of Common Stock issuable within 60 days of July 31, 2001
upon exercise of stock options.
(12) All directors' and executive officers' holdings include 357,499 shares of
Restricted Stock and 4,129,500 shares of Common Stock issuable within 60
days of July 31, 2001 upon exercise of stock options.
2
Set forth below are the number of options and units of phantom stock of the
Company ("Deferred Stock Units") held by each director pursuant to the
director compensation programs. See "Compensation of Directors" below.
Although each Deferred Stock Unit represents the economic equivalent of a
share of Common Stock, no voting rights are attached thereto and the Deferred
Stock Units lack certain other attributes of Common Stock.
Number of Number of Director
Owner Deferred Stock Units Stock Options(1)
----- -------------------- ------------------
Directors
Mathias J. DeVito................ 10,569.29 7,500
Rakesh Gangwal................... -0- -0-
Peter M. George.................. 1,000.00 3,000
Robert L. Johnson................ 1,500.00 4,500
Robert LeBuhn.................... 9,611.38 7,500
John G. Medlin, Jr. ............. 9,685.42 7,500
Hanne M. Merriman................ 6,739.13 7,500
Thomas H. O'Brien................ 1,000.00 3,000
Hilda Ochoa-Brillembourg......... 1,000.00 3,000
Richard B. Priory................ 1,000.00 3,000
Raymond W. Smith................. 5,194.78 7,500
Stephen M. Wolf.................. -0- -0-
- --------
(1) The holdings for Messrs. DeVito, LeBuhn, Medlin and Smith and Ms. Merriman
include 7,500 shares of Common Stock issuable within 60 days of July 31,
2001 upon the exercise of stock options. The holdings for Mr. Johnson
include 4,500 shares of Common Stock issuable within 60 days of July 31,
2001 upon the exercise of stock options. The holdings for Messrs. George,
O'Brien and Priory and Ms. Ochoa-Brillembourg include 3,000 shares of
Common Stock issuable within 60 days of July 31, 2001. These options are
also reflected in the Beneficial Security Ownership table on page 2.
The only persons known to the Company (from Company records and reports on
Schedules 13D and 13G filed with the Securities and Exchange Commission (the
"SEC")) which owned, as of July 31, 2001, more than 5% of its Common Stock are
listed below:
Percent
Name and address Amount and nature of
Title of Class of beneficial owner of beneficial ownership Class(1)
-------------- ------------------- ----------------------- --------
Common Stock Morgan Stanley 4,019,551(2) 5.99%
Dean Witter &
Co.
1585 Broadway
New York, New
York 10036
Common Stock Tiger Management 16,512,700(3) 24.62%
LLC
Tiger
Performance LLC
101 Park Avenue
New York, New
York 10178
- --------
(1) Represents percentage of shares of Common Stock outstanding on July 31,
2001.
(2)As set forth in a Schedule 13G, dated January 31, 2001, as of December 31,
2000.
(3)As set forth in a Schedule 13G, dated January 26, 2001, as of December 31,
2000.
3
ELECTION OF DIRECTORS (Item No. 1)
Pursuant to the by-laws of the Company, the Board of Directors consists of
12 members. All of the directors were elected in May, 2000 by the stockholders
of the Company. Each director of the Company is also a director of the
Company's principal operating subsidiary, US Airways. Directors will be
elected to hold office for one year or until the election and qualification of
their successors. Proxies will be voted only for the nominees named below.
Except as noted otherwise, the following biographies describe the business
experience of each nominee for at least the past five years.
Served as
director
since
---------
Mathias J. DeVito, 70... Mr. DeVito is Chairman Emeritus of The Rouse 1981
Company (real estate development and manage-
ment). He serves as a Director of Mars Supermar-
kets, Inc., AfterHours Formalwear, Inc. and
Sitel Corporation. He is a member of the Board
of the Maryland Institute, College of Art, and
former Chairman of the Greater Baltimore Commit-
tee. Mr. DeVito is Chairman of the Human Re-
sources Committee and a member of the Executive
and Safety Committees of the Board of Directors.
Rakesh Gangwal, 48...... Mr. Gangwal became President and Chief Executive 1996
Officer of the Company on November 18, 1998 and
President and Chief Executive Officer of US Air-
ways on May 20, 1998. Mr. Gangwal had been Pres-
ident and Chief Operating Officer of the Company
and US Airways since February 19, 1996. Prior
thereto, Mr. Gangwal had served as Executive
Vice President--Planning and Development of Air
France since November 1994. Mr. Gangwal previ-
ously served in a variety of management roles at
United Air Lines, Inc. over an eleven-year peri-
od, culminating in the role of Senior Vice Pres-
ident--Planning. Mr. Gangwal is a Director of
Boise Cascade Corporation.
Peter M. George, 57..... Mr. George was, until he retired in August 2000, 1998
Vice Chairman and Chief Executive Officer of
Hilton Group PLC (hotel and gaming industries)
and held such position since 1994. Mr. George
also serves as a Director of the Hilton Hotels
Corporation and Magna Entertainment Corporation.
Mr. George is a member of the Nominating and
Human Resources Committee of the Board of
Directors.
Robert L. Johnson, 55... Mr. Johnson is the Chairman and Chief Executive 1998
Officer of BET Holdings, Inc., a subsidiary of
Viacom Inc. (media-entertainment holding compa-
ny). Mr. Johnson also serves as a Director of
the Hilton Hotels Corporation, The United Negro
College Fund, the National Cable and Telecommu-
nications Association, the American Film Insti-
tute, General Mills Corporation, and Gerald Ste-
vens Corporation. He is a member of the Audit
and Nominating Committees of the Board of Direc-
tors.
4
Served as
director
since
---------
Robert LeBuhn, 69....... Mr. LeBuhn is a private investor and is a Direc- 1966
tor of Cambrex Corporation and Enzon, Inc. He is
Trustee and Chairman of the Geraldine R. Dodge
Foundation, Morristown, New Jersey; a trustee
and Treasurer of All Kinds of Minds, Chapel
Hill, North Carolina; a trustee of Executive
Service Corps, Aspen, Colorado; director of The
International Research Foundation for Children's
Eyecare, Inc., New York and a member of the Na-
tional Council of the Aspen Music Festival and
School in Aspen, Colorado. He is Chairman of the
Safety Committee and a member of the Audit and
Executive Committees of the Board of Directors.
John G. Medlin, Jr., 67. Mr. Medlin is Chairman Emeritus and, until 1987
April, 1998, was Chairman of the Board of Wacho-
via Corporation (bank holding company), a posi-
tion he had held since 1988. Mr. Medlin also
served as Chief Executive Officer of Wachovia
Corporation from 1977 until December 31, 1993.
Mr. Medlin is a trustee of The Duke Endowment,
the Kenan Institute for Ethics, the National Hu-
manities Center, Wake Forest University, the Re-
search Triangle Foundation, the Winston-Salem
Foundation and a member of the North Carolina
Judicial Council. He also is a Director of
BellSouth Corporation, Burlington Industries,
Inc., Media General, Inc., and R.J. Reynolds To-
bacco Holdings, Inc. He is Chairman of the Nomi-
nating Committee and a member of the Executive
and Human Resources Committees of the Board of
Directors.
Hanne M. Merriman, 59... Mrs. Merriman is the Principal in Hanne Merriman 1985
Associates (retail business consultants). Mrs.
Merriman is a Director of Ameren Corporation,
Central Illinois Public
Service Company, State Farm Mutual Automobile
Insurance Company, The Rouse Company, Ann Taylor
Stores Corporation, T. Rowe Price Mutual Funds,
and Finlay Enterprises, Inc. She is a member of
the National Women's Forum and a Director of
Children's Hospital Foundation. She was a member
of the Board of Directors of the Federal Reserve
Bank of Richmond, Virginia from 1984-1990 and
served as Chairman in 1989-1990. Mrs. Merriman
is Chairman of the Audit Committee and is a mem-
ber of the Human Resources and Safety Committees
of the Board of Directors.
Thomas H. O'Brien, 64... Mr. O'Brien is Chairman of the Executive Commit- 1999
tee of The PNC Financial Services Group, Inc.
(diversified financial services) and has held
this title since May 2001. He also served as
Chairman of the PNC Financial Services Group,
Inc. and Chairman of PNC Bank, National Associa-
tion and held those combined titles from May
2000 to May 2001. He served as Chairman and
Chief Executive Officer from June 1988 until May
2000. Mr. O'Brien serves as a Director of
Verizon Communications, Inc., Viasystems Inc.,
BlackRock, Inc. and Hilb, Rogal & Hamilton Com-
pany. He also is a board member of the Extra
Mile Education Foundation,
5
Served as
director
since
---------
the Carnegie Museums of Pittsburgh, Pittsburgh
Opera, University of Pittsburgh, and theBoard of
Visitors, University of Pittsburgh's Graduate
School of Business. Mr. O'Brien is a member of
the Audit and Safety Committees of the Board of
Directors.
Hilda Ochoa- Ms. Ochoa-Brillembourg is President and Chief 1999
Brillembourg, 57....... Executive Officer of Strategic Investment
Management, Emerging Markets Investment
Corporation and Emerging Markets Management
(investment management), and has held such
position since 1987. Prior to that, she was the
Chief Investment Officer of the Pension
Investment Division at the World Bank. Ms.
Ochoa-Brillembourg serves as a Director of World
Bank/ International Monetary Fund Credit Union
and also the Harvard Management Company. Ms.
Ochoa-Brillembourg is also a trustee of the
Washington Opera, and the Rockefeller Center for
Latin American Studies at Harvard University.
She is a member of the Audit and Nominating
Committees of the Board of Directors.
Richard B. Priory, 55... Mr. Priory is Chairman of the Board, President 1999
and Chief Executive Officer of the Duke Energy
Corporation (global energy services). Prior to
that, he was President and Chief Operating Offi-
cer of Duke Power Company from 1994 until its
merger with Pan Energy Corporation in 1997. Mr.
Priory joined Duke Power Company in 1976. He is
a member of the Board of Directors of the Dana
Corporation, and the Foundation of the Univer-
sity of North Carolina at Charlotte. Mr. Priory
is a member of the Nominating and Safety Commit-
tees of the Board of Directors.
Raymond W. Smith, 63.... Mr. Smith is the founding partner of Arlington 1990
Capital Partners. He is also Chairman of Roths-
child North America, Inc. (international invest-
ment banking) and Chairman of Bell Atlantic Ven-
tures. Prior to that he was Chairman of the
Board and Chief Executive Officer of Bell Atlan-
tic Corporation from 1989 until December 1998.
Previously, Mr. Smith had served as Vice Chair-
man and President of Bell Atlantic and Chairman
of The Bell Telephone Company of Pennsylvania.
He is a trustee of Carnegie Mellon University
and the Lincoln Center Theater and serves on the
boards of Carnegie Corporation and Stonebridge
Technologies, Inc. He is a member of the Execu-
tive and Human Resources Committees of the Board
of Directors.
6
Served as
director
since
---------
Stephen M. Wolf, Mr. Wolf is Chairman of the Board of Directors 1996
60................. of the Company and US Airways and was first
elected to those positions in January 1996. Mr.
Wolf also served as Chief Executive Officer of
the Company from January 1996 until November
1998, and as the Chief Executive Officer of US
Airways from January 1996 until May 1998. Imme-
diately prior to joining US Airways, Mr. Wolf
was a senior advisor to the investment bank La-
zard Freres & Co. Mr. Wolf was Chairman and
Chief Executive Officer of UAL Corporation and
United Air Lines, Inc. from December 1987 until
July 1994. Mr. Wolf is a Director of Philip Mor-
ris Companies, Inc., R.R. Donnelley & Sons Co.,
The Brookings Institution, Georgetown University
and the World Wildlife Fund. Mr. Wolf is also
Chairman of the Executive Committee.
Committees and Meetings of the Board of Directors
The Board of Directors of the Company held fourteen meetings in 2000. The
Board of Directors has established the following standing committees: Audit
Committee, Executive Committee, Human Resources Committee, Nominating
Committee and Safety Committee. During 2000, the Audit Committee held six
meetings, the Executive Committee held seven meetings, the Human Resources
Committee held seven meetings, the Nominating Committee held one meeting, and
the Safety Committee held two meetings.
The Audit Committee, in consultation with financial officers of the Company
and the independent public accountants, assists in establishing the scope of
the annual audit. The Audit Committee (1) reviews annual and quarterly
financial statements and periodic reports filed with the SEC, (2) recommends
to the Board of Directors the appointment of independent public accountants,
(3) reviews the annual programs of the internal audit staff and (4) reviews
programs designed to protect and maintain the assets of the Company, including
insurance and internal security programs.
The Human Resources Committee determines the salaries, incentive
compensation, stock option and restricted stock grants, retirement and other
benefits which accrue to officers of the Company and its subsidiaries. The
Human Resources Committee makes recommendations to the Board of Directors
concerning the levels of compensation and benefits for the Chairman and the
Chief Executive Officer.
The Nominating Committee is responsible for making recommendations regarding
the nomination of individuals for election to the Board of Directors. The
Nominating Committee will consider individuals recommended by stockholders.
Any such recommendation must be submitted in writing prior to January 1 of
each year, accompanied by a description of the proposed nominee's
qualifications and other relevant biographical information, and should be
addressed to the Nominating Committee, in care of the Secretary of the
Company.
During 2000, each of the incumbent directors attended 75 percent or more of
the total number of meetings of the Board of Directors and of the committees
on which the director served.
7
Compensation of Directors
The annual retainer and meeting fee payable to non-employee directors in
2000 were $22,000 and $1,000, respectively. Mr. DeVito, Chairman of the Human
Resources Committee, Ms. Merriman, Chairman of the Audit Committee, Mr.
Medlin, Chairman of the Nominating Committee, and Mr. LeBuhn, Chairman of the
Safety Committee, each receives an additional fee of $2,000 per year for
serving in those respective capacities. Pursuant to the terms of the US
Airways Group, Inc. Nonemployee Directors Stock Purchase Plan, the directors
may elect to receive all or a portion of their retainer and meeting fees in
the form of Company stock. Messrs. Wolf and Gangwal receive salaries in their
capacities as officers of US Airways and receive no additional compensation as
directors of the Company and US Airways.
The compensation for non-employee directors consists of cash and stock
compensation. Each year active directors receive a grant of 1,500 stock
options and 500 Deferred Stock Units, both of which vest on the earlier of the
completion of their term of office or one year after grant. Using stock based
compensation for directors is intended to more closely align directors'
financial interests with that of shareholders of the Company.
Each director, director's spouse and the director's dependent children are
provided free transportation on US Airways and reimbursement for federal and
state income taxes incurred thereon. Additionally, these benefits are provided
for retired directors. During 2000, non-employee directors received the
following benefits under this program: Mathias J. DeVito, $0; Peter M. George,
$17,547; Robert L. Johnson, $577; Robert LeBuhn, $50,495; John G. Medlin, Jr.,
$2,999; Hanne M. Merriman, $16,558; Thomas H. O'Brien, $242; Hilda Ochoa-
Brillembourg, $39,646; Richard B. Priory, $454; and Raymond W. Smith, $101.
Certain Relationships and Related Transactions
Robert L. Johnson has been a member of the Board of Directors of the Company
and US Airways since 1998. To address certain potential competitive issues
surrounding a proposed merger transaction between the Company and UAL
Corporation, to be carried out pursuant to a certain Agreement and Plan of
Merger dated as of May 23, 2000, as amended, (Merger Agreement) by and among
the Company, UAL Corporation and Yellow Jacket Acquisition Corp., the Company,
UAL Corporation and Mr. Johnson entered into a certain Memorandum of
Understanding dated May 23, 2000, as amended (Memorandum). The Memorandum
contemplated the formation of an entity to acquire certain of the assets of
the combined company and the creation of a new regional airline, DC Air. The
transactions contemplated in the Memorandum were contingent upon consummation
of the merger. The Memorandum terminated on July 27, 2001 concurrent with the
termination of the Merger Agreement.
Pursuant to the terms of the Memorandum, if the Memorandum is terminated for
any reason other than solely as a result of a breach by Mr. Johnson, the
Company will, upon request of Mr. Johnson, reimburse Mr. Johnson for up to $3
million of his reasonable out-of-pocket expenses incurred in connection with
the Memorandum and the transactions contemplated thereby.
Executive Officers
The executive officers of the Company are: Stephen M. Wolf, Chairman of the
Company and US Airways; Rakesh Gangwal, President and Chief Executive Officer
of the Company and US Airways; Lawrence M. Nagin, Executive Vice President--
Corporate Affairs and General Counsel of the Company and US Airways; N. Bruce
Ashby, Senior Vice President--Corporate Development of US Airways; B. Ben
Baldanza, Senior Vice President
8
- --Marketing of US Airways; Michelle V. Bryan, Senior Vice President--Human
Resources of US Airways; Alan W. Crellin, Senior Vice President--Customer
Service of US Airways; Christopher Doan, Senior Vice President--Maintenance of
US Airways; Thomas A. Mutryn, Senior Vice President--Finance and Chief
Financial Officer of the Company and US Airways; and Gregory T. Taylor, Senior
Vice President--Planning of US Airways. Messrs. Wolf, Gangwal and Nagin joined
the Company and US Airways in early 1996. Ms. Bryan joined US Airways in 1983
and was promoted to Senior Vice President, Human Resources in January 1999.
Mr. Crellin joined US Airways' predecessor, Pacific Southwest Airlines in
1971, and was promoted to Senior Vice President--Customer Service in March
2000. Mr. Doan joined US Airways in March 1997. Mr. Ashby joined US Airways in
April 1996 and became Senior Vice President--Corporate Development in June
1999. Mr. Mutryn joined the Company and US Airways in November 1998. Mr.
Taylor joined US Airways in November 1998 and was promoted to Senior Vice
President--Planning in June 1999.
9
Compensation of Executive Officers
The Summary Compensation Table below sets forth the compensation paid during
the years indicated to the individual who served as the Chief Executive
Officer during the last fiscal year and the four remaining most highly
compensated executive officers of the Company or its subsidiaries as of the
last day of the last fiscal year.
Summary Compensation Table
Other Restricted
Name and Principal Annual Stock LTIP All Other
Position Year Salary Bonus(A) Compensation Awards(G) Options(#) Payouts(M) Compensation(O)
------------------ ---- -------- --------- ------------ ----------- ---------- ---------- ---------------
Stephen M. Wolf......... 2000 $600,000 $ 0 $ 7,691,036(B) $ 3,112,500(H) 0 $ 0 $ 164,803
Chairman 1999 $600,000 $ 600,000 $ 4,325,146(B) $ 0 0 $ 0(N) $ 208,593
1998 $580,000 $ 580,000 $ 4,236,052(B) $10,883,964(H) 525,000 -- $ 198,900
Rakesh Gangwal.......... 2000 $675,000 $ 0 $ 7,478,724(C) $ 3,815,625(I) 0 $ 0 $ 160,666
President and Chief 1999 $675,000 $ 675,000 $ 1,912,405(C) $ 0 0 $ 0(N) $ 183,261
Executive Officer 1998 $566,538 $ 566,538 $ 2,900,620(C) $10,946,813(I) 625,000 -- $ 162,660
Lawrence M. Nagin....... 2000 $410,000 $ 0 $ 890,529(D) $ 705,938(J) 0 $ 0 $ 134,872
Executive Vice 1999 $390,577 $ 425,000 $ 488,638(D) $ 548,750(J) 0 $186,827 $ 191,666
President-- 1998 $373,846 $ 432,000 $ 558,081(D) $ 499,226(J) 30,000 -- $ 132,046
Corporate Affairs and
General Counsel
B. Ben Baldanza......... 2000 $375,000 $ 333,333 $ 17,997(E) $ 0 0 $ 0 $ 730,963
Senior Vice President-- 1999 $109,615 $ 372,000 $ 24,491(E) $ 1,080,000(K) 90,000 $ 62,000 $ 73,540
Marketing
Thomas A. Mutryn........ 2000 $375,000 $ 0 $ 51,172(F) $ 894,375(L) 0 $ 0 $ 97,252
Senior Vice President-- 1999 $337,308 $ 375,000 $ 61,254(F) $ 411,563(L) 0 $111,600 $ 96,155
Finance and Chief 1998 $ 34,615 $ 117,000 $ 26,998(F) $ 823,594(L) 100,000 -- $ 34,933
Financial Officer
- --------
(A) Incentive awards reflected for the years 1999 and 1998 were earned in 1999
and 1998 but paid in 2000 and 1999, respectively. Mr. Baldanza's incentive
award for the year 2000 was earned and paid in 2000. Mr. Baldanza's bonus
for 1999 includes a signing bonus of $100,000.
(B) Amount disclosed for 2000 includes $7,620,370 for income tax liabilities
incurred to permit the retention of Restricted Stock vesting pursuant to
Mr. Wolf's Restricted Stock agreements with US Airways, $18,000 paid for
automobile expenses, $7,029 paid for tax and financial planning services
and $45,637 in income and tax liability payments related to personal
travel provided by US Airways. Amount disclosed for 1999 includes
$4,306,356 for income tax liabilities incurred to permit the retention of
Restricted Stock vesting pursuant to Mr. Wolf's Restricted Stock
agreements with US Airways, $18,000 paid for automobile expenses and $790
in income and tax liability payments related to personal travel provided
by US Airways. Amount disclosed for 1998 includes $4,059,141 for income
tax liabilities incurred to permit the retention of Restricted Stock
vesting pursuant to Mr. Wolf's Restricted Stock agreements with US
Airways, $75,000 in living expenses reimbursed for 1998 and $60,191 paid
for tax liability on such amount and $2,219 in income and tax liability
payments related to personal travel provided by US Airways.
(C) Amount disclosed for 2000 includes $7,201,902 for income tax liabilities
incurred to permit the retention of Restricted Stock vesting pursuant to
Mr. Gangwal's Restricted Stock agreements with US Airways, $197,308 in
accrued compensation-related benefits and $41,514 in income and tax
liability payments related to personal travel provided by US Airways.
Amount disclosed for 1999 includes $1,892,007 for income tax liabilities
incurred to permit the retention of Restricted Stock vesting pursuant to
Mr. Gangwal's Restricted Stock agreement with US Airways, $18,000 paid for
automobile expenses and $2,398 in income and tax liability payments
related to personal travel provided by US Airways. Amount disclosed for
1998 includes $2,840,177 for income tax liabilities incurred to permit the
retention of Restricted Stock vesting pursuant to Mr. Gangwal's Restricted
Stock agreement with US Airways, $18,000 paid for automobile expenses,
$1,509 in income and tax liability payments related to personal travel
provided by US Airways and $40,934 paid for tax liability related to
moving expenses.
(notes continued on following page)
10
(D) Amount disclosed for 2000 includes $720,019 for income tax liabilities
incurred to permit the retention of Restricted Stock vesting pursuant to
Mr. Nagin's Restricted Stock agreements with US Airways, $126,942 in
accrued compensation-related benefits and $14,668 in income and tax
liability payments related to personal travel provided by US Airways.
Amount disclosed for 1999 includes $451,045 for income tax liabilities
incurred to permit the retention of Restricted Stock vesting pursuant to
Mr. Nagin's Restricted Stock agreement with US Airways, $9,000 paid for
automobile expense, $10,059 in income and tax liability payments related
to personal travel provided by US Airways and $16,134 paid for tax
liability related to moving expense. Amount disclosed for 1998 includes
$546,799 for income tax liabilities incurred to permit the retention of
Restricted Stock vesting pursuant to Mr. Nagin's Restricted Stock
agreement with US Airways, $9,000 paid for automobile expenses and $1,982
in income and tax liability payments related to personal travel provided
by US Airways.
(E) Amount disclosed for 2000 includes $14,423 in accrued compensation-related
benefits, $2,242 in income and tax liability payments related to personal
travel provided by US Airways and $1,332 for tax liability related to
moving expenses. Amount disclosed for 1999 reflects $24,491 paid for tax
liability related to moving expenses.
(F) Amount disclosed for 2000 includes $28,846 in accrued compensation-related
benefits and $22,326 in income and tax liability payments related to
personal travel provided by US Airways. Amount disclosed for 1999 includes
$20,186 in income and tax liability payments related to personal travel
provided by US Airways and $41,068 paid for tax liability related to
moving expense. Amount disclosed for 1998 includes $7,198 in income and
tax liability payments related to personal travel provided by US Airways
and $19,800 paid for tax liability related to moving expense.
(G) The aggregate number of shares of Restricted Stock held by each of Messrs.
Wolf, Gangwal, Nagin, Baldanza and Mutryn on December 31, 2000, and the
respective value based on the fair market value of the stock on such date
($40.5625) were, respectively: Mr. Wolf--100,000 shares, $4,056,250; Mr.
Gangwal--93,750 shares, $3,802,734; Mr. Nagin--20,625 shares, $836,602;
Mr. Baldanza--30,000 shares, $1,216,875; and Mr. Mutryn--38,749 shares,
$1,571,756. The Restricted Stock is entitled to the same dividends payable
on outstanding shares of Common Stock.
(H) Amount disclosed for 2000 reflects an award of 100,000 shares of
Restricted Stock effective January 18, 2000, vesting 25% on each of
January 18, 2001 and the three succeeding anniversaries of the grant date,
based on the closing price ($25.125) on the grant date; and an award of
29,721 shares of Restricted Stock effective March 9, 2000, vesting
immediately, based on the closing price ($20.1875) on the grant date.
Amount disclosed for 1998 reflects an award of 28,621 shares of Restricted
Stock effective January 21, 1998, scheduled to vest on January 20, 2001,
based on the closing price ($63.75) on the grant date; and an award of
15,625 shares of Restricted Stock effective May 11, 1998, vesting
immediately, based on the closing price ($64.00) on the grant date. In
addition, in connection with a new long term employment arrangement
between US Airways and Mr. Wolf, Mr. Wolf received an award of 150,000
shares of Restricted Stock effective November 16, 1998, scheduled to vest
ratably on each of the four anniversaries of the grant date, based on the
closing price ($47.0625) on the grant date. The amount disclosed for 1998
also includes an award of 18,735 shares of Restricted Stock effective
March 16, 1999, vesting immediately, based on the closing price ($53.375)
on the grant date.
(I) Amount disclosed for 2000 reflects an award of 125,000 shares of
Restricted Stock effective January 18, 2000, scheduled to vest 25% on each
of January 18, 2001 and the three succeeding anniversaries of the grant
date, based on the closing price ($25.125) on the grant date; and an award
of 33,437 shares of Restricted Stock effective March 9, 2000, vesting
immediately, based on the closing price ($20.1875) on the grant date.
Amount disclosed for 1998 reflects an award of 37,450 shares of Restricted
Stock effective January 21, 1998, scheduled to vest on January 20, 2001,
based on the closing price ($63.75) on the grant date; and an award of
7,813 shares of Restricted Stock effective May 11, 1998, vesting
immediately, based on the closing price ($64.00) on the grant date. In
addition, in connection with a new long term employment arrangement
between US Airways and Mr. Gangwal, Mr. Gangwal received an award of
150,000 shares of Restricted Stock effective November 16, 1998, with
30,000 shares scheduled to vest on November 16, 2000 and November 16,
2001, respectively, and 45,000 shares scheduled to vest on November 16,
2002 and November 16, 2003, respectively based on the closing price
($47.0625) on the grant date. The amount disclosed for 1998 also includes
an award of 18,735 shares of Restricted Stock effective March 16, 1999,
vesting immediately, based on the closing price ($53.375) on the grant
date.
(J) Amount disclosed for 2000 reflects an award of 17,500 shares of Restricted
Stock effective January 18, 2000, scheduled to vest 25% on each of January
18, 2001 and the three succeeding anniversaries of the grant date, based
on the closing price ($25.125) on the grant date; and an award of 10,000
shares of Restricted Stock effective May 16, 2000, scheduled to vest 25%
on each of May 16, 2001 and the three succeeding anniversaries of the
grant date, based on the closing price ($26.625) on the grant date. Amount
disclosed for 1999 reflects an award of 10,000 shares of Restricted Stock,
effective May 18, 1999, scheduled to vest 25% on each of May 18, 2000 and
the three succeeding anniversaries of the grant date, based on the closing
price ($54.875) on the grant date. Amount disclosed for 1998 reflects an
award of 7,831 shares of Restricted Stock, effective January 21, 1998,
vesting on January 20, 2001, based on the closing price ($63.75) on the
grant date.
(K) Amount disclosed for 1999 reflects an award of 40,000 shares of Restricted
Stock, effective September 10, 1999, vesting 25% on each of September 10,
2000 and the three succeeding anniversaries of the grant date, based on
the closing price ($27.00) on the grant date.
(notes continued on following page)
11
(L) Amount disclosed for 2000 reflects an award of 25,000 shares of Restricted
Stock effective January 18, 2000, scheduled to vest 25% on each of January
18, 2001 and the three succeeding anniversaries of the grant date, based
on the closing price ($25.125) on the grant date; and an award of 10,000
shares of Restricted Stock effective May 16, 2000, scheduled to vest 25%
on each of May 16, 2001 and the three succeeding anniversaries of the
grant date, based on the closing price ($26.625) on the grant date. Amount
disclosed for 1999 reflects an award of 7,500 shares of Restricted Stock,
effective May 18, 1999, scheduled to vest 25% on each of May 18, 2000 and
the three succeeding anniversaries of the grant date, based on the closing
price ($54.875) on the grant date. Amount disclosed for 1998 reflects an
award of 17,500 shares of Restricted Stock, effective November 16, 1998,
vesting 16.67% on November 16, 1998 and the five succeeding anniversaries
of the grant date, based on the closing price ($47.0625) on the grant
date.
(M) Long Term Incentive Plan (LTIP) payments reflected for the year 1999 were
earned for the period 1997-1999 but paid in 2000.
(N) Messrs. Wolf and Gangwal declined to accept payments from the US Airways
Group, Inc. Long Term Incentive Plan for the performance period ending
with fiscal year 1999.
(O) As further described herein, amounts disclosed include the value of
benefits under the US Airways officer split dollar life insurance program,
contributions to the defined contribution pension plans, and a special
compensation payment to Mr. Baldanza. Under the split dollar life
insurance plan of US Airways, individual life insurance coverage is
available to executive officers, with US Airways paying the premium
associated with this coverage. Based on life expectancy and other
assumptions, US Airways expects to recover the premiums it pays with
respect to the whole life component of the coverage. The following amounts
reflect the value of the benefits accrued in 2000, calculated on an
actuarial basis, ascribed to the insurance policies purchased on the lives
of the executives, plus the dollar value of premiums paid by US Airways
with respect to the insurance. Mr. Wolf--$40,745; Mr. Gangwal--$41,401;
Mr. Nagin--$32,653; Mr. Baldanza--$19,085; and Mr. Mutryn--$27,778. During
2000, US Airways made contributions to the accounts of Messrs. Wolf,
Gangwal, Nagin, Baldanza and Mutryn, in certain defined contributions
plans, in the following amounts, respectively: $124,058; $119,265;
$102,219; $42,543, $69,474. In addition, US Airways made a special
compensation payment to Mr. Baldanza in the amount of $669,335. Future
compensation that would otherwise become payable to Mr. Baldanza will be
offset by the full amount of such payment.
Stock Option Grants in Last Fiscal Year
The following table provides information on stock option grants in 2000 to
the named executive officers.
Percent of Total
Number of Shares Options Granted Exercise Grant Date
Underlying to Employees or Base Expiration Present Value
Name Option Granted in 2000 Price Date $
---- ---------------- ---------------- -------- ---------- -------------
Stephen M. Wolf......... 0 0% N/A N/A N/A
Rakesh Gangwal.......... 0 0% N/A N/A N/A
Lawrence M. Nagin....... 0 0% N/A N/A N/A
B. Ben Baldanza......... 0 0% N/A N/A N/A
Thomas A. Mutryn........ 0 0% N/A N/A N/A
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table provides information on the number of options held by
the named executive officers at fiscal year-end 2000. A portion of the
unexercised options held by the officers were in-the-money based on the fair
market value of the Common Stock on December 31, 2000 ($40.5625).
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SAR's at Options/SAR's at
Year End (#) Year-End ($)
Shares Acquired Value Realized ------------------------- -------------------------
Name on Exercise (#) $ Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------- ----------- ------------- ----------- -------------
Stephen M. Wolf......... 0 $ 0 1,825,000 0 $36,887,500 $ 0
Rakesh Gangwal.......... 0 $ 0 1,475,000 0 21,834,375 0
Lawrence M. Nagin....... 0 $ 0 300,000 0 6,463,125 0
B. Ben Baldanza......... 0 $ 0 90,000 0 1,167,188 0
Thomas A. Mutryn........ 0 $0 100,000 0 0 0
12
Long-Term Incentive Plan--Basis of Awards in Last Fiscal Year
Performance
or other Estimated future payouts
period under non-stock price-
until based plans(2)
maturation ------------------------
or Threshold Target Maximum
Name payout(1) (%) (%) (%)
---- ----------- --------- ------ -------
Stephen M. Wolf............................ 1998-2000 0 220 440
Rakesh Gangwal............................. 1998-2000 0 220 440
Lawrence M. Nagin.......................... 1998-2000 0 80 160
B. Ben Baldanza............................ 1998-2000 0 80 160
Thomas A. Mutryn........................... 1998-2000 0 80 160
- --------
(1) Awards for this cycle are determined based upon the Company's pre-tax
margin as compared to the pre-tax margin of selected competitors.
(2) Awards are stated as a percentage of the officer's base annual salary.
Actual awards paid for the performance period are listed in the "LTIP
Payout" column in the Summary Compensation Table on page 10. No payments
were made from the plan for the performance period 1998-2000.
Retirement Benefits
US Airways previously maintained a defined benefit retirement plan
(Retirement Plan) for its salaried employees which provided noncontributory
benefits based upon years of service and the employee's highest three-year
average annual compensation during the last ten calendar years of service.
Under the Retirement Plan, benefits were generally payable commencing at age
of 65. However, the Retirement Plan provided reduced early retirement benefits
commencing as early as age 55. Benefits under the Retirement Plan were
integrated with the Social Security program.
US Airways also maintained an unfunded supplemental retirement plan
(Supplemental Plan) which provided those benefits which would otherwise be
payable to officers under the Retirement Plan, but which, under the Internal
Revenue Code (Code), were not permitted to be funded or paid through the
Retirement Plan.
None of the named executive officers participate in the Retirement Plan or
the Supplemental Plan. However, Messrs. Wolf, Gangwal, Nagin, Baldanza and
Mutryn have entered into agreements which provide for the payment of the same
supplemental retirement benefits as would have been payable had they
participated in the Retirement Plan and the Supplemental Plan. The benefits
under the supplemental retirement arrangements are based on the greater of
$1,000,000 or actual salary and bonus for Mr. Wolf, the greater of actual
salary and bonus or base salary and assumed maximum bonus for Mr. Gangwal,
base salary and assumed maximum bonus for Mr. Nagin, and base salary and
assumed target bonus paid for Messrs. Baldanza and Mutryn. The benefits
payable to Messrs. Wolf, Gangwal and Nagin are subject to an offset for
benefits payable under the tax-qualified and non-qualified defined
contribution plan retirement program. The credited years of service under
these supplemental arrangements for each of the individuals included in the
Summary Compensation Table are as follows: Mr. Wolf-30 years, Mr. Gangwal-25
years, Mr. Nagin-20 years, Mr. Baldanza-1 year and Mr. Mutryn-2 years.
13
The following table presents the noncontributory benefits payable per year
for life to employees under the Retirement Plan and the Supplemental Plan,
assuming normal retirement in the current year. The table also assumes the
retiree would be entitled to the maximum Social Security benefit in addition
to the amounts shown.
Credited Service
--------------------------------------------
Final Average Earnings 10 Years 15 Years 20 Years 25 Years 30 Years
- ---------------------- -------- -------- -------- -------- --------
$ 250,000......................... $ 54,470 $ 81,706 $108,941 $136,176 $148,676
500,000......................... $114,470 $171,706 $228,941 $286,176 $311,176
750,000......................... $174,470 $261,706 $348,941 $436,176 $473,676
1,000,000......................... $234,470 $351,706 $468,941 $586,176 $636,176
1,250,000......................... $294,470 $441,706 $588,941 $736,176 $798,676
1,500,000......................... $354,470 $531,706 $708,941 $886,176 $961,176
The values reflected in the above chart represent the application of the
Retirement Plan and Supplemental Plan formula to the specified amounts of
compensation and years of service. The compensation covered by the Retirement
Plan is salary and bonus, as reported in the Summary Compensation Table.
Employment Arrangements
Under his employment arrangements with the Company and US Airways, Mr. Wolf
is entitled to an annual base salary of not less than $600,000. In addition,
Mr. Wolf is eligible for an annual bonus pursuant to the terms of the
Company's Incentive Compensation Plan. Under the plan, Mr. Wolf may receive a
bonus of 100% of annual base salary for target results, which may be increased
for results in excess of the target up to a maximum bonus of 200% of base
salary. Mr. Wolf is also eligible for a bonus of 220% of his average annual
base salary from the Company's Long Term Incentive Plan (LTIP) if certain
target results are achieved during the performance period, which may be
increased to a maximum bonus of 440% for results exceeding the target. Mr.
Wolf declined to accept payment from the LTIP for the performance period
ending with fiscal year 1999 and no amount was payable from the LTIP for the
performance period ending with fiscal year 2000.
Under his employment agreement with the Company and US Airways, Mr. Gangwal
is entitled to an annual base salary of not less than $675,000. In addition,
Mr. Gangwal is eligible for an annual bonus pursuant to the terms of the
Company's Incentive Compensation Plan. If the Company achieves its target
objectives, Mr. Gangwal may receive a bonus of 100% of his annual base salary,
which may be increased for results in excess of the target up to a maximum
bonus of 200% of his base salary. Mr. Gangwal also may receive a bonus of 220%
of his average annual base salary if the Company achieves its target
objectives during the performance period under the LTIP, which may be
increased up to a maximum of 440% of his average annual base salary for
results exceeding the target. Mr. Gangwal declined to accept payment from the
LTIP for the performance period ending with fiscal year 1999 and no amount was
payable from the LTIP for the performance period ending with fiscal year 2000.
Under his employment arrangements with US Airways, Mr. Nagin is entitled to
annual base salary of not less than $410,000. Messrs. Nagin, Baldanza and
Mutryn are eligible for an annual bonus pursuant to the terms of the Company's
Incentive Compensation Plan. If the Company achieves its target objectives,
Messrs. Nagin, Baldanza and Mutryn may each receive a bonus of 60% of his
annual base salary, which may be increased for results in excess of the target
up to a maximum bonus of 120% of his base salary. Messrs. Nagin, Baldanza and
Mutryn are each also eligible for a bonus under the LTIP of 80% of his average
annual base salary if the Company achieves its target objectives which may be
increased up to a maximum of 160% of his average annual base salary for
results exceeding target. Mr. Baldanza's employment arrangement provides that
he is entitled to minimum incentive payments under the Incentive Compensation
Plan and the LTIP aggregating no less than
14
$1 million during the period 1999-2001. No amount was payable from the LTIP
for the performance period ending with the fiscal year 2000.
In connection with their employment arrangements, each of Messrs. Wolf,
Gangwal and Nagin are entitled to reimbursement of fees for certain tax and
financial planning advice.
Arrangements Concerning Termination of Employment and Change of Control
Consistent with the practice in the industry, US Airways has entered into
employment contracts (Employment Contracts) with Messrs. Wolf, Gangwal and
Nagin (Executives). The terms of the Employment Contracts extend until the
earlier of the fourth anniversary thereof for Mr. Wolf, and the third
anniversary thereof for Messrs. Gangwal, and Nagin, or the Executive's normal
retirement date, and are subject to automatic one-year annual extensions on
each anniversary date unless advance written notice is given by US Airways. In
exchange for each Executive's commitment to devote his full business efforts
to US Airways, the agreements provide that each Executive will be re-elected
to his current position and will receive (1) an annual base salary at a rate
not less than that in effect during the previous year, (2) incentive
compensation as provided in the contract and (3) insurance, disability,
medical and other benefits generally granted to other officers. In the event
of a change of control, as defined in each Employment Contract, the term of
each Employment Contract is automatically extended until the earlier of the
fourth or third anniversary, as applicable, of the change of control date or
the Executive's normal retirement date.
The Employment Contracts provide that, should US Airways or any successor
fail to re-elect the Executive to his or her position, assign the Executive to
duties which result in a diminution in the Executive's position, duties,
authority or responsibilities, fail to compensate the Executive as provided in
the Employment Contract, relocate the Executive in violation of the Employment
Contract, fail to require any successor to US Airways to comply with the
Employment Contract or otherwise terminate the Executive's employment in
violation of the Employment Contract, the Executive may elect to treat such
failure as a breach of the Employment Contract if the Executive then
terminates employment. As liquidated damages as the result of an event not
following a change of control that is deemed to be a breach of the Employment
Contracts, US Airways or its successor would be required to pay the Executive
a lump sum equal to (i) his annual base salary for the then remaining term of
the Employment Contract, in the case of Mr. Wolf, or (ii) three years' base
salary in the case of Messrs. Gangwal and Nagin, and to continue granting
certain employee benefits for the then remaining term of the Executive's
Employment Contract in the case of Mr. Wolf and for 3 years in the case of
Messrs. Gangwal and Nagin. If the breach follows a change of control, the
Executive would be entitled to receive (i) a lump sum payment equal to the
product of three times the sum of the Executive's annual base salary plus an
annual bonus, and (ii) continuation of his pension, health insurance, travel
and certain other welfare and fringe benefits for the then remaining term of
the Executive's Employment Contract in the case of Mr. Wolf and for 3 years in
the case of Messrs. Gangwal and Nagin. In addition, during the 30-day period
immediately following the first anniversary of a change of control, the
Executive may elect to terminate his Employment Contract for any reason and
receive the liquidated damages described in the immediately preceding
sentence. Each Employment Contract provides that the Executive shall be
entitled to recover from US Airways reasonable attorney's fees in connection
with enforcement of such Executive's rights under the Employment Contract.
Each Employment Contract also provides that any payments the Executive
receives in the event of a termination after a change of control shall be
increased, if necessary, such that, after taking into account all taxes he
would incur as a result of such payments, the Executive would receive the same
after-tax amount he would have received had no excise tax been imposed under
Section 4999 of the Code.
Messrs. Wolf's, Gangwal's and Nagin's benefits under the supplemental
retirement agreement described on pages 13-14 will vest immediately upon a
change of control, a termination of employment without cause or upon
15
resignation for good reason. Certain of Messrs. Wolf's, Gangwal's and Nagin's
restricted stock will vest immediately upon a change of control or his death
or disability. All of Messrs. Wolf's, Gangwal's and Nagin's stock options vest
immediately upon a change of control. In addition, certain of Messrs. Wolf's,
Gangwal's and Nagin's restricted stock will vest immediately upon termination
of employment resulting from a change of control or his death or disability.
The Company has also entered into severance agreements (Severance Agreement)
with Messrs. Baldanza and Mutryn.
The Severance Agreement extends until the earlier of the severance of their
employment, or their retirement date. Pursuant to the terms of his Severance
Agreement, if following a change of control, US Airways should assign him
duties which are inconsistent with his position, authorities, duties or
responsibilities, fail to compensate him in accordance with the terms of his
Severance Agreement, require relocation under certain circumstances, fail to
require any successor to US Airways to comply with the Severance Agreement or
otherwise terminate his employment in violation of his Severance Agreement, he
may elect to treat such failure as a breach of the Severance Agreement if he
then terminates his employment.
Under such circumstances Messrs. Baldanza or Mutryn will be entitled to
receive (i) a lump sum payment equal to the product of three times the sum of
his annual salary plus annual bonus, (ii) certain health insurance benefits,
(iii) travel benefits for his life; and (iv) continuation of certain other
benefits during the remainder of the three year period following the change of
control. The Severance Agreement provides that Messrs. Baldanza and Mutryn
shall be entitled to recover from US Airways reasonable attorney's fees in
connection with enforcement of his rights under the Severance Agreement. The
Severance Agreement further provides that any payments he receives in the
event of termination after a change of control shall be increased, if
necessary, such that, after taking into account all taxes he would incur as a
result of such payments, Messrs. Baldanza or Mutryn would receive the same
after-tax amount he would have received had no excise tax been imposed under
Section 4999 of the Code.
Messrs. Baldanza's and Mutryn's benefits under the supplemental retirement
agreement will vest immediately upon a change of control or upon resignation
for good reason.
Currently, under the Company's 1996 Stock Incentive Plan (1996 Plan),
pursuant to which employees of the Company and its subsidiaries have been
awarded stock options with respect to Common Stock and shares of restricted
stock, the occurrence of a change of control, as defined, would make all
granted options immediately exercisable without regard to the vesting
provisions thereof, and under certain circumstances, would cause shares of
restricted stock to vest.
In addition under the terms of the LTIP, upon the occurrence of a change in
control, as defined, each participant in the LTIP will be entitled to receive
a payment with respect to each performance period that has not been completed
equal to the amount that would have been paid with respect to such performance
period if the performance factors for such period had been achieved at the
target level.
For purposes of all of the foregoing plans and agreements other than the
LTIP and certain grants of restricted stock under the 1996 Plan, a change of
control occurred on October 12, 2000 upon stockholder approval of the Merger
Agreement. Accordingly, among other things, (1) during the 30-day period
immediately following the first anniversary of such change of control (the
"Window Period"), each of Messrs. Wolf, Gangwal and Nagin may elect to
terminate his Employment Contract for any reason and receive the liquidated
damages described above, (2) the benefits of the named executive officers
under their respective supplemental retirement agreements vested immediately
upon such change of control, (3) certain of Messrs. Wolf's, Gangwal's
16
and Nagin's restricted stock vested immediately upon such change of control
and certain additional shares will vest upon termination of employment during
the Window Period, (4) all stock options held by the named executive officers
vested immediately upon such change of control and (5) Messrs. Baldanza and
Mutryn will be entitled to benefits, as described above, under the Severance
Agreements if they terminate employment following a breach thereof by US
Airways. For purposes of the LTIP and the restricted stock grants referred to
in the first sentence of this paragraph, a change of control did not occur
upon stockholder approval of the UAL Corporation merger transaction and would
only occur upon the consummation of a merger transaction.
In connection with certain tax planning matters related to the UAL
Corporation acquisition and at the request of UAL Corporation, during 2000
Messrs. Gangwal, Nagin, Baldanza and Mutryn agreed to accept pre-payment of
certain amounts that would otherwise have been payable in 2001. In connection
with those agreements, the Company agreed to indemnify those individuals for
any losses (including any increase in tax liabilities) they incur as a result
of their agreement to accept such accelerated payment.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee (the "Committee") is responsible for
determining the annual salary, short-term and long-term cash and stock
incentive compensation, and other compensation of the executive officers,
including the executive officers named in the Summary Compensation Table. This
report describes the policies and approach of the committee in establishing
executive compensation during 2000.
Committee Approach to Compensation
In determining the principal components of executive compensation, the
Committee, in consultation with an independent compensation consultant,
considers the following factors: (a) Company performance, both year over year
and in comparison to other companies within the airline industry; (b) the
individual performance of the executive; (c) comparative compensation studies;
(d) historical compensation levels at the Company; and (e) the overall
competitive environment in executive compensation needed to attract, retain
and motivate talented and experienced senior management.
The Committee reviews the compensation levels for peer-level positions of
premier companies of similar size to the Company, as well as at other major
domestic passenger airlines, including, but not limited to, American Airlines
Inc. ("American"), Continental Airlines, Inc. ("Continental"), Delta Air
Lines, Inc. ("Delta"), Northwest Airlines, Inc. and United Air Lines, Inc.
("United"). Two of these airlines are included in the S & P Airline Index used
in the Performance Graph.
Generally, the Committee reviews airline compensation survey data and base
salary is targeted to be at or below median levels for the named executive
officers. However, stock awards and long-term incentive compensation, and
consequently total compensation, are targeted to link a significant portion of
each executive officer's compensation to the performance of the Company's
stock, thereby increasing shareholder value.
Components of Executive Compensation
Base Salary. Base salaries are reviewed annually, in connection with
promotions and when responsibilities for the position are changed. Given the
Company's continuing need to reduce business costs in order to compete with
low fare competitors, the Committee's executive compensation approach is to
maintain base salaries at or below the industry median.
17
Annual Cash Incentive Compensation. The Committee adopted and administers
the Incentive Compensation Plan (the "ICP plan"). All officers, including the
named executive officers, and certain other key management employees of the
Company are eligible to participate in the ICP plan. The ICP plan provides for
the payment of both incentive and discretionary awards. The incentive awards
are based upon the Company achieving a performance objective, which is set by
the Committee annually. The Committee also establishes target percentages for
each executive. The target awards for the executive officers range from 50% to
60% of base salary for Senior Vice Presidents to 60% for Executive Vice
Presidents, and 100% of base salary for the Chief Executive Officer and for
the Chairman. If the Company's objective is exceeded, then the incentive award
may also be increased up to a maximum amount of double the target percentage,
or 100% to 200% of base salary. The Committee retains the discretion to adjust
any award based on individual performance. The Committee also retains the
discretion to pay a discretionary award in a year when the Company did not
achieve its objective or to pay an award in addition to the maximum incentive
award when circumstances are appropriate for such discretionary awards.
For the 1999 fiscal year, the Committee set as the Company's target
objective a stated percentage "Operating Margin." While the Company was unable
to reach its performance objectives because of a number of factors, the
Committee authorized a discretionary award for 1999 to be paid in recognition
of the significant effort exhibited during that year by the participants in
the ICP plan in order to establish a platform for the future growth and long-
term success of the Company.
For the 2000 fiscal year, the Committee again set as the Company's target
objective a stated percentage of "Operating Margin." Since the Company was
unable to attain its performance objectives for a number of reasons, no ICP
awards were made for fiscal year 2000 to officers.
Long Term Cash Incentive Compensation. During 1998, the Board of Directors
adopted a long term cash incentive compensation plan ("LTIP"). The LTIP was
deemed necessary to hire and retain high performance executives. The purpose
of the LTIP is to tie a portion of total compensation to operating results
over a longer time period. With this overall compensation approach, the
Committee believes it will more closely align executive compensation with
Company performance while enabling the Company to recruit and retain talented
executives with attractive total compensation packages.
In the first two performance periods ending with fiscal year 1999 and 2000,
the Committee set as the Company's objective the weighted average pre-tax
adjusted margin of selected competitors. The target award percentage for
executive officers under the LTIP ranges from 70% to 80% of average annual
base salary for Senior Vice Presidents, 80% of average base salary for
Executive Vice Presidents and 220% of average annual base salary for the Chief
Executive Officer and the Chairman.
For the first performance period ending with fiscal year 1999, the LTIP paid
out at 62% of the target percentage established by the Committee based upon
the Company's pre-tax adjusted margin. However, both the Chairman and the
Chief Executive Officer declined to accept payments for the performance period
ending with fiscal year 1999.
For the second performance period ending with fiscal year 2000, the Company
failed to achieve the minimum threshold required for payments from the LTIP.
Accordingly, no payments will be made from the LTIP for the 1998-2000
performance period.
Stock Options. The executive officers of the Company participate in the
Company's 1996 Stock Incentive Plan (the "1996 Plan") which is administered by
the Committee. The Committee is authorized to grant options
18
under the 1996 Plan at an exercise price equal to the fair market value of a
share of Common Stock on the effective date of the grant. The Committee is
also authorized under the terms of the 1996 Plan to grant awards of restricted
stock. The Committee sets the long-term incentive compensation for its
executive officers above the median of the comparison range. The Committee
believes that granting stock options and restricted stock to executive
officers aligns the executive's interests more closely with those of the
stockholders of the Company by tying a meaningful portion of compensation to
the performance of the Company's stock. The Committee considers the individual
performance of each executive officer, historical stock grants made by the
Company to the individual and the recommendations of a consultant based on
survey data.
Historically, stock options have generally been granted to officers on an
annual basis. In 1996, when Mr. Wolf, as Chairman and Chief Executive Officer,
and other executive officers joined the Company, the Committee awarded them
sizable grants of stock options and restricted stock in part to induce them to
join the Company and also as an incentive to build shareholder value. These
grants had vesting schedules over a four-year period. Based on the significant
improvement in the performance of the Company during 1997 and 1998, the
Committee granted Messrs. Wolf, Gangwal and Nagin additional shares of
restricted stock in 1998 (with cliff vesting in the year 2001), while the
executive officers also received additional grants of stock options (ratably
vesting over a five-year period). Options and restricted stock were also
granted to Messrs. Wolf and Gangwal in 1998 in connection with the CEO
succession, as described below under "CEO Compensation."
Consistent with its annual grant philosophy, during 2000, the Committee
granted shares of restricted stock to certain executive officers of the
Company, including Messrs. Wolf, Gangwal and Nagin and other key management
employees. The Committee deemed such awards necessary in order to continue to
attract, retain and motivate talented and experienced senior management and
other key employees.
The Committee supports and encourages stock ownership in the Company by its
executive officers and in 1998 it promulgated standards regarding levels of
ownership by officers. The stock ownership requirement is based on a multiple
of base salary and ranges from 200% of base salary for Senior Vice Presidents
to 300% of base salary for Executive Vice Presidents and 500% of base salary
for the Chief Executive Officer and the Chairman. Options and unvested
restricted stock holdings are not included in the executive's holdings for
purposes of meeting this standard.
CEO Compensation
During 1998, the Company and US Airways implemented their plan for Chief
Executive Officer succession. Stephen M. Wolf served as Chairman and Chief
Executive Officer for US Airways through May 1998 and of the Company through
November 1998. During this time period, consistent with the Committee's
executive compensation approach, Mr. Wolf's base salary was set well below the
industry median. In May 1998, the President and Chief Operating Officer,
Rakesh Gangwal, succeeded to the position of President and CEO for US Airways
and assumed that role for the Company in November of 1998. Mr. Wolf remains
Chairman, continuing in an executive capacity at both US Airways and the
Company. In setting the compensation packages for these new positions, it was
the Committee's intent to incent and retain Mr. Wolf to remain as an active
executive for at least five years while ensuring Mr. Gangwal's retention and
succession to the CEO role. In this regard, Mr. Wolf's salary and cash
incentive compensation targets were not changed but he was awarded restricted
stock and stock option grants with a graduated vesting schedule designed for
retention. In connection with becoming the CEO, the Committee increased Mr.
Gangwal's base salary, consistent with its overall compensation philosophy.
The Committee also granted Mr. Gangwal restricted stock and stock options
awards, with a delayed vesting schedule designed to make his total
compensation package above-average within the industry, if the Company's stock
price performance is favorable.
19
Deductibility of Executive Compensation
Section 162(m) of the Code limits the tax deduction of a publicly-held
company allowed for compensation paid to the Chief Executive Officer and to
the four most highly compensated executive officers other than the Chief
Executive Officer. Generally, the Committee desires to maintain the tax
deductibility of compensation for executive officers to the extent it is
feasible and consistent with the objectives of the Company's compensation
programs. Some, but not all, of the compensation programs established for
executive officers comply with the deductibility requirements under Section
162(m). The Committee continues to consider ways to maximize the deductibility
of executive compensation, but intends to retain the discretion the Committee
deems necessary to compensate executive officers in a manner commensurate with
performance and the competitive environment for executive talent.
This report has been approved by all members of the Committee.
Mathias J. DeVito, Chairman
Peter M. George
John G. Medlin, Jr.
Hanne M. Merriman
Raymond W. Smith
20
[PERFORMANCE CHART]
US AIRWAYS S&P 500 S&P AIRLINE
1994 100 100 100
1995 103.92 141.36 120.74
1996 183.33 170.01 139.65
1997 490.20 222.72 251.23
1998 407.84 282.12 230.64
1999 251.47 337.21 204.53
The above graph compares the performance of the Company's Common Stock during
the period December 31, 1995 to December 31, 2000 with the S&P 500 Index and
the S&P Airline Index during the relevant time period. The graph depicts the
results of investing $100 in the Company's Common Stock, the S&P 500 Index and
the S&P Airline Index, at closing prices on December 31, 1995. The stock price
performance shown on the graph above is not necessarily indicative of future
price performance. The S&P Airline Index consists of American, Delta, Southwest
Airlines Co. and the Company.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of US Airways Group, Inc. is
composed of five non-employee members of the Board of Directors. Each member of
the Audit Committee is independent, as defined by the New York Stock Exchange.
The Board of Directors has adopted a written Audit Committee Charter, a copy of
which is attached as Appendix A hereto.
The Audit Committee reviews the Company's accounting practices and financial
reporting process on behalf of the Board of Directors. Management has primary
responsibility for the financial statements and the reporting process,
including the system of internal controls.
In fulfilling its oversight responsibilities, the Audit Committee has met and
held discussions with management and the independent auditors. The Audit
Committee discussed with the Company's internal and independent auditors the
overall scope and plans for their respective audits. The Audit Committee met
with the
21
internal and independent auditors, with and without management present, to
discuss the results of their examinations, the evaluations of the Company's
internal controls, and the overall quality of the Company's financial
reporting.
Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States, and the Audit Committee
has reviewed and discussed the consolidated financial statements with
management and the independent auditors. The Audit Committee discussed with
the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended.
The Audit Committee also discussed with the independent auditors, the
auditors' independence from the Company and its management, including the
matters in the written disclosures required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees. The Audit
Committee has considered whether the provision of certain non-audit services
provided by KPMG LLP to the Company in 2000 is compatible with maintaining
auditor independence. The Company incurred the following fees for services
performed by its independent auditors, KPMG LLP, in fiscal year 2000:
Audit Fees....................................................... $ 646,675
Financial Information Systems Design and Implementation Fees..... $ 210,316
All other fees................................................... $1,143,626
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board of Directors
approved, the inclusion of the audited financial statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, for filing
with the Securities and Exchange Commission. The report was filed with the
Securities and Exchange Commission on March 30, 2001. The Audit Committee and
the Board of Directors also have recommended, subject to stockholder approval,
the selection of the Company's independent auditors.
This report has been approved by all members of the Audit Committee.
Hanne M. Merriman, Chairman
Robert L. Johnson
Robert LeBuhn
Thomas H. O'Brien
Hilda Ochoa-Brillembourg
SELECTION OF AUDITORS (Item No. 2)
The Board of Directors has named KPMG LLP as independent public accountants
to examine the consolidated financial statements of the Company for fiscal
year 2001, subject to ratification by the stockholders. KPMG LLP acted in the
same capacity during 2000. A representative from that firm is expected to be
present at the annual meeting of stockholders and will be afforded an
opportunity to make a statement if the representative desires to do so and to
respond to appropriate questions.
22
APPROVAL OF AMENDMENT TO THE COMPANY'S
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN (Item No. 3)
At the 1996 annual meeting, the stockholders of the Company approved the
adoption of the US Airways Group, Inc. Nonemployee Director Stock Incentive
Plan (the "Director Stock Incentive Plan"). Since then, of the 70,000 shares
of Common Stock then authorized for issuance under the Director Stock
Incentive Plan, 60,000 shares have either been issued upon the exercise of
stock options or are reserved for issuance upon the exercise of stock options.
Accordingly, the Board of Directors has approved and recommends to
stockholders the reservation of an additional 90,000 shares of Common Stock
for issuance under the Director Stock Incentive Plan and the extension of the
term of the Director Stock Incentive Plan until all options have been
satisfied through the delivery of shares or terminated.
The following is a description of the material terms of the Director Stock
Incentive Plan, and as such is qualified in its entirety by the actual terms
of the Director Stock Incentive Plan.
The Director Stock Incentive Plan is intended to increase the alignment of
the interest of members of the Board who are Eligible Directors (as defined)
with the interests of stockholders of the Company by providing further
opportunity for ownership of the Common Stock, and to increase their incentive
to contribute to the success of the Company's business through the grant of
nonstatutory stock options entitling the holder to purchase shares of Common
Stock (each, a "Director Option"). Subject to approval by the Company's
stockholders, an additional 90,000 shares of common stock have been reserved
for issuance under the Director Stock Incentive Plan.
Options
The Director Stock Incentive Plan provides for the grant to each Eligible
Director on the first business day following each annual meeting of
stockholders of the Company occurring prior to the termination of the Director
Stock Incentive Plan, beginning with the 1996 annual meeting of stockholders,
a Director Option to purchase 1,500 shares of Common Stock. An "Eligible
Director" is a member of the Board other than any director (i) who is then an
employee of the Company or any subsidiary of the Company, (ii) is serving
pursuant to rights exercised by preferred stockholders of the Company or,
(iii) in the case of an individual first becoming a director after January 1,
1996, was previously an employee of the Company or any subsidiary. Each
Director Option shall be granted at an exercise price equal to the "fair
market value" (as defined in the Director Stock Incentive Plan) of the Common
Stock on the date of grant. Each Director Option shall become fully vested on
the earliest to occur of (i) the first anniversary of the date of grant, (ii)
the Eligible Director's death, disability or termination of service as a
director upon the completion of the last term of office to which such director
was elected, or (iii) a "change of control" (as defined in the Director Stock
Incentive Plan), and may be exercised in whole or in part at any time
thereafter until the date that is ten years following the date of grant. If
for any reason during the term of an unexercised Director Option the Eligible
Director shall cease to be a member of the Board, such Director Option may be
exercised by the Eligible Director (or his estate) until the second
anniversary of the date that the Eligible Director ceases to be a member of
the Board.
The Director Stock Incentive Plan shall remain in effect until all Director
Options granted thereunder shall have been satisfied by the issuance of shares
of Common Stock. The Board may at any time and from time to time alter, amend,
suspend, or terminate the Director Stock Incentive Plan in whole or in part;
provided, however, that the provisions with respect to the grant of Director
Options may not be amended more than once every six
23
months, other than to comport with changes in the Code. The termination or any
modification or
amendment of the Director Stock Incentive Plan shall not, without the consent
of an Eligible Director, affect his or her rights under a grant of a Director
Option.
New Plan Benefits
If the Amendment to the Director Stock Incentive Plan is approved by the
stockholders of the Company, during 2001 each Eligible Director will be
granted under the terms of the Director Stock Incentive Plan a Director Option
to purchase 1,500 shares of Common Stock.
Federal Income Tax Treatment
The following discussion of certain relevant federal income tax effects
applicable to Director Options granted under the Director Stock Incentive Plan
is a brief summary only, and reference is made to the Code and the regulations
and interpretations issued thereunder for a complete statement of all relevant
federal tax consequences. This summary is not intended to be exhaustive and
does not describe state, local or foreign tax consequences.
In general, an optionee will not be subject to tax at the time a
nonstatutory stock option is granted. Upon exercise of a nonstatutory stock
option where the exercise price is paid in cash, the optionee generally must
include in ordinary income at the time of exercise an amount equal to the
excess, if any, of the fair market value of the Common Stock at the time of
exercise over the exercise price, and will have a tax basis in such shares
equal to the cash paid upon exercise plus the amount taxable as ordinary
income to the optionee.
The Company generally will be entitled to a deduction in the amount of an
optionee's ordinary income at the time such income is recognized by the
optionee upon the exercise of a nonstatutory stock option.
On July 31, 2001, the closing price of the Company's Common Stock as
reported on the New York Stock Exchange Composite Tape was $16.98 per share.
The Board of Directors recommends that stockholders vote FOR the proposed
Amendment to the Director Stock Incentive Plan.
STOCKHOLDER PROPOSAL CONCERNING CUMULATIVE VOTING (Item No. 4)
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia, N.W., Suite
215, Washington, D.C. 20037, who is the beneficial owner of 250 shares of
Common Stock, has advised the Company of her intention to introduce the
following resolution at the annual meeting. To be adopted, this resolution,
which is opposed by the Board of Directors, would require the affirmative vote
of the holders of at least a majority of the shares of Common Stock, present
in person or represented by proxy at the meeting and entitled to vote.
RESOLVED: "That the stockholders of US AIRWAYS GROUP, assembled in Annual
Meeting in person and by proxy, hereby request the Board of Directors to take
the necessary steps to provide for cumulative voting in the election of
directors, which means each stockholder shall be entitled to as many votes as
shall equal the number of shares he or she owns multiplied by the number of
directors to be elected, and he or she may cast all of such votes for a single
candidate, or any two or more of them as he or she may see fit."
24
Supporting Statement of Mrs. Evelyn Y. Davis
REASONS: "Many states have mandatory cumulative voting, so do National
Banks." "In addition, many corporations have adopted cumulative voting." "US
AIRWAYS had its annual meeting in 2000 at the SAME DATE as AMR (American
Airlines) a major competitor." A Director elected by cumulative voting might
be more inclined to choose a better date where more independent shareholders
could attend.
"Last year the owners of 6,558,397 shares, representing approximately 17.8%
of shares voting, voted FOR this similar proposal."
"If you AGREE, please mark your proxy FOR this resolution."
Statement of the Company in Opposition to the Stockholder Proposal
The Board of Directors recommends a vote against the cumulative voting
proposal because the Board firmly believes that cumulative voting is not in
the best interest of the Company or its stockholders.
The Company's current voting system ensures that each Director is elected by
a plurality of the votes cast. By contrast, cumulative voting could favor
special interests. The Board of Directors believes that each Director should
be chosen for his or her qualifications and ability to serve the Company and
our stockholders. To do otherwise would sacrifice the interests of the Company
and stockholders as a whole.
Each Director has the duty to represent all the stockholders and to advance
the best interest of the Company. By permitting a relatively small group of
stockholders to pool their votes and elect a Director, cumulative voting would
produce a conflict between the Director's duty to represent all the
stockholders and the Director's allegiance to his or her narrow constituency.
A system of cumulative voting could render a partisan Board, as special
interest concerns prevent the members of the Board from working together as a
smoothly functioning unit.
In summary, the Company believes that the existing system of one vote per
share is working well.
The proposal was rejected by the shareholders last year by a vote of 82.04%
against.
Accordingly, the Board of Directors urges you to vote AGAINST the
stockholder resolution (Item No. 4).
25
OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which may come before the
meeting except that indicated above. However, if other business is brought
before the meeting, the persons acting under the enclosed form of proxy may
vote thereunder in accordance with their best judgment.
The Company's by-laws require stockholders who intend to nominate directors
or propose new business at any Annual Meeting to provide advance notice of
such intended action as well as certain additional information. This by-laws
provision requires stockholders to provide the Company with notice of their
intent to nominate directors or propose new business at an Annual Meeting not
less than 30 days nor more than 60 days prior to such Annual Meeting;
provided, however, that in the event less than 40 days prior written notice or
prior public disclosure of the date of the meeting is given or made to the
stockholder, such notices by the stockholder must be received by the Company
not later than close of business on the 10th day following the day on which
such notice of the date of the Annual Meeting was mailed or such public
disclosure was made.
Assuming the 2001 Annual Meeting is held as scheduled, notice of intent to
nominate directors or propose new business to be brought before the 2001
Annual Meeting must have been received in proper form on or after July 23,
2001 and on or prior to August 20, 2001.
COST AND METHOD OF PROXY SOLICITATION
Proxies will be solicited by mail. The expense of such solicitation will be
borne by the Company. Directors, officers, or regular employees of the Company
and US Airways may solicit proxies in person. The cost of such solicitation
will be nominal. In addition, D.F. King & Co., Inc. has been retained by the
Company to assist in soliciting proxies from brokerage firms, bank nominees
and other institutional holders to assure a timely vote by the beneficial
owners of stock held of record by such firms, banks and institutions. This
firm will receive a fee not to exceed $17,500 for its services.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
As discussed above, the Company's by-laws require stockholders who intend to
nominate directors or propose new business at any Annual Meeting to provide
advance notice of such intended action as well as certain additional
information. In addition, in accordance with federal securities laws,
proposals to be submitted by stockholders for consideration at the Company's
next Annual Meeting and inclusion in the Company's 2002 Proxy Statement must
be received by the Company at its executive offices in Arlington, Virginia,
not later than December 1, 2001.
AVAILABILITY OF ANNUAL REPORT TO STOCKHOLDERS AND REPORT ON FORM 10-K
Copies of the Company's Annual Report to Stockholders on Form 10-K for the
year ended December 31, 2000, which includes certain financial information
about the Company, were previously mailed to the Company's stockholders.
Copies of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 as filed with the SEC (exclusive of exhibits and documents
incorporated by reference), may also be obtained for free by directing written
requests to: US Airways Group, Inc., Investor Relations, 2345 Crystal Drive,
Arlington, Virginia 22227, (703) 872-5305. Copies of exhibits and basic
documents filed with the Annual Report on Form 10-K or referenced therein will
be furnished to stockholders upon written request and payment of a nominal fee
in connection with the furnishing of such documents.
By Order of the Board of Directors,
Jennifer C. McGarey
Secretary
August 17, 2001
26
Appendix A
US AIRWAYS GROUP, INC. AUDIT COMMITTEE CHARTER
The Board of Directors of US Airways Group, Inc. (the "Company") hereby sets
forth the authority, responsibilities, and specific duties of the Audit
Committee (the "Committee") described below.
1.Composition
Each member of the Committee shall be an "independent" director within the
meaning of the New York Stock Exchange ("NYSE") rules and, as such, shall be
free from any relationship that may interfere with the exercise of his or her
independent judgment as a member of the Committee. All members of the
Committee shall be financially literate at the time of their election to the
Committee or shall become financially literate within a reasonable period of
time after their appointment to the Committee. "Financial literacy" shall be
determined by the Board of Directors in the exercise of its business judgment,
and shall include a working familiarity with basic finance and accounting
practices. At least one member of the Committee shall have accounting or
related financial management expertise, as such qualification may be
determined in the business judgment of the Board of Directors. In addition,
the Chairman of the Board of Directors of US Airways Group shall serve as an
ex-officio member of the Committee. One of the independent directors serving
as a member of the Committee shall be appointed Committee chairman by the
Board of Directors.
2.Authority
The Audit Committee shall have the authority to perform each of the specific
duties enumerated in this charter and, upon the direction and approval of the
Board of Directors, to investigate any activity of the Company; however, the
Chairman of the Board of Directors may, from time to time, appoint a select
committee of independent directors to undertake a specific investigation. All
employees shall be directed to cooperate as required by members of the
Committee. The Committee is empowered to retain persons having special
competence as necessary to assist the Committee in fulfilling its
responsibilities. However, the Committee will notify the Board of Directors of
such action and, where deemed appropriate by the Committee, receive Board
approval before proceeding.
3.Responsibility
The Committee is to assist the Board of Directors in fulfilling its
fiduciary responsibilities as to accounting policies and reporting practices
of the Company and all subsidiaries and the sufficiency of auditing relative
thereto. In carrying out its responsibilities, the Committee shall meet
periodically with the independent accountants, internal auditors, and the
Company's management, as their duties relate to financial accounting,
reporting, and controls. The Committee is to be the Board's principal agent in
ensuring the independence of the Company's independent accountants, the
integrity of management, and the adequacy of disclosures to stockholders. The
opportunity for the independent accountants to meet with the entire Board of
Directors as needed, is not to be restricted.
4.Meetings
The Committee shall maintain minutes of its meetings and records relating to
those meetings and the Committee's activities and provide copies of such
minutes to the Board and to each Committee member.
27
5.Specific Duties
The Audit Committee is to:
A. Review the adequacy of this charter at least annually. Submit the charter
to the Board of Directors for approval and have the document published at
least every three years in accordance with Securities and Exchange
Commission regulations.
B. Review with the Company's management, independent accountants, and internal
auditors, the Company's general policies and procedures to reasonably
ensure the adequacy and integrity of internal accounting and financial
reporting controls.
C. Have familiarity with the accounting and reporting principles and practices
applied by the Company in preparing its financial statements. Receive
periodic reports from the Company's independent accountants and management
of the Company to assess the impact on the Company of significant
accounting or financial reporting developments proposed by the Financial
Accounting Standards Board, the SEC or other regulatory bodies, or any
other significant accounting or financial reporting related matters that
may have a bearing on the Company. Further, the Committee is to make, or
cause to be made, all necessary inquiries of management and the independent
accountants concerning established standards of corporate conduct and
performance, and deviations therefrom.
D. Review, prior to the annual audit, the scope and general extent of the
independent accountants' plan for their examination, and monitor such
plan's progress and results during the year. The auditor's fees are to be
arranged with management and annually summarized for Committee review. The
Committee's review should entail an understanding from the independent
accountants of the factors considered by the accountants in determining the
audit scope, including:
.Industry and business risk characteristics of the Company and its
subsidiaries
.External reporting requirements
.Materiality of the various segments of the Company's consolidated and non-
consolidated activities
.Quality of internal accounting controls
.Extent of involvement of internal audit in the audit examination
.Other areas to be covered during the audit engagement
E. Review on an annual basis the independence of the accountants. Review and
discuss with the independent accountants all significant relationships they
have with the Company that could impair the accountants' independence.
Review a written report from the independent accountants describing any
such relationships. Review the extent of non-audit services provided by the
independent accountants in relation to the objectivity and independence
needed in the audit.
F. Notify the Company's independent accountants that they are ultimately
accountable to the Committee and the Board of Directors, and that the
Committee and the Board of Directors are responsible for the selection
(subject to shareholder approval), evaluation and termination of the
Company's independent accountants.
G. Review with management and independent accountants, upon completion of
their audit, financial results for the year. In overseeing the independent
accountants' annual audit and quarterly reviews, the Committee shall
specifically review:
a. the Company's annual report to shareholders and Form 10-K, including the
financial statements, financial statement schedules, supplemental
disclosures required by generally accepted accounting
28
principles and the Securities and Exchange Commission and the annual
proxy statement, the report on accounting procedures and internal
controls, and any other pertinent reports and management's responses;
b. the qualitative judgments of the independent accountants about the
appropriateness, not just the acceptability, of accounting principle and
financial disclosure practices used or proposed to be adopted by the
Company;
c. the methods used to account for significant and/or unusual transactions;
d. significant recorded and unrecorded audit adjustments; any material
accounting issues among management, the Company's internal auditing
department and the independent accountants; and
e. certain matters required to be communicated to audit committees in
accordance with Statement on Auditing Standard No. 61, (as it may be
modified or supplemented) ("SAS No. 61").
f. other matters required to be communicated to the Committee under
generally accepted auditing standards, as amended, by the independent
accountants.
As deemed appropriate by the Committee, the Committee (or the Chairman of
the Committee) should meet or confer with management and/or the independent
accountants quarterly to review the Company's periodic financial statements
prior to their filing with the Securities and Exchange Commission ("SEC").
H. Evaluate the cooperation received by the independent accountants during
their audit examination, including their access to all requested records,
data, and information. Confirm through private discussions with the
Company's independent accountants and the Company's management that no
management restrictions are being placed on the scope of the independent
accountants' work. Inquire of the independent accountants whether there
have been any disagreements with management which if not satisfactorily
resolved would have caused them to issue a nonstandard report on the
Company's financial statements. Also, elicit the comments of management
regarding the responsiveness of the independent accountants to the
Company's needs.
I. Discuss with the independent accountants the quality of the Company's
internal financial controls, the selection of accounting principles, and
management reporting system. Review any relevant recommendations which the
independent accountants may have.
J. Review compliance of the Company's management and employees with the
Company's code of ethics.
K.Review both the adequacy and cost of the Company's insurance programs.
L. Review with the Company's internal audit personnel their annual work plan
and the results of their prior year's work.
M. Recommend to the Board of Directors any appropriate extensions or changes
in the duties of the Committee.
N. Review the performance of the independent accountants and annually
recommend to the Board of Directors the retention or non-retention of the
independent accountants after consulting with the Company's management.
O. Upon any changes in the composition of the Committee and otherwise once
each year, the Committee shall ensure that the Company provides the NYSE
with written confirmation regarding:
1. Any determination that the Board has made regarding the independence of
the Committee members;
29
2. The financial literacy of the Committee members;
3. The determination that at least one of the Committee members has
accounting or related financial management expertise; and
4. The annual review and reassessment of the adequacy of the Committee's
charter.
P. Prepare a report to be included in each annual proxy statement of the
Company for the period commencing after December 15, 2000 which states,
among other things, whether:
1. the Committee has reviewed and discussed with management the audited
financial statements to be included in the Company's Annual Report on
Form 10-K;
2. the Committee has discussed with the Company's independent accountants
the matters that the accountants are required to discuss with the
Committee by SAS No. 61, (as it may be modified or supplemented);
3. the Committee has received the written disclosures and the letter from
the Company's independent accountants required by Independence Standards
Board Standard No. 1, as may be modified or supplemented, and has
discussed with the independent accountants their independence; and
4. based on the review and discussions described in subsections (1), (2)
and (3) above, the Committee has recommended to the Board of Directors
that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the last fiscal year for filing with the
SEC.
6.Overall Authority and Responsibility
While the Committee has the duties and responsibilities set forth in this
charter, the Committee is not responsible for planning or conducting the audit
or for determining whether the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
These functions are to be performed by the independent accountants. Similarly,
it is not the responsibility of the Committee to resolve disagreements, if
any, between management and the independent accountants or to ensure that the
Company complies with all laws and regulations.
30
FIRST AMENDMENT
TO THE US AIRWAYS GROUP, INC.
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
(as amended and restated effective May 16, 2000)
WHEREAS, US Airways Group, Inc. (the "Company"), maintains the US Airways
Group, Inc. Nonemployee Director Stock Incentive Plan (the "Plan"); and
WHEREAS, Section 7 of the Plan provides that the Board of Directors of the
Company (the "Board") may amend the Plan from time to time, subject to the
limitations therein; and
WHEREAS, the Company desires to amend the Plan as provided herein.
NOW THEREFORE, the Plan is amended as follows:
Any term which is not defined below shall have the meaning set forth in the
Plan.
1. Section 4.1 of the Plan is hereby amended by deleting the number
"70,000" therein and inserting, in lieu thereof, the number "160,000".
2. Section 6.2 of the Plan is hereby amended in its entirety to read
as follows:
The Plan shall remain in effect until all Options granted under the
Plan have been satisfied by the issuance of shares, or terminated under the
terms of the Plan.
This First Amendment is subject to approval by the stockholders of the
Corporation at the 2001 annual meeting of stockholders of the Corporation and
shall be effective on the date of such approval.
Detach Proxy Card Here
[]
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3.
1. Election of Director Nominees: M.J. DeVito, R. Gangwal, P.M. George, R.L.
Johnson, R. LeBuhn, J.G. Medlin, Jr., H.M. Merriman, T.H. O'Brien, H.
Ochoa-Brillembourg. R.B. Priory, R.W. Smith, S.M. Wolf.
FOR all nominees [_] WITHHOLD AUTHORITY to vote [_] *EXCEPTIONS [_]
listed above for all nominees listed above
(INSTRUCTIONS: To vote for all nominees other than certain specified nominees,
mark the "Exceptions" box and write the nominees name in the space provided
below.)
*Exceptions____________________________________________________________________
2. Ratification of the selection of KPMG LLP as auditors.
FOR AGAINST ABSTAIN
3. Approval of an amendment to the US Airways Group, Inc.
Nonemployee Director Stock Incentive Plan.
FOR AGAINST ABSTAIN
_______________________________________________________________________________
BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 4.
4. Stockholder proposal concerning cumulative voting.
FOR AGAINST ABSTAIN
Change of Address and/
or Comments Mark Here
NOTE: Please sign as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
-------------------------------------------------------
Signature
-------------------------------------------------------
Signature
Dated: __________________________________________, 2001
(Please sign, date and return this proxy card in the enclosed envelope.)
Votes MUST be indicated (x) in black or blue ink. X
Please Detach Here
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope
US AIRWAYS GROUP, INC.
PROXY
Proxy Solicited on Behalf of The Board of Directors for Annual Meeting of
Stockholders on September 19, 2001
The undersigned hereby appoints J.C. McGarey and L.M. Nagin, and each of
them, proxies (each with power of substitution) of the undersigned to attend the
above annual meeting of stockholders of US Airways Group, Inc. and any
adjournment or postponement thereof and thereat to vote all shares of stock held
by the undersigned, as specified on the reverse side, and on any other matters
that may properly come before said meeting.
For those participants who may hold shares in the US Airways, Inc. Employee
Stock Ownership Plan, the US Airways, Inc. 401(k) Savings Plan, the US Airways,
Inc. Employee Savings Plan, the US Airways, Inc. 401(k) Savings Plan for Pilots
or the Supplemental Retirement Plan of Piedmont Aviation, Inc. (collectively,
the "Plans"), please fill in and sign this card and mail it in time to be
received no later than September 14, 2001, in order to be voted in a timely
manner by the administrator of the Plans, Fidelity Management Trust Company (the
"Administrator"). After September 14, 2001, the instructions cannot be revoked
and, in accordance with the Plans, you may not vote these shares in person at
the meeting. The Administrator is authorized to vote the Plan shares for which
instructions have been given upon such other business as may come before the
meeting. The Bank of New York will tally the vote on behalf of the
Administrator.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
US AIRWAYS GROUP, INC.
P.O. BOX 11043
NEW YORK, NY 10203-0043