As filed with the Securities and Exchange Commission on July 6, 2000
PRELIMINARY COPY
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
US Airways Group, Inc.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
common stock, $1.00 par value, of US Airways Group, Inc.
("US Airways")
(2) Aggregate number of securities to which transaction applies:
67,050,879 shares of US Airways common stock plus (b) 10,682,800
shares underlying outstanding options to purchase shares of US
Airways common stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
The filing fee was determined based upon the sum of (a) the
product of 67,050,879 shares of US Airways common stock and the
merger consideration of $60.00 per share in cash and (b) the
difference between $60.00 per share and the exercise price per
share of each of the 10,682,800 options outstanding to purchase
shares of US Airways common stock. In accordance with Rule 0-11
under the Securities Exchange Act of 1934, as amended, the filing
fee was determined by multiplying the amount calculated pursuant
to the preceding sentence by 1/50 of one percent.
(4) Proposed maximum aggregate value of transaction: $4,281,618,547.
(5) Total fee paid: $857,000.
[ ] 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:
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PRELIMINARY COPY
[LOGO]
US AIRWAYS GROUP, INC.
2345 CRYSTAL DROVE
ARLINGTON, VIRGINIA 22227
[July] , 2000
Dear Stockholder:
We invite you to attend a special meeting of stockholders of US
Airways Group, Inc. ("US Airways") to be held at 9:30 a.m., local time, on
[August] , 2000, at .
At the special meeting, we will ask you to adopt the merger agreement
that we entered into on May 23, 2000 with UAL Corporation pursuant to which
our company will be merged with a wholly-owned subsidiary of UAL
Corporation. If we complete the merger, you will receive $60.00 in cash for
each share of US Airways common stock you own and US Airways will become a
100% owned subsidiary of UAL Corporation. The $60.00 per share being paid
in the merger represents a premium of approximately 130% over the $26.31
closing price of US Airways common stock on May 23, 2000, the last trading
day before we announced the signing of the merger agreement.
We cannot complete the merger unless the conditions to closing are
satisfied, including the adoption of the merger agreement by holders of a
majority of the outstanding shares of US Airways common stock and
satisfying various regulatory requirements. We believe that efforts
sufficient to satisfy the requisite regulatory requirements can be
concluded on or before January 1, 2001 and, assuming the merger agreement
is adopted by the holders of a majority of the outstanding shares of US
Airways common stock, the transaction will be consummated promptly
following satisfaction of such regulatory requirements. However, we cannot
assure you that such requirements will be satisfied or, if satisfied, when
they will be satisfied.
The Board of Directors carefully reviewed and considered the terms
and conditions of the proposed merger. Based on its review, the Board of
Directors has determined that the terms of the merger agreement and the
merger are advisable and are fair to and in the best interests of US
Airways and its stockholders. In making this determination, the Board of
Directors considered, among other things, an oral opinion (which was
subsequently confirmed in writing) dated May 23, 2000 of Salomon Smith
Barney Inc., the company's financial advisors, to the effect that, as of
that date and on the basis of and subject to the matters reviewed with the
Board of Directors, the $60.00 per share to be received by you in the
merger was fair to you from a financial point of view.
The Board of Directors of US Airways, based on its determination that
the merger agreement and the merger are advisable and are fair to and in
the best interests of US Airways and its stockholders, has approved the
merger agreement and the merger. Accordingly, the Board recommends that you
vote "FOR" adoption of the merger agreement.
The attached notice of special meeting and proxy statement explain
the proposed merger and merger agreement and provide specific information
concerning the special meeting. Please read these materials (including the
appendices) carefully.
Your vote is important. Whether or not you plan to attend the special
meeting, you should complete, sign, date and promptly return the enclosed
proxy card to ensure that your shares will be represented at the meeting.
If you attend the special meeting and wish to vote in person, you may
withdraw your proxy and do so.
If you have any questions regarding the proposed transaction, please
call D.F. King & Co. Inc. our proxy solicitors, toll-free at 1-800-359-5559
or our investor relations department at (703) 872-5009.
Very truly yours,
Stephen M. Wolf
Chairman
This proxy statement is dated [July] , 2000 and was first mailed to
US Airways stockholders on or about [July] , 2000.
US AIRWAYS GROUP, INC.
2345 CRYSTAL DRIVE
ARLINGTON, VIRGINIA 22227
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [AUGUST] , 2000
------------------------
To the Stockholders of US Airways Group, Inc.:
A special meeting of stockholders of US Airways Group, Inc. will be
held at 9:30 a.m., local time, on [August] , 2000, at , for the purpose of
considering and voting upon a proposal to adopt an Agreement and Plan of
Merger, dated as of May 23, 2000, among US Airways Group, Inc., UAL
Corporation and Yellow Jacket Acquisition Corp., as described in the
attached proxy statement. No other matters, except upon appropriate motion
a stockholder vote to adjourn the special meeting, may be brought before
the special meeting.
The US Airways Board of Directors has fixed the close of business on
[July] , 2000 as the record date for determining stockholders entitled to
notice of, and to vote at, the special meeting and any adjournment or
postponement of the meeting. A list of stockholders entitled to vote at the
special meeting will be available for examination at US Airways' principal
executive offices, during ordinary business hours, from [July] , 2000 until
the meeting.
If you do not vote to adopt the merger agreement and you follow the
procedural requirements of the Delaware General Corporation Law, you may
receive the fair cash value of your shares as appraised by the Delaware
Court of Chancery. See "Special Factors-Appraisal Rights of Stockholders"
in the attached proxy statement.
You should not send any certificates representing common stock with
your proxy card.
Whether or not you plan to attend the special meeting, you should
complete, sign, date and promptly return the enclosed proxy card to ensure
that your shares will be represented at the meeting. If you attend the
special meeting and wish to vote in person, you may withdraw your proxy and
vote in person.
By Order of the Board Directors
Jennifer C. McGarey
Secretary
Dated: [July] , 2000
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER.......................................1
SUMMARY......................................................................4
The Parties............................................................4
The Special Meeting....................................................4
The Merger.............................................................5
INFORMATION CONCERNING THE SPECIAL MEETING..................................10
Date, Time and Place of the Special Meeting...........................10
Purpose of the Special Meeting........................................10
Record Date; Quorum; Outstanding Common Stock Entitled to Vote........10
Voting Rights.........................................................10
Voting and Revocation of Proxies......................................10
Solicitation of Proxies...............................................11
Other Matters.........................................................11
SPECIAL FACTORS.............................................................11
Background of the Merger..............................................11
Purpose of the Merger; Certain Effects of the Merger..................16
Recommendations of the Board of Directors; Reasons for the Merger.....16
Opinion of Financial Advisor..........................................19
Certain Estimates Provided to UAL Corporation.........................27
Interests of Certain Persons in the Merger............................29
Merger Financing; Source of Funds.....................................32
Certain United States Federal Income Tax Consequences.................32
Accounting Treatment..................................................33
Appraisal Rights of Stockholders......................................33
THE MERGER AGREEMENT........................................................35
The Merger............................................................35
Representations and Warranties........................................36
Certain Covenants.....................................................38
Other Agreements of US Airways, UAL Corporation and
Yellow Jacket Acquisition Corp........................................40
No Solicitation of Transactions.......................................41
Employee Benefit Matters..............................................43
Conditions to the Merger..............................................43
Termination of the Merger Agreement...................................44
Termination Fees .....................................................45
Expenses..............................................................46
Amendment; Waiver.....................................................46
SUMMARY OF DC AIR...........................................................47
Competitive Presence in Washington, D.C...............................47
DC Air Asset Configuration and Transition Plan........................47
REGULATORY MATTERS..........................................................48
Antitrust Considerations..............................................48
Department of Transportation .........................................49
Federal Aviation Administration ......................................49
European Communities Filing...........................................50
Other Regulatory Matters..............................................50
CERTAIN LITIGATION..........................................................50
PARTIES TO THE MERGER.......................................................50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................................52
PRICE RANGE OF COMMON STOCK AND DIVIDENDS...................................54
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................54
OTHER INFORMATION..........................................................55
Proposals by Stockholders of US Airways...............................55
Where You Can Find More Information...................................55
APPENDIX A: Agreement and Plan of Merger.............................A-1
APPENDIX B: Opinion of Salomon Smith Barney Inc......................B-1
APPENDIX C: Appraisal Rights Under Delaware Law......................C-1
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What effect will the merger have on US Airways?
A: We will be merged with Yellow Jacket Acquisition Corp., a corporation
formed by UAL Corporation, which is the parent company of United Air
Lines, Inc. We will be the surviving corporation in the merger. After
the merger has been completed, our common stock will be 100% owned by
UAL Corporation and will no longer be publicly traded.
Q: What will I receive in the merger?
A: If the merger is completed, you will receive $60.00 in cash in
exchange for each share of our common stock that you own at the time
of the merger. The $60.00 per share being paid in the merger
represents a premium of approximately 130% over the $26.31 closing
price of our common stock on May 23, 2000, the last trading day before
we announced the signing of the merger agreement.
Q: What is the Board's recommendation?
A: The Board has determined that the merger agreement and the merger are
advisable and are fair to you and in your and our best interests and
recommends that you vote "FOR" adoption of the merger agreement. In
making this determination, the Board took into account, among other
things, the oral opinion (which was subsequently confirmed in writing)
dated May 23, 2000 of our financial advisor Salomon Smith Barney Inc.
that, as of that date and on the basis of and subject to the matters
reviewed with the Board, the $60.00 per share to be received by you in
the merger was fair to you from a financial point of view.
Q. What vote of stockholders is required to complete the merger?
A: In order for the merger to be completed, the merger agreement must be
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of our common stock.
Q. What do I need to do now?
A: You should complete, date and sign your proxy card and mail it in the
enclosed return envelope as soon as possible so that your shares may
be represented at the special meeting, even if you plan to attend the
meeting in person. Unless contrary instructions are indicated on your
proxy, all of your shares represented by valid proxies will be voted
FOR the adoption of the merger agreement and the merger.
Q: What do I need to do if I hold shares through employee stock
ownership, savings, 401(k) or retirement plans?
A: For those participants who hold shares in the US Airways, Inc.
Employee Stock Ownership Plan, the US Airways, Inc. Employee Savings
Plan, the US Airways, Inc. 401(k) Savings Plan or the Supplemental
Retirement Plan of Piedmont Aviation, Inc., you should fill in and
sign your proxy card and mail it in time to be received no later than
[August ___], 2000 in order to be voted in a timely manner by the
administrator of these plans.
Q. May I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote by delivering to our Secretary at our
executive offices, 2345 Crystal Drive, Arlington, Virginia 22227, on
or before the business day prior to the special meeting, or at the
special meeting itself, a later-dated, signed proxy card or a written
revocation or by attending the special meeting and voting in person.
Your attendance at the meeting will not, by itself, revoke your proxy.
If you have instructed a broker to vote your shares, you must follow
the directions received from your broker to change those instructions.
If you hold your shares in the employee plans of our company or our
subsidiaries, instructions cannot be revoked after [August ___], 2000.
In addition, in accordance with these plans, you may not vote these
shares in person at the special meeting.
Q: Should I send my stock certificates now?
A: No. If the merger is completed, we will send you written instructions
for exchanging your stock certificates for the merger consideration.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should follow the procedures provided by your broker
regarding the voting of your shares.
Q: What happens if I do not send in my proxy or if I abstain from voting?
A: If you do not send in your proxy or do not instruct your broker to
vote your shares or if you abstain from voting, it will have the same
effect as a vote against the merger.
Q: What regulatory approvals and filings are needed to complete the
merger?
A: Before we can complete the merger, we will be required to:
o await the expiration or termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
o file necessary notifications and information with, and receive
approvals from, the Department of Transportation and the Federal
Aviation Administration; and
o receive the approval of the European Commission.
Q: When do you expect the transaction to be completed?
A: We believe that efforts sufficient to satisfy the requisite regulatory
requirements can be concluded on or before January 1, 2001 and,
assuming the merger agreement is adopted by the holders of a majority
of our outstanding shares of common stock, the transaction will be
consummated promptly following satisfaction of such regulatory
requirements. However, we cannot assure you that such requirements
will be satisfied or, if satisfied, the date by which they will be
satisfied.
Q: What are the United States federal income tax consequences of the
merger?
A: The merger will be a taxable transaction to you for United States
federal income tax purposes and possibly state, local and foreign
income tax purposes as well. A brief summary of United States federal
income tax consequences of the merger appears on pages 32-33 of this
proxy statement. You should consult your tax advisor as to the tax
consequences to you of the merger in your particular circumstances.
Q: What rights do I have to dissent from the merger?
A: If you wish, you may dissent from the merger and seek an appraisal of
the fair value of your shares, but only if you comply with all
requirements of Delaware law which are summarized on pages 33-35 of
this proxy statement. The appraised fair value of your shares may be
more or less than the merger consideration.
Q: Who can help answer my questions?
A: If you have additional questions about the merger or would like
additional copies of the proxy statement, you should call our proxy
solicitors, D.F. King & Co. Inc., toll-free at 1-800-359-5559 or our
investor relations department at (703) 872-5009.
SUMMARY
This summary, together with the preceding Questions and Answers
section, highlights selected information contained in this document and may
not contain all of the information that is important to you. We urge you to
carefully read this entire document and the other documents to which this
document refers to understand fully the merger and other related
transactions. See "Where You Can Find More Information" on page 55 for
details of how you can obtain additional information about US Airways and
the merger. Each item in this summary includes a page reference directing
you to a more complete description of the item. This summary is qualified
in its entirety by reference to the more detailed information appearing
elsewhere in this document.
THE PARTIES
US AIRWAYS GROUP, INC.
We are incorporated under the laws of the State of Delaware. Our executive
offices are located at 2345 Crystal Drive, Arlington, Virginia 22227. Our
telephone number is (703) 872-7000.
We are a holding company and our principal operating subsidiary is US
Airways, Inc., a Delaware corporation, which is wholly owned. US Airways,
Inc. accounted for approximately 88% of our operating revenues on a
consolidated basis in 1999. US Airways, Inc. is a certified air carrier
engaged primarily in the business of transporting passengers, property and
mail. Our common stock is traded on the New York Stock Exchange under the
symbol "U."
UAL CORPORATION
UAL Corporation is incorporated under the laws of the State of Delaware.
The world headquarters of UAL Corporation are located at 1200 East
Algonquin Road, Elk Grove Township, Illinois 60007. UAL Corporation's
mailing address is P.O. Box 66919, Chicago, Illinois 60666. The telephone
number for UAL Corporation is (847) 700-4000.
UAL Corporation is a holding company and its principal subsidiary is United
Air Lines, Inc., a Delaware corporation, which is wholly owned. United Air
Lines accounted for virtually all of UAL Corporation's revenues and
expenses in 1999. United Air Lines is a major commercial air transportation
company, engaged in the transportation of passengers, property and mail
throughout the United States and abroad. UAL Corporation's common stock is
traded on the New York Stock Exchange under the symbol "UAL."
YELLOW JACKET ACQUISITION CORP.
Yellow Jacket Acquisition Corp. was formed as a Delaware Corporation on May
17, 2000 by UAL Corporation for the purpose of entering into the merger
agreement. Yellow Jacket Acquisition Corp. has not engaged in any business
activity other than in connection with the merger and the related
transactions.
THE SPECIAL MEETING
Date, Time and Place and Matters to be Considered (page 10)
The special meeting will be held at 9:30 a.m., local time, on [August] ,
2000, at . At the special meeting, you will be asked to consider and vote
upon a proposal to adopt the merger agreement, a copy of which is attached
hereto as Appendix A.
Vote Required (page 10)
In order for the merger to be consummated the merger agreement must be
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of our common stock.
Record Date for Voting (page 10)
The close of business on [July] , 2000 is the record date for determining
holders of shares of our common stock entitled to vote at the special
meeting. Each share of common stock will be entitled to one vote. On the
record date, there were shares entitled to vote at the special meeting.
THE MERGER
What You will Receive in the Merger
You will receive $60.00 per share in cash in exchange for each share of our
common stock that you own. The merger price represents a 130% premium over
the $26.31 per share closing price of our common stock on May 23, 2000, the
last trading day before we announced the signing of the merger agreement.
Background of the Merger; Reasons for the Merger (pages 11-16)
For a description of the events leading to the approval of the merger by
the Board and the reasons for such approval, you should refer to "Special
Factors -- Background of the Merger" and "--Recommendation of the Board of
Directors; Reasons for the Merger."
Purpose of the Merger; Certain Effects of the Merger (page 16)
The principal purpose of the merger is to enable UAL Corporation, the
parent corporation of United Air Lines, Inc., to own all of the equity
interests in our company and provide you the opportunity to receive a cash
price for your shares at a significant premium over the market prices at
which the common stock traded before announcement of the merger agreement.
The merger will terminate all equity interests in our company held by
public stockholders, and UAL Corporation will be the sole beneficiary of
any earnings and growth of our company following the merger.
Upon completion of the merger, our common stock will be delisted from the
New York Stock Exchange and will no longer be publicly traded.
Recommendation of the Board (pages 16-19)
The Board, taking into account, among other things, the opinion of Salomon
Smith Barney Inc., has determined that the merger agreement and the merger
are advisable and are fair to you and in your and our best interests and
recommends that you vote FOR adoption of the merger agreement.
Opinions of Salomon Smith Barney Inc. (pages 19-27)
Salomon Smith Barney Inc. delivered an oral opinion (which was subsequently
confirmed in writing) dated May 23, 2000 to the Board that, as of that date
and on the basis of and subject to the matters reviewed with the Board, the
consideration to be received by you in the merger was fair to you from a
financial point of view. We have attached a copy of the opinion as Appendix
B to this proxy statement. The opinion of Salomon Smith Barney Inc. is
addressed to the Board, does not address any other aspect of the merger and
does not constitute a recommendation as to how you should vote at the
special meeting.
Interests of Certain Persons in the Merger (pages 29-32)
In considering the recommendation of the Board of Directors with respect to
the merger, stockholders should be aware that the executive officers and
directors of the Company have some interests in the merger that may be
different from, or in addition to, the interests of stockholders generally.
The Board of Directors was aware of these interests and considered them,
among other matters, in making its recommendation. See "Interests of
Certain Persons in the Merger".
Merger Financing; Source of Funds (page 32)
UAL Corporation has informed us that the aggregate merger consideration of
approximately $4.28 billion to be paid to our stockholders (assuming that
no stockholders perfect their appraisal rights under Delaware law) will be
financed through existing and new debt facilities and cash on hand.
Conditions to the Merger (pages 43-44)
Each party's obligation to complete the merger is subject to a number of
conditions, including the following:
o adoption by our stockholders of the merger agreement;
o the absence of any law, order or injunction prohibiting the merger;
and
o the expiration or termination of the waiting period under the
Hart-Scott-Rodino Act and the receipt of any other necessary approvals
or clearances under applicable competition, merger control, antitrust
or similar law or regulation.
The obligations of UAL Corporation and Yellow Jacket Acquisition Corp. to
complete the merger are subject to certain additional conditions, including
the following:
o the absence of any legal restraint that has the effect of (i)
prohibiting or limiting in any material respect the ownership or
operation of a material portion of our or UAL Corporation's business,
(ii) prohibiting UAL Corporation from controlling in any material
respect a substantial portion of our business or operations or (iii)
imposing material limitations on UAL Corporation's ability to acquire,
hold or exercise full rights of ownership of shares of our common
stock; and
o we or UAL Corporation having obtained (i) all material consents,
approvals or authorizations of governmental entities legally required
in connection with the merger agreement or the transactions
contemplated by the merger agreement and (ii) all other governmental
or third party consents, approvals or authorizations required in
connection with the merger agreement, except, in the case of clause
(ii), for those the failure of which to be obtained would not be
expected to have a material adverse effect on us or prevent or
materially impede or delay consummation of the merger.
The obligations of UAL Corporation and Yellow Jacket Acquisition Corp. to
complete the merger are not subject to a financing condition or any
additional corporate proceedings by UAL Corporation or Yellow Jacket
Acquisition Corp., including the approval of their stockholders.
Regulatory Filings and Approvals (pages 48-50)
We must make filings with and receive approvals of various federal and
foreign regulatory agencies before the merger can be completed. At the
federal level, filings must be made with, and approvals must be obtained
from, the Department of Transportation and the Federal Aviation
Administration and the waiting period under the Hart-Scott-Rodino Act must
have either expired or been terminated. The parties are also required to
obtain approval of the transaction from the European Commission.
Both we and UAL Corporation have received inquiries from a number of state
antitrust authorities and are cooperating with their investigations. While
no formal state approvals are required, as is the case with other private
litigants, the state authorities have the capacity to seek judicial
injunctions under the federal antitrust laws.
Termination of the Merger Agreement (pages 44-45)
The merger agreement may be terminated, whether before or after receiving
stockholder approval, without completing the merger, under certain
circumstances, including the following:
o by mutual consent of the parties;
o by us or UAL Corporation if the merger is not consummated by December
31, 2000; provided, however, that either party may extend this
deadline to August 1, 2001 if, by December 31, 2000, all conditions to
consummation of the merger are fulfilled, except the adoption of the
merger agreement by our stockholders, the receipt of regulatory
approvals or consents or the absence of a legal restraint;
o by us or UAL Corporation if any law or court order prohibiting the
merger becomes final and cannot be appealed, so long as a breach by
the party seeking to terminate is not the principal reason for such
event having occurred;
o by us or UAL Corporation if our stockholders do not adopt the merger
agreement;
o by UAL Corporation if our Board withdraws or modifies, in a manner
adverse to UAL Corporation, the Board's recommendation or declaration
of the advisability of the merger agreement or the merger or
recommends an alternative transaction;
o by UAL Corporation if (A) any legal restraint shall have become final
and nonappealable that has the effect of (i) prohibiting or limiting
in any material respect the ownership or operation of a material
portion of the business of US Airways or UAL Corporation, (ii)
prohibiting UAL Corporation from controlling in any material respect a
substantial portion of the business or operations of US Airways or
(iii) imposing material limitations on UAL Corporation's ability to
acquire, hold or exercise full rights of ownership of shares of our
common stock and (B) a breach by UAL Corporation is not the primary
reason that such event occurred; or
o by us, at any time prior to obtaining stockholder approval, in
response to an unsolicited bona fide binding written offer made by a
third party to acquire more than 50% of our common stock or all or
substantially all our assets for consideration that our Board
determines in its good faith judgment to be superior for our
stockholders, provided that we have complied in all material respects
with the no solicitation covenant of the merger agreement and we have
paid the applicable termination fee and expense reimbursement amount
to UAL Corporation and we concurrently enter into an acquisition
agreement with a third party.
Termination Fee Payable to UAL Corporation (pages 45-46)
We are required to pay to UAL Corporation a termination fee of $150
million, plus up to a maximum of $10 million for reimbursement of UAL
Corporation's expenses, if:
o the merger agreement is terminated under circumstances where:
-- the termination was due to (i) our stockholders failing to adopt
the merger or (ii) the merger agreement failing to be completed
by the applicable termination date;
-- prior to such termination, a third party made a proposal to
acquire 20% or more of our common stock or a business
constituting 20% or more of our total revenue, operating income,
earnings before interest, taxes, depreciation and amortization
(EBITDA) or assets; and
-- within 12 months of such termination, we consummate or enter into
an agreement with a third party providing for the acquisition of
40% or more of our common stock or a business constituting 40% or
more of our total revenue, operating income, earnings before
interest, taxes, depreciation and amortization (EBITDA) or
assets;
o the merger agreement is terminated by UAL Corporation because our
Board withdraws or modifies, in a manner adverse to UAL Corporation,
its recommendation or declaration of the advisability of the merger
agreement or the merger or recommends any alternative transaction; or
o the merger agreement is terminated by us in response to an unsolicited
bona fide binding written offer made by a third party to acquire more
than 50% of our common stock or all or substantially all our assets
for consideration that our Board determines in its good faith judgment
to be superior for our stockholders.
Termination Fee Payable to US Airways (page 46)
UAL Corporation is required to pay us a termination fee of $50 million in
the event the merger agreement is terminated for any reason other than (i)
our Board's withdrawal or modification, in a manner adverse to UAL
Corporation, of its recommendation or declaration of the advisability of
the merger agreement or the merger or recommendation of an alternative
transaction, (ii) our material breach of our representations, warranties,
or covenants, or (iii) our termination in response to an unsolicited
binding written offer made by a third party for consideration that our
Board determines in its good faith judgment to be superior to our
stockholders. This fee will have to be repaid by us to UAL Corporation if
subsequent to such termination, UAL Corporation becomes entitled to receive
a termination fee as described above under "- Termination Fee Payable to
UAL Corporation."
Appraisal Rights (pages 33-35)
You are entitled to exercise appraisal rights in connection with the
merger. If you elect to exercise appraisal rights, you must deliver to us,
before the stockholder vote to adopt the merger agreement is taken, written
notice of your intent to demand appraisal of your shares if the merger is
completed, and you must not vote to adopt the merger agreement.
Certain United States Federal Income Tax consequences (pages 32-33)
The receipt of cash for shares pursuant to the merger will be a taxable
transaction for United States federal income tax purposes and possibly for
state, local and foreign income tax purposes as well. In general, a
stockholder who receives cash in exchange for shares pursuant to the
proposed merger will recognize gain or loss for United States federal
income tax purposes equal to the difference, if any, between the amount of
cash received and the stockholder's adjusted tax basis in the shares
exchanged for cash pursuant to the merger. If the shares exchanged
constitute capital assets in the hands of the stockholder, such gain or
loss will be capital gain or loss. In general, capital gains recognized by
an individual will be subject to a maximum United States federal income tax
rate of 20% if the shares were held for more than one year, and if held for
one year or less they will be subject to tax at ordinary income tax rates.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This proxy statement is furnished to you in connection with the
solicitation of proxies by our Board of Directors for the meeting of
stockholders to be held at 9:30 a.m., local time, on [August] , 2000, at ,
or any postponement or adjournment of the meeting. This proxy statement,
the Notice of Special Meeting and the accompanying form of proxy card are
first being mailed to stockholders on or about [July] , 2000.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt the merger agreement.
RECORD DATE; QUORUM; OUTSTANDING COMMON STOCK ENTITLED TO VOTE
All record holders of shares of our common stock at the close of
business on [July] , 2000 are entitled to notice of, and to vote at, the
special meeting. The presence, in person or by proxy, of holders of a
majority of the outstanding shares of common stock is required to
constitute a quorum for the transaction of business. A list of record
holders will be available for examination at our principal executive
offices from [July] , 2000 until the special meeting. At the close of
business on June 30, 2000, there were 67,050,879 shares of US Airways
common stock outstanding.
VOTING RIGHTS
You are entitled to one vote for each share of common stock that you
held as of the close of business on the record date. The affirmative vote
of the holders of a majority of the outstanding shares of our common stock
is required to adopt the merger agreement. Under Delaware law, in
determining whether adoption of the merger agreement has received the
requisite number of affirmative votes, abstentions and broker non-votes
will have the same effect as a vote against adoption of the merger
agreement.
VOTING AND REVOCATION OF PROXIES
A form of proxy card for your use at the special meeting accompanies
this proxy statement. Subject to the following sentence, all properly
executed proxies that are received prior to or at the special meeting and
not revoked will be voted at the special meeting in the manner specified.
If you hold shares in the US Airways, Inc. Employee Stock Ownership Plan,
the US Airways, Inc. Employee Savings Plan, the US Airways, Inc. 401(k)
Savings Plan or the Supplemental Retirement Plan of Piedmont Aviation,
Inc., your proxies must be received no later than [August _____], 2000, in
order to be voted in a timely manner by the administrator of these plans.
If you execute and return a proxy and do not specify otherwise, the shares
represented by your proxy will be voted "FOR" adoption of the merger
agreement in accordance with the recommendation of the Board. In that
event, you will not have the right to dissent from the merger and seek an
appraisal of the fair value of your shares.
If you have given a proxy pursuant to this solicitation, you may
nonetheless revoke it by attending the special meeting and voting in
person. In addition, you may revoke any proxy you give at any time before
the special meeting by delivering to our Secretary at our executive
offices, on or before the business day prior to the special meeting, or at
the special meeting itself, a written statement revoking it or a duly
executed proxy bearing a later date. If you hold your shares in the
employee plans of our company or our subsidiaries, you may not vote these
shares in person at the special meeting. In addition, if you hold your
shares in these plans, after [August ____], 2000, your instructions with
respect to these shares may not be revoked. If you have executed and
delivered a proxy to us, your attendance at the special meeting will not in
and of itself constitute a revocation of your proxy. If you vote in favor
of adopting the merger agreement, you will not have the right to dissent
and seek appraisal of the fair value of your shares. If you do not send in
your proxy or do not instruct your broker to vote your shares or if you
abstain from voting, it will have the same effect as a vote against the
adoption of the merger agreement.
SOLICITATION OF PROXIES
We will bear the cost of the solicitation of proxies. We will solicit
proxies initially by mail. Further solicitation may be made by our
directors, officers and employees personally, by telephone or otherwise,
but they will not be specifically compensated for these services. Upon
request, we will reimburse brokers, dealers, banks or similar entities
acting as nominees for their reasonable expenses incurred in forwarding
copies of the proxy materials to the beneficial owners of the shares of
common stock they hold of record. We have retained D.F. King & Co. Inc. to
coordinate the solicitation of proxies for a fee of $[ ], plus reasonable
out-of-pocket expenses of up to $[ ].
OTHER MATTERS
Except for the vote on the merger agreement, and upon appropriate
motion, an adjournment of the special meeting, no other matters may come
before the special meeting.
Your vote is important. Please return your marked proxy card promptly
so your shares can be represented at the meeting, even if you plan to
attend the meeting in person.
You should not send any certificates representing common stock with
your proxy card. If we complete the merger, the procedure for the exchange
of certificates representing common stock will be as described on page 35
of this proxy statement.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Representatives of US Airways have from time to time engaged in
discussions with representatives of other airlines, including UAL
Corporation, regarding possible strategic transactions. At a business
meeting in the fall 1999, Mr. James E. Goodwin, Chairman and Chief
Executive Officer of UAL Corporation, informed Mr. Stephen M. Wolf, our
Chairman, that UAL Corporation might be interested in commencing
discussions regarding the possible acquisition of our company by UAL
Corporation. No further substantive communications occurred until early
February 2000, when Mr. Goodwin informed Mr. Wolf that UAL Corporation was
prepared to commence discussions regarding a potential acquisition of our
company. Mr. Goodwin also indicated an interest in engaging in discussions
with Tiger Management L.L.C., Tiger Performance L.L.C. and Mr. Julian H.
Robertson (collectively, "Tiger Management"), each of whom is a stockholder
of our company and collectively hold a substantial economic and voting
interest in our company.
On February 17, 2000, we entered into a confidentiality agreement
with Tiger Management. Following execution of the confidentiality
agreement, our representatives discussed with representatives of Tiger
Management the content of our preliminary discussions with representatives
of UAL Corporation regarding a potential acquisition of our company.
On March 3, 2000, we entered into a confidentiality agreement with
UAL Corporation which provided, among other things, that certain
information disclosed by either party would be held by the other party and
its representatives in strict confidence and that the parties would
negotiate exclusively with each other for a period of up to six weeks with
respect to a possible business combination transaction. Tiger Management
agreed to be bound by the terms of the confidentiality agreement between us
and UAL Corporation.
On March 4, 2000, UAL Corporation delivered to us a transaction term
sheet that outlined the preliminary terms and structure of the transaction
contemplated by UAL Corporation. The term sheet contemplated, among other
things, a one-step all cash merger at a price per share that was not
identified and provisions with respect to the following:
o efforts to be taken by UAL Corporation to obtain antitrust
clearance for the merger, including the divestiture of certain
of our assets located at Reagan Washington National Airport;
o the grant of an option to UAL Corporation to acquire the US
Airways Shuttle business and certain unspecified slots in the
event the merger agreement was terminated under circumstances
where UAL Corporation is entitled to receive a termination fee
and a takeover proposal relating to our company made prior to
the date that is 18 months after the termination of the merger
agreement is consummated;
o restrictions on our ability to solicit or negotiate with other
potential acquirors unless we receive a third party proposal
reasonably likely to lead to a proposal for the acquisition of
our company for consideration consisting of cash and/or
securities that the Board determined to be of higher value than
the consideration to be paid in the merger;
o our right to terminate an acquisition agreement with UAL
Corporation, subject to certain restrictions, in order to enter
into an acquisition transaction with a third party that
provided for consideration of higher value than that payable in
the merger;
o a termination fee of 3.5% of the equity value of our company and
expenses of up to $10,000,000 to be paid to UAL Corporation
if (i) we terminated the agreement to enter into an
acquisition proposal providing higher value, (ii) UAL
Corporation terminated the agreement as a result of our
Board's failure to confirm its recommendation or (iii)
following the making of a third party acquisition proposal,
the agreement was terminated for failure to obtain
stockholder approval or failure to close by September 30,
2001, and we entered into an agreement for, or consummated,
an acquisition proposal within 18 months of such
termination;
o covenants with respect to the conduct of our business in the
ordinary course and restricting our ability to issue or
repurchase securities, make or exercise options with respect to
new aircraft orders, acquire or dispose of assets, incur or
repay debt or make changes to executive compensation;
o the right of the parties to terminate (i) on or after September
30, 2001 if the merger had not been consummated, (ii) if
stockholder approval is not obtained or (iii) if any permanent
legal restraint prohibits the merger;
o conditions to each of the parties' obligations to proceed with
the merger including, among others, termination of antitrust
waiting periods, receipt of the approval of our stockholders
and the absence of a material adverse effect.
The term sheet also contemplated UAL Corporation entering into a
stockholder agreement with Tiger Management pursuant to which Tiger
Management would vote in favor of the proposed merger and take various
other actions in support of the proposed merger. Concurrent with its
discussions with us, representatives of UAL Corporation also engaged in
preliminary discussions with representatives of Tiger Management about the
proposed transaction and the possibility of entering into a stockholder
agreement with Tiger Management upon the terms described above. In addition
to the matters identified in the transaction term sheet, UAL Corporation
proposed a plan for integrating the pilot groups of both companies.
In order to facilitate further discussions between the parties,
beginning in mid-March 2000, we began providing UAL Corporation and its
legal counsel with certain confidential information regarding our company
for use in connection with its due diligence review.
On March 30, 2000, UAL Corporation delivered drafts of the merger
agreement, a stockholder agreement with Tiger Management and the option
agreements involving the US Airways Shuttle and an unspecified group of
slots.
On March 31, 2000, we and UAL Corporation entered into an agreement
to extend the term of the exclusivity provision of the confidentiality
agreement from April 14, 2000, the scheduled termination date, through May
15, 2000.
During March and April 2000, we and UAL Corporation held a number of
meetings to discuss the terms of the proposed transaction documents and
exchanged various drafts and redrafts of the proposed merger agreement. The
negotiations during this period highlighted significant issues for both
parties. In particular, the following issues were among those discussed
and, in some cases, remained open up until a day or two before the merger
agreement was signed:
o the price per share that would be paid by UAL Corporation;
o the composition of the assets that UAL Corporation would agree
to divest and the level of efforts that would have to be taken
by UAL Corporation to obtain regulatory approval for the
transaction;
o the grant of an option to UAL Corporation to purchase assets
relating to the US Airways Shuttle and certain unspecified
slots if the merger is not consummated under certain
circumstances;
o restrictions on our ability to solicit or entertain competing
proposals and the fiduciary exceptions applicable to such
restrictions;
o the amount of a termination fee to be paid to UAL Corporation in
the event the transaction is not consummated under certain
circumstances;
o the payment of a termination fee to us in the event that the
transaction is not consummated under certain circumstances;
o the pre-merger operating covenants applicable to us;
o the outside termination date after which either party may
terminate the merger agreement if the merger is not consummated;
o the integration of the pilot groups of both companies; and
o provisions relating to the treatment of our employees during the
period prior to, and following, the merger.
In addition, during this period the parties discussed various other
matters, including a public commitment by UAL Corporation that for a
certain period following the merger it would not increase United States
point-to-point structure fares (subject to certain exceptions) or reduce
domestic standard base travel agency commission rates.
Representatives of UAL Corporation also engaged in discussions with
representatives of Tiger Management during this period.
During discussions among our senior management regarding the
disposition of the assets contemplated to be divested by UAL Corporation
upon consummation of the merger, it was suggested that Mr. Robert Johnson,
who is a successful Washington business person, be approached to determine
if he would be interested in purchasing these assets. Mr. Johnson also is a
member of our Board. In mid-April 2000, Mr. Wolf inquired of Mr. Johnson as
to whether he would consider acquiring certain of our assets located at the
Reagan Washington National Airport that would be divested by UAL
Corporation if the proposed acquisition of our company by UAL Corporation
is consummated. Mr. Johnson agreed to consider the acquisition and informed
Mr. Wolf that he would engage his advisors to review the feasibility of
such an acquisition. Shortly thereafter, we informed UAL Corporation of Mr.
Johnson's interest.
On April 24, 2000, a meeting of our Board of Directors was held at
which the Board was informed by management of the status of negotiations
with UAL Corporation and the open issues that remained to be resolved
between the parties and was apprised by its legal counsel of its fiduciary
duties with respect to its review of the proposed transaction. Previously,
Mr. Wolf had held discussions concerning the merger with directors who are
members of the Executive Committee of the Board.
Commencing in early May, 2000, drafts of a memorandum of
understanding among UAL Corporation, Mr. Johnson and us were provided that
set forth the terms of a proposed sale, to an entity to be established by
Mr. Johnson, of certain assets expected to be divested by UAL Corporation
in connection with consummation of the merger, including a description of
certain related matters. The parties engaged in extensive negotiations with
respect to the terms of the memorandum of understanding over the course of
the following weeks.
Our representatives met with representatives of UAL Corporation on
several occasions in early May 2000, to try to resolve the remaining open
issues regarding the transaction documents. Also during this time, Mr. Wolf
and other representatives of our company engaged in discussions with
representatives of Tiger Management regarding issues between UAL
Corporation and Tiger Management with respect to the stockholder agreement.
The final negotiations were scheduled for the weekend of May 20,
2000, at which time UAL Corporation was not able to reach an agreement with
Tiger Management regarding the stockholder agreement. As a result, on May
22, 2000, UAL Corporation terminated discussions with Tiger Management and
determined to proceed with the transaction with us without entering into a
separate stockholder agreement with Tiger Management.
On May 22, 2000, Mr. Goodwin and Mr. Wolf finalized negotiations of
the price per share that would be paid by UAL Corporation to our
stockholders in connection with the merger and agreed upon a price of
$60.00 per share.
Also during the weekend of May 20, 2000, we, UAL Corporation, and Mr.
Johnson reached agreement on the terms of a memorandum of understanding
with respect to the acquisition by an entity to be established by Mr.
Johnson of certain assets located at Reagan Washington National Airport
that are to be divested by UAL Corporation upon consummation of the merger.
A meeting of our Board of Directors was held on Tuesday, May 23,
2000, to review the terms of the proposed transaction. At the meeting, the
Board received presentations from management regarding the transaction and
its effects on us, our stockholders, our employees and the communities and
customers we serve, the advice of its legal counsel regarding the structure
of the transaction and the Board's fiduciary duties, and an oral opinion
(which was subsequently confirmed in writing) of Salomon Smith Barney Inc.,
our financial advisor, that, as of that date and on the basis of and
subject to the matters reviewed with the Board, the $60.00 per share offer
price was fair from a financial point of view to our stockholders. The
Board, with the benefit of the foregoing presentations and advice, having
deliberated regarding the terms of the proposed transaction, unanimously
determined that the merger agreement and the merger are advisable and are
fair to and in the best interest of us and our stockholders and unanimously
approved the merger agreement, the merger and the transactions contemplated
thereby. The Board also unanimously approved the memorandum of
understanding with Mr. Johnson. Mr. Johnson, having an interest in the
disposition of certain assets at the Reagan Washington National Airport in
connection with the merger and related transactions, abstained from voting
on the merger, the merger agreement, the memorandum of understanding and
related matters presented to the Board.
On the evening of May 23, 2000, we and UAL Corporation executed the
agreement and plan of merger and we, UAL Corporation, and Mr. Johnson
executed the memorandum of understanding. We and UAL Corporation issued a
press release regarding the execution of the transaction documents on the
morning of May 24, 2000 and conducted a joint press conference regarding
the transaction on the same morning.
PURPOSE OF THE MERGER; CERTAIN EFFECTS OF THE MERGER
The principal purpose of the merger is to enable UAL Corporation to
own all of the equity interest in US Airways and afford our public
stockholders the opportunity to receive a cash price for their shares that
represents a significant premium over the market price at which the shares
traded prior to the announcement of the merger. This will be accomplished
by a merger of Yellow Jacket Acquisition Corp., a corporation formed by UAL
Corporation, parent company of United Air Lines, Inc., with and into US
Airways, with US Airways as the surviving corporation. In the merger, all
of the shares of US Airways common stock held by our stockholders (other
than US Airways, UAL Corporation and Yellow Jacket Acquisition Corp. and
other than dissenting stockholders who perfect their appraisal rights) will
be converted into the right to receive the cash merger consideration of
$60.00 per share.
The merger will terminate all equity interests in US Airways held by
stockholders and UAL Corporation will be the sole beneficiary of any
earnings and growth of US Airways following the merger. Our common stock is
currently registered under the Securities Exchange Act of 1934 and is
listed for trading on the New York Stock Exchange under the symbol "U".
Upon the completion of the merger, our common stock will be delisted from
the exchange and registration of our common stock under the Exchange Act
will be terminated.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
On May 23, 2000, the Board determined that the terms of the merger
agreement and the merger are advisable and are fair to and in the best
interests of us and our stockholders and approved the merger agreement and
the merger. Accordingly, the Board recommends that our stockholders vote
"FOR" the adoption of the merger agreement.
REASONS FOR THE MERGER
The Board of Directors. In determining to approve and recommend the
merger, and in reaching its determination that the merger agreement and the
merger are advisable and are fair to and in the best interests of us and
our stockholders, the Board consulted with US Airways' executive officers
and our financial and legal advisors, and considered the following factors:
o our knowledge of the current, and our beliefs about the
prospective, environment in which we operate, including
domestic and global economic conditions, volatility of and
competition in the airline industries and the impact of these
factors on our opportunities as a stand-alone entity;
o the strategic options available to us and the Board's
assessment that none of these options were reasonably likely to
present superior opportunities, or were reasonably likely to
create greater value for our stockholders, than the prospects
presented by the merger;
o the fact that the merger consideration on a per share basis
represented a significant premium over recently prevailing
market prices of our common stock;
o the oral opinion of Salomon Smith Barney Inc. given to the
Board on May 23, 2000 (and subsequently confirmed in writing)
that, as of that date and on the basis of and subject to the
matters reviewed with the Board, the $60.00 per share merger
consideration was fair from a financial point of view to our
stockholders;
o the terms of the merger and the merger agreement as negotiated,
including:
(1) the $60.00 per share cash merger consideration;
(2) the agreement by UAL Corporation to divest
certain assets located at Reagan Washington National
Airport and to make certain efforts to obtain antitrust
approval, including all reasonable efforts to take all
actions that are necessary, proper or advisable to
consummate the merger;
(3) the absence of any option in favor of UAL
Corporation to acquire our shuttle business or any of our
slots in the event the merger agreement is terminated;
(4) the absence of a condition to the consummation
of the merger relating to the integration of the pilot
groups of both companies;
(5) restrictions on our ability to solicit or
entertain other potential acquisition proposals unless
certain conditions are satisfied, including that the
acquisition proposal is unsolicited and involves
consideration that the Board determines in its good faith
judgment to be superior from a financial view to
stockholders than the consideration to be paid in the
merger;
(6) our right to terminate the merger agreement
prior to obtaining stockholder approval in order to enter
into an acquisition transaction with a third party that
provides for consideration that the Board determines in
its good faith judgment to be superior from a financial
view to stockholders than that payable in the merger;
(7) the ability of the Board to change its
recommendation if it determines in good faith, based on
such matters as it deems appropriate, after consulting
with legal counsel, that the failure to take such action
would be reasonably likely to result in a breach of its
fiduciary duties under applicable law;
(8) the $150,000,000 termination fee, plus up to a
maximum of $10,000,000 for reimbursement of expenses,
payable by us if the merger agreement is terminated under
certain circumstances more fully described in the section
entitled "Summary of the Merger Agreement- Termination
Fees" on page 45;
(9) the $50,000,000 termination fee payable by UAL
Corporation if the merger agreement is terminated under
certain circumstances more fully described in the section
entitled "Summary of the Merger Agreement- Termination
Fees" on page 45;
(10) the covenants with respect to the conduct
prior to the merger of our business only in the ordinary
course consistent with past practice, the various
operational restrictions on us prior to the consummation
of the merger and the provisions concerning attraction
and retention of employees prior to the merger;
(11) the right of the parties to terminate (a) on
December 31, 2000 if the merger is not consummated, which
deadline may be extended to August 1, 2001 by either
party if all conditions other than the adoption of the
merger agreement by our stockholders, the receipt of
regulatory approval or consents or the absence of a legal
restraint, have been fulfilled by December 31, 2000 or
(b) if stockholder approval is not obtained or if any
legal restraint prohibiting the merger becomes final and
cannot be appealed;
(12) the conditions to each of the parties
obligations to complete the merger, including the
expiration or termination of antitrust waiting periods
and the receipt of the approval of our stockholders and
the absence of a material adverse effect; and
(13) the agreement by UAL Corporation to offer
continued employment to all of our and our subsidiaries'
employees (other than officers) for two years following
the merger, subject to certain exceptions;
o the fact that a stockholder agreement was not entered into
between Tiger Management, our largest stockholder, and UAL
Corporation;
o the terms of the memorandum of understanding among us, Mr.
Johnson and UAL Corporation;
o the decision by UAL Corporation to announce that it would not
increase United States point-to-point structure fares for two
years following the merger, with exceptions only for increases in
fuel costs and consumer price index, and that it would not reduce
domestic standard base travel agency commission rates for two
years following the merger;
o the likelihood of the merger being approved by requisite
regulatory authorities;
o future career opportunities that our employees may have with UAL
Corporation following the merger;
o the potential impact of the transaction on the communities and
customers we serve; and
o the interests of certain directors and executive officers that
are different from, or in addition to, the interests of our
stockholders generally as described under "Interests of Certain
Persons in the Merger" on page 29.
The above discussion concerning the information and factors
considered by the Board is not intended to be exhaustive, but includes all
of the material factors considered by the Board in making its
determination. In view of the variety of factors considered in connection
with its evaluation of the merger agreement and the proposed merger, the
Board did not quantify or otherwise attempt to assign relative weights to
the specific factors it considered in reaching its determination. In
addition, individual members of the Board may have given different weight
to different factors.
Mr. Robert Johnson, having an interest in the disposition of certain
assets at the Reagan Washington National Airport in connection with the
merger and related transactions, abstained from voting on the merger, the
merger agreement, the memorandum of understanding and related matters
presented to the Board.
OPINION OF FINANCIAL ADVISOR
On April 27, 2000, Salomon Smith Barney was retained by us to act as
our financial advisor in connection with the merger. In connection with
this engagement, we requested that Salomon Smith Barney evaluate the
fairness, from a financial point of view, of the merger consideration to be
received by our stockholders. At a meeting of our Board of Directors held
on May 23, 2000 to consider the merger, Salomon Smith Barney delivered to
the Board its oral opinion (which was subsequently confirmed in writing)
that, as of that date and based upon and subject to the matters reviewed
with the Board, the merger consideration to be received by our stockholders
was fair from a financial point of view to such stockholders.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY DATED
MAY 23, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS
PROXY STATEMENT. YOU SHOULD READ THE OPINION CAREFULLY IN ITS ENTIRETY. THE
OPINION OF SALOMON SMITH BARNEY IS DIRECTED TO OUR BOARD OF DIRECTORS AND
RELATES ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL
POINT OF VIEW. THE OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE ON THE MERGER AGREEMENT. IN ADDITION, THE OPINION
DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION BY OUR BOARD OF DIRECTORS
TO EFFECT THE MERGER. THE SUMMARY OF THE OPINION OF SALOMON SMITH BARNEY
SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE OPINION.
In arriving at its opinion, Salomon Smith Barney:
o reviewed a draft dated May 23, 2000 of the merger agreement;
o held discussions with certain of our senior officers
concerning the business, operations, financial condition and
prospects of our company;
o examined certain publicly available business and financial
information relating to, as well as certain financial
forecasts and other information and data for, our company
which were provided to or otherwise discussed with Salomon
Smith Barney by our management;
o reviewed the financial terms of the merger as set forth in
the merger agreement in relation to, among other things:
current and historical market prices and trading volumes of
our common stock; our historical and projected earnings and
other operating data; and our capitalization and financial
condition; and
o considered, to the extent publicly available, the financial
terms of other transactions recently effected which Salomon
Smith Barney considered relevant in evaluating the merger
and analyzed certain financial, stock market and other
publicly available information relating to the businesses of
other companies whose operations Salomon Smith Barney
considered relevant in evaluating the operations of our
company.
In addition to the foregoing, Salomon Smith Barney conducted such
other analyses, studies and examinations and considered such other
financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion. Salomon Smith Barney noted that its
opinion was necessarily based upon information available to Salomon Smith
Barney, and financial, stock market and other conditions and circumstances
as they existed, had been disclosed to Salomon Smith Barney and could be
evaluated as of the date of its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied,
without independent verification, upon the accuracy and completeness of all
financial and other information and data publicly available or furnished to
or otherwise reviewed by or discussed with Salomon Smith Barney. With
respect to financial forecasts provided to or otherwise reviewed by or
discussed with Salomon Smith Barney, our management advised Salomon Smith
Barney that such forecasts were reasonably prepared reflecting the best
currently available estimates and judgments of our management as to the
future financial performance of our company, and Salomon Smith Barney
expressed no opinion as to such forecasts. Salomon Smith Barney did not
make and was not provided with an independent evaluation or appraisal of
our assets (including properties and facilities) or liabilities (contingent
or otherwise) nor did Salomon Smith Barney make any physical inspection of
our properties, facilities or assets. In connection with its engagement,
Salomon Smith Barney was not requested to, and did not, solicit third party
indications of interest in all or a part of our company. Salomon Smith
Barney was not requested to consider, and its opinion did not address, the
relative merits of the merger as compared to any alternative business
strategies that might exist for our company or the effect of any other
transaction in which we might engage.
In connection with its opinion, Salomon Smith Barney performed
various financial analyses which it presented to and discussed with our
Board on May 23, 2000. The analyses performed by Salomon Smith Barney in
connection with rendering its opinion are described below. These
descriptions of financial analyses include information presented in tabular
format. In order to fully understand the financial analyses performed by
Salomon Smith Barney, the tables must be read together with the text of
each description. The tables alone do not constitute a complete description
of the financial analyses. Considering the data in the tables without
considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of the financial analyses performed
by Salomon Smith Barney.
Comparable Companies Analysis on a Non-Control Basis
Using publicly available information, Salomon Smith Barney analyzed
selected financial data for each of nine publicly traded airline carriers
that Salomon Smith Barney considered comparable to our company (the
"Selected Companies") and compared the data with comparable data for us. In
performing this analysis, Salomon Smith Barney reviewed selected financial
data for the following Selected Companies:
o Alaska Air Group, Inc.;
o America West Holdings Corporation;
o AMR Corporation;
o Continental Airlines, Inc.;
o Delta Air Lines, Inc.;
o Northwest Airlines Corporation;
o Southwest Airlines Company;
o Trans World Airlines, Inc.; and
o UAL Corporation.
For each of the Selected Companies and for us, Salomon Smith Barney
calculated multiples of the following:
o Market Price on May 19, 2000 ($25.31) to:
o Earnings per share ("EPS") for fiscal year 1998;
o EPS for the latest twelve-month period ended March
31, 2000;
o Estimated EPS for fiscal year 2000;
o Estimated EPS for fiscal year 2001.
o Equity value (on a fully diluted basis at the current
market price less any option proceeds) plus debt,
capitalized operating leases, capitalized leases,
minority interests, preferred stock and out of the
money convertible securities, less investments in
unconsolidated affiliates and cash ("Enterprise Value")
to:
o Earnings before interest, taxes, depreciation,
amortization and total lease expense ("EBITDAR")
for fiscal year 1998;
o EBITDAR for the latest twelve-month period ended
March 31, 2000;
o Estimated EBITDAR for fiscal year 2000; and
o Estimated EBITDAR for fiscal year 2001.
Salomon Smith Barney's analysis resulted in the following range of
multiples:
- - - ---------------------------------------------------------------------------------------------------------------------
1998 LTM 2000E 2001E
EPS EBITDAR EPS EBITDAR EPS EBITDAR EPS EBITDAR
- - - ---------------------------------------------------------------------------------------------------------------------
US Airways - Management Case 4.5x 4.6x NM 8.6x 14.5x 6.0x 5.3x 4.8x
US Airways - First Call Case 4.5 4.6 NM 8.6 21.3 6.1 7.3 NA
UAL Corporation 8.9 6.4 6.0 5.2 6.4 5.2 6.2 5.1
Median Airline Comparables 6.8 6.5 8.0 5.6 7.5 5.4 6.2 5.1
Mean Airline Comparables 9.3 7.1 9.7 6.7 9.1 6.2 7.7 5.6
- - - ---------------------------------------------------------------------------------------------------------------------
Financial data used to calculate market price to EPS multiples for
the Selected Companies was based on consensus estimates published by First
Call, and financial data used to calculate Enterprise Value to EBITDAR
multiples for the Selected Companies was based on selected research
reports. Financial data used to calculate the multiples for the US Airways
- - - - Management Case described in the first line of the preceding table was
based on estimates prepared by our management and provided to Salomon Smith
Barney, and financial data used to calculate the multiples for the US
Airways - First Call Case described in the second line of the preceding
table was based on consensus estimates published by First Call and selected
research reports.
Salomon Smith Barney compared the multiples for the Selected
Companies with comparable data for us. Based on the analysis described
above, Salomon Smith Barney derived an equity value reference range per
share of our common stock of $22.00 to $36.00.
Comparable Companies Analysis on a Control Basis
Based upon publicly available information, Salomon Smith Barney
analyzed selected financial data relating to public company transactions
involving an enterprise value in excess of $10 billion that were
consummated or announced during the period from January 1, 1997 through May
19, 2000 (the "Historical Transactions"). Salomon Smith Barney calculated
that the average control premium paid or proposed to be paid to the
acquired companies in the Historical Transactions was approximately 35%,
based upon the closing stock prices of the acquired companies thirty days
prior to the public announcement of each transaction.
Based upon this analysis, Salomon Smith Barney applied a 35% control
premium to the equity value reference range per share of our common stock
derived in its "Comparable Companies Analysis on a Non-Control Basis" and
thereby derived an equity value reference range per share of our common
stock of $29.00 to $49.00.
Discounted Cash Flow Analysis
Salomon Smith Barney performed a discounted cash flow analysis of our
projected after-tax unlevered free cash flows. After-tax unlevered free
cash flow is defined as operating earnings before depreciation,
amortization and interest expense, but after changes in working capital,
net capital spending, and taxes. This analysis was based on forecasts
prepared by our management for the period from March 31, 2000 through
December 31, 2004.
Salomon Smith Barney calculated implied equity values per share of
our common stock by utilizing discount rates ranging from 9.0% to 10.0% and
terminal value multiples of estimated 2004 EBITDAR for us ranging from 5.4
to 5.8. Salomon Smith Barney arrived at these discount rates based on its
judgment of the weighted average cost of capital for the Selected
Companies, and arrived at these terminal value multiples based upon the
current values of the Selected Companies.
Based upon this analysis, Salomon Smith Barney derived an equity
value reference range per share of our common stock of $32.00 to $47.00.
Precedent Transaction Analysis
Using publicly available information, Salomon Smith Barney considered
fourteen transactions within the airline industry that were announced and
consummated during the period from July 10, 1997 to May 19, 2000.
Of these transactions, twelve were partial acquisitions or minority
investments, or transactions between carriers, including regional or
international carriers, that Salomon Smith Barney did not consider
comparable to the merger. Salomon Smith Barney did, however, analyze the
implied purchase price multiples paid in the following two selected recent
transactions that it considered to have somewhat similar factors to the
merger (together, the "Selected Transactions"):
o Delta Air Lines, Inc.'s acquisition of Comair Holdings, Inc.; and
o Delta Air Lines, Inc.'s acquisition of ASA Holdings, Inc.
For each of the Selected Transactions, Salomon Smith Barney
o calculated a range of multiples of implied Enterprise Value to
EBITDAR for the twelve-month period immediately preceding the
announcement of the transaction, and
o applied a range of selected multiples related to the Selected
Transactions to estimated data derived for our company.
Based upon this analysis, Salomon Smith Barney derived an equity
value reference range per share of our common stock of $42.00 to $63.00.
Salomon Smith Barney advised our Board, however, that, in light of the
small number of transactions that it considered similar to the merger, this
analysis was not a reliable indicator of value.
Neither Selected Transaction was identical to the merger, nor are
either of the acquired companies in the Selected Transactions identical to
us. Moreover, an analysis of the results of such a comparison is not purely
mathematical; rather it involves complex considerations and judgments,
based upon the financial advisor's professional experience, concerning
differences in the historical and projected financial and operating
characteristics of the acquired companies and other factors that could
affect the acquisition value of such companies and us.
Market Price Analysis
Salomon Smith Barney reviewed selected information regarding the
historical stock price performance of our common stock as of May 19, 2000.
The results of this review are as follows:
Average Closing Share Price During Last:
5 Years 1 Year 6 Months 1 Day
---------- ------- --------- -------
$35.15 $30.52 $25.62 $25.31
Low / High During Last:
5 Years 1 Year
-------------------- -------------------
$8.00 $81.63 $17.63 $53.13
Salomon Smith Barney also compared the historical stock price
performance of our common stock with the merger consideration. The results
of this review are as follows:
Market Offer
(Dollars In Millions, Except Per Share Data) $25.31 Price
(as of May 19, 2000) $60.00
- - - -------------------------------------------------------------------------------
Market Price Premium (Discount) to Market
--------------------------------
Market 0.0% $25.31 0.0% 137.0%
52-Week High (5/20/99) 53.13 (52.4) 12.9
52-Week Low (3/7/00) 17.63 43.6 240.4
12 Month Average 30.52 (17.1) 96.6
5 Year Average 35.15 (28.0) 70.7
- - - -------------------------------------------------------------------------------
Net Equity Value $1,715 $4,190
Enterprise Value 9,363 11,838
(Enterprise Value is
equal to equity value
less $1.368 billion
of cash plus $2.874
billion of debt and
$6.142 billion of
capitalized operating
leases as of
March 31, 2000.)
- - - -------------------------------------------------------------------------------
Synergies Analysis
Salomon Smith Barney analyzed potential synergies that could be
achieved as a result of the merger. Assuming that revenue synergies for the
combined company of 1% to 4% (based on estimated 2000 revenues) could be
achieved as a result of the merger, Salomon Smith Barney estimated that the
combined company could achieve an increase in annual revenues ranging from
$290 million to $1.16 billion, and that the combined company could achieve
an increase in annual pre-tax profits (relating to these revenues) ranging
from $232 million to $929 million. Assuming that cost-savings synergies for
the combined company of 1% to 4% (based on estimated 2000 operating costs)
could be achieved as a result of the merger, Salomon Smith Barney estimated
that the combined company could achieve annual cost savings ranging from
$253 million to $1.01 billion.
Salomon Smith Barney's analysis was based on estimated combined
revenues for fiscal year 2000 of $29.03 billion and estimated combined
operating (non-depreciation and amortization) costs of $25.26 billion. For
purposes of its analysis, Salomon Smith Barney assumed that 20% of the
synergies could be realized in first year of operations following the
merger, 60% of the synergies could be realized in the second year and 100%
of the synergies could be realized in the third year. Salomon Smith Barney
also assumed that the one-time costs associated with achieving these
synergies could be $250 million in the first year, $175 million in the
second year and $50 million in the third year. Salomon Smith Barney noted
that the potential synergies described above could be offset by costs
associated with the combination of the two companies.
Implied Valuation Multiples Analysis
Salomon Smith Barney calculated the following implied valuation
multiples for selected periods of time. The results of these calculations
are as follows:
Dollars in millions Market Offer Price Comparable Precedent
(except per share data) $25.31 $60.00 Companies Transactions
- - - -------------------------------------------------------------------------------
EBITDAR Enterprise Value /
EBITDAR
1998A $2,053 4.6x 5.8x 6.5x --
LTM 1,088 8.6 10.9 5.6 7.8x
2000E 1,571 6.0 7.5 5.4 --
2001E 1,965 4.8 6.0 5.1 --
Earnings per Share Price / Earnings per Share
(Diluted)
- - - -------------------------------------------------------------------------------
1998A $5.60 4.5x 10.7x 6.8x --
LTM (1.81) NM NM 8.0 15.5x
2000E 1.74 14.5 34.5 7.5 --
2001E 4.73 5.3 12.7 6.2 --
EBITDAR and EPS estimates used in this analysis were provided to
Salomon Smith Barney by our management. Data used in this analysis relating
to Comparable Companies and Precedent Transactions was derived from
Comparable Companies Analysis on a Non-Control Basis and the Precedent
Transactions Analysis performed by Salomon Smith Barney and described
above.
Other
No company, transaction or business used in Salomon Smith Barney's
analyses as a comparison is identical to our company or the merger, nor is
an evaluation of the results of such analyses entirely mathematical;
rather, it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, transactions or business segments being analyzed. In its
analyses, Salomon Smith Barney made numerous assumptions with respect to
our company, UAL Corporation, industry performance, general business,
economic, and financial market conditions and other matters, many of which
are beyond UAL Corporation and our control. The estimates contained in
Salomon Smith Barney's analyses and the valuation ranges resulting from any
particular analysis are not necessarily indicative of actual value or
predictive of future results or values, which may be significantly more or
less favorable than those suggested by such analysis. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many
factors considered by our Board in its evaluation of the merger and should
not be viewed as determinative of the views of our Board or our management
with respect to the merger consideration or the merger.
Pursuant to the terms of Salomon Smith Barney's engagement, we have
agreed to pay Salomon Smith Barney a fee of $8,000,000 in consideration of
its services in connection with the merger. In addition, we may elect to
pay Salomon Smith Barney an additional fee in an amount not to exceed
$2,000,000 upon consummation of the merger. We have also agreed to
reimburse Salomon Smith Barney for all reasonable expenses incurred in
performing its services in connection with the merger, including the
reasonable fees and expenses of its legal counsel, and have agreed to
indemnify Salomon Smith Barney and certain related persons against various
liabilities relating to or arising out of its engagement, including
liabilities under the federal securities laws.
Salomon Smith Barney has advised us that it and certain of its
affiliates beneficially own approximately 2,869,001 shares of our common
stock. In addition, Salomon Smith Barney has advised us that, in the
ordinary course of business, Salomon Smith Barney and its affiliates may
actively trade or hold our and UAL Corporation securities for their own
account or for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. Salomon Smith Barney has
in the past provided investment banking services to us and UAL Corporation
unrelated to the proposed merger, for which services Salomon Smith Barney
has received customary compensation. In addition, Salomon Smith Barney and
its affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with us, UAL Corporation, Inc. and their respective
affiliates in the ordinary course of their respective businesses.
Salomon Smith Barney is an internationally recognized investment
banking firm and was selected by us based on its experience, expertise and
familiarity with us and our business. Salomon Smith Barney regularly
engages in the valuations of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
CERTAIN ESTIMATES PROVIDED TO UAL CORPORATION
In the normal course of business, our management prepares internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information in order to be able to anticipate
the financial performance of our company. Except in limited circumstances,
we do not, as a matter of course, publicly disclose these internal
documents.
In connection with the negotiation of the terms of the merger, we
prepared and provided to UAL Corporation in late April 2000 certain
nonpublic estimates for the fiscal years ending December 31, 2000 through
2004. These estimates were also provided to Salomon Smith Barney, our
financial advisor for the merger, in connection with their evaluation of
the fairness, from a financial point of view, of the merger consideration
to be received by our stockholders. These estimates were prepared on the
basis that we continue as a stand-alone entity. Accordingly, these
estimates do not take into account the combination of our operations with
UAL Corporation's operations which would result from the merger.
The financial estimates were prepared on the basis of limitations,
qualifications and assumptions, and involved judgments with respect to,
among other things, future economic, competitive, regulatory and financial
and market conditions and future business decisions which may not be
realized and are inherently subject to significant business, economic and
competitive uncertainties, all of which are difficult to predict and many
of which are beyond our control. These uncertainties are described under
"Cautionary Statement Regarding Forward-Looking Statements."
There can be no assurance that the estimates would be accurate, and
actual results could vary materially from those shown. In light of the
uncertainties inherent in forward-looking information of any kind, the
inclusion of these estimates should not be regarded as a representation by
us or any other entity or person that the anticipated results would be
achieved and investors are cautioned not to place undue reliance on such
information.
The material assumptions underlying these estimates are that:
o we continue as a stand-alone carrier and do not participate as a
member of a global alliance;
o the current favorable economic conditions continue throughout the
term of the estimates;
o the competitive environment we currently experience will not
change in any material way;
o our flight attendants approve a new five year labor contract,
which they did on May 1, 2000;
o fuel prices (including taxes and service fees) per gallon are as
follows:
2000 2001 2002 2003 2004
--------- -------- -------- --------- ----------
80.9(cent) 76.3(cent) 65.4(cent) 65.4(cent) 65.4(cent)
o we do not experience any significant operational disruptions
during the term of the estimates, including any of the types of
significant disruptions experienced by us in 1999 and 2000; and
o available seat miles (ASMs) for US Airways, Inc., our principal
operating subsidiary, would increase during the term of the
estimates as follows:
ASM (Billions)
2000 2001 2002 2003 2004
--------- -------- -------- -------- --------
67.4 74.0 77.5 79.2 81.0
These estimates are summarized as follows:
FORECAST
Fiscal year ended December 31,
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
Total $9,401 $10,478 $11,195 $11,691 $12,106
Operating
Revenue*
Total $9,006 $ 9,719 $10,140 $10,635 $11,045
Operating
Expense*
Basic $1.77 $4.95 $7.90 $8.21 $8.61
Earnings Per
Share
Diluted $1.74 $4.73 $7.42 $7.60 $7.74
Earnings Per
Share
- - - ----------
* Amounts in millions
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of our Board with respect to the
merger, stockholders should be aware that the executive officers and
directors have some interests in the merger that may be different from, or
in addition to, the interests of stockholders generally. The Board was
aware of these interests and considered them, among other matters, in
making its recommendation.
SEVERANCE AND EMPLOYMENT AGREEMENTS
Each of our executive officers is party to an employment or severance
agreement with us which provides for certain benefits upon a termination of
employment by us without "cause" or by the executive officer for "good
reason" (each as defined in the executive officer's employment or severance
agreement) during the period beginning on the date of stockholder approval
of the merger and ending on the third anniversary of the date of
consummation of the merger (the fourth anniversary in the case of Mr.
Stephen Wolf). In addition, pursuant to the terms of the merger agreement,
UAL Corporation has agreed that (a) with respect to Messrs. Stephen Wolf,
Rakesh Gangwal and Lawrence Nagin, any termination of employment following
the consummation of the merger and (b) with respect to the other executive
officers, any termination of employment during the period commencing on the
six-month anniversary of the date of consummation of the merger and ending
on the nine-month anniversary of such date will, in each case,
automatically be deemed to be a termination for "good reason" giving rise
to the payment of severance benefits.
Each agreement provides for (a) a severance payment equal to three
times the sum of (i) the executive officer's base salary and (ii) (A) in
the case of Messrs. Wolf and Gangwal, the highest of (1) the annual bonus
paid in respect of the immediately preceding year, (2) the annual bonus
paid during the immediately preceding year or (3) the current year's
maximum bonus, or (B) in the case of the other executive officers, the
highest of (1) the annual bonus paid in respect of the immediately
preceding year, (2) the annual bonus paid during the immediately preceding
year or (3) the annual bonus that would have been paid to the executive
with respect to the last fiscal year if the applicable targets had been
achieved and the current year's bonus percentage had been applied; (b) a
pro rata bonus through the date of termination; and (c) continued
retirement, welfare and fringe benefits, including transportation benefits,
for three years (four years in the case of Mr. Wolf) and that such
executive officer is deemed to have retired from our company for purposes
of such plans at the end of such period; provided, however, the executive
officers receive transportation and certain welfare benefits for life
following such period. In addition, a "gross-up" payment to compensate the
executive officer for any "golden parachute" excise tax is also provided.
Assuming current salary and bonus information remain in effect, if
the merger is consummated on December 31, 2000 and the employment of each
of the executive officers is immediately terminated, the approximate value
of the severance payments due under the employment and severance agreements
to Messrs. Stephen M. Wolf (Chairman), Rakesh Gangwal (President and Chief
Executive Officer), Lawrence M. Nagin (Executive Vice President, Corporate
Affairs and General Counsel), N. Bruce Ashby (Senior Vice President,
Corporate Development) and B. Ben Baldanza (Senior Vice President,
Marketing), Ms. Michelle V. Bryan (Senior Vice President, Human Resources)
and Messrs. Alan W. Crellin (Senior Vice President, Customer Service),
Christopher Doan (Senior Vice President, Maintenance), Thomas A. Mutryn
(Senior Vice President, Finance and Chief Financial Officer) and Gregory T.
Taylor (Senior Vice President, Planning), including amounts attributable to
continued retirement plan benefits but not including any payments that may
be made with respect to any excise tax, would be $7.6 million, $8.3
million, $3.4 million, $1.9 million, $2.4 million, $2.0 million, $1.6
million, $1.7 million, $2.9 million and $2.0 million, respectively.
LONG TERM INCENTIVE AWARDS
Pursuant to the terms of our Long Term Incentive Plan and awards
thereunder, upon consummation of the merger, each executive officer will
receive a cash payment with respect to each then-outstanding three-year
performance cycle equal to the executive officer's target percentage
multiplied by the average rate of base salary in effect on the last day of
each of the three years in the performance cycle. In calculating the
average, the executive officer's rate of base salary upon consummation of
the merger will be utilized for any years in the performance cycle which
have not yet been completed. Based upon performance cycles currently
outstanding under the Long Term Incentive Plan and assuming current salary
and bonus information remain constant, the approximate value of the cash
payments due under the Long Term Incentive Plan to Messrs. Wolf, Gangwal,
Nagin, Ashby and Baldanza, Ms. Bryan and Messrs. Crellin, Doan, Mutryn and
Taylor upon consummation of the merger would be $4.0 million, $4.5 million,
$1.0 million, $0.5 million, $0.8 million, $0.6 million, $0.5 million, $0.6
million, $0.9 million and $0.6 million, respectively.
SUPPLEMENTAL PENSION AGREEMENTS
Each of Messrs. Wolf, Gangwal, Nagin, Ashby, Baldanza, Mutryn and
Taylor is party to a supplemental pension agreement with us. Assuming the
merger is consummated on December 31, 2000 and that each such individual's
employment is immediately terminated, the annual retirement benefit
commencing immediately for each of Messrs. Wolf, Gangwal and Nagin would
increase by approximately $87,000, $649,000 and $126,000, respectively, and
the annual retirement benefit commencing upon attainment of age 55 for each
of Messrs. Ashby, Baldanza, Mutryn and Taylor would increase by
approximately $40,000, $40,000, $30,000 and $20,000, respectively.
EQUITY-BASED AWARDS
Stock Options
Pursuant to the terms of our equity-based compensation plans and
awards thereunder, unvested stock options held by our executive officers
will become vested and exercisable upon stockholder approval of the merger.
Pursuant to the merger agreement, upon consummation of the merger, each
executive officer will receive, with respect to each stock option then held
by such executive officer, a cash payment equal to the amount by which
$60.00 exceeds the exercise price of such stock option, multiplied by the
number of shares subject to the option. The number (and weighted average
exercise price) of unvested stock options with an exercise price of less
than $60.00 per share held by Messrs. Wolf, Gangwal, Nagin, Ashby and
Baldanza, Ms. Bryan, and Messrs. Crellin, Doan, Mutryn and Taylor as of
September 15, 2000 is 240,000 ($47.2188), 500,000 ($47.2188), 18,000
($25.3750), 6,000 ($25.3750), 67,500 ($27.5938), 20,800 ($43.8846), 4,800
($25.375), 20,000 ($25.3750), 66,666 ($46.9375) and 35,250 ($44.3059),
respectively.
Restricted Stock
Pursuant to the terms of our equity-based compensation plans and
awards thereunder, (a) certain shares of restricted stock held by executive
officers (the "Type A Restricted Stock") will vest upon the consummation of
the merger, (b) other shares of restricted stock held by executive officers
(the "Type B Restricted Stock") will vest upon consummation of the merger
or, if earlier, upon certain terminations of the executive officer's
employment following stockholder approval of the merger and (c) other
shares of restricted stock held by executive officers (the "Type C
Restricted Stock") will vest upon stockholder approval of the merger. The
executive officer will receive a payment to compensate him or her for any
income taxes payable with respect to the vesting of Type C Restricted
Stock. The number and type of shares of restricted stock held by Messrs.
Wolf, Gangwal, Nagin, Ashby and Baldanza, Ms. Bryan, Messrs. Crellin, Doan,
Mutryn and Taylor as of September 15, 2000 is as follows: Type A Restricted
Stock: 0, 0, 10,000, 10,000, 0, 10,000, 10,000, 3,000, 10,000 and 10,000,
respectively; Type B Restricted Stock: 100,000, 125,000, 17,500, 19,125,
30,000, 18,750, 12,625, 10,000, 42,291 and 32,125, respectively; and Type C
Restricted Stock: 221,121, 150,000, 15,331, 0, 0, 0, 0, 0, 0 and 0,
respectively.
Director Equity-Based Awards
Pursuant to the terms of our equity-based compensation plans and
awards thereunder, the unvested stock options held by our non-employee
directors will become vested and exercisable upon consummation of the
merger. In addition, the unvested deferred stock units held by our
non-employee directors will vest upon consummation of the merger. As of
September 15, 2000, each current non-employee director who is still in
service as a director will hold 1,500 unvested stock options and 500
unvested deferred stock units.
Director Travel Benefits
Pursuant to the terms of our travel policy for non-employee
directors, each director who terminates service after having completed at
least 10 years of service as a director is entitled to free, positive
space, lifetime travel privileges on US Airways or our successor, including
United Airlines following consummation of the merger, and an income tax
gross up payment with respect thereto. Following consummation of the
merger, each non-employee director who terminates service having completed
less than 10 years of service as a director will be entitled to free,
positive space travel privileges on US Airways or our successor, including
United Airlines, for 7 years following termination of service, with an
income tax gross up payment with respect thereto.
MERGER FINANCING; SOURCE OF FUNDS
UAL Corporation has informed us that the aggregate merger
consideration of approximately $4.28 billion to be paid to our stockholders
(assuming that no stockholders perfect their appraisal rights under
Delaware law) will be financed through existing and new debt facilities and
cash on hand.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income
tax consequences of the merger to stockholders of the Company whose shares
are converted into the right to receive cash in the merger. The discussion
is for general information only and does not purport to consider all
aspects of United States federal income taxation that might be relevant to
our stockholders. The discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed
and temporary regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change,
possibly with a retroactive effect. The discussion applies only to
stockholders in whose hands shares of our common stock are capital assets
within the meaning of Section 1221 of the Code and who do not own directly
or though attribution 50% or more of the stock of UAL Corporation. This
discussion does not apply to shares of common stock received pursuant to
the exercise of employee stock options or otherwise as compensation, or to
certain types of stockholders (such as insurance companies, tax-exempt
organizations, financial institutions and broker-dealers) who may be
subject to special rules. This discussion does not discuss the United
States federal income tax consequences to any stockholder who, for United
States federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust,
nor does it consider the effect of any foreign, state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE
RULES DISCUSSED BELOW AND THE PARTICULAR TAX EFFECTS OF THE MERGER, ON A
BENEFICIAL HOLDER OF SHARES OF OUR COMMON STOCK, INCLUDING THE APPLICATION
AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND ANY STATE, LOCAL AND FOREIGN
TAX LAWS AND OF CHANGES IN SUCH LAWS.
The exchange of shares of common stock for cash pursuant to the
merger will be a taxable transaction for United States federal income tax
purposes and possibly for state, local and foreign income tax purposes as
well. In general, a stockholder who receives cash in exchange for shares of
common stock pursuant to the merger will recognize gain or loss for United
States federal income tax purposes equal to the difference, if any, between
the amount of cash received and the stockholder's adjusted tax basis in the
shares exchanged for cash pursuant to the merger. Gain or loss will be
determined separately for each block of shares (i.e., shares acquired at
the same cost in a single transaction) exchanged for cash pursuant to the
merger. Such gain or loss will be long-term capital gain or loss provided
that a stockholder's holding period for such shares of common stock is more
than one year at the time of consummation of merger. Capital gain
recognized by an individual upon a disposition of a share of common stock
that has been held for more than one year generally will be subject to a
maximum United States federal income tax rate of 20% or, in the case of a
share that has been held for one year or less, will be subject to tax at
ordinary income tax rates. Certain limitations apply to the use of a
stockholder's capital losses.
You may be subject to "backup withholding" at a rate of 31% on
payments received in connection with the merger unless you (1) provide a
correct taxpayer identification number (which, if you are an individual, is
your social security number) and any other required information to the
paying agent, or (2) are a corporation or come within certain exempt
categories and, when required, demonstrate this fact, and otherwise comply
with applicable requirements of the backup withholding rules. If you do not
provide a correct taxpayer identification number, you may be subject to
penalties imposed by the IRS. Any amount paid as backup withholding does
not constitute an additional tax and will be creditable against your United
States federal income tax liability. You should consult with your own tax
advisor as to your qualification for exemption from backup withholding and
the procedure for obtaining such exemption. You may prevent backup
withholding by completing a Substitute W-9 and submitting it to the paying
agent for the merger when you submit your stock certificate(s) following
the effective time of the merger.
You are urged to consult your tax advisor with respect to the tax
consequences of the merger, including the effects of applicable state,
local, foreign or other tax laws.
ACCOUNTING TREATMENT
The merger will be accounted for using the purchase method of
accounting. Under this method of accounting, the purchase price will be
allocated to the fair value of the net assets acquired. The excess purchase
price over the fair value of the assets acquired will be allocated to
goodwill.
APPRAISAL RIGHTS OF STOCKHOLDERS
You have the right to dissent from the merger and to demand and
obtain cash payment of the appraised value of your shares of our common
stock under the circumstances described below. The appraised value that you
obtain for your shares by dissenting may be less than, equal to or greater
than the $60.00 per share cash merger consideration provided for in the
merger agreement. If you fail to comply with the procedural requirements of
Section 262 of the Delaware General Corporation Law, you will lose your
right to dissent and seek payment of the appraised value of your shares.
The following is a summary of Section 262, which specifies the
procedures applicable to dissenting stockholders. This summary is not a
complete statement of the law regarding your right to dissent under
Delaware law, and if you are considering dissenting, we urge you to review
the provisions of Section 262 carefully. The text of Section 262 is
attached to this Proxy Statement as Appendix C, and we incorporate that
text into this Proxy Statement by reference. Among other matters, you
should be aware of the following:
o to be entitled to dissent and seek appraisal, you must hold
shares of our common stock on the date you make the demand
required under Delaware law, you must continuously hold those
shares until the merger has been completed, you must not vote in
favor of the merger and you must otherwise comply with the
requirements of Section 262;
o before the special meeting, you must deliver a written notice
that states your identity and your intent to demand appraisal to
US Airways Group, Inc., 2345 Crystal Drive, Arlington, Virginia,
22227, Attention: General Counsel (you should be aware that
simply voting against the merger is not a demand for appraisal
rights);
o within ten days after the effective time of the merger, the
surviving corporation will notify all of the dissenting
stockholders who have complied with Section 262 and who have not
voted in favor of the merger;
o within 120 days after the effective time of the merger, the
surviving corporation or any stockholder who has complied with
the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the value
of the stock of the dissenting stockholders;
o the Delaware Court of Chancery will determine which dissenting
stockholders complied with the requirements of Section 262 and
are entitled to appraisal rights;
o the Delaware Court of Chancery may require the stockholders who
have demanded an appraisal for their shares (and who hold stock
represented by certificates) to submit their stock certificates
to the Register in Chancery for notation; and the Delaware Court
of Chancery may dismiss the proceedings as to any stockholder
that fails to comply with such direction.
o the Delaware Court of Chancery will then appraise the shares,
determining their fair value exclusive of any element of value
arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, to be paid on the
appraised fair value; the Delaware Court of Chancery will
consider all relevant factors in determining the fair value and
the fair interest rate (if any);
o the Delaware Court of Chancery will then direct the surviving
corporation to pay the fair value of the dissenting shares,
together with any interest, to the stockholders entitled to
payment; payment will be made when the stockholder surrenders the
certificates to the surviving corporation;
o the costs of the proceeding for appraising the fair value may be
determined by the court and the court may require the parties to
bear the costs in any manner that the court believes to be
equitable;
o if you dissent from the merger, you will not be entitled to vote
your shares of common stock for any purpose or to receive
dividends or other distributions (other than dividends or other
distributions payable to stockholders of record at a date prior
to the effective time of the merger) following the merger;
o you may withdraw your demand for appraisal and accept the $60.00
per share cash merger consideration provided for in the merger
agreement at any time within 60 days after the effective date of
the merger; and
o the exchange of shares for cash pursuant to the exercise of
appraisal rights will be a taxable transaction for United States
federal income tax purposes and possibly state, local and foreign
income tax purposes as well. See "Special Factors-Certain United
States Federal Income Tax Consequences."
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
merger agreement. The following summary is qualified in its entirety by
reference to the merger agreement, which we have attached as Appendix A to
this proxy statement and which we incorporate by reference into this
document. We encourage you to read the merger agreement in its entirety.
THE MERGER
The merger agreement provides that, following the adoption of the
merger agreement by our stockholders and the satisfaction or waiver of the
other conditions to the merger, including obtaining the requisite
regulatory approvals, Yellow Jacket Acquisition Corp. will be merged with
and into us, and we will be the surviving corporation. With respect to
obtaining regulatory approvals, we believe that efforts sufficient to
satisfy the requisite regulatory requirements can be concluded on or before
January 1, 2001. The merger will become effective upon the filing of the
certificate of merger with the Secretary of State of the State of Delaware
or at such later time agreed to by the parties and specified in the
certificate of merger.
When the merger becomes effective, our Amended and Restated
Certificate of Incorporation will be the Certificate of Incorporation of
the surviving corporation, until thereafter changed or amended as provided
therein or by applicable law. The by-laws of Yellow Jacket Acquisition
Corp. in effect immediately prior to the effective time of the merger will
be the by-laws of the surviving corporation until thereafter changed or
amended as provided therein or by applicable law.
Conversion of Capital Stock. At the effective time of the merger,
pursuant to the merger agreement and the Delaware General Corporation Law,
each issued and outstanding share of our common stock, other than any
shares (1) owned by us, UAL Corporation or Yellow Jacket Acquisition Corp.,
all of which will be canceled without consideration, or (2) held by a
dissenting stockholder exercising and perfecting appraisal rights, will be
converted into the right to receive $60.00 in cash, without interest.
Exchange of Common Stock Certificates. At the effective time, each
certificate representing shares of our common stock then outstanding, other
than any shares owned by us, UAL Corporation, Yellow Jacket Acquisition
Corp. or held by a dissenting stockholder exercising appraisal rights, will
represent the right to receive the cash into which such issued and
outstanding shares may be converted. At the effective time, all such shares
of our common stock will be canceled and cease to exist, and each holder of
a certificate representing any such shares will cease to have any voting or
other rights with respect to such shares, except the right to receive upon
the surrender of such certificate the cash consideration payable under the
merger agreement, without interest.
We will designate a bank or trust company to act as exchange agent
and, as soon as possible after the effective time of the merger, mail a
letter of transmittal to you. The letter of transmittal will tell you how
to surrender your US Airways common stock certificates in exchange for the
$60.00 per share cash merger consideration. You should not send in your US
Airways common stock certificates until you receive a transmittal form. You
should send them only pursuant to instructions set forth in the letter of
transmittal. In all cases, the merger consideration will be provided only
in accordance with the procedures set forth in the merger agreement and
such letters of transmittal.
We strongly recommend that certificates for common stock and letters
of transmittal be transmitted only by registered United States mail, return
receipt requested, appropriately insured. Holders of common stock whose
certificates are lost will be required to make an affidavit identifying
such certificate or certificates as lost, stolen or destroyed and, if
required by us, to post a bond in such amount as we may reasonably require
to indemnify against any claim that may be made against us with respect to
such certificate.
Any merger consideration payable in respect of certificates for our
common stock that have not been surrendered prior to two years after the
effective time of the merger (or immediately prior to such earlier date on
which any merger consideration would otherwise escheat to or become the
property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of the surviving corporation, free and
clear of all claims or interest of any person previously entitled thereto.
In addition, the surviving corporation will not be liable to any person in
respect of any merger consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
Stock Options. We have agreed to take all actions necessary so that,
immediately prior to the completion of the merger, all options to acquire
shares of our common stock granted under any of our option plans become
fully vested and exercisable. At the effective time, outstanding options
will be canceled and will be converted into the right to receive a cash
payment from us equal to $60.00 minus the exercise price of the option,
multiplied by the number of shares subject to the option.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties with
respect to us and our subsidiaries relating to, among other things:
o organization, qualification, capitalization and similar corporate
matters;
o authorization, execution, delivery, performance and
enforceability of, and required consents, approvals and
authorizations relating to, the merger agreement and related
matters;
o the absence of violation of organizational documents, laws or
contracts as a result of entering into the merger agreement;
o the accuracy of the information contained in the reports and
financial statements that we and our principal operating
subsidiary file with the Securities and Exchange Commission
("SEC") and other governmental authorities;
o the absence of material adverse changes since December 31, 1999;
o the absence of material legal proceedings;
o contracts and the absence of any material default in these
contracts;
o compliance with applicable laws, permits and agreements since
January 1, 1997;
o the absence of changes in our benefit plans and employment
agreements since December 31, 1999;
o certain environmental, labor and employment, intellectual
property, employee welfare and benefit plans and tax matters;
o aircraft owned, leased or operated;
o takeoff and landing rights and foreign operating rights;
o the business combination provision in our charter;
o the Board's approval of the merger for purposes of Section 203 of
the Delaware General Corporation Law;
o the stockholder vote required to adopt the merger agreement;
o the absence of undisclosed broker's fees;
o the receipt by us of a fairness opinion from Salomon Smith Barney
Inc.; and
o the accuracy of certain information provided by us to UAL
Corporation.
The merger agreement contains customary representations and
warranties by UAL Corporation and Yellow Jacket Acquisition Corp. relating
to, among other things:
o their organization and similar corporate matters;
o the absence of violation of organizational documents, laws or
contracts as a result of entering into the merger agreement;
o their authorization, execution, delivery, performance and
enforceability of, and required consents, approvals and
authorizations relating to, the merger agreement and related
matters;
o the creation of Yellow Jacket Acquisition Corp. solely for the
purpose of engaging in the transactions contemplated by the
merger agreement;
o the sufficiency of capital resources available to UAL Corporation
to pay the merger consideration; and
o the absence of any ownership of our shares of common stock for
purposes of section 203 of the Delaware General Corporation
Law.
The foregoing representations and warranties are subject, in some
cases, to specified exceptions and qualifications. The representations and
warranties of each of the parties will expire upon completion of the
merger.
CERTAIN COVENANTS
Under the merger agreement, we have agreed that from the date of the
merger agreement until the effective time of the merger, we will (and we
will require our subsidiaries to) conduct business only in the ordinary
course consistent with past practice and that we will (and we will require
our subsidiaries to) use reasonable efforts to comply with all applicable
laws, rules and regulations and to preserve our assets and third party
relationships. In addition, we have agreed that we will not (and will not
permit any of our subsidiaries to) take any of the following actions,
except for actions specifically contemplated by the merger agreement or
disclosed to UAL Corporation prior to the signing of the merger agreement,
without UAL Corporation's prior written consent, which consent shall not be
unreasonably withheld by UAL Corporation:
o declare, set aside or pay any dividends on, or make any other
distributions in respect of, our capital stock, other than
dividends by one of our wholly-owned subsidiaries to its parent;
o purchase, redeem or otherwise acquire any shares of our capital
stock or of our subsidiaries capital stock;
o split, combine, or reclassify any of our capital stock or issue
or authorize the issuance of any other securities in respect of,
in lieu of, or in substitution for our capital stock;
o issue, deliver, sell, pledge or otherwise encumber any shares of
our capital stock, any other equity or voting interests or any
securities convertible into, or exchangeable for, or rights to
acquire shares of our capital stock, except for the issuance of
shares as a result of the exercise of stock options existing when
we entered into the merger agreement;
o amend our certificate of incorporation or bylaws;
o acquire or agree to acquire (i) by merging or consolidating with
or by purchasing all or a substantial portion of the assets of
any other person or the assets constituting a business or a
corporation, joint venture or division thereof, other than the
merger of any of our wholly owned subsidiaries into us or into
any of our other wholly owned subsidiaries or (ii) any asset,
other than (v) aircraft or engines in accordance with our fleet
plan which was disclosed to UAL Corporation prior to the signing
of the merger agreement, (w) assets acquired in the ordinary
course consistent with past practice for a purchase price equal
to or less than $1,000,000, (x) subject to certain restrictions,
assets acquired in response to unanticipated operational,
competitive or economic factors, (y) assets acquired reasonably
in response to a regulatory requirement or mandate or (z) assets
acquired in accordance with our capital budget;
o subject to certain exceptions, sell, lease, license or sell and
lease back, mortgage or otherwise encumber or subject to any lien
or otherwise dispose of any of our properties or assets or
interests therein;
o repurchase or prepay or incur any indebtedness or guarantee any
indebtedness of another person except, (A) short-term borrowings
incurred in the ordinary course of business consistent with past
practice and (B) the incurrence of indebtedness in the ordinary
course consistent with past practice, in order to, among other
things, (i) finance the purchase or leasing of new aircraft or
engines as disclosed to UAL Corporation prior to the signing of
the merger agreement, (ii) refinance indebtedness incurred to
finance the purchase or leasing of aircraft on terms no less
favorable to us than the terms of the indebtedness to be
refinanced or (iii) purchase aircraft currently leased to us
pursuant to the terms of the applicable lease agreement;
o make any loans, advances or capital contributions to or
investments in any person other than (i) in the ordinary course
consistent with past practice, (ii) to, or in, a direct or
indirect wholly owned subsidiary or (iii) to the employee stock
ownership trust in an amount not to exceed the amount of
principal and interest then due and owing under the ESOP loan;
o subject to certain exceptions, incur or commit to incur any
capital expenditures, obligations or liabilities (x) with respect
to 2000, in any manner materially inconsistent with our capital
budget for 2000 and (y) with respect to 2001, (i) that in the
aggregate exceed the aggregate amount of capital expenditures set
forth in our capital budget for 2000 or (ii) that individually
exceed $20,000,000;
o except as required by law, (i) pay, discharge or settle any
claims, liabilities or obligations other than the payment,
discharge or satisfaction in the ordinary course consistent with
past practice or as required by their terms or incurred since the
date of the merger agreement in the ordinary course consistent
with past practice, (ii) waive, release, grant or transfer any
right of material value other than in the ordinary course
consistent with past practice or (iii) waive, release, grant or
transfer any material benefit under any material confidentiality,
standstill or similar agreement;
o enter into, modify, amend or terminate any portion, aspect or
whole collective bargaining agreement or other labor union
contract, other than immaterial modifications in the ordinary
course, modifications pursuant to "parity plus 1% review" or as
required by a change in the applicable law;
o enter into, modify, amend or terminate any benefit agreement or
plan providing for the payment of severance, compensation or
benefits upon the termination of employment, other than increases
in cash compensation, immaterial changes and termination
arrangements for employees (other than officers), each in the
ordinary course consistent with past practice, and other than
actions taken by us to retain or attract employees in key
positions consistent with our retention plan (under which,
subject to certain limitations, (1) we may (a) grant restricted
stock up to amounts consistent with our past practices for
purposes of hiring, promotion and selected retention needs, (b)
provide a compensation package that is consistent with our past
practice to newly appointed officers and (c) pay cash retention
bonuses to certain non-officer employees up to an agreed upon
amount and (2) UAL Corporation will pay a severance benefit equal
to six-months of base salary to any non-union, non-officer
employee who, within 6 months following the merger, is asked to
relocate and declines to do so);
o enter into, modify, amend or terminate any material contract to
which we or one of our subsidiaries is a party, other than
modifications, amendments or terminations in the ordinary course
consistent with past practice;
o except as required by law or any provision of a benefit
agreement, plan or other contract and subject to certain
exceptions take any action to (i) fund payment of compensation or
benefits under any benefit agreement, plan or other contract or
(ii) to accelerate the vesting or payment of any compensation or
benefit under any benefit agreement, plan or other contract;
o materially decrease any levels of employee training or costs
incurred in connection with such training;
o fail to keep in effect any governmental route authority used as
of the date of the merger agreement or make any material route
changes, except for such failures that occur or changes that are
made in the ordinary course of business consistent with past
practice;
o fail to maintain insurance at levels, at least comparable to
current levels;
o establish any new pilot or flight attendant domicile cities;
o take action or fail to take action which would result in our loss
of slots with an aggregate value in excess of $7,500,000;
o take any action that would be expected to result in our
representations and warranties becoming untrue in a material
respect or any condition to the merger not being satisfied; or
o settle any action relating to any material tax, make any material
tax election or, subject to certain exceptions, make any changes
to our tax accounting methods unless required by a change in
generally accepted accounting principles, SEC accounting
regulations or guidelines or applicable law.
For purposes hereof, the reasonableness of withholding consent shall
be determined from the point of view of UAL Corporation, taking into
account the relative burden to UAL Corporation and the benefit to us of
granting such consent and any other factors which UAL Corporation
determines in good faith to be, and which are, of reasonable consequence to
it in connection with its determination.
OTHER AGREEMENTS OF US AIRWAYS, UAL CORPORATION AND YELLOW JACKET ACQUISITION
CORP.
In addition to our agreements regarding the conduct of our business,
we and UAL Corporation have also agreed to take several other actions:
o we have agreed to promptly notify UAL Corporation upon the
earlier of (x) receipt of notice of any action pending against us
or any of our subsidiaries in respect of any material tax and (y)
upon any other action in respect of taxes becoming material to us
and our subsidiaries;
o we have agreed to confer with UAL Corporation on a regular basis
regarding operational and other material matters and to advise
UAL Corporation of any change or event for which we have
knowledge which would be expected to have a material adverse
effect;
o we have agreed, along with UAL Corporation, subject to
confidentiality restrictions, to give each other copies of all
filings with any governmental entity in connection with the
merger agreement and the transactions contemplated by the merger
agreement;
o we have agreed to use our reasonable best efforts to cause the
stockholders meeting to be held as promptly as practicable
following the date of the merger agreement;
o we have agreed to afford to UAL Corporation and its
representatives reasonable and prompt access to our information,
assets and personnel and to make available to UAL Corporation on
a timely basis a copy of each material document received by us
pursuant to the requirements of domestic or foreign laws and all
other information concerning our business, properties and
personnel, subject to confidentiality or legal restrictions;
o UAL Corporation has agreed, in order to complete the merger, to
effect the divestiture of the assets and the provision of assets,
facilities and services as described in Exhibit A to the merger
agreement and we have agreed, along with UAL Corporation, to use
all reasonable efforts to take all actions that are necessary,
proper or advisable to consummate the merger, including (i)
taking all reasonable action to cause the conditions precedent to
the merger to be satisfied, (ii) obtaining all necessary
governmental consents, authorizations and approvals, and (iii)
obtaining all necessary third party consents and approvals;
o we have agreed, along with UAL Corporation, to promptly make all
necessary filings, other submissions and registrations with
governmental entities, including under the Hart-Scott-Rodino
Act;
o we have agreed, along with UAL Corporation, to give each other
prompt notice of any of our representations or warranties
becoming materially untrue or inaccurate;
o UAL Corporation and Yellow Jacket Acquisition Corp. have agreed
to arrangements regarding liability, indemnification and
insurance matters with respect to our officers and directors;
o we have agreed, along with UAL Corporation, to consult with each
other before issuing any press release or other public statements
relating to the merger; and
o UAL Corporation has agreed that for a period of two years, the
surviving corporation will offer continued employment to all of
our employees (other than officers), other than employees
discharged for cause or performance related reasons or employees
of a subsidiary that is sold or transferred to a third party.
Following the two year period, UAL Corporation has agreed to
provide all of our former non-officer, non-union employees of us
and our subsidiaries the same job security protection, if any, as
provided to similarly-situated employees of UAL Corporation.
NO SOLICITATION OF TRANSACTIONS
We have agreed that we will not (and will cause our subsidiaries not
to) solicit, initiate or encourage, or take any action knowingly to
facilitate, any inquiries or proposals relating to, or that is reasonably
likely to lead to, any direct or indirect acquisition, in one transaction
or a series of transactions, of assets or businesses that constitute or
represent 20% or more of our total revenue, operating income, EBITDA or
assets, including our subsidiaries' assets, taken as a whole, or 20% or
more of the outstanding shares of our capital stock or capital stock of, or
other equity or voting interests in, any of our subsidiaries directly or
indirectly holding the assets or businesses referred to above (any proposal
or offer of this nature will be referred to as a "Takeover Proposal").
We have also agreed that we will not (and will cause our subsidiaries
not to) enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or cooperate in any way with, any Takeover Proposal, other than
a Takeover Proposal made by UAL Corporation. Notwithstanding the foregoing
restriction, the Board may, at any time prior to our stockholders adoption
of the merger agreement, in response to a bona fide written Takeover
Proposal which was not solicited in violation of the above restrictions and
which the Board determines in good faith is reasonably likely to result in
the Board determining to change its recommendation of the merger agreement
or lead to a Takeover Proposal that is superior from a financial view to
you, furnish such person with information with respect to us and our
subsidiaries pursuant to a customary confidentiality agreement and
participate in discussions and negotiations with such person regarding the
Takeover Proposal.
We must promptly advise UAL Corporation of any Takeover Proposal or
any requests for information or inquiries we reasonably believe could lead
to a Takeover Proposal and the terms and conditions of such request,
Takeover Proposal or inquiry. We must keep UAL Corporation informed in all
material respects of the status and details of any such request, Takeover
Proposal or inquiry.
Neither the Board nor any committee of the Board may (i) withdraw (or
modify in a manner adverse to UAL Corporation) its recommendation of the
merger or recommend a Takeover Proposal, other than a Takeover Proposal
made by UAL Corporation, unless the Board or a committee of the Board
determines in good faith, based on such matters it deems appropriate, after
consultation with legal counsel, that failure to take such action would be
reasonably likely to result in a breach of its fiduciary duties, (ii) adopt
or approve a Takeover Proposal or withdraw its approval of the merger,
(iii) cause or permit us to enter into any agreement that constitutes or is
reasonably likely to lead to a Takeover Proposal or (iv) agree or resolve
to do any of the foregoing. Notwithstanding the foregoing, the Board shall
not be prohibited from taking or disclosing a position contemplated by Rule
14e-2(a) of the Securities Exchange Act of 1934, as amended, or making any
disclosure to you if failure to do so, in the Board's good faith judgment
after consultation with counsel, would be inconsistent with applicable law.
We may, at any time prior to obtaining stockholder approval, in
response to any unsolicited bona fide binding written offer made by a third
party that if consummated would result in such third party (or in the case
of a direct merger between such third party and us, the stockholders of
such third party) acquiring, directly or indirectly, more than 50% of the
voting power in us or all or substantially all of our assets and the assets
of our subsidiaries, taken as a whole, for consideration consisting of cash
and/or securities that our Board determines in its good faith judgment
(after consultation with a financial advisor of nationally recognized
reputation) to be superior from a financial view to you, taking into
account, among other things, any changes to the terms of the merger
agreement proposed by UAL Corporation in response to such superior proposal
or otherwise (any such proposal will be referred to as a "Superior
Proposal"), terminate the merger agreement and concurrently enter into an
acquisition agreement constituting or related to, or which is intended to
or is reasonably likely to lead to, any Takeover Proposal; provided,
however, that we can not terminate the agreement unless we have complied in
all material respects with the restrictions on solicitation described above
and paid the termination fee and expenses owed to UAL Corporation; and
provided further, that we can not terminate the agreement without first
giving UAL Corporation five business day's notice that we have received a
Superior Proposal, specifying the terms and conditions thereof.
EMPLOYEE BENEFIT MATTERS
With respect to our employees, or our subsidiaries' employees, that
are classified as regular permanent employees as of the date of the merger
and who are in jobs that will not be covered by collective bargaining or
other labor union contracts after the merger, UAL Corporation has agreed as
follows:
o to give such employees full credit, for purposes of eligibility,
vesting and benefit accrual under any employee benefit plans or
arrangements maintained by UAL Corporation, the surviving corporation
and their respective affiliates, for such employees' service with us
to the same extent recognized by us immediately prior to the merger
(except where it would result in a duplication of benefits);
o to (i) waive all limitations as to preexisting conditions, exclusions
and waiting periods with respect to participation and coverage
requirements applicable to such employees under any welfare benefit
plans in which such employees may be eligible to participate after the
merger to the extent waived under the applicable plan immediately prior
to the merger and (ii) provide such employees with credit for any
co-payments and deductibles paid prior to the merger in satisfying any
applicable deductible or out-of-pocket requirements under any welfare
plans in which such employees are eligible to participate after the
merger; and
o to honor our benefit plans and benefit agreements in accordance with
their terms. For a period of one year immediately following the
merger, UAL Corporation agrees to provide to such employees employed by
UAL Corporation employee benefit plans and arrangements (excluding
equity-based compensation) not materially less favorable in the
aggregate than those provided to such employees immediately prior to
the merger and eligibility for stock option grants on the same basis as
similarly situated employees of UAL Corporation and its subsidiaries.
CONDITIONS TO THE MERGER
Each party's obligation to complete the merger is subject to a number
of conditions, including the following:
o adoption by our stockholders of the merger agreement;
o the expiration or termination of the waiting periods under the
Hart-Scott-Rodino Act and the receipt of any other necessary
approvals or clearances under applicable competition, merger control,
antitrust or similar law or regulation;
o the absence of any temporary restraining order, preliminary or
permanent injunction, or other order or decree by any court of
competent jurisdiction or other legal restraint or prohibition
preventing the merger.
Our obligation to complete the merger is subject to additional
conditions, including the accuracy of the representations and warranties of
UAL Corporation and Yellow Jacket Acquisition Corp. that are qualified as
to materiality and the material accuracy of the representations and
warranties of UAL Corporation and Yellow Jacket Acquisition Corp. that are
not qualified as materiality, and the performance in all material respects
of their obligations under the merger agreement.
The obligations of UAL Corporation and Yellow Jacket Acquisition Corp.
to complete the merger are subject to additional conditions, including the
following:
o the accuracy of our representations and warranties that are qualified
as to materiality and the material accuracy of our representations
and warranties that are not qualified as materiality, and the
performance in all material respects of our obligations under the
merger agreement; and
o the absence of any legal restraint that has the effect of (i)
prohibiting or limiting in any material respect the ownership or
operation of a material portion of our or UAL Corporation's business,
(ii) prohibiting UAL Corporation from controlling in any material
respect a substantial portion of our business or operations and (iii)
imposing material limitations on UAL Corporation's ability to acquire,
hold or exercise full rights of ownership of shares of our common
stock; and
o we or UAL Corporation having obtained (i) all material consents,
approvals or authorizations of governmental entities legally required
in connection with the merger agreement or the transactions
contemplated by the merger agreement and (ii) all other governmental or
third party consents, approvals or authorizations required in
connection with the merger agreement, except, in the case of clause
(ii), for those the failure of which to be obtained would not be
expected to result in a material adverse effect on us or prevent or
materially impede or delay consummation of the merger.
The obligations of UAL Corporation and Yellow Jacket Acquisition Corp.
to complete the merger are not subject to a financing condition.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated, whether before or after
receiving stockholder approval, without completing the merger, under the
following circumstances:
o Written Mutual Consent - by written mutual consent of the parties;
o Delay - by us or UAL Corporation if the merger is not consummated by
December 31, 2000; provided, however, that this deadline may be
extended to August 1, 2001 if all conditions to consummation of the
merger, other than the adoption of the merger agreement by our
stockholders, the receipt of regulatory approvals or consents or the
absence of a legal restraint, have been fulfilled by December 31,
2000;
o Legal Impediments
- by us or UAL Corporation if a law or court order prohibiting
the merger becomes final and cannot be appealed, so long as a
breach by the party seeking to terminate is not the principal
reason for such event having occurred; and
- by UAL Corporation if (A) any legal restraint that has the effect
of (i) prohibiting or limiting in any material respect the
ownership or operation of a material portion of the business of
US Airways or UAL Corporation, (ii) prohibiting UAL Corporation
from controlling in any material respect a substantial portion of
the business or operations of US Airways or (iii) imposing
material limitations on UAL Corporation's ability to acquire,
hold or exercise full rights of ownership of shares of US Airways
common stock shall be in effect and shall have become final and
nonappealable and (B) a breach by UAL Corporation is not the
primary reason that such event occurred.
o Failure to Obtain Stockholder Approval - by us or UAL Corporation if
our stockholders do not adopt the merger agreement at a duly convened
stockholder meeting;
o Recommendation - by UAL Corporation if our Board, acting in
accordance with certain standards specified in the merger agreement
relating to its fiduciary duties, withdraws or modifies, in a manner
adverse to UAL Corporation, its recommendation or declaration of the
advisability of the merger agreement or the merger or recommends an
alternative transaction;
o Breach
- by UAL Corporation if (i) we materially breach our
representations, warranties or covenants under the merger
agreement and are unable to cure the breach after receiving
written notice and an opportunity to cure the breach and (ii)
UAL Corporation has not previously been deemed to have waived
such breach;
- by us if UAL Corporation or Yellow Jacket Acquisition Corp.
materially breaches its representations, warranties or covenants
under the merger agreement and is unable to cure the breach after
receiving written notice and an opportunity to cure the breach; or
o Fiduciary Termination - by us, in accordance with the provisions more
fully described in the fourth paragraph of the section entitled
"Summary of the Merger Agreement- No Solicitation of Transactions" on
page 41, which provides, at any time prior to obtaining stockholder
approval, in response to an unsolicited bona fide binding written offer
made by a third party to acquire more than 50% of our common stock or
all or substantially all our assets for consideration that our Board
determines in its good faith judgment to be superior from a financial
view to our stockholders, provided that we have complied in all
material respects with the no solicitation covenant of the merger
agreement and we have paid the applicable termination fee and expense
reimbursement amount to UAL Corporation and we concurrently enter into
an acquisition agreement with a third party.
In the event of termination of the merger agreement by either party
under the above events, the merger agreement shall become void and have no
effect; provided, however that this will not relieve a breaching party from
liability for a prior wilful breach of the merger agreement.
TERMINATION FEES
We have agreed to pay to UAL Corporation a termination fee of $150
million, plus up to a maximum of $10 million for reimbursement of UAL
Corporation's expenses, if:
o the merger agreement is terminated by UAL Corporation or us under
circumstances where:
-- the termination was due to (i) our stockholders failing to approve the
merger or (ii) the merger failing to be completed by the applicable
termination date;
-- prior to such termination, a third party made a proposal to acquire
20% or more of our common stock or a business that constitutes 20% or
more of our total revenue, operating income, EBITDA or assets; and
-- within 12 months of such termination, we consummate or enter into an
agreement with a third party providing for the acquisition of 40% or
more of our common stock or a business that constitutes 40% or more
of our total revenue, operating income, EBITDA or assets.
o the merger agreement is terminated by UAL Corporation because our Board
withdraws or modifies, in a manner adverse to UAL Corporation, its
recommendation or declaration of the advisability of the merger
agreement or the merger or recommends any alternative transaction;
o The merger agreement is terminated by us in response to an unsolicited
bona fide binding written offer made by a third party to acquire more
than 50% of our common stock or all or substantially all our assets for
consideration that our Board determines in its good faith judgment to be
superior from a financial view to our stockholders and the Board
determines, after legal consultation, that failure to do so would likely
result in a breach of the Board's fiduciary duty and we concurrently
enter into an acquisition agreement with a third party.
UAL Corporation has agreed to pay us a termination fee of $50 million in
the event the merger agreement is terminated for any reason other than (i)
our Board's withdrawal or modification, in a manner adverse to UAL
Corporation, of its recommendation or declaration of the advisability of
the merger agreement or the merger, (ii) our material breach of our
representations, warranties, or covenants, or (iii) our termination in
response to an unsolicited binding written offer made by a third party for
consideration that our Board determines in its good faith judgment to be
superior from a financial view to stockholders. This fee will have to be
repaid by us to UAL Corporation if subsequent to such termination, UAL
Corporation becomes entitled to the payment of a termination fee as
described in the immediately preceding paragraph.
EXPENSES
Except as described above, all fees and expenses in connection with the
merger agreement and the merger will be paid by the party incurring such
expense.
AMENDMENT; WAIVER
The merger agreement may be amended by the parties at any time;
provided, however, that after stockholder approval has been obtained, there
shall be made no amendment that by law requires further approval by
stockholders of the parties without the further approval of such
stockholders. At any time prior to the effective time of the merger, any
party may extend the time for the performance of any of the obligations or
other acts of the other party, waive any inaccuracies in the other party's
representations and warranties or waive the other party's compliance with
any of the agreements or conditions contained in the merger agreement;
provided, however, that after stockholder approval has been obtained, there
shall be made no waiver that by law requires further approval by
stockholders of the parties without the further approval of such
stockholders.
SUMMARY OF DC AIR
In connection with the agreement by UAL Corporation to divest certain of
our assets located principally at Reagan Washington National Airport (the
"Assets"), we and UAL Corporation have entered into a memorandum of
understanding with Mr. Robert L. Johnson, confirming the mutual
understanding of the parties with respect to the proposed acquisition by an
entity to be formed by Mr. Johnson of certain of our assets and the
creation of a new carrier to be called DC Air.
COMPETITIVE PRESENCE IN WASHINGTON, D.C.
DC Air will be based at Reagan Washington National Airport and will be
composed of the majority of our route structure currently served from
Reagan Washington National Airport. Initially offering jet, regional jet
and turboprop services, DC Air intends to transition itself to all jet
service. Initially serving 44 airports with approximately 222 daily
departures (111 daily round trips from Reagan Washington National Airport),
it is expected that DC Air will carry approximately three million
passengers in its first year of operation.
DC AIR ASSET CONFIGURATION AND TRANSITION PLAN
Pursuant to the terms of the memorandum of understanding, all of the
outstanding stock of PSA Airlines, Inc. ("PSA"), one of our wholly-owned
commuter subsidiaries, will be transferred to DC Air upon consummation of
the merger. Prior to such transfer, PSA will be reorganized to consist only
of the existing leases on eight Dornier 328 aircraft, PSA's operating
certificates, employees needed to operate the eight Dornier 328 aircraft
and certain management employees necessary to appropriately manage DC Air's
operations. Additionally, DC Air will obtain the availability of 19
regional jets operated by our Express affiliates pursuant to contract
rights that will be transferred to DC Air. Also, in order to provide DC Air
time to obtain its own jet aircraft operated by its own trained crews, UAL
Corporation or its subsidiaries will wet-lease ten 737-200 jet aircraft to
DC Air for up to four years, subject to DC Air's right to terminate on four
months' notice. The wet-lease rates are to be at market-rates as determined
by a formula based on specified recent lease transactions, labor rates
derived from specified labor contracts, and UAL Corporation's line
maintenance costs. If needed, UAL Corporation will provide DC Air with
interim employees for up to six months at its cost while DC Air hires and
trains personnel to fill open positions.
DC Air will also obtain approximately 119 air carrier (jet) slots, 103
commuter slots at Reagan Washington National Airport that are currently
held by us. DC Air will assume leases on necessary airport facilities both
at Reagan Washington National Airport and at other served airports. Such
facilities include gates, ticket counters, ramps, ground handling equipment
and line maintenance infrastructure.
If requested by DC Air for periods ranging from five to seven years, UAL
Corporation will provide DC Air with various services at market rates.
These services include such items as fuel, station handling, occasional use
gate arrangements, access to club facilities, interline ticketing/baggage
arrangements. In addition, UAL Corporation has agreed to provide consulting
support for a period of two years.
We have agreed that the consummation of the transaction contemplated by
the memorandum of understanding will satisfy UAL Corporation's obligation,
pursuant to the first sentence of Section 5.03(a) of the merger agreement,
to divest the Assets, and provide the assets, facilities and services set
forth on Exhibit A to the merger agreement, but will not satisfy any other
obligation of UAL Corporation under Section 5.03(a) of the merger
agreement.
Mr. Johnson will pay a purchase price of $141.2 million and will assume
all liabilities principally related to the operations of DC Air. He may not
assign his rights or obligations under the memorandum of understanding.
Should he within three years of startup sell a majority equity interest in
DC Air (other than through a public offering) or should he dispose of
substantially all of its assets, any value received above the purchase
price must be paid over to UAL Corporation.
The obligation of Mr. Johnson to consummate the transaction contemplated
by the memorandum of understanding is subject to a financing condition. The
execution of the definitive agreement relating to DC Air is conditioned
upon the receipt by Mr. Johnson of binding commitment letters relating to
such financing that are reasonably acceptable to UAL Corporation. The
memorandum of understanding terminates (i) on any termination of the merger
agreement, (ii) at the election of any of the three parties of the
memorandum of understanding if a definitive agreement is not achieved
within 90 days and (iii) at any time at the election of any two of the
three parties.
The foregoing description is based on the terms of the memorandum of
understanding. However, the parties are in the process of preparing
definitive documentation and there is no assurance that the terms of the DC
Air transaction will not change prior to either finalization of the
definitive documentation or consummation of the DC Air transaction.
Consummation of the transactions contemplated by the memorandum of
understanding is subject to regulatory review and approval by various
regulatory authorities including, without limitation, the Department of
Transportation, which will conduct a review of the financial, managerial,
compliance and citizenship status of DC Air prior to its granting the
requisite economic authority to DC Air, and the Federal Aviation
Administration, which will conduct a safety fitness analysis on DC Air
prior to the issuance of certain operating certificates to DC Air. The
Federal Aviation Administration must also provide written confirmation of
the transfer of slots at Reagan Washington National Airport to DC Air. In
addition, the transfer of assets (including the slots) to DC Air is subject
to the Hart-Scott-Rodino Act, which provides that such transactions may not
be completed until certain information has been submitted to the Department
of Justice and the Federal Trade Commission and specified waiting period
requirements have been satisfied. We believe that the regulatory process
can be completed by January 1, 2001.
REGULATORY MATTERS
Set forth below is a summary of the regulatory requirements affecting
completion of the merger.
ANTITRUST CONSIDERATIONS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
provides that transactions such as the merger may not be completed until
certain information has been submitted to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and specified
waiting period requirements have been satisfied. We and UAL Corporation
have made our respective pre-merger notification filings pursuant to the
Hart-Scott-Rodino Act, and the waiting period is currently scheduled to
expire on July 14, 2000, subject to possible extension by the Antitrust
Division or the Federal Trade Commission.
Both we and UAL Corporation have received inquiries from a number of
state antitrust authorities and are cooperating with their investigations.
While no formal state approvals are required, as is the case with other
private litigants, the state authorities have the capacity to seek judicial
injunctions under the federal antitrust laws.
The expiration or earlier termination of the Hart-Scott-Rodino Act
waiting period would not preclude the Antitrust Division, the Federal Trade
Commission or state authorities from challenging the merger on federal
antitrust grounds. We and UAL Corporation believe that the merger, after
giving effect to the transactions contemplated by the merger agreement and
the memorandum of understanding with Mr. Johnson, will not violate federal
antitrust laws. If we do not complete the merger within 12 months after the
expiration or earlier termination of the Hart-Scott-Rodino Act waiting
period, we and UAL Corporation would be required to submit new information
to the Antitrust Division of the Department of Justice and the Federal
Trade Commission , and a new waiting period would have to expire or be
terminated before we could complete the merger.
We and UAL Corporation anticipate that the Antitrust Division will seek
the disposition of certain assets at Reagan Washington National Airport. We
believe that the transaction with DC Air (as described above on page 47
under the section entitled "Summary of DC Air") should satisfy any such
requirements. The regulatory process may, however, impose certain
modifications and/or additions to our and UAL Corporation's current
proposals. We and UAL Corporation are committed to completing the
transaction. We believe that efforts sufficient to satisfy such regulatory
requirement can be concluded by January 1, 2001 and that the merger will be
completed promptly following satisfaction of such requirement. However, we
cannot assure you that such requirements will be satisfied or, if
satisfied, the date by which they will be satisfied.
DEPARTMENT OF TRANSPORTATION
As the regulatory agency with transportation expertise, we anticipate
that the Department of Transportation will conduct its own independent
analysis of the merger and, as it has done in the past with respect to
other airline mergers, provide the Antitrust Division with its views on the
transaction and any other information that it deems relevant. Both we and
UAL Corporation have received requests from the Department of
Transportation to cooperate with it in providing certain information in
order to enable it to perform its review of the merger and anticipate
responding to such requests on a timely basis. The Department of
Transportation's approval must be obtained regarding economic authority for
DC Air and the transfer of our international route and economic authorities
to UAL Corporation or one of its subsidiaries. The carriers must also
notify the Department of Transportation and provide certain information
about any substantial change in operations, management, or ownership. We
believe that the Department of Transportation's review of the merger and
the transactions contemplated thereby can be completed by January 1, 2001.
However, we cannot assure you of the date by which such review will be
completed.
FEDERAL AVIATION ADMINISTRATION
In addition to matters described above with respect to DC Air, the
Federal Aviation Administration must also provide written confirmation of
slot transfers. We believe that written confirmation from the Federal
Aviation Administration can be received by January 1, 2001. However, we
cannot assure you of the date by which such written confirmation will be
received. The Federal Aviation Administration must also be notified of the
acquisition of us and our FAA operating authorities.
EUROPEAN COMMUNITIES FILING
Under Council Regulation (EEC) No. 4064/89, as amended, certain mergers,
including the present merger, may not be completed until the Commission of
the European Communities has granted its approval or such approval has been
deemed to have been granted. We believe that efforts sufficient to satisfy
the Commission's requirements will be completed and that the Commission's
approval will be obtained by January 1, 2001. However, we cannot assure you
that such requirements will be satisfied or, if satisfied, the date by
which they will be satisfied.
OTHER REGULATORY MATTERS
We and our subsidiaries have obtained from various regulatory
authorities franchises, permits and licenses which may need to be renewed,
replaced or transferred as a result of the merger. Approvals, consents or
notifications may be required in connection with such renewals,
replacements or transfers.
We are not aware of any material governmental or regulatory approvals or
actions that may be required for completion of the merger other than as
described above. If any other governmental or regulatory approval or action
is or becomes required, we currently contemplate that we would seek that
additional approval or action.
CERTAIN LITIGATION
Commencing on May 24, 2000, we, along with several of our officers and
directors and, in all suits other than one, UAL Corporation, have been
named as defendants in eight putative class actions filed in the Court of
Chancery of the State of Delaware in and for the New Castle County (the
"Court"). The plaintiffs allege that they have been and will be damaged by
the agreement reached between us, UAL Corporation, and Mr. Johnson with
respect to the acquisition by an entity to be established by Mr. Johnson of
certain assets located at Reagan Washington National Airport that are to be
divested by UAL Corporation upon consummation of the merger. The plaintiffs
allege, among other things, that the individual defendants have breached
their duty of loyalty and their fiduciary duties in entering into the
agreement with Mr. Johnson. Plaintiffs seek, among other things,
declaratory and injunctive relief, unspecified compensatory damages and
attorney's fees.
We were also named as a nominal defendant in a derivative action filed
in the Court of Chancery based upon the same allegations. The derivative
plaintiff brought causes of action for (i) breach of fiduciary duty; (ii)
gross mismanagement; and (iii) corporate waste of assets. The plaintiff in
the derivative action seeks, among other things, declaratory and equitable
relief, unspecified compensatory damages and attorney's fees.
We believe these actions are without merit and intend to conduct a
vigorous defense.
PARTIES TO THE MERGER
US AIRWAYS GROUP, INC. We are incorporated under the laws of the State
of Delaware on February 16, 1982. Our executive offices are located at 2345
Crystal Drive, Arlington, Virginia 22227. Our telephone number is (703)
872-7000.
We are a holding company and our principal operating subsidiary is US
Airways, Inc., a Delaware corporation, which is wholly owned. US Airways,
Inc. accounted for approximately 88% of our operating revenues on a
consolidated basis in 1999. US Airways, Inc. is a certified air carrier
engaged primarily in the business of transporting passengers, property and
mail.
UAL CORPORATION. UAL Corporation was incorporated under the laws of the
State of Delaware on December 30, 1968. The world headquarters of UAL
Corporation are located at 1200 East Algonquin Road, Elk Grove Township,
Illinois 60007. UAL Corporation's mailing address is P.O. Box 66919,
Chicago, Illinois 60666. The telephone number for UAL Corporation is (847)
700-4000.
UAL Corporation is a holding company and its principal subsidiary is
United Air Lines, Inc., a Delaware corporation, which is wholly owned.
United Air Lines accounted for virtually all of UAL Corporation's revenues
and expenses in 1999. United Air Lines is a major commercial air
transportation company, engaged in the transportation of persons, property
and mail throughout the United States and abroad.
YELLOW JACKET ACQUISITION CORP. Yellow Jacket Acquisition Corp. was
formed as a Delaware Corporation on May 17, 2000 by UAL Corporation for the
purpose of entering into the merger agreement. Yellow Jacket Acquisition
Corp. has not engaged in any business activity other than in connection with
the merger and the related transactions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following information pertains to common stock beneficially owned by
all directors and executive officers of US Airways (or its principal
operating subsidiary) as of June 30, 2000. 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).
OWNER NUMBER OF SHARES PERCENTAGE OF
CLASS (1)
- - - ------------------------------------------ ------------------- ---------------
Directors
Mathias J. DeVito...................... 8,000 (2) *
Rakesh Gangwal......................... 1,525,462 (3) 2.3%
Peter M. George........................ 2,108 (4) *
Robert L. Johnson...................... 4,148 (5) *
Robert LeBuhn.......................... 25,403 (2)(6) *
John G. Medlin, Jr..................... 11,000 (2) *
Hanne M. Merriman...................... 7,500 (2) *
Thomas H. O'Brien...................... 2,679 (4) *
Hilda Ochoa-Brillembourg............... 16,155 (7)(4) *
Richard B. Priory...................... 2,035 (4) *
Raymond W. Smith....................... 9,268 (2) *
Stephen M. Wolf........................ 2,216,986 (8) 3.3%
Executive Officers
Lawrence M. Nagin...................... 351,500 (9) *
B. Ben Baldanza........................ 40,000 (10) *
Thomas A. Mutryn....................... 90,433 (11) *
20 directors and executive officers of 4,626,410 (12) 6.9%
the Company as a group.................
------------------
* Less than 1%.
(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 June 30, 2000.
(2) These holdings include 6,000 shares of common stock issuable within
60 days of June 30, 2000 upon exercise of stock options.
(3) Mr. Gangwal's holdings include 362,450 shares of common stock which
are subject to certain restrictions ("Restricted Stock") and 900,000
shares of common stock issuable within 60 days of June 30, 2000 upon
exercise of stock options.
(4) These holdings include 1,500 shares of common stock issuable within
60 days of June 30, 2000 upon exercise of stock options.
(5) These holdings include 3,000 shares of common stock issuable within
60 days of June 30, 2000 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 321,121 shares of Restricted Stock and
1,510,000 shares of common stock issuable within 60 days of June 30,
2000 upon exercise of stock options.
(9) Mr. Nagin's holdings include 42,831 shares of Restricted Stock and
264,000 shares of common stock issuable within 60 days of June 30,
2000 upon exercise of stock options.
(10) Mr. Baldanza's holdings include 40,000 shares of Restricted Stock.
(11) Mr. Mutryn's holdings include 52,291 shares of Restricted Stock and
33,334 shares of common stock issuable within 60 days of June 30,
2000 upon exercise of stock options.
(12) All directors' and executive officers' holdings include 954,318
shares of Restricted Stock and 2,896,984 shares of common stock
issuable within 60 days of June 30, 2000 upon exercise of stock
options.
The only persons known to us (from our records and reports on
Schedules 13D and 13G filed with the Securities and Exchange Commission
(the "SEC")) who owned, as of June 30, 2000, unless otherwise indicated,
more than 5% of our common stock are listed below:
NAME AND ADDRESS AMOUNT AND NATURE
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- - - ------------------------------------------ ----------------------- ---------------------
Common Stock 3,415,741(2)(3) 5.09%
Salomon Smith Barney Holdings Inc.
Citigroup Inc.
388 Greenwich Street
New York, New York 10013
Common Stock 4,249,480 (4) 6.34%
Morgan Stanley Dean Witter & Co.
1585 Broadway
New York, New York 10036
Common Stock 16,512,700 (5) 24.63%
Tiger Management LLC
Tiger Performance LLC
101 Park Avenue
New York, New York 10178
(1) Represents percentage of shares of common stock outstanding on June
30, 2000.
(2) As set forth in a Schedule 13G, dated April 20, 2000, as of April 7, 2000.
(3) 546,740 of these shares are held by Salomon Smith Barney for the
accounts of its customers.
(4) As set forth in a Schedule 13G, dated February 1, 2000, as of December
31, 1999.
(5) As set forth in a Schedule 13D, dated July 30, 1999, as of July 30, 1999.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed on the New York Stock Exchange under the
symbol "U." The following table sets forth, for the fiscal quarters
indicated, the high and low trading prices per share of our common stock as
quoted on the New York Stock Exchange composite tape.
HIGH LOW
----------- ----------
1998: $ $
First Quarter...................... 76-7/8 56-9/16
Second Quarter..................... 82-1/8 63-5/8
Third Quarter...................... 83-1/4 47
Fourth Quarter..................... 58-9/16 34-3/4
1999:
First Quarter...................... 64 43-3/16
Second Quarter..................... 59-5/8 43
Third Quarter...................... 47-11/16 24-1/8
Fourth Quarter..................... 33-5/8 25-1/16
2000:
First Quarter...................... 33-3/16 17-7/16
Second Quarter .................... 51-1/2 24
Third Quarter (through July [ ], 2000) 40 39-1/8
We have not paid dividends on our common stock since the second quarter
of 1990 and the Board has not authorized the resumption of dividends on our
common stock as of the date of the printing of this proxy statement.
On May 23, 2000, the last full trading day prior to the public
announcement of the signing of the merger agreement, the closing sale price
of our common stock reported on the New York Stock Exchange was $26.31 per
share and the high and low trading prices per share of our common stock as
quoted on the New York Stock Exchange Composite tape were $26.31 and
$25.50, respectively. On July __, 2000, the most recent practicable date
prior to the printing of this proxy statement, the closing price of our
common stock reported on the New York Stock Exchange was $_______. You are
urged to obtain current market quotations for our common stock prior to
making any decision with respect to the proposed merger.
As of June 30, 2000, there were approximately 23,753 holders of
record of our common stock, as shown on the records of our transfer agent.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information contained herein should be considered
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 which is subject to a number of risks and
uncertainties. The preparation of forward-looking statements requires the
use of estimates of future revenues, expenses, activity levels and economic
and market conditions, many of which are outside our control. Specific
factors that could cause actual results to differ materially from those set
forth in the forward-looking statements include: economic conditions, labor
costs; aviation fuel costs; competitive pressures on pricing (particularly
from lower-cost competitors); weather conditions; government legislation;
consumer perceptions of our products; demand for air transportation in the
markets served by our airline subsidiaries; and other operational matters
and risks and uncertainties listed from time to time in our reports to the
SEC. Other factors and assumptions not identified above are also involved
in the preparation of forward-looking statements, and the failure of such
other factors and assumptions to be realized may also cause actual results
to differ materially from those discussed. We assume no obligation to
update such estimates to reflect actual results, changes in assumptions or
changes in other factors affecting such estimates.
OTHER INFORMATION
PROPOSALS BY STOCKHOLDERS OF US AIRWAYS
If we complete the merger, we will no longer have public stockholders
or any public participation in our stockholder meetings. If we do not
complete the merger, we intend to hold our next annual stockholder meeting
in 2001. In that case, if you are still a stockholder as of the record date
of such meeting, you would continue to be entitled to attend and
participate in our stockholder meetings.
Our 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 us 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 us 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.
In accordance with federal securities laws, proposals to be submitted
by stockholders for consideration at our next annual meeting and inclusion
in our 2001 Proxy Statement must be received by us at our executive offices
in Arlington, Virginia, not later than December 15, 2000. SEC rules
establish standards as to which stockholder proposals are required to be
included in a proxy statement for an annual meeting. We will only consider
proposals for inclusion in our proxy statement for an annual meeting that
satisfy the requirements of applicable SEC rules.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, we file reports, proxy statements and other
information with the SEC. You may read and copy this information at the
following offices of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
For further information concerning the SEC's public reference rooms,
you may call the SEC at 1-800-SEC-0330. You may obtain copies of this
information by mail from the public reference section of the SEC, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. You
may also access some of this information via the World Wide Web through the
SEC's Internet address at http://www.sec.gov. Our common stock is listed on
the New York Stock Exchange, and materials may be inspected at the New York
Stock Exchange's offices at 20 Broad Street, New York, New York 10005.
APPENDIX A
EXECUTION COPY
- - - ------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
UAL CORPORATION,
YELLOW JACKET ACQUISITION CORP.
and
US AIRWAYS GROUP, INC.
Dated as of May 23, 2000
- - - ------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
The Merger
SECTION 1.01 The Merger........................................1
SECTION 1.02 Closing...........................................1
SECTION 1.03 Effective Time....................................2
SECTION 1.04 Effects of the Merger.............................2
SECTION 1.05 Certificate of Incorporation and By-laws..........2
SECTION 1.06 Directors.........................................2
SECTION 1.07 Officers..........................................2
ARTICLE II
Conversion of Securities
SECTION 2.01 Conversion of Capital Stock.......................2
SECTION 2.02 Exchange of Certificates..........................3
ARTICLE III
Representations and Warranties
SECTION 3.01 Representations and Warranties of the Company.....5
SECTION 3.02 Representations and Warranties of Parent and Sub.25
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01 Conduct of Business..............................26
SECTION 4.02 No Solicitation..................................32
ARTICLE V
Additional Agreements
SECTION 5.01 Preparation of the Proxy Statement; Stockholders
Meeting .........................................35
SECTION 5.02 Access to Information; Confidentiality...........35
SECTION 5.03 Efforts; Notification............................36
SECTION 5.04 Company Stock Options............................38
SECTION 5.05 Indemnification, Exculpation and Insurance.......38
SECTION 5.06 Fees and Expenses................................39
SECTION 5.07 Information Supplied.............................40
SECTION 5.08 Benefits Matters.................................41
SECTION 5.09 Public Announcements.............................43
SECTION 5.10 Future Employment................................43
ARTICLE VI
Conditions Precedent
SECTION 6.01 Conditions to Each Party's Obligation to Effect
the Merger ......................................43
SECTION 6.02 Conditions to Obligations of Parent and Sub......44
SECTION 6.03 Conditions to Obligation of the Company..........45
SECTION 6.04 Frustration of Closing Conditions................45
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01 Termination......................................45
SECTION 7.02 Effect of Termination............................46
SECTION 7.03 Amendment........................................47
SECTION 7.04 Extension; Waiver................................47
ARTICLE VIII
General Provisions
SECTION 8.01 Nonsurvival of Representations and Warranties....47
SECTION 8.02 Notices..........................................47
SECTION 8.03 .................................................49
SECTION 8.04 Interpretation...................................49
SECTION 8.05 Counterparts.....................................49
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries...50
SECTION 8.07 Governing Law....................................50
SECTION 8.08 Assignment.......................................50
SECTION 8.09 Enforcement......................................50
AGREEMENT AND PLAN OF MERGER dated as of May 23, 2000, by and
among UAL CORPORATION, a Delaware corporation ("Parent"), YELLOW JACKET
ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and US AIRWAYS GROUP, INC., a Delaware corporation (the
"Company").
WHEREAS the Board of Directors of each of the Company and Sub
has approved and declared advisable, and the Board of Directors of Parent
has approved, this Agreement and the merger of Sub with and into the
Company (the "Merger"), upon the terms and subject to the conditions set
forth in this Agreement, whereby each issued and outstanding share of
common stock, par value $1.00 per share, of the Company (the "Company
Common Stock") not owned by Parent, Sub or the Company, other than the
Appraisal Shares (as defined in Section 2.01(d)), will be converted into
the right to receive $60.00 in cash;
WHEREAS Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
The Merger
SECTION 1.01 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Delaware
General Corporation Law (the "DGCL"), Sub shall be merged with and into the
Company at the Effective Time (as defined in Section 1.03). At the
Effective Time, the separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL.
SECTION 1.02 Closing. Upon the terms and subject to the
conditions set forth in this Agreement, the closing of the Merger (the
"Closing") shall take place at 11:00 a.m., New York time, on the second
business day after the satisfaction or (to the extent permitted by
applicable law) waiver of the conditions set forth in Article VI (other
than those that by their terms cannot be satisfied until the time of the
Closing), at the offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New
York, New York 10019, or at such other time, date or place agreed to in
writing by Parent and the Company; provided, however, that if all the
conditions set forth in Article VI shall not have been satisfied or (to the
extent permitted by applicable law) waived on such second business day,
then the Closing shall take place on the first business day on which all
such conditions shall have been satisfied or (to the extent permitted by
applicable law) waived. The date on which the Closing occurs is referred to
in this Agreement as the "Closing Date".
SECTION 1.03 Effective Time. Upon the terms and subject to the
conditions set forth in this Agreement, as soon as practicable on or after
the Closing Date, a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") shall be duly prepared,
executed and acknowledged by the parties in accordance with the relevant
provisions of the DGCL and filed with the Secretary of State of the State
of Delaware. The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
or at such subsequent time or date as Parent and the Company shall agree
and specify in the Certificate of Merger. The time at which the Merger
becomes effective is referred to in this Agreement as the "Effective Time".
SECTION 1.04 Effects of the Merger. The Merger shall have the
effects set forth in Section 259 of the DGCL.
SECTION 1.05 Certificate of Incorporation and By-laws. (a) The
Restated Certificate of Incorporation of the Company, as amended to the
date of this Agreement, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The By-laws of Sub as in effect immediately prior to
the Effective Time shall be the By-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06 Directors. The directors of Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 1.07 Officers. The officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving
Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may
be.
ARTICLE II
Conversion of Securities
SECTION 2.01 Conversion of Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the
holder of any shares of capital stock of the Company, Parent or Sub:
(a) Capital Stock of Sub. Each issued and outstanding
share of common stock of Sub shall be converted into and become one fully
paid and nonassessable share of common stock of the Surviving Corporation.
(b) Cancelation of Treasury Stock and Parent-Owned Stock.
Each share of Company Common Stock that is owned by the Company as treasury
stock, or by Parent or Sub, immediately prior to the Effective Time shall
automatically be canceled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
2.01(b) and the Appraisal Shares) shall be converted into the right to
receive $60.00 in cash, without interest (the "Merger Consideration"). At
the Effective Time all such shares shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of a
certificate that immediately prior to the Effective Time represented any
such shares (a "Certificate") shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration.
(d) Appraisal Rights. Notwithstanding anything in this
Agreement to the contrary, shares (the "Appraisal Shares") of Company
Common Stock issued and outstanding immediately prior to the Effective Time
that are held by any holder who is entitled to demand and properly demands
appraisal of such shares pursuant to, and who complies in all respects
with, the provisions of Section 262 of the DGCL ("Section 262") shall not
be converted into the right to receive the Merger Consideration as provided
in Section 2.01(c), but instead such holder shall be entitled to payment of
the fair value of such shares in accordance with the provisions of Section
262. At the Effective Time, all Appraisal Shares shall no longer be
outstanding and shall automatically be canceled and shall cease to exist,
and each holder of Appraisal Shares shall cease to have any rights with
respect thereto, except the right to receive the fair value of such shares
in accordance with the provisions of Section 262. Notwithstanding the
foregoing, if any such holder shall fail to perfect or otherwise shall
waive, withdraw or lose the right to appraisal under Section 262 or a court
of competent jurisdiction shall determine that such holder is not entitled
to the relief provided by Section 262, then the right of such holder to be
paid the fair value of such holder's Appraisal Shares under Section 262
shall cease and such Appraisal Shares shall be deemed to have been
converted at the Effective Time into, and shall have become, the right to
receive the Merger Consideration as provided in Section 2.01(c). The
Company shall serve prompt notice to Parent of any demands for appraisal of
any shares of Company Common Stock, and Parent shall have the right to
participate in and direct all negotiations and proceedings with respect to
such demands. Prior to the Effective Time, the Company shall not, without
the prior written consent of Parent, make any payment with respect to, or
settle or offer to settle, any such demands, or agree to do any of the
foregoing.
SECTION 2.02 Exchange of Certificates. (a) Paying Agent. Prior
to the Effective Time Parent shall designate a bank or trust company
reasonably acceptable to the Company to act as agent for the payment of the
Merger Consideration upon surrender of Certificates (the "Paying Agent"),
and, from time to time after the Effective Time, Parent shall provide, or
cause the Surviving Corporation to provide, to the Paying Agent funds in
amounts and at the times necessary for the payment of the Merger
Consideration pursuant to Section 2.01(c) upon surrender of Certificates,
it being understood that any and all interest or income earned on funds
made available to the Paying Agent pursuant to this Agreement shall be
turned over to Parent.
(b) Exchange Procedure. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of
record of a Certificate (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates held by such person shall pass, only upon proper delivery of
the Certificates to the Paying Agent and shall be in customary form and
have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancelation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly
completed and validly executed, and such other documents as may reasonably
be required by the Paying Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor the amount of cash into which the
shares formerly represented by such Certificate shall have been converted
pursuant to Section 2.01(c) into the right to receive, and the Certificate
so surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Common Stock that is not registered in the stock
transfer books of the Company, the proper amount of cash may be paid in
exchange therefor to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate shall be
properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered
holder of such Certificate or establish to the satisfaction of Parent that
such tax has been paid or is not applicable. No interest shall be paid or
shall accrue on the cash payable upon surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock.
All cash paid upon the surrender of a Certificate in accordance with the
terms of this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company Common Stock
formerly represented by such Certificate. At the close of business on the
day on which the Effective Time occurs the stock transfer books of the
Company shall be closed, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent for transfer or
any other reason, they shall be canceled and exchanged as provided in this
Article II.
(d) No Liability. None of Parent, Sub, the Company or the
Paying Agent shall be liable to any person in respect of any cash delivered
to a public official pursuant to any applicable abandoned property, escheat
or similar law. If any certificates shall not have been surrendered prior
to two years after the Effective Time (or immediately prior to such earlier
date on which any Merger Consideration would otherwise escheat to or became
the property of any Governmental Entity (as defined in Section 3.01(d)),
any such Merger Consideration in respect thereof shall, to the extent
permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(e) Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such person of a
bond in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to
such Certificate, the Paying Agent shall pay in respect of such lost,
stolen or destroyed Certificate the Merger Consideration.
(f) Withholding Rights. Parent, the Surviving Corporation
or the Paying Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent, the Surviving
Corporation or the Paying Agent is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
and paid over to the appropriate taxing authority by Parent, the Surviving
Corporation or the Paying Agent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the
shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent, the Surviving Corporation or the Paying
Agent.
ARTICLE III
Representations and Warranties
SECTION 3.01 Representations and Warranties of the Company.
Except as set forth on the disclosure schedule, with specific reference to
the Section or Subsection of this Agreement to which the information stated
in such disclosure relates (the "Company Disclosure Schedule") (provided
that any subsection under Section 3.01 of the Company Disclosure Schedule
or any subsections thereof shall each be deemed to include (i) all
disclosures set forth in other sections and subsections of the Company
Disclosure Schedule (including Sections 4.01(a) and 4.01(b)) and (ii) all
disclosures set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (the "Company's 1999 10-K"), US
Airways, Inc.'s (the "Principal Operating Sub") Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, or any other report or other
document filed by the Company or the Principal Operating Sub with the
Securities and Exchange Commission (the "SEC") and publicly available
subsequent to December 31, 1999, and prior to the date of this Agreement,
including the financial statements (and notes thereto) filed therewith
(collectively, the "Filed SEC Documents"), in each of clauses (i) and (ii)
as and to the extent the context of such disclosures makes it reasonably
clear, if read in the context of such other section or subsection, that
such disclosures are applicable to such other sections or subsections), the
Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company
and its subsidiaries (as defined in Section 8.03) (i) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization, (ii) has all requisite corporate, company or partnership
power and authority to carry on its business as now being conducted and
(iii) is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or
licensing necessary, other than (except in the case of clause (i) above
with respect to the Company) where the failure to be so organized,
existing, qualified or licensed or in good standing individually or in the
aggregate would not be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect (as defined in Section
8.03). The Company has delivered to Parent true and complete copies of its
Restated Certificate of Incorporation and By-laws and the certificate of
incorporation and by-laws (or similar organizational documents) of each of
its subsidiaries, in each case as amended to the date of this Agreement.
Except as identified in writing by the Company to Parent prior to the date
of this Agreement, the Company has made available to Parent and its
representatives true and complete copies of the minutes of all meetings of
the stockholders, the Board of Directors of the Company and each committee
of the Board of Directors of the Company and each of its subsidiaries held
since January 1, 1997, that have been requested by Parent.
(b) Subsidiaries. All the outstanding shares of capital
stock or other equity or voting interests of each such subsidiary are owned
by the Company, by another wholly owned subsidiary of the Company or by the
Company and another wholly owned subsidiary of the Company, free and clear
of all pledges, claims, liens, charges, encumbrances and security interests
of any kind or nature whatsoever (collectively, "Liens"), and are duly
authorized, validly issued, fully paid and nonassessable. Except for the
capital stock of, or other equity or voting interests in, its subsidiaries,
the Company does not own, directly or indirectly, any capital stock of, or
other equity or voting interests in, any corporation, partnership, joint
venture, association or other entity.
(c) Capital Structure. (i) The authorized capital stock of the
Company consists of 150,000,000 shares of Company Common Stock, 3,000,000
shares of senior preferred stock, without nominal or par value (the
"Company Senior Preferred Stock"), and 5,000,000 shares of preferred stock,
without nominal or par value (the "Company Preferred Stock"). As of the
close of business on May 19, 2000, (A) 67,029,029 shares of Company Common
Stock (excluding shares held by the Company as treasury shares) were issued
and outstanding, (B) 34,142,767 shares of Company Common Stock were held by
the Company as treasury shares, (C) 20,486,116 shares of Company Common
Stock were reserved for issuance pursuant to the Nonemployee Directors
Stock Purchase Plan, the 1984 Stock Option and Stock Appreciation Rights
Plan, the 1992 Stock Option Plan, the Nonemployee Director Deferred Stock
Unit Plan, the Nonemployee Director Stock Incentive Plan, the 1996 Stock
Incentive Plan, the 1997 Stock Incentive Plan and the 1998 Pilot Stock
Option Plan (such plans, collectively, the "Company Stock Plans"), of which
11,495,500 shares were subject to outstanding Company Stock Options (as
defined below), (D) no shares of Company Senior Preferred Stock were issued
and outstanding or were held by the Company as treasury shares and (E) no
shares of Company Preferred Stock were issued and outstanding or were held
by the Company as treasury shares. There are no outstanding stock
appreciation rights or other rights that are linked to the price of Company
Common Stock granted under any Company Stock Plan that were not granted in
tandem with a related Company Stock Option. No shares of Company Common
Stock are owned by any subsidiary of the Company. The Company has delivered
to Parent a true and complete list, as of the close of business on May 19,
2000, of all outstanding stock options to purchase Company Common Stock
granted under the Company Stock Plans (collectively, the "Company Stock
Options") and all other rights to purchase or receive Company Common Stock
(collectively, the "Company Stock Issuance Rights") granted under the
Company Stock Plans, the number of shares subject to each such Company
Stock Option or Company Stock Issuance Right, the grant dates and exercise
prices of each such Company Stock Option or, as applicable, Company Stock
Issuance Right and the names of the holder thereof. Except as set forth
above, as of the close of business on May 19, 2000, no shares of capital
stock of, or other equity or voting interests in, the Company, or, to the
extent issued or granted by the Company, options, warrants or other rights
to acquire any such stock or securities were issued, reserved for issuance
or outstanding. During the period from May 19, 2000 to the date of this
Agreement, (x) there have been no issuances by the Company of shares of
capital stock of, or other equity or voting interests in, the Company other
than issuances of shares of Company Common Stock pursuant to the exercise
of Company Stock Options outstanding on such date as required by their
terms as in effect on the date of this Agreement and (y) there have been no
issuances by the Company of options, warrants or other rights to acquire
shares of capital stock or other equity or voting interests from the
Company. All outstanding shares of capital stock of the Company are, and
all shares that may be issued pursuant to the Company Stock Plans will be,
when issued in accordance with the terms thereof, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of the Company
or any of its subsidiaries, and, except as set forth above, no securities
or other instruments or obligations of the Company or any of its
subsidiaries the value of which is in any way based upon or derived from
any capital or voting stock of the Company, having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company or any of its
subsidiaries may vote. Except as set forth above and except as specifically
permitted under Section 4.01(a), there are no Contracts (as defined in
Section 3.01(d)) of any kind to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound obligating the Company or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of, or other equity or voting interests in, or
securities convertible into, or exchangeable or exercisable for, shares of
capital stock of, or other equity or voting interests in, the Company or
any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right or Contract. There are not any outstanding
contractual obligations of the Company or any of its subsidiaries to (I)
repurchase, redeem or otherwise acquire any shares of capital stock of, or
other equity or voting interests in, the Company or any of its subsidiaries
or (II) vote or dispose of any shares of the capital stock of, or other
equity or voting interests in, any of its subsidiaries. To the knowledge of
the Company as of the date of this Agreement, there are no irrevocable
proxies and no voting agreements to which the Company is a party with
respect to any shares of the capital stock or other voting securities of
the Company or any of its subsidiaries.
(ii) As of the date of the Agreement, the number of
outstanding shares of Company Common Stock held by the trustee (the
"Trustee") under the Company's Employee Stock Ownership Plan (the
"ESOP") is 2,081,873, of which 900,156 shares are allocated to
participants and beneficiaries under the ESOP and 1,181,717 shares
are unallocated. As of the date of this Agreement, the outstanding
and unpaid principal amount of the note evidencing the agreement to
repay the loan (the "ESOP Loan") from the Company to the Trustee,
dated August 11, 1989, the proceeds of which were used by the Trustee
on behalf of the ESOP to purchase from the Company on such date
2,200,000 shares of Company Common Stock, is $72,241,786. The
unallocated shares of Company Common Stock held in the ESOP's
suspense account have been pledged as collateral for the ESOP Loan.
(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to approve this
Agreement or to consummate the transactions contemplated hereby, subject,
in the case of the consummation of the Merger, to obtaining the Stockholder
Approval (as defined in Section 3.01(t)). This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms. The Board of Directors of the Company, at a meeting duly
called and held at which all directors of the Company were present, duly
and unanimously adopted resolutions (i) approving and declaring advisable
the Merger, this Agreement and the transactions contemplated hereby, (ii)
declaring that it is in the best interests of the Company's stockholders
that the Company enter into this Agreement and consummate the Merger on the
terms and subject to the conditions set forth in this Agreement, (iii)
declaring that the consideration to be paid to the Company's stockholders
in the Merger is fair to such stockholders, (iv) directing that this
Agreement be submitted to a vote at a meeting of the Company's stockholders
and (v) recommending that the Company's stockholders adopt this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof
do not and will not conflict with, or result in any violation or breach of,
or default (with or without notice or lapse of time, or both) under, or
give rise to a right of, or result in, termination, cancelation or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any Lien in or upon any of the properties or
assets of the Company or any of its subsidiaries under, or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements
under, any provision of (i) the Restated Certificate of Incorporation or
By-laws of the Company or the certificate of incorporation or by-laws (or
similar organizational documents) of any of its subsidiaries, (ii) any loan
or credit agreement, bond, debenture, note, mortgage, indenture, guarantee,
lease or other contract, commitment, agreement, instrument, arrangement,
understanding, obligation, undertaking, permit, concession, franchise or
license, whether oral or written (each, including all amendments thereto, a
"Contract"), to which the Company or any of its subsidiaries is a party or
any of their respective properties or assets is subject or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any (A) statute, law, ordinance, rule or regulation or (B)
judgment, order or decree, in each case applicable to the Company or any of
its subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, violations,
breaches, defaults, rights, losses, Liens or entitlements that individually
or in the aggregate would not be expected to result in (taking into account
the likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
domestic or foreign (whether national, federal, state, provincial, local or
otherwise) government or any court, administrative agency or commission or
other governmental or regulatory authority or agency, domestic, foreign or
supranational (a "Governmental Entity"), is required by or with respect to
the Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby or compliance with the
provisions hereof, except for (1) the filing of a premerger notification
and report form by the Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") or any other
applicable competition, merger control, antitrust or similar law or
regulation, (2) any consent, approval, order, authorization, registration,
declaration or filing required to be received from or made with any foreign
regulatory authorities, (3) any filings required under Title 49 of the
United States Code and the rules and regulations of the Federal Aviation
Administration (the "FAA"), (4) any filings required under the rules and
regulations of the Department of Transportation (the "DOT"), (5) the filing
with the SEC of a proxy statement relating to the adoption by the Company's
stockholders of this Agreement (as amended or supplemented from time to
time, the "Proxy Statement") and such reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement, the Merger and the other transactions
contemplated hereby, (6) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with
the relevant authorities of other states in which the Company or any of its
subsidiaries is qualified to do business, (7) any filings required under
the rules and regulations of the New York Stock Exchange ("NYSE"), (8) any
consent, approval, order, authorization, registration, declaration or
filing required to be received from or made with any Governmental Entity
that generally regulates aspects of airline operations, including, but not
limited to, noise, environmental, aircraft communications, agricultural,
export/import and customs and (9) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to be obtained or made individually or in the aggregate would not be
expected to result in (taking into account the likelihood of such result
occurring and the expected magnitude of such event if it were to occur) a
material adverse effect.
(e) SEC Documents. Each of the Company and the Principal
Operating Sub has filed with the SEC, and has heretofore made available to
Parent true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed with the SEC by it
since January 1, 1997 (together with all information incorporated therein
by reference, the "SEC Documents"). No subsidiary of the Company, other
than the Principal Operating Sub, is required to file any form, report,
schedule, statement or other document with the SEC. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933 (the "Securities Act") or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the
SEC Documents at the time they were filed contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements (including the related notes) included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto in effect at the time of filing, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
(x) in the case of the SEC Documents filed by the Company, the consolidated
financial position of the Company and its consolidated subsidiaries as of
the dates thereof and their consolidated results of operations and cash
flows for the periods then ended, and (y) in the case of the SEC Documents
filed by the Principal Operating Sub, the consolidated financial position
of the Principal Operating Sub and its consolidated subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements,
to normal and recurring year-end audit adjustments). Except for contingent
liabilities referenced or reflected (without regard to potential amount) in
the Filed SEC Documents, as of December 31, 1999, the Company and its
subsidiaries had no contingent liabilities, other than contingent
liabilities that individually would not be expected to result in (taking
into account the likelihood of such result occurring and the expected
magnitude of such event if it were to occur) a material adverse effect.
(f) Absence of Certain Changes or Events. Since December
31, 1999, the Company and its subsidiaries have conducted their respective
businesses only in the ordinary course consistent with past practice, and
there has not been (i) any state of facts, change, development, effect,
condition or occurrence that individually or in the aggregate constitutes,
has had, or would be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect, (ii) prior to the
date of this Agreement, any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, stock or property) in
respect of, any of the Company's or any of its subsidiaries' capital stock,
except for dividends by a wholly owned subsidiary of the Company to its
parent, (iii) prior to the date of this Agreement, any purchase, redemption
or other acquisition of any shares of capital stock or any other securities
of the Company or any of its subsidiaries or any options, warrants, calls
or rights to acquire such shares or other securities, (iv) prior to the
date of this Agreement, any split, combination or reclassification of any
of the Company's or any of its subsidiaries' capital stock or any issuance
or the authorization of any issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock or other
securities of the Company or any of its subsidiaries, (v) (x) any granting
by the Company or any of its subsidiaries to any current or former
director, officer, employee or consultant of any increase in compensation,
bonus or other benefits or any such granting of any type of compensation or
benefits to any current or former director, officer, employee or consultant
not previously receiving or entitled to receive such type of compensation
or benefit, except for (A) increases of cash compensation and other
immaterial changes in benefits (except for changes in benefits provided to
officers other than as the result of immaterial changes made to Company
Benefit Plans that are generally applicable to the employees of the Company
or any of its subsidiaries, which changes are not specifically directed at
or do not disproportionately affect such officers) in each case (1) in the
ordinary course of business consistent with past practice or (2) required
under any agreement or benefit plan in effect as of December 31, 1999, or
(B) those actions taken by the Company to retain or attract employees in
key positions as and to the extent consistent with the Employee
Retention/Attraction Plan set forth as Exhibit N to the Company Disclosure
Schedule (the "Retention Plan"), (y) any granting to any current or former
director, officer, employee or consultant of the right to receive any
severance or termination pay, or increases therein, other than (A)
termination arrangements for employees (other than officers) entered into
in the ordinary course of business consistent with past practice and (B)
those actions taken by the Company to retain or attract employees in key
positions as and to the extent consistent with the Retention Plan or (z)
any entry by the Company or any of its subsidiaries into, or any amendment
of, any Company Benefit Agreement(as defined in Section 3.01(j)), (vi) any
payment of any benefit or the grant or amendment of any award (including in
respect of stock options, stock appreciation rights, performance units,
restricted stock or other stock-based or stock-related awards or the
removal or modification of any restrictions in any Company Benefit
Agreement or Company Benefit Plan or awards made thereunder) except as
required to comply with any applicable law or any Company Benefit Agreement
or Company Benefit Plan existing on such date and except for those actions
taken by the Company to retain or attract employees in key positions as and
to the extent consistent with the Retention Plan, (vii) any damage or
destruction, whether or not covered by insurance, that individually or in
the aggregate would be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect, (viii) any material
change in financial accounting methods, principles or practices by the
Company or any of its subsidiaries, except insofar as may have been
required by a change in GAAP or SEC accounting regulations or guidelines or
applicable law, (ix) on or prior to the date of this Agreement, any
material election with respect to taxes by the Company or any of its
subsidiaries or any settlement or compromise of any material tax liability
or refund of the Company or any of its subsidiaries, (x) on or prior to the
date of this Agreement, any material change in tax accounting methods,
principles or practices by the Company or any of its subsidiaries, except
insofar as may have been required by a change in GAAP or SEC accounting
regulations or guidelines or applicable law or (xi) any revaluation by the
Company or any of its subsidiaries of any of the material assets of the
Company or any of its subsidiaries.
(g) Litigation. There is no suit, claim, action,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries or
any of their respective assets that individually or in the aggregate would
be expected to result in (taking into account the likelihood of such result
occurring and the expected magnitude of such event if it were to occur) a
material adverse effect, nor is there any statute, law, ordinance, rule,
regulation, judgment, order or decree, of any Governmental Entity or
arbitrator outstanding against, or, to the knowledge of the Company,
investigation, proceeding, notice of violation, order of forfeiture or
complaint by any Governmental Entity involving, the Company or any of its
subsidiaries that individually or in the aggregate would be expected to
result in (taking into account the likelihood of such result occurring and
the expected magnitude of such event if it were to occur) a material
adverse effect.
(h) Contracts. Except for Contracts filed as exhibits to
the Filed SEC Documents, as of the date hereof there are no Contracts that
are required to be filed as an exhibit to any Filed SEC Document under the
Exchange Act and the rules and regulations promulgated thereunder. Except
for Contracts filed in unredacted form as exhibits to the Filed SEC
Documents, Section 3.01(h) of the Company Disclosure Schedule sets forth a
true and complete list of:
(i) all Contracts to which the Company or any of its
subsidiaries is a party, or that purports to be binding upon the
Company, any of its subsidiaries or any of its affiliates, that
contain a covenant (a "Restrictive Covenant") materially restricting
the ability of the Company or any of its subsidiaries (or which,
following the consummation of the Merger, could materially restrict
the ability of Parent or any of its subsidiaries, including the
Company and its subsidiaries) to compete in any business that is
material to the Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken as a whole, or with any person or
in any geographic area, except for any such Contract (x) that would
not be expected to result in the Company incurring costs or receiving
revenues in excess of $5,000,000 per year, (y) that may be canceled
without penalty by the Company or any of its subsidiaries upon notice
of 60 days or less or (z) the terms and scope (including with respect
to any Restrictive Covenants) are customary in the airline industry
for Contracts of that type;
(ii) all material joint venture, partnership,
business alliance (excluding information technology contracts), code
sharing and frequent flyer agreements (including all material
amendments to each of the foregoing agreements);
(iii) all maintenance agreements for repair and
overhaul that would be expected to result in the Company incurring
costs in excess of $10,000,000 per year (including all material
amendments to each of the foregoing agreements); and
(iv) as of the date hereof, all loan agreements,
credit agreements, notes, debentures, bonds, mortgages, indentures
and other Contracts pursuant to which any indebtedness (which term
shall include capital leases and operating leases) of the Company or
any of its subsidiaries is outstanding or may be incurred and all
guarantees of or by the Company or any of its subsidiaries of any
indebtedness of any other person (except for such indebtedness or
guarantees of indebtedness the aggregate principal amount of which
does not exceed $10,000,000), including the respective aggregate
principal amounts outstanding as of the date of this Agreement. The
Company has previously disclosed to Parent in writing, based upon the
assumptions in such writing, the aggregate amount of indebtedness
(which shall be deemed solely for purposes of this sentence to
consist of capital leases, aircraft operating leases and indebtedness
for borrowed money) of the Company and its subsidiaries (including
all guarantees of indebtedness to third parties) as of the date of
this Agreement.
None of the Company or any of its subsidiaries is in violation of or
default (with or without notice or lapse of time or both) under, or has
waived or failed to enforce any rights or benefits under, any Contract to
which it is a party or by which it or any of its properties or assets is
bound, and, to the knowledge of the Company or such subsidiary, no other
party to any of its Contracts is in violation or default (with or without
notice or lapse of time or both) under, or has waived or failed to enforce
any rights or benefits under, and there has occurred no event giving to
others any right of termination, amendment or cancelation of, with or
without notice or lapse of time or both, any such Contract except, in each
case, for violations, defaults, waivers or failures to enforce benefits
that individually or in the aggregate would not be expected to result in
(taking into account the likelihood of such result occurring and the
expected magnitude of such event if it were to occur) a material adverse
effect. Except as identified in writing by the Company to Parent prior to
the date of this Agreement, the Company has delivered or made available to
Parent or its representatives true and complete copies of all Contracts
listed on Section 3.01(h) of the Company Disclosure Schedule.
(i) Compliance with Laws. Except with respect to
Environmental Laws (as defined in Section 3.01(l)(vi)) and taxes, which are
the subject of Sections 3.01(l) and 3.01(n), respectively, and except as
otherwise set forth in any documents filed by the Company or the Principal
Operating Sub with the SEC and publicly available prior to December 31,
1999, the Company and its subsidiaries and their relevant personnel and
operations are, and since January 1, 1997 have been, in compliance with all
statutes, laws, ordinances, rules, regulations, judgments, orders and
decrees of any Governmental Entity applicable to their businesses or
operations, including all applicable operating certificates, Airworthiness
Directives ("ADs"), Federal Aviation Regulations ("FARs"), DOT regulations,
common carrier obligations and other applicable licensing agreements,
except for any such noncompliance which would not individually or in the
aggregate be expected to result in (taking into account the likelihood of
such result occurring and the expected magnitude of such event if it were
to occur) a material adverse effect. Except as otherwise set forth in any
documents filed by the Company or the Principal Operating Sub with the SEC
and publicly available prior to December 31, 1999, none of the Company or
any of its subsidiaries has received, since January 1, 1997, a notice or
other written communication alleging or identifying a possible material
violation of any statute, law, ordinance, rule, regulation, judgment, order
or decree of any Governmental Entity applicable to its businesses or
operations. Except as otherwise set forth in any documents filed by the
Company or the Principal Operating Sub with the SEC and publicly available
prior to December 31, 1999, the Company and its subsidiaries have in effect
all permits, licenses, variances, exemptions, authorizations, operating
certificates, Slots (as defined in Section 3.01(p)), air service
designations, franchises, orders and approvals of all Governmental
Entities, including the FAA and the DOT (collectively, "Permits"),
necessary or reasonably advisable for them to own, lease or operate their
properties and assets and to carry on their businesses as now conducted,
and there has occurred no violation of, default (with or without notice or
lapse of time or both) under, or event giving to others any right of
termination, amendment or cancelation of, with or without notice or lapse
of time or both, any such Permit, except where the failure to have in
effect such Permits or such violation, default or event would not
individually or in the aggregate be expected to result in (taking into
account the likelihood of such result occurring and the expected magnitude
of such event if it were to occur) a material adverse effect. The Company
does not believe that the Merger, in and of itself, would be expected to
cause (taking into account the likelihood of such result occurring) the
revocation or cancelation of any such Permit.
(j) Absence of Changes in Company Benefit Plans;
Employment Agreements. Since December 31, 1999, none of the Company or any
of its subsidiaries has (i) terminated, adopted, amended or agreed to amend
in any material respect any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock appreciation, restricted stock, stock option, phantom stock,
performance, retirement, thrift, savings, stock bonus, cafeteria, paid
time-off, perquisite, fringe benefit, vacation, severance, disability,
death benefit, hospitalization, medical, welfare benefit or other plan,
program, policy, arrangement or understanding (whether or not legally
binding) providing benefits to any of the current or former directors,
officers, employees or consultants of the Company or any of its
subsidiaries (collectively, "Company Benefit Plans") (other than any such
actions taken with respect to Non-Significant Benefit Plans (as defined
below) in the ordinary course of business), (ii) made any material change
in any actuarial or other assumption used to calculate funding obligations
with respect to any Company Pension Plan (as defined in Section 3.01(m)) or
(iii) made any material change in the manner in which contributions to any
Company Pension Plan are made or the basis on which such contributions are
determined. There exist no employment, consulting, deferred compensation,
severance, termination or indemnification agreements or arrangements
between the Company or any of its subsidiaries, on the one hand, and any
current or former director, officer, employee or consultant of the Company
or any of its subsidiaries, on the other hand (collectively, "Company
Benefit Agreements") (other than Non-Significant Benefit Agreements (as
defined below)), and no Company Benefit Agreement (other than
Non-Significant Benefit Agreements) or Company Benefit Plan (other than
Non-Significant Benefit Plans) provides benefits that are contingent, or
the terms of which are materially altered, upon the occurrence of a
transaction involving the Company or its subsidiaries of the nature
contemplated by this Agreement. "Non-Significant Benefit Plans" means all
immaterial Company Benefit Plans which do not provide benefits to any
officers or directors of the Company or the Principal Operating Sub.
"Non-Significant Benefit Agreements" means all immaterial Company Benefit
Agreements which are not between the Company or the Principal Operating
Sub, on the one hand, and any current officer or director of the Company or
the Principal Operating Sub, on the other hand.
(k) Labor and Employment Matters. As of the date hereof,
Section 3.01(k) of the Company Disclosure Schedule sets forth a true and
complete list of all collective bargaining or other labor union contracts
(including all amendments thereto) applicable to any employees of the
Company or any of its subsidiaries. There is no labor dispute, strike, work
stoppage or lockout, or, to the knowledge of the Company, threat thereof,
by or with respect to any employee of the Company or any of its
subsidiaries, except where such dispute, strike, work stoppage or lockout
individually or in the aggregate would not be expected to result in (taking
into account the likelihood of such result occurring and the expected
magnitude of such event if it were to occur) a material adverse effect.
None of the Company or any of its subsidiaries has breached or otherwise
failed to comply with any provision of any collective bargaining or other
labor union contract applicable to any employees of the Company or any of
its subsidiaries and there are no grievances or complaints outstanding or,
to the knowledge of the Company, threatened against the Company or any of
its subsidiaries under any such Contract except for any breaches, failures
to comply, grievances or complaints that individually or in the aggregate
would not be expected to result in (taking into account the likelihood of
such result occurring and the expected magnitude of such event if it were
to occur) a material adverse effect. The Company has made available to
Parent and its representatives true and complete copies of all Contracts
listed on Section 3.01(k) of the Company Disclosure Schedule.
(l) Environmental Matters. (i) Permits and Authorizations.
Each of the Company and its subsidiaries possesses all material Environmental
Permits (as defined below) necessary to conduct its businesses and operations as
currently conducted.
(ii) Compliance. Each of the Company and its
subsidiaries is in compliance in all material respects with all
applicable Environmental Laws (as defined below) and all
Environmental Permits, and none of the Company or its subsidiaries
has received any (A) communication from any Governmental Entity or
other person that alleges that the Company or any of its subsidiaries
has violated or is liable under any Environmental Law other than
communications with respect to violations or liabilities that would
not be expected to result in (taking into account the likelihood of
such result occurring and the expected magnitude of such event if it
were to occur) a material adverse effect or (B) written request for
material information pursuant to Section 104(e) of the U.S.
Comprehensive Environmental Response, Compensation and Liability Act
or similar state statute concerning the disposal of Hazardous
Materials (as defined below).
(iii) Environmental Claims. There are no Environmental
Claims (as defined below) (A) pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries or
(B) to the knowledge of the Company, pending or threatened against
any person whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed, either contractually
or by operation of law, in each case other than Environmental Claims
that would not be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of
such event if it were to occur) a material adverse effect. None of
the Company or its subsidiaries has contractually retained or assumed
any liabilities or obligations that would be expected to provide the
basis for any Environmental Claim that would be expected to result in
(taking into account the likelihood of such result occurring and the
expected magnitude of such event if it were to occur) a material
adverse effect.
(iv) Stage III Requirements. (A) None of the Company
or any of its subsidiaries will be required to make material
expenditures to comply with the Stage III noise reduction
requirements promulgated by the FAA (the "Stage III Requirements") or
other applicable noise reduction requirements and (B) the retirement
or other discontinuation of use by the Company or any of its
subsidiaries of any aircraft that will not be in compliance with the
Stage III Requirements or other applicable noise reduction
requirements would not individually or in the aggregate be expected
to result in (taking into account the likelihood of such result
occurring and the expected magnitude of such event if it were to
occur) a material adverse effect.
(v) Releases. To the knowledge of the Company, there
have been no Releases (as defined in Section 3.01(l)(vi)(D)) of any
Hazardous Materials that could reasonably be expected to form the
basis of any material Environmental Claim.
(vi) Definitions. (A) "Environmental Claims" means
any and all administrative, regulatory or judicial actions, orders,
decrees, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or
violation by any Governmental Entity or other person alleging
potential responsibility or liability (including potential
responsibility or liability for costs of enforcement, investigation,
cleanup, governmental response, removal or remediation, for natural
resources damages, property damage, personal injuries or penalties or
for contribution, indemnification, cost recovery, compensation or
injunctive relief) arising out of, based on or related to (x) the
presence, Release or threatened Release of, or exposure to, any
Hazardous Materials at any location, whether or not owned, operated,
leased or managed by the Company or any of its subsidiaries, or (y)
circumstances forming the basis of any violation or alleged violation
of any Environmental Law or Environmental Permit.
(B) "Environmental Laws" means all domestic or
foreign (whether national, federal, state, provincial or
otherwise) laws, rules, regulations, orders, decrees,
common law, judgments or binding agreements issued,
promulgated or entered into by or with any Governmental
Entity relating to pollution or protection of the
environment (including ambient air, surface water,
groundwater, soils or subsurface strata) or protection of
human health as it relates to the environment, including
laws and regulations relating to Releases or threatened
Releases of Hazardous Materials or otherwise relating to
the generation, manufacture, processing, distribution,
use, treatment, storage, transport, handling of or
exposure to Hazardous Materials.
(C) "Environmental Permits" means all permits,
licenses, registrations and other authorizations required
under applicable Environmental Laws.
(D) "Hazardous Materials" means all hazardous,
toxic, explosive or radioactive substances, wastes or
other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing material,
polychlorinated biphenyls ("PCBs") or PCB-containing
materials or equipment, radon gas, infectious or medical
wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.
(E) "Release" means any release, spill, emission,
leaking, dumping, injection, pouring, deposit, disposal,
discharge, dispersal, leaching or migration into the
environment (including ambient air, surface water,
groundwater, land surface or subsurface strata) or within
any building, structure, facility or fixture.
(m) ERISA Compliance. (i) Section 3.01(m)(i) of the
Company Disclosure Schedule contains a true and complete list, as of the date
hereof, of all "employee welfare benefit plans" (as defined in Section 3(1)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), "employee pension benefit plans" (as defined in Section 3(2) of
ERISA) ("Company Pension Plans") and all other Company Benefit Plans
maintained or contributed to by the Company or any of its subsidiaries or
any person or entity that, together with the Company or any of its
subsidiaries, is treated as a single employer (a "Commonly Controlled
Entity") under Section 414(b), (c), (m) or (o) of the Internal Revenue Code
of 1986, as amended (the "Code"), for the benefit of any current or former
directors, officers, employees or consultants of the Company or any of its
subsidiaries, other than, in each case, any Non-Significant Benefit Plans.
The Company has provided or made available to Parent, to the extent
requested by Parent, true and complete copies of (1) each Company Benefit
Plan (or, in the case of any unwritten Company Benefit Plans, descriptions
thereof), (2) the most recent annual report on Form 5500 required to be
filed with the Internal Revenue Service (the "IRS") with respect to each
Company Benefit Plan (if any such report was required), (3) the most recent
summary plan description for each Company Benefit Plan for which such
summary plan description is required and (4) each trust agreement and group
annuity contract relating to any Company Benefit Plan, other than, in each
case, any Non-Significant Benefit Plans. Each Company Benefit Plan has been
administered in accordance with its terms, except where the failure so to
be administered individually or in the aggregate would not be expected to
result in (taking into account the likelihood of such result occurring and
the expected magnitude of such event if it were to occur) a material
adverse effect. The Company and its subsidiaries and all the Company
Benefit Plans are in compliance with all applicable provisions of ERISA and
the Code, except for instances of possible noncompliance that individually
or in the aggregate would not be expected to result in (taking into account
the likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect.
(ii) Neither the Company nor any Commonly Controlled
Entity has maintained, contributed to or been obligated to contribute
to any Company Benefit Plan that is subject to Title IV of ERISA with
respect to which the Company or any Commonly Controlled Entity has
liabilities or obligations (whether accrued, absolute, contingent or
otherwise).
(iii) With respect to any Company Benefit Plan (other
than any Non-Significant Benefit Plan) that is an employee welfare
benefit plan, there are no understandings, agreements or
undertakings, written or oral, that would prevent any such plan
(including any such plan covering retirees or other former employees)
from being amended or terminated without material liability to the
Company or any of its subsidiaries on or at any time after the
Effective Time.
(iv) No current or former director, officer employee
or consultant of the Company or any of its subsidiaries are party to
any agreement or arrangement with the Company or any of its
subsidiaries, nor are there any corporate policies in place, the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Company
of the nature contemplated by this Agreement. Prior to the date of
this Agreement, the Company has delivered to Parent a report that
sets forth the Company's good faith estimate, as of the date of such
report, of (x) the amount to be paid (subject to the exceptions
described in such report and based upon the assumptions described in
such report) to the current officers of the Company and the Principal
Operating Sub and the president of each of the Company's three
commuter subsidiaries under all Company Benefit Agreements and
Company Benefit Plans (or the amount by which any of their benefits
may be accelerated or increased) as a result of (i) the execution of
this Agreement, (ii) the obtaining of the Stockholder Approval, (iii)
the consummation of the Merger or the other transaction contemplated
by this Agreement or (iv) the termination or constructive termination
of the employment of such officers following one of the events set
forth in clauses (i) through (iii) above and (y) the ramifications of
such payments Sections 280G and 4999 of the Code.
(v) The deduction of any amount payable pursuant to
the terms of the Company Benefit Plans or any other employment
contracts or arrangements will not be subject to disallowance under
Section 162(m) of the Code.
(vi) The Company has no liability or obligations,
including under or on account of a Company Benefit Plan or Company
Benefit Agreement, arising out of the Company's hiring of persons to
provide services to the Company and treating such persons as
consultants or independent contractors and not as employees of the
Company, except where such liability or obligation would not be
expected to result in (taking into account the likelihood of such
result occurring and the expected magnitude of such event if it were
to occur) a material adverse effect.
(n) Taxes. (i) Each of the Company and its subsidiaries
has filed all tax returns required to be filed by it or requests for
extensions to file such returns have been timely filed, granted and have
not expired, and all such returns are true and complete, except for such
failures to file or to have extensions granted that remain and such
inaccuracies that individually or in the aggregate would not be expected to
result in (taking into account the likelihood of such result occurring and
the expected magnitude of such event if it were to occur) a material
adverse effect. Each of the Company and its subsidiaries has paid (or the
Company has paid on its behalf) all taxes shown as due on such returns and
all material taxes otherwise due (including withholding taxes pursuant to
Sections 1441, 1442, 3121 and 3402 of the Code or similar provisions under
any foreign federal laws or any state or local laws, domestic or foreign),
except for such failures to pay that individually or in the aggregate would
not be expected to result in (taking into account the likelihood of such
result occurring and the expected magnitude of such event if it were to
occur) a material adverse effect, and the most recent financial statements
contained in the Filed SEC Documents adequately provide for all taxes payable
by the Company and its subsidiaries (in addition to any reserve for deferred
taxes established to reflect timing differences between book and tax income)
for all taxable periods and portions thereof accrued through the date of such
financial statements, except where the failure to have such an adequate
provision would not be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect.
(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against the Company or any of its
subsidiaries that are not adequately reflected in the most recent
financial statements contained in the Filed SEC Documents, except for
deficiencies that individually or in the aggregate would not be
expected to result in (taking into account the likelihood of such
result occurring and the expected magnitude of such event if it were
to occur) a material adverse effect, and no requests for waivers of
the time to assess any such taxes have been granted or are pending.
The United States Federal income tax returns of the Company and each
of its subsidiaries consolidated in such returns have been either
examined by and settled with the IRS or closed by virtue of the
applicable statute of limitations. There is no audit, examination,
deficiency or refund litigation pending with respect to taxes and
during the past three years no taxing authority has given written
notice of the intent to commence any such examination, audit or
refund litigation and which such examination, audit or refund
litigation has not yet ended. None of the assets or properties of the
Company or any of its subsidiaries is subject to any material tax
lien, other than any such liens for taxes which are not due and
payable, which may thereafter be paid without penalty or the validity
of which are being contested in good faith by appropriate proceedings
and for which adequate provisions are being maintained in accordance
with GAAP.
(iii) None of the Company or any of its subsidiaries
has constituted either a "distributing corporation" or a "controlled
corporation" in a distribution of stock outside of the affiliated
group of which the Company is the common parent qualifying or
intended to qualify for tax-free treatment under Section 355(a) of
the Code (A) in the two years prior to the date of this Agreement or
(B) in a distribution that could otherwise constitute part of a
"plan" or "series of related transactions" (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.
(iv) As used in this Agreement, "taxes" shall include
all (x) domestic and foreign (whether national, federal, state,
provincial, local or otherwise) income, franchise, property, sales,
excise, employment, payroll, social security, value-added, ad
valorem, transfer, withholding and other taxes, including taxes based
on or measured by gross receipts, profits, sales, use or occupation,
tariffs, levies, impositions, assessments or governmental charges of any
nature whatsoever, including any interest penalties or additions with
respect thereto, (y) liability for the payment of any amounts of the
type described in clause (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z)
liability for the payment of any amounts as a result of being party
to any tax sharing agreement or as a result of any express or implied
obligation to indemnify any other person with respect to the payment
of any amounts of the types described in clause (x) or (y).
(o) Aircraft. (i) Section 3.01(o)(i) of the Company
Disclosure Schedule sets forth a true and complete list of all aircraft
owned, leased or operated by the Company or any of its subsidiaries as of
April 30, 2000. All aircraft owned, leased or operated by the Company or
any of its subsidiaries (other than the Non-Operating Aircraft (as defined
below) and the Excluded Leased Aircraft (as defined below)) are in
airworthy condition and are being maintained according to applicable FAA
regulatory standards and the FAA-approved maintenance program of the
Company and its subsidiaries. The Company and its subsidiaries have
implemented plans with respect to their respective aircraft (other than the
Non-Operating Aircraft and Excluded Leased Aircraft) and engines that, if
complied with, would result in the satisfaction of all requirements under
all applicable ADs and FARs required to be complied with in accordance with
the FAA-approved maintenance program of the Company and its subsidiaries,
and the Company and its subsidiaries are in compliance with such plans in
all material respects and currently have no reason to believe that they
will not satisfy any component of such plan on or prior to the dates
specified in such plan. No Non-Operating Aircraft is currently included in,
or is currently contemplated by the Company to be included in, the active
fleet of the Company or any of its subsidiaries. All lease agreements
relating to the lease of an Excluded Leased Aircraft by the Company or any
of its subsidiaries to a third party lessee contain a customary undertaking
by the third party lessee with respect to maintaining such Excluded Leased
Aircraft in accordance with FAA regulatory standards and requirements under
applicable ADs and FARs. The term "Non-Operating Aircraft" means each
aircraft of the Company or any of its subsidiaries identified on Section
3.01(o)(i) of the Company Disclosure Schedule as not being in operation.
The term "Excluded Leased Aircraft" means each aircraft owned or leased by
the Company that has been leased to a third party lessee and with respect
to which neither the Company nor any of its subsidiaries has retained any
maintenance obligations.
(ii) Except as identified in writing by the Company
to Parent prior to the date of this Agreement, Section 3.01(o)(ii) of
the Company Disclosure Schedule sets forth a true and complete list,
as of the date hereof, containing all Contracts (other than existing
aircraft leases) pursuant to which the Company or any of its
subsidiaries may purchase or lease aircraft, including the
manufacturer and model of all aircraft subject to each Contract, the
nature of the purchase or lease obligation (i.e., firm commitment,
subject to reconfirmation or option), the anticipated delivery date
of each aircraft and the other material terms of each Contract.
Except as identified in writing by the Company to Parent prior to the
date of this Agreement, the Company has delivered or made available
to Parent true and complete copies of all Contracts listed on Section
3.01(o)(ii) of the Company Disclosure Schedule, including all
amendments thereto. The Company has also delivered to Parent a true
and complete copy of the fleet plan for the Principal Operating Sub
for the period ending December 31, 2004.
(p) Slots; Operating Rights. (i) Section 3.01(p)(i) of
the Company Disclosure Schedule sets forth a true and complete list of all
takeoff and landing slots and other similar takeoff and landing rights
(collectively, the "Slots") used or held by the Company or any of its
subsidiaries on the date of this Agreement at Slot-controlled airports,
including a true and complete list of all Slot lease agreements. The Slots
have been used 80% of each full and partial reporting period (as described
in 14 CFR ss. 93.227(i)) since December 31, 1999, except to the extent less
usage was permitted as provided under 14 CFR ss. 93.227. The Slots have not
been designated for the provision of essential air service under the
regulations of the FAA.
(ii) Section 3.01(p)(ii) of the Company Disclosure
Schedule sets forth a true and complete list of all foreign operating
rights and all foreign takeoff and landing authorizations and other
similar takeoff and landing rights used by the Company or any of its
subsidiaries on the date of this Agreement.
(q) Intellectual Property. (i) Each of the Company and
its subsidiaries owns, or is validly licensed or otherwise has the right to
use, all patents, patent rights, trademarks, trade secrets, trade names,
service marks, copyrights and other proprietary intellectual property
rights and computer programs (the "Intellectual Property Rights") used in
its business, except for such Intellectual Property Rights the failure of
which to own, license or otherwise have the right to use individually or in
the aggregate would not be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect.
(ii) None of the Company or any of its subsidiaries
has infringed upon, misappropriated or otherwise violated any
Intellectual Property Rights or other proprietary information of any
other person, except for any such infringement, misappropriation or
other violation that individually or in the aggregate would not be
expected to result in (taking into account the likelihood of such
result occurring and the expected magnitude of such event if it were
to occur) a material adverse effect. None of the Company or any of
its subsidiaries has received any written charge, complaint, claim,
demand or notice alleging any such infringement, misappropriation or
other violation (including any claim that the Company or any of its
subsidiaries must license or refrain from using any Intellectual
Property Rights or other proprietary information of any other person)
that has not been settled or otherwise fully resolved, except for any
such infringement, misappropriation or other violation that
individually or in the aggregate would not be expected to result in
(taking into account the likelihood of such result occurring and the
expected magnitude of such event if it were to occur) a material
adverse effect. To the Company's knowledge, no other person has
infringed upon, misappropriated or otherwise violated any
Intellectual Property Rights of the Company or any of its
subsidiaries, except for any such infringement, misappropriation or
other violation that individually or in the aggregate would not be
expected to result in (taking into account the likelihood of such
result occurring and the expected magnitude of such event if it were
to occur) a material adverse effect.
(r) Business Combination Charter Provision. The approval
of this Agreement by the Board of Directors of the Company referred to in
Section 3.01(d) represents the only action necessary to ensure that ARTICLE
SIXTH of the Restated Certificate of Incorporation of the Company does not
and will not apply to the execution or delivery of this Agreement or the
consummation of the Merger.
(s) State Takeover Statutes. The approval of the Merger
by the Board of Directors of the Company referred to in Section 3.01(d)
constitutes approval of the Merger for purposes of Section 203 of the DGCL
and represents the only action necessary to ensure that Section 203 of the
DGCL does not and will not apply to the execution or delivery of this
Agreement or the consummation of the Merger and the other transactions
contemplated hereby. No other state takeover or similar statute or
regulation is applicable to this Agreement, the Merger or the other
transactions contemplated hereby.
(t) Voting Requirements. The affirmative vote at the
Stockholders Meeting (as defined in Section 5.01(b)) or any adjournment or
postponement thereof of the holders of a majority of the outstanding shares
of Company Common Stock in favor of adopting this Agreement (the
"Stockholder Approval") is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve or adopt this
Agreement or the Merger. The affirmative vote of the holders of the Company
Common Stock is not necessary to approve any transaction contemplated by
this Agreement (other than the consummation of the Merger).
(u) Brokers. No broker, investment banker, financial
advisor or other person, other than Salomon Smith Barney Inc., the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. The Company has delivered
to Parent true and complete copies of all agreements under which any such
fees or expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are payable.
(v) Opinion of Financial Advisor. The Company has
received the written opinion of Salomon Smith Barney Inc., in customary
form, to the effect that, as of the date of this Agreement, the
consideration to be received in the Merger by the Company's stockholders is
fair to the Company's stockholders from a financial point of view, a copy
of which opinion has been delivered to Parent.
(w) Other Matters. The information (other than forecasts)
furnished by the Company to Parent relating to the items (the "Specified
Matters") identified in a letter specifically referencing this Section of
the Agreement delivered by Parent to the Company on or prior to the date of
this Agreement is accurate in all material respects and, taking into
account the limited nature of the information disclosed, does not omit to
state any fact necessary in order to make such information not misleading.
There are no facts or terms with respect to the Specified Matters which
have not been disclosed to Parent which would be expected to result in
(taking into account the likelihood of such result occurring and the
expected magnitude of such event if it were to occur) a material adverse
effect. The forecasts dated April 25, 2000 delivered by or on behalf of the
Company to Parent relating to the Specified Matters were prepared on the
basis of assumptions the Company believes in good faith as of the date of
this Agreement to be reasonable and the Company has no knowledge as of the
date of this Agreement of any fact or information that would lead it to
believe that such assumptions are incorrect or misleading in any material
respect.
SECTION 3.02 Representations and Warranties of Parent and Sub.
Parent and Sub represent and warrant to the Company as follows:
(a) Organization. Each of Parent and Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has all requisite corporate
power and authority to carry on its business as now being conducted.
(b) Authority; Noncontravention. Parent and Sub have the
requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Parent and Sub and no other corporate proceedings on the part of Parent or
Sub, including the approval of their respective stockholders, are necessary
to approve this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and
Sub, as applicable, and constitutes a valid and binding obligation of
Parent and Sub, as applicable, enforceable against Parent and Sub, as
applicable, in accordance with its terms. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
and compliance with the provisions of this Agreement do not and will not
conflict with, or result in any violation or breach of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right
of, or result in, termination, cancelation or acceleration of any
obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Parent under,
or give rise to any increased, additional, accelerated or guaranteed rights
or entitlements under, any provision of (i) the Restated Certificate of
Incorporation or By-laws of Parent or the certificate of incorporation or
by-laws (or similar organizational documents) of any of its subsidiaries
(including Sub), (ii) any Contract applicable to Parent or Sub or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any (A)
statute, law, ordinance, rule or regulation or (B) judgment, order or
decree, in each case applicable to Parent or Sub or their respective
properties or assets, other than, in the case of clauses (ii) and (iii),
any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not prevent or materially impede or
delay (taking into account the likelihood of such result occurring and the
expected magnitude of such event if it were to occur) the consummation of
the Merger or the other transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Parent or
Sub in connection with the execution and delivery of this Agreement by
Parent and Sub or the consummation by Parent and Sub of the transactions
contemplated hereby or the compliance with the provisions of this
Agreement, except for (1) the filing of a premerger notification and report
form under the HSR Act or any other applicable competition, merger control,
antitrust or similar law or regulation, (2) any consent, approval, order,
authorization, registration, declaration or filing required to be received
from or made with any foreign regulatory authorities, (3) any filings
required under the rules and regulations of the FAA, (4) any filings
required under the rules and regulations of the DOT, (5) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, (6) any consent, approval,
order, authorization, registration, declaration or filing required to be
received from or made with any Governmental Entity that generally regulates
aspects of airline operations, including, but not limited to, noise,
environmental, aircraft communications, agricultural, export/import and
customs and (7) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained
or made individually or in the aggregate would not impair in any material
respect the ability of Parent or Sub to perform its obligations under this
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(c) Interim Operations of Sub. Sub was formed solely for
the purpose of engaging in the transactions contemplated hereby and has
engaged in no business other than in connection with the transactions
contemplated by this Agreement.
(d) Capital Resources. Parent has or, on or prior to the
Closing Date, will have, sufficient cash to pay the Merger Consideration.
(e) No Capital Ownership. As of the date hereof, neither
Parent nor Sub own any shares of capital stock of the Company for purposes
of Section 203 of the DGCL.
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01 Conduct of Business. (a) Conduct of Business by
the Company. During the period from the date of this Agreement to the
Effective Time, except as consented to in writing by Parent or as
specifically contemplated by this Agreement (including the Company
Disclosure Schedule), the Company shall, and shall cause its subsidiaries
to, carry on their respective businesses in the ordinary course consistent
with past practice and use their reasonable efforts to comply with all
applicable laws, rules and regulations and, to the extent consistent
therewith, use their reasonable efforts to preserve their assets and
preserve their relationships with customers, suppliers, employees,
licensors, licensees, distributors and others having business dealings with
them. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, except as consented
to in writing by Parent or as specifically contemplated by this Agreement
(including the Company Disclosure Schedule), the Company shall not, and
shall not permit any of its subsidiaries to:
(i) (x) declare, set aside or pay any dividends on,
or make any other distributions (whether in cash, stock or property)
in respect of, any of its capital stock, provided that Parent's
consent shall not be required for dividends by a direct or indirect
wholly owned subsidiary of the Company to its parent, (y) purchase,
redeem or otherwise acquire any shares of its capital stock or any
other securities of the Company or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other
securities or (z) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital
stock or any of its other securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other equity or voting
interests or any securities convertible into, or exchangeable for, or
any options, warrants, calls or rights to acquire, any such shares,
voting securities or convertible securities or any stock appreciation
rights or other rights that are linked to the price of Company Common
Stock, provided that Parent's consent shall not be required for the
issuance of shares of Company Common Stock upon the exercise of
Company Stock Options in accordance with the terms of such options as
in effect on the date of this Agreement;
(iii) amend its certificate of incorporation or
by-laws (or similar organizational documents);
(iv) directly or indirectly acquire or agree to
acquire (A) by merging or consolidating with, or by purchasing all or
a substantial portion of the assets of, or by any other manner, any
assets constituting a business or any corporation, partnership, joint
venture or association or other entity or division thereof, or any
direct or indirect interest in any of the foregoing, provided that
the restrictions set forth in this Section 4.01(a)(iv)(A) shall not
apply to the merger of any direct or indirect wholly owned subsidiary
of the Company with or into the Company or any other direct or
indirect wholly owned subsidiary of the Company, or (B) any asset,
provided that the restrictions set forth in this Section
4.01(a)(iv)(B) shall not apply to the acquisition or the agreement to
acquire (1) assets which are not aircraft or engines (w) acquired in
the ordinary course of business consistent with past practice with an
individual purchase price equal to or less than $1,000,000, (x)
acquired in response to unanticipated operational, competitive or
economic factors if (I) such action is consistent with past practice,
(II) the Company determines, based upon its reasonable judgment, that
such action is an appropriate response to such factor and (III)
Parent determines, based upon its reasonable judgment, that such
action would not have a significant and adverse effect on Parent and
its subsidiaries (which, for purposes of this clause (III), shall
include the Company and its subsidiaries), (y) acquired reasonably in
response to a regulatory requirement or mandate or (z) acquired in
accordance with Section 4.01(a)(vii) and (2) new or used aircraft and
engines pursuant to the transactions set forth in Section 4.01(a)(iv)
(the "Acquired Aircraft/Engines Schedule") of the Company Disclosure
Schedule;
(v) directly or indirectly sell, lease, license,
sell and leaseback (other than, with respect to assets other than
aircraft and engines, a sale and leaseback transaction disclosed in
the Company Capital Budget), mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets or any interest therein, provided that the restrictions set
forth in this Section 4.01(a)(v) shall not apply to (A) sales of
assets in the ordinary course of business consistent with past
practice with individual sale prices equal to or less than $1,000,000
or (B) transactions contemplated by clause (vi)(x)(B) below;
(vi)(x) repurchase, prepay or incur any indebtedness
or guarantee any indebtedness of another person or issue or sell any
debt securities or options, warrants, calls or other rights to
acquire any debt securities of the Company or any of its
subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, provided that the
restrictions set forth in this Section 4.01(a)(vi)(x) shall not apply
to (A) short-term borrowings incurred in the ordinary course of
business consistent with past practice and (B) the incurrence of
indebtedness to (I) finance the purchase or leasing of new aircraft
and engines as set forth in the Acquired Aircraft/Engines Schedule,
(II) refinance indebtedness that was incurred to finance the purchase
or leasing of aircraft on terms no less favorable to the Company than
the terms of the indebtedness to be refinanced or (III) purchase
aircraft currently leased by a third party to the Company pursuant to
the terms of the applicable lease agreement as in effect on the date
of this Agreement, which financing, refinancing and purchases shall
be effected either (1) in the ordinary course of business consistent
with past practice or (2) as otherwise described in the Acquired
Aircraft/Engines Schedule, or (y) make any loans, advances or capital
contributions to, or investments in, any other person, provided that
the restrictions set forth in this Section 4.01(a)(vi)(y) shall not
apply to loans, advances or capital contributions to, or investments
in, any other person (A) to the extent made in the ordinary course of
business consistent with past practice and to the extent not
otherwise prohibited by this Agreement, (B) to the extent made to, or
in, the Company or any direct or indirect wholly owned subsidiary of
the Company and (C) to the extent any such capital contributions are
made to the Employee Stock Ownership Trust in an amount not to exceed
the amount of principal and interest then due and owing under the
ESOP Loan;
(vii) incur or commit to incur any capital
expenditures, or any obligations or liabilities in connection
therewith, (x) with respect to 2000, in any manner materially
inconsistent with the Company's current capital budget for 2000, a
true and complete copy of which has been provided to Parent prior to
the date of this Agreement (the "Company Capital Budget"), and (y)
with respect to 2001, (A) that in the aggregate exceed the aggregate
amount of capital expenditures set forth in the Company Capital
Budget or (B) that individually exceed $20,000,000, provided that the
restrictions set forth in this Section 4.01(a)(vii) shall not apply
to (1) cost variances experienced in the ordinary course of business
consistent with past practice, (2) other expenditures made in
response to unanticipated operational, competitive or economic
factors if (I) such action is consistent with past practice, (II) the
Company determines, based upon its reasonable judgment, that such
action is an appropriate response to such factor and (III) Parent
determines, based upon its reasonable judgment, that such action
would not have a significant and adverse effect on Parent and its
subsidiaries (which, for purposes of this clause (III), shall include
the Company and its subsidiaries), (3) expenditures reasonably made
in response to a regulatory requirement or mandate, (4) expenditures
to acquire assets in the ordinary course of business consistent with
past practice with individual purchase prices not to exceed
$1,000,000 and (5) for each of 2000 and 2001, other expenditures in
the ordinary course of business consistent with past practice in an
aggregate amount not to exceed $20,000,000;
(viii) except as required by law, (x) pay,
discharge, settle or satisfy any material claims (including claims of
stockholders), liabilities or obligations (whether absolute, accrued,
asserted or unasserted, contingent or otherwise), provided that the
restrictions set forth in this Section 4.01(a)(viii)(x) shall not
apply to the payment, discharge or satisfaction of claims,
liabilities or obligations (A) in the ordinary course of business
consistent with past practice, (B) as required by their terms as in
effect on the date of this Agreement or (C) incurred since the date
of this Agreement in the ordinary course of business consistent with
past practice, or (y) waive, release, grant or transfer any right of
material value, provided that the restrictions set forth in this
Section 4.01(a)(viii)(y) shall not apply to any waiver, release,
grant or transfer made in the ordinary course of business consistent
with past practice, or (z) waive any material benefits of, or agree
to modify in any materially adverse respect, or fail to enforce, or
consent to any matter with respect to which its consent is required
under, any material confidentiality, standstill or similar agreement
to which the Company or any of its subsidiaries is a party;
(ix) enter into, modify, amend or terminate (A) any
collective bargaining or other labor union contract applicable to the
employees of the Company or any of its subsidiaries, provided that
the restrictions set forth in this Section 4.01(a)(ix)(A) shall not
apply to (1) immaterial modifications, amendments or terminations of
such contracts made in the ordinary course of business consistent
with past practice, (2) any modifications to such existing contracts
pursuant to a "parity plus 1% review" (as such term is defined in the
applicable contract) or (3) any modification, amendment or
termination of any collective bargaining agreement to the extent
required by a change in applicable law, (B) any Company Benefit
Agreement or Company Benefit Plan providing for the payment of
severance, compensation or benefits to any current or former
director, officer, employee or consultant of the Company or any of
its subsidiaries upon the termination of employment, provided that
the restrictions set forth in this Section 4.01(a)(ix)(B) shall not
apply to (I) any increase in cash compensation, (II) other immaterial
changes in benefits (except for changes in benefits provided to
officers other than as the result of immaterial changes made to
Company Benefit Plans that are generally applicable to the employees
of the Company or any of its subsidiaries that are not specifically
directed at or do not disproportionately affect such officers) and
(III) termination arrangements for employees (other than officers),
which increases, changes or arrangements described above in clauses
(I) through (III) are made in the ordinary course of business
consistent with past practice and (IV) those actions taken by the
Company to retain or attract employees in key positions as and to the
extent consistent with the Retention Plan, or (C) any other material
Contract to which the Company or any of its subsidiaries is a party,
provided that the restrictions set forth in this Section
4.01(a)(ix)(C) shall not apply to any modifications, amendments or
terminations of any such Contract to the extent made in the ordinary
course of business consistent with past practice;
(x) except as required to comply with applicable law
or any provision of any Company Benefit Agreement, Company Benefit
Plan or other Contract as in effect on the date of this Agreement,
(A) take any action to fund or in any other way secure the payment of
compensation or benefits under any Company Benefit Agreement, Company
Benefit Plan or other Contract or (B) take any action to accelerate
the vesting or payment of any compensation or benefit under any
Company Benefit Agreement, Company Benefit Plan or other Contract;
(xi)(A) decrease or defer in any material respect
the level of training provided to their employees or the level of
costs expended in connection therewith, (B) fail to keep in effect
any governmental route authority in effect and used by the Principal
Operating Sub or any other subsidiary of the Company as of the date
of this Agreement, provided that the restrictions set forth in this
Section 4.01(a)(xi)(B) shall not apply to any such failure if such
failure occurs in the ordinary course of business consistent with
past practice, (C) make any material route changes, other than
changes in the ordinary course of business consistent with past
practice, (D) fail to maintain insurance at levels at least
comparable to current levels or otherwise in a manner inconsistent
with past practice, (E) establish any new pilot or flight attendant
domicile cities or (F) take any action, or fail to take action, which
action or failure could result in the loss of Slots of the Company or
any of its subsidiaries with an aggregate value in excess of
$7,500,000;
(xii) take any action which would result in the
Company's representation and warranty set forth in the fifth sentence
of Section 3.01(d) not being accurate at any time after the date of
this Agreement, disregarding solely for purposes of this clause (xii)
the exception in such representation and warranty relating to matters
which would not be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of
such event if it were to occur) a material adverse effect;
(xiii) take any action that would be expected to result
in (A) any representation and warranty of the Company set forth in
this Agreement that is qualified as to materiality becoming untrue,
(B) any such representation and warranty that is not so qualified
becoming untrue in any material respect or (C) any condition to the
Merger set forth in Article VI not being satisfied; or
(xiv) authorize any of, or commit, resolve or agree to
take any of, the foregoing actions to the extent prohibited by the
terms of this Agreement.
(b) Certain Tax Matters. During the period from the date
of this Agreement to the Effective Time, except as specifically
contemplated by this Agreement (including anything set forth in the Company
Disclosure Schedule as of the date of this Agreement), the Company shall,
and shall cause each of its subsidiaries to (i)(A) promptly notify Parent
upon the earlier of (x) receipt of notice of any suit, claim, action,
investigation, proceeding or audit (collectively, "Actions") pending
against or with respect to the Company or any of its subsidiaries in
respect of any material tax (which is material at the time of receipt of
such notice) and (y) any such Action becoming material to the Company and
its subsidiaries and (B) not settle or compromise any such Action without
Parent's consent; (ii) not make any material tax election without Parent's
consent; and (iii) not make any material change in tax accounting methods,
principles or practices except insofar as may have been required by a
change in GAAP or SEC accounting regulations or guidelines or applicable
law.
(c) Advice of Changes; Filings. The Company and Parent
shall confer on a regular basis regarding operational and other material
matters. The Company shall promptly advise Parent in writing of any change
or event of which it has knowledge that would be expected to result in
(taking into account the likelihood of such result occurring and the
expected magnitude of such event if it were to occur) a material adverse
effect. The Company and Parent shall each promptly provide the other copies
of all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby,
other than the portions of such filings that include confidential
information.
(d) Consents. Parent shall not unreasonably withhold any
consent contemplated by Section 4.01(a) or (b) above. The reasonableness of
withholding any such consent shall be determined from Parent's point of
view, taking into account the relative burden to Parent and benefit to the
Company of granting such consent and any other factors which Parent
determines in good faith to be, and which are, of reasonable consequence to
it in connection with its determination.
SECTION 4.02 No Solicitation. (a) The Company shall not, nor
shall it permit any of its subsidiaries to, or authorize or permit any
director, officer or employee of the Company or any of its subsidiaries or
any investment banker, attorney, accountant or other advisor or
representative of the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage, or take any other action
knowingly to facilitate, any Takeover Proposal (as defined below) or (ii)
enter into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or otherwise cooperate in any way with, any Takeover Proposal,
in each case other than a Takeover Proposal made by Parent; provided,
however, that at any time prior to obtaining the Stockholder Approval, the
Board of Directors of the Company may, in response to a bona fide written
Takeover Proposal that such Board of Directors determines in good faith is
reasonably likely to result in an Adverse Recommendation Change (as defined
below) or constitutes or is reasonably likely to lead to a Superior
Proposal (as defined below), and which Takeover Proposal was unsolicited
and did not otherwise result from a breach of this Section 4.02, and
subject to compliance with Section 4.02(c) and (d), (x) furnish information
with respect to the Company and its subsidiaries to the person making such
Takeover Proposal (and its representatives) pursuant to a customary
confidentiality agreement, provided that all such information is provided
on a prior or substantially concurrent basis to Parent, and (y) participate
in discussions or negotiations with the person making such Takeover
Proposal (and its representatives) regarding such Takeover Proposal.
The term "Takeover Proposal" means any inquiry, proposal or
offer from any person relating to, or that is reasonably likely to lead to,
any direct or indirect acquisition, in one transaction or a series of
transactions, including any merger, consolidation, tender offer, exchange
offer, binding share exchange, business combination, recapitalization,
liquidation, dissolution, joint venture or similar transaction, of (A)
assets or businesses that constitute or represent 20% or more of the total
revenue, operating income, EBITDA or assets of the Company and its
subsidiaries, taken as a whole, or (B) 20% or more of the outstanding
shares of Company Common Stock or capital stock of, or other equity or
voting interests in, any of the Company's subsidiaries directly or
indirectly holding the assets or businesses referred to in clause (A)
above.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw (or modify in a manner adverse to
Parent or Sub) or propose publicly to withdraw (or modify in a manner
adverse to Parent or Sub) the recommendation or declaration of advisability
by such Board of Directors or any such committee of this Agreement or the
Merger, or recommend, or propose publicly to recommend, the approval or
adoption of any Takeover Proposal (other than a Takeover Proposal made by
Parent), unless the Board of Directors or a committee thereof determines in
good faith, based on such matters as it deems appropriate, after consulting
with legal counsel, that the failure to take such action would be
reasonably likely to result in a breach of its fiduciary duties under
applicable law (each such action being referred to herein as an "Adverse
Recommendation Change"), (ii) adopt or approve, or propose publicly to
adopt or approve, any Takeover Proposal, or withdraw its approval of the
Merger, or propose publicly to withdraw its approval of the Merger, (iii)
cause or permit the Company to enter into any letter of intent, memorandum
of understanding, agreement in principle, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement
or other agreement (each, an "Acquisition Agreement") constituting or
related to, or which is intended to or is reasonably likely to lead to, any
Takeover Proposal (other than a confidentiality agreement referred to in
Section 4.02(a)) or (iv) agree or resolve to take any of the actions
prohibited by clauses (i), (ii) or (iii) of this sentence. Notwithstanding
anything in this Section 4.02 to the contrary, at any time prior to
obtaining the Stockholder Approval, the Board of Directors of the Company
may, in response to a Superior Proposal that was unsolicited and that did
not otherwise result from a breach of Section 4.02(a), cause the Company to
terminate this Agreement pursuant to Section 7.01(f) and concurrently enter
into an Acquisition Agreement; provided, however, that the Company shall
not terminate this Agreement pursuant to Section 7.01(f), and any purported
termination pursuant to Section 7.01(f) shall be void and of no force or
effect, unless the Company shall have complied in all material respects
with the provisions of this Section 4.02, including the notification
provisions in this Section 4.02, and in all material respects with the
applicable requirements of Sections 5.06(b) and (c) (including the payment
of the Parent Termination Fee (as defined in Section 5.06(b)) prior to or
concurrently with such termination); and provided further, however, that
the Company shall not exercise its right to terminate this Agreement
pursuant to Section 7.01(f) until after the fifth business day following
Parent's receipt of written notice (a "Notice of Superior Proposal") from
the Company advising Parent that the Board of Directors of the Company has
received a Superior Proposal and specifying the terms and conditions of the
Superior Proposal and identifying the person making such Superior Proposal
(it being understood and agreed that any amendment to the price or any
other material term of a Superior Proposal shall require a new Notice of
Superior Proposal and a new five business day period). It is understood and
agreed that the termination of this Agreement in accordance with the
previous sentence shall not constitute a breach of any provision of this
Agreement.
The term "Superior Proposal" means any bona fide binding
written offer not solicited by or on behalf of the Company or any of its
subsidiaries made by a third party that if consummated would result in such
third party (or in the case of a direct merger between such third party and
the Company, the stockholders of such third party) acquiring, directly or
indirectly, more than 50% of the voting power of the Company Common Stock
or all or substantially all the assets of the Company and its subsidiaries,
taken as a whole, for consideration consisting of cash and/or securities
that the Board of Directors of the Company determines in its good faith
judgment (after consultation with a financial advisor of nationally
recognized reputation) to be superior from a financial view to the
stockholders of the Company, taking into account, among other things, any
changes to the terms of this Agreement proposed by Parent in response to
such Superior Proposal or otherwise.
(c) In addition to the obligations of the Company set
forth in paragraphs (a) and (b) of this Section 4.02, the Company promptly
shall advise Parent in writing of any request for information that the
Company reasonably believes could lead to or contemplates a Takeover
Proposal or of any Takeover Proposal, or any inquiry the Company reasonably
believes could lead to any Takeover Proposal, the terms and conditions of
such request, Takeover Proposal or inquiry (including any subsequent
material amendment or modification to such terms and conditions) and the
identity of the person making any such request, Takeover Proposal or
inquiry. The Company shall keep Parent informed in all material respects of
the status and details (including material amendments or proposed
amendments) of any such request, Takeover Proposal or inquiry.
(d) Nothing contained in this Section 4.02 or elsewhere
in this Agreement shall prohibit the Company from (i) taking and disclosing
to its stockholders a position contemplated by Rule 14e-2(a) promulgated
under the Exchange Act or (ii) making any disclosure to the Company's
stockholders if, in the good faith judgment of the Board of Directors of
the Company, after consultation with outside counsel, failure so to
disclose would be inconsistent with applicable law; provided, however, that
in no event shall the Company or its Board of Directors or any committee
thereof take, agree or resolve to take any action prohibited by Section
4.02(b)(i) or 4.02(b)(ii).
ARTICLE V
Additional Agreements
SECTION 5.01 Preparation of the Proxy Statement; Stockholders
Meeting. (a) As promptly as practicable following the date of this
Agreement, the Company and Parent shall prepare and file with the SEC the
Proxy Statement and the Company shall use its reasonable efforts to respond
as promptly as practicable to any comments of the SEC with respect thereto
and to cause the Proxy Statement to be mailed to the Company's stockholders
as promptly as practicable following the date of this Agreement. The
Company shall promptly notify Parent upon the receipt of any comments from
the SEC or its staff or any request from the SEC or its staff for
amendments or supplements to the Proxy Statement and shall provide Parent
with copies of all correspondence between the Company and its
representatives, on the one hand, and the SEC and its staff, on the other
hand. Notwithstanding the foregoing, prior to filing or mailing the Proxy
Statement (or any amendment or supplement thereto) or responding to any
comments of the SEC with respect thereto, the Company (i) shall provide
Parent an opportunity to review and comment on such document or response,
(ii) shall include in such document or response all comments reasonably
proposed by Parent and (iii) shall not file or mail such document or
respond to the SEC prior to receiving Parent's approval, which approval
shall not be unreasonably withheld or delayed.
(b) The Company shall, as promptly as practicable
following the date of this Agreement, establish a record date (which will
be as promptly as reasonably practicable following the date of this
Agreement) for, duly call, give notice of, convene and hold a meeting of
its stockholders (the "Stockholders Meeting") for the purpose of obtaining
the Stockholder Approval, regardless of whether an Adverse Recommendation
Change has occurred at any time after the date of this Agreement. The
Company shall use its reasonable best efforts to cause the Stockholders
Meeting to be held as promptly as practicable following the date of this
Agreement. The Company shall, through its Board of Directors, recommend to
its stockholders that they adopt this Agreement, and shall include such
recommendation in the Proxy Statement, in each case subject to its rights
under Section 4.02(b)(i). Without limiting the generality of the foregoing,
the Company agrees that its obligations pursuant to this Section 5.01(b)
shall not be affected by the commencement, public proposal, public
disclosure or communication to the Company or any other person of any
Takeover Proposal.
SECTION 5.02 Access to Information; Confidentiality. The
Company shall, and shall cause each of its subsidiaries to, afford to
Parent, and to Parent's officers, employees, investment bankers, attorneys,
accountants and other advisors and representatives, reasonable and prompt
access during normal business hours during the period prior to the
Effective Time or the termination of this Agreement to their respective
properties, assets, books, contracts, commitments, directors, officers,
employees, attorneys, accountants, auditors, other advisors and
representatives and records and, during such period, the Company shall, and
shall cause each of its subsidiaries to, make available to Parent on a
timely basis (a) a copy of each material report, schedule, form, statement
and other document received by it during such period pursuant to the
requirements of domestic or foreign (whether national, federal, state,
provincial, local or otherwise) laws and (b) all other information
concerning its business, properties and personnel as Parent may reasonably
request, in each case subject to any confidentiality restrictions or legal
restrictions that prohibit the Company's ability to provide any such
information to Parent. The Company shall, and shall cause each of its
subsidiaries to, (i) use their respective reasonable best efforts to cause
any confidentiality provision in any Contract to which the Company or any
of its subsidiaries becomes a party to be inapplicable to Parent, its
subsidiaries and their respective advisors or representatives and (ii) in
the event such reasonable best efforts are unsuccessful, provide notice to
Parent at least five business days prior to entering into such contract
that the Company or such subsidiary intends to enter into a Contract that
contains confidentiality provisions that would prohibit Parent, its
subsidiaries or their respective advisors or representatives from reviewing
such Contract. Parent will hold, and will direct its officers, employees,
investment bankers, attorneys, accountants and other advisors and
representatives to hold, any and all information received from the Company,
directly or indirectly, in confidence as and to the extent provided in the
Confidentiality Agreement dated March 3, 2000, between Parent and the
Company (as it may be amended from time to time, the "Confidentiality
Agreement"). The parties hereby agree that the term of the Confidentiality
Agreement is hereby amended such that it shall remain in full force and
effect until the one year anniversary of the date of termination of this
Agreement.
SECTION 5.03 Efforts; Notification. (a) Upon the terms and
subject to the conditions set forth in this Agreement, in order to
consummate and make effective the Merger and the other transactions
contemplated by this Agreement, Parent shall effect the divestiture of the
assets and the provision of assets, facilities and services as described in
Exhibit A hereto to a person or persons reasonably acceptable to the
Company upon the terms and subject to the conditions set forth in Exhibit
A, it being understood that taking any or all of the actions described in
this sentence shall in no way limit Parent's obligations under the next
following sentence. In addition, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all the other actions
that are necessary, proper or advisable to consummate and make effective
the Merger and the other transactions contemplated by this Agreement,
including using all reasonable efforts to accomplish the following: (i)
causing the conditions precedent set forth in Article VI to be satisfied,
(ii) obtaining all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the
making of all necessary registrations, declarations and filings and (iii)
obtaining all necessary consents, approvals or waivers from third parties.
The parties shall promptly after the date of this Agreement make all
necessary filings and registrations with the Governmental Entities,
including filings under the HSR Act and submissions of information
requested by Governmental Entities. In connection with and without limiting
the foregoing, the Company and its Board of Directors shall, if any state
takeover statute or similar statute or regulation is or becomes applicable
to this Agreement, the Merger or any of the other transactions contemplated
hereby, use its reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement are consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on this Agreement, the
Merger and the other transactions contemplated hereby. The Company and
Parent will provide such assistance, information and cooperation to each
other as is reasonably required to obtain any such waivers, consents,
approvals, orders, and authorizations referred to above and, in connection
therewith, will notify the other person promptly following the receipt of
any comments from any Governmental Entity and of any request by any
Governmental Entity for amendments, supplements or additional information
in respect of any registration, declaration or filing with such
Governmental Entity and will supply the other person with copies of all
correspondence between such person and any of its representatives, on the
one hand, and any Governmental Entity on the other hand.
(b) The Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate such that the condition set forth in Section 6.02(a)
would not be satisfied (a "Failed Section 6.02(a) Condition"); provided,
however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement except that, as to any such
notice of a Failed Section 6.02(a) Condition with respect to which Parent
has not within 25 days (i) disagreed, in a notice delivered to the Company,
with the Company's conclusion that the condition set forth in Section 6.02
would not be satisfied as a result of the circumstance described in such
notice by the Company, (ii) expressed the view, in a notice delivered to
the Company, that (A) it was in good faith considering waiving such Failed
Section 6.02(a) Condition (and would continue to comply with its
obligations under Section 5.03) or (B) it believed in good faith that it
did not yet have adequate information to form a reasonably complete view as
to the facts and circumstances with respect to the matter described in such
notice from the Company (which may include the magnitude of the harm
resulting from such circumstances), in which case such notice from Parent
shall identify for the Company the aspects of such information that Parent
is lacking, or (iii) terminated this Agreement pursuant to Section
7.01(d)(i) hereof, then the Failed Section 6.02(a) Condition shall be
deemed waived insofar as arising out of the circumstances set forth in such
notice. In the case of clause (ii) above, Parent shall give notice to the
Company promptly after (x) in the case of clause (ii)(A) it no longer is in
good faith considering waiving a Failed Section 6.02(a) Condition and (y)
in the case of clause (ii)(B), it believed in good faith that it had
adequate information to form a reasonably complete view as to the relevant
facts and circumstances, and, in either such case, absent termination of
this Agreement by Parent within 20 days of such notice, such Failed Section
6.02(a) Condition shall be deemed waived at the end of such 20 day period.
(c) Parent shall give prompt notice to the Company of any
representation or warranty made by it or Sub contained in this Agreement
becoming untrue or inaccurate such that the condition set forth in Section
6.03(a) would not be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
SECTION 5.04 Company Stock Options. (a) As soon as practicable
following the date of this Agreement, the Board of Directors of the Company
(or, if appropriate, any committee administering the Company Stock Plans)
shall adopt such resolutions or take such other actions (if any) as may be
required to provide that each Company Stock Option outstanding immediately
prior to the Effective Time, together with each outstanding stock
appreciation right granted in tandem with such Company Stock Option, shall
be canceled in exchange for a lump sum cash payment equal to (1) the
product of (x) the number of shares of Company Common Stock subject to such
Company Stock Option and (y) the Merger Consideration, minus (2) the
product of (x) the number of shares of Company Common Stock subject to such
Company Stock Option and (y) the per share exercise price of such Company
Stock Option. Such payment shall be made promptly following the Effective
Time.
(b) The Company shall take all steps as may be required
to cause the transactions contemplated by this Section 5.04 and any other
dispositions of Company equity securities (including derivative securities)
in connection with this Agreement by each individual who is a director or
officer of the Company to be exempt under Rule 16b-3 promulgated under the
Exchange Act, such steps to be taken in accordance with the Interpretive
Letter dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate,
Meagher & Flom LLP.
SECTION 5.05 Indemnification, Exculpation and Insurance. (a)
Parent and Sub agree that all rights to indemnification and exculpation
from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the current or former directors or
officers of the Company and its subsidiaries as provided in their
respective certificates of incorporation or by-laws (or similar
organizational documents) shall be assumed by the Surviving Corporation in
the Merger, without further action, at the Effective Time and shall survive
the Merger and shall continue in full force and effect in accordance with
their terms.
(b) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other
person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially
all its properties and assets to any person, then, and in each such case,
Parent shall cause proper provision to be made so that the successors and
assigns of the Surviving Corporation assume the obligations set forth in
this Section 5.05.
(c) For six years after the Effective Time, Parent shall
maintain in effect the Company's current directors' and officers' liability
insurance covering each person currently covered by the Company's
directors' and officers' liability insurance policy for acts or omissions
occurring prior to the Effective Time on terms with respect to such
coverage and amounts no less favorable in any material respect to such
directors and officers than those of such policy as in effect on the date
of this Agreement; provided that Parent may substitute therefor policies of
a reputable insurance company the material terms of which, including coverage
and amount, are no less favorable in any material respect to such directors
and officers than the insurance coverage otherwise required under this
Section 5.05(c); provided however, that in no event shall Parent be
required to pay aggregate premiums for insurance under this Section 5.05(c)
in excess of 250% of the amount of the aggregate premiums paid by the
Company for 1999 for such purpose (which 1999 premiums are hereby
represented and warranted by the Company to be equal to the amount
identified in writing by the Company to Parent prior to the date of this
Agreement), provided that Parent shall nevertheless be obligated to provide
such coverage as may be obtained for such 250% amount.
(d) From and after the Effective Time, Parent shall
unconditionally guarantee the timely payment of all funds owed by, and the
timely performance of all other obligations of, the Surviving Corporation
under this Section 5.05. Parent agrees that its payment obligations
hereunder are unconditional, irrespective of the validity or enforceability
of this Agreement against the Surviving Company or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense
of a guarantor (other than the defenses of statute of limitations, which
are not waived). Parent hereby acknowledges that its obligations under this
Section 5.05 constitute a guaranty of payment and not merely of
collectability and Parent hereby waives (i) promptness, diligence,
presentment, demand of payment, protest and order in connection with this
guarantee and (ii) any requirement that any party enforcing the guarantee
exhaust any right to take any action against the Surviving Company or any
other person prior to or contemporaneously with proceeding to exercise any
right against Parent hereunder.
(e) The provisions of this Section 5.05 are intended to
be for the benefit of, and will be enforceable by, each indemnified party,
his or her heirs and his or her representatives.
SECTION 5.06 Fees and Expenses. (a) Except as set forth in
Section 5.06(c), all fees and expenses incurred in connection with this
Agreement, the Merger and the other transactions contemplated by this
Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
(b) In the event that (i) (A) a Takeover Proposal has
been made to the Company or its stockholders or any person has announced an
intention (whether or not conditional and whether or not withdrawn) to make
a Takeover Proposal, (B) thereafter this Agreement is terminated by either
Parent or the Company pursuant to Section 7.01(b)(i) (but only if the
Stockholders Meeting has not been held by the date that is five business
days prior to the date of such termination) or 7.01(b)(iii) and (C) within
12 months after such termination, the Company or any of its subsidiaries
enters into any Acquisition Agreement with respect to, or consummates, any
Takeover Proposal (solely for purposes of this Section 5.06(b)(i)(C), the
term "Takeover Proposal" shall have the meaning set forth in the definition
of Takeover Proposal contained in Section 4.02(a) except that all
references to 20% shall be deemed references to 40%), (ii) this Agreement
is terminated by the Company pursuant to Section 7.01(f) or (iii) this
Agreement is terminated by Parent pursuant to Section 7.01(c), then the
Company shall pay Parent a fee equal to $150,000,000 (the "Parent
Termination Fee") by wire transfer of same day funds to an account
designated by Parent (x) in the case of a termination by the Company
pursuant to Section 7.01(f), concurrently with such termination, (y) in the
case of a termination by Parent pursuant to Section 7.01(c), within two
business days after such termination and (z) in the case of a payment as a
result of any event referred to in Section 5.06(b)(i)(C), upon the first to
occur of such events.
(c) If a Parent Termination Fee becomes payable to Parent
in accordance with Section 5.06(b), the Company shall reimburse Parent and
Sub for all their expenses incurred in connection with this Agreement
concurrently with the payment of such Parent Termination Fee to Parent;
provided, however, that the aggregate amount of such reimbursement shall
not exceed $10,000,000. All payments made pursuant to this Section 5.06(c)
shall be made by wire transfer of same day funds to an account designated
by Parent.
(d) In the event that this Agreement is terminated for
any reason other than pursuant to Sections 7.01(c), 7.01(d)(i) or 7.01(f),
then Parent shall, within two business days after such termination, pay to
the Company $50,000,000 (the "Company Termination Fee"). In the case where
this Agreement is terminated pursuant to Section 7.01(b)(i) or 7.01(b)(iii)
and Parent, subsequent to such termination, becomes entitled to payment of
the Parent Termination Fee pursuant to Section 5.06(b), the Company shall
refund to Parent the full amount of the Company Termination Fee, if any,
paid by Parent pursuant to this Section 5.06(d) concurrently with the
payment of such Parent Termination Fee. All payments made to the Company
pursuant to this Section 5.06(d) shall be made by wire transfer of same day
funds to an account designated by the Company.
SECTION 5.07 Information Supplied. (a) The Company agrees that
none of the information included or incorporated by reference in the Proxy
Statement will, at the date it is filed with the SEC or mailed to the
Company's stockholders or at the time of the Stockholders Meeting, or at
the time of any amendment or supplement thereof, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading,
except that no covenant is made by the Company with respect to statements
made in the Proxy Statement based on information supplied by Parent or Sub
specifically for inclusion or incorporation by reference therein. The Proxy
Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.
(b) Parent and Sub agree that none of the information
supplied or to be supplied by Parent or Sub specifically for inclusion in
the Proxy Statement will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the date the Proxy
Statement is filed with the SEC or mailed to the Company's stockholders or
at the time of the Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 5.08 Benefits Matters. (a) For purposes of this
Agreement, "Affected Employees" shall mean those individuals who are
classified as regular permanent employees of the Company and its
subsidiaries (including those so classified employees who are on vacation,
leave of absence, disability or maternity leave) as of the Effective Time
who are in jobs that will not be covered by collective bargaining or other
labor union contracts applicable to employees of Parent or the Company or
any of their subsidiaries after giving effect to the Merger.
(b) Parent shall, and shall cause the Surviving
Corporation to, give the Affected Employees full credit, for purposes of
eligibility, vesting and benefit accrual under any employee benefit plans
or arrangements maintained by Parent, the Surviving Corporation and their
respective subsidiaries, for the Affected Employees' service with the
Company and its subsidiaries to the same extent recognized by the Company
and its subsidiaries immediately prior to the Effective Time, except where
such crediting would result in a duplication of benefits. In addition,
Parent shall, and shall cause the Surviving Corporation to, give to each
Affected Employee who (i) is a current officer of the Company or the
Principal Operating Sub or is one of the three current director-level
employees of the Principal Operating Sub who satisfy the requirements of
clauses (ii) and (iii) of this sentence, (ii) was formerly employed by
Parent and its subsidiaries and (iii) who became employed by the Company
and its subsidiaries within three months of terminating employment with
Parent and its subsidiaries, full credit (as if there has been no break in
service) for purposes of eligibility, vesting and benefit accrual under any
employee benefit plans or arrangements maintained by Parent, the Surviving
Corporation and their respective subsidiaries, for such Affected Employee's
service with Parent and its subsidiaries prior to the Effective Time to the
same extent recognized by Parent and its subsidiaries immediately prior to
such Affected Employee's termination of employment with Parent and its
subsidiaries, except where such crediting would result in a duplication of
benefits. The foregoing provisions of this Section 5.08(b) shall not limit
or impair Parent's ability to offset under its plans, programs and
arrangements any benefits provided or accrued under the Company's benefit
plans, programs, or arrangements for the same period of service.
(c) Parent shall, and shall cause the Surviving
Corporation to, (i) waive all limitations as to preexisting conditions
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Affected Employees under any welfare benefit
plans in which such employees may be eligible to participate after the
Effective Time to the extent waived under the applicable Company plan
immediately prior to the Effective Time and (ii) provide each Affected
Employee with credit for any co-payments and deductibles paid prior to the
Effective Time in the calendar year in which the Effective Time occurs in
satisfying any applicable deductible or out-of-pocket requirements under
any welfare plans in which the Affected Employees are eligible to
participate after the Effective Time.
(d) Parent agrees to honor, and shall cause the Surviving
Corporation to honor, the Company Benefit Plans and Company Benefit
Agreements in accordance with their terms subject to any power to amend or
terminate such Company Benefit Plans and Company Benefit Agreements
contained therein. For a period of one year immediately following the
Effective Time, Parent shall, or shall cause the Surviving Corporation to,
provide to the Affected Employees while employed by the Surviving
Corporation or its subsidiaries employee benefit plans and arrangements not
materially less favorable in the aggregate to those provided to the
Affected Employees immediately prior to the Effective Time excluding, for
this purpose, equity-based compensation plans and arrangements; provided,
however, Parent will provide eligibility for option grants during such
one-year period to Affected Employees on the same basis as provided to
similarly situated employees of Parent and its subsidiaries. If an Affected
Employee becomes employed by Parent, such Affected Employee shall be
provided employee benefit plans and arrangements that are in the aggregate
not materially less favorable than the benefit plans and arrangements
provided to similarly situated employees of Parent.
(e) Parent acknowledges that (i) except as disclosed in
the Company Disclosure Schedule, the consummation of the Merger (or, if
otherwise provided under the applicable Company Benefit Plan or Company
Benefit Agreement, the approval of the Merger by the Company's
stockholders) shall constitute a "Change in Control" or a "Change of
Control" for purposes of each Company Benefit Plan and Company Benefit
Agreement listed on Section 3.01(m)(iv) of the Company Disclosure Schedule
in which such concept is relevant and (ii)(A) any termination of employment
by or of any individual identified on Section 5.08(e)(ii)(A) of the Company
Disclosure Schedule following the Effective Time and (B) any termination of
employment by or of any individual identified on Section 5.08(e)(ii)(B) of
the Company Disclosure Schedule during the period commencing six months
following the Effective Time and ending nine months following the Effective
Time, shall be deemed to be for "Good Reason" for purposes of any
employment agreement or other Company Benefit Agreement listed on Section
3.01(m)(iv) of the Company Disclosure Schedule, and any Company Benefit
Plan in which such individual participates.
SECTION 5.09 Public Announcements. Parent and Sub, on the one
hand, and the Company, on the other hand, shall, to the extent reasonably
practicable, consult with each other before issuing, and give each other a
reasonable opportunity to review and comment upon, any press release or
other public statements with respect to this Agreement, the Merger and the
other transactions contemplated by this Agreement. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by
the parties.
SECTION 5.10 Future Employment. For a period of two years
following the Closing Date, Parent shall, and shall cause the Surviving
Corporation to, offer continued employment to all non-officer employees of
the Company or any of its subsidiaries who are employed by the Company or
any of its subsidiaries at the Effective Time; provided, however, that this
Section 5.10 shall not apply to any employees of the Company or any of its
subsidiaries (i) who are discharged for cause or performance related
reasons or (ii) who are employees of a subsidiary of the Company which is
sold or transferred to a third party at or after the Effective Time.
Following the two year period specified in the prior sentence, Parent
shall, and shall cause the Surviving Corporation to, provide all former
non-officer, non-union employees of the Company and its subsidiaries the
same job security protection, if any, as provided to similarly-situated
employees of Parent and its subsidiaries.
ARTICLE VI
Conditions Precedent
SECTION 6.01 Conditions to Each Party's Obligation to Effect
the Merger. The obligation of each party to effect the Merger is subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Stockholder Approval shall
have been obtained.
(b) Antitrust. Any waiting period (and any extension
thereof) applicable to the Merger under the HSR Act or any other applicable
competition, merger control, antitrust or similar law or regulation shall
have been terminated or shall have expired.
(c) No Injunctions or Legal Restraints. No temporary
restraining order, preliminary or permanent injunction or other order or
decree issued by any court of competent jurisdiction or other legal
restraint or prohibition (collectively, "Legal Restraints") that has the
effect of preventing the consummation of the Merger shall be in effect.
SECTION 6.02 Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations
and warranties of the Company contained herein that are qualified as to
materiality shall be true and correct, and the representations and
warranties of the Company contained herein that are not so qualified shall
be true and correct in all material respects, in each case as of the date
of this Agreement and as of the Closing Date with the same effect as though
made as of the Closing Date, except that the accuracy of representations
and warranties that by their terms speak as of a specified date will be
determined as of such date. Parent shall have received a certificate signed
on behalf of the Company by the chief executive officer or the chief
financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and Parent shall have received a certificate signed on behalf
of the Company by the chief executive officer or the chief financial
officer of the Company to such effect.
(c) Legal Restraint. No Legal Restraint that has the
effect of (i) prohibiting or limiting in any material respect the ownership
or operation by the Company, Parent or any of their respective affiliates
of a material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole, or to require any such person to dispose of or hold separate any
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or Parent and its subsidiaries, taken as a
whole, as a result of the Merger; (ii) prohibiting Parent or any of its
affiliates from effectively controlling in any material respect a
substantial portion of the business or operations of the Company or its
subsidiaries; or (iii) imposing material limitations on the ability of
Parent or any of its affiliates to acquire or hold, or exercise full rights
of ownership of, any shares of Company Common Stock, including the right to
vote the Company Common Stock on all matters properly presented to the
stockholders of the Company shall be in effect.
(d) Consents. Parent shall have received evidence, in
form and substance reasonably satisfactory to it, that Parent or the
Company shall have obtained (i) all material consents, approvals,
authorizations, qualifications and orders of all Governmental Entities
legally required in connection with this Agreement and the transactions
contemplated by this Agreement and (ii) all other consents, approvals,
authorizations, qualifications and orders of Governmental Entities or third
parties required in connection with this Agreement and the transactions
contemplated by this Agreement, except, in the case of this clause (ii),
for those the failure of which to be obtained individually or in the
aggregate would not be expected to result in (taking into account the
likelihood of such result occurring and the expected magnitude of such
event if it were to occur) a material adverse effect.
SECTION 6.03 Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is further subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations
and warranties of Parent and Sub contained herein that are qualified as to
materiality shall be true and correct, and the representations and
warranties of Parent contained herein that are not so qualified shall be
true and correct in all material respects, in each case as of the date of
this Agreement and as of the Closing Date with the same effect as though
made as of the Closing Date, except that the accuracy of representations
and warranties that by their terms speak as of a specified date will be
determined as of such date. The Company shall have received a certificate
signed on behalf of Parent by the chief executive officer or the chief
financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent
and Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by the chief executive officer or the chief financial
officer of Parent to such effect.
SECTION 6.04 Frustration of Closing Conditions. None of the
Company, Parent or Sub may rely on the failure of any condition set forth
in Section 6.01, 6.02 or 6.03, as the case may be, to be satisfied if such
party's breach of this Agreement has been a principal reason that such
condition has not been satisfied.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01 Termination. This Agreement may be terminated, and
the Merger contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether before or after the Stockholder Approval has been
obtained:
(a) by mutual written consent of Parent, Sub and the
Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by
December 31, 2000 (the "Initial Termination Date", and as such may be
extended pursuant to this paragraph, the "Termination Date");
provided, however, that if on the Initial Termination Date the
conditions to the Closing set forth in Sections 6.01(a), 6.01(b),
6.01(c), 6.02(c) and 6.02(d) shall not have been fulfilled, but all
other conditions to the Closing shall be fulfilled on such date or
shall be capable of being fulfilled, then, if a written notice
requesting an extension of the Termination Date has been delivered by
Parent or the Company to the other at any time during the 45 day
period ending on the Initial Termination Date, the Termination Date
shall be extended to August 1, 2001; provided, however, that the
right to terminate this Agreement pursuant to this Section 7.01(b)(i)
shall not be available to any party whose breach of this Agreement
has been a principal reason the Merger has not been consummated by
such date;
(ii) if any Legal Restraint set forth in Section
6.01(c) shall be in effect and shall have become final and
nonappealable; provided, however, that the right to terminate this
Agreement pursuant to this Section 7.01(b)(ii) shall not be available
to any party whose breach of this Agreement has been a principal
reason that such event has occurred; or
(iii) if the Stockholder Approval shall not have been
obtained at the Stockholders Meeting duly convened therefor or any
adjournment or postponement thereof;
(c) by Parent in the event an Adverse Recommendation
Change has occurred in accordance with Section 4.02(b)(i);
(d) by Parent (i) if the Company shall have breached any
of its representations, warranties or covenants contained in this
Agreement, which breach (A) would give rise to the failure of a condition
set forth in Section 6.02(a) or 6.02(b), and (B) has not been or is
incapable of being cured by the Company within twenty business days after
its receipt of written notice thereof from Parent; or (ii) if any Legal
Restraint set forth in Section 6.02(c) shall be in effect and shall have
become final and nonappealable; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.01(d)(ii) shall not be
available to Parent if any breach by Parent of this Agreement has been a
principal reason that such event occurred;
(e) by the Company if Parent shall have breached any of
its representations, warranties or covenants contained in this Agreement,
which breach (i) would give rise to the failure of a condition set forth in
Section 6.03(a) or 6.03(b), and (ii) has not been or is incapable of being
cured by Parent within twenty business days after its receipt of written
notice thereof from the Company; or
(f) by the Company in accordance with the terms and
subject to the conditions of Section 4.02(b).
SECTION 7.02 Effect of Termination. In the event of termination
of this Agreement by either the Company or Parent as provided in Section
7.01, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Parent, Sub or the
Company, other than the provisions of Section 3.01(u), the last two
sentences of Section 5.02, Section 5.06, this Section 7.02 and Article
VIII; provided, however, that no such termination shall relieve any party
hereto from any liability or damages resulting from a wilful breach by a
party of any of its representations, warranties or covenants set forth in
this Agreement.
SECTION 7.03 Amendment. This Agreement may be amended by the
parties hereto at any time, whether before or after the Stockholder
Approval has been obtained; provided, however, that after the Stockholder
Approval has been obtained, there shall be made no amendment that by law
requires further approval by stockholders of the parties without the
further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
SECTION 7.04 Extension; Waiver. At any time prior to the
Effective Time, the parties may (a) extend the time for the performance of
any of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto or (c) waive compliance with any of
the agreements or conditions contained herein; provided, however, that
after the Stockholder Approval has been obtained, there shall be made no
waiver that by law requires further approval by stockholders of the parties
without the further approval of such stockholders. Except as provided in
Section 5.03(b), any agreement on the part of a party to any such extension
or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure or delay by any party to this
Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights nor shall any single or
partial exercise by any party to this Agreement of any of its rights under
this Agreement preclude any other or further exercise of such rights or any
other rights under this Agreement.
ARTICLE VIII
General Provisions
SECTION 8.01 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective
Time.
SECTION 8.02 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof
of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to Parent or Sub, to:
UAL Corporation
1200 East Algonquin Road
Elk Grove Township, Illinois 60007
Attention: General Counsel
with a copy to: Chief Financial Officer
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Allen Finkelson, Esq.
Scott A. Barshay, Esq.
if to the Company, to:
US Airways Group, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Attention: Executive Vice President -
Corporate Affairs and General Counsel
Senior Vice President - Finance
and Chief Financial Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Peter Allan Atkins, Esq.
Eric L. Cochran, Esq.
SECTION 8.03 Section 8.03 poses of this Agreement:
(a) an "affiliate" of any person means another person
that directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first person;
(b) "material adverse effect" means any state of facts,
change, development, effect, condition or occurrence that is material and
adverse to the business, assets, properties, condition (financial or
otherwise) or results of operations of the Company and its subsidiaries,
taken as a whole, or to prevent or materially impede or delay the
consummation of the Merger or the other material transactions contemplated
by this Agreement, except for any state of facts, change, development,
effect, condition or occurrence (i) relating to the economy in general or
(ii) affecting the airline industry generally where such airline industry
state of facts, change, development, effect, condition or occurrence does
not arise out of the actions, failures to act or businesses of the Company
or any of its subsidiaries;
(c) "person" means an individual, corporation,
partnership, joint venture, association, trust, limited liability company,
Governmental Entity, unincorporated organization or other entity;
(d) a "subsidiary" of any person means another person of
which 50% or more of any class of capital stock, voting securities or other
equity interests are owned or controlled, directly or indirectly, by such
first person.
SECTION 8.04 Interpretation. When a reference is made in this
Agreement to a Section, Subsection or Schedule, such reference shall be to
a Section or Subsection of, or a Schedule to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation". The words
"hereof", "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The term "or" is not exclusive. The
definitions contained in this Agreement are applicable to the singular as
well as the plural forms of such terms. Any agreement or instrument defined
or referred to herein or in any agreement or instrument that is referred to
herein means such agreement or instrument as from time to time amended,
modified or supplemented. References to a person are also to its permitted
successors and assigns.
SECTION 8.05 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties.
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries.
This Agreement (a) constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement, except for
the Confidentiality Agreement and any agreement entered into by the parties
on the date of this Agreement, and (b) except for the provisions of Section
5.05, are not intended to confer upon any person other than the parties
hereto (and their respective successors and assigns) any rights or
remedies.
SECTION 8.07 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws of such state; provided, however, that the
term "best efforts" as used in Section 5.01(b) shall have the meaning
ascribed to such term under the laws of the State of New York, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws of such state.
SECTION 8.08 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, in whole or
in part (except by operation of law, by any of the parties hereto without
the prior written consent of the other parties hereto, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect
wholly owned subsidiary of Parent, but no such assignment shall relieve
Parent of any of its obligations hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and
be enforceable by, the parties hereto and their respective successors and
assigns.
SECTION 8.09 Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the partes shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the State of
Delaware or in any Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any court of the United States located in the State of
Delaware or of any Delaware state court in the event any dispute arises out
of this Agreement or the transactions contemplated by this Agreement, (b)
agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and
(c) agrees that it will not bring any action relating to this Agreement or
the transactions contemplated by this Agreement in any court other than a
court of the United States located in the State of Delaware or a Delaware
state court.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
UAL CORPORATION,
by /s/ Frederic F. Brace
-----------------------------
Name: Frederic F. Brace
Title: Senior Vice President, Finance
YELLOW JACKET ACQUISITION CORP.,
by /s/ Frederic F. Brace
------------------------------
Name: Frederic F. Brace
Title: Vice President and Tresurer
US AIRWAYS GROUP, INC.,
by /s/ Lawrence M. Nagin
--------------------------------
Name: Lawrence M. Nagin
Title: Executive Vice President -
Corporate Affairs and
General Counsel
EXHIBIT A
Capital Air Divestiture Plan
----------------------------
Capitol Air Assets: Capitol Air will be comprised of the following assets:
(A) Aircraft: If requested by the buyer, a number
and type of aircraft identified by Tar Heel
that are necessary and reasonably suited to
operate Capitol Air.
(B) Slots: If requested by the buyer, a number of
jet and commuter slots at Reagan-National
Airport that are necessary to operate Capitol
Air, which number shall not exceed 106 jet
slots and 116 commuter slots. The timing and
identification numbers of such slots to be
reasonably agreed upon.
(C) Gates: If requested by the buyer, up to eight
gates at Reagan-National Airport at locations
to be reasonably agreed upon that are
necessary and reasonably suited to operate
Capitol Air. All leases relating to such
facilities will be assumed by the buyer.
(D) Airport Facilities: If requested by the
buyer, ticket counter and similar airport
facilities to be reasonably agreed upon that
are necessary and reasonably suited for the
buyer to operate Capitol Air. All leases
relating to such facilities will be assumed
by the buyer.
(E) Maintenance Facility: If requested by the
buyer, Yellow Jacket's line maintenance
facility at Reagan-National Airport. The
lease relating to such facility will be
assumed by the buyer.
(F) Other: If requested by the buyer, ground
handling equipment, spare parts and other
items to be reasonably agreed upon that are
necessary for the buyer to operate Capitol
Air.
The Capitol Air assets will not include any assets
not necessary to operate Capitol Air or any cash.
Capitol Air will continue the operations of Yellow
Jacket at Reagan-National Airport (other than the
Shuttle Business and certain flights to and from
Charlotte, Pittsburgh and Philadelphia).
"Shuttle Business" means all the assets primarily
used by Yellow Jacket in the operation of the
Yellow Jacket shuttle on the following routes: (1)
Boston - La Guardia Airport, (2) Boston -
Reagan-National Airport and (3) La Guardia -
Reagan-National Airport.
Capitol
Air Liabilities: The buyer of Capitol Air will assume all
liabilities primarily related to Capitol Air.
Hub-to-Hub Routes: The assets used to operate the Hub-to-Hub Routes
will be comprised of the following:
(A) Aircraft: If requested by the buyer, Tar Heel
or its subsidiaries will wet-lease a number
and type of aircraft identified by Tar Heel
that are necessary and reasonably suited to
operate the Hub-to-Hub Routes during a
transition period on market terms to be
reasonably agreed upon.
(B) Gates: If requested by the buyer, Tar Heel
will provide the Buyer with access to gates
that are necessary and reasonably suited to
operate the Hub-to-Hub Routes at each airport
that is part of the Hub-to-Hub Routes on
market terms to be reasonably agreed upon.
(C) Other: If requested by the buyer, ground
handling equipment necessary and reasonably
suited for the buyer to operate the
Hub-to-Hub Routes.
On points behind each of the hubs on the Hub-to-Hub
Routes, Tar Heel will code share with the buyer by
permitting the buyer to put its code on Tar Heel's
flights. Tar Heel will enter into a ten year
pro-rate agreement with the buyer on terms to be
reasonably agreed upon and reasonably favorable to
the buyer in order to make the buyer a viable
competitor on the Hub-to-Hub Routes.
"Hub-to-Hub Routes" consist of the following
routes: (1) Philadelphia to Denver, Los Angeles and
San Francisco, (2) Charlotte to Chicago, Denver,
Los Angeles and San Francisco and (3) Pittsburgh to
Denver, Los Angeles and San Francisco.
Hub-to-Hub Routes
Liabilities: The buyer of the Hub-to-Hub Routes will assume all
liabilities primarily related to the assets used to
operate the Hub-to-Hub Routes.
Employees: If requested by the buyer, Tar Heel will provide to
the buyer on an interim basis, subject to receipt
of any necessary labor approvals, the employees
needed to operate Capitol Air or the Hub-to-Hub
Routes, as the case may be, on market terms to be
reasonably agreed upon.
Additional Support: Tar Heel will provide frequent flyer program support on
market terms to be agreed upon. In addition, Tar Heel
will, if requested by the buyer and if reasonably
practicable, provide to such buyer revenue accounting
services, maintenance services, training services, fuel
purchasing services and other services necessary for
such buyer to operate Capitol Air or the Hub-to-Hub
Routes, as the case may be, upon market terms to be
agreed upon.
Additional Assets: If requested by the buyer of Capitol Air, [P] Airline,
Inc. ("Commuter Air") will be included in Capitol Air.
In this event, at the option of Tar Heel, either
(i) the buyer of Capitol Air will provide commuter
feed to Tar Heel and Yellow Jacket, on a code share
basis at market terms to be agreed upon, from points
behind Yellow Jacket hubs (the "Commuter Feed
Points") currently served by Commuter Air or (ii) Tar
Heel will retain the assets of Commuter Air that are
used to provide service to the Commuter Feed
Points.
If the buyer of Capitol Air is not an existing
mainline carrier, such buyer will, if requested by
Tar Heel, reasonably and in good faith explore
partnering opportunities with existing mainline
carriers.
Other Terms: The divestiture agreement with each buyer will be
negotiated by such buyer and Tar Heel and will contain
customary terms for transactions of this type;
provided, however, that Tar Heel's obligation to
indemnify any buyer shall be limited to (x) in the case
of losses relating to any breach of a representation or
warranty, 40% of the purchase price paid to Tar Heel by
such buyer, and (y) in the case of all losses, the
purchase price paid by such buyer. The terms of the
divestiture agreement must be reasonably acceptable to
both Tar Heel and Yellow Jacket taking into account as
a primary objective obtaining antitrust clearance for
the merger.
Closing: The obligation to effect the Capitol Air divestiture
and the Hub-to-Hub Route divestiture will be contingent
upon the satisfaction of all conditions precedent to
the closing of the Tar Heel/Yellow Jacket merger
(assuming such divestiture is effected). The obligation
to effect the Capitol Air divestiture and the
Hub-to-Hub Route divestiture will also be continent
upon receipt of all consents required to permit the
buyers to operate Capitol Air and the Hub-to-Hub Routes
as contemplated herein. At the closing of each
transaction, the buyer will pay to Yellow Jacket the
cash purchase price agreed to by such buyer. Tar Heel
shall not be entitled to refrain from selling
Capitol Air or the assets relating to the
Hub-to-Hub Routes on the terms contained herein on
the basis that the cash purchase price to which the
potential buyer has agreed is inadequate value for
such assets.
APPENDIX B
OPINION OF SALOMON SMITH BARNEY INC.
May 23, 2000
Board of Directors
US Airways Group, Inc.
2345 Crystal Drive
Arlington, VA 22227
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of common stock, par value $1.00 per share
("Company Common Stock"), of US Airways Group, Inc. (the "Company"), of the
consideration to be received by such holders pursuant to the Agreement and
Plan of Merger dated as of May 23, 2000 (the "Merger Agreement") among UAL
Corporation ("Parent"), Yellow Jacket Acquisition Corporation, a wholly
owned subsidiary of Parent ("Sub"), and the Company. As more fully
described in the Merger Agreement, upon the effectiveness of the proposed
merger (the "Merger") of Sub with and into the Company, each issued and
outstanding share of Company Common Stock (other than shares owned by
Parent, Sub or the Company and any shares subject to appraisal rights) will
be converted into the right to receive $60.00 in cash.
In arriving at our opinion, we reviewed a draft dated May 23, 2000 of
the Merger Agreement and held discussions with certain senior officers of
the Company concerning the business, operations, financial condition and
prospects of the Company. We examined certain publicly available business
and financial information relating to, as well as certain financial
forecasts and other information and data for, the Company which were
provided to or otherwise discussed with us by the management of the
Company. We reviewed the financial terms of the Merger as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of Company Common Stock; historical and
projected earnings and other operating data of the Company; and the
capitalization and financial condition of the Company. We considered, to
the extent publicly available, the financial terms of other transactions
recently effected which we considered relevant in evaluating the Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations
we considered relevant in evaluating those of the Company. In addition to
the foregoing, we conducted such other analyses, studies and examinations
and considered such other financial, economic and market criteria as we
deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without
independent verification, upon the accuracy and completeness of all
financial and other information and data publicly available or furnished to
or otherwise reviewed by or discussed with us. With respect to financial
forecasts provided to or otherwise reviewed by or discussed with us, we
have been advised by the management of the Company that such forecasts were
reasonably prepared reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the Company and we express no opinion as to such forecasts.
We have not made or been provided with an independent evaluation or
appraisal of the assets (including properties and facilities) or
liabilities (contingent or otherwise) of the Company nor have we made any
physical inspection of the properties, facilities or assets of the Company.
In connection with our engagement, we were not requested to, and we did
not, solicit third party indications of interest in all or a part of the
Company. We were not requested to consider, and our opinion does not
address, the relative merits of the Merger as compared to any alternative
business strategies that might exist for the Company or the effect of any
other transaction in which the Company might engage. Our opinion is
necessarily based upon information available to us and financial, stock
market and other conditions and circumstances as they exist, have been
disclosed to us and can be evaluated on the date hereof.
Salomon Smith Barney Inc. has been engaged to render financial
advisory services to the Company in connection with the Merger and will
receive a fee for such services, a significant portion of which is
contingent upon consummation of the Merger. As you are aware, we and
certain of our affiliates beneficially own approximately 2,869,001 shares
of Company Common Stock. In addition, in the ordinary course of our
business, we and our affiliates may actively trade or hold the securities
of the Company and Parent for our own account or for the accounts of our
customers and, accordingly, may at any time hold a long or short position
in such securities. We have in the past provided investment banking
services to the Company and Parent unrelated to the Merger, for which
services we have received customary compensation. In addition, we and our
affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with the Company, Parent and their respective affiliates in
the ordinary course of their respective businesses.
Our advisory services and the opinion expressed herein are provided
for the information of the Board of Directors of the Company in its
evaluation solely of the Merger, and our opinion is not intended to be and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote in connection with the Merger. In addition, our
opinion does not address the Company's underlying business decision to
effect the Merger.
Based upon and subject to the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received in the Merger by
the holders of Company Common Stock is fair from a financial point of view
to such holders.
Very truly yours,
SALOMON SMITH BARNEY INC.
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Sec. 262 Appraisal Rights. -- (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to sec.228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and
also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation;
and the words "depository receipt" mean a receipt or other instrument
issued by a depository representing an interest in one or more shares, or
fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to sec.251 (other than a merger
effected pursuant to sec.251(g) of this title), sec.252, sec.254, sec.257,
sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive notice
of and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of sec.251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of
any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to sec.251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts
in respect thereof;
b. shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository
receipts at the effective date of the merger or
consolidation will be either listed on a national
securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b.
of this paragraph; or
d. any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under sec.253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available
for the shares of any class or series of its stock as a result of an
amendment to its certificate of incorporation, any merger or consolidation
in which the corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20
days prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of the
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to sec.228 or sec.253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the
office of the Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all stockholders who
have demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly verified
list. The Register in Chancery, if so ordered by the Court, shall give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and
to the stockholders shown on the list at the addresses therein stated. Such
notice shall also be given by 1 or more publications at least 1 week before
the day of the hearing, in a newspaper of general circulation published in
the City of Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair
value exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair
value. In determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest, the Court
may consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money
during the pendency of the proceeding. Upon application by the surviving or
resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal
prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted such stockholder's certificates of stock to
the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court may order all
or a portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged pro
rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for
any purpose or to receive payment of dividends or other distributions on
the stock (except dividends or other distributions payable to stockholders
of record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an
appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as provided
in subsection (e) of this section or thereafter with the written approval
of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms
as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation. (Last amended
by Ch. 339 L. '98, eff. 7-1-98.)
[FORM OF PROXY CARD]
PRELIMINARY COPY
US AIRWAYS GROUP, INC.
2345 CRYSTAL DRIVE
ARLINGTON, VIRGINIA 22227
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST , 2000
The undersigned hereby appoints Jennifer C. McGarey and Lawrence M.
Nagin, and each of them, proxies (each with power of substitution) of the
undersigned to attend the above special meeting of stockholders of US
Airways Group, Inc. at 9:30 a.m., local time, on August , 2000 at , and any
adjournment or postponement thereof (the "Special Meeting"), 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. Employee Savings Plan,
the US Airways, Inc. 401 (k) Savings Plan 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 [August
____], 2000, in order to be voted in a timely manner by the administrator
of the Plans, Fidelity Management Trust Company (the "Administrator").
After [August______], 2000, the instructions cannot be revoked and, in
accordance with the Plans, you may not vote these shares in person at the
Special Meeting. The Administrator is authorized to vote the Plan shares
for which instructions have been given upon any other matters that may
properly come before the meeting. [CT Corporation] will tally the vote on
behalf of the Administrator
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. In addition, upon
appropriate motion, this proxy, when properly executed, will be voted in
favor of any adjournment of the Special Meeting for the purpose of
soliciting additional proxies in order to approve the Agreement and Plan of
Merger, dated as of May 23, 2000, among US Airways Group, Inc., UAL
Corporation and Yellow Jacket Acquisition Corp. If no direction is given,
this proxy will be voted for the adoption of the Agreement and Plan of
Merger in accordance with the recommendation of the Board of Directors of
US Airways Group, Inc. The proxies cannot vote your shares unless you sign
and return this card.
(FACE OF PROXY CARD)
[X] Please mark your vote as in this example.
THE BOARD OF DIRECTORS OF US AIRWAYS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. To adopt the Agreement and Plan of Merger, dated as of May 23, 2000,
among US Airways Group, Inc., UAL Corporation and Yellow Jacket
Acquisition Corp., as described in the accompanying proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign and date this proxy and return it in the enclosed return
envelope, whether or not you expect to attend the Special Meeting. You may
also vote in person if you do attend.
Date
-------------------------------
-------------------------------
-------------------------------
Signature(s)
Note: Please sign exactly as name appears hereon. If shares are held as
joint tenants, both joint tenants should sign. Attorneys-in-fact,
executors, administrators, trustees, guardians, corporate officers or
others signing in a representative capacity should indicate the capacity in
which they are signing.
(REVERSE OF PROXY CARD)