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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 23, 2000
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UAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 1-6033 36-2675207
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1200 Algonquin Road, Elk Grove Township, Illinois 60007
(Address of principal executive offices) (Zip Code)
(847) 700-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
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Item 5. Other Events.
On May 23, 2000, UAL Corporation ("UAL") and US Airways Group, Inc.
("US Airways") entered into an Agreement and Plan of Merger. Also on May 23,
2000, UAL, US Airways, and Robert L. Johnson entered into a Memorandum of
Understanding regarding the terms and conditions under which Mr. Johnson would
acquire certain assets of US Airways.
Attached and incorporated herein by reference in their entirety as
Exhibits 2.1 and 99.1 are, respectively, copies of the Agreement and Plan of
Merger and the Memorandum of Understanding.
Item 7. Exhibits.
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated as of May 23, 2000, among
UAL Corporation, Yellow Jacket Acquisition Corp. and US Airways
Group, Inc.
99.1 Memorandum of Understanding, dated as of May 23, 2000, among
UAL Corporation, US Airways Group, Inc., and Robert L. Johnson
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
UAL CORPORATION
By: /s/ Francesca M. Maher
---------------------------
Name: Francesca M. Maher
Title: Senior Vice President,
General Counsel and Secretary
Date: May 30, 2000
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INDEX TO EXHIBITS
Exhibit No. Description
2.1 Agreement and Plan of Merger, dated as of May 23, 2000, among
UAL Corporation, Yellow Jacket Acquisition Corp. and US Airways
Group, Inc.
99.1 Memorandum of Understanding, dated as of May 23, 2000, among
UAL Corporation, US Airways Group, Inc. and Robert L. Johnson
EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
Among
UAL CORPORATION,
YELLOW JACKET ACQUISITION CORP.
and
US AIRWAYS GROUP, INC.
Dated as of May 23, 2000
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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.....................................................3
ARTICLE II
Conversion of Securities
SECTION 2.01. Conversion of Capital Stock..................................3
SECTION 2.02. Exchange of Certificates.....................................4
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties
of the Company.............................................7
SECTION 3.02. Representations and Warranties
of Parent and Sub.........................................31
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business.........................................33
SECTION 4.02. No Solicitation.............................................40
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Proxy Statement;
Stockholders Meeting......................................43
SECTION 5.02. Access to Information; Confidentiality......................44
SECTION 5.03. Efforts; Notification.......................................45
SECTION 5.04. Company Stock Options.......................................47
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SECTION 5.05. Indemnification, Exculpation
and Insurance.............................................48
SECTION 5.06. Fees and Expenses...........................................49
SECTION 5.07. Information Supplied........................................51
SECTION 5.08. Benefits Matters............................................51
SECTION 5.09. Public Announcements........................................53
SECTION 5.10. Future Employment...........................................54
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's
Obligation to Effect the Merger...........................54
SECTION 6.02. Conditions to Obligations of
Parent and Sub............................................55
SECTION 6.03. Conditions to Obligation of the
Company...................................................56
SECTION 6.04. Frustration of Closing Conditions...........................56
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination.................................................57
SECTION 7.02. Effect of Termination.......................................58
SECTION 7.03. Amendment...................................................59
SECTION 7.04. Extension; Waiver...........................................59
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations
and Warranties............................................59
SECTION 8.02. Notices.....................................................59
SECTION 8.03. Definitions.................................................60
SECTION 8.04. Interpretation..............................................61
SECTION 8.05. Counterparts................................................62
SECTION 8.06. Entire Agreement; No Third-Party
Beneficiaries.............................................62
SECTION 8.07. Governing Law...............................................62
SECTION 8.08. Assignment..................................................62
SECTION 8.09. Enforcement.................................................62
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
2
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
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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
non assessable 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.
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(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
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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
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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.
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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
8
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
9
(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
10
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
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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
12
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")
13
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
14
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
15
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
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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
24
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
25
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
26
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.
27
(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
28
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
29
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
30
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.
31
(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
32
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,
33
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
34
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
35
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
36
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
37
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
38
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
39
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
40
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
41
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
42
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
43
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
44
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,
45
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
46
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
47
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
48
(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;
49
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
50
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
51
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
52
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
53
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
54
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.
55
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.
56
(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
57
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
58
(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.
59
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)
60
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. Definitions. For purposes 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;
61
(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.
62
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
63
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: Senior Vice President -
Finance
US AIRWAYS GROUP, INC.,
by /s/ Lawrence M. Nagin
--------------------------------
Name: Lawrence M. Nagin
Title: Executive Vice President -
Corporate Affairs and
General Counsel
EXHIBIT A
Capitol 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 Giardia
Airport, (2) Boston - Reagan-National Airport and (3)
La Guardia
2
Airport - Reagan-National Airport.
Capitol Air
Liabilities: The buyer of Capitol Air will assume all liabilities
primarily related to Capitol Air.
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 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 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.
3
Closing: The obligation to effect the Capitol Air 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 will also
be contingent upon receipt of all consents required to
permit the buyers to operate Capitol Air 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 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.
EXHIBIT 99.1
MEMORANDUM OF UNDERSTANDING
---------------------------
This memorandum of understanding, dated May 23 , 2000 (this
"Agreement"), by and among the parties signatory hereto (each a "party" and
collectively, the "parties"), confirms the mutual understanding of the parties
with respect to the proposed acquisition by an entity to be formed by Robert
L. Johnson ("Johnson") of certain assets (the "Assets") of US Airways Group,
Inc. ("US Airways"), as more specifically identified on the term sheet
attached hereto as Attachment I (the "Term Sheet"). The parties agree that the
Term Sheet, in addition to identifying the Assets, sets forth the principal
terms and provisions to be included in the definitive documentation (the
"Transaction Documents") with respect to the acquisition of the Assets by
Johnson.
1. Definitive Documentation. The parties hereby agree to use their
good faith reasonable best efforts to prepare promptly and, as the case may
be, consistent with the goal of achieving antitrust clearance for the
transactions contemplated by the Merger Agreement, dated as of May 23 , 2000
(the "Merger Agreement"), among US Airways, UAL Corporation ("UAL") and Yellow
Jacket Acquisition Corp., execute and deliver, adopt or provide expanded
agreements and documents reflecting the terms and provisions set forth in the
applicable portion of the Term Sheet and containing other customary and
appropriate provisions for agreements and documents of the type contemplated
by the applicable portion of the Term Sheet (the "Transaction Documents").
2. Satisfaction of Merger Agreement Covenant. The parties agree that
the consummation of the transaction contemplated by the Term Sheet shall be
deemed to satisfy UAL'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
shall not be deemed to satisfy any other obligation of UAL under Section
5.03(a) of the Merger Agreement.
3. No Solicitation. The parties agree that, from the date hereof
until such time as this Agreement is terminated in accordance with its terms,
none of the parties, nor any of their respective directors, officers,
employees, advisors, affiliates or representatives shall (i) solicit,
initiate, encourage, or take any action knowingly to facilitate, any inquiry,
proposal or offer from any person relating to, or that is reasonably likely to
lead to, the making of a proposal by such person to acquire the
2
Assets or any portion thereof (a "Competing Proposal") or (ii)
participate in any negotiations or substantive discussions regarding, or
furnish to any person any information with respect to, or otherwise cooperate
in any way with, a Competing Proposal; provided, however, that this Section 3
shall not apply to UAL or any of its directors, officers, employees, advisors,
affiliates or representatives if a Takeover Proposal (as defined in the Merger
Agreement) has been made by anyone other than UAL and UAL or any of its
directors, officers, employees, advisors, affiliates or representatives takes
any of the actions otherwise prohibited by this Section 3 with the goal of
formulating a plan that, in UAL's good faith judgment, is more likely than
this Agreement to result in antitrust clearance for the Merger (as defined in
the Merger Agreement).
4. Conditions. The obligations of Johnson to consummate the
transactions contemplated by this Agreement and the Term Sheet is subject,
among other things, to Johnson having obtained, prior to the closing of the
transactions contemplated by the Merger Agreement, sufficient financing to
acquire the Assets on terms and conditions acceptable in form and substance to
Johnson. As a condition to the execution of definitive agreements relating to
the sale and purchase of the Assets and the provision of the related
facilities and services, Johnson will be required to deliver binding
commitment letters relating to such financing to UAL in form and substance
reasonably acceptable to UAL (it being acknowledged and agreed that such
commitment letters may be subject to conditions typical of transaction of the
type contemplated hereby but shall not be subject to a syndication condition
or a due diligence condition).
5. Binding Agreement. The parties intend to be legally bound by the
terms of this Agreement and the terms set forth on the Term Sheet
notwithstanding that the expanded agreements and documents reflecting the
terms and provisions set forth on the Term Sheet have not been completed and
executed.
6. Termination. This Agreement shall automatically terminate, and
the obligations of the parities hereto shall immediately cease, upon the
occurrence of any of the following events: (i) termination of the Merger
Agreement; (ii) delivery of written notice of termination by any party to the
other parties hereto, which notice may not be delivered before ninety (90)
days from the date first set forth above; or (iii) delivery of written notice
of termination signed by any two parties to the other party.
3
7. Expenses. If, prior to the consummation of the transactions
contemplated by this Agreement and the Term Sheet, this Agreement (or the
Transaction Documents) is terminated for any reason other than solely as a
result of a breach by Johnson, then US Airways shall, upon request of Johnson,
reimburse Johnson for up to $2 million of his out- of-pocket expenses incurred
in connection with this Agreement, the Transaction Documents and the
transactions contemplated hereby and thereby, including, without limitation,
reasonable fees and expenses of accountants, attorneys and financial advisors,
and costs and expenses associated with financing of the transactions
contemplated hereby and thereby and regulatory compliance.
8. Miscellaneous. This Agreement may be executed by facsimile in
several counterparts, each of which, when executed by a party hereto, shall be
deemed to be an original and such counterparts shall together constitute one
and the same instrument.
(a) 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
thereof.
4
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
/s/ Robert L. Johnson
-------------------------------------
Robert L. Johnson
UAL CORPORATION
By: /s/ Frederic F. Brace
-------------------------------------
Name: Frederic F. Brace
Title: Senior Vice President, Finance
US AIRWAYS GROUP, INC.
By: /s/ Lawrence M. Nagin
-------------------------------------
Name: Lawrence M. Nagin
Title: Executive Vice
President - Corporate Affairs and
General Counsel
5
ATTACHMENT I
------------
May 22, 2000
DC Air
------
1. PSA Will Be The Vehicle To Create DC Air.
2. Aircraft:
o 8 Dornier 328's, leases transferred from PSA subsidiary, tail
numbers specified by US Airways subject to consent of United,
which consent shall not be unreasonably withheld
o 19 Regional Jets, operated by Mesa and/or Chautauqua, existing
contracts assigned to DC Air (includes one spare)
o 10 Wet-leased B73 7-200 Advanced (JT8D- 1 5 powered) aircraft,
for a transition period
3. Employees (subject to necessary labor approvals):
o Necessary management structure to appropriately manage DC Air's
operations
o The number and type of employees required to operate the 8
Dornier 328s will stay with PSA when it transfers to DC Air
o In transaction, no other US Airways or PSA employees will become
employees of DC Air
o United will provide interim employees for up to six months to
staff "open" positions while DC Air hires and trains, if needed,
at United's cost
4. Transition Wet-Lease for B737-200s:
o 10 aircraft to be wet-leased for initial period of two years
o If necessary, extension beyond two years until DC Air obtains
other aircraft on the market or through a dry-lease arrangement
with United; not to exceed four years total
o Wet-lease rates:
6
- Per-aircraft monthly lease rate equal to the weighted
average (based on the number aircraft leased) of rates
currently in place between US Airways and Vanguard and IMP
for B737-200 aircraft, assuming full maintenance life (if
aircraft with less than full maintenance life provided,
maintenance reserves to be adjusted accordingly)
- Pilot rates (i.e., cost per block hour), as follows: (i)
Year 1 at current MetroJet block hour rates; (ii) Years 2
and beyond at US Airways block hour rates unless United
rates have become applicable to US Airways pilots, and in
that case at United block hour rates
- US Airways flight attendant rates (i.e., cost per block
hour) as follows: (i) Year 1 at current US Airways block
hour rates; (ii) Years 2 and beyond at US Airways block
hour rates unless United rates have become applicable to
US Airways flight attendants, and in that case at United
block hour rates
- Line maintenance rates (i.e., cost per visit taking into
account other station activity) at United's cost of
providing service - Maintenance reserves for airframe and
engines at the weighted average (based on the number of
aircraft leased) of rates currently in place between US
Airways and Vanguard and IMP for B737-200 aircraft, and
accounting for remaining maintenance life
o DC Air can discontinue wet lease on any given aircraft with
4-month notice
5. Dry Lease for B737-200s:
o Post wet-lease, at DC Air's option, DC Air and United will
negotiate in good faith a dry-lease arrangement for up to 10
B737-200 Advanced aircraft
6. Slots:
o 119 air carrier (jet) slots and 103 commuter slots at DCA. If
US Airways and/or its subsidiaries own more than 1 03 commuter
slots at DCA, then the number of commuter slots shall be
increased by the amount of such excess, and the number of jet
slots reduced by the amount of such excess, up to 1 3 slots
7
o Exact slot times will be determined by United, US Airways and
DC Air, so as to reasonably accommodate United's and DC Air's
scheduled services. The parties recognize that both United and
DC Air will need to make adjustments to ensure that both
parties may offer viable schedules
7. Airport Facilities
o DC Air will assume the following leases:
- Seven gates at DCA, contiguous or reasonably contiguous,
that work for the operation of DC Air (necessary,
sufficient and reasonably suited)
- Gates at other airports served by both United/US Airways
and DC Air, same conditions
- Ticket counter, ramp, aircraft parking, back office space,
etc., same conditions.
- Ground handling equipment, spare parts, and other related
assets, same conditions
o United and DC Air will discuss optimal line maintenance
facility needs for DC Air, and negotiate a solution that is
necessary, sufficient and reasonably suited to DC Air' 5
requirements, with the provision that DC Air may request, and
if reasonably requested (from the perspective of DC Air' s
business needs) United will provide, US Airways' line hangar at
DCA. DC Air will assume the lease of any line maintenance
facilities provided.
8. Services
o If requested by DC Air, United will provide the following
services at "Market Rate" (If a spread exists in market rates,
United will provide services at the low end of rates provided
for comparable goods and services; and DC Air will have
standard industry "out clauses")
- Fuel, including in-aircraft servicing, for a period of
five years
- Station handling, for a period of five years
- Customary occasional use gate agreements, if gate is
available when requested, for a period of seven years
- Maintenance and training related to dry-leased B737-200
aircraft, for a period of five years
8
- Access to club facilities, for a period of five years
- Interline ticketing and baggage agreement (standard
industry terms), for a period of five years
9. Consulting Services
o Consulting support as DC Air builds operational experience and
management team, for up to two years, at United' s cost
10. Partnering: DC Air will enter into good faith
negotiations toward partnering (i.e., frequent
flyer/code share relationship, etc.) with other
carriers if reasonably requested by United
11. Assignment: Buyer will not assign rights or
obligations to another entity
12. Change of control: If Buyer ceases to hold majority
equity / control (other than through public offering)
or disposes of all or substantially all of the assets,
United will have no further obligations
13. "No Flip": If Buyer sells majority equity interest /
control (other than through public offering) or
disposes of all or substantially all of the assets,
within three years of startup, if price is above
purchase price then DC Air will pay United the amount
of the excess
14. Price: $141.2 Million
15. Liabilities: Buyer will assume in the definitive
documentation all liabilities primarily related to the
DC Air business
16. Indemnification: United's obligation to indemnify
Buyer in the definitive documentation 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 United by Buyer, and (y) in the case of all
losses, the purchase price paid by Buyer
MEMORANDUM OF UNDERSTANDING
This memorandum of understanding, dated May 23 , 2000 (this
"Agreement"), by and among the parties signatory hereto (each a "party" and
collectively, the "parties"), confirms the mutual understanding of the parties
with respect to the proposed acquisition by an entity to be formed by Robert
L. Johnson ("Johnson") of certain assets (the "Assets") of US Airways Group,
Inc. ("US Airways"), as more specifically identified on the term sheet
attached hereto as Attachment I (the "Term Sheet"). The parties agree that the
Term Sheet, in addition to identifying the Assets, sets forth the principal
terms and provisions to be included in the definitive documentation (the
"Transaction Documents") with respect to the acquisition of the Assets by
Johnson.
1. Definitive Documentation. The parties hereby agree to use their
good faith reasonable best efforts to prepare promptly and, as the case may
be, consistent with the goal of achieving antitrust clearance for the
transactions contemplated by the Merger Agreement, dated as of May 23 , 2000
(the "Merger Agreement"), among US Airways, UAL Corporation ("UAL") and Yellow
Jacket Acquisition Corp., execute and deliver, adopt or provide expanded
agreements and documents reflecting the terms and provisions set forth in the
applicable portion of the Term Sheet and containing other customary and
appropriate provisions for agreements and documents of the type contemplated
by the applicable portion of the Term Sheet (the "Transaction Documents").
2. Satisfaction of Merger Agreement Covenant. The parties agree that
the consummation of the transaction contemplated by the Term Sheet shall be
deemed to satisfy UAL'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
shall not be deemed to satisfy any other obligation of UAL under Section
5.03(a) of the Merger Agreement.
3. No Solicitation. The parties agree that, from the date hereof
until such time as this Agreement is terminated in accordance with its terms,
none of the parties, nor any of their respective directors, officers,
employees, advisors, affiliates or representatives shall (i) solicit,
initiate, encourage, or take any action knowingly to facilitate, any inquiry,
proposal or offer from any person relating to, or that is reasonably likely to
lead to, the making of a proposal by such person to acquire the
2
Assets or any portion thereof (a "Competing Proposal") or (ii) participate in
any negotiations or substantive discussions regarding, or furnish to any
person any information with respect to, or otherwise cooperate in any way
with, a Competing Proposal; provided, however, that this Section 3 shall not
apply to UAL or any of its directors, officers, employees, advisors,
affiliates or representatives if a Takeover Proposal (as defined in the Merger
Agreement) has been made by anyone other than UAL and UAL or any of its
directors, officers, employees, advisors, affiliates or representatives takes
any of the actions otherwise prohibited by this Section 3 with the goal of
formulating a plan that, in UAL's good faith judgment, is more likely than
this Agreement to result in antitrust clearance for the Merger (as defined in
the Merger Agreement).
4. Conditions. The obligations of Johnson to consummate the
transactions contemplated by this Agreement and the Term Sheet is subject,
among other things, to Johnson having obtained, prior to the closing of the
transactions contemplated by the Merger Agreement, sufficient financing to
acquire the Assets on terms and conditions acceptable in form and substance to
Johnson. As a condition to the execution of definitive agreements relating to
the sale and purchase of the Assets and the provision of the related
facilities and services, Johnson will be required to deliver binding
commitment letters relating to such financing to UAL in form and substance
reasonably acceptable to UAL (it being acknowledged and agreed that such
commitment letters may be subject to conditions typical of transaction of the
type contemplated hereby but shall not be subject to a syndication condition
or a due diligence condition).
5. Binding Agreement. The parties intend to be legally bound by the
terms of this Agreement and the terms set forth on the Term Sheet
notwithstanding that the expanded agreements and documents reflecting the
terms and provisions set forth on the Term Sheet have not been completed and
executed.
6. Termination. This Agreement shall automatically terminate, and
the obligations of the parities hereto shall immediately cease, upon the
occurrence of any of the following events: (i) termination of the Merger
Agreement; (ii) delivery of written notice of termination by any party to the
other parties hereto, which notice may not be delivered before ninety (90)
days from the date first set forth above; or (iii) delivery of written notice
of termination signed by any two parties to the other party.
3
7. Expenses. If, prior to the consummation of the transactions
contemplated by this Agreement and the Term Sheet, this Agreement (or the
Transaction Documents) is terminated for any reason other than solely as a
result of a breach by Johnson, then US Airways shall, upon request of Johnson,
reimburse Johnson for up to $2 million of his out- of-pocket expenses incurred
in connection with this Agreement, the Transaction Documents and the
transactions contemplated hereby and thereby, including, without limitation,
reasonable fees and expenses of accountants, attorneys and financial advisors,
and costs and expenses associated with financing of the transactions
contemplated hereby and thereby and regulatory compliance.
8. Miscellaneous. This Agreement may be executed by facsimile in
several counterparts, each of which, when executed by a party hereto, shall be
deemed to be an original and such counterparts shall together constitute one
and the same instrument.
(a) 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
thereof.
4
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
/s/ Robert L. Johnson
-------------------------------------
Robert L. Johnson
UAL CORPORATION
By: /s/ Frederic F. Brace
---------------------------------
Name: Frederic F. Brace
Title: Senior Vice President,
Finance
US AIRWAYS GROUP, INC.
By: /s/ Lawrence M. Nagin
---------------------------------
Name: Lawrence M. Nagin
Title: Executive Vice
President - Corporate
Affairs and General
Counsel
ATTACHMENT I
May 22, 2000
DC Air
1. PSA Will Be The Vehicle To Create DC Air.
2. Aircraft:
o 8 Dornier 328's, leases transferred from PSA subsidiary, tail
numbers specified by US Airways subject to consent of United, which
consent shall not be unreasonably withheld
o 19 Regional Jets, operated by Mesa and/or Chautauqua, existing
contracts assigned to DC Air (includes one spare)
o 10 Wet-leased B73 7-200 Advanced (JT8D- 1 5 powered) aircraft, for a
transition period
3. Employees (subject to necessary labor approvals):
o Necessary management structure to appropriately manage DC Air's
operations
o The number and type of employees required to operate the 8 Dornier
328s will stay with PSA when it transfers to DC Air
o In transaction, no other US Airways or PSA employees will become
employees of DC Air
o United will provide interim employees for up to six months to staff
"open" positions while DC Air hires and trains, if needed, at
United's cost
4. Transition Wet-Lease for B737-200s:
o 10 aircraft to be wet-leased for initial period of two years
o If necessary, extension beyond two years until DC Air obtains other
aircraft on the market or through a dry-lease arrangement with
United; not to exceed four years total
o Wet-lease rates:
2
- Per-aircraft monthly lease rate equal to the
weighted average (based on the number aircraft
leased) of rates currently in place between US
Airways and Vanguard and IMP for B737-200 aircraft,
assuming full maintenance life (if aircraft with
less than full maintenance life provided,
maintenance reserves to be adjusted accordingly)
- Pilot rates (i.e., cost per block hour), as
follows: (i) Year 1 at current MetroJet block hour
rates; (ii) Years 2 and beyond at US Airways block
hour rates unless United rates have become
applicable to US Airways pilots, and in that case
at United block hour rates
- US Airways flight attendant rates (i.e., cost per
block hour) as follows: (i) Year 1 at current US
Airways block hour rates; (ii) Years 2 and beyond
at US Airways block hour rates unless United rates
have become applicable to US Airways flight
attendants, and in that case at United block hour
rates
- Line maintenance rates (i.e., cost per visit
taking into account other station activity)
at United's cost of providing service
- Maintenance reserves for airframe and engines at
the weighted average (based on the number of
aircraft leased) of rates currently in place
between US Airways and Vanguard and IMP for
B737-200 aircraft, and accounting for remaining
maintenance life
o DC Air can discontinue wet lease on any given
aircraft with 4-month notice
5. Dry Lease for B737-200s:
o Post wet-lease, at DC Air's option, DC Air and United will negotiate
in good faith a dry-lease arrangement for up to 10 B737-200 Advanced
aircraft
6. Slots:
o 119 air carrier (jet) slots and 103 commuter slots at DCA. If US
Airways and/or its subsidiaries own more than 1 03 commuter slots at
DCA, then the number of commuter slots shall be increased by the
amount of such excess, and the number of jet slots reduced by the
amount of such excess, up to 1 3 slots
3
o Exact slot times will be determined by United, US Airways and DC
Air, so as to reasonably accommodate United's and DC Air's scheduled
services. The parties recognize that both United and DC Air will
need to make adjustments to ensure that both parties may offer
viable schedules
7. Airport Facilities
o DC Air will assume the following leases:
- Seven gates at DCA, contiguous or reasonably contiguous, that
work for the operation of DC Air (necessary, sufficient and
reasonably suited) - Gates at other airports served by both
United/US Airways and DC Air, same conditions - Ticket counter,
ramp, aircraft parking, back office space, etc., same
conditions. - Ground handling equipment, spare parts, and other
related assets, same conditions
o United and DC Air will discuss optimal line maintenance facility
needs for DC Air, and negotiate a solution that is necessary,
sufficient and reasonably suited to DC Air' 5 requirements, with the
provision that DC Air may request, and if reasonably requested (from
the perspective of DC Air' s business needs) United will provide, US
Airways' line hangar at DCA. DC Air will assume the lease of any
line maintenance facilities provided.
8. Services
o If requested by DC Air, United will provide the following services
at "Market Rate" (If a spread exists in market rates, United will
provide services at the low end of rates provided for comparable
goods and services; and DC Air will have standard industry "out
clauses")
- Fuel, including in-aircraft servicing, for a period of five
years - Station handling, for a period of five years -
Customary occasional use gate agreements, if gate is available
when requested, for a period of seven years - Maintenance and
training related to dry- leased B737-200 aircraft, for a period
of five years
4
- Access to club facilities, for a period of five years
- Interline ticketing and baggage agreement (standard industry
terms), for a period of five years
9. Consulting Services
o Consulting support as DC Air builds operational experience and
management team, for up to two years, at United' s cost
10. Partnering: DC Air will enter into good faith negotiations toward
partnering (i.e., frequent flyer/code share relationship, etc.) with
other carriers if reasonably requested by United
11. Assignment: Buyer will not assign rights or obligations to another entity
12. Change of control: If Buyer ceases to hold majority equity/control
(other than through public offering) or disposes of all or substantially
all of the assets, United will have no further obligations
13. "No Flip": If Buyer sells majority equity interest/control (other than
through public offering) or disposes of all or substantially all of the
assets, within three years of startup, if price is above purchase price
then DC Air will pay United the amount of the excess
14. Price: $141.2 Million
15. Liabilities: Buyer will assume in the definitive documentation all
liabilities primarily related to the DC Air business
16. Indemnification: United's obligation to indemnify Buyer in the definitive
documentation 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 United by Buyer, and (y) in the case of all losses, the purchase
price paid by Buyer